<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 APRIL 1, 2000

                                       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, 2000, the number of shares of common stock outstanding was
5,558,914.




<PAGE>   2



                              DENALI INCORPORATED
                 FORM 10-Q FOR THE QUARTER ENDED APRIL 1, 2000

                                     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 Statements of Cash Flows...................................................     3

                  Notes to Consolidated Financial Statements..............................................     4

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

Item 3.           Quantitative and Qualitative Disclosure About Market Risk...............................    13


Part II.          OTHER INFORMATION

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

Item 2.           Changes in Securities and 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........................................................    15

Signatures        ........................................................................................    16

Index to Exhibits ........................................................................................    17

</TABLE>

<PAGE>   3



                         PART I. FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

                              DENALI INCORPORATED
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                               April 1,            July 3,
                                                                                2000                1999
                                                                             -----------          --------
                                                                            (Unaudited)             (Note)
                                           ASSETS                                   (In thousands)
<S>                                                                          <C>                <C>
Current assets:
       Cash                                                                  $    4,340          $     1,824
       Accounts receivable, net of allowances of
              $1,042,000 at April 1, 2000 and $1,419,000
              at July 3, 1999                                                    39,459               38,862
       Inventories                                                               27,305               26,175
       Income tax receivable                                                      1,709                   --
       Prepaid expenses                                                           3,370                4,052
       Other receivables                                                             --                2,591
       Deferred tax assets                                                        1,164                1,135
                                                                             ----------          -----------
Total current assets                                                             77,347               74,639
Property, plant and equipment, net                                               46,170               46,938
Goodwill, net                                                                    51,276               50,651
Other assets                                                                      4,373                3,898
Assets held for sale                                                                249                  449
                                                                             ----------          -----------
Total assets                                                                 $  179,415          $   176,575
                                                                             ==========          ===========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Accounts payable                                                      $   19,284          $    19,047
       Accrued liabilities                                                       11,687               15,777
       Lines of credit                                                           23,353               16,217
       Income taxes payable                                                          --                1,757
       Current maturities of long-term debt                                       6,545                4,030
       Long-term debt in technical default (Note 6)                              58,334                   --
       Related party subordinated debt in technical default (Note 6)              3,999                   --
                                                                             ----------          -----------
Total current liabilities                                                       123,202               56,828
Long-term debt, less current maturities                                          13,110               68,002
Related party subordinated debt                                                      --                3,980
Accrued pension costs                                                             1,880                2,109
Minority interest                                                                 1,775                1,571
Deferred taxes                                                                    1,838                1,692
Other long-term liabilities                                                       2,482                3,824
Commitments and contingencies
Stockholders' equity:
       Common stock, $.01 par value
             Authorized shares - 30,000,000
             Issued and outstanding shares -5,558,914 at
             April 1, 2000 and 5,423,215 at July 3, 1999                             56                   54
       Additional paid-in capital                                                35,639               34,956
       Other accumulated comprehensive loss                                      (2,129)                  --
       Retained earnings                                                          1,562                3,559
                                                                             ----------          -----------
Total stockholders' equity                                                       35,128               38,569
                                                                             ----------          -----------
Total liabilities and stockholders' equity                                   $  179,415          $   176,575
                                                                             ==========          ===========

</TABLE>


                            See accompanying notes.

Note:    The balance sheet at July 3, 1999 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
                                                       ---------------------------      ---------------------------
                                                         April 1,       March 27,         April 1,       March 27,
                                                           2000           1999              2000           1999
                                                       -----------     -----------      -----------     -----------
                                                                    (In thousands, except per share amounts)

<S>                                                    <C>             <C>              <C>             <C>
Net revenues                                           $    46,142     $    36,328      $   144,063     $   110,216
Cost of revenues                                            37,161          27,667          110,702          82,649
                                                       -----------     -----------      -----------     -----------
Gross profit                                                 8,981           8,661           33,361          27,567
Selling, general and administrative expenses                 8,962           7,065           28,882          20,571
Restructuring and non-recurring charge                         190               -            2,681               -
Non-recurring compensation expense                               -               -                -             682
                                                       -----------     -----------      -----------     -----------
Operating income (loss)                                       (171)          1,596            1,798           6,314
Interest expense                                             2,426             925            6,646           2,210
Interest income                                                  -             (23)            (170)            (35)
Other (income) expense, net                                     96             (66)             (35)           (173)
Put warrant valuation adjustment                                 -               -           (1,198)              -
                                                       -----------     -----------      -----------     -----------
Income (loss) before income taxes and
  minority interest                                         (2,693)            760           (3,445)          4,312
Income tax (benefit) expense                                  (983)            284           (1,701)          1,635
                                                       -----------     -----------      -----------     -----------
Net income (loss) before minority interest
  and extraordinary item                                    (1,710)            476           (1,744)          2,677
Extraordinary loss on early extinguishment
  of debt, net                                                   -            (281)               -            (281)
Minority interest                                               61               -              253               -
                                                       -----------     -----------      -----------     -----------
Net income (loss)                                      $    (1,771)    $       195      $    (1,997)    $     2,396
                                                       ===========     ===========      ===========     ===========

Net income (loss) per common share - basic
  and diluted:
  Income (loss) before extraordinary item              $     (0.32)    $     0.10       $     (0.36)    $     0.55
  Extraordinary item                                             -          (0.06)                -          (0.06)
                                                       -----------     ----------       -----------     ----------
  Net income (loss) per common share                   $     (0.32)    $     0.04       $     (0.36)    $     0.49
                                                       ===========     ==========       ===========     ==========

Comprehensive income (loss):
  Net income (loss)                                    $    (1,771)    $       195      $    (1,997)    $     2,396
  Currency translation adjustments                          (1,230)              -           (2,129)              -
                                                       -----------     -----------      -----------     -----------
  Comprehensive income (loss)                          $    (3,001)    $       195      $    (4,126)    $     2,396
                                                       ===========     ===========      ===========     ===========
</TABLE>

                            See accompanying notes.








                                       2
<PAGE>   5




                              DENALI INCORPORATED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                 ----------------------------
                                                                                   April 1,         March 27,
                                                                                     2000             1999
                                                                                 -----------       ----------
                                                                                         (In thousands)
<S>                                                                              <C>               <C>
OPERATING ACTIVITIES:
Net income (loss)                                                                $    (1,997)      $    2,396
Adjustments to reconcile net income to net cash
   provided by operating activities:
       Depreciation                                                                    3,679            1,813
       Amortization                                                                    1,533              568
       Deferred tax                                                                      654               --
       Put warrant valuation adjustment                                               (1,198)              --
       Provision for losses on accounts receivable                                       180              229
       Gain on disposal of property, plant and equipment and
           assets held for sale                                                         (280)              --
       Changes in operating assets and liabilities:
              Accounts receivable                                                       (369)           1,273
              Inventories                                                               (464)          (3,911)
              Prepaid expenses                                                         3,346             (900)
              Other assets and liabilities                                              (237)             279
              Accounts payable                                                           196             (891)
              Accrued liabilities                                                     (5,269)           1,652
              Income tax receivable/payable                                           (3,580)            (572)
                                                                                 -----------       ----------
Net cash provided by (used in) operating activities                                   (3,806)           1,936
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired                                                    (3,977)          (6,702)
Purchases of property, plant and equipment                                            (4,304)          (1,718)
Proceeds from sale of property, plant and equipment and
   assets held for sale                                                                  518               --
                                                                                 -----------       ----------
Net cash used in investing activities                                                 (7,763)          (8,420)

FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit                           14,727           (1,403)
Net borrowings (repayments) on term notes and other long-term debt                      (344)           9,559
Debt origination cost                                                                     --           (1,740)
                                                                                 -----------       ----------
Net cash provided by  financing activities                                            14,383            6,416

Effect of exchange rate changes on cash                                                 (298)              --
                                                                                 -----------       ----------
Increase (decrease) in cash                                                            2,516              (68)
Cash at beginning of period                                                            1,824              175
                                                                                 -----------       ----------
Cash at end of period                                                            $     4,340       $      107
                                                                                 ===========       ==========
</TABLE>

                            See accompanying notes.



                                       3


<PAGE>   6




                              DENALI INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.       GENERAL

         The consolidated financial statements of Denali Incorporated and its
majority and 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, 1999.

2.     INVENTORIES

       Inventories are summarized below (in thousands):

                                        April 1, 2000       July 3, 1999
                                        -------------       ------------

       Finished goods                    $   10,095           $  10,546
       Raw materials                          9,872               8,672
       Work in process                        7,338               6,957
                                         ----------           ---------
                                         $   27,305           $  26,175
                                         ==========           =========

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
                                                     -----------------------------     -----------------------
                                                        April 1,        March 27,         April 1,      March 27,
                                                          2000             1999             2000          1999
                                                     ------------    -------------     ------------    ----------
                                                                           (Share data in thousands)

<S>                                                        <C>             <C>              <C>            <C>
Weighted average common shares outstanding                 5,559           4,918            5,504          4,867
Dilutive securities - employee stock options                  --              --               --              2
                                                          ------         -------          -------         ------
Weighted average common shares outstanding
   assuming full dilution                                  5,559           4,918            5,504          4,869
                                                          ======         =======          =======         ======
</TABLE>



         Options to purchase 223,055 and 506,416 shares of common stock and
warrants to purchase zero and 534,873 shares of common stock were outstanding
as of March 27, 1999 and April 1, 2000, respectively, but were not included in
the computation of diluted earnings per share because their assumed exercise
would have been anti-dilutive to earnings per share.



                                       4
<PAGE>   7




4.       FOREIGN CURRENCY TRANSLATION

         The Company's foreign subsidiaries use the local currency as their
functional currency. Financial statements of these subsidiaries are translated
into U.S. dollars using the exchange rate at the balance sheet dates for assets
and liabilities and a weighted average exchange rate for each period for
revenues, expenses, gains and losses and cash flows. The impact of currency
fluctuations is recorded as comprehensive income. For the nine months ended
April 1, 2000, the Company had a foreign currency translation loss of
$2,129,000 which is recorded as comprehensive loss and is classified as a
separate component of stockholders' equity.

5.       INCOME TAXES

         The Company's provision for income taxes for the three months and nine
months ended April 1, 2000 differs from the U.S. statutory rate primarily due
to the put warrant valuation adjustment which is not taxable, non-deductible
goodwill amortization and other permanent differences.

6.       LONG-TERM DEBT

         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, as amended most recently on February 24, 2000, to provide working
capital and an acquisition line of credit. This senior credit facility provides
for a maximum of $25.0 million in a 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 $15.3 million acquisition term loan
with the first principal installment due 21 months following the closing of the
credit facility. As of April 1, 2000, the Company had outstanding indebtedness
of $17.2 million under the term loan, $21.9 million under the revolving lines
of credit and $15.3 million under the acquisition term loan. The revolving
credit notes and term loans provide for borrowings, at the Company's option, at
either the bank's prime rate plus margins of 1.25% to 2.75% or varying rates of
LIBOR plus 2.5% to 4.0% based on the domestic leverage ratio levels. The
acquisition term loans provide for borrowing, at the Company's option, at
either the bank's prime rate plus margins of 1.75% to 3.25% or at varying rates
of LIBOR plus 3.0% to 4.5% based on the domestic leverage ratio levels.

         This 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. As of April 1, 2000, the Company had $1.7 million
of letters of credit outstanding. The 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. The senior credit
facility is secured by substantially all of the assets of the Company's U.S.
subsidiaries.

         On July 1, 1999, the Company issued $15 million, or $13.3 million net
of discount (of which $3,999,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes"), bearing interest at 12%
and maturing in 2006. The subordinated notes were issued with detachable
warrants that enable the holders to purchase up to 534,873 common shares at
$7.54 per share. The warrants are exercisable immediately and expire in 2006.
The warrants or warrant shares also feature a put option that allows the holder
to put up to 1/3 of the warrants or warrant shares each year at fair market
value beginning in year five and expiring in year seven. The warrants were
recorded at fair value of $1,733,000 based on the Black Scholes valuation
model, which has been recorded as a liability, and a related discount on the
senior subordinated debt was recorded for the same amount. This discount will
be amortized over the seven-year term of the subordinated notes as additional
interest expense and the liability will be adjusted to the fair value of the
warrants in future periods. At April 1, 2000, the liability had been reduced by
$1,198,000 to $535,000. This change has been recorded as a separate line item
on the consolidated statement of operations. The proceeds from the subordinated
notes issuance were used in the funding of the acquisition of Welna. The
subordinated notes require the Company to maintain certain financial covenants.



                                       5
<PAGE>   8




6.       LONG-TERM DEBT (CONTINUED)


         As a result of the lower than expected operating results during the
first nine months of fiscal 2000, the Company was not in compliance with certain
of the financial covenants in both its senior credit facility and its senior
subordinated notes as of April 1, 2000. In addition, the Company has a
continuing covenant default with its subordinated note holders due to unresolved
breaches of second quarter covenant targets. The bank group agreed to waive
second quarter financial covenant defaults conditional on receipt of executed
waivers from the Company's subordinated note holders. Because a waiver agreement
has not yet been reached with the subordinated note holders, the Company
continues in technical default with its U.S. bank group. Due to the ongoing
default with the subordinated debt holders, the Company does not intend to seek
another short-term waiver with its U.S. bank group until the proposed Blair
transaction (see discussion below) is consummated. Because of existing technical
defaults, the Company has classified $58,334,000 of its long-term debt as
current liabilities at April 1, 2000. The Company expects to raise sufficient
capital through the Blair transaction to reduce its senior domestic leverage
ratio to acceptable levels for the U.S. bank group. The Company does not
anticipate that its lenders will accelerate the maturity of the loans or
discontinue the current revolving credit facility. However, if these events were
to occur or if the Company is not successful in raising additional equity, the
Company may be required to seek alternative financing or other remedies.

         In June 1999, the Company entered into a new senior credit facility
("Senior Dutch Facility") with two Netherland financial institutions to finance
the acquisition of Welna. The new Senior Dutch Facility provides for two term
loans for a total facility of Dutch guilders (NLG) 25 million. Term Loan A
provides for borrowings of NLG 15 million with quarterly payments of NLG
625,000 beginning October 1, 1999. Term Loan B provides for borrowings of NLG
10 million with principal due at date of maturity (August 1, 2001). As of April
1, 2000, the Company had outstanding indebtedness of NLG 25.0 million, or
approximately $10.8 million. The term loans bear interest at Euribor plus
1.75%. The Senior Dutch Facility requires the Company to maintain certain
financial covenants. The Company is in compliance with all financial covenants
as of April 1, 2000. The facility is secured by substantially all of Welna's
assets.

         In May 2000, the Company announced the signing of a letter of intent
with William Blair Mezzanine Capital Fund III, L.P. ("Blair") in which Blair
proposes to invest $28 million in Denali through a combination of $11.2 million
of 12% senior subordinated notes due June 2008, $8.8 million of convertible 12%
senior subordinated notes due June 2008, and $8 million of common equity. This
proposed investment is subject to certain conditions including satisfactory
completion of due diligence by Blair and shareholder approval.

7.       ACQUISITIONS

         On September 3, 1999, the Company acquired 67.5% of the issued and
outstanding stock of Manantial Chile S.A. ("Manantial"), a company that designs,
equips, installs and commissions industrial and municipal water and wastewater
treatment plants and systems for approximately $1.1 million in cash and 27,199
shares of common stock valued at $213,000.

         In addition, on November 11, 1999, the Company acquired all of the
issued and outstanding stock of HP Valves, a valve manufacturer located in
Oldenzaal, The Netherlands for $2.8 million in cash, assumption of $1.4 million
of debt, and 108,500 shares of common stock valued at $472,000.

         Both of the acquisitions described above were accounted for under the
purchase method of accounting whereby the assets and liabilities were adjusted
to their estimated fair value at the acquisition date.

         In connection with the July 1, 1999 acquisition of Welna N.V., a Dutch
company formerly listed on the Official Market of the Amsterdam Stock Exchange,
the Company has adjusted the preliminary estimates of the fair market value of
the purchased assets and liabilities resulting in a NLG 750,000 or approximately
$350,000 decrease in goodwill.

8.       RESTRUCTURING OF OPERATIONS

         On October 11, 1999, the Company announced the restructuring of
certain operations, including the closure of the Conroe manufacturing facility.
In connection with this restructuring plan, the Company accrued and recorded as
expense $2,276,000 of involuntary termination benefits covering 96 employees.
These costs are included in the non-recurring restructuring charge totaling
$2,681,000 which is recorded as a separate line item on the consolidated
statement of operations. These termination benefits are related to employee
terminations associated with the Conroe manufacturing facility closure and
workforce reductions associated with the consolidation and reduction of selling,
general and administrative support in the U.S. and European operations. As of
April 1, 2000, termination benefits totaling $2,162,000 for 78 employees had
been paid and charged against this liability. Certain costs associated with this
plan had not yet been incurred as of April 1, 2000 and will result in additional
charges in the remaining months of fiscal 2000.



                                       6
<PAGE>   9



9.       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
two of the Company's subsidiaries, Containment Solutions, Inc. and Ershigs,
Inc. to purchase at least 90% of their fiberglass requirements from the
supplier. The contract expired on December 31, 1998. Effective January 1, 1999,
the contract was modified to obtain more favorable pricing levels based on
certain minimum volume purchases for the calendar years ending December 31,
1999 and 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.

         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.

10.      SEGMENT DATA

         The Company has adopted Statement of Financial Accounting Standards
No. 131 - "Disclosures About Segments of an Enterprise and Related Information"
that requires disclosure of financial and descriptive information about the
Company's reportable operating segments. The operating segments presented are
the segments of the Company for which separate financial information is
available and operating performance is evaluated regularly by senior management
in deciding how to allocate resources and in assessing performance. The Company
evaluates the performance of its operating segments based on revenues,
operating income and working capital efficiencies.

         In fiscal year 1999, the Company operated in two industry segments:
Containment Solutions and Specialty Solutions. The Containment Solutions
segment specializes in the manufacture of fiberglass underground storage tanks
and steel reinforced aboveground storage tanks for fluids handling. The
Specialty Solutions segment provides engineered solutions for the containment
of fluids, specializes in fiberglass reinforced plastic products for corrosion
resistant applications and engineered metal products for the municipal and
industrial markets. For fiscal 1999, except for certain revenues with respect
to license agreements with manufacturers located outside of the United States,
which revenues are not material as considered in relation to the Company's
total net revenues, the Company operated in only one geographic segment, the
United States. Beginning in fiscal year 2000, the Company, through its Welna
and Manantial subsidiaries, has global operations, with a primary concentration
in Europe. Welna is reported as an additional segment for segment reporting and
Manantial is reported in Specialty Solutions. All intersegment net revenues and
expenses are immaterial and have been eliminated in computing net revenues and
operating income.




                                       7
<PAGE>   10





10.      SEGMENT DATA (CONTINUED)

         The following is a summary of the industry segment data for the nine
months ended March 27, 1999 and April 1, 2000 (in thousands):
  <TABLE>
  <CAPTION>

                                                          Net        Operating
                                                       Revenues       Income
                                                      ---------      --------
  Nine months ended March 27, 1999:

<S>                                                 <C>              <C>
  Containment Solutions..................           $    70,525      $  6,802
  Specialty Solutions....................                39,691         1,843
  Corporate..............................                    --        (1,649)
  Non-recurring compensation charge                          --          (682)
                                                      ---------      --------
  Consolidated...........................           $   110,216      $  6,314
                                                      =========      ========

  Nine months ended April 1, 2000:

  Containment Solutions..................           $    43,948      $  2,359
  Specialty Solutions....................                50,077         1,917
  Welna..................................                50,038         1,997
  Corporate..............................                    --        (1,794)
  Restructuring charge - Containment Solutions               --          (500)
  Restructuring charge - International...                    --        (1,390)
  Restructuring charge - Corporate                           --          (791)
                                                    -----------      --------
  Consolidated...........................           $   144,063      $  1,798
                                                    ===========      ========

  </TABLE>

         Operating income reconciles to income before income taxes as shown on
the consolidated statements of operations as follows (in thousands):

<TABLE>
<CAPTION>
                                                     April 1,       March 27,
                                                       2000           1999
                                                     --------       ---------

       <S>                                            <C>            <C>
       Total segment operating income                $  1,798       $  6,314
       Interest expense                                 6,646          2,210
       Interest income                                   (170)           (35)
       Other income, net                                  (35)          (173)
       Put warrant valuation adjustment                (1,198)            --
                                                     --------       --------
       Income (loss) before income taxes             $ (3,445)      $  4,312
                                                     ========       ========
</TABLE>

11.      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;
steel aboveground storage tanks; and engineered fiberglass-reinforced
plastic-composite products for corrosion-resistant applications.

         Since inception in 1994, the Company has acquired twelve 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.

Containment Products Group - "Containment Solutions"

         The Company was formed in December 1994 to acquire certain assets and
assume certain liabilities of the fiberglass composite UST business of Owens
Corning.

         In October 1995, the Company acquired certain assets and assumed
certain liabilities of Hoover Containment, Inc. ("Hoover"), a manufacturer of
steel rectangular ASTs. The addition of the steel rectangular AST product line
enabled the Company to offer a broader line of containment products and to
expand its customer base. These two businesses form the Company's Containment
Products Group known as Containment Solutions.

Engineered Products Group - "Specialty Solutions"

         In February 1997, the Company acquired Ershigs, Inc. ("Ershigs"), a
manufacturer of engineered FRP products, as the first of the Company's
Engineered Products Group.

         In October 1997, the Company acquired SEFCO Inc. ("SEFCO"), a
manufacturer of engineered field-erected aboveground steel tanks, and also
acquired GL&V/LaValley Industries, Inc. ("LaValley") (subsequently named
"Ershigs Biloxi"), a manufacturer of engineered FRP products.

         In May 1998, the Company acquired CC&E, a leading North American field
constructor of fiberglass-reinforced plastic products and integrated the
operations into Ershigs.

         In June 1998, the Company acquired Fibercast Company, a leading
manufacturer of fiberglass-reinforced plastic piping systems specializing in
highly corrosive environments.

         In November 1998, the Company acquired Plasti-Fab, Inc., a leader in
providing fiberglass-reinforced flumes and metering stations to the water and
wastewater industries.

         In February 1999, the Company acquired Belco Manufacturing Company,
Inc. and certain assets and assumed certain liabilities of S. Jones Limited
Partnership (collectively "Belco"). Belco manufactures engineered
fiberglass-reinforced plastic tanks, vessels and piping systems. Belco's
products are sold primarily into the water/wastewater and oil and gas
industries where corrosion-resistant products are needed.

         On September 3, 1999, the Company acquired 67.5% of the issued and
outstanding stock of Manantial Chile S.A., a company that designs, equips,
installs and commissions industrial and municipal water and wastewater
treatment plants and systems.

         Belco, Fibercast, Ershigs, SEFCO, Plasti-Fab and Manantial form the
Company's Engineered Products Group known as Specialty Solutions.

                                       9
<PAGE>   12


         On July 1, 1999, the Company acquired Welna, N.V., a company which
operates through two divisions. Welna Synthetics designs, manufactures, and
installs all forms of FRP pipe systems, vessels and other related equipment
requiring high levels of corrosion resistance. Welna Trade is a distribution
operation that specializes in high quality products and engineered systems for
power generation, water treatment, and paper and chemical processing
industries. Welna's operations had no effect on the Company's operating results
for fiscal year 1999. Welna's balance sheet has been consolidated as of July 3,
1999.

         On November 11, 1999, the Company acquired all of the issued and
outstanding stock of HP Valves, a valve manufacturer located in Oldenzaal, The
Netherlands.

RESULTS OF OPERATIONS

Three months ended April 1, 2000 compared with three months ended March 27,
1999

         Net revenues increased $9.8 million, or 27.0%, to $46.1 million in the
third quarter of fiscal 2000 from $36.3 million in the same quarter of fiscal
1999. Net revenues increased a total of $18.2 million in the fiscal 2000 period
from the inclusion of the new acquisitions (Welna, Manantial, HP Valves and
Belco). The remaining $8.4 million decrease in revenues resulted primarily from
a decrease in revenues at Containment Solutions of $10.3 million from $22.3
million in the fiscal 1999 period to $12.0 million in the fiscal 2000 period
due to less demand in the petroleum equipment industry. The decrease in demand
is the result of the majority of tank owners having met the 1998 Environmental
Protection Agency deadline mandating upgrades or replacement of all underground
storage tanks. Due to this market shift, the Company on October 11, 1999
announced a cost reduction plan designed to reduce operating expenses by $4.5
million annually. The plan includes the closure of a domestic manufacturing
facility and the elimination of related personnel and overhead costs and the
integration of other businesses to improve operating and administrative
efficiencies.

         Gross profit increased $320,000, or 3.7%, to $9.0 million in the
fiscal 2000 period from $8.7 million in the fiscal 1999 period. Approximately
$3.8 million of the increase was related to the addition of the international
operations and Belco. This increase was offset by a $3.4 million decrease in
gross profit associated with the $10.3 million revenue decrease at Containment
Solutions. Gross margin for the Company decreased to 19.5% from 23.8% in the
prior year quarter primarily due to the decrease in sales volume at Containment
Solutions, partially offset by the inclusion of Welna with gross margins of
22.0%.

         Selling, general and administrative expenses increased $1.9 million to
$9.0 million in the third quarter of fiscal 2000 from $7.1 million in the same
period last year. The increase is primarily attributable to additional expenses
associated with the new acquisitions, offset by decreases in sales and
marketing expenses at Containment Solutions and Specialty Solutions. Selling,
general and administrative expenses as a percentage of net revenues was 19.4%
for both periods reported.

         The Company recognized a restructuring charge of $190,000 in the third
quarter of fiscal 2000 in connection with its restructuring plan. See Note 8 of
the Notes to the Consolidated Financial Statements for further discussion.

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

         Due to the above factors, net income decreased from $195,000
(including an extraordinary item of $281,000 loss) in the prior fiscal year
period to a loss of $1,771,000 in the current fiscal year period. Excluding the
impact of the restructuring charge in fiscal year 2000, the net loss was
$1,650,000, or $0.30 loss per share, versus $0.10 earnings per share in fiscal
year 1999, excluding the extraordinary item.



                                      10
<PAGE>   13


Nine months ended April 1, 2000 compared with nine months ended March 27, 1999

         Net sales increased $33.8 million, or 30.7%, to $144.0 million in the
first nine months of fiscal 2000 from $110.2 million in the same period of
fiscal 1999. A total of $57.5 million of the increase resulted from the
inclusion of the new acquisitions (Welna, Manantial, HP Valves, Belco and
Plasti-Fab). The remaining $23.7 million decrease in sales primarily resulted
from a $26.6 million decrease in sales at Containment Solutions from $70.5
million in the fiscal 1999 period to $43.9 million in the fiscal 2000 period
due to less demand in the petroleum equipment industry. The decrease at
Containment Solutions was offset by an increase at Specialty Solutions of
approximately $2.9 million.

         Gross profit increased $5.8 million, or 21.0%, to $33.4 million in the
fiscal 2000 period from $27.6 million in the fiscal 1999 period. Approximately
$14.5 million of the increase was related to the new acquisitions. This
increase was offset by an $8.0 million decrease in gross profit at Containment
Solutions and a $0.7 million decrease at Specialty Solutions. Gross margin for
the Company decreased to 23.2% from 25.0% in the prior year period primarily
due to the decrease in sales volume at Containment Solutions, partially offset
by the inclusion of Welna with gross margins of 26.5%.

         Selling, general and administrative expenses increased $8.3 million to
$28.9 million for the first nine months of fiscal 2000 from $20.6 million in
the same period last year. The increase is primarily attributable to additional
expenses associated with the new acquisitions, offset by decreased sales and
marketing expenses at Containment Solutions and Specialty Solutions.

         The Company recognized a $682,000 non-recurring compensation charge in
the second quarter of fiscal 1999 related to a salary continuation agreement.

         The Company recorded $2.7 million of restructuring charges during the
first nine months of fiscal 2000 in connection with its restructuring plan. See
Note 8 of the Notes to the Consolidated Financial Statements for further
discussion.

         The Company's fiscal 2000 provision for income taxes differs from the
U.S. statutory rate due to the put warrant valuation adjustment, 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.

         Due to the above factors, net loss in the first nine months of fiscal
2000 was $1,997,000, or $0.36 per share, compared with net income of $2,396,000
(including an extraordinary item loss of $281,000), or $0.49 per share, in the
prior year nine month period. Excluding the impact of the restructuring charge
and warrant valuation adjustments, the net loss was $1,493,000, or $0.27 loss
per share for the first nine months of fiscal 2000 compared to $3,100,000, or
$0.64 earnings per share for the same period last year, excluding the
non-recurring compensation charge and the extraordinary item.

LIQUIDITY AND CAPITAL RESOURCES

         During the first nine months of fiscal 2000, exclusive of
acquisitions, the Company's operating activities used $0.8 million of cash to
increase its accounts receivable and inventories, $5.3 million of cash to
reduce its accrued liabilities, and $3.6 million to reduce its income tax
liabilities. Decreases in prepaid expenses provided $3.3 million of cash. The
Company borrowed $14.4 million with the cash used primarily to conclude the
purchase of HP Valves and Manantial and for payments associated with
restructuring operations and working capital additions.

         The Company amended its U.S. credit facility on February 24, 2000. The
amendment requires the Company to raise at least $7.5 million in equity before
July 31, 2000 in order to reduce its senior debt leverage ratio. If Denali
fails to raise $7.5 million of equity, the banks will receive up to 1,000,000
warrants at nominal value to be issued on a schedule from August 2000 through
December 2000.


                                      11
<PAGE>   14


         In May 2000, the Company announced the signing of a letter of intent
with William Blair Mezzanine Capital Fund III, L.P. ("Blair") in which Blair
proposes to invest $28 million in Denali through a combination of $11.2 million
of 12% senior subordinated notes due June 2008, $8.8 million of convertible 12%
senior subordinated notes due June 2008, and $8 million of common equity. This
proposed investment is subject to certain conditions including satisfactory
completion of due diligence by Blair and shareholder approval.

         The Company's Credit Facility as amended February 24, 2000 with its
principal lender provides for revolving lines of credit and secured term loans
of up to an aggregate of $57.5 million, including $32.5 million in outstanding
term loans and a $25 million revolving line of credit. As of April 1, 2000, the
Company had outstanding indebtedness of $21.9 million under the revolving lines
of credit. Borrowings under this Credit Facility are secured by liens on
substantially all of the Company's U.S. assets. See Note 6 of Notes to the
Consolidated Financial Statements for certain information regarding the Credit
Facility. The revolving credit facility and term loan provide for borrowings,
at the Company's option, at either the bank's prime rate plus margins of 1.25%
to 2.75% or varying rates of LIBOR plus 2.5% to 4.0% based on the domestic
leverage ratio levels. The acquisition term loan provides for borrowings, at
the Company's option, at either the bank's prime rate plus margins of 1.75% to
3.25%, or at varying rates of LIBOR plus 3.0% to 4.5% based on the domestic
leverage ratio levels. The Credit Facility has a five-year term expiring in
January 2004.

         This 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. As of April 1, 2000, the Company had $1.7 million
of letters of credit outstanding. The 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. The senior credit
facility is secured by substantially all of the assets of the Company's U.S.
subsidiaries.

         On July 1, 1999, the Company issued $15 million, or $13.3 million net
of discount (of which $3,999,000 is to certain directors of the Company and is
classified separately as related party subordinated debt on the balance sheet)
in senior subordinated notes ("subordinated notes"), bearing interest at 12%
and maturing in 2006. The subordinated notes were issued with detachable
warrants that enable the holders to purchase up to 534,873 common shares at
$7.54 per share. The warrants are exercisable immediately and expire in 2006.
The warrants or warrant shares also feature a put option that allows the holder
to put up to 1/3 of the warrants or warrant shares each year at fair market
value beginning in year five and expiring in year seven. The warrants were
recorded at fair value of $1,733,000 based on the Black Scholes valuation
model, which has been recorded as a liability, and a related discount on the
senior subordinated debt was recorded for the same amount. This discount will
be amortized over the seven-year term of the subordinated notes as additional
interest expense and the liability will be adjusted to the fair value of the
warrants in future periods. At April 1, 2000, the liability had been reduced by
$1,198,000 to $535,000. This change has been recorded as a separate line item
on the consolidated statement of operations. The proceeds from the subordinated
notes issuance were used in the funding of the acquisition of Welna. The
subordinated notes require the Company to maintain certain financial covenants.

         As a result of the lower than expected operating results during the
first nine months of fiscal 2000, the Company was not in compliance with
certain of the financial covenants in both its senior credit facility and its
senior subordinated notes as of April 1, 2000. In addition, the Company has a
continuing covenant default with its subordinated note holders due to
unresolved breaches of second quarter covenant targets. The bank group agreed
to waive financial covenant defaults conditional on receipt of executed waivers
from the Company's subordinated note holders. Because a waiver agreement has
not yet been reached with the subordinated note holders, the Company continues
in technical default with its U.S. bank group. Due to the ongoing default with
the subordinated debt holders, the Company does not intend to seek another
short-term waiver with its U.S. bank group until the proposed Blair transaction
is consummated. Because of the existing technical defaults, the Company has
classified $58,334,000 of its long-term debt as current liabilities at April 1,
2000. As mentioned above, the Company, in cooperation with its U.S. bank group,
expects to raise sufficient capital to reduce its senior domestic leverage
ratio. The Company does not anticipate that its lenders will accelerate the
maturity of the loans or discontinue the current revolving credit facility.
However, if these events were to occur or if the Company is not successful in
raising additional equity, the Company may be required to seek alternative
financing or other remedies.


                                      12
<PAGE>   15


         In June 1999, the Company entered into a new senior credit facility
with two Netherlands financial institutions ("Senior Dutch Facility") to
finance the acquisition of Welna. The new Senior Dutch Facility provides for
two term loans for a total facility of Dutch guilders (NLG) 25 million. Term
Loan A provides for borrowings of NLG 15 million with quarterly payments of NLG
625,000 beginning October 1, 1999. Term Loan B provides for borrowings of NLG
10 million with principal due at date of maturity (August 1, 2001). As of April
1, 2000, the Company had outstanding indebtedness of NLG $25.0 million, or
approximately $10.8 million. The term loans bear interest at Euribor plus
1.75%. The Senior Dutch Facility requires the Company to maintain certain
financial covenants. The Company is in compliance with all financial covenants
as of April 1, 2000. The facility is secured by substantially all of Welna's
assets.

         The Company also assumed approximately $15 million in debt, net of
cash acquired, with the acquisition of Welna on July 1, 1999. The debt bears
interest at an average of approximately 4.2% and consists primarily of lines of
credit facilities that are due on demand with various financial institutions.

         The Company's capital requirements have primarily related to
acquisitions of businesses in the critical fluids handling industry. The
Company has made cash payments net of cash acquired for acquisitions of
approximately $98.3 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. The Company
intends to focus on debt reduction and the integration of its prior and recent
acquisitions for the remainder of fiscal year 2000.

EURO CONVERSION

         On January 1, 1999, 11 of the 15 member countries of the European
Union adopted the Euro as their common legal currency and established fixed
conversion rates between their existing sovereign currencies and the Euro. The
Company is currently evaluating issues raised by the introduction and initial
implementation of the Euro on January 1, 2002. The Company does not expect
costs of system modifications to be material, nor does it expect the
introduction and use of the Euro to materially and adversely affect its
financial condition or results of operations. The Company will continue to
evaluate the impact of the Euro introduction.

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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company is exposed to market risk, including adverse changes in
commodity prices, interest rates and foreign currency exchange rates. Refer to
the Company's Form 10-K for the fiscal year ended July 3, 1999 for a detailed
discussion of these risks.



                                      13
<PAGE>   16



                           PART II. OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS

         Not applicable

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS

         On February 24, 2000, the Company issued warrants to purchase a total
of 1,000,000 shares of its common stock in a private transaction exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof as a transaction not involving a public offering. These warrants were
issued to the five banks that are lenders under the Company's domestic senior
credit facility as partial consideration for conditional waivers granted by
these banks for covenant violations by the Company under this credit facility.
The warrants become exercisable as follows: warrants to purchase 250,000 shares
become exercisable on July 31, 2000, warrants to purchase 250,000 shares become
exercisable on August 31, 2000, warrants to purchase 200,000 shares become
exercisable on September 30, 2000, warrants to purchase 100,000 shares become
exercisable on October 31, 2000, warrants to purchase 100,000 shares become
exercisable on November 30, 2000, and warrants to purchase 100,000 shares
become exercisable on December 31, 2000, in each instance if the Company has
not raised at least $7.5 million of equity by the applicable date. If the
Company has raised at least $7.5 million of equity by any of these dates, the
warrants that have not yet become exercisable will terminate. Any warrants that
become exercisable will expire on December 31, 2005. All of the warrants have
an exercise price of $0.01 per share. These banks were the only offerees in
this transaction, and no public solicitation was made. All offerees were
provided access to relevant information regarding the Company, and the warrant
certificates issued to each of them contain a restrictive legend prohibiting
transfer of the warrants or the shares issued upon their exercise in violation
of federal securities laws.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         As of April 1, 2000, the Company was in default on the Total Leverage
Ratio, Maximum Senior Leverage Ratio, Total Minimum Interest Coverage, Minimum
Fixed Charge Coverage, Maximum Domestic Leverage Ratio, Maximum Senior Domestic
Leverage Ratio, Minimum Domestic Interest Coverage and Minimum Domestic Fixed
Charge Coverage covenants with both its U.S. senior credit facility and senior
subordinated note holders.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5.           OTHER INFORMATION

         Not applicable






                                      14
<PAGE>   17




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

         A.       Exhibits

                  10.72        Edward de Boer Severance Agreement dated
                               February 11, 2000

                  10.73        Second Amendment and Waiver to the 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

                  27           Financial Data Schedule

         B.       Reports on Form 8-K

                  None






                                      15
<PAGE>   18




                                   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 16, 2000             /s/ R. KEVIN ANDREWS
                                          ----------------------
                                          R. Kevin Andrews
                                          Chief Financial Officer
                                              (Principal Financial Officer and
                                               Principal Accounting Officer)









                                      16
<PAGE>   19





                               INDEX TO EXHIBITS



<TABLE>
<CAPTION>
  Exhibit
  Number          Description of Exhibit
  ------          ----------------------
  <S>             <C>
   10.72          Edward de Boer Severance Agreement dated February 11, 2000

   10.73          Second Amendment and Waiver to the 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

   27             Financial Data Schedule


</TABLE>





                                      17