<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 SEPTEMBER 26, 1998

                                       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 October 30, 1998, the number of shares of common stock outstanding was
4,828,743.



<PAGE>   2






                               DENALI INCORPORATED
               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 26, 1998

                                      INDEX

<TABLE>
<CAPTION>
  
   
                                                                                                           Page No.
                                                                                                           --------
<S>                                                                                                           <C>
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements (Unaudited)

                  Consolidated Balance Sheets - June 27, 1998 and September 26, 1998......................     1

                  Consolidated Statements of Operations - Three Months Ended
                  September 27, 1997 and September 26, 1998...............................................     2

                  Consolidated Statements of Cash Flows - Three Months Ended
                  September 27, 1997 and September 26, 1998...............................................     3

                  Notes to Consolidated Financial Statements - September 26, 1998.........................     4

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


PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings ......................................................................    10

Item 2.           Changes in Securities and Use of Proceeds...............................................    10

Item 3.           Defaults Upon Senior Securities.........................................................    10

Item 4.           Submission of Matters to a Vote of Security Holders.....................................    10

Item 5.           Other Information ......................................................................    10

Item 6.           Exhibits and Reports on Form 8-K........................................................    10

Signatures        ........................................................................................    12

Index to Exhibits ........................................................................................    13
</TABLE>


<PAGE>   3



                          PART I. FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

                               DENALI INCORPORATED
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                             September 26,          June 27,
                                                                                1998                  1998
                                                                            --------------          --------
                                                                              (Unaudited)            (Note)
                                           ASSETS                                      (In thousands)
<S>                                                                          <C>                 <C>        
Current assets:
       Cash                                                                  $      587          $       175
       Accounts and notes receivable, net of allowances of
              $760,000 at September 26, 1998 and $907,000
              at June 27, 1998                                                   24,122               23,465
       Inventories                                                               11,069               10,489
       Prepaid expenses                                                           1,106                1,152
       Deferred tax assets                                                        1,293                1,242
                                                                             ----------          -----------
Total current assets                                                             38,177               36,523
Property, plant and equipment, net                                               20,130               20,270
Assets held for sale                                                                449                  449
Notes receivable                                                                    178                  178
Goodwill, net                                                                    19,890               19,435
Deferred tax assets                                                               1,947                1,947
Other assets                                                                      1,550                1,580
                                                                             ----------          -----------
Total assets                                                                 $   82,321          $    80,382
                                                                             ==========          ===========

                   LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
       Accounts payable                                                      $   14,144          $    13,140
       Accrued liabilities                                                        5,856                7,180
       Income taxes payable                                                         795                  620
       Current maturities of long-term debt                                       1,442                1,442
                                                                             ----------          -----------
Total current liabilities                                                        22,237               22,382
Long-term debt, less current maturities                                          29,264               28,454
Other long-term liabilities                                                         861                  872
Series A Preferred Stock, redeemable at $250 per share, $.01 par value:
       Authorized shares - 1,004,800
       Issued and outstanding shares - None at September 26, 1998
              and June 27, 1998                                                       -                    -
Commitments and contingencies
Stockholders' equity:
       Common stock, $.01 par value
              Authorized shares - 30,000,000
              Issued and outstanding shares - 4,828,743 at
              September 26, 1998 and June 27, 1998                                   48                   48
       Additional paid-in capital                                                29,187               29,187
       Retained earnings (deficit)                                                  724                 (561)
                                                                             ----------          -----------
Total stockholders' equity                                                       29,959               28,674
                                                                             ----------          -----------
Total liabilities and stockholders' equity                                   $   82,321          $    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
                                                                     ----------------------------------
                                                                       September 26,      September 27,
                                                                           1998               1997
                                                                     --------------     ---------------
                                                                   (In thousands, except per share amounts)
<S>                                                                    <C>                <C>        
Net sales                                                              $    35,535        $    21,979
Cost of sales                                                               26,769             17,149
                                                                       -----------        -----------
Gross profit                                                                 8,766              4,830
Selling, general and administrative expenses                                 6,189              3,825
Non-recurring compensation expense                                               -              2,312
                                                                       -----------        -----------
Operating income (loss)                                                      2,577             (1,307)
Interest expense                                                               654                607
Interest income                                                                (12)               (20)
Other income, net                                                             (138)              (142)
                                                                       -----------        -----------
Income (loss) before income taxes                                            2,073             (1,752)
Income tax expense                                                             788                213
                                                                       -----------        -----------
Net income (loss)                                                            1,285             (1,965)
Dividends on Series A Preferred Stock                                            -                (30)
                                                                       -----------        ------------
Net income (loss) attributable to common stock                         $     1,285        $    (1,995)
                                                                       ===========        ===========

Net income (loss) per common share                                     $     0.27         $     (0.91)
                                                                       ==========         ===========

Net income (loss) per common share assuming dilution                   $     0.27         $     (0.91)
                                                                       ==========         ===========
</TABLE>


                             See accompanying notes.






                                        2


<PAGE>   5






                               DENALI INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                    Three months ended
                                                                               ------------------------------- 
                                                                                September 26,    September 27,
                                                                                     1998            1997
                                                                               --------------    -------------
                                                                                        (In thousands)
<S>                                                                              <C>               <C>        
OPERATING ACTIVITIES:
Net income (loss)                                                                $     1,285       $   (1,965)
Adjustments to reconcile net loss to net cash
   provided by operating activities:
       Non-recurring compensation expense                                                  -            2,312
       Depreciation                                                                      577              271
       Amortization                                                                      171               54
       Provision for losses on accounts receivable                                        67                3
       Changes in operating assets and liabilities:
              Accounts receivable                                                       (499)           1,187
              Inventories                                                               (580)            (958)
              Prepaid expenses                                                            59             (513)
              Other assets                                                               (74)              (5)
              Accounts payable                                                           771            1,968
              Accrued liabilities                                                     (1,413)            (625)
              Income tax receivable/payable                                              175              353
                                                                                 -----------       ----------
Net cash provided by operating activities                                                539            2,082
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired                                                      (542)               -
Purchases of property, plant and equipment                                              (395)            (208)
Proceeds from sale of property, plant and equipment and
   assets held for sale                                                                    -               35
Payments on notes receivable                                                               -                7
                                                                                 -----------       ----------
Net cash used in investing activities                                                   (937)            (166)

FINANCING ACTIVITIES:
Net borrowings (payments) under revolving lines of credit                              1,045           (1,315)
Net borrowings (payments) on term notes and other long-term debt                        (235)            (481)
                                                                                 -----------       -----------
Net cash provided by (used in) financing activities                                      810           (1,796)

Increase in cash                                                                         412              120
Cash at beginning of period                                                              175              330
                                                                                 -----------       ----------
Cash at end of period                                                            $       587       $      450
                                                                                 ===========       ==========
</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
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>

                                                 September 26, 1998    June 27, 1998
                                                 ------------------    ------------- 
<S>                                                 <C>                  <C>      
       Finished goods                               $    4,595           $   4,748
       Raw materials                                     4,484               4,289
       Work in process                                   1,990               1,452
                                                    ----------           ---------
                                                    $   11,069           $  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
                                                                      --------------------------------
                                                                       September 26,    September 27,
                                                                            1998            1997
                                                                      ---------------   --------------
                                                                          (share data in thousands)
<S>                                                                        <C>              <C>  
Weighted average common shares outstanding                                 4,829            2,185
Dilutive securities - employee stock options                                   8                -
                                                                         -------          -------
Weighted average common shares outstanding
  assuming full dilution                                                   4,837            2,185
                                                                         =======          =======
</TABLE>








                                        4


<PAGE>   7




4.     LONG-TERM DEBT

       On October 24, 1997, the Company's subsidiaries entered into a senior
credit facility, as amended, with a new 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 provides 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. As of
September 26, 1998, the Company had outstanding indebtedness of $5.7 million
under the term loans and $20.5 million under the revolving lines of credit. The
new revolving credit notes provide 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 new revolving credit notes will be
based on accounts receivable and inventory as specified in the agreement's
borrowing base formula. The term loans provide 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%.

The new senior credit facility provides availability for letters of credit up to
$5.0 million subject to availability of borrowing capacity under the revolving
credit notes. The new senior credit facility requires the Company's subsidiaries
to maintain certain financial covenants and requires an annual fee of .25% on
the unused portion of the revolving credit notes. As of September 26, 1998, the
Company was in compliance with all required financial covenants. The new senior
credit facility is secured by substantially all of the assets of the Company's
subsidiaries. Under the Company's credit facilities, distributions in the form
of dividends and stock repurchases are limited to 25% of the Company's
consolidated net income for the preceding fiscal year.

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 a small
operation for approximately $340,000, which extended the geographical presence
of SEFCO. The pro forma effects of this acquisition were immaterial for
disclosure.

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 at least 90% 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.



                                        5


<PAGE>   8




       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.

       Mr. Harcrow is a party to a Salary Continuation Agreement entered into
with the Company in September 1997 which provides for certain payments to his
wife in the event of his death or disability. Upon the occurrence of death or
disability, the Company shall pay three years salary and health insurance for
Mr. Harcrow's family over that same period. On termination of the agreement, the
benefits described above shall remain in force and effect thereafter; however,
the three-year period for benefits will provide for benefits only from the date
of disability or death of Mr. Harcrow until September 1, 2002.

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.     SUBSEQUENT EVENTS

       In October 1998, Denali Incorporated entered into a letter of intent to
purchase 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. Trailing 12 months revenue was
$4.5 million.







                                        6


<PAGE>   9





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 seven 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.

       The Company was formed in December 1994 to acquire certain assets and
assume certain liabilities of the fiberglass composite underground storage tank
business of Owens Corning, including five manufacturing facilities. The Company
closed two of the manufacturing facilities and significantly restructured the
operations of this business at the time of purchase.

       In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover, a manufacturer of steel rectangular above-ground storage
tanks. The Company eliminated certain operating costs through the sharing of
certain general and administrative functions within the acquired businesses. The
addition of the steel rectangular above-ground storage tank 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.

       In February 1997, the Company acquired Ershigs, a manufacturer of
engineered fiberglass-reinforced plastic products, as the first of the Company's
Engineered Products Group. Substantial operational changes were made upon the
purchase of Ershigs, including the closing of one of Ershigs' three
manufacturing plants and the restructuring of most of Ershigs' sales, general
and administrative functions, which enabled the Company to enhance
profitability.

       In October 1997, the Company acquired SEFCO, a manufacturer of engineered
field-erected aboveground steel tanks, and also acquired LaValley (subsequently
named "Ershigs-Biloxi"), a manufacturer of engineered fiberglass-reinforced
plastic 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. Fibercast, Ershigs and SEFCO form the Company's
Engineered Products Group known as Specialty Solutions.

RESULTS OF OPERATIONS

Three months ended September 26, 1998 compared with three months ended September
27, 1997

         Net sales increased $13.6 million, or 62%, to $35.5 million in the
first quarter of fiscal 1999 from $22.0 million in the same quarter of fiscal
1998. A total of $8.4 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 $5.2 million increase in sales resulted from a 29%
increase in sales at Containment Solutions from $18.0 million in the fiscal 1998
period to $23.2 million in the fiscal 1999 period due to strong demand for the
Company's petroleum storage tank products.



                                        7


<PAGE>   10





         Gross profit increased $4.0 million, or 81%, to $8.8 million in the
fiscal 1999 period from $4.8 million in the fiscal 1998 period. $2.3 million of
the increase was related to the addition of LaValley, SEFCO and Fibercast with
the remaining $1.7 million primarily derived from increased gross profit at
Containment Solutions. Gross margin for the Company increased to 24.7% from 22%
in the prior year quarter due in part to an increase in the Containment
Solutions gross margins to 24.3% in the current fiscal period from 21.1% 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 at
Specialty Solutions with combined gross margins of 27.0%.

         Selling, general and administrative expenses increased $2.4 million to
$6.2 million in the first quarter of fiscal 1999 from $3.8 million in the same
period last year, excluding 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 at Specialty
Solutions and increased sales and marketing expenses at Containment Solutions.
Selling, general and administrative expenses as a percentage of net sales
remained at 17.4% for both periods reported.

         The Company recognized 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.

         Due to the above factors, net income (loss) attributable to common
stock increased from $(1,995,000) in the prior fiscal year period to $1,285,000
in the current fiscal year period. Earnings per share increased 80%, excluding
the non-recurring compensation expense, from $.15 in the fiscal 1998 period to
$.27 in the fiscal 1999 period on a diluted basis.

LIQUIDITY AND CAPITAL RESOURCES

         Working capital at September 26, 1998 was $15.9 million, as compared to
$14.1 million at June 27, 1998. Cash provided by operating activities for the
three months ended September 26, 1998 was $539,000 compared to $2.1 million for
the same period last year. The decrease in cash provided by operating activities
is primarily a result of an increase in accounts receivable due to increased
sales volume during the first quarter of fiscal year 1999. Capital expenditures
were $395,000 and $208,000 for the three months ended September 26, 1998 and
September 27, 1997, respectively. Acquisitions, net of cash acquired, includes a
working capital adjustment related to the purchase of CC&E that resulted in an
additional $202,000 payment to the seller.

         The Company's Credit Facility with its principal lender provides for
revolving lines of credit and secured term loans of up to an aggregate of $32.2
million. As of September 26, 1998, the Company had outstanding indebtedness of
$5.7 million under the term loans and $20.5 million under the revolving lines of
credit. 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 Credit Facility bears interest per annum at varying rates of LIBOR
plus a margin ranging from 1.25% to 2.50%, depending on a leverage calculation,
or the prime rate plus a margin ranging from 0% to .25%. The Credit Facility has
a five-year term expiring in October 2002.

         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 $47.7 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.


                                        8


<PAGE>   11




         The Company's acquisition program will require significant additional
capital. The Company intends to seek additional capital as necessary to fund
such acquisitions through one or more funding sources that may include
borrowings under the Credit Facility, 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. 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. Software selection at these subsidiaries has been completed and
implementation has begun with anticipated completion ranging from December 1998
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.

         The Company plans to complete its assessment of key vendors, customers
and other third parties by the end of calendar year 1998 in order to assess the
impact, if any, on the Company's business operations. 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.


                                        9
<PAGE>   12



                           PART II. OTHER INFORMATION



ITEM 1.           LEGAL PROCEEDINGS

         Not applicable

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not applicable

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         Not applicable

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

         Not applicable

ITEM 5.           OTHER INFORMATION

         Not applicable

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

         A.       Exhibits

                  10.37        Amendment No. 2 to the Credit Agreement
                               dated as of October 29, 1998 among Denali
                               Incorporated, Fluid Containment, Inc., Ershigs,
                               Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
                               Banks party to and defined in the Credit
                               Agreement, and NationsBank, N.A., as agent.

                  10.38        Guaranty Reaffirmation dated October 29, 1998 of
                               Containment Solutions, Inc., Denali Management,
                               Inc., Ershigs Biloxi, Inc., Ershigs, Inc.,
                               Fibercast Company, Fluid Containment Property,
                               Inc., Instrumentation Solutions, Inc., Specialty
                               Solutions, Inc., Fluid Containment, Inc., SEFCO,
                               Inc. and Hoover Containment, Inc.

                  10.39        Revolving Note dated October 29, 1998 for
                               $26,000,000 payable to NationsBank, N.A.


                  27           Financial Data Schedule

         B.       Reports on Form 8-K

                  A Form 8-K/A was filed with the Commission on July 20, 1998.
                  The Form 8-K/A reported the acquisition of CC&E on May 8, 1998
                  and included the following financial statements and pro forma
                  financial information required by Item 7 "Financial Statements
                  and Exhibits":



                                       10

<PAGE>   13





                         Financial Statements of CC&E:

                         Report of Independent Public Accountants
                         Balance Sheets as of March 31, 1998 (Unaudited),
                         December 31, 1997, 1996 and 1995 
                         Statements of Operations and Retained Earnings for the
                         Three Months Ended March 31, 1998 and 1997 (Unaudited)
                         and the Years Ended December 31, 1997, 1996 and 1995
                         Statements of Cash Flow for the Three Months Ended
                         March 31, 1998 and 1997 (Unaudited) and the Years Ended
                         December 31, 1997, 1996 and 1995
                         Notes to Financial Statements

                         Unaudited Pro Forma Financial Information of Denali
                         Incorporated:

                         Pro Forma Condensed Consolidated Balance Sheet as of
                         March 28, 1998
                         Pro Forma Condensed Consolidated Statement of 
                         Operations for the Nine Months Ended March 28, 1998
                         Pro Forma Condensed Consolidated Statement of
                         Operations for the Year Ended June 28, 1997
                         Notes to Unaudited Pro Forma Condensed Consolidated
                         Financial Statements

                  A Form 8-K/A was filed with the Commission on August 13, 1998.
                  The Form 8-K/A reported the acquisition of Fibercast on June
                  5, 1998 and included the following financial statements and
                  pro forma financial information required by Item 7 "Financial
                  Statements and Exhibits":

                         Financial Statements of Fibercast Company:

                         Report of Independent Auditors
                         Balance Sheets as of September 30, 1997, September 30,
                         1996, March 31, 1996 and March 31, 1995
                         Statements of Operations and Accumulated Deficit for
                         the Years Ended September 30, 1997 and March 31, 1996;
                         the Six Months Ended September 30, 1996 and Eight
                         Months Ended March 31, 1995
                         Statements of Cash Flow for the Years Ended
                         September 30, 1997 and March 31, 1996; the Six Months
                         Ended September 30, 1996 and Eight Months Ended March
                         31, 1995
                         Notes to Financial Statements
                         Independent Accountants' Review Report
                         Balance Sheets as of March 31, 1998 and 1997
                         Statements of Operations and Accumulated Deficit for
                         the Six Months Ended March 31, 1998 and 1997
                         Statements of Cash Flow for the Six Months Ended March
                         31, 1998 and 1997 
                         Notes to Financial Statements

                         Unaudited Pro Forma Financial Information of Denali
                         Incorporated:

                         Pro Forma Condensed Consolidated Balance Sheet as of
                         March 28, 1998
                         Pro Forma Condensed Consolidated Statement of
                         Operations for the Nine Months Ended March 28, 1998
                         Pro Forma Condensed Consolidated Statement of
                         Operations for the Year Ended June 28, 1997
                         Notes to Unaudited Pro Forma Condensed Consolidated
                         Financial Statements




                                       11

<PAGE>   14






                                   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:       November 9, 1998                 /s/ R. Kevin Andrews
                                              -------------------------------
                                              R. Kevin Andrews
                                              Chief Financial Officer
                                                (Principal Financial Officer and
                                                Principal Accounting Officer)









                                       12


<PAGE>   15






                                INDEX TO EXHIBITS





Exhibit
Number            Description of Exhibit
-------           ----------------------

10.37             Amendment No. 2 to the Credit Agreement dated as of
                  October 29, 1998 among Denali Incorporated, Fluid Containment,
                  Inc., Ershigs, Inc., Ershigs Biloxi, Inc., SEFCO, Inc., the
                  Banks party to and defined in the Credit Agreement, and
                  NationsBank, N.A., as agent.

10.38             Guaranty Reaffirmation dated October 29, 1998 of Containment
                  Solutions, Inc., Denali Management, Inc., Ershigs Biloxi,
                  Inc., Ershigs, Inc., Fibercast Company, Fluid Containment
                  Property, Inc., Instrumentation Solutions, Inc., Specialty
                  Solutions, Inc., Fluid Containment, Inc., SEFCO, Inc. and
                  Hoover Containment, Inc.

10.39             Revolving Note dated October 29, 1998 for $26,000,000 payable 
                  to NationsBank, N.A.

27                Financial Data Schedule








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