<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


(Mark One)

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

         For the quarterly period ended March 31, 1999
                                        --------------

                                       OR

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

         For the transition period from __________ to __________

Commission file number  1-5601

                       AMERICAN PRECISION INDUSTRIES INC.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)


          DELAWARE                                               16-1284388
-------------------------------                              -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)



2777 WALDEN AVENUE,  BUFFALO, NEW YORK                               14225
--------------------------------------                             ---------
(Address of principal executive offices)                           (Zip Code)


                                 (716) 684-9700
              ----------------------------------------------------
              (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    .
                                              ---    ---

                  Number of shares of common stock outstanding
                            on May 7, 1999 7,399,562


<PAGE>   2



                                     PART I
                                     ------

                              FINANCIAL INFORMATION
                              ---------------------

ITEM 1.       FINANCIAL STATEMENTS
              --------------------

                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
-----------------------------------------------------------
        (Unaudited)

<TABLE>
<CAPTION>
                                                        FIRST QUARTER ENDED
                                                     ---------------------------
                                                      MARCH 31,        MARCH 31,
(In thousands, except per share data)                   1999             1998
                                                      --------         --------

<S>                                                   <C>              <C>     
NET SALES                                             $ 58,753         $ 55,013

COSTS AND EXPENSES
     Cost of products sold                              41,921           38,527
     Selling and administrative                         11,655           12,029
     Research and product development                    1,368            1,268
     Interest and debt expense, net of
          investment income                                865              839
                                                      --------         --------
                                                        55,809           52,663
                                                      --------         --------

EARNINGS BEFORE INCOME TAXES                             2,944            2,350

INCOME TAXES                                             1,060              791
                                                      --------         --------

NET EARNINGS                                          $  1,884         $  1,559
                                                      --------         --------



Other Comprehensive Income (Loss), net of tax:
     Foreign Currency Translation Adjustment            (1,565)          (1,564)
     Minimum Pension Liability Adjustment                   15             --
                                                      --------         --------
Total Other Comprehensive Income (Loss)                 (1,550)          (1,564)
                                                      --------         --------

Comprehensive Income (Loss)                           $    334         $     (5)
                                                      ========         ========

EARNINGS PER COMMON SHARE:
     BASIC                                            $   0.19*        $   0.21
     DILUTED                                          $   0.19*        $   0.17

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
     BASIC                                               7,481            7,443
     DILUTED                                             7,593*           9,385
</TABLE>

* Refer to Footnote D and Exhibit 11


                                       2
<PAGE>   3



                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
--------------------------
       (Unaudited)

<TABLE>
<CAPTION>
                                                          MARCH 31,         DECEMBER 31,
(In thousands, except share and per share data)             1999                1998
                                                        ------------        ------------

<S>                                                     <C>                 <C>         
ASSETS

CURRENT ASSETS
     Cash and cash equivalents                          $      5,698        $      3,856
     Accounts receivable less allowance
          for doubtful accounts of $988 and $971              40,037              33,309
     Inventories  - net                                       47,176              43,715
     Prepaid expenses                                          2,329               4,081
     Deferred income taxes                                     2,658               2,672
                                                        ------------        ------------
          TOTAL CURRENT ASSETS                                97,898              87,633

OTHER ASSETS
     Cost in excess of net assets acquired - net              27,638              20,129
     Prepaid pension cost                                      1,714               1,747
     Net cash value of life insurance                          3,755               3,752
     Other                                                     2,752               2,344
                                                        ------------        ------------
                                                              35,859              27,972
PROPERTY, PLANT AND EQUIPMENT
     Gross                                                   100,409              85,356
     Less accumulated depreciation                            34,108              31,696
                                                        ------------        ------------
          NET PROPERTY, PLANT AND EQUIPMENT                   66,301              53,660
                                                        ------------        ------------

          TOTAL ASSETS                                  $    200,058        $    169,265
                                                        ============        ============
</TABLE>


                                       3
<PAGE>   4

                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
--------------------------
                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 MARCH 31,          DECEMBER 31,
(In thousands, except share and per share data)                    1999                 1998
                                                               ------------         ------------

<S>                                                            <C>                  <C>         
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Short-term obligations                                    $     13,944         $     14,158
     Accounts payable                                                15,488               14,784
     Accrued compensation and payroll taxes                           7,206                6,838
     Other liabilities and accrued expenses                          10,612                7,071
     Dividends payable                                                  458                 --
     Current portion of long-term obligations                         1,387                1,387
                                                               ------------         ------------
          TOTAL CURRENT LIABILITIES                                  49,095               44,238

DEFERRED INCOME TAXES                                                 2,038                2,111
OTHER NONCURRENT LIABILITIES                                          3,968                3,964
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION                          60,830               34,484

SHAREHOLDERS' EQUITY
     Series B seven percent (7%) cumulative convertible
       preferred stock, par value $1.00 a share,
       1,236,337 shares issued and outstanding                       26,156               26,156
     Common stock, par value $.66 2/3 a share:
       Authorized - 30,000,000 shares
       Issued - 7,855,896 and 7,853,635 shares                        5,235                5,234
     Additional paid-in capital                                      13,726               13,707
     Retained earnings                                               43,357               41,930
     Accumulated other comprehensive income (loss)                   (1,271)                 279
                                                               ------------         ------------
                                                                     87,203               87,306
     Less cost of treasury shares, 400,162 and 374,262                3,076                2,838
                                                               ------------         ------------
          TOTAL SHAREHOLDERS' EQUITY                                 84,127               84,468
                                                               ------------         ------------

          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $    200,058         $    169,265
                                                               ============         ============
</TABLE>


                                       4
<PAGE>   5


                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
           (Unaudited)

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                              ---------------------------------
                                                                                MARCH 31,            MARCH 31,
(Dollars in thousands)                                                            1999                 1998
                                                                              ------------         ------------

<S>                                                                           <C>                  <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings                                                                  $      1,884         $      1,559
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
     Depreciation and amortization                                                   2,833                2,151
     Stock compensation programs                                                      (331)                 (63)
     Change in various allowance accounts                                               23                 (425)
     Other                                                                              86                   47
(Increase) Decrease in:
     Accounts receivable                                                            (4,521)              (2,950)
     Inventories                                                                     1,013                 (732)
     Prepaid expenses                                                                1,023                  976
     Deferred income tax assets                                                          -                  213
     Other assets, net                                                                (432)                (150)
Increase (Decrease) in:
     Accounts payable & accrued expenses                                               306                 (265)
     Deferred income tax liabilities                                                   (34)                   -
     Other noncurrent liabilities                                                      367                 (280)
                                                                              ------------         ------------
          Net Cash Provided by Operating Activities                                  2,217                   81
                                                                              ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Investments in acquisitions, net of cash and cash equivalents acquired             (21,165)                  (9)
Purchases of investments and marketable securities                                       -                  (12)
Additions to property, plant and equipment                                          (2,190)              (2,508)
Proceeds from sale of fixed assets                                                      34                    -
                                                                              ------------         ------------
          Net Cash Used by Investing Activities                                    (23,321)              (2,529)
                                                                              ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options                                                               16                   63
Payment of long-term obligations, including current maturities                      (1,178)                (333)
Purchase of stock for treasury                                                        (238)                   -
Increase in long-term obligations                                                   24,206                1,857
Increase in short-term borrowings                                                      134                1,792
                                                                              ------------         ------------
          Net Cash Provided by Financing Activities                                 22,940                3,379
                                                                              ------------         ------------

Effect of Exchange Rate Changes                                                          6                 (355)

Net Increase in Cash and Cash Equivalents                                            1,842                  576
Cash and Cash Equivalents at Beginning of Year                                       3,856                2,313
                                                                              ------------         ------------
Cash and Cash Equivalents at End of Period                                    $      5,698         $      2,889
                                                                              ============         ============
</TABLE>



                                       5
<PAGE>   6

                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       First Quarter Ended March 31, 1999
                   ------------------------------------------


Note A         Consolidated Financial Statements
------         ---------------------------------

               The Consolidated Balance Sheet as of March 31, 1999, and the
               Consolidated Statement of Earnings and Comprehensive Income and
               the Consolidated Statement of Cash Flows for the periods ended
               March 31, 1999 and March 31, 1998 have been prepared by the
               Company without audit. In the opinion of management, all
               adjustments necessary to present fairly the financial position,
               results of operations, and changes in cash flow at March 31, 1999
               and for all periods presented have been made. The Consolidated
               Balance Sheets include the assets, liabilities and resulting
               goodwill of all subsidiaries. The Consolidated Statements of
               Earnings and Comprehensive Income and Cash Flows for the three
               months ended March 31, 1999 include the results of API Elmo AB
               from February 1, 1999, the date of acquisition.

               Certain information and footnote disclosures normally included in
               financial statements prepared in accordance with Generally
               Accepted Accounting Principles have been condensed or omitted. It
               is suggested these condensed consolidated financial statements be
               read in conjunction with the financial statements and the notes
               thereto included in the Company's 1998 Annual Report to
               Shareholders.

Note B         Inventories
------         -----------

               The major classes of inventories are as follows:

<TABLE>
<CAPTION>
                         MARCH 31,         DECEMBER 31,
(In thousands)             1999                1998
                       ------------        ------------

<S>                    <C>                 <C>         
Finished goods         $     10,996        $     11,751
Work in process              10,818               8,509
Raw Materials                25,362              23,455
                       ------------        ------------
                       $     47,176        $     43,715
                       ============        ============
</TABLE>

                Had the cost of all inventories at March 31, 1999 and December
                31, 1998 been determined by the FIFO method, these amounts would
                have been greater by $902 and $915, respectively.



                                       6
<PAGE>   7

Note C         Long-Term Obligations
------         ---------------------

<TABLE>
<CAPTION>
                                               MARCH 31, 1999                       DECEMBER 31, 1998
                                   -------------------------------------- --------------------------------------
(In thousands)                        Total      Current     Long-Term       Total      Current     Long-Term
                                   ------------- ---------- ------------- -------------- ------------ ----------

<S>                                   <C>          <C>           <C>         <C>          <C>          <C>     
Industrial Revenue Bonds              $ 10,877     $ 1,150       $ 9,727     $ 11,165     $ 1,150      $ 10,015

Revolving Credit Debt                   45,210           -        45,210       18,250           -        18,250

Supplemental Benefit Program               780         237           543          821         237           584

Portescap Debt-
    Mortgage and Other
     Long-Term Loans                     5,350           -         5,350        5,635           -         5,635
                                   ------------- ---------- ------------- -------------- ------------ ----------
                                      $ 62,217     $ 1,387      $ 60,830     $ 35,871     $ 1,387      $ 34,484
                                   ============= ========== ============= ============== ============ ==========
</TABLE>

Note D         Earnings Per Share
------         ------------------

               All earnings per share amounts reflect the implementation of
               Statement of Financial Accounting Standards No. 128 Earnings per
               Share ("SFAS 128"). SFAS 128 established new standards for
               computing and presenting earnings per share and requires all
               prior period earnings per share data to be restated to conform
               with the provisions of the statement. Basic earnings per share is
               computed by dividing net earnings (adjusted by the charge against
               Retained Earnings for the preferred stock dividend) by the
               weighted average number of shares outstanding during the period.

               Diluted earnings per share is computed using the weighted average
               number of shares determined for the basic computations plus the
               number of shares of common stock that would be issued assuming
               all contingently issuable shares having a dilutive effect on
               earnings per share were outstanding for the period.

               The sequence in which potential common shares are considered in
               the computation of diluted EPS may affect the amount of dilution
               that they produce. To reflect maximum potential dilution, each
               issue or series of issues of potential common shares should be
               considered in sequence from the most dilutive to the least
               dilutive. If including the next group of potential shares in the
               sequence results in a higher EPS than prior to their inclusion,
               the potential shares are antidilutive, and they should not be
               included in the calculation of diluted EPS.


Note E         Foreign Currency Translation
------         ----------------------------

               The financial statements of subsidiaries outside the United
               States are measured using the local currency as the functional
               currency. Assets, including goodwill, and liabilities are
               translated at the rates of exchange at the balance sheet date.
               The resulting translation adjustments are included in equity
               adjustment from foreign currency translation, a separate
               component of shareholders' equity reported in Accumulated other
               comprehensive income. Income and expense items are translated at
               average monthly rates of exchange.


                                       7
<PAGE>   8


Note F         Selected Segment Data
------         ---------------------

               The Company conducts operations in two major industrial
               classifications: Motion Technologies and Heat Transfer.
               Information about the net sales and operating profit of these
               segments follows:

<TABLE>
<CAPTION>
                                               FIRST QUARTER ENDED
                                      ---------------------------------
                                        MARCH 31,            MARCH 31,
(Dollars in thousands)                    1999                 1998
                                      ------------         ------------

<S>                                   <C>                  <C>         
NET SALES
     Motion                           $     36,167         $     31,157
     Heat Transfer                          22,586               23,856
                                      ------------         ------------
                                      $     58,753         $     55,013
                                      ============         ============

OPERATING PROFIT:
     Motion                           $      2,938         $      2,247
     Heat Transfer                           1,944                1,941
                                      ------------         ------------
                                             4,882                4,188

GENERAL CORPORATE EXPENSE, NET              (1,073)                (999)

INTEREST AND DEBT EXPENSE                     (865)                (839)
                                      ------------         ------------

EARNINGS BEFORE INCOME TAXES          $      2,944         $      2,350
                                      ============         ============
</TABLE>

                The Company has adopted SFAS Statement No. 131, "Disclosures
                about Segments of an Enterprise and Related Information". This
                statement revised the manner in which an enterprise reports
                information concerning its operating segments. Adoption of this
                statement by the Company did not require significant changes in
                the way segments were disclosed. In mid-1998, the Electronic
                Components segment was integrated into the Motion Technologies
                segment. This action allowed the Motion segment to fully utilize
                process technologies of the Electronic Components segment. Prior
                year business segment data has been adjusted to reflect this
                change.

Note G          Derivatives and Hedging Activities
------          ----------------------------------

                In 1998, the Financial Accounting Standards Board issued
                Statement of Financial Accounting Standards No. 133, "Accounting
                for Derivative Instruments and Hedging Activities" (SFAS No.
                133), effective for fiscal years beginning after June 15, 1999.
                SFAS No. 133 requires derivatives to be recorded on the balance
                sheet as assets or liabilities, measured at fair value. Gains or
                losses resulting from changes in values of derivatives would be
                accounted for depending on the use of the derivative and whether
                it qualifies for hedge accounting. The Company is conducting an
                analysis of SFAS No. 133, which is not expected to have a
                material impact on the Company's results of operations or
                financial position.


                                       8
<PAGE>   9

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

FINANCIAL REVIEW - OPERATIONS

NET SALES

American Precision Industries Inc. ("API") consolidated sales for the first
quarter of 1999 were $58.8 million, a $3.7 million or 6.8% increase compared
with the first quarter of 1998. The increase in sales was the result of the
acquisition of Elmo Industrier AB ("Elmo"), a Swedish manufacturer of specialty
electric motors, by API Motion Inc. on February 1, 1999. The increase in sales
from the acquisition was partially offset by lower sales of API Heat Transfer's
plate and frame and air-cooled products and of API Motion's controls, feedback,
brake and clutch products. The lower sales are the result of weakening demand in
the end-user markets served by API's heat transfer, brake and clutch, and
feedback customers.

COST OF PRODUCTS SOLD

Cost of products sold for the first quarter of 1999 was $41.9 million, an
increase of $3.4 million or 8.8% compared with $38.5 million in the first
quarter of 1998. Accounting for the increase was the acquisition of Elmo offset
by variable manufacturing cost decreases which resulted from lower sales,
improved manufacturing efficiencies and reduced fixed manufacturing costs.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative costs in the first quarter 1999 were $11.7 million, a
$.4 million or 3% decrease compared with 1998's first quarter. The decrease was
the net result of savings from cost reduction programs in both API Motion and
API Heat Transfer offset by the addition of the selling and administrative costs
at newly acquired Elmo.

RESEARCH AND PRODUCT DEVELOPMENT

Product development spending was $1.4 million for the first quarter of 1999
compared with $1.3 million for the similar period in 1998. The $.1 million
increase was the result of the addition of the product development spending at
Elmo.

INTEREST AND DEBT EXPENSE, NET OF INVESTMENT INCOME

Interest and Debt Expense, net of investment income, was $865,000 in the first
quarter of 1999, an increase of $26,000 or 3% compared with $839,000 for the
similar period of 1998. The increase was the result of interest expense related
to the acquisition of Elmo which was not fully offset by lower interest expense
on existing debt. The lower interest expense on existing debt was due to lower
interest rates and lower debt balances.



                                       9
<PAGE>   10

TAXES

The tax rate for the first quarter of 1999 was 36.0% compared to a rate of 33.7%
for the similar period last year. The higher rate for 1999 reflects the expected
mix of 1999 pre-tax income among higher tax countries (U.S., U.K., Germany and
Japan) and lower tax countries (Switzerland and Sweden).

NET EARNINGS

Net Earnings for the first quarter of 1999 were $1,884,000, an increase of
$325,000 or 20.8% compared with $1,559,000 for the similar period of 1998.
Manufacturing efficiency improvements, fixed cost reductions and the acquisition
of Elmo resulted in the increase in net earnings.

BUSINESS SEGMENT DISCUSSION

API Motion
----------

The Motion Group's first quarter 1999 sales and operating profit were $36.2
million and $2.9 million respectively. Compared with the same period in 1998,
1999 sales increased $5 million or 16.1% and operating profit increased by $.7
million or 30.8%.

The comparative sales increase in the Motion Group was due to the acquisition of
Elmo on February 1, 1999. Excluding Elmo, sales declined by 2.5% in the first
quarter of 1999 compared with the first quarter of last year. The majority of
the decline was in sales of motion control products, reflecting softness in
semiconductor market demand. Sales of control products did, however, reverse a
declining trend with an increase in first quarter 1999 sales compared with the
third and fourth quarters of calendar 1998. Sequentially, first quarter sales of
control products were up 29% compared with the fourth quarter of 1998. For
Motion's other product lines, lower sales from demand softness for feedback
devices, brakes and clutches were not completely offset by higher sales of
inductors, micromotors and U.S. servo and stepper motors.

The most significant contributor to the Motion's Group's nearly 31% increase in
operating profit was U.S. servo and stepper motor operations, where cost
reductions and selling price increases resulted in a small first quarter profit
compared with a loss in the first quarter of 1998. The remainder of Motion's
first quarter operating profit improvement resulted from the acquisition of Elmo
and from fixed cost reductions.

API Heat Transfer
-----------------

The Heat Transfer Group's first quarter 1999 sales and operating profit were
$22.6 million and $1.9 million respectively. First quarter 1999 sales were 5.3%
lower than sales in the first quarter of 1998 reflecting soft market conditions.
First quarter 1999 operating profit was equal to the first quarter of 1998, in
spite of the lower volume, evidencing the benefit of actions which have been
taken to improve operating performance and control costs.



                                       10
<PAGE>   11

A weak capital goods sector has produced weak demand for shell and tube heat
exchangers, accounting for the significant majority of the lower first quarter
Heat Transfer sales. Sales of shell and tube products in the quarter were 8%
below the first quarter of 1998. Air-cooled product sales in the first quarter
of 1999 were 4% below the comparative period in 1998, also due to current soft
market conditions. Sales of plate and frame heat exchangers in the first quarter
of 1999 were slightly below sales in the first quarter of 1998 due to shipment
timing.

Heat Transfer's operating profit in the first quarter of 1999 was equal to that
of last year's first quarter. Operating performance improvements and fixed cost
reductions helped offset the adverse profit impact of the lower sales.

FINANCIAL POSITION

Comparative information on the Company's liquidity position follows (000
omitted):

<TABLE>
<CAPTION>
                                   MARCH 31,            MARCH 31,
                                      1999                1998
                                 ------------        ------------

<S>                              <C>                 <C>         
Net working capital              $     48,803        $     38,030
Current ratio                          2.0                 1.8
Cash and cash equivalents        $      5,698        $      2,889
Cash flow from operations        $      2,217        $         81
Capital expenditures             $      2,190        $      2,508
</TABLE>

The Company has available short-term lines of credit which it utilizes to fund
current operations.

On February 1, 1999, the Company used 189.9 million Sweden kronor ($24.2
million) of its $100 million multicurrency credit facility to acquire Elmo
Industrier AB and fund its working capital needs. As part of the Elmo
acquisition, API assumed bank debt of 44.2 million Swedish kronor ($5.7
million). API's bank debt at March 31, 1999 was $75.4 million. The remaining
availability at March 31, 1999 under the $100 million credit agreement is $59
million.

In February 1999, API's Board of Directors approved a stock repurchase program
and authorized the repurchase of up to $5 million of API common stock. At March
31, 1999, the Company had spent $238,000 to repurchase 25,900 shares.

Effective January 1, 1999, a 7% annual dividend began to accrue on the $26.2
million principal amount of the Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock outstanding, all of which is owned by InterScan
Holdings Ltd. The accrued dividend at March 31, 1999 was $458,000, which was
paid on April 1, 1999. A similar quarterly dividend will be accrued in
subsequent quarters with payments occurring on July 1, October 1, January 1, and
April 1 of each year.




                                       11
<PAGE>   12



YEAR 2000 INITIATIVES

The Company is addressing through its business groups the business and
technology issues presented by the year 2000 ("Y2K") and the possibility that
computer programs may not properly recognize the turn of the century. The
Company oversees its Y2K efforts through a committee chaired by the Company's
Chief Financial Officer. The committee includes a business executive and
information technology ("IT") manager from each business group. Outside computer
consultants are utilized as the need arises. Periodic status reports are
provided to the Company's Audit Committee.

The Y2K Committee has organized its efforts to address IT Systems, Non-IT Areas,
Products & Customers and Suppliers. The primary focus is on assuring that
mission critical systems are or will become Y2K compliant before year-end 1999.

U.S. Status:
------------

An inventory and assessment of IT systems at API's U.S. facilities occurred in
mid-1997. Most of the non-compliant systems required software upgrades available
from the software package suppliers. Such upgrades are either complete or will
be so by the end of the second quarter of 1999. Written certification of
compliance is being secured from the suppliers of the release upgrades. Ongoing
tests are performed to assure compliance. In non-IT areas, evaluation of
production, testing and office equipment and of facilities has identified no
mission critical non-compliance issues. The Company continues to monitor this
area.

Reviews have not identified any U.S. products which would be non-compliant.
However, the Company is limited in its ability to identify and review all
products that were sold in the past, particularly by its Motion Group. The
Company cannot be certain that there are not older products still in use which
contain embedded logic which may be non-Y2K compliant.

The Company's review of its U.S. raw material and parts requirements has
indicated it is not dependent upon a sole supplier for critical materials or
components. The Company has been surveying its suppliers of materials and
services to assess their compliance status. To date, the results of these
surveys have not identified any areas of significant concern.

European Status:
----------------

Status reviews at Schmidt-Bretten in Germany and Portescap in Switzerland and
the U.K. identified critical systems requiring upgrade.

Schmidt-Bretten is in the process of replacing its operating and administrative
systems. This project is on target for completion in mid-1999. Reviews of non-IT
areas have identified several non-compliant items and remedies are in process.
The identified items are not considered to be significant. Raw material and
parts reviews have identified no significant Y2K issues. Supplier surveys, begun
in the first quarter of 1999, have identified no significant concerns to date.



                                       12
<PAGE>   13



Portescap's Y2K review identified as non-compliant the integrated manufacturing
and administrative system which supports its Swiss facilities. A program begun
in the third quarter of 1998 is designed to bring this system into substantial
compliance by the end of the third quarter of 1999. A major milestone was
reached in early April with the successful upgrade of the system to a Y2K
compliant version of the software.

Elmo, the Swedish motor company acquired on February 1, 1999, was in the process
of implementing a Y2K compliance program prior to its acquisition. The program
covers the areas discussed above and has identified no significant areas of
non-compliance. Upgrades to its operational and administrative systems are
expected to be complete in the second quarter of 1999.

At December 31, 1998, management estimated that U.S. costs incurred to date of
Y2K related hardware and software upgrades to be less than $200,000 and costs
for outside consultants to be less than $100,000. At that time, future costs
were not expected to exceed an additional $200,000. The 1999 cost to complete
the implementation of the system at Schmidt-Bretten was estimated to be under
$200,000. The remaining compliance cost for Elmo was expected to be less than
$100,000. Future costs specifically related to Y2K compliance at Portescap were
estimated to be $500,000. At March 31, 1999, management believes the costs and
estimates described above to be accurate.

At this time, the Company does not have reason to believe that there will be any
significant interruption in the Company's operations caused by a Y2K problem
that is unique to the Company, and, therefore, the Company has not adopted a
contingency plan for such an event. However, the Y2K Committee continues to
monitor this possibility and will attempt to identify cost effective and timely
solutions should a problem in this regard be likely.


EURO CONVERSION

On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (Euro). The transition period for the introduction of
the Euro is between January 1, 1999 and January 1, 2002.

The Company has conducted an internal review of the potential effects of the
Euro conversion and determined that the modification of existing business
systems to accommodate the Euro are not expected to be material. Other factors
such as competitive implications of increased price transparency, currency
exchange rate risk and derivative exposures, continuity of material contracts
and potential tax consequences are not expected to have a material impact on the
Company's financial condition, liquidity or results of operations.




                                       13
<PAGE>   14



ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              ----------------------------------------------------------

The Company, as a result of its financing and international operating
activities, is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial position. The Company seeks to minimize the risks from these interest
rate and foreign currency exchange rate fluctuations through its normal
operating and financing activities. When deemed appropriate, the Company
utilizes forward contracts to minimize the foreign currency exchange rate risk.
The Company does not use derivative financial instruments for trading or other
speculative purposes.

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt obligations which consist of a revolving credit
facility, industrial revenue bonds and various term loans. The majority of these
debt obligations have variable interest rates, primarily based on the London
Interbank Offered Rate (LIBOR) and an index rate based on short-term federal tax
exempt obligations. At March 31, 1999 and December 31, 1998, the carrying value
and fair values under these obligations were approximately $75 million and $49
million, respectively. If these variable interest rates were to change by 10%,
the impact on annual consolidated interest expense would be approximately
$350,000 and $225,000 for 1999 and 1998, respectively.

The Company's exposure to market risk for changes in foreign currency exchange
rates arises from investment in and intercompany balances with foreign
subsidiaries, receivables, payables, and firm commitments arising from
international transactions. The Company attempts to have all such transaction
exposures hedged with internal natural offsets to the fullest extent possible
and, once these opportunities have been exhausted, selectively through
derivative financial instruments with third parties using forward agreements. At
both March 31, 1999 and December 31, 1998 one forward agreement with a
settlement date of April 30, 1999 was outstanding with a fair value of
approximately $300,000. A 10% change in foreign exchange rates would not have a
material impact on the fair value of the forward agreement or the Company's
results of operations or cash flows related to that contract.

The above discussion and the estimated amounts generated from the sensitivity
analyses referred to above include forward-looking statements of market risk
which assume that certain adverse market conditions may occur. Actual future
market conditions may differ materially from such assumptions. Accordingly, the
forward-looking statements should not be considered projections by the Company
of future events of losses.






                                       14
<PAGE>   15




                                     PART II
                                     -------

                                OTHER INFORMATION
                                -----------------


Item 1.        Legal Proceedings
-------        -----------------

               None


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

               None


Item 3.        Defaults Upon Senior Securities
-------        -------------------------------

               None


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

               None


Item 5.        Other Information
-------        -----------------

               None


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

               (a)      Exhibits

                        See the index to exhibits immediately preceding the
                        exhibits filed with this report.

               (b)      Reports on Form 8-K

                        (1)   The Company filed a Form 8-K on January 4, 1999,
                              reporting under Item 5 mergers and name changes of
                              certain direct and indirect wholly-owned
                              subsidiaries.

                        (2)   The Company filed a Form 8-K on February 5, 1999,
                              reporting under Item 2 the acquisition of ELMO
                              Industrier AB on February 1, 1999 and reporting
                              under Item 5 the amendment to its Shareholder
                              Rights Agreement which was effective January 29,
                              1999 and the First Amendment to the Credit
                              Agreement with Marine Midland Bank and Fleet
                              National Bank effective January 29, 1999.



                                       15
<PAGE>   16


                                   * * * * * *

               SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
               --------------------------------------------------
                          LITIGATION REFORM ACT OF 1995
                          -----------------------------


         Certain statements made in this report constitute forward-looking
         statements based upon current expectations and are made pursuant to the
         safe harbor provisions of the Private Securities Litigation Reform Act
         of 1995. Such forward-looking statements involve certain assumptions,
         risks and uncertainties that could cause actual results to differ
         materially from those included in, or contemplated, by the statements.
         These assumptions, risks and uncertainties include, but are not limited
         to, the successful transition of the Elmo acquisition into the Company,
         the success of the actions taken to improve profitability, the
         realization of benefits from cost savings initiatives, market
         acceptance of new products in the Motion Technologies segment, the
         absence of any disruptions to the Company's business as a result of the
         effect of the Year 2000 on computer and information technology and
         conversion to the Euro, and the Company's effectiveness at gaining
         market share, as well as general economic conditions in North America,
         Western Europe and Asia. The Company expressly disclaims any obligation
         to update any forward-looking statements as a result of developments
         occurring after the date hereof.

                                   * * * * * *

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.


AMERICAN PRECISION INDUSTRIES INC.


/s/ Bruce McH. Kirchner
---------------------------------------------------------------
Bruce McH. Kirchner
Chief Financial Officer


/s/ Mark E. Wood
---------------------------------------------------------------
Mark E. Wood
Corporate Controller



May 13, 1999


                                       16
<PAGE>   17


                                  EXHIBIT INDEX
                                  -------------



11         Computation of net income per share


27         Financial Data Schedule

                                       17