<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 September 30, 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 November 8, 1999     7,067,302


<PAGE>   2




                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
         (Unaudited)

(In thousands, except per share data)


<TABLE>
<CAPTION>
                                                         THIRD QUARTER ENDED               NINE MONTHS ENDED
                                                      --------------------------------------------------------------
                                                      SEPTEMBER 30,  SEPTEMBER 30,    SEPTEMBER 30,     SEPTEMBER 30,
                                                         1999            1998             1999              1998
                                                      --------------------------------------------------------------
<S>                                                    <C>              <C>             <C>              <C>
NET SALES                                              $ 58,058         $ 54,995        $ 175,216         $163,667


COSTS AND EXPENSES
     Cost of products sold                               40,841           38,542          124,241          114,668
     Selling and administrative                          11,905           11,627           34,972           36,012
     Research and product development                     1,310            1,096            4,087            3,594
     Interest and debt expense, net of
           investment income                                949              784            2,743            2,411
                                                       --------         --------        ---------         --------

                                                         55,005           52,049          166,043          156,685
                                                       --------         --------        ---------         --------

EARNINGS BEFORE INCOME TAXES                              3,053            2,946            9,173            6,982
INCOME TAXES                                              1,054            1,060            3,257            2,513
                                                       --------         --------        ---------         --------

NET EARNINGS                                           $  1,999         $  1,886        $   5,916         $  4,469
                                                       ========         ========        =========         ========


Preferred stock dividends                                  (458)              --           (1,373)              --
Net Earnings Available to Common Shareholders          $  1,541         $  1,886        $   4,543         $  4,469

EARNINGS PER COMMON SHARE (1):
        BASIC                                          $   0.21         $   0.25        $    0.62         $   0.60
        DILUTED                                        $   0.21         $   0.20        $    0.61         $   0.48

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1):
        BASIC                                             7,245            7,473            7,373            7,459
        DILUTED                                           7,370            9,463            7,507            9,406
</TABLE>



(1) See Exhibit 11 for the calculation of basic and diluted earnings per share.

          See accompanying notes to Consolidated Financial Statements.




                                       2
<PAGE>   3


                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                          SEPTEMBER 30,   DECEMBER 31,
(Dollars in thousands, except share and per share data)      1999            1998
                                                           --------        --------
<S>                                                       <C>             <C>
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                $  4,232        $  3,856
  Accounts receivable less allowance for doubtful
     accounts of $1,002 and $971                             40,483          33,309
  Inventories - net                                          43,500          43,715
  Prepaid expenses                                            2,604           4,081
  Deferred income taxes                                       2,655           2,672

                                                           --------        --------
                  TOTAL CURRENT ASSETS                       93,474          87,633


OTHER ASSETS
  Cost in excess of net assets acquired - net                27,134          20,129
  Prepaid pension cost                                        1,666           1,747
  Net cash value of life insurance                            4,537           3,752
  Other                                                       2,655           2,344

                                                           --------        --------
                                                             35,992          27,972


PROPERTY, PLANT AND EQUIPMENT
  Gross                                                     106,296          85,356

  Less accumulated depreciation                              39,091          31,696
                                                           --------        --------

                  NET PROPERTY, PLANT AND EQUIPMENT          67,205          53,660
                                                           --------        --------

                  TOTAL ASSETS                             $196,671        $169,265
                                                           ========        ========
</TABLE>

          See accompanying notes to Consolidated Financial Statements.


                                       3
<PAGE>   4


                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                                                     September 30,     December 31,
(Dollars in thousands, except share and per share data)                                   1999             1998
                                                                                       ---------         --------
<S>                                                                                    <C>               <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Short-term obligations                                                               $ 11,226         $ 14,158
  Accounts payable                                                                       14,670           14,784
  Accrued compensation and payroll taxes                                                  9,434            6,838
  Other liabilities and accrued expenses                                                 10,094            7,071
  Dividends payable                                                                         458               --
  Current portion of long-term obligations                                                1,720            1,387
                                                                                       --------         --------

                  TOTAL CURRENT LIABILITIES                                              47,602           44,238

DEFERRED INCOME TAXES                                                                     2,027            2,111

OTHER NONCURRENT LIABILITIES                                                              3,880            3,964

LONG-TERM OBLIGATIONS, LESS CURRENT PORTION                                              58,525           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 -  7,870,764 and 7,853,635 shares                                             5,245            5,234
  Additional paid-in capital                                                             13,902           13,707
  Retained earnings                                                                      46,473           41,930
  Accumulated other comprehensive income (loss)                                            (900)             279
                                                                                       --------         --------
                                                                                         90,876           87,306

  Less cost of  treasury shares, 701,162 and 374,262                                      6,239            2,838
                                                                                       --------         --------
                  TOTAL SHAREHOLDERS' EQUITY                                             84,637           84,468
                                                                                       --------         --------
                  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $196,671         $169,265
                                                                                       ========         ========
</TABLE>


          See accompanying notes to Consolidated Financial Statements.

                                       4

<PAGE>   5

                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                                                    NINE MONTHS ENDED
                                                                              -------------------------------
                                                                              SEPTEMBER 30,     SEPTEMBER 30,
(Dollars in thousands)                                                            1999               1998
                                                                              -------------     -------------
<S>                                                                           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings                                                                    $  5,916           $ 4,469
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
     Depreciation and amortization                                                 8,871             6,985
     Stock compensation programs                                                     195              (309)
     Change in various allowance accounts                                            147               364
     Other                                                                           198               200
(Increase) Decrease in:
     Accounts receivable                                                          (5,469)           (3,627)
     Inventories                                                                   4,645            (2,186)
     Prepaid expenses                                                              1,858             2,700
     Deferred income tax assets                                                       --               236
     Other assets, net                                                            (1,250)             (971)
Increase (Decrease) in:
     Accounts payable & accrued expenses                                             174                82
     Other noncurrent liabilities                                                     32              (280)
                                                                                --------           -------
          Net Cash Provided by Operating Activities                               15,317             7,663
                                                                                --------           -------

CASH FLOWS FROM INVESTING ACTIVITIES
Investments in acquisitions, net of cash and cash equivalents acquired           (21,165)               (9)
Additions to property, plant and equipment                                        (7,098)           (7,419)
Other investing activities                                                            61               703
                                                                                --------           -------
          Net Cash Used by Investing Activities                                  (28,202)           (6,725)
                                                                                --------           -------

CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options                                                            108               306
Payment of long-term obligations, including current maturities                    (5,367)           (1,002)
Purchase of stock for treasury                                                    (3,401)               --
Dividends paid                                                                      (915)               --
Increase in long-term obligations                                                 25,135             1,909
Decrease in short-term borrowings                                                 (2,792)           (1,175)
                                                                                --------           -------
          Net Cash Provided by Financing Activities                               12,768                38
                                                                                --------           -------

Effect of Exchange Rate Changes, net                                                 493              (180)

Net Increase in Cash and Cash Equivalents                                            376               796
Cash and Cash Equivalents at Beginning of Year                                     3,856             2,313
                                                                                --------           -------
Cash and Cash Equivalents at End of Period                                      $  4,232           $ 3,109
                                                                                ========           =======
</TABLE>


          See accompanying notes to Consolidated Financial Statements.

                                       5

<PAGE>   6


                       AMERICAN PRECISION INDUSTRIES INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                     Third Quarter Ended September 30, 1999
                   ------------------------------------------


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

               The Consolidated Balance Sheet as of September 30,1999, and the
               Consolidated Statement of Earnings and the Consolidated Statement
               of Cash Flows for the periods ended September 30, 1999 and
               September 30, 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 September 30, 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 Cash
               Flows for the nine months ended September 30, 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>
                                      SEPTEMBER 30,    DECEMBER 31,
               (In thousands)             1999            1998
                                        -------          -------

<S>                                   <C>             <C>
               Finished goods           $ 9,593          $11,751
               Work in process            9,028            8,509
               Raw Materials             24,879           23,455
                                        -------          -------
                                        $43,500          $43,715
                                        =======          =======
</TABLE>


                Had the cost of all inventories at September 30, 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>
                                                             SEPTEMBER 30, 1999                      DECEMBER 31, 1998
                                                   -----------------------------------------------------------------------------
               (In thousands)                       TOTAL        CURRENT      LONG-TERM       TOTAL        CURRENT     LONG-TERM
                                                   -----------------------------------------------------------------------------

<S>                                                <C>           <C>          <C>            <C>           <C>         <C>
               Industrial Revenue Bonds            $10,292       $ 1,165       $ 9,127       $11,165       $ 1,150       $10,015

               Revolving Credit Debt                39,027            --        39,027        18,250            --        18,250

               Supplemental Benefit Programs           702           232           470           821           237           584

               Capital Lease Obligations             1,147           323           824            --            --            --

               Portescap and Elmo Debt:
                   Mortgage and Other
                    Long-Term Loans                  9,077            --         9,077         5,635            --         5,635
                                                   -----------------------------------------------------------------------------
                                                   $60,245       $ 1,720       $58,525       $35,871       $ 1,387       $34,484
                                                   =============================================================================
</TABLE>


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

                In accordance with Statement of Financial Accounting Standards
                No. 128 Earnings per Share ("SFAS 128"), 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 effect the amount of dilution
                that they produce. To reflect maximum potential dilution, each
                issue or series 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. Refer to Exhibit 11
                for computation.

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 (loss). 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 segments:
               Motion Technologies and Heat Transfer. Information about the net
               sales and operating profit of these segments follows:

<TABLE>
<CAPTION>
                                                       THIRD QUARTER ENDED                  NINE MONTHS ENDED
                                                    -----------------------------    -------------------------------
                                                    SEPTEMBER 30,   SEPTEMBER 30,    SEPTEMBER 30,      SEPTEMBER 30,
               (Dollars in thousands)                   1999            1998             1999               1998
                                                     ---------        --------         ---------         ---------
<S>                                                 <C>             <C>              <C>               <C>
               NET SALES
                    Motion                           $ 35,752         $ 30,319         $ 107,401         $  92,120
                    Heat Transfer                      22,306           24,676            67,815            71,547
                                                     --------         --------         ---------         ---------
                 TOTAL NET SALES                     $ 58,058         $ 54,995         $ 175,216         $ 163,667
                                                     ========         ========         =========         =========

               OPERATING PROFIT:
                    Motion                           $  3,418         $  2,214         $   9,361         $   6,074
                    Heat Transfer                       2,121            2,696             6,408             6,637
                                                     --------         --------         ---------         ---------
                                                        5,539            4,910            15,769            12,711

               GENERAL CORPORATE EXPENSE, NET          (1,537)          (1,180)           (3,853)           (3,318)

               INTEREST AND DEBT EXPENSE                 (949)            (784)           (2,743)           (2,411)
                                                     --------         --------         ---------         ---------

               EARNINGS BEFORE INCOME TAXES          $  3,053         $  2,946         $   9,173         $   6,982
                                                     ========         ========         =========         =========
</TABLE>



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

               In June 1998, the Financial Accounting Standards Board (FASB)
               issued SFAS No. 133, "Accounting for Derivative Instruments and
               Hedging Activities." SFAS No. 133 provides authoritative guidance
               on accounting and financial reporting for derivative instruments,
               including certain derivative instruments embedded in other
               contracts (collectively referred to as derivatives), and for
               hedging activities. The Statement requires the recognition of all
               derivatives as either assets or liabilities in the consolidated
               balance sheet, and the periodic measurement of those instruments
               at fair value. The classification of gains and losses resulting
               from changes in the fair values of derivatives is dependent on
               the intended use of the derivative and its resulting designation,
               as further defined in the Statement.




                                       8
<PAGE>   9


               In June 1999, the FASB issued SFAS No. 137, "Accounting for
               Derivative Instruments and Hedging Activities-Deferral of the
               Effective Date of FASB Statement No. 133", which deferred the
               required date of adoption of SFAS No. 133 for one year, to fiscal
               years beginning after June 15, 2000; however, early adoption is
               allowed, and initial application must be as of the beginning of a
               fiscal quarter. Additionally, SFAS No. 133 cannot be applied
               retroactively to prior periods. At adoption, existing hedging
               relationships must be designated anew and documented pursuant to
               the provisions of the Statement. The Company is continuing its
               process of analyzing and assessing the impact that the adoption
               of SFAS No. 133 is expected to have on its consolidated results
               of operations, cash flows and financial position, but has not yet
               reached any conclusions.

Note H         Comprehensive Income
------         --------------------

               The components of the Company's total comprehensive income
               (loss) were:


<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                        ---------------------------
                                                                        September 30,  September 30,
               (In thousands)                                               1999           1998
                                                                        ---------------------------
               <S>                                                      <C>            <C>
               Net earnings                                               $ 5,916         $4,469

               Other Comprehensive Income (Loss):
                  Foreign currency translation adjustments                 (1,196)         1,838
                  Minimum pension liability adjustment, net of tax             15             --
                                                                          -------         ------
               Total other comprehensive (loss)                            (1,181)         1,838
                                                                          -------         ------
               Total comprehensive income                                 $ 4,735         $6,307
                                                                          =======         ======
</TABLE>


               The foreign currency translation adjustments are not currently
               adjusted for income taxes since they relate to investments which
               are permanent in nature.



                                       9
<PAGE>   10



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

FINANCIAL REVIEW - OPERATIONS

NET SALES

American Precision Industries Inc.'s ("API" or "Company") consolidated net sales
for the third quarter and nine months of 1999 were $58.1 million and $175.2
million, increases of 5.6% and 7.1% respectively as compared with the
corresponding periods last year. The acquisition on February 1, 1999 of Elmo
Industrier AB ("Elmo"), a Swedish manufacturer of specialty electric motors, was
the cause of the increases. The addition of Elmo's sales more than offset lower
sales at continuing businesses caused by the weakness in the capital goods
market.

COST OF PRODUCTS SOLD

Cost of products sold for the third quarter and nine months of 1999 were $40.8
million and $124.2 million respectively as compared with $38.5 million and
$114.7 million for similar periods in 1998. Elmo's cost of goods sold, which was
the cause for the increase, was not completely offset by the reduced cost of
goods sold at continuing units resulting from cost reductions, productivity and
lower sales.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative costs in the third quarter 1999 were $11.9 million,
$.3 million above 1998's third quarter. Additional selling and administrative
expense related to the acquisition of Elmo was not fully offset by lower
variable selling expenses due to lower sales at continuing business and cost
reductions. Year-to-date selling and administrative costs for 1999 are $35.0
million, $1.0 million lower than these costs for the similar period in 1998.
Overhead reduction activities undertaken over the last 12 months in both
business segments more than offset the additional selling and administrative
costs related to the Elmo acquisition.

RESEARCH AND PRODUCT DEVELOPMENT

Product development spending was $1.3 million in the third quarter of 1999 and
$4.1 million for the nine-month period of 1999 as compared to $1.1 million and
$3.6 million for similar periods in 1998. The acquisition of Elmo accounts for
the majority of the increases.

INTEREST AND DEBT EXPENSE, NET OF INVESTMENT INCOME

Interest and Debt Expense, net of investment income, was $.9 million in the
third quarter of 1999 as compared with $.8 million for the third quarter of
1998. Higher interest expense resulting from the debt related to the Elmo
acquisition was not fully offset by lower expense due to lower rates and reduced
balances on previously existing debt. For the first nine months of 1999 compared
with the similar period for 1998, interest and debt expense increased to $2.7
million from $2.4 million



                                       10
<PAGE>   11


TAXES

API's expected 1999 effective tax rate has decreased from 36% to 35.5%. This is
based upon the Company's latest forecast of the mix of earnings among higher and
lower tax rate countries. The 1999 tax rate includes the benefit of the Swiss
federal government tax holiday for API Portescap approved in the second quarter
of 1999. The benefit of this federal holiday to API's consolidated 1999 tax rate
is offset by the write-off of remaining tax loss carry-forwards included at
acquisition on API Portescap's balance sheet. The third quarter tax provision
reflects the adjustment to bring the Company's year-to-date tax rate to the
35.5% level. The consolidated tax rate for the third quarter and nine months of
1998 was 36%.

NET EARNINGS

Net Earnings for the third quarter and first nine months of 1999 were $2.0
million and $5.9 million respectively as compared with $1.9 million and $4.5
million for the similar periods of 1998. For the third quarter, the acquisition
of Elmo and the benefit of cost reductions at continuing units offset the impact
of lower sales at those units, which accounted for the 6% increase in net
earnings.

For the nine months of 1999, the 32.4% increase in net earnings is the result of
cost savings activities and the February 1, 1999 acquisition of Elmo, offset by
lower volume.

BUSINESS SEGMENT DISCUSSION

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

API Motion's third quarter 1999 sales increased 17.9% or $5.4 million when
compared to the same period in 1998. The comparative sales increase at Motion is
due to the acquisition of Elmo on February 1, 1999. The Elmo acquisition more
than offset the adverse impact from foreign currency exchange rate changes and
soft domestic market conditions for clutches, brakes and feedback devices.

The third quarter 1999 operating profit at API Motion increased 54.4%, or $1.2
million, when compared to the third quarter of 1998. The majority of this
increase in operating profit improvement was the benefit of cost and operating
improvements made over the last 12 months at the Company's continuing business
units. These factors more than offset the revenue decline for these businesses.
Elmo continued as a good profit generator in the third quarter and accounted for
the remainder of the comparative profit increase.

Sequentially, API Motion's third quarter 1999 sales were up only .8% over the
second quarter of 1999, while operating profit was up 13.7%. Stronger sales at
Portescap and at Motion's U.S. businesses, in addition to a slight benefit from
exchange translation rates, offset the reduction in Swedish sales due to holiday
scheduling in that country. The 13.7% sequential profit improvement is the
result of the higher sales and improvements at Portescap and Motion's U.S.
units, which more than offset the lower seasonal profitability in Sweden.

For the first nine months of 1999, sales of $107.4 million were up 16.6%
compared with the similar period of 1998. 1999 year-to-date operating profit of
$9.4 million was up 54.1% when compared with the first nine months of 1998. The
February 1, 1999 acquisition of Elmo accounted for the sales increase, more than
offsetting a sales decline for API Motion's continuing businesses caused by soft
business conditions in key market segments. Contributing to the




                                       11
<PAGE>   12



higher operating profit were cost savings and productivity improvement
activities in API Motion's continuing business. These more than offset the
profit loss from lower sales. The Elmo acquisition also contributed to the
increase in operating profit.

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

API Heat Transfer's third quarter 1999 sales and operating profit were $22.3
million and $2.1 million respectively.

Third quarter 1999 sales were 9.6% lower than sales in the third quarter of
1998, reflecting soft market conditions for larger shell and tube heat
exchangers, order timing for plate and frame products and foreign exchange rate
translation. Third quarter 1999 operating profit was 21.3% lower than the third
quarter of 1998, reflecting lower volume and pricing for shell and tube
products, offset by improved profitability of air-cooled and plate and frame
products.

Sequentially, API Heat Transfer's third quarter 1999 sales are down 2.7%
compared to the second quarter of 1999. Lower sales of shell and tube products
were not fully offset by higher air-cooled product sales. Operating profit fell
9.5%, reflecting the lower volume of shell and tube products which was not fully
offset by profits from the higher sales of air-cooled products.

For the first nine months of 1999, API Heat Transfer sales of $67.8 million were
5.2% below the similar period last year. Weak demand in the capital goods market
resulted in lower sales of shell and tube and air-cooled products. Higher plate
and frame heat exchangers sales did not fully offset these declines. The higher
profitability reflects the benefits of cost savings and productivity improvement
actions, whose benefit more than offset the profit reduction resulting from the
lower sales volume.

FINANCIAL POSITION

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


<TABLE>
<CAPTION>
                                                       SEPTEMBER 30,  SEPTEMBER 30,
                                                           1999           1998
                                                          -------        -------
<S>                                                    <C>            <C>
          Net working capital                             $45,872        $40,985
          Current ratio                                       2.0            1.9
          Cash and cash equivalents                       $ 4,232        $ 3,109
          Cash flow from operations (year-to-date)        $15,317        $ 7,663
          Capital expenditures (year-to-date)             $ 7,098        $ 7,419
</TABLE>


The acquisition of Elmo, net of reductions in inventory at other units, is the
cause of the increase to net working capital.

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 Swedish 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 September 30, 1999 was $69.6 million. The remaining
availability at September 30, 1999 under the $100 million credit agreement is
$61 million.



                                       12
<PAGE>   13



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
September 30, 1999, the Company had spent $3.4 million to repurchase 326,900
shares. During the third quarter of 1999, the Company spent $1.5 million to
acquire 154,200 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 September 30, 1999 was $458,000, which was
paid on October 1, 1999. A similar quarterly dividend will be accrued in
subsequent quarters with payments occurring on January 1, April 1, July 1 and
October 1 of each year.

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 on major, mission critical
systems were completed during the second quarter of 1999. The majority of
non-mission critical systems are compliant, with only a few awaiting supplier
furnished upgrades. 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 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.




                                       13
<PAGE>   14




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

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

Schmidt-Bretten has completed its program to replace its operating and
administrative systems. 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 reviews have identified no
significant Y2K issues. Supplier surveys, begun in the first quarter of 1999,
have identified no significant concerns to date.

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 brought this system into compliance during the
second quarter of 1999. A review of systems in Portescap's sales subsidiaries
was completed during the third quarter of 1999 and did not identify any critical
compliance issues.

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 were
completed in the second quarter of 1999.

Costs:
------

Management estimates that the costs for U.S. operations incurred to date for Y2K
related hardware and software upgrades to be less than $400,000. The 1999 cost
to complete the implementation of the system at Schmidt-Bretten was
approximately $200,000. The 1999 compliance cost for Elmo was less than
$100,000. Costs specifically related to Y2K compliance at Portescap are
estimated to be $500,000.



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. 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.



                                       14
<PAGE>   15


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.







                                       15
<PAGE>   16


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 September 30, 1999 and December 31, 1998, the carrying
value, which approximates fair value, under these obligations were approximately
$71 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
September 30, 1999 there were four outstanding forward agreements with aggregate
fair values of approximately $1 million with associated settlement dates
identified in the six-month period ending March 31, 2000. At 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
agreements or the Company's results of operations or cash flows related to these
contracts.

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.




                                       16
<PAGE>   17



                                     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

             None

         (b) Reports on Form 8-K

             None




                                       17
<PAGE>   18


                                   * * * * * *

               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, 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.

                                      * * *

                                   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.

AMERICAN PRECISION INDUSTRIES INC.

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


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

November 10, 1999



                                       18
<PAGE>   19



                                  EXHIBIT INDEX



11.   Statement re computation of per share earnings.


27.   Financial Data Schedule.


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





                                       19