<PAGE>   1

                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION


                             WASHINGTON, D.C. 20549


           (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 000-20805

                          APACHE MEDICAL SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                    23-2476415
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                       Identification No.)



                  1650 TYSONS BOULEVARD, MCLEAN, VIRGINIA 22102
               (Address of principal executive offices) (Zip Code)


                                 (703) 847-1400
              (Registrant's telephone number, including area code)
             (Former name, former address and former fiscal year, if
                           changed since last report)

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
                                       ---   ---



                                    7,365,189
   (Number of shares of common stock, $.01 par value per share, outstanding as
                              of October 31, 1999)



<PAGE>   2




                          APACHE MEDICAL SYSTEMS, INC.


                                      INDEX


<TABLE>
<CAPTION>
                                                                                                       PAGE NO.
                                                                                                       --------

PART I - FINANCIAL INFORMATION
<S>                                                                                                      <C>
Item 1.       Financial Statements........................................................................

             Consolidated Statements of Operations (unaudited) for the Three
               Months and Nine Months Ended September 30, 1999 and 1998...................................

             Consolidated Balance Sheets for the Nine Months Ended September
               30, 1999 (unaudited) and Year Ended December 31, 1998......................................

             Consolidated Statements of Changes in Stockholders' Equity
               (Deficit) for the Nine Months Ended September 30, 1999 (unaudited)
               and Year Ended December 31, 1998...........................................................

             Consolidated Statements of Cash Flows (unaudited) for the Nine
               Months Ended September 30, 1999 and 1998...................................................

             Notes to Consolidated Financial Statements (unaudited).......................................

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

Item 3.       Quantitative and Qualitative Disclosures About Market Risk..................................

PART II - OTHER INFORMATION

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

Signatures................................................................................................

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



                                     - 2 -
<PAGE>   3



                          PART 1-FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                          APACHE MEDICAL SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                      YEAR TO DATE
                                                  ------------------                      ------------
                                                    SEPTEMBER 30,                         SEPTEMBER 30,
                                                1999              1998               1999              1998
                                            ---------         ----------         ----------           --------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                        <C>               <C>                 <C>                <C>
Revenue                                     $   2,972         $    2,153          $   9,910          $   7,903

Expenses:
  Cost of goods sold                              927              1,081              2,407              2,965
  Research and development                        131                384                582              1,034
  Selling, general and administrative           1,630              2,308              5,875              6,615
                                            ---------         ----------         ----------           --------
          Total expenses                        2,688              3,773              8,864             10,614

Income (Loss) from Operations                     284             (1,620)             1,046             (2,711)

Other income (expense):
  Interest income                                  73                107                248                394
  Interest expense                                 (8)                (9)               (25)               (28)
  Other, net                                        -                  3                  6                  3
                                            ---------         ----------         ----------           --------

Net Income (Loss)                           $     349         $   (1,519)        $    1,275           $ (2,342)
                                            =========         ==========         ==========           ========

Basic and diluted net income (loss) per
share                                       $    0.05         $    (0.21)        $     0.17          $   (0.32)
                                            =========         ==========         ==========           ========

Weighted average number of shares used
for calculation of net income (loss)
per share                                       7,361              7,292              7,350              7,292
                                            =========         ==========         ==========           ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                     - 3 -
<PAGE>   4

                          APACHE MEDICAL SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,                DECEMBER 31,
                                                                          1999                        1998
                                                                       ----------                 ----------
                                                                       (in thousands except per share data)
ASSETS
CURRENT ASSETS:
<S>                                                                   <C>                         <C>
Cash and cash equivalents                                             $     5,044                 $    5,532
Short-term investments                                                      1,048                      1,000
Accounts receivable, net                                                    2,371                      2,972
Prepaid expenses and other                                                    609                        749
                                                                       ----------                 ----------
      TOTAL CURRENT ASSETS                                                  9,072                     10,253

Other trade receivables, net of current maturities                              _                          4

Furniture and equipment                                                     3,659                      3,589
Less accumulated depreciation and amortization                             (3,106)                    (2,704)
                                                                       ----------                 ----------
                                                                              553                        885

Capitalized software costs, net                                               717                        506
Intangible assets, net                                                        407                        494
                                                                       ----------                 ----------


      TOTAL ASSETS                                                      $  10,749                  $  12,142
                                                                        =========                  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                      $       919                $     1,129
Accrued expenses                                                            2,157                      3,667
Deferred revenue                                                            2,376                      3,158
Current maturities of long term obligations                                   166                        180
                                                                       ----------                 ----------
      TOTAL CURRENT LIABILITIES                                             5,618                      8,134

Deferred rent benefit                                                          13                         62
Maturities of long term obligations, net of current
maturities                                                                     72                        206
                                                                       ----------                 ----------
      TOTAL LIABILITIES                                                     5,703                      8,402

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized shares, 30,000,000
at September 30, 1999 and December 31, 1998: issued and
outstanding shares, 7,365,189 at September 30, 1999 and
7,330,473 at December 31, 1998.                                                74                         73
Additional paid-in capital                                                 45,800                     45,770
Accumulated deficit                                                       (40,828)                   (42,103)
                                                                       ----------                 ----------

      TOTAL STOCKHOLDERS' EQUITY                                            5,046                      3,740
                                                                       ----------                 ----------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $   10,749                 $   12,142
                                                                       ==========                 ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                     - 4 -
<PAGE>   5


                          APACHE MEDICAL SYSTEMS, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                 COMMON STOCK             ADDITIONAL
                                         -----------------------------      PAID-IN         ACCUMULATED
(IN THOUSANDS, EXCEPT SHARE DATA)           SHARES           AMOUNT         CAPITAL           DEFICIT            TOTAL
                                         --------------    -----------   --------------   -----------------   -------------

<S>                                     <C>                   <C>         <C>               <C>                <C>
BALANCE, JANUARY 1, 1997                   7,238,922             72          45,325            (22,992)           22,405
Issuance of common stock options                   -              -             291                  -               291
Exercise of common stock options              10,490              -              30                  -                30
Issuance of common stock under Employee
Stock Purchase Plan                           18,344              1              57                  -                58
Net Income (Loss)                                  -              -               -            (15,918)          (15,918)
                                         --------------    -----------   --------------   -----------------   -------------
BALANCE AT DECEMBER 31, 1997               7,267,756             73          45,703            (38,910)            6,866
Issuance of common stock under Employee
Stock Purchase Plan                           62,717              -              67                  -                67
Net Income (Loss)                                  -              -               -             (3,193)           (3,193)
                                         --------------    -----------   --------------   -----------------   -------------
BALANCE AT DECEMBER 31,1998                7,330,473             73          45,770            (42,103)            3,740
Exercise of common stock options               2,600              -               2                  -                 2
Issuance of common stock under Employee
Stock Purchase Plan                           32,116              1              28                  -                29
Net Income (Loss)                                  -              -               -              1,275             1,275
                                         --------------    -----------   --------------   -----------------   -------------
BALANCE AT SEPTEMBER 30, 1999              7,365,189             74          45,800            (40,828)            5,046
                                         ==============    ===========   ==============   =================   =============
</TABLE>



                                     - 5 -
<PAGE>   6


                          APACHE MEDICAL SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                 30-SEP-99            30-SEP-98
                                                                             -------------------  ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                    (IN THOUSANDS)
<S>                                                                             <C>                <C>
  Net income (loss)                                                             $    1,275         $    (2,342)
  Adjustments to reconcile net income (loss) to net cash used in operating
  activities:
      Depreciation and amortization                                                    632                 570
      Provision for doubtful accounts                                                  616                  30
      Changes in operating assets and liabilities:
           Accounts receivable                                                         (15)             (1,487)
           Other trade receivables                                                      36                  38
           Other current assets                                                        107                (453)
           Accounts payable and accrued expenses                                    (1,720)             (1,270)
           Deferred rent                                                               (49)                (39)
           Deferred revenue                                                           (782)                581
                                                                             -------------------  ------------------

       NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES                           100              (4,372)

CASH FLOWS FROM INVESTING ACTIVITIES:

  Capitalized software development costs                                              (354)               (374)
  Purchase of furniture and equipment                                                  (70)               (220)
  Decrease in short-term investments                                                   (48)              4,233
                                                                             -------------------  ------------------

       NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES                          (472)              3,639

CASH FLOWS FROM FINANCING ACTIVITIES:

  Principal payments on capital lease obligations                                      (13)                (12)
  Principal payments on borrowings                                                    (134)               (138)
  Proceeds from issuance of notes payable                                                -                 391
  Proceeds from issuance of common stock under employee stock purchase
  plan                                                                                  29                  51
  Proceeds from issuance of common stock upon exercise of options                        2                   -
                                                                             -------------------  ------------------

       NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES                          (116)                292

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  (488)               (441)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     5,532               5,634
                                                                             -------------------  ------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $    5,044          $    5,193
                                                                             ===================  ==================

SUPPLEMENTAL INFORMATION:
  Cash payments for interest                                                     $       8            $     30
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.



                                     - 6 -
<PAGE>   7


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       BASIS OF PRESENTATION


         The accompanying consolidated financial statements have been prepared
by APACHE Medical Systems, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). The financial
information included herein is unaudited. However, in the opinion of management,
all adjustments (which include normal recurring adjustments) considered
necessary for a fair presentation have been made. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, but the Company believes that
the disclosures made are adequate to make the information presented not
misleading. For more complete financial information, these financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1998 included in the Company's Form
10-K. Results for interim periods are not necessarily indicative of the results
for any other interim period or for the full fiscal year.


         Revenue for sales of systems and products are recognized at delivery.
For systems where services are critical to the functionality of the system,
revenue is recognized using contract accounting. Systems support fees are
recognized ratably over the period of performance. Professional services revenue
is recognized as these services are provided and is generally billed on a time
and material basis. Professional services do not involve significant
customization, modification or production of the licensed software. Amounts
received prior to the performance of service or completion of a milestone are
deferred. Revenue recognized for work performed for which billings have not been
presented to customers is recorded as unbilled.


2.       BASIC AND DILUTED NET INCOME (LOSS) PER SHARE


         The Company has implemented Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") Statement No. 128,
"Earnings Per Share," which requires dual presentation of basic and diluted
earnings per share. Basic income (loss) per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income (loss) per share includes the potential dilution that could occur if
securities or other contracts were exercised or converted into common stock.
Options and warrants outstanding were not included in the computation of diluted
net income (loss) per share as their effect would be anti-dilutive. Diluted net
income (loss) per share and basic earnings per share are identical for all
periods presented.


3.       NEW ACCOUNTING PRONOUNCEMENTS


         The American Institute of Certified Public Accountants ("AICPA") has
issued Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2")
that supersedes Statement of Position 91-1. SOP 97-2 is effective for revenue
transactions entered into by the Company in fiscal years beginning after
December 31, 1997. The Company has adopted SOP 97-2 and it did not have a
material impact on the financial statements of the Company. In March 1998, AcSEC
issued SOP 98-4, which defers for one year the implementation of certain
provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company.
In December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 and amends the method
of revenue recognition in some circumstances. The Company does not anticipate
the adoption of this SOP will have a significant effect on the results of
operations or financial position.


4.       STOCKHOLDERS' EQUITY


Stock Options


         On March 16, 1999, the Board of Directors adopted a Non-Employee
Director Supplemental Stock Option Plan (the "Supplemental Plan"), to be
effective January 1, 1999 subject to shareholder approval. The Supplemental Plan
provides for the issuance to non-employee directors of options to acquire up to
120,000 shares of the Company's Common Stock. The Supplemental Plan was approved
by the Company's shareholders on May 12, 1999.




                                     - 7 -
<PAGE>   8

         On January 26, 1999, the Board of Directors granted options to acquire
16,700 shares of Common Stock to each non-employee director of the Company as of
such date. The effectiveness of this grant was subject to shareholder approval
of the Supplemental Plan. The exercise price of the options granted on January
26, 1999 was $1.25 per share, which price was above the fair market value of the
Common Stock on the date of grant.


         On March 16, 1999, the Board of Directors approved an amendment to the
Employee Stock Option Plan, subject to shareholder approval, to increase the
number of shares of Common Stock which may be issued under the plan from
2,200,000 to 2,700,000. The amendment was approved by the Company's shareholders
on May 12, 1999.


         Effective January 4, 1999, the Board of Directors granted an executive
of the Company options to acquire 339,000 shares of Common Stock under the
Employee Stock Option Plan. The exercise price of the options is equal to the
fair market value of the Company's Common Stock on January 4, 1999 or $.5938.
The options are incentive stock options to the extent allowed under the Internal
Revenue Code. 94,000 of the options vest immediately. The remaining options vest
ratably over five years; vesting may be accelerated if certain performance
targets are satisfied during the five year period.

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

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


         REVENUE. Revenue for the quarter ended September 30, 1999 increased 38%
to $3.0 million from $2.2 million in the prior year period. This increase is due
primarily to an increase in Systems revenues from both new and existing
customers. Revenue for the nine months ended September 30, 1999 increased 25%
to $9.9 million from $7.9 million in the prior year period. This increase is
related to an increase in Systems revenues from existing customers offset by a
decrease in Professional Services, primarily Health Outcomes Research and
Strategic Consulting.


         COST OF GOODS SOLD. Cost of goods sold for the quarter ended September
30, 1999 decreased 14% to $927,000 from $1.1 million in the prior year period.
This decrease was due primarily to a decrease in the costs associated with
Systems contracts and Professional Services. Cost of goods sold for the nine
months ended September 30, 1999 decreased 19% to $2.4 million from $3.0 million
in the prior year period. During the first half of 1999, improvements in the
Company's implementation process resulted in the reduction of previously
accrued costs related to migration contracts.


         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended September 30, 1999 decreased 29%
to $1.6 million from $2.3 million in the prior year period. Selling, general and
administrative expenses for the nine months ended September 30, 1999 decreased
11% to $5.9 million from $6.6 million. These decreases were due to overall
reductions in selling, general and administrative expenses.


         RESEARCH AND DEVELOPMENT. Research and development expenses for the
quarter ended September 30, 1999 decreased 66% to $131,000 from $384,000 in the
prior year period. Research and development expenses for the nine months ended
September 30, 1999 decreased 44% to $582,000 from $1.0 million in the prior
year period. These decreases were due to improvements in productivity in
product generation processes that resulted in decreases in consulting expense,
staffing requirements and related costs. The Company is continuing its
initiative to internet enable its various decision support applications while
cutting other expenses related to peripheral activities. During the nine
months ended September 30, 1999, capitalized software development costs were
$354,000, compared to $374,000 in the prior year period.


         OTHER INCOME (EXPENSE). Other income decreased from $101,000 for the
quarter ended September 30, 1998 to $65,000 for the quarter ended September 30,
1999. The decrease is due to a decrease in interest income as a result of a
reduction in cash.


         YEAR 2000 READINESS. The Year 2000 computer problem originated from
programmers writing software code that used two digits instead of four to
represent the year. After December 31, 1999, computers and soft-


                                     - 8 -
<PAGE>   9

ware may incorrectly assume that the year is "1900" rather than "2000." This
could lead to system failures and disruptions to activities and operations. In
addition, the Year 2000 is a leap year, which may further exacerbate incorrect
calculations, functions or system failures. At this time it is difficult to
predict the effects such disruptions could have and the liabilities that any
company may face as a result of these failures. Moreover, companies must not
only consider their own products and computer systems, but also the Year 2000
readiness of any third parties, including principal vendors and customers. The
Company has identified the following five phases to describe its process of
achieving Year 2000 readiness: awareness, assessment, renovation, validation and
implementation.


State of Readiness


         The Company became aware in early 1997 of its potential Year 2000
issues and established a Year 2000 team with outside consultants to assess its
Year 2000 issues and develop an overall strategy. In 1997, the Company began an
assessment of its products, and its own information technology ("IT") and non-IT
systems and the Company's vendors to determine whether they are or will be Year
2000 ready. To ensure that the IT and non-IT systems are, or will be, Year 2000
ready, surveys of the Company's products, services and systems were conducted.
These included but were not limited to: audits and analyses of the Company's
internal IT systems including hardware and software; assessment of critical
non-IT systems, including real estate and other embedded technologies; and
surveys of principal vendors as to Year 2000 readiness. The Company identified
several internal IT and non-IT systems that were not Year 2000 ready. These
internal systems have either been replaced with Year 2000 ready systems or will
be upgraded to the Year 2000 ready product. All internal system upgrades are
expected to be completed by the fourth quarter of 1999. The Company has received
written assurances from material principal vendors as to Year 2000 readiness
within that timeframe.


         The majority of the Company's efforts regarding Year 2000 readiness
focused on the Company's products, including software applications, operating
systems, relational database management systems, tools and utilities sold to
clients. The assessments indicated that the version of the Company's Medical
Cost Management Program ("MCMP") product, an application using UNIX based
terminals/clients and UNIX based servers requiring stand alone equipment, its
operating system, database releases and relational database management systems,
that was sold to customers prior to 1998, was not Year 2000 ready. The Company
accordingly, has focused its attention on its next generation CCS product. The
Company believes the application, operating systems and relational database
management system release, tools and utilities are Year 2000 ready. The CCS
product also includes new features and enhancements. The CCS product operates on
a PC based client/UNIX server platform, supporting Windows 95/NT/98. The Company
has completed renovation and validation activities on modules of the CCS product
and has implemented completed modules into the CCS product. An independent
consultant has reviewed and validated that the CCS product is Year 2000
compliant.


         The assessment is complete for two other software applications that the
Company sold to clients. The Acute Care Voyager+ product has been renovated and
validated by an independent consultant. Shipment of the new product began in May
1999. The HIV Manager product has been renovated. Validation of the product was
completed October 1999.


         Other software applications products sold by the Company have been
renovated and where necessary, the changes have been implemented to deliver Year
2000 ready products. Changes were implemented during the third quarter of 1999.


         As an integral part of the Company's assessment, independent consulting
firms have been hired to provide additional testing and validation of the
Company's Year 2000 readiness of its software products currently being sold to
its customers. The goals and objectives of this assessment are to: validate that
software and hardware is Year 2000 ready; ensure that applications accurately
store and calculate information based on date fields which contain dates before
and after the Year 2000; ensure that communications software and hardware is
Year 2000 ready; ensure that appropriate stored and archived data will be
consistent with Year 2000 certified software; and engineer a test facility that
will be available to the Company's personnel, as well as its customers, to
verify that such certified systems are in fact Year 2000 ready. This additional
validation and testing has two phases. The first phase consists of reassessment
and renovation. The second phase repeats the process of ongoing assessment,
renovation of problems, and validation of corrections. Initial validation of
Year 2000 readiness was completed during the first quarter of 1999. Additional
validation and testing is in process and on schedule.

                                     - 9 -
<PAGE>   10


Costs to Address Year 2000 Issues


         The calculation of costs incurred to address Year 2000 issues has been
limited to costs to bring the Company's products, and its own IT and non-IT
systems to Year 2000 readiness or to accelerate replacement systems to become
Year 2000 ready. Costs incurred in the normal maintenance of the Company's IT
and non-IT systems are not included. The Company estimates it has incurred
approximately $965,000 to date for Year 2000 assessment, renovation, validation,
and implementation and accelerated development costs, and that total costs
through implementation will be approximately $1.1 million.


Risks of the Company's Year 2000 Issues


         As the existing MCMP product operating system and relational database
management system releases could not be confirmed Year 2000 ready, the Company
has decided not to support the MCMP product beyond December 15, 1999. The
Company offered existing clients the ability to migrate to the new CCS product
on favorable terms. A majority of the clients using the old UNIX version of the
MCMP product have migrated to the new CCS product. The remainder have indicated
that they intend to discontinue use of the existing product completely or are
still assessing their systems and migrations options. The Company's ability to
perform migrations by December 15, 1999 is dependent upon the Company's timely
receipt of migration contracts and the technical cooperation of its customers.
The favorable terms and migration services offered to existing customers to
encourage migration to the new CCS product are not expected to have a material
impact on the Company's future operating results or financial position. Because
the Company is not yet aware of the plans of the remaining customers who have
not yet accepted the Company's terms for migration to the new CCS product, the
Company is not yet able to fully evaluate the impact of Year 2000 issues
associated with the UNIX version of the MCMP product. Due to the uncertain
nature of Year 2000 issues and their impact on the industry, the outcome cannot
be predicted at this time. The Company believes that this uncertainty should be
resolved and clarified by the fourth quarter of 1999.


Company's Contingency Plans


         At the current time, the Company anticipates that essential products
and IT and non-IT systems will be validated as Year 2000 ready in all material
respects. This belief is based on the progress to date and the assessed degree
of difficulty associated with the remaining phases to achieve Year 2000
readiness, the representations made by vendors and, where possible, testing.
There can be no assurance, however, of complete Year 2000 readiness. Contingency
plans are under development and the Company anticipates that acceptable
alternatives will be available in the event that a contingency arises. These
contingency plans generally anticipate use of alternative vendors for hardware
and operating systems. Nonetheless, it is not possible for the Company to fully
assess the likelihood or magnitude of consequences of Year 2000 issues, should
representations made by vendors prove to be in error.


Potential Impact of Year 2000 on Company's Business


         The Company anticipates that virtually all of its customers and
potential customers will be required to evaluate the Year 2000 readiness of
their information technology systems. Some of the Company's customers and
potential customers may incur material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may be required to devote material portions of their information technology
budgets to address their own Year 2000 readiness issues. This could materially
reduce their other information technology purchases in 1999, including their
purchases of the Company's products, particularly as the year 2000 date change
draws closer. The Company cannot quantify at this time the degree to which this
issue may affect the Company's customers, potential customers or its own
business.


Year 2000 Information and Readiness Disclosure Act


         This section captioned "Year 2000 Readiness," as well as other
statements herein or otherwise relating to the Year 2000 issues, are "Year 2000
Readiness Disclosures" pursuant to the "Year 2000 Information and Readiness
Disclosure Act."




                                     - 10 -
<PAGE>   11

                         LIQUIDITY AND CAPITAL RESOURCES


         Cash and short-term investments were $6.1 million as of September 30,
1999 compared to $6.5 million as of December 31, 1998.


         During the third quarter, the Company executed a lease to remain in its
existing headquarter office space. The rental payments under the lease will
increase from approximately $40,000 per month to approximately $54,000 per month
beginning December 1, 1999. The term of the lease is seven years.


         The Company anticipates that remaining net proceeds from the initial
public offering and funds generated from operations will be sufficient to meet
its planned ongoing operating and working capital requirements and to finance
planned product development, sales and marketing activities and capital
acquisitions through the next twelve months. Through September 30, 1999, the
Company has incurred cumulative net operating losses of approximately $40.8
million. There can be no assurance that the Company will be profitable in the
future or that present capital will be sufficient to fund the Company's ongoing
operations. If additional financing is required to fund operations, there can be
no assurance that such financing can be obtained or obtained on terms acceptable
to the Company.


                   SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS


         Statements in this filing which are not historical facts are
forward-looking statements under provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect the Company's actual results and could cause its actual results in
fiscal 1999 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.


         Important factors that could cause actual results to differ materially
include but are not limited to the Company's: having sufficient sales and timely
collections to meet cash requirements and achieve profitability; ability to
correctly estimate and address its Year 2000 costs and liabilities; ability to
attract and retain key employees; success of its strategy to concentrate its
product offerings on high-risk, high-cost patients; ability to timely develop
new products and enhance existing products; ability to compete in the
competitive and rapidly evolving healthcare information technology industry;
success of its marketing and consulting efforts and ability to effectively
utilize its direct sales force; ability to protect proprietary information and
to obtain necessary licenses on commercially reasonable terms; ability to comply
with and adopt products and services to potential regulatory changes; and
ability to adapt to economic, political and regulatory conditions affecting the
healthcare industry.


         The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary from quarter to quarter in the
future. Quarterly revenues and operating results may fluctuate as a result of a
variety of factors, including: the Company's relatively long sales cycle;
variable customer demand for its products and services; changes in the Company's
product mix and the timing and relative prices of product sales; the loss of
customers due to consolidation in the healthcare industry; changes in customer
budgets; investments by the Company in marketing or other corporate resources;
acquisitions of other companies or assets; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
distribution channels; sales and marketing promotional activities and trade
shows; and general economic conditions. Further, due to the relatively fixed
nature of most of the Company's costs, which primarily include personnel costs,
as well as facilities costs, any unanticipated shortfall in revenue in any
fiscal quarter would have an adverse effect on the Company's results of
operations in that quarter. Accordingly, the Company's operating results for any
particular quarterly period may not necessarily be indicative of results for
future periods.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


         Information regarding the Company's investment securities as it relates
to market risk is not included as the possible effect of such risk is considered
to be immaterial.



                                     - 11 -
<PAGE>   12

                           PART II - OTHER INFORMATION



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K


(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:

<TABLE>
<CAPTION>
Exhibit Number                                      Description
--------------                                      -----------
<S>               <C>
2.1               Asset Purchase Agreement by and among the Company and Dun &
                  Bradstreet HealthCare Information, Inc. and Cognizant
                  Corporation dated as of December 30, 1996 *

2.2               Asset Purchase Agreement by and among the Company and Iowa Health Centers, P.C. d/b/a Iowa
                  Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart
                  Institute dated as of January 7, 1997 *

2.3               Agreement and Plan of Merger among the Company, NHA
                  Acquisition Corporation, National Health Advisors, Ltd., Scott
                  A. Mason and Donald W. Seymour dated as of June 2, 1997 *****

3.1               Amended and Restated Certificate of Incorporation *****

3.2               By-Laws **

4.1               Specimen Common Stock Certificate **

4.2               Rights Agreement between the Company and First Chicago Trust Company of New York, dated as of
                  May 6, 1997 ***

10.1              APACHE Medical Systems, Inc. Employee Stock Option Plan *****

10.2              APACHE Medical Systems, Inc. Non-Employee Director Option Plan *****

10.3              Sublease Agreement between the Company and First Union National Bank of Virginia, dated March
                  17, 1994 **

10.4              Registration Agreement between the Company and Certain Stockholders, dated December 28, 1995 **

10.5              Form of Warrant Agreement relating to warrants issued in 1995 **

10.6              Warrant Agreement between the Company and Venture Fund of Washington, dated May 13, 1991 **

10.7              Licensing Agreement between the Company and Cerner Corporation, dated February 2, 1995 **

10.8              Nonqualified Stock Option Agreement between the Company and The Cleveland Clinic Foundation,
                  dated August 19, 1994 **

10.9              Agreement between the Company and The George Washington University, dated August 19, 1994 **

10.10             Letter Agreement between the Company and the Northern New England Cardiovascular Disease Study
                  Group, dated March 13, 1995 **

10.11             Licensing Agreement between the Company and Quality Information Management Corporation, dated
                  March 24, 1994 **

10.12             Marketing Agreement between the Company and American Healthcare Systems Purchasing Partners,
                  L.P., dated as of June 3, 1996 **
</TABLE>


                                     - 12 -
<PAGE>   13

<TABLE>
<S>               <C>
10.13             Registration Agreement between the Company and each of Iowa Health Centers, P.C. d/b/a Iowa
                  Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart
                  Institute dated January 7, 1997 *

10.14             Nonqualified Stock Option Agreements between the Company and each of Iowa Health Centers, P.C.
                  d/b/a Iowa Heart Center, P.C., Mercy Hospital Medical Center and Mark A. Tannenbaum, M.D.,
                  dated January 7, 1997 ****

10.15             Security Agreement dated February 11, 1997 made by the Company for the use and benefit of
                  Crestar Bank and corresponding Commercial Note *****

10.16             License Agreement between the Company and Vermont Oxford Network, Inc., Related Services
                  Agreement between the Company and Vermont Oxford Network, Inc. and Consulting Agreement between
                  the Company and Clinimetrics, Inc. each effective as of June 24, 1997 ++*****

10.17             Employment Agreement by and between the Company and Gerald E. Bisbee, Jr., Ph.D., dated May 5,
                  1997 *****

10.18             Employment Agreement by and between the Company and Scott A. Mason, dated June 15, 1999
                  **********

10.19             Nonqualified Stock Option Agreement between the Company and William A. Knaus, M.D. dated May
                  29, 1997 *****

10.20             APACHE Medical Systems, Inc. Employee Stock Option Plan, Amended and Restated Effective May 12,
                  1999 *********

10.21             Form of 1998 Employment Agreement ******

10.22             Form of Nonqualified Director Stock Option Agreement ******

10.23             Employment Agreement by and between Peter Gladkin and the Company, dated May 30, 1998 *******

10.24             Employment Agreement by and between Gina Campbell and the Company, dated August 24,
                  1998********

10.25             Employment Agreement by and between Karen Miller and the Company, dated September 30, 1998 ********

10.26             Employment Agreement by and between Violet Shaffer and the Company, dated April 28, 1998*********

10.27             APACHE Medical Systems, Inc. Non-Employee Director Supplemental Stock Option Plan *********

10.28             Employment Agreement by and between Sean Seerey and the Company, dated May 11, 1999 **********

11.1              Computation of Earnings (Loss) Per Share **********

27.1              Financial Data Schedule **********

++                Confidential treatment was requested for a portion of this Exhibit

*                 Incorporated herein by reference to the Company's Report on Form 8-K filed on January 14, 1997
                  (File No. 0-20805)

**                Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No.
                  333-04106)
</TABLE>

                                     - 13 -
<PAGE>   14

<TABLE>
<S>               <C>
***               Incorporated herein by reference to the Company's Current Report on Form 8-K filed on June 4,
                  1997 (File No. 0-20805)

****              Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
                  March 31, 1997 (File No. 0-20805)

*****             Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
                  June 30, 1997 (File No. 0-20805)

******            Incorporated herein by reference to the Company's Report on Form 10-K for the year ended
                  December 31, 1997 (File No. 0-20805)

*******           Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
                  June 30, 1998 (File No. 0-20805)

********          Incorporated herein by reference to the Company's Report on Form 10-K for the year ended
                  December 31, 1998 (File No. 0-20805)

*********         Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
                  March 31, 1999 (File No. 0-20805)

**********        Filed herewith
</TABLE>
(b)      Reports on Form 8-K

The Company has not filed any reports on Form 8-K during the quarterly period
ended September 30, 1999.



                                     - 14 -
<PAGE>   15


                                   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.


<TABLE>
<CAPTION>
                                                     APACHE MEDICAL SYSTEMS, INC.
<S>                                                  <C>
Date:    November 12, 1999
         -----------------
                                                     By:      /s/Peter Gladkin
                                                              -------------------------
                                                              Peter Gladkin
                                                              President and Chief Executive Officer


                                                     By:      /s/Karen C. Miller
                                                              ---------------------------
                                                              Karen C. Miller
                                                              Vice President of Finance & Chief Financial Officer
</TABLE>


                                     - 15 -
<PAGE>   16

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit Number                            Description
--------------                            -----------
<S>                           <C>
10.18                         Employment Agreement by and between the Company and Scott A. Mason, dated June 15,
                              1999

10.28                         Employment Agreement by and between Sean Seerey and the Company, dated May 11, 1999

11.1                          Computation of Earnings (Loss) Per Share

27.1                          Financial Data Schedule
</TABLE>




                                     - 16 -