<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 March 31, 1999
                               ----------------------------
                            or

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

For the transition period from______________ to______________

Commission file number                    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
                                             ---   ---

                                        7,343,176
                                        ---------

    (Number of shares of common stock, $.01 par value per share, outstanding
                               as of May 1, 1999)


                                      1
<PAGE>   2


                          APACHE MEDICAL SYSTEMS, INC.

                                      INDEX

<TABLE>
<CAPTION>

                                                                                      PAGE NO.
                                                                                      --------
<S>                                                                                <C>
PART I - FINANCIAL INFORMATION

     Item 1.  Financial Statements

          Consolidated Statements of Operations (unaudited) for the Three
           Months Ended March 31, 1999 and 1998                                           

          Consolidated Balance Sheets for the Three Months Ended March
           31, 1999 (unaudited) and Year Ended December 31, 1998                          

          Consolidated Statements of Changes in Stockholders' Equity
           (Deficit) for the Three Months Ended March 31, 1999 (unaudited)
           and Year Ended December 31, 1998                                               

          Consolidated Statements of Cash Flows (unaudited) for the Three
           Months Ended March 31, 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>
                                                                   1999               1998
                                                                 ----------        -----------
<S>                                                             <C>                <C>
        (IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue                                                          $   3,309         $    3,472

Expenses:
  Cost of goods sold                                                   261                910
  Research and development                                             251                426
  Selling, general and administrative                                2,426              2,286
                                                                 ----------        -----------
          Total expenses                                             2,938              3,622

Income (Loss) from Operations                                          371               (150)

Other income (expense):
  Interest income                                                       93                154
  Interest expense                                                      (9)                (9)
  Other, net                                                             1                  -
                                                                 ----------        -----------
         Total other income (expense)                                   85                145

Net Income (Loss)                                                $     456         $       (5)
                                                                 ==========        ===========

Basic and diluted net income (loss) per share                    $     0.06        $     (0.00)
                                                                 ==========        ===========

Weighted average number of shares used for
calculation of net income (loss) per share                            7,338              7,282
                                                                 ==========        ===========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.

                                       3

<PAGE>   4


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



<TABLE>
<CAPTION>
                                                                         MARCH 31,              DECEMBER 31,
                                                                            1999                    1998
                                                                     -----------------      --------------------
                                                                          (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                                 <C>                     <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                            $          6,450        $            5,532
Short-term investments                                                            549                     1,000
Accounts receivable, net                                                        2,827                     2,972
Prepaid expenses and other                                                        638                       749
                                                                     -----------------      --------------------
      TOTAL CURRENT ASSETS                                                     10,464                    10,253

Other trade receivables, net of current maturities                                                            4

Furniture and equipment                                                         3,592                     3,589
Less accumulated depreciation and amortization                                 (2,843)                   (2,704)
                                                                     -----------------      --------------------
                                                                                  749                       885

Capitalized Software Costs, net                                                   566                       506
Intangible assets, net                                                            465                       494
                                                                     -----------------      --------------------
      TOTAL ASSETS                                                   $         12,244       $            12,142
                                                                     =================      ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                     $            838       $             1,129
Accrued expenses                                                                2,918                     3,667
Deferred revenue                                                                3,895                     3,158
Current maturities of long term obligations                                       175                       180
                                                                     -----------------      --------------------
      TOTAL CURRENT LIABILITIES                                                 7,826                     8,134

Deferred rent benefit                                                              47                        62
Maturities of long term obligations, net of current maturities                    165                       206
                                                                     -----------------      --------------------
      TOTAL LIABILITIES                                                         8,038                     8,402

STOCKHOLDERS' EQUITY:

Common stock, $.01 par value, authorized shares, 30,000,000
at March 31, 1999 and December 31, 1998: issued and outstanding
shares, 7,343,176 at March 31, 1999 and 7,330,473 at
December 31, 1998.                                                                 73                        73
Additional paid-in capital                                                     45,780                    45,770
Accumulated deficit                                                           (41,647)                  (42,103)

                                                                     -----------------      --------------------
      TOTAL STOCKHOLDERS' EQUITY                                                4,206                     3,740
                                                                     -----------------      --------------------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $         12,244       $            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
                                                                      --------------------------------
(in thousands, except share data)                                         SHARES            AMOUNT
                                                                      ----------------  --------------
<S>                                                                   <C>                <C>
BALANCE, JANUARY 1, 1997                                                     7,238,922             72
Issuance of common stock options                                                     -              -
Exercise of common stock options                                                10,490              -
Issuance of common stock under Employee Stock Purchase Plan                     18,344              1
Net Income (Loss)                                                                    -              -
                                                                      ----------------- --------------
BALANCE AT DECEMBER 31, 1997                                                 7,267,756             73
Issuance of common stock under Employee Stock Purchase Plan                     62,717              -
Net Income (Loss)                                                                    -              -
                                                                      ----------------------------------
BALANCE AT DECEMBER 31,1998                                                  7,330,473             73
Issuance of common stock under Employee Stock Purchase Plan                     12,703              -
Net Income (Loss)
                                                                      ----------------------------------
BALANCE AT MARCH 31, 1999 (UNAUDITED)                                        7,343,176            $73
                                                                      ==================================

<CAPTION>
                                                                        ADDITIONAL
                                                                         PAID-IN           ACCUMULATED
(in thousands, except share data)                                        CAPITAL             DEFICIT             TOTAL
                                                                    -----------------    ----------------  ------------------
<S>                                                                 <C>                  <C>               <C>
BALANCE, JANUARY 1, 1997                                                      45,325             (22,992)             22,405
Issuance of common stock options                                                 291                   -                 291
Exercise of common stock options                                                  30                   -                  30
Issuance of common stock under Employee Stock Purchase Plan                       57                   -                  58
Net Income (Loss)                                                                  -             (15,918)            (15,918)
                                                                    -----------------    ----------------  ------------------
BALANCE AT DECEMBER 31, 1997                                                  45,703             (38,910)              6,866
Issuance of common stock under Employee Stock Purchase Plan                       67                   -                  67
Net Income (Loss)                                                                  -              (3,193)             (3,193)
                                                                    ---------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                                  45,770             (42,103)              3,740
Issuance of common stock under Employee Stock Purchase Plan                       10                   -                  10
Net Income (Loss)                                                                                    456                 456
                                                                    ---------------------------------------------------------
BALANCE AT MARCH 31, 1999 (UNAUDITED)                                        $45,780            ($41,647)             $4,206
                                                                    =========================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                       5

<PAGE>   6

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

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED
                                                                           31-MAR-99           31-MAR-98
                                                                         ------------------------------------
                                                                                    (in thousands)
<S>                                                                      <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                                                      $          456       $           (5)
  Adjustments to reconcile net income (loss) to net cash
  from (used in) operating activities:
      Depreciation and amortization                                                 206                  180
      Provision for doubtful accounts                                               616                   30
      Changes in operating assets and liabilities:
           Accounts receivable                                                     (427)              (2,220)
           Other trade receivables                                                   13                   13
           Other current assets                                                      59                   78
           Accounts payable and accrued expenses                                 (1,040)                (434)
           Deferred rent                                                            (15)                 (12)
           Deferred revenue                                                         736                1,241
                                                                         ---------------      ---------------

       NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES                        604               (1,129)

CASH FLOWS FROM INVESTING ACTIVITIES:

  Capitalized software development costs                                            (98)                   -
  Purchase of furniture and equipment                                                (4)                 (93)
  Decrease in short-term investments                                                451                  998
                                                                         ---------------      ---------------

       NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES                        349                  905

CASH FLOWS FROM FINANCING ACTIVITIES:

  Principal payments on capital lease obligations                                    (4)                  (4)
  Principal payments on borrowings                                                  (41)                 (42)
  Proceeds from issuance of common stock under employee stock purchase
    plan                                                                             10                   14
                                                                         ---------------      ---------------

       NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES                        (35)                 (32)
                                                                         ---------------      ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                918                 (256)

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $        6,450       $        5,378
                                                                         ===============      ===============

SUPPLEMENTAL INFORMATION:
  Cash payments for interest                                             $           12                   10
                                                                         ===============      ===============
</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 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 loss per share includes no dilution and is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted 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 loss per share
as their effect would be anti-dilutive. Diluted net 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 MONTHS ENDED MARCH 31, 1999 AND 1998

REVENUE. Revenue for the quarter ended March 31, 1999 decreased 5% to $3.3
million from $3.5 million in the prior year period. This decrease is related to
a decrease in revenue from Professional Services, primarily in Health Outcomes
Research and Clinical Consulting, offset in part by increases in Systems
revenue.

COST OF GOODS SOLD. Cost of goods sold for the quarter ended March 31, 1999
decreased 71% to $261,000 from $910,000 in the prior year period. This decrease
was due to a decrease in the cost of goods sold related to the Critical Care
Series ("CCS") migrations. 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 March 31, 1999 increased 6% to $2.4 million from
$2.3 million in the prior year period. This increase was due primarily to an
increase in bad debt expense offset in part by an overall reduction in selling,
general and administrative expenses.

RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter
ended March 31, 1999 decreased 41% to $251,000 from $426,000 in the prior year
period. The decrease was due to an increase in capitalized software development
costs and improvements in productivity in product generation processes that
resulted in decreases in consulting expense, staffing requirements and related
costs. During the three months ended March 31, 1999, capitalized software
development costs were $98,000, compared to zero in the prior year period.

OTHER INCOME (EXPENSE). Other income (expense) decreased from $145,000 for the
quarter ended March 31, 1998 to $85,000 for the quarter ended March 31, 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 software 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


                                       8
<PAGE>   9

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 third 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. The Company has completed
renovation and validation activities on modules of the CCS product and has begun
to implement 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 will begin
in May 1999. The HIV Manger product has been renovated and is currently being
validated. Validation is scheduled to be completed in June 1999.

Other software applications products sold by the Company are presently in the
assessment phase. The assessments of these products were completed in December
1998. An action plan is being created for the renovation, validation, and
implementation of changes to deliver Year 2000 ready products by late 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, consisting of
reassessment and renovation started during the third quarter of 1998, is
currently on schedule and in process. The second phase will repeat the process
of ongoing assessment, renovation of problems, and validation of corrections.
Validation of Year 2000 readiness was completed during the first quarter of
1999.

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
$900,000 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 October 1999. The Company has offered
existing clients the ability to migrate to the new CCS product during the next
year on favorable terms. A majority of the clients using the old UNIX version of
the MCMP product have migrated or signed contracts to migrate to the new CCS
product. A few have indicated that

                                       9
<PAGE>   10

they intend to discontinue use of the existing product completely, and, like
many participants in the healthcare industry, several are still assessing their
systems and migration options. The Company's ability to perform migrations by
October 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.

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."

LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments were $7.0 million as of March 31, 1999 compared
to $6.5 million as of December 31, 1998.

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 1999. Through March 31, 1999, the Company has incurred
cumulative net operating losses of approximately $41.6 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

                                       10
<PAGE>   11

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.

                           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 **
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 2, 1997 +*****
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
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 +*********
11.1          Computation of Earnings (Loss) Per Share *********
27.1          Financial Data Schedule *********
</TABLE>


<TABLE>
<CAPTION>
--------
<S>         <C>
        +   Reflects management contract or other compensatory arrangement required
            to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K
        ++  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)
      ***   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)
*********   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 March 31, 1999.

                                       11

<PAGE>   12

<TABLE>
<CAPTION>
--------
<S>         <C>
        +   Reflects management contract or other compensatory arrangement required
            to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K
        ++  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)
      ***   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)
*********   Filed herewith
</TABLE>
<PAGE>   13


                                   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.

                                   APACHE MEDICAL SYSTEMS, INC.


       Date: May 14, 1999            /s/Peter Gladkin
       ------------------            -------------------------
                                     Peter Gladkin
                                     President and Chief Executive Officer

                                     /s/Karen C. Miller
                                     -------------------------
                                     Karen C. Miller
                                     Vice President of Finance & Chief Financial
                                     Officer


                                       12



<PAGE>   14




                                INDEX TO EXHIBTS
<TABLE>
<CAPTION>
Exhibit Number      Description
-------------------------------
<S>                           <C>
10.20         APACHE Medical Systems, Inc. Employee Stock Option Plan,
              Amended and Restated Effective May 12, 1999
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 
11.1          Computation of Earnings (Loss) Per Share

27.1          Financial Data Schedule
</TABLE>



                                       13