<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 June 30, 1998
                               ---------------

                                    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)
<TABLE>
<S>                                                    <C>       
      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)
</TABLE>
                                (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
                                                   ---        ---    
                                  7,299,735
                                  ---------
         (Number of shares of common stock, $.01 par value per share,
                      outstanding as of August 5, 1998)


<PAGE>   2


                         APACHE MEDICAL SYSTEMS, INC.


                                     INDEX


                                                                      Page No.
                                                                      --------
PART I - FINANCIAL INFORMATION


      Item 1.  Financial Statements


               Consolidated Statements of Operations (unaudited) for
               the Three Months and Six Months Ended June 30, 1998
               and 1997                                                       1

               Consolidated Balance Sheets for the Six Months Ended
               June 30, 1998 (unaudited) and Year Ended December 31,
               1997                                                           2

               Consolidated Statements of Changes in Stockholders'
               Equity (Deficit) for the Six Months Ended June 30,
               1998 (unaudited) and Year Ended December 31, 1997              3

               Consolidated Statements of Cash Flows (unaudited) for
               the Six Months Ended June 30, 1998 and 1997                    4

               Notes to Consolidated Financial Statements (unaudited)       5-6

      Item 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                         7-10


PART II - OTHER INFORMATION

      Item 4.  Submission of Matters to a Vote of Security Holders           10
      Item 5.  Other Information                                             11
      Item 6.  Exhibits and Reports on Form 8-K                              11

Signatures                                                                   12

Index to Exhibits                                                            13

<PAGE>   3
                        PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                       JUNE 30,                  JUNE 30,
                                                                 1998         1997         1998         1997
                                                                -------      -------      -------      -------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                             <C>          <C>          <C>          <C>
Revenue                                                         $ 2,277      $ 2,452      $ 5,749      $ 5,518

Expenses:
  Cost of goods sold                                                985        1,441        1,897        2,975
  Selling, general and administrative                             2,045        4,507        4,329        7,658
  Research and development                                          360          700          786        1,371
  Write-off of acquired in-process
     research and development costs                                 -            500          -          1,612
                                                                -------      -------      -------      -------
          Total expenses                                          3,390        7,148        7,012       13,616

Loss from operations                                             (1,113)      (4,696)      (1,263)      (8,098)

Other income (expense):
  Interest income                                                   132          228          286          465
  Interest expense                                                   (8)          (7)         (17)         (15)
  Other, net                                                        -              9          -             10
                                                                -------      -------      -------      -------
Net loss                                                        $  (989)     $(4,466)     $  (994)     $(7,638)
                                                                =======      =======      =======      =======
Basic and diluted net loss per share                            $ (0.14)     $ (0.62)     $ (0.14)     $ (1.05)
                                                                =======      =======      =======      =======
Weighted average number of shares used for
  calculation of net loss per share                               7,289        7,245        7,289        7,242
                                                                =======      =======      =======      =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.


                                       1
<PAGE>   4

                         APACHE MEDICAL SYSTEMS, INC.
                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            JUNE 30,   DECEMBER 31,
                                                                              1998          1997
                                                                            -------      --------
                                                                            (IN THOUSANDS EXCEPT
                                                                                SHARE DATA)
ASSETS                                                                    (unaudited)
CURRENT ASSETS:
<S>                                                                         <C>           <C>
Cash and cash equivalents                                                   $  6,068      $  5,634
Short-term investments                                                         2,194         5,683

Accounts receivable, net                                                       3,022         1,235
Other trade receivables                                                           52            51
Prepaid expenses and other                                                       457           405
                                                                            --------      --------
      TOTAL CURRENT ASSETS                                                    11,793        13,008

Other trade receivables, net of current maturities                                31            57

Furniture and equipment                                                        3,518         3,355
Less accumulated depreciation and amortization                                (2,401)       (2,095)
                                                                            --------      --------
                                                                               1,117         1,260

Intangible assets, net                                                           552           611
                                                                            --------      --------
      TOTAL ASSETS                                                          $ 13,493      $ 14,936
                                                                            ========      ========


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                            $    561      $    553
Accrued expenses                                                               4,425         5,580
Deferred revenue                                                               2,391         1,630
Current maturities of obligations under capital leases                            17            16
Current maturities of notes payable - other                                       56            95
                                                                            --------      --------
      TOTAL CURRENT LIABILITIES                                                7,450         7,874

Deferred rent benefit                                                             93           117
Obligations under capital leases, net of current maturities                       38            47
Notes payable - other, net of current maturities                                   8            32
                                                                            --------      --------
      TOTAL LIABILITIES                                                        7,589         8,070

STOCKHOLDERS' EQUITY:

Common stock, $.01 par value, authorized shares, 30,000,000 at June 30,
1998 and December 31, 1997; issued and outstanding shares, 7,299,735
at June 30, 1998 and 7,267,756 at December 31, 1997.                              73            73

Additional paid-in capital                                                    45,735        45,703

Accumulated deficit                                                          (39,904)      (38,910)

                                                                            --------      --------
      TOTAL STOCKHOLDERS' EQUITY                                               5,904         6,866
                                                                            --------      --------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 13,493      $ 14,936
                                                                            ========      ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.


                                       2
<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, AS PREVIOUSLY REPORTED                 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 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                                                     31,979             -            32             -             32
Net loss                                                                 -             -             -          (994)          (994)
                                                                 ---------     ---------     ---------     ---------      ---------
BALANCE AT JUNE 30, 1998 (UNAUDITED)                             7,299,735     $      73     $  45,735     ($ 39,904)     $   5,904
                                                                 =========     =========     =========     =========      =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.


                                       3
<PAGE>   6

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

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED JUNE 30,
                                                                                   1998             1997
                                                                                 --------        --------
                                                                                       (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>             <C>
  Net loss                                                                       $  (994)        $(7,638)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
      Depreciation and amortization                                                  364             530
      Provision for doubtful accounts                                                 30             370
      Stock options issued                                                            -               21
      Write-off of acquired in-process research and development costs                 -            1,612
      Cost of acquisition                                                             -              732
      Changes in operating assets and liabilities:
           Accounts receivable                                                    (1,817)            137
           Other trade receivables                                                    25             173
           Other current assets                                                      (52)            (70)
           Intangible assets                                                          (1)            (35)
           Accounts payable and accrued expenses                                  (1,147)            620
           Deferred rent                                                             (24)            (17)
           Deferred revenue                                                          761             196
                                                                                 --------        --------
       NET CASH USED IN OPERATING ACTIVITIES                                      (2,855)         (3,369)

CASH FLOWS FROM INVESTING ACTIVITIES:

  Capitalized software development costs                                              -             (308)
  Purchase of furniture and equipment                                               (163)           (408)
  Purchase acquisitions                                                               -           (2,915)
  Decrease in short-term investments                                               3,489              - 
                                                                                 --------        --------
       NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES                       3,326          (3,631)

CASH FLOWS FROM FINANCING ACTIVITIES:

  Principal payments on capital lease obligations                                     (8)            (56)
  Principal payments on borrowings                                                   (63)           (178)
  Proceeds from issuance of notes payable                                              -              20
  Proceeds from issuance of common stock under employee stock purchase plan           32               -
  Proceeds from issuance of common stock upon exercise of options                                     59
                                                                                 --------        --------
       NET CASH USED IN FINANCING ACTIVITIES                                         (39)           (155)
                                                                                 --------        --------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                            434          (7,155)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   5,634          20,928
                                                                                 --------        --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $ 6,068         $13,773
                                                                                 ========        ========
SUPPLEMENTAL INFORMATION:
  Cash payments for interest                                                     $    18         $    17
                                                                                 ========        ========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.

                                       4
<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, 1997 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 requiring production activities
both before and subsequent to delivery is recognized by the
percentage-of-completion method using significant milestones to estimate
progress toward completion. Sales of other systems and products are
recognized at delivery provided that no significant vendor obligations
remain. 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.

                                       5
<PAGE>   8


3.     NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 is currently effective and does not have a
material impact on the Company. SFAS No. 131 becomes effective for the
Company's 1998 financial statements. The Company has evaluated SFAS No. 131
and determined there is no impact on its reporting and disclosure
requirements.

The American Institute of Certified Public Accountants 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 15,
1997. The Company has adopted SOP 97-2 and the changes contained in SOP 97-2
do not have a material financial impact on the Company.

In February 1997, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post Retirement Benefits." The Company will adopt the
disclosure requirements for the year ending December 31, 1998 and does not
expect it will have a material financial impact on the Company.

4.     STOCKHOLDERS' EQUITY

Stock Options

On January 2, 1998, the Board of Directors authorized a repricing program
which allowed active current employees to reprice all their outstanding
options to purchase Common Stock of the Company for a like number of shares
at an exercise price of $2 per share. Options to purchase approximately
480,044 shares of Common Stock were repriced. Stock options that have been
repriced may not be exercised until July 2, 1998. The vesting schedule will
be as follows: 20% would vest immediately for employees with the Company for
at least one year; 20% would vest on each anniversary over the next five
years; and for employees with the Company less than one year, options will
vest ratably over five years from the date of grant.

On January 2, 1998, the Board of Directors authorized a repricing of stock
options to a Financial Advisor. Options to purchase approximately 22,029
shares of Common Stock granted were cancelled and newly issued at $2.00 per
share and vest immediately as of January 2, 1998.

Effective January 28, 1998, the Board of Directors granted an aggregate of
156,000 performance-based incentive stock options to twelve members of the
Company's senior staff. The exercise price of these options is equal to the
fair market value of the Company's Common Stock on January 28, 1998 or $1.28.
The options will vest on a quarterly basis, based upon the Company's
realization of the 1998 operating budget. The options will vest on January
28, 2003, regardless of whether the 1998 performance criteria have been
satisfied, if the employee remains employed by the Company at that time.


                                       6
<PAGE>   9



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

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997

On June 2, 1997, the Company acquired all the common stock of National Health
Advisors, Ltd. ("NHA") in exchange for 367,564 shares of the Company's Common
Stock. NHA is a healthcare management consulting firm focused on strategy and
management support services for progressive healthcare organizations and
networks. The merger was accounted for as a pooling-of-interests.
Accordingly, the Company's financial statements were previously restated to
include the results of NHA for all periods presented.

REVENUE. Revenue for the quarter ended June 30, 1998 decreased 7% to $2.3
million from $2.5 million in the prior year period. Revenue for the six
months ended June 30, 1998 increased 4% to $5.7 million from $5.5 million in
the prior year period. This decrease is a result of changes in the
implementation schedule of Critical Care Series ("CCS") products offset by
increases in volume of the Health Outcomes Research services. These changes to
the CCS products included strategic product decisions to transition the systems
interface engine from a proprietary product to a commercially available product
thereby impacting the milestones under which the Company recognizes revenue.

COST OF GOODS SOLD. Cost of goods sold for the quarter ended June 30, 1998
decreased 32% to $985,000 from $1.4 million in the prior year period. Cost of
goods sold for the six months ended June 30, 1998 decreased 36% to $1.9
million from $3.0 million in the prior year period. This decrease from the
prior year was due to decreases in revenues, staffing requirements, and third
party license fees for systems and related products; services that the
Company has discontinued or postponed; the development of certain other
products; and the decision to focus primarily on products for critical care
patients, which resulted in the Company's restructuring charge of $1.6
million during the third quarter of 1997.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the quarter ended June 30, 1998 decreased 55% to $2.0 million
from $4.5 million in the prior year period. Selling, general and
administrative expenses for the six months ended June 30, 1998 decreased 43%
to $4.3 million from $7.7 million in the prior year period. This was due
primarily to a decrease in overhead costs associated with the Company's
restructuring during the third quarter of 1997.

RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter
ended June 30, 1998 decreased 49% to $360,000 from $700,000 in the prior year
period. Research and development expenses for the six months ended June 30,
1998 decreased 43% to $786,000 from $1.4 million in the prior year period.
The decrease was due primarily to a decrease in staffing requirements related
to the development of new products and services that the Company has
discontinued or postponed as a result of the Company's restructuring during
the third quarter of 1997. During the six months ended June 30, 1998, no
product development costs were capitalized, compared to $308,000 in the prior
year period, as technological feasibility on the Company's products under
development had not been achieved.

WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In January
1997, the Company acquired the assets of CardioMac, a point-of-care data
collection and reporting tool for the cardiac

                                       7
<PAGE>   10

catheterization laboratory and cardiovascular operating room, from 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. At the time of the acquisition,
the Company recorded a non-recurring charge resulting from the write-off of the
acquired in-process research and development costs. This charge totaled $1.1
million.

In June 1997, the Company purchased a neonatal database from the
Vermont-Oxford Network, Inc. In connection with the acquisition, the Company
recorded a one-time charge related to in-process research and development
costs of approximately $500,000.

OTHER INCOME (EXPENSE). Other income (expense) decreased from $230,000 for
the quarter ended June 30, 1997 to $124,000 for the quarter ended June 30,
1998. Other income (expense) decreased from $460,000 for the six months ended
June 30, 1997 to $269,000 for the six months ended June 30, 1998. The
decrease is due to a decrease in interest income as a result of a reduction
in cash.

YEAR 2000 READINESS. 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, that was sold to
customers prior to 1997 will not function properly as January 1, 2000
approaches. The Company has focused its attention on its next generation CCS
product (for which the Company has taken orders in 1997). It is Year 2000
ready and includes new features and enhancements. The CCS product operates on
a PC based client/UNIX server platform, supporting Windows 95. The costs
expended for CCS product development are being expensed as incurred.

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 two years on favorable terms. A majority of the
clients using the old UNIX version of the MCMP product have indicated an
intent to migrate to the new CCS product. A few have indicated that they
intend to discontinue use of the product completely, and, like many
participants in the health care industry, several are still assessing their
systems and migration options. The Company has entered into an agreement with
a vendor to perform additional migration activities. The use of existing
company resources augmented by this third party vendor is expected to provide
sufficient resources to enable all migration activities to be completed by
October 1999. The favorable terms and migration services offered to 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 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.

Currently, the Company has identified several internal computer systems that
are not Year 2000 ready. It is not expected that upgrading or replacing other
internal systems that are not Year 2000 ready will have a material effect in
1998 on the Company's financial statements taken as a whole.


LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments were $8.2 million as of June 30, 1998
compared to $11.3 million as of December 31, 1997.

                                       8
<PAGE>   11

In April 1997, the Company entered into a secured revolving line of credit
from Crestar Bank providing for a borrowing capacity of $2.0 million.
Borrowings bear interest at a fluctuating rate equal to the Bank's prime rate
plus 0.25%. The Company also pays an annual fee on the total borrowing
capacity of $2.0 million at a rate of 0.75% per annum. Borrowings are
collateralized by the Company's accounts receivable and all other uncommitted
assets. The line of credit expired on May 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 working capital requirements and to finance planned product
development, sales and marketing activities and capital acquisitions through
1998. Through June 30, 1998, the Company has incurred cumulative net operating
losses of approximately $39.9 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. The Company believes that
its current operating funds will be sufficient to meet its planned ongoing
operating and working capital requirements and to finance planned product
development, sales and marketing activities through 1998. 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.

The Company does not believe the impact of inflation has significantly
affected the Company's operations.

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 1998
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.



                                       9
<PAGE>   12

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 attract and retain key employees and to successfully replace its
chief financial officer; 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; ability to
correctly estimate and manage its Year 2000 costs and liabilities; 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; and ability to
comply with and adopt products and services to potential regulatory changes.

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.




                          PART II - OTHER INFORMATION

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

(a)     The Annual Meeting of Stockholders was held on May 19, 1998.

(b)     Not applicable.

(c)     At such meeting all six of the nominees for election as directors were
        elected to hold office until the next Annual Meeting.  The votes
        cast with respect to each nominee for election as a director were as
        follows:

<TABLE>
       <S>                           <C>                 <C>
        Nominee                         For              Withheld
        Gerald E. Bisbee, Jr., Ph.D. 5,534,693           180,677
        Edward J. Connors            5,674,977            40,393
        Thomas W. Hodson             5,674,977            40,393
        William A. Knaus             5,653,477            61,893
        Lawrence S. Lewin            5,674,977            40,393
        Francis G. Ziegler           5,674,977            40,393
</TABLE>

                                       10
<PAGE>   13

      At such meeting the stockholders ratified the appointment of Arthur
      Andersen LLP as the Company's independent accountants for the year
      ending December 31, 1998. The votes cast with respect to such matters
      were as follows:

      For       5,704,129
      Against       5,301
      Abstain       5,940

Item 5. Other Information

On June 3, 1998 Peter Gladkin was appointed President and Chief Executive
Officer of the Company effective July 1, 1998. Most recently, Mr. Gladkin,
was President and Chief Operating Officer of Health Data Sciences
Corporation, a leading provider of clinical information systems. As a result
of Mr. Gladkin's appointment, the Company's interim management committee
consisting of the Company's Chairman of the Board, another director, and two
senior officers of the Company was dissolved effective June 30, 1998.

Effective July 15, 1998, Mr. Francis G. Ziegler resigned his position on the
Company's Board of Directors. Mr. Ziegler had been a director since 1994.
The Company has begun a search to replace this position.

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>
10.24      Consulting Agreement by and between Peter Gladkin and the Company,
           dated May 12, 1998
10.25      Employment Agreement by and between Peter Gladkin and the Company,
           dated May 30, 1998
10.26      Incentive Stock Option Agreement by and between the Company and Peter
           Gladkin, dated April 17, 1998
11.1       Computation of Earnings (Loss) Per Share
27.1       Financial Data Schedule
</TABLE>

(b)   Reports on Form 8-K

      The Company has not filed any reports on Form 8-K for the quarterly
      period ended June 30, 1998.


                                       11
<PAGE>   14


                                  SIGNATURES

            Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


                                    APACHE MEDICAL SYSTEMS, INC.


<TABLE>
<S>                                 <C>  
Date: August 14, 1998               /s/ Peter Gladkin
     -------------------------      -----------------
                                    Peter Gladkin
                                    President and Chief Executive Officer
                                    (Duly Authorized Officer and Chief
                                    Financial Officer and Accounting Officer)
</TABLE>



                                       12
<PAGE>   15



                              INDEX TO EXHIBITS

Exhibit
Number      Description
-------     -----------
10.24      Consulting Agreement by and between Peter Gladkin and the Company,
           dated May 12, 1998
10.25      Employment Agreement by and between Peter Gladkin and the Company,
           dated May 30, 1998
10.26      Incentive Stock Option Agreement by and between the Company and Peter
           Gladkin, dated April 17, 1998
11.1       Computation of Earnings (Loss) Per Share
27.1       Financial Data Schedule

                                       13