<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

For the quarterly period ended              MARCH 31, 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 0-16752
                                                -------

                          MEDSTONE INTERNATIONAL, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          DELAWARE                                     66-0439440
--------------------------------------------------------------------------------
(State or other jurisdiction of                     (I.R.S. Employer
 incorporation or organization)                    Identification No.)

100 COLUMBIA, SUITE 100, ALISO VIEJO, CALIFORNIA              92656
--------------------------------------------------------------------------------
  (Address of principal executive offices)                  (Zip code)

Registrant's telephone number, including area code:        (949) 448-7700
                                                    ----------------------------

                                 Not Applicable
--------------------------------------------------------------------------------
        (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
                                                            -----         -----

The number of shares of the Common Stock of the registrant outstanding as of
May 4, 1998 was 5,212,050.


<PAGE>   2

                          MEDSTONE INTERNATIONAL, INC.

                               INDEX TO FORM 10-Q

                          PART I. FINANCIAL INFORMATION
                          -----------------------------

<TABLE>
<CAPTION>

                                                                                        Page No.
                                                                                        --------
<S>                                                                                    <C>
Item 1.   Financial Statements:

          Condensed Consolidated Balance Sheets
              March 31, 1998 (Unaudited) and
              December 31, 1997                                                            3

          Condensed Consolidated Statements of Income (Unaudited)
              Three Months Ended March 31, 1998 and 1997                                   4

          Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
              Three Months Ended March 31, 1998                                            5

          Condensed Consolidated Statements of Cash Flows (Unaudited)
              Three Months Ended March 31, 1998 and 1997                                   6

          Notes to Unaudited Condensed Consolidated Financial Statements                   7


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


                           PART II. OTHER INFORMATION
                           --------------------------

Item 1.   Legal Proceedings                                                               14

Item 2.   Changes in Securities                                                           14

Item 3.   Defaults Upon Senior Securities                                                 14

Item 4.   Submission of Matters to a Vote of Security Holders                             14

Item 5.   Other Information                                                               14

Item 6.   Exhibits and Reports on Form 8-K                                                14

Signatures                                                                                15

</TABLE>


                                      - 2 -

<PAGE>   3

                          MEDSTONE INTERNATIONAL, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                        MARCH 31,        DECEMBER 31,
                                                                          1998               1997
                                                                      ------------       -------------

                                               ASSETS
                                               ------
<S>                                                                   <C>               <C>
Current assets:
    Cash and equivalents                                              $  2,200,094       $  1,125,009
    Short-term investments                                               8,438,699          9,900,909
    Accounts receivable, less allowance for doubtful accounts of
        $544,000 and $535,000 in 1998 and 1997, respectively             3,363,933          3,120,787
    Inventories                                                          2,776,504          2,680,220
    Deferred tax assets                                                    891,507            891,507
    Income taxes receivable                                                632,851            632,851
    Prepaid expenses and other current assets                              766,020            455,974
                                                                      ------------       ------------
Total current assets                                                    19,069,608         18,807,257

Property and equipment:
    Lithotripters                                                        8,816,493          8,524,314
    Equipment                                                              898,001            815,585
    Furniture and fixtures                                                 835,206            821,565
    Leasehold improvements                                                 140,734            138,698
                                                                      ------------       ------------
                                                                        10,690,434         10,330,162
                                                                      ------------       ------------
Less accumulated depreciation and amortization                          (5,116,756)        (4,721,618)
                                                                      ------------       ------------
        Net property and equipment                                       5,573,678          5,578,544
                                                                      ------------       ------------

Goodwill, net                                                            3,245,146          3,266,162
Other assets, net                                                          128,794             36,425
                                                                      ------------       ------------
                                                                      $ 28,017,226       $ 27,688,388
                                                                      ============       ============

                                LIABILITIES AND STOCKHOLDERS' EQUITY
                                ------------------------------------
Current liabilities:
    Accounts payable                                                  $    554,800       $    887,740
    Accrued expenses                                                       255,374            210,421
    Accrued income taxes                                                   554,510                ---
    Accrued payroll expenses                                               334,833            239,504
    Customer deposits                                                       75,000            132,699
    Deferred revenue                                                     1,157,844          1,080,899
                                                                      ------------       ------------
          Total current liabilities                                      2,932,361          2,551,263

Deferred tax liabilities                                                   649,524            649,524
Minority interest                                                          385,508            366,654
Stockholders' equity:
    Common stock - $.004 par value, 20,000,000 shares authorized,
       5,640,616 and 5,634,788 shares issued and outstanding at
       March 31, 1998 and December 31, 1997, respectively                   22,562             22,539
    Additional paid-in capital                                          19,023,208         18,998,260
    Accumulated earnings                                                 8,392,379          7,436,263
    Stock purchase notes receivable                                       (134,800)          (134,800)
    Accumulated other comprehensive income/(loss)                               45               (579)
    Treasury stock (379,200 shares at cost at March 31,
        1998 and 268,800 shares at December 31, 1997)                   (3,253,561)        (2,200,736)
                                                                      ------------       ------------

        Total stockholders' equity                                      24,049,833         24,120,947
                                                                      ------------       ------------
                                                                      $ 28,017,226       $ 27,688,388
                                                                      ============       ============
</TABLE>

                             See accompanying notes

                                      - 3 -

<PAGE>   4
                          MEDSTONE INTERNATIONAL, INC.

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       1998            1997
                                                                   ------------    ------------
<S>                                                                <C>            <C>
Revenues:
   Net equipment sales.........................................    $    697,000    $    776,900
   Procedures, maintenance and management fees.................       5,023,897       4,054,687
   Interest income.............................................         130,792         130,541
                                                                   ------------    ------------

      Total revenues...........................................       5,851,689       4,962,128
Costs and expenses:
   Cost of equipment sales.....................................         626,543         564,155
   Costs of procedures and maintenance fees...................        2,261,179       1,706,324
   Research and development....................................         275,439         194,165
   Selling.....................................................         521,290         558,270
   General and administrative..................................         552,760         547,762
   Legal and other (income) expense............................         (88,767)         12,074
                                                                   ------------     -----------
   Total costs and expenses....................................       4,148,444       3,582,750
                                                                   ------------    ------------
Income before provision for income taxes  .....................       1,703,245       1,379,378
Provision for income taxes.....................................         598,000         440,000
Minority interest in subsidiaries income.......................         149,129          78,924
                                                                   ------------    ------------

Net income ....................................................    $    956,116    $    860,454
                                                                   ============    ============

Earnings per share:
      Basic....................................................    $        .18    $        .16
                                                                   ============    ============
      Diluted..................................................    $        .18    $        .16
                                                                   ============    ============

Number of shares used in the computation of earnings per share:
      Basic....................................................       5,279,439       5,440,304
                                                                   ============    ============
      Diluted..................................................       5,436,896       5,509,381
                                                                   ============    ============

</TABLE>



                             See accompanying notes.


                                      - 4 -

<PAGE>   5
                          MEDSTONE INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                   COMMON STOCK                                            ACCUMULATED
                                ------------------ ADDITIONAL                              OTHER
                                NUMBER OF          PAID-IN     ACCUMULATED STOCK PURCHASE  COMPREHENSIVE TREASURY
                                SHARES      AMOUNT CAPITAL     EARNINGS    NOTE RECEIVABLE INCOME/(LOSS) STOCK        TOTAL
                                ---------  ------- ----------- ----------- --------------- ------------- -----------  -----------
<S>                             <C>        <C>     <C>         <C>         <C>            <C>            <C>          <C>
BALANCE AT DECEMBER 31, 1997    5,365,988  $22,539 $18,998,260 $7,436,263  $(134,800)       $  (579)     $(2,200,736) $24,120,947

Common stock options exercised      5,828       23      24,948        ---        ---            ---              ---       24,971

Treasury stock repurchased       (110,400)     ---         ---        ---        ---            ---       (1,052,825)  (1,052,825)

Unrealized gain on short-term
  investments                         ---      ---         ---        ---        ---            624              ---          624

Net income                            ---      ---         ---    956,116        ---            ---              ---      956,116
                                ---------  ------- ----------- ----------  ---------        -------      -----------  -----------

BALANCE AT MARCH 31,
  1998 (UNAUDITED)              5,261,416  $22,562 $19,023,208 $8,392,379  $(134,800)       $    45      $(3,253,561) $24,049,833
                                =========  ======= =========== ==========  =========        =======      ===========  ===========

</TABLE>



                             See accompanying notes

                                      - 5 -

<PAGE>   6
                          MEDSTONE INTERNATIONAL, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                      1998               1997
                                                                 --------------    ---------------
<S>                                                              <C>              <C>
Cash flows from operating activities:
   Net income ................................................   $      956,116    $       860,454

   Adjustments to reconcile net income to net cash provided 
    by (used in) operating activities:
     Depreciation and amortization............................          416,154            378,038
     Provision for bad debt...................................           45,000             20,000
     Minority interest in partnerships........................          149,129             78,924
     Changes in assets and liabilities:
       Accounts receivable....................................         (288,146)          (645,227)
       Inventories............................................          (96,284)            32,892
       Deferred taxes.........................................              ---            440,000
       Note receivable........................................              ---            125,000
       Prepaid expenses and other current assets..............         (310,046)            32,667
       Accounts payable and accrued expenses..................         (345,686)          (493,001)
       Accrued payroll expenses...............................           95,329            (41,995)
       Accrued income taxes ..................................          554,510           (134,734)
       Deferred revenue.......................................           76,945             69,342
       Other, net.............................................          (92,644)               ---
                                                                 ---------------   ---------------
Net cash provided by operating activities.....................        1,160,377            722,360
                                                                 --------------    ---------------


Cash flows from investing activities:
   Purchase of investments available for sale.................       (5,342,733)        (7,608,693)
   Sale of investments available for sale.....................        6,805,567          7,104,320
   Purchase of subsidiary.....................................              ---         (2,300,000)
   Investment by minority in partnership......................              ---            226,009
   Distribution of minority interest..........................         (130,000)               ---
   Purchase of property and equipment.........................         (390,272)          (287,061)
   Disposals of property and equipment........................              ---                ---
                                                                 --------------    ---------------
   Net cash provided by (used in) investing activities                  942,562         (2,865,425)
                                                                 --------------    ---------------

Cash flows from financing activities:
   Proceeds from issuance of common stock ....................           24,971             40,485
   Purchase of treasury stock.................................       (1,052,825)          (315,192)
                                                                 --------------    ---------------

   Net cash used in financing activities......................       (1,027,854)          (274,707)

Net increase (decrease) in cash and equivalents..................     1,075,085         (2,417,772)
Cash and equivalents at beginning of period ..................        1,125,009          3,906,961
                                                                 --------------    ---------------
Cash and equivalents at end of period.........................   $    2,200,094   $      1,489,189
                                                                 ==============   ================

Supplemental cash flow disclosures: 
  Cash paid during the period for:
    Income taxes..............................................   $       71,450   $        134,625
    Interest..................................................   $          ---   $            ---

</TABLE>


                             See accompanying notes.


                                      - 6 -

<PAGE>   7
                          MEDSTONE INTERNATIONAL, INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


A.  BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
of Medstone International, Inc. (the Company) and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated.

         In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of its consolidated financial position at March 31, 1998 and consolidated
results of operations and cash flows for the periods presented. Although the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted and
should be read in conjunction with the Company's audited financial statements
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1998. Results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
to be expected for the full year.

         The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make assumption that
affect the amounts reported in the financial statements and accompanying note.
Actual results could differ from these estimates.

B.  RECENT ACCOUNTING PRONOUNCEMENTS

    ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 130

         As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no impact
on the Company's net income or stockholders' equity. SFAS No. 130 requires
unrealized gains or losses on available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Prior financial statements have been reclassified to
conform to the requirements of SFAS No. 130.



                                      - 7 -

<PAGE>   8
         For the three months ended March 31, 1998 and 1997, total comprehensive
income was $956,740 and $860,268, respectively.

         The components of comprehensive income, net of related tax, are as
follows:

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED MARCH 31,
                                                             1998                 1997
                                                        --------------       --------------
         <S>                                           <C>                   <C>
         Net income                                     $      956,116       $      860,454
         Unrealized gain (loss) on short-term
                investments                                        624                 (186)
                                                        --------------       --------------
         Comprehensive income                           $      956,740       $      860,268
                                                        ==============       ==============
</TABLE>


         The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:

<TABLE>
<CAPTION>

                                                          MARCH 31,            DECEMBER 31,
                                                            1998                   1997
                                                        --------------        -------------
         <S>                                           <C>                   <C>
         Unrealized gain (loss) on short-term
                investments                             $           45        $        (579)
                                                        --------------        -------------
         Accumulated other comprehensive
                income (loss)                           $           45        $        (579)
                                                        ==============        =============
</TABLE>


    PENDING ADOPTION OF FINANCIAL STANDARDS NO. 131

         In June, 1998, the Financial Accounting Standards Board issues
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company will adopt the new
requirements effective with the filing of the Annual Report on Form 10-K for the
year ended December 31, 1998. Management has not completed its review of SFAS
No. 131, but does not expect that, while adoption of SFAS No. 131 may result in
more reported segments than are currently reported, it will not have an impact
on the Company's results of operations, financial position or cash flows.

C.  PER SHARE INFORMATION

         The Company has adopted SFAS No. 128 "Earnings Per Share," and applied
this pronouncement to all periods presented. This statement requires the
presentation of both basic and diluted net income per share for financial
statement purposes. Basic net income per share is

                                      - 8 -

<PAGE>   9
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income per share
includes the effect of the potential shares outstanding, including dilutive
stock options and warrants using the treasury stock method. All earnings per
share amounts for all periods have been restated to conform with the SFAS No.
128 requirements and the accounting rules set forth in Staff Accounting Bulletin
98 issued by the Securities and Exchange Commission on February 3, 1998.

The following table sets forth the computation of earnings per share:

<TABLE>
<CAPTION>

                                                         THREE MONTHS ENDED MARCH 31,
                                                           1998              1997
                                                        ----------        ----------
       <S>                                             <C>               <C>
        Numerator: Net income (loss)                    $  956,116        $  860,454
                                                        ==========        ==========

        Denominator for weighted
            average shares outstanding                   5,279,439         5,440,304
                                                        ==========        ==========

        Basic earnings (loss) per share                 $      .18        $      .16
                                                        ==========        ==========
        Effect of dilutive securities:

            Weighted average shares
                 outstanding                             5,279,439         5,440,304
            Stock options                                  157,457            69,077
                                                        ==========        ==========

        Denominator for diluted earnings
            per share                                    5,436,896         5,509,381
                                                        ==========        ==========

        Diluted earnings (loss) per share               $      .18        $      .16
                                                        ==========        ==========
</TABLE>


D.  INVENTORIES

          Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:

<TABLE>
<CAPTION>

                                                   MARCH 31,      DECEMBER 31,
                                                     1998             1997
                                                 ------------     -----------
               <S>                              <C>              <C>
               Raw materials                     $  1,628,381     $ 1,645,902
               Work in process                        348,045         260,773
               Finished goods                         800,078         773,545
                                                 ------------     -----------
                                                 $  2,776,504     $ 2,680,220
                                                 ============     ===========

</TABLE>


E.  CONTINGENCIES

         From time to time, the Company is subject to legal actions and claims
for personal injuries or property damage related to patients who use its
products. The Company has obtained a liability insurance policy providing
coverage for product liability and other claims. Management does not believe
that the resolution of any current proceedings will have a material

                                      - 9 -

<PAGE>   10
financial impact on the Company or the consolidated financial statements.

F.  STOCK REPURCHASE PLAN

         On March 29, 1996 the Company announced a stock repurchase program of
up to 500,000 shares of its Common Stock. For the quarter ended March 31, 1998,
the Company has repurchased 110,400 shares at a cost of $1,052,825. Since
inception of the repurchase program, the Company has repurchased a total of
379,200 shares at a cost of $3,253,561.

G.  SUBSEQUENT EVENTS

         On April 30, 1998 the Company received recommendation of approval from
the Food and Drug Administration's Gastroenterology and Urology Device Advisory
Panel for use of the Company's lithotripter in treatment of gallstones. The
therapy will be in conjunction with Actigall, a drug used to dissolve
gallstones, and will be limited in its scope of application and will require the
Company to perform a post-approval study.



                                     - 10 -

<PAGE>   11
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.

         The following discussion and analysis should be read in conjunction
with the Company's audited financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 30, 1998.

RESULTS OF CONSOLIDATED OPERATIONS
----------------------------------

GENERAL

         Medstone manufactures, markets and maintains lithotripters, and
continues to expand its Fee-for-Service Program to supply lithotripsy equipment
to providers on a per procedure basis. To date, the Company's consolidated
revenues have come primarily from Medstone's lithotripsy business.

         It currently offers lithotripsy procedures using 14 mobile systems and
two fixed sites in the United States on a per procedure basis. With the ability
to offer quality equipment at reasonable prices, Medstone intends to continue
the growth of this manufacturer direct business.

         In 1996, the Company acquired a 60% interest in Northern Nevada, a
lithotripsy partnership which deals directly with patient and insurers and also
founded UPR as a majority-owned subsidiary of the Company, to expand the
Company's service orientation to the urologist practitioner. In March 1997 the
Company acquired a 60% interest in Southern Idaho Lithotripsy Associates, LLC,
another provider of lithotripsy services.

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
-------------------------------------------------------------------------------

         The Company recognized revenue of approximately $5.9 million in the
first quarter of 1998 or an 18% increase compared to $5.0 million in the
corresponding period of 1997. Equipment revenues declined by 10% in the first
quarter of 1998 compared to the first quarter of 1997 as average unit selling
prices declined on two equipment shipments in each period. The revenue from the
Company's maintenance, procedure and fee-for-service activities increased by
24%, or $969,000, in the first three months of 1998 when compared to the same
period of 1997. The increase is due to a 28% volume increase on fee-for-service
units and revenue growth on the Northern Nevada and Southern Idaho operations.

         Cost of sales on equipment sales increased to 90% of sales in the three
months ended March 31, 1998, compared to 73% of sales in the comparable period
of the prior year due to lower selling prices on higher content units. Recurring
revenue costs of sales increased to 45% in the first quarter of 1998, compared
to 42% in the same period in the prior year due to higher

                                     - 11 -

<PAGE>   12
transportation costs and higher staffing levels for mobile lithotripsy support.
Overall cost of sales, as a percentage of revenue (excluding interest),
increased to 50% in the first quarter of 1998 compared to 47% in the same period
in the prior year due to lower margins.

         Research and development costs increased by 42%, or $81,000 in the
first quarter of 1998 compared to the same quarter of 1997 due to increased
headcount and materials in connection with development of the portable
lithotripsy product.

         Sales expenses decreased by $37,000 or 7% in the first quarter of 1998
when compared to the same period of 1997 due to lower commission expenses and
lower travel expenses as international efforts are refined.

         General and administrative expenses increased by $5,000, but decreased
as a percentage of revenue from 11% to 9% in the first quarter of 1998 when
compared to the first quarter of 1997, respectively, due to increased consulting
expenses in connection with investigation of future applications of lithotripsy.

         Legal and other expenses decreased by $101,000 in the three months
ended March 31, 1998 when compared to the same period of 1997 as the Company
recognized a one-time gain from the transaction with joint venture partners to
place a unit on the Asian continent.

         Provision for income taxes for the first quarter of 1997 increased by
$158,000, or 36%, representing a higher taxable income and tax rate in the
current year compared to the same period in the prior year.

         Minority interest in subsidiaries' income increased to $149,000 in the
three months ended March 31, 1998, compared to $79,000 in the three months ended
March 31, 1997 due to higher activity in the Northern Nevada and Southern Idaho
operations.

         Liquidity and Capital Resources
         -------------------------------

         At March 31, 1998, the Company had cash and short-term investments of
approximately $10.6 million. These funds were generated from continuing
operating activities and from the Company's initial public offering in June
1988.

         The Company's long-term capital expenditure requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the time required to obtain regulatory approvals, the
resources that the Company devotes to the development of self-funded products,
proprietary manufacturing methods and advanced technologies, the costs of
acquisitions and/or new revenue opportunities, the ability of the Company to
obtain additional licensing arrangements and to manufacture products under those
arrangements, and the demand for its products if and when approved and possible
acquisitions of products, technologies and companies.

                                     - 12 -

<PAGE>   13
         The Company believes that its existing working capital and funds
anticipated to be generated from operations will be sufficient to meet the cash
needs for continuation of its present operations during 1998.

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

         Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objections, expectations and intentions are subject to change
at any time at the discretion of the Company, (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth; (iii) the Company's businesses are highly competitive and the entrance
of new competitors into or the expansion of the operations by existing
competitors in the Company's markets and other changes could adversely affect
the Company's plans and results of operations; and (iv) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.



                                     - 13 -

<PAGE>   14

                          MEDSTONE INTERNATIONAL, INC.

                           PART II. OTHER INFORMATION


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

         Previously reported.

Item 2.  Changes in Securities
         ---------------------

         None

Item 3.  Defaults upon Senior Securities
         -------------------------------

         None

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

         None

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

         None

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

         (a)  The following exhibits are included herein:

              27    Financial Data Schedule

         (b) Reports on Form 8-K.

              None.


                                     - 14 -

<PAGE>   15
                                   SIGNATURES

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



                                             MEDSTONE INTERNATIONAL, INC.
                                             ----------------------------
                                             A Delaware corporation



Date: May 13, 1998                           /s/ Mark Selawski
                                             ----------------------------------
                                             Mark Selawski
                                             Chief Financial Officer
                                             (Principal financial and
                                             accounting officer)














                                     - 15 -