<PAGE>


                                   FORM 10-QSB

                       Securities and Exchange Commission
                             Washington, D. C. 20549

                                   (Mark One)
         [X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended        JUNE 30, 1999
                                         ---------------------------
                                       OR

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

         For the transition period from  ______________ to ______________.

         Commission file number                      0-16257
                                 ----------------------------------------

                               PACE MEDICAL, INC.
        ------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

         MASSACHUSETTS                                04-2867416
-------------------------------                 --------------------------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      identification No.)

               391 TOTTEN POND ROAD, WALTHAM, MASSACHUSETTS 02451
               --------------------------------------------------
                    (Address of principal executive offices )

                                (781) 890-5656
                           ------------------------
                 (Issuer's telephone number, including area code)

         Indicate by check mark whether the issuer (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
                                                     ----     ----

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 13, 1999.

         3,375,870 shares of Common Stock, par value $.01 per share



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS.

        a)    Condensed Consolidated Balance Sheets

        b)    Condensed Consolidated Statements of Income

        c)    Condensed Consolidated Statements of Cash Flows

        d)    Notes to Condensed Consolidated Financial Statements


















                                  - 2 -

<PAGE>



                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                          JUNE 30, 1999            DECEMBER 31, 1998
                                                          -------------            -----------------
                                                           (Unaudited)              (See note below)
<S>                                                   <C>                       <C>
ASSETS

Current assets:
Cash and cash equivalents                                      $1,397,447                  $1,257,700
Accounts receivable                                               374,168                     350,916
Inventories:
 Raw materials                                                    230,305                     255,821
 Work-in-process                                                  189,392                     176,999
 Finished goods                                                   127,257                     160,125
                                                             ------------                ------------
                                                                  546,954                     592,945
Other current assets                                               38,881                      43,749
                                                             ------------                ------------
   Total current assets                                         2,357,450                   2,245,310

Plant and equipment, net                                          107,736                      46,130
Other assets                                                          516                      35,183
                                                             ------------                ------------
TOTAL ASSETS                                                   $2,465,702                  $2,326,623
                                                             ------------                ------------
                                                             ------------                ------------


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                 $101,923                    $114,823
Accrued expenses                                                   16,768                      40,490
                                                             ------------                ------------
    Total current liabilities                                     118,691                     155,313
                                                             ------------                ------------

Shareholders' equity:
Common stock                                                       34,009                      34,009
Additional paid-in capital                                      3,147,151                   3,147,151
Cumulative translation
 adjustment                                                        76,765                     104,836
Accumulated deficit                                              (892,227)                 (1,095,999)

                                                                2,365,698                   2,189,997
                                                             ------------                ------------
Less Treasury Stock, at Cost                                      (18,687)                    (18,687)
                                                             ------------                ------------
    Total Shareholders' Equity                                  2,347,011                   2,171,310
                                                             ------------                ------------

TOTAL LIABILITIES AND

 SHAREHOLDERS' EQUITY                                          $2,465,702                  $2,326,623
                                                             ------------                ------------
                                                             ------------                ------------

</TABLE>

Note:      The balance sheet at December 31, 1998 has been taken from the
           audited financial statements at that date.

           See accompanying notes to condensed consolidated
                       financial statements.

                                        - 3 -

<PAGE>




                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                 For the three months                   For the six months
                                                     Ended June 30                        ended June 30
                                                 ----------------------              -----------------------

                                                 1999              1998              1999               1998
                                                 ----              ----              ----               ----

<S>                                       <C>                <C>

Net Sales                                     $ 431,229         $ 477,971         $ 951,144          $ 757,899

Cost of sales                                   126,287           185,869           338,391            293,685
                                              ---------         ---------         ---------          ---------


                                                304,942           292,102           612,753            464,214

Other operating expenses                        216,067           272,489           430,113            451,830
                                              ---------         ---------         ---------          ---------

Income from operations                           88,875            19,613           182,640             12,384


Other income                                    (10,551)          (12,264)          (21,132)           (23,441)
                                              ---------         ---------         ---------          ---------


Net income                                    $  99,426         $  31,877         $ 203,772          $  35,825
                                              ---------         ---------         ---------          ---------
                                              ---------         ---------         ---------          ---------


Net income per share:


           Basic                              $     .03         $     .01         $     .06          $     .01
                                              ---------         ---------         ---------          ---------
                                              ---------         ---------         ---------          ---------

           Diluted                            $     .03         $     .00         $     .06          $     .01
                                              ---------         ---------         ---------          ---------
                                              ---------         ---------         ---------          ---------

</TABLE>

                      See accompanying notes to condensed consolidated
                                  financial statements.

                                         - 4 -

<PAGE>



                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                             SIX MONTHS ENDED
                                                                                  JUNE 30
                                                                         --------------------------
                                                                         1999                  1998
                                                                         ----                  ----

<S>                                                                  <C>                  <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                           $ 203,772          $  35,825
    Adjustments to reconcile
      net income to net cash
      (Used in) provided by operating activities:
        Depreciation and amortization                                        9,717              7,743
    Change in assets and
        liabilities, net:                                                   (2,678)          (169,743)
                                                                         ---------          ---------

    Net cash (used in) provided by
        operating activities                                               210,811           (126,175)

CASH FLOWS FROM INVESTING ACTIVITIES -

    Purchases of property and equipment                                    (71,064)           (11,993)

CASH FLOW FROM FINANCING ACTIVITIES -
   Purchase of treasury stock                                                -                 (9,687)
                                                                         ---------          ---------


NET INCREASE IN CASH AND                                                   139,747           (147,855)
  CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF PERIOD                                                $1,257,700         $1,318,652
                                                                         ---------          ---------

CASH AND CASH EQUIVALENTS
  AT END OF PERIOD                                                      $1,397,447          $1,770,797
                                                                         ---------           ---------
                                                                         ---------           ---------

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                               - 5 -

<PAGE>



                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The accompanying unaudited consolidated financial statements and these notes
have been condensed and do not contain all disclosures required by generally
accepted accounting principles. See notes to audited consolidated financial
statements contained in the Company's annual report.

2. In the opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments, all of which are normal and recurring,
necessary to present fairly the financial position of the Company and its
wholly-owned subsidiary as of June 30, 1999 and the results of their operations
for the three and six months ended June 30, 1999 and June 30, 1998 and their
cash flows for the six months ended June 30, 1999 and June 30, 1998.

3. The Company prepares its financial information using the same accounting
principles as for its annual financial statements except that no physical
inventories were taken during either of the periods ended June 30, 1999 or 1998.
Cost of sales for such periods was calculated primarily using standard cost
methods.

4. The results of operations for the three and six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full year.

5. The denominator used to determine basic net income per share includes the
weighted average common shares outstanding during the quarter. The denominator
used to determine diluted net income per share includes the shares used in the
calculation of basic net income per share plus the weighted average options
outstanding during the period using the treasury-stock method.


<TABLE>
<CAPTION>

                                                            For the three months ended June 30, 1999
                                                          Income          Shares          Per Share
                                                       (Numerator)     (Denominator)        Amount

<S>                                                      <C>               <C>                <C>
Net Income                                               $99,426

Weighted-average shares outstanding                         -              3,375,870
                                                         -------           ---------


Basic net income per share                               $99,426           3,375,870          $0.03
                                                                                              -----
                                                                                              -----


Effect of dilutive securities                               -                 62,232
                                                         -------           ---------


Diluted net income per share                             $99,426           3,438,102          $0.03
                                                         -------           ---------          -----
                                                         -------           ---------          -----


</TABLE>


                                                     - 6 -

<PAGE>

<TABLE>
<CAPTION>

                                                        For the three months ended June 30, 1998
                                                         Income          Shares          Per Share
                                                      (Numerator)     (Denominator)        Amount

<S>                                                 <C>             <C>                 <C>

Net Income                                               $31,877

Weighted-average shares outstanding                         -            3,390,850
                                                         -------         ---------


Basic net income per share                               $31,877                              $0.01
                                                                                              -----
                                                                                              -----


Effect of dilutive securities                               -               96,505
                                                         -------         ---------


Diluted net income per share                             $31,877         3,487,355            $0.00
                                                         -------         ---------            -----
                                                         -------         ---------            -----


</TABLE>

<TABLE>
<CAPTION>

                                                          For the six months ended June 30, 1999
                                                          Income          Shares          Per Share
                                                       (Numerator)     (Denominator)        Amount
<S>                                                 <C>             <C>                 <C>

Net Income                                            $ 203,772

Weighted-average shares outstanding                        -            3,375,870
                                                       --------         ---------

Basic net income per share                            $ 203,772         3,375,870             $0.06
                                                                                              -----

Effect of dilutive securities                              -               48,405
                                                       --------         ---------

Diluted net income per share                          $ 203,772         3,424,275             $0.06
                                                       --------         ---------             -----
                                                       --------         ---------             -----

</TABLE>

<TABLE>
<CAPTION>

                                                         For the six months ended June 30, 1998
                                                         Income          Shares          Per Share
                                                      (Numerator)     (Denominator)        Amount

<S>                                               <C>                <C>               <C>

Net Income                                            $  35,825

Weighted-average shares outstanding                        -            3,395,517
                                                       --------         ---------

Basic net income per share                            $  35,825         3,395,517            $0.01
                                                                                             -----
                                                                                             -----

Effect of dilutive securities                              -               90,883
                                                       --------         ---------
Diluted net income per share                          $  35,825         3,486,400            $0.01
                                                       --------         ---------            -----
                                                       --------         ---------            -----

</TABLE>

6. The Company has adopted the provisions of SFAS No. 130," Reporting
Comprehensive Income". Comprehensive income includes net income and foreign
currency translation adjustments. Comprehensive income for the three and six
months ended June 30, 1999 and 1998 is as follows:

                                       - 7 -

<PAGE>


<TABLE>
<CAPTION>

                                                    Three Months Ended               Six Months Ended
                                                         June 30,                        June 30,
                                                         --------                        --------
                                                   1999            1998             1999               1998
                                                   ----            ----             ----               ----
<S>                                             <C>             <C>              <C>             <C>

Net Income                                        $99,426         $ 31,877         $203,772         $ 35,825

Currency Translation Adjustment                   (12,638)           9,689          (28,072)          (2,034)
                                                 --------        ---------        ---------          -------


Total                                             $86,788          $41,566         $175,700          $33,791
                                                 --------        ---------        ---------          -------
                                                 --------        ---------        ---------          -------

</TABLE>



                                           - 8 -

<PAGE>



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

                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

As of June 30, 1999, the Company had cash and cash equivalents of $1,397,447
and working capital of $2,238,759. Working capital increased $148,762 since
December 31, 1998 owing to the profitable operations of the Company over the
first half of the year. The Company's cash flows have historically tracked
its operational results.

The Company expects to maintain a sound financial base for the balance of
fiscal 1999. Management continues to believe that the current level of
working capital, coupled with the flexibility of the Company's cost
structure, should suffice to ensure that on-going operations are financed
adequately.

FINANCIAL RESULTS - THREE MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED
JUNE 30, 1998

Sales in the second quarter of 1999 decreased 10% from the sales posted in
the second quarter of 1998. The decrease in sales was caused by our inability
to ship outstanding orders due to parts shortages.

The Company's margins in the second quarter increased over those seen in 1998
(from 61% in 1998 to 71% in 1999). This occurred due to a change in the
product mix. It should be noted that pricing is continuing to remain firm on
all products.

Operating expenses were lower in the three months ended June 30, 1999 versus
the three months ended June 30, 1998. Management anticipates some increase in
its operating expenditures during the balance of 1999.

No tax provision was recorded for the three months ended June 30, 1999 owing
to the Company's ability to use net operating loss carryforwards in both the
U.S. and U.K.

Net income for the quarter was $99,426 or $.03 per share, representing an
increase of 212% from the comparable quarter in 1998.

                                           - 9 -

<PAGE>



FINANCIAL RESULTS - SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE
30, 1998

Sales in the six months ended June 30, 1999 increased from the amount posted
in the six months ended in June 30, 1998. The increase in sales is primarily
attributed to higher volumes of products shipped to its OEM accounts and a
distributor. The Company expects this situation to continue during the second
half of fiscal 1999.

The Company's margins for the year-to-date period were slightly higher than
those achieved in the first half of 1998 (from 61% in 1998 to 64% in 1999).
This occurred due to a change in the product mix. It should be noted that
pricing continued to remain firm on all products.

Operating expenses were lower for the six months ended June 30, 1999 versus
the six months ended June 30, 1998. Management anticipates some increase in
its operating expenditures during the balance of 1999.

No tax provision was recorded for the six months ended June 30, 1999 owing to
the Company's ability to use net operating loss carryforwards in both the
U.S. and U.K.

Net income for the six months was $203,772 or $.06 per share, representing an
increase of 469% from the comparable period in 1998.

                                  - 10 -

<PAGE>



FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information provided by the Company or statements made by
its employees may contain "forward-looking" information which involves risks
and uncertainties. In particular, statements contained in this report which
are not historical facts (including but not limited to the Company's
expectations regarding business strategy, pricing, anticipated operating
results, operating expenses and anticipated working capital) may be
"forward-looking" statements. The Company's actual results may differ from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, risks associated with the
introduction of new products, development of markets for new products offered
by the Company, the Company's relationships with distributors and OEM's, the
economic health of such OEM's, government regulation, competition and general
economic conditions.

YEAR 2000

The Year 2000 presents potential concerns for businesses. The consequences of
this issue may include systems failures and business process interruption due
to calculation problems with the use of 2-digit date formats as the year
changes from 1999 to 2000.

The Company's products do not use date fields, therefore, the Year 2000 issue
should not affect the Company's products. All organizations dealing with the
Year 2000 must address the effect this issue will have on their third-party
supply chain. The Company has undertaken steps to identify its vendors and to
formulate a system of working with key third parties to understand their
ability to continue providing services and products through the change to
2000. The Company will work directly with its key vendors and distributors to
avoid any business interruptions in 2000.

The Year 2000 issue also affects the Company's internal systems, including
information technology (IT) and non-IT systems. The Company has assessed the
readiness of its systems for handling the Year 2000. Management currently
believes that all material systems are Year 2000 compliant; the costs to
address Year 2000 compliance were not material.

Currently, the Company does not plan to develop a contingency plan for Year
2000 compliant internal systems or for continuing to do business with key
third parties since the Company believes its internal systems and those of
its key vendors will not be adversely affected by the change to the Year
2000. The impact of the Year 2000 on future revenue is difficult to discern
but is a risk to be considered.

                                      - 11 -

<PAGE>





                               PART II - OTHER INFORMATION


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits:


                                 27.      Financial Data Schedule

         (b)      Reports on Form 8-K:  None



                                   - 12 -

<PAGE>




                                   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.


                                                   PACE MEDICAL, INC.
                                                 ----------------------
                                                      (Registrant)


Date:    AUGUST 13, 1999                       /S/ RALPH E. HANSON
       ------------------                      ------------------------------
                                               Ralph E. Hanson, President
                                                and Chief Executive Officer
                                                (principal executive officer)


Date:     AUGUST 13, 1999                      /S/ RALPH E. HANSON
        ------------------                     ------------------------------
                                               Ralph E. Hanson, Chief
                                                Financial Officer
                                                (principal financial officer)








                                      - 13 -