<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        SEPTEMBER 30, 1999
                                        ---------------------------------

                                       OR

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

         For the transition period from            to               .

         Commission file number                      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 November 10, 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 Operations

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

Current assets:

Cash and cash equivalents                                  $1,403,513                  $1,257,700
Accounts receivable                                           498,822                     350,916
Inventories:
 Raw materials                                                190,489                     255,821
 Work-in-process                                              204,831                     176,999
 Finished goods                                               122,769                     160,125
                                                           -----------                 -----------
                                                              518,089                     592,945
Other current assets                                           44,335                      43,749
                                                           -----------                 -----------
   Total current assets                                     2,464,759                   2,245,310
Plant and equipment, net                                      120,722                      46,130
Other assets                                                    3,371                      35,183
                                                           -----------                 -----------
TOTAL ASSETS                                               $2,588,852                  $2,326,623
                                                           ==========                  ==========


LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:

Accounts payable                                             $132,524                    $114,823
Accrued expenses                                               30,400                      40,490
                                                           -----------                 -----------
    Total current liabilities                                 162,924                     155,313
                                                           -----------                 -----------

Shareholders' equity:

Common stock                                                   34,009                      34,009
Additional paid-in capital                                  3,147,151                   3,147,151
Cumulative translation
 adjustment                                                   104,595                     104,836
Accumulated deficit                                          (841,140)                 (1,095,999)
                                                           -----------                 -----------
                                                            2,444,615                   2,189,997
                                                           -----------                 -----------
Less Treasury Stock, at Cost                                  (18,687)                    (18,687)
                                                           -----------                 -----------
    Total Shareholders' Equity                              2,425,928                   2,171,310
                                                           -----------                 -----------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                                      $2,588,852                  $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 OPERATIONS

                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                  For the Three Months                 For the Nine Months
                                                  Ended September 30                   Ended September 30
                                                 ------------------------              ------------------

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

<S>                                           <C>                 <C>              <C>               <C>
Net Sales                                     $500,975            $403,139         $1,452,119        $1,161,038

Cost of sales                                  215,572             204,439            553,963           498,122
                                             ---------           ---------         ----------        ----------

                                               285,403             196,702            898,156           662,916


Other operating expenses                       245,313             213,413            675,426           665,243
                                             ---------           ---------         ----------        ----------

Income (loss) from operations                   40,090             (14,711)           222,730            (2,327)


Other income                                    10,996              12,241             32,129            35,682
                                             ---------           ---------         ----------        ----------

Net income (loss)                              $51,086            $ (2,470)          $254,859         $  33,355
                                             =========           =========         ==========        ==========

Net income (loss) per share:

           Basic                             $     .02            $    .00          $    .08.          $    .01
                                             =========           =========         ==========        ==========

           Diluted                           $     .01            $    .00          $    .07           $    .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>
                                                                         NINE MONTHS ENDED
                                                                        -------------------
                                                                            SEPTEMBER 30
                                                                        -------------------
                                                                         1999          1998
                                                                         ----          ----
<S>                                                                  <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                       $254,859         $33,355
    Adjustments to reconcile
      net income to net cash
      provided by (used in) operating activities:

        Depreciation and amortization                                  12,301          19,588
    Change in assets and liabilities, net:                            (31,856)       (200,883)
                                                                   -----------       ---------

    Net cash (used in) provided by
        operating activities                                          235,304        (147,940)

CASH FLOWS FROM INVESTING ACTIVITIES -

    Purchases of property and equipment                               (89,491)        (16,221)

CASH FLOW FROM FINANCING ACTIVITIES -
   Purchase of treasury stock                                            -            (18,687)
                                                                   ----------       ----------

NET INCREASE (DECREASE) IN CASH                                       145,813        (182,848)
  AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

  AT BEGINNING OF PERIOD                                            1,257,700       1,318,652
                                                                   ----------       ---------

CASH AND CASH EQUIVALENTS

  AT END OF PERIOD                                                 $1,403,513      $1,135,804
                                                                   ==========      ==========
</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 September 30, 1999 and the results of their
operations for the three and nine months ended September 30, 1999 and September
30, 1998 and their cash flows for the nine months ended September 30, 1999 and
September 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 September 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 nine months ended
September 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 (loss) 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. The diluted net loss per share for the three months
ended September 30, 1998 does not include the weighted average options
outstanding for the period, since inclusion of these options would be
antidilutive. Therefore, basic and diluted net loss per share for the three
months ended September 30, 1998 are the same.


<TABLE>
<CAPTION>
                                                  Three Months Ended                         Nine Months Ended
                                                      September 30                             September 30
                                                      ------------                             ------------

                                                 1999                 1998               1999                1998
                                                 ----                 ----               ----                ----
<S>                                         <C>                   <C>                 <C>               <C>
Net Income (loss)                             $51,086             $  (2,470)           $254,859         $   33,355
                                              =======             ==========           ========         ==========

Weighted-average shares outstanding         3,375,870             3,388,567           3,375,870          3,393,166
Effect of dilutive securities                  76,929                                    57,913             77,255
                                           ----------       ---------------          ----------        -----------
Total shares                                3,452,799             3,388,567           3,433,783          3,470,421
                                            =========             =========           =========          =========


Basic net income (loss) per share           $    0.02           $     (0.00)          $    0.08       $      0.01
                                            =========           ============          =========       ===========

Diluted net income (loss) per share         $    0.01           $     (0.00)          $    0.07       $      0.01
                                            =========           ============          =========       ===========
</TABLE>

6. The Company has adopted the provisions of SFAS No. 130," Reporting
Comprehensive Income". Comprehensive income includes net income (loss) and
foreign currency translation adjustments.

                                       -6-

<PAGE>

Comprehensive income for the three and nine months ended September 30, 1999
and 1998 is as follows:

<TABLE>
<CAPTION>
                                                 Three Months Ended                            Nine Months Ended
                                                    September 30,                                 September 30,
                                                    -------------                                 -------------

                                                 1999                   1998             1999               1998
                                                 ----                   ----             ----               ----
<S>                                           <C>                   <C>                <C>                <C>
Net Income (loss)                             $51,086               $(2,470)           $254,859           $ 33,355

Currency Translation Adjustment                27,830                 9,722                (241)             7,688
                                              -------                ------            --------            -------
Total                                         $78,916                $7,252            $254,618            $41,043
                                              =======                ======            ========            =======
</TABLE>



                                       -7-

<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 September 30, 1999, the Company had cash and cash equivalents of
$1,403,513 and working capital of $2,301,835. Working capital has increased
slightly since December 31, 1998 owing to the profitable operations of the
Company over the first nine months of the year.

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 SEPTEMBER 30, 1999 VERSUS THREE MONTHS
ENDED SEPTEMBER 30, 1998

Sales in the third quarter of 1999 increased 24% from the sales posted in the
third quarter of 1998.  The increase in sales was due to an increase in our
OEM business.

The Company's margins in the third quarter increased from those seen in 1998
(from 49% in 1998 to 57% 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 higher in the three months ended September 30, 1999
versus the three months ended September 30, 1998 due to increased legal and
marketing related expenses. Management anticipates some increase in its
operating expenditures during the balance of 1999. This level will also
suffice to maintain the Company's research and development efforts in
developing new products in the temporary pacing field.

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

Net income for the quarter was $51,086 or $.02 per share.  This represents a
substantial increase in profitability over the results achieved in the third
quarter of 1998.

FINANCIAL RESULTS - NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS
ENDED SEPTEMBER 30, 1998

Sales in the nine months ended September 30, 1999 increased 25% from the
amount posted in the nine months ended in September 30, 1998. This increase
is attributable to our receiving increased orders from our OEM accounts.

                                       -8-
<PAGE>

The Company's margins for the year-to-date period increased 5% over those of
last year (from 57% in 1998 to 62% in 1999). This occurred due to a change in
the product mix.

Operating expenses were slightly higher for the nine months ended September
30, 1999 versus the nine months ended September 30, 1998 due to increased
legal, marketing and ISO 9001 certification related expenditures. Management
anticipates some increase in its operating expenditures during the balance of
1999. This level will also suffice to maintain the Company's research and
development efforts in developing new products in the temporary pacing field.

No tax provision was recorded for the nine months ended September 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 nine months was $254,859 or $.08 per share, representing
an increase of 664% from the comparable period in 1998.

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.


                                       -9-

<PAGE>

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.





                                       -10-

<PAGE>

                       PART II - OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         At the Company's Annual Meeting of Stockholders held on August 8,
1999, the following members were elected to the Board of Directors:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------
                                          Votes              Votes
                                           For              Withheld
--------------------------------------------------------------------------
         <S>                                <C>                     <C>
         Ralph E. Hanson                    3,155,122               0
         George F. Harrington               3,155,122               0
         Derrick Ebden                      3,155,122               0
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits: 27.  Financial Data Schedule

         (b)  Reports on Form 8-K:  None


                                       -11-

<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: November 12, 1999              /s/ Ralph E. Hanson
      -----------------              ------------------------------
                                     Ralph E. Hanson, President
                                     and Chief Executive Officer
                                     (principal executive officer)

Date: November 12, 1999              /s/ Ralph E. Hanson
      -----------------              ------------------------------
                                     Ralph E. Hanson, Chief
                                     Financial Officer
                                     (principal financial officer)




                                       -12-