<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        MARCH 31, 1999

                                       OR

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

         For the transition period from______________to_______________.

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

                               PACE MEDICAL, INC.
             -----------------------------------------------------
             (Exact name of registrant 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
              ---------------------------------------------------- 
              (Registrant's telephone number, including area code)

         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_____
                                                    ---

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 9, 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
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                         MARCH 31, 1999                 DECEMBER 31, 1998
                                                         --------------                 -----------------

<S>                                                            <C>                         <C>       
ASSETS

Current assets:
Cash and cash equivalents                                      $1,243,579                  $1,257,700
Accounts receivable                                               579,607                     350,916
Inventories:
 Raw materials                                                    238,742                     255,821
 Work-in-process                                                  163,048                     176,999
 Finished goods                                                   121,128                     160,125
                                                               ----------                  ----------
                                                                  522,918                     592,945
Other current assets                                               44,441                      43,749
                                                              -----------                 -----------
   Total current assets                                         2,390,545                   2,245,310
Plant and equipment, net                                           84,324                      46,130
Other assets                                                          775                      35,183
                                                             ------------                 -----------
TOTAL ASSETS                                                   $2,475,644                  $2,326,623
                                                             ------------                 -----------
                                                             ------------                 -----------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                              $   186,676                    $114,823
Accrued expenses                                                   28,745                      40,490
                                                             ------------                 -----------
    Total current liabilities                                     215,421                     155,313
                                                             ------------                 -----------

Shareholders' equity:
Common stock                                                       34,009                      34,009
Additional paid-in capital                                      3,147,151                   3,147,151
Cumulative translation
 adjustment                                                        89,403                     104,836
Accumulated deficit                                              (991,653)                 (1,095,999)
                                                             ------------                 -----------
                                                                2,278,910                   2,189,997
                                                             ------------                 -----------
Less Treasury Stock, at Cost                                      (18,687)                    (18,687)
                                                             ------------                 -----------
    Total Shareholders' Equity                                  2,260,223                   2,171,310
                                                             ------------                 -----------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                                          $2,475,644                  $2,326,623
                                                             ------------                 -----------
                                                             ------------                 -----------
</TABLE>


     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
                                                                        ENDED MARCH 31
                                                                    --------------------
                                                                1999                       1998
                                                                ----                       ----

<S>                                                            <C>                      <C>     
Net Sales                                                      $519,915                 $279,928

Cost of sales                                                   212,104                  107,816
                                                               --------                 --------

                                                                307,811                  172,112

Other operating expenses                                        214,046                  179,341
                                                               --------                 --------

Income from operations                                           93,765                   (7,229)

Other income                                                     10,581                   11,177
                                                               --------                ---------

Net income before taxes                                         104,346                    3,948

Provision for income taxes                                         -                        -   
                                                               --------                ---------

Net income                                                     $104,346                $   3,948
                                                               --------                ---------
                                                               --------                ---------

Net Income per Share:

   Basic                                                  $      .03                 $     .00
                                                               --------                ---------
                                                               --------                ---------
   Diluted                                                $      .03                $     .00
                                                               --------                ---------
                                                               --------                ---------
</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>
                                                  THREE MONTHS ENDED
                                                  ------------------
                                                       MARCH 31
                                                  ------------------

                                                1999             1998
                                                ----             ----

<S>                                         <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                              $   104,346      $     3,948
    Adjustments to reconcile
      net income to net cash
      provided by operating activities:
        Depreciation and amortization             6,000            6,138
    Change in assets and
        liabilities, net:                       (80,273)          79,794
                                            -----------      -----------

    Net cash provided by (used in)
        operating activities                     30,073           89,880

CASH FLOWS FROM INVESTING ACTIVITIES -
    Additions to property and equipment         (44,194)          (8,966)

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

NET INCREASE (DECREASE) IN CASH                 (14,121)          71,227

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

CASH AND CASH EQUIVALENTS
  AT END OF PERIOD                          $ 1,243,579      $ 1,389,879
                                            -----------      -----------
                                            -----------      -----------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       -5-

<PAGE>



                 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
                                 MARCH 31, 1999
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


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. The accompanying unaudited consolidated
financial statements should be read in conjunction with the 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, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
and its wholly-owned subsidiary as of March 31, 1999 and December 31, 1998, and
the results of their operations for the three months ended March 31, 1999 and
March 31, 1998, and their cash flows for the three months ended March 31, 1999
and March 31, 1998.

3. The Company prepares its financial information using the same accounting
principles as those used in its annual financial statements, except that no
physical inventories were taken during the periods ended March 31, 1999 or 1998.
Cost of sales for such periods was calculated primarily using standard cost
methods.

4. The results of operations for the three months ended March 31, 1999 and 1998
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 dilutive weighted average options
outstanding during the period using the treasury-stock method.


                                       -6-

<PAGE>



<TABLE>
<CAPTION>

                                                            For the three months ended March 31, 1999
                                                          Income              Shares            Per Share
                                                       (Numerator)         (Denominator)        Amount

<S>                                                          <C>               <C>                <C>  
Net Income                                                   $104,346

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

Basic net income per share                                   $104,346          3,375,870          $0.03
                                                                                                  -----
                                                                                                  -----
Effect of dilutive securities                                  -                  34,578
                                                           ----------        -----------

Diluted net income per share                                 $104,346          3,410,448          $0.03
                                                             --------          ---------          -----
                                                             --------          ---------          -----
</TABLE>


<TABLE>
<CAPTION>
                                                             For the three months ended March 31, 1998
                                                             Income           Shares         Per Share
                                                          (Numerator)     (Denominator)       Amount

<S>                                                            <C>             <C>                <C>  
Net Income                                                     $3,948

Weighted-average shares outstanding                            -               3,400,183
                                                           ----------         ----------

Basic net income per share                                     $3,948          3,400,183          $0.00
                                                                                                  -----
                                                                                                  -----
Effect of dilutive securities                                  -                  85,621
                                                           ----------        -----------

Diluted net income per share                                   $3,948          3,485,804          $0.00
                                                             --------          ---------          -----
                                                             --------          ---------          -----
</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, which were $(15,433) and $7,655 for the three
months ended March 31, 1999 and 1998, respectively. Accordingly, comprehensive
income was $88,913 and $11,603, for the three months ended March 31, 1999 and
1998, respectively.



                                       -7-

<PAGE>



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

FINANCIAL CONDITION

As of March 31, 1999, the Company had cash and cash equivalents of $1,243,579
and working capital of $2,175,124. The increase in working capital from the
position at December 31, 1998 is attributable entirely to the profit from
operations of $93,765. The Company's cash flows have historically tracked its
operational results.

The Company expects to maintain a sound financial base for the balance of 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 MARCH 31, 1999 VERSUS THE THREE MONTHS
ENDED MARCH 31, 1998.

Sales in the first quarter of 1999 increased approximately 84% from sales posted
in the first quarter of 1998. The increase in sales reflects an increase in
sales by the Company to its OEM accounts and distributor. The Company expects
this situation to continue during the second quarter.

The Company's margins in the first quarter were slightly less than those
achieved in the first quarter of 1998 (from 62% in 1998 to 59% in 1999). This
occurred due to a change in product mix. It should be noted that pricing
continued to remain firm on all products.

Operating expenses increased during the first quarter of 1999 due to increased
product development and additional marketing costs. Management anticipates some
increases in its operating expenditures over 1998 amounts during the balance of
1999.

No tax provision was recorded for the three months ended March 31, 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 $104,346 or $.03 per share in contrast to $3,948
or $.00 per share in the first quarter of 1998.


                                       -8-

<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, anticipated working capital) and the impact of the
Year 2000 issue (discussed below) 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 difficulties 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.

                                       -9-

<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


                                      -10-

<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:   MAY 14, 1999                           RALPH E. HANSON              
     -----------------                         -------------------------------
                                               Ralph E. Hanson, President
                                                and Principal Executive Officer


Date:   MAY 14, 1999                           RALPH E. HANSON              
     -----------------                         -------------------------------
                                                 Ralph E. Hanson, Principal
                                                  Financial Officer






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