U.S. SECURITIES AND
EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB X
     
     Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the year ended December 31, 2003Transition report under section 13 or 15(d) of the Securities Act of 1934 for the transition period from _____ to _____.  Commission File Number:   0-27554 PACE Health Management Systems, Inc.(Name of small business issuer as specified in its charter)Iowa
     
     42-1297992(State or other jurisdiction of
     (IRS Employer Identification Number)incorporation or organization)2116 Financial CenterDes Moines, IA 50309(Address and zip code of principal executive offices)(515) 244-5746(Issuers telephone number, including area code)  Securities registered
under Section 12(b) of the Exchange Act: None Securities registered
under Section 12(g) of the Exchange Act: Common Stock, no par
(Title of class) Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject of the filing requirements for at least the past
90 days.     YES  X   NO Check if there is no
disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this
Form 10-KSB.     [X] Issuer's net revenues for its most recent fiscal year:   $0     The aggregate  market value of the
voting and non-voting common stock held by non-affiliates, based upon the
closing sale price of the common stock on March 25, 2004 as reported by
Reuters, Ltd., was approximately $487,000. Shares of common stock held by each
officer and director and by each person who owns 5% or more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates. The number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: Class
     Number of Shares OutstandingMarch 26, 2004Common Stock, no par
     
     5,716,074  Transitional Small
Business Disclosure Format (Check one):     YES     NO  X                     PACE HEALTH MANAGEMENT SYSTEMS, INC.
2003 Form 10-KSB Annual Report Table of Contents  PART I.PageITEM 1.
        
     Description of Business
        
     1ITEM 2.
     Description of Property
     2ITEM 3.
     Legal Proceedings.
     2ITEM 4.
     Submission of Matters to a Vote of Security Holders
     2PART II.ITEM 5.
     Market for Common Equity, Related Shareholder Matters and SmallBusiness Issuer Purchases of Equity Securities
     2ITEM 6.
     Managements Discussion and Analysis or Plan of Operation
     2ITEM 7.
     Financial Statements
     4ITEM 8.
     Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure
     14ITEM 8A.
     Controls and Procedures
     14PART III.ITEM 9.
     Directors and Executive Officers of the Registrant
     14ITEM 10.
     Executive Compensation
     15ITEM 11.
     Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters
     16ITEM 12.
     Certain Relationships and Related Transactions
     17ITEM 13.
     Exhibits and Reports on Form 8-K
     17ITEM 14.
     Principal Accountant Fees and Services
     19         PART I. ITEM 1.   Description of Business General Prior to October 1998, PACE
developed and marketed advanced patient care management software systems that
enabled healthcare providers to standardize the delivery of care, maximize
resource utilization and improve clinical outcomes. On October 7, 1998, the
Company completed the sale of substantially all of its assets to, and the
assumption of certain of its liabilities by, Minnesota Mining and Manufacturing
Company (3M) (the Transaction). The sale was made
pursuant to an Asset Purchase Agreement dated June 30, 1998, as amended, as
described in Companys definitive proxy statement dated September 14,
1998. The Transaction was approved by the holders of both the common stock and
the preferred stock at a special meeting of shareholders held on October 7,
1998. The purchase price of the
Transaction was approximately $5.9 million, including $4.75 million in
cash, of which $750,000 was originally placed in escrow to secure the
Companys indemnification obligations under the Asset Purchase Agreement,
plus the assumption of substantially all of the Companys liabilities other
than $2.1 million in line of credit balances, which were paid off from
proceeds at closing. Subsequent to the closing of the Transaction, the Company
agreed that $25,000 of the amount in escrow could be paid to 3M as part of a
purchase price adjustment contemplated by the Asset Purchase Agreement, leaving
an escrow balance of $725,000. In July 1999, the Company
received proceeds from the restricted escrow account totaling approximately
$525,000. In December 2000, the Company received final proceeds from the
restricted escrow account totaling $104,953. A like amount was also paid to 3M
in final settlement and as an adjustment to the purchase price. Following the Transaction,
the Company has no ongoing operations and no revenues and has minimal operating
expenses. The Company presently has no employees. The Companys
December 31, 2003 balance sheet reflects cash and cash equivalents of
approximately $1.9 million and no material liabilities. The net proceeds from the
sale will be retained by the Company pending a determination of whether to
engage in a follow-on transaction. The Company has been seeking a business
combination with another entity, before considering possible liquidation and
distribution of its assets. The Company believes that with the cash on hand and
net operating loss carryforwards, subject to the limitation of such
carryforwards under the Internal Revenue Code, such a combination may be
attractive to potential partners and would better serve the interests of the
Companys shareholders. As of the date of this Form 10-KSB, no
definitive agreement has been signed for a follow-on transaction. If no suitable
business combination is identified, the Company may elect to liquidate and
distribute the remaining net proceeds to shareholders. If the Company liquidated
at the present time, all of the net assets of the Company would be paid to
holders of the Companys preferred stock.  -1-   ITEM 2.   Description of Property The Company
does not currently have any office facilities. ITEM 3.   Legal Proceedings None ITEM 4.   Submission of Matters to a Vote of Security Holders No matters were submitted
to a vote of the shareholders of the Company in the fourth quarter of 2003. PART II. ITEM 5.   Market for Common Equity, Related Shareholder Matters and Small Business Issuer Purchases of Equity
Securities Beginning May 19, 1998,
PACE Common Stock has been quoted on the OTC Bulletin Board under the symbol
PCES. From the Companys initial public offering on
April 27, 1995 through May 18, 1998, the Companys Common Stock
was traded on The Nasdaq SmallCap Market. The following table sets forth the
range of high and low sales prices of the Companys Common Stock by quarter
over the last two years. These quotations reflect inter-dealer prices, without
retail markup, markdown, or commission and may not reflect actual transactions. Quarter ended
     High
     Low3/31/02
     
     0.10
        
     0.076/30/02
     0.16
        
     0.069/30/02
     0.16
        
     0.0612/31/02
     0.10
        
     0.063/31/03
     0.08
        
     0.056/30/03
     0.12
        
     0.059/30/03
     0.13
        
     0.0712/31/03
     0.11
        
     0.06 The Company
has declared no cash dividends since its inception with respect to the Common Stock, and
has no plan to declare a dividend in the near future. If declared by the Board of
Directors, the holders of Preferred Stock are entitled to receive annual dividends at the
rate of $0.10 per share. The Board has declared no cash dividends with respect to the
Preferred Stock and has no plan to declare a dividend in the near future other than in
connection with the completion of a follow-on transaction or the liquidation of the
Company. As of March 26, 2004, there were 66 shareholders of record of the Companys
common stock. The Company did not repurchase any of its equity securities during the
fourth quarter of 2003. ITEM 6.   Managements Discussion and Analysis or Plan of Operation Results of Operations Revenues:   Following the
Transaction, the Company has no ongoing operations or revenues. General and
administrative expenses:   General and administrative
expenses include bookkeeping costs, legal fees, expenses associated with
shareholder relations and SEC reporting requirements, and insurance. General and
administrative expenses were $110,536 and $91,673 in 2003 and 2002,
respectively, representing an increase of 20.6%. This increase is due mainly to
an increase in bookkeeping costs and expenses associated with shareholder
relations and SEC reporting requirements.  -2-   Interest
Income:   Interest income was $24,932 and $36,164 in 2003 and
2002, respectively, representing a decrease of 31.1%. This decrease is a result
of a decrease in the interest rates from the prior year. Provision for income
taxes:   No provision for income tax benefit has been
recorded due to the Company recording a valuation allowance on the deferred tax
assets. Liquidity and Capital Resources Since inception in 1987
through 1994, the Companys primary source of funding for working capital
needs, capital expenditures and its operating losses was from the sale of common
and convertible preferred stock. During this time, the Company completed
numerous private placements, receiving approximately $7.8 million in
aggregate net proceeds. In 1995, the Company completed its initial public
offering by selling 1,300,000 shares of common stock at $5.00 per share for net
proceeds to the Company of approximately $5.5 million. Additionally, in
September 1996, PACE sold 900,000 shares of common stock at $3.25 per share
providing net proceeds of approximately $2.8 million. In the third and
fourth quarters of 1997, the Company sold 2,250,000 shares of convertible
preferred stock at $1.00 per share representing total proceeds of $2,250,000. In
the first quarter of 1998, the Company sold an additional 625,000 shares of
convertible participating preferred stock at $1.00 per share representing
proceeds of $625,000. Each share of preferred stock is convertible into 2 shares
of common stock. The Company recorded net
losses of $85,604 and $55,509 with cash used in operations of $89,668 and
$56,481 for 2003 and 2002, respectively. Net cash provided (used) by
investing activities for the years ended December 31, 2003 and 2002 was
$1,000,000 and ($1,000,000), respectively, with the 2003 amount resulting from
the redemption of a certificate of deposit and the 2002 amount resulting from
the purchase of a certificate of deposit. Net cash provided by
financing activities for the years ended December 31, 2003 and 2002 was
none and none, respectively. As of December 31,
2003, the Company had no material liabilities, and cash and cash equivalents of
$1,897,678. As of March 1, 2004 the Company has no ongoing operations and
no revenues and has minimal operating expenses. The Company presently has no
employees. The net proceeds from the
sale will be retained by the Company pending a determination of whether to
engage in a follow-on transaction. The Company has been seeking a business
combination with another entity, before considering possible liquidation and
distribution of its assets. The Company believes that with the cash on hand and
net operating loss carryforwards, subject to the limitation of such
carryforwards under the Internal Revenue Code, such a combination may be
attractive to potential partners and would better serve the interests of the
Companys shareholders. As of the date of this Form 10-KSB, no definitive
agreement has been signed for a follow-on transaction. If no suitable business
combination is identified, the Company may elect to liquidate and distribute the
remaining net proceeds to shareholders. If the Company liquidated at the present
time, all of the net assets of the Company would be paid to holders of the
Companys preferred stock.  -3-   ITEM 7.   Financial Statements  CONTENTS   INDEPENDENT AUDITORS REPORT
     
     5FINANCIAL STATEMENTSBalance sheets
     6Statements of operations
     7Statements of shareholders' equity
     8Statements of cash flows
     9Notes to financial statements
     10                      -4-      INDEPENDENT AUDITORS REPORT   To the Board of Directors
PACE Health Management Systems, Inc.
Des Moines, Iowa We have audited the
accompanying balance sheets of PACE Health Management Systems, Inc. as of
December 31, 2003 and 2002, and the related statements of operations,
shareholders equity and cash flows for the years then ended. These
financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our opinion, the
financial statements referred to above present fairly, in all material respects,
the financial position of PACE Health Management Systems, Inc. as of
December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. McGladrey & Pullen, LLP
Des Moines, Iowa
March 11, 2004          -5-   PACE HEALTH MANAGEMENT SYSTEMS, INC. BALANCE SHEETS
December 31, 2003 and 2002 ASSETS
     2003
     2002CURRENT ASSETSCash and cash equivalents (Note 5)
     $1,897,678
        
     $987,346Certificate of deposit
     
        
     1,000,000Accounts receivable
     20
        
     20Prepaid expenses
     9,658
        
     8,650$1,907,356
        
     $1,996,016LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
     $992
        
     $4,048Total current liabilities
     992
        
     4,048SHAREHOLDERS EQUITYSerial preferred stock, no par value, authorized 1,000,000 shares;issued none
     
        
     Convertible participating preferred stock, Series A, no parvalue; authorized 4,000,000 shares; issued and outstanding2,875,000 shares (Note 6)
     2,875,000
        
     2,875,000Common stock, no par value; authorized 20,000,000 shares;issued and outstanding 5,716,074 shares
     17,065,136
        
     17,065,136Additional paid-in capital
     673,486
        
     673,486Accumulated deficit
     (18,707,258
        )
     (18,621,654
        )1,906,364
        
     1,991,968$1,907,356
        
     $1,996,016 See Notes to Financial Statements.             -6-   PACE HEALTH MANAGEMENT SYSTEMS, INC. STATEMENTS OF OPERATIONS
Years Ended December 31, 2003 and 2002  2003
     2002Net revenues
     
     
     $
        
     $General and administrative expenses (Note 7)
     110,536
        
     91,673(Loss) from operations
     (110,536
        )
     (91,673
        )Other income (expense):Interest income
     24,932
        
     36,16424,932
        
     36,164(Loss) before income taxes
     (85,604
        )
     (55,509
        )Provision for income taxes (Note 4)
     
        
     Net (loss)
     (85,604
        )
     (55,509
        )Preferred dividends in arrears
     (287,500
        )
     (287,500
        )Net (loss) available to common shareholders
     $(373,104
        )
     $(343,009
        )(Loss) per share (Note 3)Basic
     $(0.07
        )
     $(0.06
        )Fully diluted
     $(0.07
        )
     $(0.06
        ) See Notes to Financial Statements.              -7-   PACE HEALTH MANAGEMENT SYSTEMS, INC. STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2003 and 2002 PreferredStock
     CommonStock
     AdditionalPaid-InCapital
     AccumulatedDeficit
     TotalBalance, December 31, 2001
     
     
     $2,875,000
        
     17,065,136
        
     673,486
        
     (18,566,145
        )
     2,047,477Net loss
     
        
     
        
     
        
     (55,509
        )
     (55,509
        )Balance, December 31, 2002
     2,875,000
        
     17,065,136
        
     673,486
        
     (18,621,654
        )
     1,991,968Net loss
     
        
     
        
     
        
     (85,604
        )
     (85,604
        )Balance, December 31, 2003
     $2,875,000
        
     $17,065,136
        
     $673,486
        
     $(18,707,258
        )
     $1,906,364 See Notes to Financial Statements.                -8-   PACE HEALTH MANAGEMENT SYSTEMS, INC. STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 and 2002 2003
     2002CASH FLOWS FROM OPERATING ACTIVITIESNet (loss)
     $(85,604
        )
     $(55,509
        )Adjustments to reconcile net (loss) to net cash (used in)operating activities:Change in working capital components:(Increase) in prepaid expenses
     (1,008
        )
     (484
        )(Decrease) in accounts payable
     (3,056
        )
     (488
        )Net cash (used in) operating activities
     (89,668
        )
     (56,481
        )CASH FLOWS FROM INVESTING ACTIVITIES,(Purchase) maturity of certificate of deposit
     1,000,000
        
     (1,000,000
        )Net increase (decrease) in cash and cash equivalents
     910,332
        
     (1,056,481
        )CASH AND CASH EQUIVALENTSBeginning
     987,346
        
     2,043,827Ending
     $1,897,678
        
     $987,346 See Notes to Financial Statements.                -9-   PACE HEALTH MANAGEMENT SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies Nature of
business:   Prior to the sale of the majority of its assets,
the Company was in the business of developing, marketing and supporting advanced
clinical software that automates the recording, storage and management of
patient care information. The software provided complete care management
solutions to physicians, nurses and other clinicians in multiple settings at the
point of care. The Company has no ongoing operations and has minimal operating
expenses. The Company presently has no employees. A summary of the
Companys significant accounting policies is as follows: Accounting
estimates and assumptions:   The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.  Cash
equivalents:   The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 2003 cash equivalents consisted of an
interest-bearing money market account at a commercial bank.  Stock-based
compensation:   On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation as amended by SFAS 148, which establishes a fair
value based method for financial accounting and reporting for stock-based
employee compensation plans and for transactions in which an entity issues its
equity instruments to acquire goods and services from non-employees. However,
SFAS 123 allows employee compensation to continue to be measured by using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to
Employees, but requires expanded disclosures. The Company has elected to
continue to apply the intrinsic value based method of accounting for stock-based
employee compensation. Accordingly, compensation cost for stock options issued
to employees is measured as the excess, if any, of the quoted market price of
the Companys stock at the date of grant over the amount an employee must
pay to acquire the stock.  At
December 31, 2003, the Company has stock-based compensation plans which are
described in Note 2. The Company applies the principles of APB 25 and
related interpretations in accounting for its plans. At December 31, 2003
and 2002, all stock options were either exercised or expired.  Income
taxes:   Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  Basic and
diluted loss per share:   On January 1, 1997 the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share, which requires the Company to present basic and diluted
income (loss) per share amounts. Basic loss per share is based on the weighted
average number of common shares outstanding during the period. Diluted income
(loss) per share is based on the weighted average number of common shares and
dilutive potential common shares outstanding during the period. Dilutive
potential common shares consist of stock options and warrants (using the
treasury stock method) and convertible preferred stock (using the if-converted
method).   -10-   Note 2.   Common Stock Warrants and Options Common stock warrants The Company issued common
stock purchase warrants to various shareholders, directors, employees, and
certain accredited investors. One group of warrants expires ten years after the
date of issuance. The second group of warrants expires five years after the date
of issuance. Warrants to purchase 20,183 shares with an exercise price of $3.67
expired during 2002. At December 31, 2003 and 2002, warrants to purchase
70,000 were outstanding and exercisable. The warrants are exercisable at a price
of $3.00 per share. The Company issued Series A
warrants to convertible, participating Series A preferred stock shareholders. In
addition, the Company issued Series A warrants to certain shareholders for their
unconditional promise to guarantee repayment of the Companys revolving
line of credit. The warrants were exercisable beginning in July 1997 and expire
beginning in July 2002 through August 2003. The exercise price of the warrants
is $0.50. The Series A warrant holders were granted certain limited piggyback
and Form S-3 registration rights with respect to the shares issuable upon
exercise of the warrants. Warrants to purchase 812,500 and 2,017,860 shares,
respectively, expired during 2003 and 2002. At December 31, 2002,
Series A warrants to purchase 812,500 shares were outstanding and
exercisable. At December 31, 2003 there were no Series A warrants
outstanding. Common stock options In December 1994, the Board
of Directors adopted the Companys 1995 Stock Compensation Plan (the
stock compensation plan). The stock compensation plan provides for
the grant of incentive stock options, nonqualified stock options, restricted
stock, stock bonuses and stock appreciation rights. The stock compensation plan
is administered by the Board of Directors which has the authority and discretion
to determine: the persons to whom the options will be granted; when the options
will be granted; number of shares subject to each option; the price at which the
shares subject to each option may be purchased; and when each option will become
exercisable. Options under the stock compensation plan expire on the second
anniversary of the date the employee ceased employment with the Company. On
January 5, 1998 by Board action, the exercise price for all current
employee options was changed to $0.50. The exercise price was subsequently
reduced to $0.10 for options held by one employee in recognition of his
continued employment by the Company subsequent to the sale of assets. At
December 31, 2003 and 2002, all options to purchase shares were either
exercised or expired, and there were 461,311 shares available for grant with no
shares outstanding. There was no activity under the 1995 stock compensation plan
during the years ending December 31, 2003 and 2002. In March 1996, the Board of
Directors adopted the Nonqualified Executive Stock Option Plan (the stock
option plan). The stock option plan provides for the grant of nonqualified
stock options to executive officers of the Company. The Company has reserved
800,000 shares for issuance pursuant to the stock option plan. Options may be
granted at prices determined by the Board of Directors, which may not be less
than 85% of the fair market value of the shares subject to the options as of the
date of grant. Options vest at the rate of 20% on the first anniversary date of
the grant and 20% on each of the next four anniversary dates of the grant. On
January 5, 1998, by Board action, the exercise price for all current,
non-qualified stock options to executive officers was changed to $0.50. Options
expire on the second anniversary of the date the employee ceased employment with
the Company. Options to purchase 10,200 shares expired during 2002. At
December 31, 2003 and 2002, all options to purchase shares were either
exercised or expired.  -11-   Note 3.   Earnings Per Share The following table sets
forth the computation of basic and diluted (loss) per-share: Per-ShareAmountNumerator
     Denominator
     Net (loss)Year Ended December 31, 2003Net (loss)
     
     
     $(85,604
        )Dividends in arrears included in the calculation
     (287,500
        )Basic earnings per share, available tocommon stockholders
     $(373,104
        )
     5,716,074
        
     $(0.07
        )Year Ended December 31, 2002Net (loss)
     $(55,509
        )Dividends in arrears included in the calculation
     (287,500
        )Basic earnings per share, available tocommon stockholders
     $(343,009
        )
     5,716,074
        
     $(0.0
        6) The following contingently
issuable shares were not included in diluted earnings per common share as they
would have an antidilutive effect upon earnings per common share: 2003
     2002Shares issuable upon conversion of Series Aconvertible participating preferred stock
     9,225,000
        
     8,650,000Common stock warrants outstanding
     70,000
        
     882,500  Note 4.   Income Tax Matters Approximate deferred taxes
consist of the following components as of December 31, 2003 and 2002: 2003
     2002Deferred tax assets:Net operating loss carryforwards
     $6,597,000
        
     $6,564,000Research and development credit carryforwards
     391,000
        
     391,0006,988,000
        
     6,955,000Less valuation allowance
     6,988,000
        
     6,955,000$
        
     $ The Company recorded a
valuation allowance of $6,988,000 and $6,955,000, against deferred tax assets at
December 31, 2003 and 2002, respectively, to reduce the total to an amount
that management believes will ultimately be realized. Realization of deferred
tax assets is dependent upon sufficient future taxable income during the period
that deductible temporary differences and carryforwards are expected to be
available to reduce taxable income. The net change in the valuation allowance
for deferred tax assets was an increase (decrease) of $33,000 and ($88,000)
during 2003 and 2002, respectively.      -12-   The provision for income
taxes differs from the approximate amount of income tax benefit determined by
applying the U.S. Federal income tax rate to pretax loss for the years ended
December 31, 2003 and 2002, due to the following: 2003
     2002Computed federal income tax (benefit)
     
     
     $(30,000
        )
     $(19,000
        )Other, primarily computed state income tax benefit
     (3,000
        )
     (1,000
        )Permanent difference
     
        
     108,000Change in the valuation allowance
     33,000
        
     (88,000
        )$
        
     $ At December 31, 2003,
the Company has approximately $16,916,000 of net operating loss carryforwards to
offset future federal taxable income. This net operating loss carryforward will,
if unused, expire in the years 2006 through 2023. Note 5.   Concentration of Credit Risk The Company maintains cash
in bank deposit accounts that, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts. Note 6.   Convertible Participating Preferred Stock and Voting Rights The Convertible
Participating Preferred Stock must be converted into fully paid and
non-assessable shares of Common Stock by the Company upon the earlier of (i) the
closing of a Qualified Public Offering, or (ii) the affirmative vote of the
holders of a majority of the outstanding Convertible Participating Preferred
Stock for a mandatory conversion. A Qualified Public Offering is a
public offering of the shares of the Company in which (a) a minimum of
$10 million is raised in such offering by the Company, or (b) the per share
purchase price is at least $4.00 and (c) the offering is underwritten on a firm
basis by a recognized underwriter. Each share of Convertible
Participating Preferred Stock shall be convertible into fully paid and
nonassessable shares of Common Stock at a rate of two shares of Common Stock for
each share of Convertible Participating Preferred Stock, subject to adjustment
when Common Stock has been proportionately adjusted. The initial
Conversion Price shall be equal to $1.00 per share divided by the
Conversion Rate. Upon conversion, all accumulated and unpaid dividends to the
conversion date on the Convertible Participating Preferred Stock so converted
shall also be converted into fully paid and nonassessable shares of Common Stock
at the rate of $0.50 of accumulated and unpaid dividends for each share of
Common Stock. The holders of the
Convertible Participating Preferred Stock are entitled to an annual $0.10
cumulative dividend per share payable in cash and shall become due and payable
when, as and if declared by the Board of Directors or the conversion of the
Convertible Preferred Stock. Accumulated undeclared dividends in arrears were
approximately $1,737,500 and $1,450,000 at December 31, 2003 and 2002,
respectively. Convertible Participating
Preferred Stock and Common Stock are entitled to one vote per share.       -13-   Note 7.   Related Party Transactions Administration expenses
paid to Equity Dynamics, Inc., an entity wholly owned by a Director of the
Company, totaled $52,500 and $36,031 in 2003 and 2002, respectively. ITEM 8.   Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None ITEM 8A.   Controls and Procedures The Company maintains
disclosure controls and procedures designed to ensure that the information the
Company must disclose in its filings with the Securities and Exchange Commission
is recorded, processed, summarized and reported on a timely basis. The
Companys director and acting chief executive and financial officer has
reviewed and evaluated the Companys disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act) as of the end of the
period covered by this report (the Evaluation Date). Based on such
evaluation, he has concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures are effective in bringing to his attention on
a timely basis material information relating to the Company required to be
included in the Companys periodic filings under the Exchange Act. There have not been any
changes in the Companys internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during
the Companys most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Companys internal control
over financial reporting. PART III. ITEM 9.   Directors and Executive Officers of the Registrant The Companys Articles
of Incorporation provide that the Board of Directors will consist of no less
than three and no more than seven members and that the Board is divided into
three classes, each class to be as nearly equal in number as possible. Presently
the Company has one Director  John Pappajohn  and six
vacancies. Following the closing of the Transaction, board members Mark J.
Emkjer, Carl S. Witonsky, R. David Spreng and Gordon M. Derzon
resigned. Board member Bill Childs resigned in November 2000. None of the
resigning directors has furnished the Company with any letter describing any
disagreement with the Company on any matter relating to the Companys
operations, policies or practices. The term of Director John Pappajohn expired
in 1998. Mr. Pappajohn is continuing his position until such time as the
next annual meeting of shareholders. The Company does not intend to incur the
expense of convening such a meeting because the Company will either complete a
follow-on transaction or dissolve and does not intend to engage in any further
business activities. Directors of the Company The following paragraphs
set forth information concerning each of the current Directors of the Company: John Pappajohn, age 75, has
been a Director of the Company since January 1994. Since 1969,
Mr. Pappajohn has been the sole owner of Pappajohn Capital Resources, a
venture capital fund, and President of Equity Dynamics, Inc., a financial
consulting firm, both located in Des Moines, Iowa. Mr. Pappajohn also
serves as a director of the following public companies: MC Informatics, Inc.;
Allion Healthcare, Inc.; and Patient Infosystems, Inc.  -14-   Executive Officers The Company did not employ
any executive officers during the year ended December 31, 2003. Organization of the Board of Directors The Board of Directors has
established an Audit Committee to advise the Board of Directors on questions,
policies and general matters of accounting, financing and operating controls, to
review the audit of the Companys financial statements, and to select
auditors subject to the approval of the full Board and ratification by the
shareholders. From January 1, 1998 through the dates of resignation of
Messrs. Spreng and Witonsky, the Audit Committee consisted of
Mr. Pappajohn, Mr. Spreng and Mr. Witonsky. Four Audit Committee
meetings were held during 2003. The Company does not
currently have an audit committee financial expert, nor has it adopted a code of
ethics, the reason being it has no ongoing business activities. In the future if
it ever does have ongoing business activities it will consider at that time
appointing an audit committee financial expert and adopting a code of ethics. The Board of Directors as a
whole acts as a nominating committee for candidates for the Board of Directors.
Directors are selected without regard to race, creed, color, sex or national
origin, and must have demonstrated outstanding business and civic
accomplishments. The Board of Directors will consider all candidates recommended
by shareholders in accordance with the procedure to be established in the
Companys Bylaws, which require recommendations to be submitted in writing
ninety days in advance of the annual meeting of shareholders. Such
recommendations should include the name and address of the shareholder and the
candidate pursuant to which the recommendation is being made, such other
information about the candidate pursuant to which the recommendation is being
made, such other information about the candidate as required to be included in
the Companys proxy statement and the consent of the candidate to serve as
a director if elected. Recommendations should be sent to the Secretary, PACE
Health Management Systems, Inc., 2116 Financial Center, Des Moines,
Iowa 50309. The Board of Directors of
the Company held four meetings during 2003. ITEM 10.   Executive Compensation Director Compensation Directors receive no
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Nonemployee directors who
are not affiliated with principal shareholders and who began service as
directors prior to February 1995 received nonqualified warrants to purchase
Common Stock. All warrants issued to nonemployee directors prior to February
1995 have expired and are no longer outstanding. Subsequent to
February 10, 1995, under the 1995 Stock Compensation Plan, new non-employee
directors receive a nondiscretionary grant of nonqualified stock options for
21,820 shares upon their election or appointment to the Board. The Plan provides
for automatic grants of nonqualified stock options to new non-employee directors
at an exercise price equal to 100% of the fair market value of the shares on the
date of grant. One-fifth of such options vest over each of five years from the
date of election or appointment of the new non-employee director. The
non-employee director options are exercisable for ten years from the date of
grant. The Compensation Committee has no discretion regarding the grant or terms
of non-employee director options. During 2003, no options were granted to any
board members.  -15-   Executive Compensation The Company did not employ
a Chief Executive Officer during the year ended December 31, 2003. In
addition, there were no other persons who served as executive officers of the
Company during the year ended December 31, 2003 whose total annual salary
and bonus for the year exceeded $100,000. Stock Options/SARs/LTIPs There were no stock
options, stock appreciation rights or restricted stock units granted during the
year ended December 31, 2003. There were no payments made on any long-term
incentive plans during the year ended December 31, 2003. ITEM 11.   Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Share Ownership The following tables set
forth, as of March 26, 2004, based on the information available to the Company,
the number and percentages of shares of the Common Stock and Preferred Stock
beneficially owned by each current director, by the chief executive officer of
the Company and all other executive officers whose total cash compensation in
the year ended December 31, 2003 exceeded $100,000, by all directors and
such executive officers as a group, and by each person known to the Company to
be the beneficial owner of more than 5% of the outstanding shares of the
Companys Common Stock and Preferred Stock. The table setting forth
information with respect to holders of Common Stock includes (i) shares of
Common Stock issuable upon the exercise of options and warrants exercisable
within 60 days and (ii) ownership of Preferred Stock, which is
convertible into Common Stock on a 2 for 1 basis. The Company is
aware of no stockholder, other than those listed below, claiming to hold more
than five percent of any class of the Companys outstanding voting
securities. Name and Addressof Beneficial Owner(3)
     No. of SharesBeneficially Owned(1)(7)
     Percent of ClassOutstanding(8)Common Stock:Directors and Officers:     John Pappajohn
     5,823,261
        (2)
     55.1All present directors and named executiveofficers as a group (1 person)
     5,823,261
        (8)
     55.1Other Five Percent or More Shareholders:Simon Casady(4)
     302,465
        (9)
     5.3Edgewater Private Equity Fund, L.P.(5)
     2,121,438
        (10)
     29.0Gainesborough, LLC(6)
     2,184,895
        (11)
     29.3Preferred Stock:Directors and Officers:John Pappajohn
     1,500,000
        
     52.2Other Five Percent or More Shareholders:Gainesborough, LLC
     531,371
        
     18.5Edgewater Private Equity Fund, L.P.
     500,000
        
     17.4_________________   -16-   1)

Unless
otherwise noted, each person has sole investment and voting power with respect to the
shares indicated. Preferred stock is entitled to two votes per share and is convertible
into common stock on a two for one basis.  2)

Includes
100,000 common stock shares held by Halkis, Ltd. and 109,917 common shares held by the
John & Mary Pappajohn Scholarship Foundation, both affiliates of Mr. Pappajohn,
765,301 common stock shares, 1,500,000 preferred stock shares, cumulative dividends
convertible into 1,813,043 common stock shares and presently exercisable warrants to
purchase 35,000 shares held by Mr. Pappajohn.  3)

Except
as noted, the address of each director of the Company is 2116 Financial Center, Des
Moines, Iowa 50309.  4)

Address:
1238 Fulton, Indianola, Iowa 50125.  5)

Address:
900 N. Michigan Ave., 14th Floor, Chicago, IL 60611.  6)

Address:
420 Bedford St., Ste. 110, Lexington, MA 02420.  7)

Assumes
exercise of options or warrants exercisable on or before December 31, 2003 by the
named person or group, but by no other person.  8)

Includes
shares, options and warrants as described in the notes above.  9)

Includes
302,465 common shares.  10)

Includes
517,090 common stock shares, 500,000 preferred stock shares and cumulative dividends
convertible into 604,348 common stock shares.  11)

Includes
444,887 common stock shares, 531,371 preferred stock shares, cumulative dividends convertible into 642,266 common stock shares
and presently exercisable warrantes to purchase 35,000.  ITEM 12.   Certain Relationships and Related Transactions During 2003, the Company
paid $4,167 on a monthly basis, plus direct expenses, for a total of $52,500 to
Equity Dynamics, Inc., an entity wholly owned by John Pappajohn, a Director of
the Company, for administrative services that include among other things;
accounting, investor relations, and SEC reporting. ITEM 13.   Exhibits and Reports on Form 8-K (a)    
The following exhibits are filed as a part of this report. 3.

Articles
of Incorporation and Bylaws 3.1

Restated
Articles of Incorporation, as amended (1) 3.2

Restated
Bylaws (1) 4.

Instruments
defining the rights of shareholders 4.1

Form
of Common Stock Certificate (2) 4.9

Form
of Class A Warrant Certificate (2) 4.12

Form
of Class B Warrant Certificate (2) 4.13

Form
of Agents Warrant (2) 4.14

Restated
Articles of Incorporation, as amended                (Incorporated by reference to Exhibit 3.1) 4.15

Restated
Bylaws (Incorporated by reference to Exhibit 3.2)  -17-   10.

Material
Contracts 10.1

Employment
Agreement for Michael Vasquez, as amended December 16, 1994(2) 10.2

Employment
Agreement for Simon Casady, as amended December 16, 1994(2) 10.3

1995
Stock Compensation Plan, effective February 10, 1995(2) 10.4

Form
of Incentive Stock Option Agreement(2) 10.5

Form
of Non-Qualified Stock Option Agreement(2) 10.6

Form
of Non-Employee Director Non-Qualified Stock Option Agreement(2) 10.7

Incentive
Stock Option Agreement for Michael J. Vasquez datedDecember 16, 1994(2) 10.8

Form
of Five-year Employee Warrants(2) 10.9

Form
of Three-year Employee Warrants(2) 10.10

Compensatory
Warrants issued to Director Carl S. Witonsky dated April 22, 1994 and December 16,
1994(2) 10.11

Compensatory
Warrants issued to Director Bill W. Childs dated February 26, 1990 and December 16,
1994(2) 10.12

Form
of Lockup Agreements with Executive Officers, Directors andShareholders(2) 10.13

Consulting
Services Agreement with Steven Evans dated December 31, 1993(2) 10.14

Consulting
Services Agreement with Carl S. Witonsky dated January 1, 1995(2) 10.15

Software
Purchase Agreement with JRS Clinical Technologies, Inc. dated October 18, 1989(2) 10.16

COMMES
Purchase Agreement between the Company and Creighton University dated December 18,
1989(2) 10.17

Office
Lease and Amendments thereto between the Company and Ashworth Plaza Ltd.(2) 10.18

Merit
Client Agreement with Customer dated January 1, 1995(2) 10.19

Master
Agreement with Customer dated September 30, 1994(2) 10.20

Nonqualified
Executive Stock Option Plan adopted March 25, 1996(3) 10.21

Employment
Agreement with Mark J. Emkjer dated February 15, 1996(4) 10.22

Amendment
to Employment Agreement with Mark J. Emkjer dated October 17, 1997(5) 10.23

Form
of Employee Retention Agreement(5) 10.24

Asset
Purchase Agreement dated June 30, 1998, as amended, with Minnesota Mining and
Manufacturing     Company(6) 31.1

Section
302 Certification by Director and Acting Chief Executive Officer 31.2

Section
302 Certification by Director and Acting Chief Financial Officer 32.1

Section
906 Certification by Director and Acting Chief Executive Officer 32.2

Section
906 Certification by Director and Acting Chief Financial Officer   1)

Incorporated by reference to the Companys Form 8-K dated May 3, 1996.  2)

Incorporated by reference to the Companys Registration Statement on Form
SB-2, Registration No. 33-90408-C, effective April 27, 1995.  3)

Incorporated by reference to the Companys Form 10-QSB for the quarter
ended March 31, 1996.  4)

Incorporated by reference to the Companys Registration Statement on Form S-1, Registration No. 333-7487, effective August 9, 1996.  5)

Incorporated by reference to the Companys Form 10-KSB for the year ended
December 31, 1997.   -18-   6)

Incorporated by reference from the Companys definitive Proxy Statement
dated September 14, 1998.  (b)    Reports on Form 8-K No
reports on Form 8-K were filed during the year ended December 31, 2003. ITEM 14.   Principal Accountant Fees and Services During the period covering
the fiscal years ended December 31, 2003 and 2002, McGladrey &
Pullen, LLP and its affiliate, RSM McGladrey, Inc. performed the following
professional services: Description
     2003
     2002Audit Fees (1)
     
     
     $15,500
        
     $13,500Audit-Related Fees
     $
        
     $Tax Fees (2)
     $850
        
     $750All Other Fees
     $
        
     $  (1)

Audit fees consist of fees for professional services rendered for the audit of
the Companys financial statements and review of financial statements
included in the Companys quarterly reports.  (2)

Tax fees consist of compliance fees for the preparation of original federal and
state tax returns.  Fees for professional
services rendered by the Companys principal accountants are pre-approved
by the Companys Director and majority shareholder.              -19-   SIGNATURES In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. PACE HEALTH MANAGEMENT SYSTEMS, INC.(Registrant)By:
     
     /s/   John PappajohnJohn Pappajohn, DirectorMarch 26, 2004Dated  In accordance with the
Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated. March 26, 2004
     By
     
     /s/   John PappajohnDated
     
     
     John Pappajohn, Director               -20-