|U.S. SECURITIES AND EXCHANGE COMMISSION



WASHINGTON, D.C. 20549



FORM 10-QSB



QUARTERLY REPORT UNDER
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For the quarter ended: | Commission File Number:
|---------------------- | -----------------------
|September 30, 2003     | 0-27554                

| | PACE Health Management Systems, Inc.                             
| | -----------------------------------------------------------------
| |                                                                  
| | (Exact 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 Center
666 Walnut
Des Moines, IA 50309
| | -----------------------------------------------------
| |                                                      
| | (Address and zip code of principal executive offices)
| | (515) 244-5746                                       
| |                                                      
| | (Issuers telephone -number, including area code)    

|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 preceding 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 üNo
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|State the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date:
|--------------------------------------------------------------------------------------------------------------------------

|                     | Number of Shares Outstanding
|-------------------- | ----------------------------
|Class                | November 12, 2003           
|Common Stock, no par | 5,716,074                   

|Transitional Small Business
Disclosure Format (Check one):     Yes No ü.



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|PACE HEALTH MANAGEMENT
SYSTEMS, INC.



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

|ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)                          | Page
|------------------------------------------------------------------ | ----
|                                                                   |     
|Condensed Balance Sheets                                          
|September 30, 2003 and December 31, 2002                           | 3   
|Condensed Statements of Operations                                
|Three Months and Nine Months Ended September 30, 2003 and 2002     | 4   
|Condensed Statements of Cash Flows                                
|Nine Months Ended September 30, 2003 and 2002                      | 5   
|Notes to Condensed Financial Statements                            | 6   
|ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | 7   
|ITEM 3.  DISCLOSURE CONTROLS AND PROCEDURES                        | 8   
|PART II. OTHER INFORMATION                                        
|ITEM 1.  LEGAL PROCEEDINGS                                         | 8   
|ITEM 2.  CHANGES IN SECURITIES                                     | 8   
|ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                           | 8   
|ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       | 8   
|ITEM 5.  OTHER INFORMATION                                         | 8   
|ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                          | 9   

|2
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|PART 1. FINANCIAL INFORMATION





ITEM 1. FINANCIAL
STATEMENTS



PACE HEALTH MANAGEMENT SYSTEMS, INC.CONDENSED BALANCE SHEETS (UNAUDITED)
|-------------------------------------------------------------------------------------------------------------------------------------------

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|                                                                 | September 30,
2003 |  | December 31,
2002
|---------------------------------------------------------------- | ------------------ |  | -----------------
|                                                                 |                    |  |                  
|ASSETS                                                           |                    |  |                  
|CURRENT ASSETS:                                                  |                    | 
|Cash and cash equivalents                                        |                    |  | $                
|Certificate of deposit                                           |                    |  |                  
|Accounts receivable                                              |                    |  |                  
|Prepaid expenses                                                 |                    |  |                  
|                                                                 |                    |  |                  
|                                                                 |                    |  | $                
|                                                                 |                    |  |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                             |                    | 
|CURRENT LIABILITIES:                                             |                    | 
|Accounts payable                                                 |                    |  | $                
|                                                                 |                    |  |                  
|Total current liabilities                                        |                    |  |                  
|                                                                 |                    |  |                  
|SHAREHOLDERS' EQUITY:                                            |                    | 
|Preferred stock, no par value, authorized 1,000,000 shares;      |                    | 
|issued none                                                      |                    |  |                  
|Convertible participating preferred stock, Series A, no par      |                    | 
|value; authorized 4,000,000 shares; issued and outstanding       |                    | 
|2,875,000 shares                                                 |                    |  |                  
|Common stock, no par value; authorized 20,000,000 shares; issued |                    | 
|and outstanding 5,716,074 shares                                 |                    |  |                  
|Additional paid-in capital                                       |                    |  |                  
|Accumulated deficit                                              |                    |  |                  
|                                                                 |                    |  |                  
|                                                                 |                    |  |                  
|                                                                 |                    |  |                  
|                                                                 |                    |  | $                
|                                                                 |                    |  |                  

|See Notes to Condensed Financial Statements.



3
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|PACE HEALTH MANAGEMENT SYSTEMS, INC.CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
|----------------------------------------------------------------------------------

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|                                            | Three months ended
September 30, |  | Nine months ended
September 30,
|------------------------------------------- | -------------------------------- |  | -------------------------------
|                                            |                                  |  |                                
|
|                                            |                                  |  |                                
|NET REVENUES                                |                                  |  | $                              
|                                            |                                  |  |                                
|COSTS AND EXPENSES                          |                                  | 
|General and administrative                  |                                  |  |                                
|                                            |                                  |  |                                
|                                            |                                  |  |                                
|                                            |                                  |  |                                
|(Loss) from operations                      |                                  |  |                                
|                                           
|INTEREST INCOME                             |                                  |  |                                
|                                            |                                  |  |                                
|(Loss) before income taxes                  |                                  |  |                                
|                                           
|PROVISION FOR INCOME TAXES                  |                                  |  |                                
|                                            |                                  |  |                                
|Net (Loss)                                  |                                  |  | $                              
|PREFERRED DIVIDENDS IN ARREARS              |                                  |  |                                
|                                            |                                  |  |                                
|Net (Loss) available to common shareholders |                                  |  | $                              
|                                            |                                  |  |                                
|(LOSS) PER SHARE                            |                                  | 
|Basic                                       |                                  |  | $                              
|                                            |                                  |  |                                
|Fully diluted                               |                                  |  | $                              
|                                            |                                  |  |                                
|WEIGHTED AVERAGE NUMBER OF COMMON           |                                  | 
|AND COMMON EQUIVALENT SHARES               
|OUTSTANDING                                 |                                  |  |                                
|                                            |                                  |  |                                

See Notes to Condensed Financial Statements.

|4
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|PACE HEALTH MANAGEMENT SYSTEMS, INC.CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|----------------------------------------------------------------------------------

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|                                                     | Nine months ended
September 30,
|---------------------------------------------------- | -------------------------------
|                                                     |                                
|CASH FLOWS FROM OPERATING ACTIVITIES                 | 2003                           
|                                                     |                                
|Net (1oss)                                           |                                
|Changes in working capital components:               |                                
|(Increase) in prepaid expenses                       |                                
|(Decrease) in accounts payable                       |                                
|                                                     |                                
|Net cash (used in) operating activities              |                                
|                                                     |                                
|CASH FLOWS FROM INVESTING ACTIVITIES                 |                                
|(Purchase) maturity of certificate of deposit        |                                
|                                                     |                                
|Net increase (decrease) in cash and cash equivalents |                                
|CASH AND CASH EQUIVALENTS                            |                                
|Beginning                                            |                                
|                                                     |                                
|Ending                                               |                                
|                                                     |                                

See Notes to Condensed Financial Statements.

|5
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|PACE HEALTH MANAGEMENT SYSTEMS, INC.NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
|---------------------------------------------------------------------------------------

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# Note 1. Basis of
presentation

The accompanying financial
information should be read in conjunction with the annual financial statements and notes
thereto for the year ended December 31, 2002. The financial information included herein
is unaudited; such information reflects all adjustments, which, in the opinion of
management, are necessary in order to make the financial statements not misleading.

The results of operations for the
nine months are not necessarily indicative of the results to be expected for the entire
fiscal year.

# Note 2. 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. No
compensation cost has been recognized for its option plans for the three and nine months
ended September 30, 2003 and 2002, respectively.

# Note 3. Basic and
diluted (loss) per share

In February 1997, the Financial
Accounting Standards Board (FASB) issued 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 income (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). The effect of stock options, warrants,
and convertible preferred stock was not included in the computation because to do so
would have been antidilutive. At September 30, 2003, there are approximately 70,000
shares issuable under warrant or option arrangements and 5,750,000 shares issuable under
conversion of Series A convertible participating preferred stock.

# Note 4. Related Party
Transactions

Administration expenses paid to
Equity Dynamics, Inc., an entity wholly owned by a Director of the Company, totaled
$12,500 and $8,000 for the three months ended September 30, 2003 and 2002, respectively,
and totaled $38,000 and $27,531 for the nine months ended September 30, 2003 and 2002,
respectively.

6

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# ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

# 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. The Companys enterprise-wide, client/server
applications automated charting, clinical workflow processes and clinical pathways. The
Companys core system, PACE CMS, was a modular suite of advanced software
applications that provided hospitals, physicians offices, and integrated delivery
systems a comprehensive system for interdisciplinary documentation, nursing care
planning, clinical pathway management and enterprise-wide order management, all at the
point of care.

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. 3M offered positions to most of the Companys
employees and assumed full support of the Companys customers. 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 September 30, 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-QSB, 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.

# RESULTS OF OPERATIONS

General and administrative:
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 $26,962 and $19,110 for the three months ended
September 30, 2003 and 2002, respectively, representing an increase of 41.1%. General and
administrative expenses were $82,258 and

7

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$67,222 for the nine months ended
September 30, 2003 and 2002, respectively, representing an increase of 22.4%, due mainly
to an increase in administrative management fees.

Interest Income: Interest
income was $4,789 and $9,620 for the three months ended September 30, 2003 and 2002,
respectively, representing a decrease of 50.2%. Interest income was $20,214 and $27,296
for the nine months ended September 30, 2003 and 2002, respectively, representing a
decrease of 26.0%. These decreases are due mainly to a decrease in the interest rates and
total cash, cash equivalents and certificate of deposits 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

Net cash used in operating
activities for the nine months ended September 30, 2003 and 2002 was $72,531 and $50,617,
respectively. Following the Transaction, the Company has no ongoing operations and no
revenues and has minimal operating expenses. The Companys September 30, 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. As of the date of
this Form 10-QSB, 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.

# ITEM 3. DISCLOSURE
CONTROLS AND PROCEDURES

As of the end of the period covered
by this report, our director and acting chief executive and financial officer has
concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) promulgated under Securities Exchange Act of 1934, as amended) are effective
and designed to alert him to material information relating to PACE.

There were no significant changes in
the Companys internal controls or in other factors that could significantly affect
those controls subsequent to the date of our most recent evaluation.

# PART II. OTHER
INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
      N/A

ITEM 2.  CHANGES IN SECURITIES
      N/A

ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES
      N/A

ITEM 4.  SUBMISSION OF MATTERSTO A
VOTE OF SECURITY HOLDERS
      N/A

ITEM 5. OTHER INFORMATION.
      N/A

8

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|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                             | 
|------------------------------------------------------------------------------------ | 
|(a) Exhibits                                                                        
|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 
|(b) Reports on Form 8-K                                                             
|No
reports on Form 8-K were filed during the quarter for which this report is filed.

|SIGNATURES


In accordance with requirements 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)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|November 12, 2003 | /s/ John Pappajohn      
|----------------- | ------------------------
|                  |                         
|Dated             | John Pappajohn, Director

|9
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