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:
|---------------------- | -----------------------
|March 31, 2001         | 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 WalnutDes 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 _X_ NO ___

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                | April 30, 2001              
|Common Stock, no par | 5,716,074                   

Transitional Small Business Disclosure Format (Check one): YES ___ NO _X_.

1

PACE HEALTH MANAGEMENT SYSTEMS, INC.

PART I. FINANCIAL INFORMATION

`ITEM 1. FINANCIAL STATEMENTS                                                  Page
                                                                             ------
Condensed Balance Sheets
   March 31, 2001 and December 31, 2000                                         3

Condensed Statements of Operations
   Three Months Ended March 31, 2001 and 2000                                   4

Condensed Statements of Cash Flows
   Three Months Ended March 31, 2001 and 2000                                   5

Notes to Condensed Financial Statements                                         6

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR
   PLAN OF OPERATION                                                            7`

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                                        8`

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                            | MARCH 31, 2001 | DEC. 31, 2000
|----------------------------------------------------------- | -------------- | -------------
|                                                           
|ASSETS                                                      |                |              
|CURRENT ASSETS:                                             |                |              
|Cash and cash equivalents                                   |                |              
|Accounts receivable                                         |                |              
|Prepaid Insurance                                           |                |              
|                                                           
|                                                            |                |              
|                                                           
|                                                            |                |              
|LIABILITIES AND SHAREHOLDERS EQUITY                        |                |              
|CURRENT LIABILITIES:                                        |                |              
|Accounts payable and accrued expenses                       |                |              
|                                                           
|Total current liabilities                                   |                |              
|                                                           
|SHAREHOLDERS EQUITY:                                       |                |              
|Serial preferred stock, no par value, authorized 1,000,000  |                |              
|shares; issued none                                         |                |              
|Convertible participating preferred stock, Series A, no par |                |              
|value; issued and outstanding 2,875,000 shares              |                |              
|Common stock, no par value, issued and outstanding          |                |              
|5,716,074 shares                                            |                |              
|Additional paid-in capital                                  |                |              
|Accumulated deficit                                         |                |              
|                                                           
|                                                            |                |              
|                                                           
|                                                            |                |              
|                                                           

See Notes to Condensed Financial Statements

3

|PACE HEALTH MANAGEMENT SYSTEMS, INC.CONDENSED STATEMENTS OF OPERATIONS | 
|---------------------------------------------------------------------- | 
|                                                                      

|                                  | Three months endedMarch 31,
|--------------------------------- | ---------------------------
|
|                                 
|NET REVENUES                      |                            
|                                 
|COSTS AND EXPENSES                |                            
|General and administrative        |                            
|                                 
|                                  |                            
|                                 
|                                  |                            
|(Loss) from operations            |                            
|                                  |                            
|INTEREST INCOME                   |                            
|                                 
|                                  |                            
|Income before income taxes        |                            
|                                  |                            
|PROVISION FOR INCOME TAXES        |                            
|                                 
|                                  |                            
|Net income                        |                            
|                                 
|                                  |                            
|(LOSS) PER SHARE                  |                            
|Basic                             |                            
|                                 
|Fully Diluted                     |                            
|                                 
|                                  |                            
|WEIGHTED AVERAGE NUMBER OF COMMON |                            
|AND COMMON EQUIVALENT SHARES      |                            
|OUTSTANDING                       |                            
|                                 

See Notes to Condensed Financial Statements

4

|PACE HEALTH MANAGEMENT SYSTEMS, INC.CONDENSED STATEMENTS OF CASH FLOWS | 
|---------------------------------------------------------------------- | 
|                                                                      

|                                                                  | Three months endedMarch 31,
|----------------------------------------------------------------- | ---------------------------
|
|                                                                 
|CASH FLOWS FROM OPERATING ACTIVITIES                              |                            
|Net income                                                        |                            
|Change in assets and liabilities:                                 |                            
|Decrease in accounts receivable                                   |                            
|(Increase) decrease in prepaid insurance and other current assets |                            
|(Decrease) in accounts payable and accrued expenses               |                            
|                                                                 
|Net cash provided by (used in) operating activities               |                            
|                                                                 
|                                                                  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES                              |                            
|Proceeds from the exercise of stock options                       |                            
|                                                                 
|Net cash provided by financing activities                         |                            
|                                                                 
|Net increase in cash and cash equivalents                         |                            
|                                                                  |                            
|CASH AND CASH EQUIVALENTS                                         |                            
|Beginning                                                         |                            
|                                                                 
|Ending                                                            |                            
|                                                                 

See Notes to Condensed Financial Statements

5

|PACE HEALTH MANAGEMENT SYSTEMS, INC.NOTES TO CONDENSED FINANCIAL STATEMENTS | 
|--------------------------------------------------------------------------- | 
|                                                                           

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, 2000. 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 three months are not
necessarily indicative of the results to be expected for the entire fiscal year.

Note 2. 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).

|                                            | Three Months Ended March 31,
|------------------------------------------- | ----------------------------
|
|                                           
|Net income                                  |                             
|Preferred dividends in arrears              |                             
|                                           
|                                            |                             
|Net (loss) available to common shareholders |                             
|                                           
|                                            |                             
|Weighted average shares outstanding         |                             
|                                           
|Basic and diluted (loss) per share          |                             
|                                           

Note 3. Related Party Transactions

Administration expenses paid to Equity Dynamics, Inc., an
entity wholly owned by a Director of the Company, totaled $7,500 and $12,159 for
the three months ended March 31, 2001 and 2000, respectively.

6

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 March 31, 2001 balance sheet reflects cash in
excess of $2 million and no 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 within a
reasonable period of time, 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, expenses associated with shareholder
relations and SEC reporting requirements, and insurance. General and
administrative expenses were $15,497 and $13,758 for the three months ended
March 31, 2001 and 2000, respectively, representing an increase of 12.6%,
due mainly to an increase in insurance expense.

7

Interest Income: Interest income was $25,969 and $24,775
for the three months ended March 31, 2001 and 2000, respectively, representing
an increase of 4.8% resulting from an increase in the average amount on
deposit at the companys financial institution.

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 provided by operating activities for the three months
ended March 31, 2001 was $16,896. Net cash used in operating activities for the
three months ended March 31, 2000 was $1,487. Following the Transaction, the
Company has no ongoing operations and no revenues and has minimal operating
expenses. The Companys March 31, 2001 balance sheet reflects cash of
over $2 million and no liabilities.

Net cash provided by financing activities for the three months
ended March 31, 2001 and 2000 was $0 and $60,000,
respectively. Net cash provided by financing activities in 2000 was from the
exercise of stock options.

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 within a
reasonable period of time, 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.

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 MATTERS TO A VOTE OF SECURITY HOLDERS

| | N/A
| | ---

ITEM 5. OTHER INFORMATION.

| | N/A
| | ---

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

| | (a) Exhibits
| | ------------

| | N/A
| | ---

| | (b) Reports on Form 8-K
| | -----------------------

| | No reports on Form 8-K were
filed during the quarter for which this report is filed.
| | ------------------------------------------------------------------------------------

8

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)

|April 30, 2001 | /s/ John Pappajohn      
|-------------- | ------------------------
|Dated          | John Pappajohn, Director

9