--------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                    FORM 10-Q


             [X] Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                  For the quarterly period ended March 31, 1998

            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                         For the transition period from
                                       to


                         Commission File Number: 0-22392


                          PRIME MEDICAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)


           DELAWARE                                         74-2652727
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)


               1301 Capital of Texas Highway, Austin, Texas 78746
               (Address of principal executive offices) (Zip Code)


                                 (512) 328-2892
              (Registrant's telephone number, including area code)


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

YES     x       NO         
       ----         ------

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

                                                Number of Shares Outstanding at
     Title of Each Class                                    May 1, 1998
     -------------------                                    -----------
   Common Stock, $.01 par value                              19,163,267

                                                                               

--------------------------------------------------------------------------------

<PAGE>









                                     PART I


                              FINANCIAL INFORMATION





























                                       -2-
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
(in thousands, except per share data)                 Three Months Ended
                                                              March 31,        
                                                              ---------        
                                                      1998               1997 
                                                      ----               ---- 
Fee revenue:
     Lithotripsy:
         Fee revenues                              $ 18,512           $ 19,089
         Management fees                              1,069              1,351
         Equity income                                  578                320
                                                   --------           --------
                                                     20,159             20,760
     Manufacturing                                    2,433                --
     Prostatherapy                                       83                --
     Cardiac                                            120                129
                                                   --------           -------- 
         Total fee revenue                           22,795             20,889

Costs and expenses:
    Cost of services and general
      and administrative expense
        Lithotripsy                                   5,409              5,798
        Manufacturing                                 1,698                --
        Prostatherapy                                   108                --
        Cardiac                                         101                 92
        Corporate                                     1,161              1,362
        Nonrecurring restructuring/
          development costs                           1,617                --
                                                      -----              -----
                                                     10,094              7,252
 
    Depreciation and amortization                     2,568              2,419
                                                      -----              -----
                                                     12,662              9,671
                                                     ------              -----
Operating income                                     10,133             11,218

Other income (deductions):
    Interest income                                     183                139
    Interest expense                                 (1,783)            (1,764)
    Financing costs                                  (4,982)              (360)
    Other, net                                          156                103
                                                     ------             ------

                                                     (6,426)            (1,882)
                                                     -------            -------
Income before provision for income taxes
    and minority interest                             3,707              9,336

Minority interest in consolidated income              5,032              5,530

Provision for income taxes                             (157)               930
                                                   ---------         ---------

Net income (loss)                                  $( 1,168)         $   2,876
                                                   =========         =========

Basic earnings per share:
     Net income (loss)                            $   (0.06)        $     0.15
                                                  =========         ==========

     Weighted average shares outstanding             19,313             19,218
                                                     ======             ======

Diluted earnings per share:
     Net income (loss)                              $ (0.06)        $     0.15
                                                    =======         ==========

     Weighted average shares outstanding             19,313             19,395
                                                     ======             ======

                 See notes to consolidated financial statements.
                                       -3-

<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

($ in thousands)

                                                    March 31,      December 31,
                                                       1998            1997  
                                                       ----            ----  


ASSETS

Current assets:
     Cash                                           $ 37,885         $  23,770
     Accounts receivable, less allowance
       for doubtful accounts of $602 in
       1998 and $811 in 1997                          18,656            19,387
     Other receivables                                 1,860             1,103
     Deferred income taxes                             2,096             1,506
     Prepaid expenses and other current assets         2,432             1,776
                                                    --------         ---------

          Total current assets                        62,929            47,542

Property and equipment:
     Equipment, furniture and fixtures                33,369            32,673
     Leasehold improvements                              529               531
                                                     --------         ---------

                                                      33,898            33,204

Less accumulated depreciation and
     amortization                                   ( 14,249)          (13,497)
                                                    --------         --------- 
     Property and equipment, net                      19,649            19,707


Other investments                                     11,927            12,305
Goodwill, at cost, net of amortization               142,774           143,823
Other noncurrent assets                                4,414             2,449
                                                    --------         --------- 
                                                    $241,693          $225,826
                                                    ========          ========













          See accompanying notes to consolidated financial statements.
                                        4


<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)
                                 (continued)
 
($ in thousands)

 
                                                   March 31,      December 31,
                                                      1998            1997  
                                                      ----            ----  
LIABILITIES:

Current liabilities:
 
  Current portion of long-term debt                $  1,011         $  11,138
  Accounts payable                                    7,659             5,386
  Accrued expenses                                   15,055            20,859
                                                   --------         ---------
     Total current liabilities                       23,725            37,383

Long-term debt, net of current portion              102,023            71,198
Deferred income taxes                                 6,461             5,809
                                                   --------         ---------
     Total liabilities                              132,209           114,390
                                                   --------         ---------
Minority interest                                    18,540            19,372

STOCKHOLDERS' EQUITY:

Preferred stock, $.01 par value,
  1,000,000 shares authorized;
  none outstanding                                      --                 --
Common stock, $.01 par value,
  40,000,000 shares authorized;
  19,314,267 issued in 1998 and
  19,306,267 issued in 1997                             193               193
Capital in excess of par value                       84,098            84,050
Accumulated earnings                                  6,653             7,821
                                                   --------         ---------
     Total stockholders' equity                      90,944            92,064
                                                   --------         ---------  
                                                   $241,693          $225,826
                                                   ========          ========












          See accompanying notes to consolidated financial statements.
                                       -5-



<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

($ in thousands)

 
                                                        Three Months Ended
                                                              March 31,        
                                                              ---------        
                                                    1998                  1997  
                                                    ----                  ----  

CASH FLOWS FROM OPERATING ACTIVITIES:
  Fee and other revenue collected              $  23,103            $    21,322
  Cash paid to employees, suppliers
         of goods and others                     (14,742)                (9,166)
  Interest received                                  183                    139
  Interest paid                                   (2,295)                (2,174)
  Income taxes paid                               (3,258)                  (625)
                                               ----------           ------------
        Net cash provided by
         operating activities                      2,991                  9,496

CASH FLOWS FROM INVESTING ACTIVITIES:
 Payments on lithotripter entities acquired         --                  (10,503)
 Purchase of equipment and
         leasehold improvements                   (1,500)                 ( 216)
  Distributions from investments                     808                    557
  Purchase of investments                            --                    (129)
  Other                                             (205)                  (141)
         Net cash (used in)                      --------              ---------
         investing activities                       (897)              (10,432)

CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings on notes payable                     100,025                 50,000
  Payments on notes payable, 
     exclusive of interest                       (79,326)               (42,091)
  Distributions to minority interest              (8,702)               (11,040)
  Exercise of stock options                           24                    251
         Net cash provided by (used in)         --------               ---------
         financing activities                     12,021                 (2,880)

NET INCREASE (DECREASE) IN CASH AND CASH
         EQUIVALENTS                              14,115                 (3,816)

Cash and cash equivalents, 
     beginning of period                          23,770                 20,096
                                                --------              ---------
     
Cash and cash equivalents, end of period        $ 37,885            $    16,280
                                                ========            ===========









                 See notes to consolidated financial statements
                                       -6-
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

($ in thousands)

 
                                                        Three Months Ended
                                                             March 31,         
                                                             ---------         
                                                    1998                  1997  
                                                    ----                  ----  
Reconciliation of net income (loss) to
  cash provided by operating activities
    Net income (loss)                         $    (1,168)            $   2,876

    Adjustments to reconcile net income
         (loss) to cash provided by
         operating activities:
            Minority interest in 
               consolidated income                 5,032                  5,530
            Depreciation and amortization          2,568                  2,419
            Provision for deferred income taxes     (539)                   313
            Provision for uncollectible accounts     --                      60
            Equity in earnings of affiliates        (578)                  (320)
            Other                                     --                     38

            Changes in operating assets and
                  liabilities, net of effect of
                  purchase transactions:
                    Accounts receivable              731                    589
                    Other receivables              ( 756)                   (80)
                    Other current assets            (656)                    46
                    Accounts payable               2,273                 (1,187)
                    Accrued expenses              (3,916)                 ( 788)
                                                  ------                  - --- 
 
                    Total adjustments              4,159                  6,620
                                                  ------                  -----

                  Net cash provided by
                    operating activities         $ 2,991               $  9,496
                                                 =======               ========


















                 See notes to consolidated financial statements
                                       -7-

<PAGE>

                          PRIME MEDICAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (Unaudited)

1.       General
--       -------

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in  conformity  with the  accounting  principles  stated in the audited
financial  statements  for the year ended  December  31,  1997 and  reflect  all
adjustments  which are,  in the  opinion  of  management,  necessary  for a fair
statement  of the  financial  position  as of March 31,  1998 and the results of
operations for the periods presented.  These statements have not been audited or
reviewed  by  the  Company's  independent  certified  public  accountants.   The
operating  results for the interim  periods are not  necessarily  indicative  of
results for the full fiscal year.

     The notes to consolidated  financial  statements appearing in the Company's
Annual  Report on Form 10-K for the year ended  December 31, 1997 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q.  There have been no significant  changes in the information
reported  in those  notes  other than from  normal  business  activities  of the
Company.

2.       Noncash Investing and Financing Activities:
--       -------------------------------------------

     In March 1998,  the Company  completed  an  offering of an  aggregate  $100
million of senior  subordinated notes ("Notes") due 2008. The issue price of the
notes was 99.50 with an 8.75% coupon.  Interest is payable semiannually on April
1 and October 1, beginning  October 1, 1998. The financing costs associated with
this offering totaling $4,418,000 were expensed on the accompanying consolidated
statements of operations.  A portion of the proceeds from the offering was  used
to pay off the  Company's  $77 million of term loans under its  existing  credit
facility.

     The Company  increased its senior  revolving credit facility by $50 million
to $100  million.  The interest rate on draws on this facility is based on LIBOR
plus a margin  ranging from 100 to 200 basis points.  No amounts have been drawn
on the  revolver.  Loan fees of  $560,000  associated  with the credit  facility
increase were expensed in March 1998 on the accompanying consolidated statements
of operations.

     In March  1998,  the  Company  recorded  a write off of  development  costs
totaling $1,617,000 due to the uncertainty associated with the proposed Stark II
regulations  issued in January  1998.  These  costs  include  development  costs
associated with proposed  partnerships and  certification  of its  manufacturing
entity.

3.       Earnings per share:
--       -------------------

     SFAS No. 128 was adopted by the  Company in 1997.  The  earnings  per share
data for the quarter  ended  March 31, 1997 has been  restated to comply with
SFAS No. 128. Basic EPS is based on weighted average shares outstanding  without
any  dilutive  effects  considered.  Diluted  EPS  reflects  dilution  from  all
contingently  issuable shares,  including  options. A reconciliation of such EPS
data is as follows:

                                      -8-
<PAGE>
                          PRIME MEDICAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                  (Unaudited)
                                  (continued)

3.       Earnings per share: (continued)
--       -------------------
                                                   Basic              Diluted
                                                  earnings           earnings
                                                  per share          per share
                                                  ---------          ---------
                                                       (in thousands, except
                                                          per share data)
1998
----

Net loss applicable to common stock               $   (1,168)        $ (1,168)
                                                  ==========         ======== 



Average number of shares outstanding                  19,313           19,313
Average stock option shares                               --              --
                                                  ----------         --------


  Shares for EPS calculation                          19,313           19,313
                                                      ======           ======

Net loss per share                                $    (0.06)        $  (0.06)
                                                  ==========         ======== 

1997
----

Net income applicable to common stock             $   2,876          $  2,876
                                                  =========          ========

Average number of shares outstanding                 19,218            19,218
Average stock option shares                             --                177
                                                  ---------          -------- 

  Shares for EPS calculation                         19,218            19,395
                                                     ======            ======

Net income per share                              $    0.15          $   0.15
                                                  =========          ========

     Unexercised  stock  options to purchase  1,358,000  shares of the Company's
common  stock as of March  31,  1998 were not  included  in the  computation  of
diluted EPS because the effect would be antidilutive.  Unexercised stock options
to purchase  706,000  shares of the Company's  common stock as of March 31, 1997
were not included in the  computation  of diluted EPS because the exercise price
was greater than the average market price of the Company's common stock for such
period.


4.       Condensed Financial Information Regarding Guarantor Subsidiaries:
--       -----------------------------------------------------------------

     Condensed   consolidating  financial  information  regarding  the  Company,
Guarantor  Subsidiaries and Non-guarantor  subsidiaries as of March 31, 1998 and
and the periods ended March 31, 1998 and 1997 is presented below for purposes of
complying  with  the  reporting  requirements  of  the  Guarantor  Subsidiaries.
Separate  financial  statements and other disclosures  concerning each Guarantor
Subsidiary have not been presented  because  management has determined that such
information  is not  material  to  investors.  The  Guarantor  Subsidiaries  are
wholly-owned  subsidiaries  of the  Company  who have fully and  unconditionally
guaranteed the Notes described in Note 2 above.








                                       -9-


<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)
                   Condensed Consolidated Statement of Operations

<TABLE>

                                                                Three Months Ended March 31, 1998 
                                                                --------------------------------- 

<S>                                         <C>                 <C>            <C>                 <C>            <C>   

                                            Prime Medical        Guarantor     Non-Guarantor       Eliminating    Consolidated
                                            Services Inc.       Subsidiaries   Subsidiaries          Entries         Total
                                            -------------       ------------   ------------          -------         -----

($ in thousands)

Fee revenue:
Lithotripsy:
     Fee revenues                           $       --          $     4,805    $    13,707         $     --       $   18,512
     Management fees                                --                  677            392               --            1,069
     Equity income                                6,656               4,308            --            (10,386)            578
Manufacturing                                       --                  --           2,433                             2,433
Prostatherapy                                       --                  --              83               --               83
Cardiac                                             --                  120            --                --              120
                                            -----------         -----------    -----------         ---------      ----------
          Total Revenues                          6,656               9,910         16,615           (10,386)         22,795
Costs and expenses:
Cost of services and general and
   administrative expenses:
     Lithotripsy                                    --                  472          4,937               --            5,409
     Manufacturing                                  --                  --           1,698               --            1,698
     Prostatherapy                                  --                  --             108               --              108
     Cardiac                                        --                  101            --                --              101
     Corporate                                       49               1,112            --                --            1,161
     Nonrecurring restructuring/ 
       development costs                          1,617                 --             --                --            1,617 
                                            -----------         -----------    -----------         ---------      ----------
          Total Cost and Expenses                 1,666               1,685          6,743               --           10,094
Depreciation and amortization                         2               1,376          1,190               --            2,568
                                            -----------         -----------    -----------         ---------      ----------
Operating income                                  4,988               6,849          8,682          (10,386)          10,133
                                            -----------         -----------    -----------         ---------      ----------
Other income (deductions):
Interest income                                      13                  59            111              --               183
Interest expense                                 (1,731)                (15)           (37)             --            (1,783)
Financing costs                                  (4,978)                --              (4)             --            (4,982)
Other, net                                          --                  131             25              --               156
                                            -----------         -----------    -----------         ---------      ----------
          Total other income
             (deductions)                        (6,696)                175             95              --            (6,426)
Income before provision for income
   taxes                                         (1,708)              7,024          8,777          (10,386)           3,707
Minority interest in consolidated
   income    .                                      --                  --             --             5,032            5,032
Provision for income taxes                         (540)                368             15              --              (157)
                                            -----------         -----------    -----------         ---------      ----------
          Net income                        $    (1,168)        $     6,656    $     8,762         $(15,418)      $   (1,168)
                                            ===========         ===========    ===========         =========      =========== 


</TABLE>





                                       -10-


<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)
                   Condensed Consolidated Statement of Operations

<TABLE>

                                                             Three Months Ended March 31, 1997 
                                                             --------------------------------- 

<S>                                         <C>                 <C>            <C>                 <C>            <C>    

                                            Prime Medical        Guarantor     Non-Guarantor       Eliminating    Consolidated
                                            Services Inc.       Subsidiaries   Subsidiaries          Entries          Total
                                            -------------       ------------   ------------          -------          -----

($ in thousands)

Fee Revenue:
Lithotripsy:
     Fee revenues                           $       --          $     4,448    $    14,641         $     --       $   19,089
     Management fees                                --                  923            428               --            1,351
     Equity income                                5,880               3,360            --             (8,920)            320

Cardiac                                             --                  129            --                --              129
                                            -----------         -----------    -----------         ---------      ----------
Total Revenues                                    5,880               8,860         15,069            (8,920)         20,889


Cost and expenses:
Cost of services and general and
   administrative expenses
     Lithotripsy                                    --                  884          4,914               --            5,798
     Cardiac                                        --                   92            --                --               92
     Corporate                                      335               1,027            --                --            1,362
                                            -----------         -----------    -----------         ---------      ----------    
     Total Cost and Expenses                        335               2,003          4,914               --            7,252

     Depreciation and amortization                    2                 913          1,504               --            2,419
                                            -----------         -----------    -----------         ---------      ----------
Operating income                                  5,543               5,944          8,651            (8,920)         11,218
                                            -----------         -----------    -----------         ---------      ----------
Other income (deductions):
Interest income                                     --                   58             81               --              139
Interest expense                                 (1,684)                (17)           (63)              --           (1,764)
Financing costs                                    (360)                --             --                --             (360)
Other, net                                          --                  185            (82)              --              103
                                            -----------         -----------    -----------         ---------      ----------
Total other income (deductions)                  (2,044)                226            (64)              --           (1,882)

Income before provision for income taxes          3,499               6,170          8,587            (8,920)          9,336

Minority interest in consolidated income            --                  --             --              5,530           5,530

Provision for income taxes                          623                 290             17               --              930
                                            -----------         -----------    -----------         ---------      ----------
Net income                                  $     2,876         $     5,880    $     8,570         $ (14,450)     $    2,876
                                            ===========         ===========    ===========         =========      ==========

</TABLE>


                                      -11-
<PAGE>



                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                  (Unaudited)
                      Condensed Consolidated Balance Sheet

<TABLE>
                                                                 March 31, 1998 
                                                                 -------------- 
<S>                                         <C>                 <C>            <C>                 <C>            <C>    
 
                                            Prime Medical        Guarantor     Non-Guarantor       Eliminating    Consolidated 
                                            Services, Inc.      Subsidiaries   Subsidiaries          Entries          Total
                                            --------------      ------------   ------------          -------          -----
($ in thousands)

ASSETS:

Current Assets:
Cash                                        $    18,158         $     2,959    $    16,768         $     --       $   37,885
Accounts receivable, net                            --                4,443         14,213               --           18,656
Other receivables                                   544               1,956           (640)              --            1,860
Deferred income taxes                             1,369                 727            --                --            2,096
Prepaid expenses and other current assets.            8               1,013          1,411               --            2,432
                                            -----------         -----------    -----------         ---------      ----------
  Total current assets                           20,079              11,098         31,752               --           62,929
                                            -----------         -----------    -----------         ---------      ----------
Property and equipment:
Equipment, furniture and fixtures                   --                6,182         27,187               --           33,369
Leasehold improvements                              --                  490             39               --              529
Less accumulated depreciation 
     and amortization                               --               (4,139)       (10,110)              --          (14,249)
                                            -----------         -----------    -----------         ---------      ----------
Property and equipment, net                         --                2,533         17,116               --           19,649
                                            -----------         -----------    -----------         ---------      ----------
Investment in subsidiaries and 
     other investments                          178.680              34,307            --           (201,060)         11,927
Goodwill, at cost, net of amortization              --              142,764             10               --          142,774
Other noncurrent assets                             401               3,601            412               --            4,414
                                            -----------         -----------    -----------         ---------      ----------
    Total Assets                            $   199,160         $   194,303    $    49,290         $(201,060)     $  241,693
                                            ===========         ===========    ===========         =========      ==========

LIABILITIES:

Current Liabilities:
Current portion of long-term debt           $       --          $         3    $     1,008         $     --       $    1,011
Accounts payable                                    133               3,016          4,510               --            7,659
Accrued expenses                                  5,324               8,741            990               --           15,055
                                            -----------         -----------    -----------         ---------      ---------- 
 Total current liabilities                        5,457              11,760          6,508               --           23,725
                                            -----------         -----------    -----------         ---------      ----------
Long-term debt, net of current portion          100,000                 161          1,862               --          102,023
Deferred income taxes                             2,759               3,702            --                --            6,461
                                            -----------         -----------    -----------         ---------      ----------
  Total liabilities                             108,216              15,623          8,370               --          132,209
                                            -----------         -----------    -----------         ---------      ----------

Minority interest                                   --                  --             --             18,540          18,540

STOCKHOLDERS' EQUITY:

Common stock                                        193                 --             --                --              193
Capital in excess of par value                   84,098                 --             --                --           84,098
Retained earnings                                 6,653                 --             --                --            6,653
Subsidiary net equity                               --              178,680         40,920          (219,600)            --
                                            -----------         -----------    -----------         ---------      ----------
  Total stockholders' equity                     90,944             178,680         40,920          (219,600)         90,944
                                            -----------         -----------    -----------         ---------      ----------
    Total Liabilities and 
    stockholders' equity                    $   199,160         $   194,303    $    49,290         $(201,060)     $  241,693
                                            ===========         ===========    ===========         =========      ==========



</TABLE>

                                      -12-
<PAGE>




                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                  (Unaudited)
                 Condensed Consolidated Statement of Cash Flows

<TABLE>

                                                                Three Months Ended March 31, 1998 
                                                                --------------------------
<S>                                         <C>                 <C>            <C>                 <C>            <C>    

                                            Prime Medical        Guarantor     Non-Guarantor       Eliminating    Consolidated
                                            Services, Inc.      Subsidiaries   Subsidiaries          Entries         Total
                                            --------------      ------------   ------------          -------         -----

($ in thousands)

     Net cash (used) provided by                                                                 
        operating activities                $    (5,942)        $    (5,393)   $    14,326         $     --       $    2,991
                                            -----------         -----------    -----------         ---------      ----------
                                                           
Cash flows from investing activities:
Purchases of equipment and leasehold                                                             
   improvements                                     --                 (304)        (1,196)              --           (1,500)
Distributions from subsidiaries                   3,058               4,720            --             (7,778)            --
Investments                                         --                  808            --                --              808
Other                                               --                  (72)          (133)              --             (205)
                                            -----------         -----------    -----------         ---------      ----------
     Net cash provided (used) by
       investing activities                       3,058               5,152         (1,329)           (7,778)           (897)

Cash flows from financing activities:
Payments on notes payable,                                                               
   exclusive of interest                        (79,000)                 (2)          (324)              --          (79,326)
Borrowings on notes payable                     100,000                 --              25               --          100,025
Distribution to minority interest                   --                  --             --             (8,702)         (8,702)
Other                                                24                 --             --                --               24
Distributions to equity owners                      --               (3,058)       (13,422)           16,480             --       
                                            -----------         -----------    -----------         ---------      ----------
     Net cash provided (used) by
        financing activities                     21,024              (3,060)       (13,721)            7,778          12,021
                                            -----------         -----------    -----------         ---------      ----------
     Net increase (decrease) in cash and                                                         
        cash equivalents                         18,140              (3,301)          (724)              --           14,115
Cash and cash equivalents at beginning                                                           
   of period                                         18               6,260         17,492               --           23,770
                                            -----------         -----------    -----------         ---------      ----------
Cash and cash equivalents at end of                                                             
   period                                   $    18,158         $     2,959    $    16,768         $     --       $   37,885
                                            ===========         ===========    ===========         ======         ==========







</TABLE>








                                      -13-
<PAGE>



                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                  (Unaudited)
                 Condensed Consolidated Statement of Cash Flows

<TABLE>

                                                            Three Months Ended March 31, 1997 
                                                            --------------------------------- 
<S>                                         <C>                 <C>            <C>                 <C>            <C>    


                                            Prime Medical         Guarantor    Non-Guarantor       Eliminating    Consolidated
                                            Services, Inc.      Subsidiaries   Subsidiaries          Entries         Total
                                            --------------      ------------   ------------          -------         -----

($ in thousands)


     Net cash (used) provided by                                                                 
        operating activities                $    (3,674)        $     3,159    $    10,011         $     --       $    9,496
                                            -----------         -----------    -----------         ---------      ----------
Cash flows from investing activities:
Purchase of lithotripter entities                   --              (10,503)           --                --          (10,503)
Purchases of equipment and leasehold                                                             
   improvements                                     --                  (46)          (170)              --             (216)
Investments                                         --                  428            --                --              428
Distributions from subsidiaries                     --                4,745            --             (4,745)            --
Contributions to subsidiaries                    (3,319)                --             --              3,319             --
Other                                               --                  (47)           (94)              --             (141)
                                            -----------         -----------    -----------         ---------      ----------
     Net cash used by investing
        activities                               (3,319)             (5,423)          (264)           (1,426)        (10,432)
                                            -----------         -----------    -----------         ---------      ----------
Cash flows from financing activities:
Payments on notes payable,                                                               
   exclusive of interest                        (41,750)                (27)          (314)              --          (42,091)
Borrowings on notes payable                      50,000                 --             --                --           50,000
Distribution to minority interest                   --                  --             --            (11,040)        (11,040)
Exercise of stock option                            251                 --             --                --              251
Contributions from parent                           --                3,319            --             (3,319)            --
Distributions to equity owners                      --                  --         (15,785)           15,785             --
                                            -----------         -----------    -----------         ---------      ----------
     Net cash provided (used) by
        financing activities                      8,501               3,292        (16,099)            1,426          (2,880)
                                            -----------         -----------    -----------         ---------      ----------
     Net increase (decrease) in cash                                                             
        and cash equivalents                      1,508               1,028         (6,352)              --           (3,816)
Cash and cash equivalents at beginning                                                           
   of period                                          1               2,598         17,497               --           20,096
                                            -----------         -----------    -----------         ---------      ----------
Cash and cash equivalents at end of                                                              
   period                                   $     1,509         $     3,626    $    11,145         $     --       $   16,280
                                            ===========         ===========    ===========         ======         ==========






</TABLE>






                                      -14-
<PAGE>

                     Management's Discussion and Analysis
                           of Financial Condition and
                              Results of Operations

Results of Operations
---------------------

Revenues
--------

     Total  revenues  for the  three  months  ended  March  31,  1998  increased
$1,906,000  (9%)  as  compared  to  the  same  period  in  1997.  Revenues  from
manufacturing increased $2,433,000 due to the acquisition of a 75% interest in a
manufacturing  entity in September 1997.  Revenues from lithotripter  operations
decreased  by  $601,000  (3%)   primarily  due  to  a  decline  in  the  average
reimbursement  per procedure.  Revenues from cardiac  centers  decreased  $9,000
primarily due to one discontinued/sold cardiac center.

Expenses
--------

     Costs and expenses (excluding  depreciation and amortization) for the three
months ended March 31, 1998 increased from 35% to 44% of revenues, primarily due
to certain  nonrecurring  restructuring/development  costs of $1,617,000 and the
lower  margins  experienced  by  manufacturing  compared  to  lithotripsy,   and
increased  $2,842,000  (39%) in absolute  terms,  compared to the same period in
1997. Cost of services and general and administrative  expenses  associated with
manufacturing increased $1,698,000 due to the acquisition discussed above. Costs
of services associated with lithotripter  operations  decreased $389,000 (7%) in
absolute terms and decreased from 28% to 27% of lithotripter  revenues primarily
due to cost  containment  measures  enacted.  Cost of services  associated  with
cardiac centers increased $9,000 (10%).  Corporate expenses decreased from 7% to
5%  of  revenues  as  the  Company  was  able  to   successfully   grow  without
proportionately  adding overhead.  Corporate  expenses  decreased $201,000 (15%)
primarily due to  consolidation  of functions and a reduction in the amounts due
under  management  incentive  plans  which  are tied to the  performance  of the
Company.

Other Income (Deductions)
-------------------------

     Other  deductions  for the three  months  ended  March 31,  1998  increased
$4,544,000 compared to the same period in 1997, primarily due to financing costs
totaling  $4,982,000  associated with the $100 million debt offering and the $50
million  increase in the senior  revolving  credit facility which resulted in an
increase of $4,622,000 over the same period in 1997, and was partially offset by
$97,000 increase in interest and other income.

Minority Interest In Consolidated Income
----------------------------------------

     Minority  interest in consolidated  income for the three months ended March
31, 1998 decreased  $498,000 compared to the same period in 1997,  primarily due
to a decline in fee  revenue in certain  of the  partnerships.  Earnings  before
interest, taxes, depreciation and amortization (EBITDA) attributable to minority
interests was  $6,106,000  for the three months ended March 31, 1998 compared to
$6,638,000 for the same period in 1997.  EBITDA is not intended to represent net
income or cash flows from  operating  activities  in accordance  with  generally
accepted  accounting  principles  and should not be  considered a measure of the
Company's profitability or liquidity.

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

     Provision  for  income  taxes for the three  months  ended  March 31,  1998
decreased $1,087,000 compared to the same period in 1997 due to the loss arising
from the financing and development  costs written off. 

Liquidity and Capital Resources
-------------------------------

     Cash was  $37,885,000  and  $23,770,000  at March 31, 1998 and December 31,
1997, respectively.  Cash provided by operations for the quarter ended March 31,
1998 was  $2,991,000  compared to cash  provided by  operations  for the quarter
ended March 31,  1997 in the amount of  $9,496,000.  The  decline was  primarily
attributable to financing  costs and  development  costs incurred in the quarter
ended March 31, 1998.
                                      -15-


<PAGE>

    Cash used in investing  activities for the quarter ended March 31, 1998 was
$897,000  compared to cash used in investing  activities  for the quarter  ended
March 31, 1997 in the amount of $10,432,000.  The difference was attributable to
acquisition of additional partnership interests of $10,503,000 in January, 1997.
Cash provided by financing  activities  for the quarter ended March 31, 1998 was
$12,021,000  which included  $100,025,000 in new borrowings, which was partially
offset by  payments  on notes  payable and  distributions  to minority  interest
totaling  $88,028,000.  Cash used in financing  activities for the quarter ended
March 31, 1997 was $2,880,000  which included  $53,131,000 for payments on notes
payable and  distributions to minority  interest,  which was partially offset by
new borrowings totaling $50,000,000.

     In March 1998, the Company  completed an offering of $100 million of senior
subordinated  notes due 2008  ("Notes").  A portion of the net proceeds from the
offering of approximately  $96 million were used to repay all of the outstanding
indebtedness  under the Company's bank facility,  and the remainder will be used
for general corporate purposes,  including  acquisitions.  The Company increased
its senior  revolving  credit facility by $50 million to $100 million.  Advances
under the  revolver  will be used to fund  future  acquisitions  and to  finance
capital expenditure and working capital needs of the Company.

     In January 1998,  the federal  government  published  proposed  regulations
under the "Stark II" provisions of the Social  Security Act (the "Proposed Stark
Regulations").  The Company is currently evaluating its alternatives in light of
the Proposed Stark Regulations.  While the Proposed Stark Regulations may have a
material  adverse  effect on the  Company,  the Company  believes  the  changing
regulatory  environment  may benefit the  Company by  creating  new  lithotripsy
acquisition opportunities.  The Company is reevaluating its historical model for
providing    lithotripsy    and    thermotherapy    services    which    include
physician-investors  and has delayed the organization of physician  partnerships
that were in various stages of development.

     The Company  intends to increase the number of its  lithotripsy  operations
primarily through acquisitions.  The Company believes that the fragmented nature
of the lithotripsy industry, combined with the operational challenges created by
increasing regulatory and business complexities, including Stark II, the Illegal
Remuneration   Statute  and  similar  state  laws,   will  provide   significant
lithotripsy acquisition opportunities.  Where appropriate, the Company will seek
to  increase  its  ownership  interest  in  current  lithotripsy  operations  by
purchasing  interests of urologists and other investors who desire to divest due
to concerns over regulatory  issues, or who have a desire to realize a return on
their  investment or retirement.  The Company intends to fund the purchase price
for future  acquisitions  using  borrowings  under its senior  credit  facility,
proceeds  from the  offering  of the Notes and cash  flow  from  operations.  In
addition,  the Company may use shares of its common  stock in such acquisitions,
where appropriate.

     The Company has announced a stock repurchase program of up to $15 million
of common stock.  From time to time, the Company may purchase  additional shares
of its common stock where, in the judgment of management,  market  valuations of
its stock do not accurately  reflect the Company's past and projected results of
operations. The Company intends to fund any such purchases using available cash,
cash flow from operations and borrowings under its senior credit  facility.  The
Company has  purchased  159,000  shares of stock for a total of $1,864,000 as of
May 1, 1998.

     The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance,  its indebtedness,  or to fund planned capital
expenditures will depend on its future performance,  which, to a certain extent,
is subject to general economic, financial, competitive,  legislative, regulatory
and other  factors that are beyond its control.  Based upon the current level of
operations and anticipated cost savings and revenue growth,  management believes
that cash flow from  operations  and available  cash,  together  with  available
borrowings  under its  senior  credit  facility,  will be  adequate  to meet the
Company's future  liquidity needs for at least the next several years.  However,
there can be no assurance that the Company's  business will generate  sufficient
cash flow  from  operations,  that  anticipated  revenue  growth  and  operating
improvements  will be realized or that future borrowings will be available under
the senior  credit  facility  in an amount  sufficient  to enable the Company to
service its indebtedness or to fund its other liquidity needs.

                                      -16-

<PAGE>


Forward-Looking Statements
--------------------------

     The statements  contained  in this Report on Form 10-Q, that are not purely
historical, are forward-looking  statements within the meaning of Section 27A of
the  Securities  Act of 1933 and Section 21E of the  Securities  Exchange Act of
1934,  including  statements   regarding  the  Company's   expectation,   hopes,
intentions or strategies  regarding the future.  Readers  should not place undue
reliance on forward-looking  statements. All forward-looking statements included
in this document are based on  information  available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements.  It is important to note that the  Company's  actual  results  could
differ materially from those in such forward-looking  statements. In addition to
any risks and uncertainties specifically identified in the text surrounding such
forward-looking  statements,  the reader should consult the Company's reports on
Form 10-K and other filings under the  Securities Act of 1933 and the Securities
Exchange  Act of 1934,  for factors  that could cause  actual  results to differ
materially from those presented.

     The  forward-looking  statements  included herein are necessarily  based on
various  assumptions  and estimates and are inherently  subject to various risks
and  uncertainties,  including risks and uncertainties  relating to the possible
invalidity of the underlying  assumptions and estimates and possible  changes or
developments  in  social,  economic,   business,  industry,  market,  legal  and
regulatory circumstances and conditions and actions taken or omitted to be taken
by  third  parties,  including  customers,   suppliers,  business  partners  and
competitors and  legislative,  judicial and other  governmental  authorities and
officials.  Assumptions related to the foregoing involve judgements with respect
to, among other things,  future economic,  competitive and market conditions and
future business  decisions,  all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.  Any of such
assumptions  could be inaccurate and  therefore,  there can be no assurance that
the  forward-looking  statements included in this Report on Form 10-Q will prove
to be accurate.





























                                      -17-

<PAGE>












                                     PART II


                                OTHER INFORMATION

























                                      -18-
<PAGE>


Item 6.   Exhibits and Reports on Form 8-K.

(a)  Exhibits.

   12.  Computation of ratio of earnings to fixed charges

   27.  Financial Data Schedule  
 
(b)  Current Reports on Form 8-K

   NONE










































                                      -19-


<PAGE>


                                   SIGNATURES
                                   ----------



     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                             PRIME MEDICAL SERVICES, INC.




Date:     May 15, 1998                       By: /s/ Cheryl L. Williams
                                             --------------------------
                                             Cheryl L. Williams, Vice President
                                               and Chief Financial Officer







                                      -20-