_______________________________________________________

UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, 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 September 30, 2004
                                       OR
            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                     the Securities and 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 incorporation or organization) |  |  |  | (IRS Employer
Identification No.)

1301 Capitol of Texas
Highway, Suite 200B, 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 XNO
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Indicate by check mark whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Exchange Act).YES XNO
|------------------------------------------------------------------------------------------------------------------------------

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

| | Title of Each Class
     Common Stock, $.01 par value |  | Number of Shares Outstanding atNovember 1, 2004
20,705,335
| | ----------------------------------------------------- |  | ----------------------------------------------------------



---

|PART I


ITEM 1 
FINANCIAL INFORMATION
|---------------------------------------

|-2-
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                   (Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Three Months Ended
September 30, | Nine Months Ended
September 30,
|---------------------------------------- | -------------------------------- | -------------------------------
|
|Revenue:                                 |                                  |                                
|Urology                                  |                                  |                                
|Manufacturing                            |                                  |                                
|Other                                    |                                  |                                
|                                         |                                  |                                
|Total revenue                            |                                  |                                
|                                         |                                  |                                
|Cost of services and general and         |                                  |                                
|administrative expenses:                 |                                  |                                
|Urology                                  |                                  |                                
|Manufacturing                            |                                  |                                
|Corporate                                |                                  |                                
|Depreciation and amortization            |                                  |                                
|                                         |                                  |                                
|                                         |                                  |                                
|                                         |                                  |                                
|Operating income                         |                                  |                                
|                                        
|Other income (expenses):                 |                                  |                                
|Interest and dividends                   |                                  |                                
|Interest expense                         |                                  |                                
|Loan fees                                |                                  |                                
|Other, net                               |                                  |                                
|                                         |                                  |                                
|                                         |                                  |                                
|                                         |                                  |                                
|Income before provision for income       |                                  |                                
|taxes and minority interests             |                                  |                                
|                                        
|Minority interest in consolidated income |                                  |                                
|                                        
|Provision for income taxes               |                                  |                                
|                                         |                                  |                                
|Net income                               |                                  |                                
|                                         |                                  |                                
|Basic earnings per share:                |                                  |                                
|Net income                               |                                  |                                
|                                         |                                  |                                
|Weighted average shares outstanding      |                                  |                                
|                                         |                                  |                                
|Diluted earnings per share:              |                                  |                                
|Net income                               |                                  |                                
|                                         |                                  |                                
|Weighted average shares outstanding      |                                  |                                
|                                         |                                  |                                

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

|-3-
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|-------------------------------------------------------------------------

|($ in thousands)                                 | September 30,
2004
(Unaudited) | December 31,
2003
(Audited)
|------------------------------------------------ | ------------------------------ | ---------------------------
|ASSETS                                           |                                |                            
|                                                
|Current assets:                                  |                                |                            
|Cash and cash equivalents                        |                                |                            
|Accounts receivable, less allowance for doubtful |                                |                            
|accounts of $444 in 2004 and $512 in 2003        |                                |                            
|Other receivables                                |                                |                            
|Deferred income taxes                            |                                |                            
|Prepaid expenses and other current assets        |                                |                            
|Inventory                                        |                                |                            
|                                                 |                                |                            
|Total current assets                             |                                |                            
|                                                 |                                |                            
|Property and equipment:                          |                                |                            
|Equipment, furniture and fixtures                |                                |                            
|Building and leasehold improvements              |                                |                            
|                                                 |                                |                            
|                                                 |                                |                            
|Less accumulated depreciation and amortization   |                                |                            
|                                                 |                                |                            
|Property and equipment, net                      |                                |                            
|                                                 |                                |                            
|                                                
|Other investments                                |                                |                            
|Goodwill, at cost                                |                                |                            
|Other noncurrent assets                          |                                |                            
|                                                 |                                |                            
|                                                 |                                |                            
|                                                 |                                |                            

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

|-4-
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
|-------------------------------------------------------------------------------------

|($ in thousands, except share data)                                                   | September 30,
2004
(Unaudited) | December 31,
2003
(Audited)
|------------------------------------------------------------------------------------- | ------------------------------ | ---------------------------
|LIABILITIES                                                                           |                                |                            
|                                                                                     
|Current liabilities:                                                                  |                                |                            
|Current portion of long-term debt                                                     |                                |                            
|Accounts payable                                                                      |                                |                            
|Accrued distributions to minority interests                                           |                                |                            
|Accrued expenses                                                                      |                                |                            
|Customer deposits                                                                     |                                |                            
|                                                                                      |                                |                            
|Total current liabilities                                                             |                                |                            
|                                                                                     
|Long-term debt, net of current portion                                                |                                |                            
|Other long term obligations                                                           |                                |                            
|Deferred income taxes                                                                 |                                |                            
|                                                                                      |                                |                            
|Total liabilities                                                                     |                                |                            
|                                                                                     
|Minority interest                                                                     |                                |                            
|                                                                                     
|STOCKHOLDERS' EQUITY                                                                  |                                |                            
|                                                                                     
|Preferred stock, $.01 par value; 1,000,000 shares authorized; none outstanding        |                                |                            
|Common stock, $0.01 par value; 40,000,000 shares authorized; 21,078,633 shares issued |                                |                            
|in 2004 and 17,324,585 issued in 2003; and 20,695,667 outstanding in 2004 and         |                                |                            
|17,081,869 outstanding in 2003                                                        |                                |                            
|Capital in excess of par value                                                        |                                |                            
|Accumulated earnings                                                                  |                                |                            
|Treasury stock, at cost, 382,966 shares in 2004 and 242,716 shares in 2003            |                                |                            
|                                                                                      |                                |                            
|Total stockholders' equity                                                            |                                |                            
|                                                                                      |                                |                            
|                                                                                      |                                |                            
|                                                                                      |                                |                            

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

|-5-
|---



---

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

|                                                      | Nine Months Ended September 30,
|----------------------------------------------------- | -------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                
|Fee and other revenue collected                       |                                
|Cash paid to employees, suppliers of goods and others |                                
|Interest received                                     |                                
|Interest paid                                         |                                
|Taxes refunded                                        |                                
|                                                      |                                
|Net cash provided by operating activities             |                                
|                                                      |                                
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                
|Purchase of entities, net of cash acquired            |                                
|Escrow deposits                                       |                                
|Purchases of equipment and leasehold improvements     |                                
|Distributions from investments                        |                                
|Proceeds from sales of equipment                      |                                
|                                                      |                                
|Net cash used in investing activities                 |                                
|                                                      |                                
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                
|Borrowings on notes payable                           |                                
|Payments on notes payable, exclusive of interest      |                                
|Distributions to minority interest                    |                                
|Contributions by minority interest, net of buyouts    |                                
|Purchase of treasury stock                            |                                
|Exercise of stock options                             |                                
|                                                      |                                
|Net cash used in financing activities                 |                                
|                                                      |                                
|NET DECREASE IN CASH AND CASH EQUIVALENTS             |                                
|                                                     
|Cash and cash equivalents, beginning of period        |                                
|                                                      |                                
|Cash and cash equivalents, end of period              |                                
|                                                      |                                

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

|-6-
|---



---

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

|                                                                                     | Nine Months Ended September 30,
|------------------------------------------------------------------------------------ | -------------------------------
|
|Reconciliation of net income to net cash provided by operating activities:           |                                
|Net income                                                                           |                                
|Adjustments to reconcile net income to net cash provided by operating activities:    |                                
|Minority interest in consolidated income                                             |                                
|Depreciation and amortization                                                        |                                
|Provision for uncollectible accounts                                                 |                                
|Provision for deferred income taxes                                                  |                                
|Stock buyback agreements                                                             |                                
|Equity in earnings of affiliates                                                     |                                
|Proceeds from termination of interest rate swap                                      |                                
|Other                                                                                |                                
|                                                                                    
|Changes in operating assets and liabilities, net of effect of purchase transactions: |                                
|Accounts receivable                                                                  |                                
|Other receivables                                                                    |                                
|Other assets                                                                         |                                
|Accounts payable                                                                     |                                
|Accrued expenses                                                                     |                                
|                                                                                     |                                
|Total adjustments                                                                    |                                
|                                                                                     |                                
|Net cash provided by operating activities                                            |                                
|                                                                                     |                                

|See accompanying notes to consolidated financial statements.
|------------------------------------------------------------

|-7-
|---



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004(Unaudited)
|--------------------------------------------------------------------------------------------------------------------

# 1. General

|The  accompanying  unaudited  consolidated  financial  statements have been prepared in conformity  with the accounting  principles for
interim  financial  statements and with the  instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These  consolidated  financial
statements  reflect all  adjustments  which are, in our opinion,  necessary for a fair  presentation  of the statement of the financial
position as of September 30, 2004 and the results of operations and cash flows for the periods  presented.  These  statements  have not
been audited by our independent  registered  public  accounting firm. 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 our Annual Report on Form 10-K for the year ended December 31, 2003 filed
with the Securities and 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 and as discussed herein.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On June 11, 2004, we executed a definitive Agreement and Plan of Merger with HealthTronics Surgical Services, Inc. (HealthTronics)
pursuant to which we will, if all closing conditions are met (including approval of the merger by our stockholders and HealthTronics
shareholders), merge with and into HealthTronics, with HealthTronics as the surviving corporation. Under the terms of that agreement,
as a result of the merger, our stockholders will receive one share of HealthTronics common stock for each share of our common stock.
Because our stockholders will own approximately 62% of the shares of HealthTronics common stock after the merger, and because our
directors and senior management will represent a majority of the combined companys directors and senior management, we will be
deemed to be the acquiring company for accounting purposes and the merger will be accounted for as a reverse acquisition under the
purchase method of accounting for business combinations in accordance with accounting principles generally accepted in the United
States. The consideration paid (purchase price) will be allocated to the tangible and intangible net assets of HealthTronics based on
their fair values, and the net assets of HealthTronics will be recorded at fair values as of the completion of the merger and added
to those of Prime. The assets acquired and liabilities assumed will be deemed to be those of HealthTronics because HealthTronics will
be the surviving legal entity.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2. Earnings per share

|Basic earnings per share (EPS) is based on weighted average shares outstanding without any dilutive effects considered.  Diluted
EPS reflects dilution from all contingently issuable shares, including options and warrants.  A reconciliation of such EPS data is as
follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-8-
|---



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

2.
          Earnings per share (continued)

|($ in thousands, except per share data) | Basic
earningsper share | Diluted
earningsper share
|--------------------------------------- | ----------------------- | -------------------------
|                                        |                         |                          
|Nine Months Ended September 30, 2004    |                         |                          
|                                        |                         |                          
|Net income                              |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net income per share                    |                         |                          
|                                        |                         |                          
|                                        |                         |                          
|Nine Months Ended September 30, 2003    |                         |                          
|                                        |                         |                          
|Net income                              |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net income per share                    |                         |                          
|                                        |                         |                          
|Three Months Ended September 30, 2004   |                         |                          
|                                        |                         |                          
|Net income                              |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net income per share                    |                         |                          
|                                        |                         |                          
|Three Months Ended September 30, 2003   |                         |                          
|                                        |                         |                          
|Net income                              |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net income per share                    |                         |                          
|                                        |                         |                          

|-9-
|---



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

2.
          Earnings per share (continued)

|We did not include in our computation of diluted EPS unexercised stock options and warrants to purchase 1,625,000 and 3,050,000
shares of our common stock as of September 30, 2004 and 2003, respectively, because the effect would be antidilutive.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 3. Segment Reporting

|We have two reportable  segments:  urology and  manufacturing.  The urology segment  provides  services related to the operation of the
lithotripters,  including scheduling,  staffing, training, quality assurance,  maintenance,  regulatory compliance and contracting with
payors,  hospitals  and surgery  centers.  The  manufacturing  segment  provides  manufacturing  services  and  installation,  upgrade,
refurbishment  and repair of major medical  equipment for mobile medical service  providers and the mobile broadcast and  communication
industry.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We measure  performance based on the pretax income or loss from our operating segments,  which does not include  unallocated  corporate
general and administrative expenses and corporate interest revenue and expense.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)      | Urology | Manufacturing
|--------------------- | ------- | -------------
|                      |         |              
|Nine Months Ended     |         |              
|September 30, 2004    |         |              
|                      |         |              
|Revenue from          |         |              
|external customers    |         |              
|                      |         |              
|Intersegment revenues |         |              
|                      |         |              
|Segment profit        |         |              
|                      |         |              
|                      |         |              
|                      |         |              
|Nine Months Ended     |         |              
|September 30, 2003    |         |              
|                      |         |              
|Revenue from          |         |              
|external customers    |         |              
|                      |         |              
|Intersegment revenues |         |              
|                      |         |              
|Segment profit        |         |              
|                      |         |              

|-10-
|----



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

|3. | Segment Reporting (continued)
|-- | -----------------------------

|The following is a reconciliation of the measure of segment profit per above to consolidated income before provision for income taxes
per the consolidated statements of operations:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                     | Nine Months Ended September 30,2004                           2003
|------------------------------------ | ------------------------------------------------------------------
|                                     |                                                                   
|Total segment profit                 |                                                                   
|Corporate revenues                   |                                                                   
|Unallocated corporate expenses:      |                                                                   
|General and administrative           |                                                                   
|Net interest expense                 |                                                                   
|Loan Fees                            |                                                                   
|Other, net                           |                                                                   
|                                     |                                                                   
|Total unallocated corporate expenses |                                                                   
|                                     |                                                                   
|Income before income taxes           |                                                                   
|                                     |                                                                   

|($ in thousands)      | Urology | Manufacturing
|--------------------- | ------- | -------------
|                      |         |              
|Three Months Ended    |         |              
|September 30, 2004    |         |              
|                      |         |              
|Revenue from          |         |              
|external customers    |         |              
|                      |         |              
|Intersegment revenues |         |              
|                      |         |              
|Segment profit        |         |              
|                      |         |              
|                      |         |              
|                      |         |              
|Three Months Ended    |         |              
|September 30, 2003    |         |              
|                      |         |              
|Revenue from          |         |              
|external customers    |         |              
|                      |         |              
|Intersegment revenues |         |              
|                      |         |              
|Segment profit        |         |              
|                      |         |              

|-11-
|----



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

|3. | Segment Reporting (continued)
|-- | -----------------------------

|The following is a reconciliation of the measure of segment profit per above to consolidated income before provision for income taxes
per the consolidated statements of operations:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                     | Three Months Ended September 30,2004                           2003
|------------------------------------ | -------------------------------------------------------------------
|                                     |                                                                    
|Total segment profit                 |                                                                    
|Corporate revenues                   |                                                                    
|Unallocated corporate expenses:      |                                                                    
|General and administrative           |                                                                    
|Net interest expense                 |                                                                    
|Loan fees                            |                                                                    
|Other, net                           |                                                                    
|                                     |                                                                    
|Total unallocated corporate expenses |                                                                    
|                                     |                                                                    
|Income before income taxes           |                                                                    
|                                     |                                                                    

# 4. Stock-Based
Compensation

|Upon adoption of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement
123), in 1996, we have continued to measure compensation expense for our stock-based employee compensation plans using the intrinsic
value method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees.  We have provided proforma
disclosures of net income and earnings per share as if the fair value-based method prescribed by Statement 123 had been applied in
measuring compensation expense.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options vesting
period.  Our proforma information follows (in thousands except for earnings per share information):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Three Months Ended
September 30, | Nine Months Ended
September 30,
|--------------------------------- | -------------------------------- | -------------------------------
|
|Net income, as reported           |                                  |                                
|Stock-based employee compensation |                                  |                                
|expense, net of tax               |                                  |                                
|Pro forma net income              |                                  |                                
|Pro forma earning per share:      |                                  |                                
|Basic                             |                                  |                                
|Diluted                           |                                  |                                

|-12-
|----



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2004 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

# 5. Acquisitions

|Effective February 20, 2004, we acquired Medstone International, Inc. (Medstone).  Medstone manufactures, sells, and maintains
lithotripters and makes them available for use by health care providers under various fee-for-service arrangements in both fixed and
mobile settings.  Medstone and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient
handling tables for use by pain management clinics and other users, and x-ray generators for medical imaging.  A pioneer in the
manufacture of shockwave lithotripsy, Medstones lithotripter was the first FDA approved device to treat both kidney stones and
gallstones.  With more than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use,
the Medstone devices are well established in the urology office and hospital market.  The aggregate purchase price was approximately
$19 million of our common stock for all outstanding shares of Medstone.  We determined the value of our common stock by using an
average closing price for the two trading days prior to and after the public announcement of the merger.  Approximately 3.6 million
shares were issued.  We recognized $6 million of goodwill related to this transaction, none of which is tax deductible.  We
recognized approximately $1 million of intangibles, which are being amortized over three years.  Medstone had total assets with an
estimated fair value of $20.5 million and total liabilities with an estimated fair value of $7.2 million as of the purchase date.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 6. Condensed Financial Information
Regarding Guarantor Subsidiaries

|Condensed consolidating financial information for us, our Guarantor Subsidiaries and our Non-guarantor Subsidiaries for September 30,
2004 and 2003 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries.  The
Guarantor Subsidiaries are wholly owned subsidiaries of ours that have fully, unconditionally, jointly and severally guaranteed our
8.75% unsecured senior subordinated notes.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-13-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Nine Months Ended September 30, 2004
                   (Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Urology                                  |                              |                        | $                          | 7,625               |                   
|Manufacturing                            |                              |                        |                            | 6,181               |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 13,806              |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Urology                                  |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 160                 |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 160                 |                   
|                                         |                              |                        |                            |                     |                   
|Operating income                         |                              |                        |                            | 13,646              |                   
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | 66                  |                   
|Interest expense                         |                              |                        |                            | (6,525              | )                 
|Other, net                               |                              |                        |                            | 22                  |                   
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (6,437              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | 7,209               |                   
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Provision for income taxes               |                              |                        |                            | 2,464               |                   
|                                         |                              |                        |                            |                     |                   
|Net income                               |                              |                        | $                          | 4,745               |                   
|                                         |                              |                        |                            |                     |                   

|-14-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Nine Months Ended September 30, 2003
                   (Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Urology                                  |                              |                        | $                          | 7,200               |                   
|Manufacturing                            |                              |                        |                            | 5,039               |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 12,239              |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Urology                                  |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 73                  |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 73                  |                   
|                                         |                              |                        |                            |                     |                   
|Operating income                         |                              |                        |                            | 12,166              |                   
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | 53                  |                   
|Interest expense                         |                              |                        |                            | (6,285              | )                 
|Loan fees                                |                              |                        |                            | (257                | )                 
|Other, net                               |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (6,489              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | 5,677               |                   
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|Provision for income taxes               |                              |                        |                            | 1,752               |                   
|                                         |                              |                        |                            |                     |                   
|Net income                               |                              |                        | $                          | 3,925               |                   
|                                         |                              |                        |                            |                     |                   

|-15-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Three Months Ended September 30, 2004
                   (Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Urology                                  |                              |                        | $                          | 2,283               |                   
|Manufacturing                            |                              |                        |                            | 1,842               |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 4,125               |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Urology                                  |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 118                 |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 118                 |                   
|                                         |                              |                        |                            |                     |                   
|Operating income                         |                              |                        |                            | 4,007               |                   
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | 10                  |                   
|Interest expense                         |                              |                        |                            | (2,206              | )                 
|Other, net                               |                              |                        |                            | 1                   |                   
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (2,195              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | 1,812               |                   
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|Provision for income taxes               |                              |                        |                            | 570                 |                   
|                                         |                              |                        |                            |                     |                   
|Net income                               |                              |                        | $                          | 1,242               |                   
|                                         |                              |                        |                            |                     |                   

|-16-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Three Months Ended September 30, 2003
                   (Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Urology                                  |                              |                        | $                          | 2,686               |                   
|Manufacturing                            |                              |                        |                            | 840                 |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 3,526               |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Urology                                  |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 20                  |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 20                  |                   
|                                         |                              |                        |                            |                     |                   
|Operating income                         |                              |                        |                            | 3,506               |                   
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | --                  |                   
|Interest expense                         |                              |                        |                            | (2,155              | )                 
|Loan fees                                |                              |                        |                            | (257                | )                 
|Other, net                               |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (2,412              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | 1,094               |                   
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|Provision for income taxes               |                              |                        |                            | 319                 |                   
|                                         |                              |                        |                            |                     |                   
|Net income                               |                              |                        | $                          | 775                 |                   
|                                         |                              |                        |                            |                     |                   

|-17-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Balance Sheet
      September 30, 2004
                   (Unaudited)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                          | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|----------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|ASSETS                                    |                              |                        |                            |                     |                   
|Current assets:                           |                              |                       
|Cash and cash equivalents                 |                              |                        | $                          | 30                  |                   
|Accounts receivable, net                  |                              |                        |                            | --                  |                   
|Other receivables                         |                              |                        |                            | --                  |                   
|Deferred income taxes                     |                              |                        |                            | 2,061               |                   
|Prepaid expenses and other current assets |                              |                        |                            | 15                  |                   
|Inventory                                 |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Total current assets                      |                              |                        |                            | 2,106               |                   
|                                          |                              |                        |                            |                     |                   
|Property and equipment:                   |                              |                       
|Equipment, furniture and fixtures         |                              |                        |                            | --                  |                   
|Building and leasehold improvements       |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|                                          |                              |                        |                            | --                  |                   
|Less accumulated depreciation             |                              |                       
|and amortization                          |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Property and equipment, net               |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Investment in subsidiaries                |                              |                       
|and other investments                     |                              |                        |                            | 251,223             |                   
|Goodwill, net of accumulated amortization |                              |                        |                            | --                  |                   
|Other noncurrent assets                   |                              |                        |                            | 1,648               |                   
|                                          |                              |                        |                            |                     |                   
|                                          |                              |                        | $                          | 254,977             |                   
|                                          |                              |                        |                            |                     |                   
|LIABILITIES                               |                              |                       
|Current liabilities:                      |                              |                       
|Current portion of long-term debt         |                              |                        | $                          | 188                 |                   
|Accounts payable                          |                              |                        |                            | --                  |                   
|Accrued expenses                          |                              |                        |                            | 5,748               |                   
|Customer deposits                         |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Total current liabilities                 |                              |                        |                            | 5,936               |                   
|Long-term debt, net of current portion    |                              |                        |                            | 100,470             |                   
|Other long term obligations               |                              |                        |                            | --                  |                   
|Deferred income taxes                     |                              |                        |                            | 19,778              |                   
|                                          |                              |                        |                            |                     |                   
|Total liabilities                         |                              |                        |                            | 126,184             |                   
|                                          |                              |                        |                            |                     |                   
|Minority interest                         |                              |                        |                            | --                  |                   
|STOCKHOLDERS' EQUITY                      |                              |                       
|Common stock                              |                              |                        |                            | 211                 |                   
|Capital in excess of par value            |                              |                        |                            | 88,916              |                   
|Accumulated earnings                      |                              |                        |                            | 41,584              |                   
|Treasury stock                            |                              |                        |                            | (1,918              | )                 
|Subsidiary net equity                     |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Total stockholders' equity                |                              |                        |                            | 128,793             |                   
|                                          |                              |                        |                            |                     |                   
|                                          |                              |                        | $                          | 254,977             |                   
|                                          |                              |                        |                            |                     |                   

|-18-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Cash Flow
Nine Months Ended September 30, 2004
                   (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                               | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|CASH FLOWS FROM OPERATING                      |                              |                        |                            |                     |                   
|ACTIVITIES:                                    |                              |                       
|Net cash provided by (used in)                 |                              |                       
|operating activities                           |                              |                        | $                          | (8,977              | )                 
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM INVESTING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Purchase of equity investments and entities    |                              |                        |                            | --                  |                   
|Purchases of property and equipment            |                              |                        |                            | --                  |                   
|Proceeds from sales of equipment               |                              |                        |                            | --                  |                   
|Distributions from subsidiaries                |                              |                        |                            | 11,232              |                   
|Distributions from investments                 |                              |                        |                            | --                  |                   
|Escrow deposits                                |                              |                        |                            | 513                 |                   
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|investing activities                           |                              |                        |                            | 11,745              |                   
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM FINANCING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Borrowings on notes payable                    |                              |                        |                            | --                  |                   
|Payments on notes payable exclusive of         |                              |                       
|interest                                       |                              |                        |                            | (3,000              | )                 
|Contributions by minority interest,            |                              |                       
|net of buyouts                                 |                              |                        |                            | --                  |                   
|Distributions to minority interest             |                              |                        |                            | --                  |                   
|Exercise of stock options                      |                              |                        |                            | 212                 |                   
|Distributions to equity owners                 |                              |                        |                            | --                  |                   
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|financing activities                           |                              |                        |                            | (2,788              | )                 
|                                               |                              |                        |                            |                     |                   
|NET INCREASE (DECREASE) IN CASH AND            |                              |                       
|CASH EQUIVALENTS                               |                              |                        |                            | (20                 | )                 
|Cash and cash equivalents, beginning of period |                              |                        |                            | 50                  |                   
|                                               |                              |                        |                            |                     |                   
|Cash and cash equivalents, end of period       |                              |                        | $                          | 30                  |                   
|                                               |                              |                        |                            |                     |                   

|-19-
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             Condensed Consolidating Statement of Cash Flows
      Nine Months Ended September 30, 2003
                                                          (Unaudited)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                               | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|CASH FLOWS FROM OPERATING                      |                              |                        |                            |                     |                   
|ACTIVITIES:                                    |                              |                       
|Net cash provided by (used in)                 |                              |                       
|operating activities                           |                              |                        | $                          | (6,997              | )                 
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM INVESTING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Purchase of equity investments and entities    |                              |                        |                            | --                  |                   
|Purchases of property and equipment            |                              |                        |                            | --                  |                   
|Proceeds from sales of equipment               |                              |                        |                            | --                  |                   
|Distributions from subsidiaries                |                              |                        |                            | 18,371              |                   
|Investments                                    |                              |                        |                            | (12,000             | )                 
|Distributions from investments                 |                              |                        |                            | --                  |                   
|Escrow deposits                                |                              |                        |                            | (1,742              | )                 
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|investing activities                           |                              |                        |                            | 4,629               |                   
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM FINANCING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Borrowings on notes payable                    |                              |                        |                            | 16,000              |                   
|Payments on notes payable exclusive of         |                              |                       
|interest                                       |                              |                        |                            | (12,500             | )                 
|Contributions by minority interest,            |                              |                       
|net of buyouts                                 |                              |                        |                            | --                  |                   
|Distributions to minority interest             |                              |                        |                            | --                  |                   
|Purchase of treasury stock                     |                              |                        |                            | (1,214              | )                 
|Contributions from parent                      |                              |                        |                            | --                  |                   
|Distributions to equity owners                 |                              |                        |                            | --                  |                   
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|financing activities                           |                              |                        |                            | 2,286               |                   
|                                               |                              |                        |                            |                     |                   
|NET INCREASE (DECREASE) IN CASH AND            |                              |                       
|CASH EQUIVALENTS                               |                              |                        |                            | (82                 | )                 
|Cash and cash equivalents, beginning of period |                              |                        |                            | 66                  |                   
|                                               |                              |                        |                            |                     |                   
|Cash and cash equivalents, end of period       |                              |                        | $                          | (16                 | )                 
|                                               |                              |                        |                            |                     |                   

|-20-
|----



---

|Item 2 
Managements Discussion and Analysisof Financial Condition
andResults of Operations
|--------------------------------------------------------------------------------------------

Forward-Looking Statements

|The statements  contained in this report 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  our
expectations,  hopes,  intentions  or  strategies  regarding  the  future.  You  should not place  undue  reliance  on  forward-looking
statements.  All forward-looking  statements  included in this report are based on information  available to us on the date hereof, and
we assume no obligation to update any such  forward-looking  statements.  It is important to note that our actual  results could differ
materially from those in the  forward-looking  statements.  In addition to any risks and  uncertainties  specifically  identified below
and in the text surrounding  forward-looking  statements in this report,  you should consult our reports on Form 10-K and other filings
with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from those presented.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as
will, would, should, plans, likely, expects, anticipates, intends, believes, estimates, thinks, may, and
similar expressions, are forward-looking statements.  The following important factors, in addition to those referred to above, could
affect the future results of our industries in general, and us in particular, and could cause those results to differ materially from
those expressed in such forward-looking statements:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the effects of our indebtedness, which could adversely restrict our ability to operate, could make us vulnerable to general adverse
economic and industry conditions, could place us at a competitive disadvantage compared to our competitors that have less debt, and
could have other adverse consequences;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                               
| |  | uncertainties in our establishing or maintaining relationships with physicians and hospitals;                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                               
| |  | the impact of current and future laws and governmental regulations;                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                               
| |  | uncertainties inherent in third party payors attempts to limit health care coverages and levels of reimbursement;                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                               
| |  | uncertainties in our establishing or maintaining relationships with our manufacturing suppliers;                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                               
| |  | the effects of competition and technological changes;                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                               
| |  | the availability (or lack thereof) of acquisition or combination opportunities; and                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                               
| |  | general economic, market or business conditions.                                                                                                                                                                                                                                                              

|-21-
|----



---

General

|We provide urology services and design and manufacture trailers and coaches that transport high technology medical devices and
equipment for mobile command and control centers and the media and broadcast industry.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Urology Services.
According to the American  Foundation  for Urologic  Disease,  nearly 10% of Americans  are  afflicted  with kidney stones during their
lifetime.  Most kidney  stones occur  within the 40-60 year old age group.  The two primary  forms of  treatment  of kidney  stones are
lithotripsy and endoscopy,  a form of invasive surgery that sometimes  utilizes laser. Of the approximately  600,000 kidney stone cases
each year,  approximately  225,000 to 250,000 are treated with  lithotripsy.  Lithotripsy uses  extracorporeal  shock waves to break up
kidney  stones into small  pieces,  which can pass  naturally  through the bodys  urinary  tract.  This  procedure  is a  non-invasive
procedure for treating kidney stones,  typically  performed on an outpatient basis, that eliminates the need for lengthy hospital stays
and extensive recovery periods associated with surgery.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our services are provided  principally through limited  partnerships or other entities that we manage,  which use lithotripsy  devices.
As of  September  30,  2004,  we owned 86  lithotripters,  68 of which are mobile and 18 of which are fixed site.  We do not render any
medical services.  Rather, the physicians do.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We have two types of contracts, retail and wholesale.  Retail contracts are contracts where we contract with the hospital and private
insurance payors.  Wholesale contracts are contracts where we contract only with the hospital.  The two approaches functionally
differ in that, under a retail contract, we generally bill for the entire non-physician fee for all patients other than governmental
pay patients, for which the hospital bills the non-physician fee.  Under a wholesale contract, the hospital generally bills for the
entire non-physician fee for all patients.  In both cases, the billing party contractually bears the costs associated with the
billing service, including pre-certification, as well as non-collection.  The non-billing party is generally entitled to its fees
regardless of whether the billing party actually collects the non-physician fee.  Accordingly, under the wholesale contracts where we
are the non-billing party, the hospital generally receives a greater proportion of the total non-physician fee to compensate for its
billing costs and collection risk.  Conversely, under the retail contracts where we generally provide the billing services and bear
the collection risk, we receive a greater proportion of the total non-physician fee.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Although the non-physician fee under both retail and wholesale contracts varies widely based on geographical markets and the identity
of the third party payor, we estimate that nationally, on average, our share of the non-physician fee is roughly $3,400 and $1,600
under the retail and wholesale arrangements, respectively for 2004 and 2003.  At this time, we do not anticipate a material shift
between our retail and wholesale arrangements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We also, through our Medstone subsidiary, manufacture, sell and maintain lithotripters, and market fixed and mobile tables for
urological treatments and imaging, as well as patient handling tables for use by pain management clinics.  See Recent Developments
for a description of our Medstone subsidiary.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As the general partner of the limited partnerships, we also provide services relating to operating our lithotripters, including
scheduling, staffing, training, quality assurance, maintenance, regulatory compliance, and contracting with payors, hospitals and
surgery centers.  We do not directly bill, nor do we collect for services rendered to, Medicare or Medicaid.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-22-
|----



---

|Although, for the three and nine months ended September 30, 2004 and 2003, manufacturing revenue was higher than urology revenue, the
operating margins on urology revenue have been, historically, much higher than on manufacturing revenue.  We recognize urology
revenue primarily from the following sources:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fees for urology services.
A substantial majority of our urology revenue is derived from fees related to lithotripsy treatments performed using our
lithotripters.  We, through our partnerships or other entities, facilitate the use of our equipment and provide other support
services in connection with these treatments at hospitals and other health care facilities.  The professional fee payable to the
physician performing the procedure is generally billed and collected by the physician.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fees for operating our lithotripters.

Through our  partnerships  and  otherwise  directly by us, we provide  services  related to operating  our  lithotripters  and
         receive a management  fee for  performing  these  services.  In addition,  we provide  equipment  maintenance  services to our
         partnerships and supply them with other consumables.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fees for equipment sales and licensing applications.
We manufacture, sell and maintain lithotripters and certain medical tables.  In addition to the original sales price we receive for
lithotripter sales, we receive a licensing fee for each patient treated from the owner of the lithotripter.  In exchange for this
licensing fee, we also provide the owner of the lithotripter with certain consumables.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Manufacturing.    
We design, construct and engineer mobile trailers, coaches, and special purpose mobile units that transport high technology medical
devices such as magnetic resonance imaging, or MRI machines, cardiac catheterization labs for testing blood pressure, CT scanware, or
CAT scan machines, lithotripters, postitron emission tomography devices, or machines for PET scans, and equipment designed for mobile
command and control centers, and broadcasting and communications applications.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A significant portion of our revenue has been derived from our manufacturing operations.  Manufacturing revenue is recognized at the
time we fulfill the terms of the contract under which we have sold the equipment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Developments

|In February 2004, we acquired Medstone International, Inc., or Medstone, for approximately $19 million of our common stock.  Medstone
manufactures, sells, and maintains lithotripters and makes them available for use by health care providers under various
fee-for-service arrangements in both fixed and mobile settings.  Medstone and its subsidiaries also market fixed and mobile tables
for urological treatments and imaging, patient handling tables for use by pain management clinics and other users, and x-ray
generators for medical imaging.  A pioneer in the manufacture of shockwave lithotripsy, Medstones lithotripter was the first FDA
approved device to treat both kidney stones and gallstones.  With more than 130 lithotripters in operation worldwide, and more than
324 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In April 2004, we announced our plans to reorganize our manufacturing segment in the last half of 2004.  This reorganization will
rationalize plant capacity accumulated through acquisitions, streamline production, and optimize synergies available through labor
redundancies and purchasing and materials management.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-23-
|----



---

|On June 11, 2004, we executed a definitive Agreement and Plan of Merger with HealthTronics Surgical Services, Inc., or HealthTronics,
pursuant to which we will, if all closing conditions are met (including approval of the merger by our stockholders and HealthTronics
shareholders), merge with and into HealthTronics, with HealthTronics as the surviving corporation. Under the terms of that agreement,
as a result of the merger, our stockholders will receive one share of HealthTronics common stock for each share of our common stock.
Because our stockholders will own approximately 62% of the shares of HealthTronics common stock after the merger, and because our
directors and senior management will represent a majority of the combined companys directors and senior management, we will be
deemed to be the acquiring company for accounting purposes and the merger will be accounted for as a reverse acquisition under the
purchase method of accounting for business combinations in accordance with accounting principles generally accepted in the United
States. The consideration paid (purchase price) will be allocated to the tangible and intangible net assets of HealthTronics based on
their fair values, and the net assets of HealthTronics will be recorded at fair values as of the completion of the merger and added
to those of Prime. The assets acquired and liabilities assumed will be deemed to be those of HealthTronics because HealthTronics will
be the surviving legal entity.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies and Estimates.

Management has identified the
following critical accounting policies and estimates:

|Impairments of goodwill and other intangible assets are both a critical accounting policy and estimate that requires judgment and is
based on assumptions of future operations.  We are required to test for impairments at least annually or if circumstances change that
would reduce the fair value of a reporting unit below its carrying value.  We test for impairment of goodwill during the fourth
quarter.  We have two reporting units, urology and manufacturing.  The fair value of each reporting unit is calculated using
estimated discounted future cash flow projections.  As of September 30, 2004, we had goodwill of $186 million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A second critical accounting policy and estimate which requires judgment of management is the estimated allowance for doubtful
accounts and contractual adjustments.  We have based our estimates on historical collection amounts, current contracts with payors,
current changes of the facts and circumstances relating to these matters and certain negotiations with related payors.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A third critical accounting policy is consolidation of our investment in partnerships where we, as the general partner, exercise
effective control, even though our ownership is less than 50%.  The consolidated financial statements include our accounts, our
wholly-owned subsidiaries, and entities more than 50% owned and limited partnerships where we, as the general partner, exercise
effective control, even though our ownership is less than 50%.  The related partnership agreements provide for broad powers by the
general partner.  The limited partners do not participate in the management of the partnership and do not have the substantial
ability to remove the general partner.  Investment in entities in which our investment is less than 50% ownership and we do not have
significant control are accounted for by the equity method if ownership is between 20% - 50%, or by the cost method if ownership is
less than 20%.  We have reviewed each of the underlying agreements and determined we have effective control; however, if it was
determined this control did not exist, these investments would be reflected on the equity method of accounting.  Although this would
change individual line items within our consolidated financial statements, it would have no effect on our net income and/or total
stockholders equity.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Nine months ended September 30, 2004 compared to the nine months ended September 30, 2003
|-----------------------------------------------------------------------------------------

|Our total revenues for the nine months ended September 30, 2004 increased $19,842,000 (17%) as compared to the same period in 2003.
Revenues from our urology operations increased by $10,233,000 (22%) due primarily to the acquisition of Medstone during February
2004.  The actual numbers of procedures performed in the nine months ended September 30, 2004 increased by 3,235 (15%) compared to
the same period in 2003 due primarily to the Medstone acquisition.  Average revenue per procedures decreased by 8% because procedures
from our Medstone acquisition have a lower average rate.  For the nine months ended September 30, 2004, actual Medstone revenues from
the acquisition date forward totaled $7.8 million on 3,983 procedures and 13,283 procedures generating per use license fees from the
lithotripter sales. We also had $3 million in Medstone equipment sales.  Revenues from our organic operations were down approximately
$600,000 or 1% as compared to same period in 2003. Our manufacturing revenues increased $9,682,000 (14%) due to a significant
increase in the average price per unit.  The increase in price per unit is the result of an increase in the sale of command and
control units, which usually have a significantly higher sales price.  The total number of units actually shipped decreased from 285
during the nine months ended September 30, 2003 to 274 in the same period in 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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---

|Our costs of services and general and administrative expenses for the nine months ended September 30, 2004 decreased from 78% to 77%
of revenues.  Our costs of services associated with our urology operations increased $5,887,000 (31%) in absolute terms and increased
from 41% to 44% of our urology revenues. All of these increases relate to costs associated with our newly acquired Medstone
operations, which totaled $7.8 million.  Our costs related to organic operations actually decreased $1.3 million primarily due to
reduced personnel costs, including a partial reversal of our discretionary bonus accrual, and a decrease in legal costs due to the
hiring of an internal legal department in early 2004.  Our cost of services associated with our manufacturing operations increased
$8,364,000 (13%) in absolute terms and decreased from 92% to 91% of our manufacturing revenues.  Our corporate expenses remained
constant at 2% of revenues, increasing $383,000 (16%) in absolute terms, as we continue to successfully grow without proportionately
adding corporate expenses.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and amortization expense decreased $107,000 for the nine months ended September 30, 2004 compared to the same period in
2003.  This decrease relates to several lithotripsy units becoming fully depreciated in late 2003 and early 2004 as well as certain
computer equipment installed in our central business office in late 2000, partially offset by an increase from our newly acquired
Medstone equipment.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority interest in consolidated income for the nine months ended September 30, 2004 increased $4,053,000 compared to the same
period in 2003.  This increase is consistent with the percentage increase in income from our urology segment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Provision for income taxes for the nine months ended September 30, 2004 increased $583,000 compared to the same period in 2003 and is
consistent with the percentage increase in taxable income.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Three months ended September 30, 2004 compared to the three months ended September 30, 2003
|-------------------------------------------------------------------------------------------

|Our total revenues for the three months ended September 30, 2004 increased $6,873,000 (17%) as compared to the same period in 2003.
Revenues from our urology operations increased by $4,345,000 (28%) due primarily to the acquisition of Medstone in February 2004. The
actual number of procedures performed in the three months ended September 30, 2004 increased by 1,449 (20%) compared to the same
period in 2003 due primarily to the Medstone acquisition. Average revenue per procedures decreased by 8% because procedures from our
Medstone acquisition have a lower average rate.  Actual revenues from Medstone in the quarter totaled $2.7 million on 1,585
procedures and 5,338 procedures generating per use license fees from the lithotripter sales. We also had $1 million in Medstone
equipment sales. Revenues from our organic operations increased $633,000 for the three months ended September 30, 2004 compared to
the same period in 2003.  This increase is a result of an increase in lithotripsy procedures and the startup of our greenlight laser
operations.  Greenlight lasers are a devise used as a treatment for benign prostatic hyperplasia.  Our manufacturing revenues
increased $2,551,000 (11%) due to an increase in average price per unit.  The total number of units shipped decreased from 96 during
the three months ended September 30, 2003 to 95 during the same period in 2004. The price per unit increased as a result of an
increase in the sale of larger command and control units, which usually have a significantly higher sales price.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-25-
|----



---

|Our costs of services and general and  administrative  expenses for the three months ended September 30, 2004 decreased from 79% to 77%
of revenues.  Our costs of services associated with our urology operations  increased  $3,192,000 (54%) in absolute terms and increased
from 38% to 46% of our urology  revenues.  Costs  associated with Medstone  revenues  discussed  above totaled $2.9 million.  Our costs
related to organic operations  remained  relatively constant as increased costs from our new greenlight laser operations were offset by
a partial  reversal  of our  discretionary  bonus plan  accrual.  Our cost of services  associated  with our  manufacturing  operations
increased  $1,573,000  (7%) in absolute  terms and decreased  from 95% to 92% of our  manufacturing  revenues.  Our corporate  expenses
remained  constant at 2% of  revenues,  decreasing  $201,000  (22%) in absolute  terms,  as we continue to  successfully  grow  without
proportionately adding corporate expenses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and amortization expense increased $78,000 for the three months ended September 30, 2004 compared to the same period in
2003.  This increase relates to several lithotripsy units being fully depreciated in late 2003 and early 2004, as well as certain
computer equipment installed in our central business office late 2000, offset by an increase from our newly-acquired  Medstone
equipment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority  interest in  consolidated  income for the three months ended  September 30, 2004  increased  $1,682,000  compared to the same
period in 2003, which was consistent with the increase in income from our urology segment
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Provision for income taxes for the three months ended September 30, 2004 increased $185,000 compared to the same period in 2003 due
to an increase in taxable income.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital
Resources

|Cash and cash  equivalents were $6,385,000 and $9,780,000 at September 30, 2004 and December 31, 2003,  respectively.  Our subsidiaries
generally  distribute all of their  available cash  quarterly,  after  establishing  reserves for estimated  capital  expenditures  and
working capital.  For the nine months ended September 30, 2004 and 2003, our  subsidiaries  distributed  approximately  $22,509,000 and
$21,346,000, respectively, to minority interest holders.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash provided by operations, after minority interest, was $24,969,000 for the nine months ended September 30, 2004 and was
$24,809,000 for the nine months ended September 30, 2003.  Fee and other revenue collected increased by $22,737,000 while cash paid
to employees, suppliers of goods and others increased by $21,712,000.  These fluctuations are attributable to increased operations in
our manufacturing segment and from our acquisition of Medstone as well as the timing of accounts payable and accrued expense
payments.  An increase in interest payments of $1,594,000 was due primarily to proceeds received for the termination of our interest
rate swap in May 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-26-
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---

|Cash used in investing  activities for the nine months ended September 30, 2004 was $1,935,000  primarily due to purchases of equipment
and leasehold  improvements totaling $6,403,000 partially offset by net cash received from our Medstone  acquisition.  Cash used in our
investing  activities  for the nine  months  ended  September  30,  2003  was  $18,866,000  primarily  due to  $12,513,000  used in our
acquisitions of Winemiller  Communications  and Aluminum Body Corporation,  or ABC. We purchased  equipment and leasehold  improvements
totaling  $5,128,000  in 2003.  We also had  $1,742,000  remaining  in an escrow  account  at  September  30,  2003  related to certain
contingent consideration for the ABC acquisition.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash  used  in our  financing  activities  for the  nine  months  ended  September  30,  2004  was  $26,429,000,  primarily  due to the
distributions  to  minority  interest of  $22,509,000  and net  payments on notes  payable of  $4,285,000.  Cash used in our  financing
activities for the nine months ended September 30, 2003 was $17,416,000,  primarily due to the  distributions to minority  interests of
$21,346,000, partially offset by net borrowings on notes payable of $5,424,000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Accounts  receivable as of September 30, 2004 has decreased  $2,789,000 from December 31, 2003.  This decrease is primarily  related to
our  manufacturing  segment  which  normally  has more unit sales at the end of the fourth  quarter than the third  quarter,  partially
offset by an increase in receivables in urology from our newly acquired  Medstone  operations.  Bad debt expense was less than $100,000
for the nine months ended September 30, 2004 compared to approximately $200,000 for the same period in 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Inventory as of September 30, 2004 totaled $30,506,000 and increased $9,218,000 from December 31, 2003.  This increase relates
primarily to work in process in our manufacturing segment and newly acquired inventory from our Medstone acquisition.  Total backlog
for the manufacturing segment was $33,720,000 and $30,372,000 as of September 30, 2004 and 2003, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Senior Credit Facility

|Our senior credit facility is a revolving line of credit, and it expires on July 25, 2005.  The revolving line of credit has a
borrowing limit of $50 million, none of which was drawn at September 30, 2004 and $5 million of which was drawn as of November 1,
2004.  Our senior credit facility contains covenants that, among other things, limit the payment of cash dividends on our common
stock, limit repurchases of our common stock, restrict the amount of our consolidated debt, restrict our ability to make certain
loans and investments, and provide that we must maintain certain financial ratios.  As of September 30, 2004, we were not in
compliance with one financial ratio, Total Net Funded Debt to Adjusted EBITDA.  The maximum permitted ratio is 3.75 to 1 and our
ratio as of September 30, 2004 was 3.9 to 1.  We received a waiver of this noncompliance from the lenders under our credit facility
and, as a result, there was no material impact on us.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8.75% Notes

|In addition,  we have $100 million of unsecured  senior  subordinated  notes.  The notes bear interest at 8.75% and interest is payable
semi-annually on April 1st and October 1st.  Principal is due April 2008.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The indenture governing our 8.75% notes contains covenants that, among other things:  (1) limit the incurrence of additional
indebtedness; (2) limit certain investments; (3) limit restricted payments; (4) limit the disposition of assets; (5) limit the
payment of dividends and other payment restrictions affecting subsidiaries; (6) limit transactions with affiliates; (7) limit the
creation of liens; and (8) restrict mergers, consolidations and transfers of assets.  In the event of a change of control under the
indenture, we will be required to make an offer to repurchase the 8.75% notes at 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of the repurchase.  Our merger with HealthTronics described above will not be a change of control
under the indenture.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-27-
|----



---

|The 8.75% notes are unsecured general obligations and are subordinated in right of payment to all our existing and future senior
indebtedness and are guaranteed by certain of our subsidiaries on a full, unconditional, joint and several basis.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other

|Interest Rate Swap

..  In August 2002, we entered into an interest rate swap which was designated as a fair value hedge pursuant to the provisions of FAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, An Amendment of FASB Statement No. 133.  This swap was executed to convert $50
million of the 8.75% notes from a fixed to floating rate instrument.  The floating rate was based on LIBOR plus 4.56%.  In March
2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%.
We terminated the swaps in May 2003.  In August 2003, we entered into two new interest rate swaps for $25 million each which were
also designated as fair value hedges.  The floating rates of these two interest rate swap agreements were based on LIBOR plus 4.72%
and 4.97%, respectively.  In January 2004, we terminated these swaps.  As of September 30, 2004, approximately $658,000 in proceeds
from these swaps was capitalized and is being amortized as a reduction to future interest expense over the remaining life of the
8.75% notes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other long term debt.
At September 30, 2004, we had approximately $3.9 million of debt related to our building in Austin, Texas, which bears interest at
prime plus 1% and is due in monthly installments until November 2006.  We also had notes totaling $5.9 million related to equipment
purchased by our limited partnerships.  These notes are paid from the cash flows of the related partnerships.  They bear interest at
LIBOR or prime plus a certain premium and are due over the next three years.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other long term obligations.
At September 30, 2004, we had an obligation totaling $1,125,000 related to payments to the previous owner of ABC for $75,000 per
quarter until March 31, 2008 as consideration for a noncompetition agreement.  Also at September 30, 2004, as part of our Medstone
acquisition, we had an obligation totaling $704,000 related to payments to an employee for $20,833 a month until February 28, 2007
and $4,167 a month beginning March 1, 2007 and continuing until February 28, 2009 as consideration for a noncompetition agreement. We
also had an obligation for $33,000 related to the estimated fair values of puts on our common stock held by two previous minority
interest owners of one of our subsidiaries, AK Specialty Vehicles, each of which may be exercised for approximately 121,360 shares in
June 2005 at a per share purchase price of $7.19.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Stock  Repurchases.
During 1998, we announced a stock repurchase program of up to $25.0 million of our common stock. In February 2000, we announced an
increase in the authorized repurchase amount from $25.0 million to $35.0 million and in January 2001 we increased this amount to
$45.0 million.  We have not repurchased any of our common stock since 2001.  From time to time, we may purchase additional shares of
our common stock where, in our judgment, market valuations of our stock do not accurately reflect our past and projected results of
operations.  We intend to fund any additional stock purchases using cash flows from operations and borrowings under our senior credit
facility.  Under our repurchase program, we had purchased 3,820,200 shares of our stock for a total cost of $32,524,000.  These
shares were retired in August 2002 and no additional shares have been purchased under this program.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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General

The following table presents our contractual obligations as of September 30, 2004 (in thousands):

|                                | Payments due by period
|------------------------------- | ----------------------
|
|Long Term Debt (1)              |                       
|Operating Leases
 (2)           |                       
|Non-compete contracts (3)       |                       
|Stock repurchase
agreements (4) |                       
|                                |                       
|Total                           |                       
|                                |                       

| | (1) | Represents long term debt as discussed above under Senior Credit Facility, 8.75% Notes and Other-Other Long Term Debt.
| | --- | ----------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents operating leases in the ordinary course of our business.
| | --- | -------------------------------------------------------------------

| | (3) | Represents an obligation of  approximately  $1,125 due to the previous  owner of ABC, at a rate of $75 per quarter and an obligation of
     $704 due to an employee,  at a rate of $21 per month until February 28, 2007 and $4 beginning  March 1, 2007 and continuing  until
     February 28, 2009.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Represents the estimated liability, in accordance with SFAS No. 150, of certain put rights on our common stock discussed above
under Other long term obligations.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our primary sources of cash are cash flows from operations and borrowings under our senior credit facility.  Our cash flows from
operations and therefore our ability to make scheduled payments of principal, or to pay the interest on, or to refinance, our
indebtedness, or to fund planned capital expenditures, will depend on our future performance, which is subject to general economic,
financial, competitive, legislative, regulatory and other factors.  Likewise, our ability to borrow under our senior credit facility
will depend on these factors, which will affect our ability to comply with the covenants in our facility and our ability to obtain
waivers for, or otherwise address, any noncompliance with the terms of our facility with our lenders.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We intend to increase our urology operations primarily through forming new operating subsidiaries in new markets as well as by
acquisitions.  We seek opportunities to grow our manufacturing operations through acquisitions, expanding our product lines and by
selling to a broader customer base.  We intend to fund the purchase price for future acquisitions and developments using borrowings
under our senior credit facility and cash flows from our operations.  In addition, we may use shares of our common stock in such
acquisitions where appropriate.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Based upon the current level of our operations and anticipated cost savings and revenue growth, we believe that cash flows from our
operations and available cash, together with available borrowings under our senior credit facility, will be adequate to meet our
future liquidity needs both for the short term and for at least the next several years.  However, there can be no assurance that our
business will generate sufficient cash flows from operations, that we will realize our anticipated revenue growth and operating
improvements or that future borrowings will be available under our senior credit facility in an amount sufficient to enable us to
service our indebtedness or to fund our other liquidity needs.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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---

Inflation

|Our operations are not significantly affected by inflation because we are not required to make large investments in fixed assets.
However, the rate of inflation will affect certain of our expenses, such as employee compensation and benefits.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Adoption of Accounting
Pronouncements

|In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No.
51, or FIN 46.  This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined
in the Interpretation.  The Interpretation applies immediately to variable interests in variable interest entities created after
January 31, 2003, and July 1, 2003 for variable interests in variable interest entities that existed at January 31, 2003 and remain
in existence at July 1, 2003.  In October 2003, the FASB delayed the implementation date for variable interests in variable interest
entities that existed at January 31, 2003 and remain in existence at July 1, 2003 until fiscal years beginning after December 31,
2003.  FIN 46 was subsequently revised and reissued in December 2003.  The reissued guidance required implementation by March 31,
2004.  The application of this Interpretation did not have a material effect on our consolidated financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3  Quantitative and Qualitative DisclosuresAbout Market Risk
|------------------------------------------------------------------

Interest Rate Risk

|As of September 30, 2004, we had long-term debt (including current portion) totaling $110,437,000, of which $100 million has a fixed
rate of interest of 8.75%, $37,000 has fixed rates of 5% to 11%, $3,885,000 bears interest at a variable rate equal to a specified
prime rate and $5,857,000 bears interest at a variable rate equal to LIBOR + 1% to 3.75%.  The remaining $658,000 relates to our
interest rate swaps, which are discussed below.  We are exposed to some market risk due to the floating interest rate debt totaling
$9,742,000 on which we make monthly or quarterly payments of principal and interest.  An increase in interest rates of 1% would
result in a $97,000 annual increase in interest expense on this existing principal balance.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Additionally, in August 2002, we entered into an interest rate swap, which was designated as a fair value hedge pursuant to the
provisions of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133.  This swap had the effect
of converting $50 million of our 8.75% notes from a fixed to floating rate instrument with a rate of LIBOR plus 4.57%.  In March
2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%.
We terminated the swap in May 2003.  In August 2003, we entered into two new interest rate swaps for $25 million each, which were
also designated as fair value hedges.  The floating rates of these two interest rate swap agreements were based on LIBOR plus 4.72%
and 4.97%, respectively.  In January 2004, we terminated these swaps for approximately $150,000.  At September 30, 2004,
approximately $658,000 in net proceeds from these swaps was capitalized and is being amortized as a reduction to future interest
expense over the remaining life of the 8.75% notes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-30-
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---

|Item 4  Controls
and Procedures
|--------------------------------

|At September 30, 2004,  under the  supervision and with the  participation  of our  management,  including our Chief Executive  Officer
(our principal  executive officer) and our Chief Financial Officer (our principal  financial  officer),  we evaluated the effectiveness
of our disclosure  controls and  procedures  (as defined under Rule  13a-15(e) of the Securities  Exchange Act of 1934, as amended (the
Exchange  Act)).  Based on this  evaluation,  our Chief  Executive  Officer and our Chief  Financial  Officer  concluded  that, as of
September 30, 2004, our disclosure controls and procedures are effective.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Except as discussed below, there have been no changes in our internal control over financial reporting that occurred during the
period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control
over financial reporting.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During the three months ended September 30, 2004, in response to an internal investigation related to a business transaction
involving our manufacturing division, which is more fully described in a Form 8-K we filed on September 28, 2004, we implemented
certain improvements to (1) strengthen our internal controls, including heightened authorization and documentation requirements for
commissions, (2) establish clear guidelines and training protocol for the solicitation of and entering into government contracts, and
(3) ensure that our personnel fully understand and appropriately execute internal control procedures.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|-31-
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---

|PART II


OTHER INFORMATION
|---------------------------

|-32-
|----



---

# Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

|Unregistered Sales of Equity Securities.
|----------------------------------------

|During the third quarter of 2004, warrants were exercised at an average price of $4.87 resulting in the issuance of  32,990 shares of
our common stock.  These share were issued under an exception from registration pursuant to Section 4(2) of the Securities Act of
1933.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(a)      
         
         
         
         
         
         
(b) | Exhibits

12.  Computation of ratio of earnings to fixed charges.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
99.1 Waiver of Certain Provisions of the Fifth Amended and Restated Loan Agreement             dated November, 2004.
Current Reports on Form 8-K
         On July 22, 2004, we filed a report on Form 8-K disclosing our second quarter 2004 earnings release.


         On September 28, 2004, we filed a report on Form 8-K announcing the conclusion of an internal investigation of a business transaction
involving our manufacturing division.
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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---

|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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:  November 5, 2004 | PRIME MEDICAL SERVICES, INC.
By: /s/ John Q. Barnidge
     John Q. Barnidge, Senior Vice President
         and Chief Financial Officer
|----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------

|-34-
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---