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, 2003
                                       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) |  |  |  | (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 11, 2003
17,081,869
| | ----------------------------------------------------- |  | -----------------------------------------------------------



---

|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:                                            |                                  |                                
|Lithotripsy                                         |                                  |                                
|Manufacturing                                       |                                  |                                
|Refractive                                          |                                  |                                
|Other                                               |                                  |                                
|                                                    |                                  |                                
|Total revenue                                       |                                  |                                
|                                                    |                                  |                                
|Cost of services and general and                    |                                  |                                
|administrative expenses:                            |                                  |                                
|Lithotripsy                                         |                                  |                                
|Manufacturing                                       |                                  |                                
|Refractive                                          |                                  |                                
|Corporate                                           |                                  |                                
|Impairment and other costs                          |                                  |                                
|                                                    |                                  |                                
|                                                    |                                  |                                
|Depreciation and amortization                       |                                  |                                
|                                                    |                                  |                                
|                                                    |                                  |                                
|                                                    |                                  |                                
|Operating income (loss)                             |                                  |                                
|                                                    |                                  |                                
|Other income (expenses):                            |                                  |                                
|Interest and dividends                              |                                  |                                
|Interest expense                                    |                                  |                                
|Loan fees                                           |                                  |                                
|Other, net                                          |                                  |                                
|                                                    |                                  |                                
|                                                    |                                  |                                
|                                                    |                                  |                                
|Income (loss) before provision (benefit) for income |                                  |                                
|taxes and minority interests                        |                                  |                                
|Minority interest in consolidated income            |                                  |                                
|Provision (benefit) for income taxes                |                                  |                                
|                                                    |                                  |                                
|Net income (loss)                                   |                                  |                                
|                                                    |                                  |                                
|Basic earnings per share:                           |                                  |                                
|Net income (loss)                                   |                                  |                                
|                                                    |                                  |                                
|Weighted average shares outstanding                 |                                  |                                
|                                                    |                                  |                                
|Diluted earnings per share:                         |                                  |                                
|Net income (loss)                                   |                                  |                                
|                                                    |                                  |                                
|Weighted average shares outstanding                 |                                  |                                
|                                                    |                                  |                                

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

|3
|-



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

|($ in thousands)                                 | September 30,
2003
(Unaudited) |  |   | December 31,
2002
(Audited)
|------------------------------------------------ | ------------------------------ |  | - | ---------------------------
|                                                 |                               
|ASSETS                                           |                                |  |   |                            
|                                                 |                                |  |   |                            
|Current assets:                                  |                                | 
|Cash and cash equivalents                        |                                |  | $ | 8,701                      
|Accounts receivable, less allowance for doubtful |                                | 
|accounts of $342 in 2003 and $629 in 2002        |                                |  |   | 21,606                     
|Other receivables                                |                                |  |   | 450                        
|Deferred income taxes                            |                                |  |   | 5,383                      
|Prepaid expenses and other current assets        |                                |  |   | 5,887                      
|Inventory                                        |                                |  |   | 21,577                     
|                                                 |                                |  |   |                            
|Total current assets                             |                                |  |   | 63,604                     
|                                                 |                                |  |   |                            
|Property and equipment:                          |                                | 
|Equipment, furniture and fixtures                |                                |  |   | 43,834                     
|Building and leasehold improvements              |                                |  |   | 11,214                     
|                                                 |                                |  |   |                            
|                                                 |                                |  |   | 55,048                     
|Less accumulated depreciation and amortization   |                                |  |   | (30,090                    
|                                                 |                                |  |   |                            
|Property and equipment, net                      |                                |  |   | 24,958                     
|                                                 |                                |  |   |                            
|Other investments                                |                                |  |   | 3,028                      
|Goodwill, at cost                                |                                |  |   | 177,378                    
|Other noncurrent assets                          |                                |  |   | 7,640                      
|                                                 |                                |  |   |                            
|                                                 |                                |  | $ | 276,608                    
|                                                 |                                |  |   |                            

|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,
2003
(Unaudited) |  |   | December 31,
2002
(Audited)
|----------------------------------------------------------------------------------------------------- | ------------------------------ |  | - | ---------------------------
|
|LIABILITIES                                                                                           |                                |  |   |                            
|                                                                                                      |                                |  |   |                            
|Current liabilities:                                                                                  |                                | 
|Current portion of long-term debt                                                                     |                                |  | $ | 3,286                      
|Accounts payable                                                                                      |                                |  |   | 6,917                      
|Accrued distributions to minority interests                                                           |                                |  |   | --                         
|Accrued expenses                                                                                      |                                |  |   | 10,824                     
|Customer deposits                                                                                     |                                |  |   | 4,389                      
|                                                                                                      |                                |  |   |                            
|Total current liabilities                                                                             |                                |  |   | 25,416                     
|                                                                                                      |                                |  |   |                            
|Long-term debt, net of current portion                                                                |                                |  |   | 124,929                    
|Deferred income taxes                                                                                 |                                |  |   | 12,499                     
|                                                                                                      |                                |  |   |                            
|Total liabilities                                                                                     |                                |  |   | 162,844                    
|                                                                                                      |                                |  |   |                            
|Minority interest                                                                                     |                                |  |   | 9,451                      
|                                                                                                      |                                |  |   |                            
|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; 17,324,585 shares                        |                                | 
|issued in 2003 and 17,081,869 outstanding in 2003 and 16,931,017 issued       and outstanding in 2002 |                                |  |   | 173                        
|Capital in excess of par value                                                                        |                                |  |   | 70,813                     
|Accumulated earnings                                                                                  |                                |  |   | 34,541                     
|Treasury stock, at cost 242,716 shares in 2003                                                        |                                |  |   | (1,214                     
|                                                                                                      |                                |  |   |                            
|Total stockholders' equity                                                                            |                                |  |   | 104,313                    
|                                                                                                      |                                |  |   |                            
|                                                                                                      |                                |  | $ | 276,608                    
|                                                                                                      |                                |  |   |                            

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

|5
|-



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|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 |                                
|Purchase of investments                               |                                
|Proceeds from sales and maturities of investments     |                                
|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                        |                                
|Other                                                 |                                
|                                                      |                                
|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 (loss) to net cash provided by operating activities:    |                                
|Net income (loss)                                                                    |                                
|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                                                     |                                
|Impairment of goodwill and other assets                                              |                                
|Proceeds from termination of interest rate swap                                      |                                
|Other                                                                                |                                
|                                                                                     |                                
|Changes in operating assets and liabilities, net of effect of purchase transactions: |                                
|Investments                                                                          |                                
|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
|-



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|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003(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, 2003 and the results of operations and cash
flows for the periods presented. These statements have not been audited by our independent
certified public accountants. The operating results for the interim periods are not
necessarily indicative of results for the full fiscal year.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The notes to consolidated financial
statements appearing in our Annual Report on Form 10-K for the year ended December 31,
2002 filed with the Securities Exchange Commission should be read in conjunction with this
Quarterly Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities or as reported in our
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2003 and June 30,
2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands, except per share data) | Basic
earningsper share | Diluted
earningsper 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                    |                         |                          
|                                        |                         |                          
|Nine Months Ended September 30, 2002    |                         |                          
|                                        |                         |                          
|Net loss                                |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net loss per share                      |                         |                          
|                                        |                         |                          

|8
|-



---

|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

2.
          Earnings per share (continued)

|($ in thousands, except per share data) | Basic
earningsper share | Diluted
earningsper 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                    |                         |                          
|                                        |                         |                          
|Three Months Ended September 30, 2002   |                         |                          
|                                        |                         |                          
|Net loss                                |                         |                          
|                                        |                         |                          
|Weighted average shares outstanding     |                         |                          
|Effect of dilutive securities           |                         |                          
|                                        |                         |                          
|Shares for EPS calculation              |                         |                          
|                                        |                         |                          
|Net loss per share                      |                         |                          
|                                        |                         |                          

|We did not include in our computation
of diluted EPS unexercised stock options and warrants to purchase 3,050,000 and 2,674,000
shares of our common stock as of September 30, 2003 and 2002, respectively, because the
exercise prices were greater than the average market price of our common stock during the
respective periods or because the effect of including the contingently issuable shares
would decrease the net loss per share for the three and nine months ended September 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 3. Segment Reporting

|We have two reportable segments:
lithotripsy and manufacturing. The lithotripsy 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. Refractive
operations are also reported to allow for meaningful prior year comparisons.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|9
|-



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|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

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

|($ in thousands)      | Lithotripsy | Manufacturing | Refractive
|--------------------- | ----------- | ------------- | ----------
|                      |             |               |           
|Nine Months Ended     |             |               |           
|September 30, 2003    |             |              
|                      |             |               |           
|Revenue from          |             |              
|external customers    |             |               | $         
|                      |             |               |           
|Intersegment revenues |             |               |           
|                      |             |               |           
|Segment profit        |             |               |           
|                      |             |               |           
|                      |             |               |           
|                      |             |               |           
|Nine Months Ended     |             |              
|September 30, 2002    |             |              
|                      |             |               |           
|Revenue from          |             |              
|external customers    |             |               | $         
|                      |             |               |           
|Intersegment revenues |             |               |           
|                      |             |               |           
|Segment profit        |             |               |           
|                      |             |               |           

|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 30,2003                           2002
|------------------------------------ | ------------------------------------------------------------------
|                                     |                                                                   
|Total segment profit                 |                                                                   
|Corporate revenues                   |                                                                   
|Unallocated corporate expenses:      |                                                                   
|General and administrative           |                                                                   
|Net interest expense                 |                                                                   
|Loan fees                            |                                                                   
|Impairment and other costs           |                                                                   
|Other, net                           |                                                                   
|                                     |                                                                   
|Total unallocated corporate expenses |                                                                   
|                                     |                                                                   
|Income (loss) before income taxes    |                                                                   
|                                     |                                                                   

|10
|--



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|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

3.    
Segment Reporting(continued)

|($ in thousands)      | Lithotripsy | Manufacturing | Refractive
|--------------------- | ----------- | ------------- | ----------
|                      |             |               |           
|Three Months Ended    |             |               |           
|September 30, 2003    |             |              
|Revenue from          |             |              
|external customers    |             |               | $         
|Intersegment revenues |             |               |           
|Segment profit        |             |               |           
|                      |             |               |           
|                      |             |               |           
|Three Months Ended    |             |              
|September 30, 2002    |             |              
|Revenue from          |             |              
|external customers    |             |               | $         
|Intersegment revenues |             |               |           
|Segment profit (loss) |             |               |           

|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 30,2003                           2002
|------------------------------------ | -------------------------------------------------------------------
|                                     |                                                                    
|Total segment profit                 |                                                                    
|Corporate revenues                   |                                                                    
|Unallocated corporate expenses:      |                                                                    
|General and administrative           |                                                                    
|Net interest expense                 |                                                                    
|Loan fees                            |                                                                    
|Impairment and other costs           |                                                                    
|Other, net                           |                                                                    
|                                     |                                                                    
|Total unallocated corporate expenses |                                                                    
|                                     |                                                                    
|Income (loss) before income taxes    |                                                                    
|                                     |                                                                    

|11
|--



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|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

# 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 30,2003               2002 | Nine Months Ended
September 30,2003               2002
|--------------------------------- | ------------------------------------------------------- | ------------------------------------------------------
|Net income (loss), as reported    |                                                         |                                                       
|Stock-based employee compensation |                                                         |                                                       
|expense, net of tax               |                                                         |                                                       
|                                  |                                                         |                                                       
|Pro forma net income (loss)       |                                                         |                                                       
|                                  |                                                         |                                                       
|Pro forma earning per share:      |                                                         |                                                       
|Basic                             |                                                         |                                                       
|Diluted                           |                                                         |                                                       

# 5. Acquisitions

|Effective January 1, 2003, we
acquired Aluminum Body Corporation (ABC). The acquisition of ABC extends our
position in the manufacture of command and control vehicles for the Homeland Security and
military and government markets. Additionally, the combination provides an important west
coast hub for the service and sale of all of the products manufactured within our
manufacturing group. Founded in 1945, ABCs military and government vehicle
manufacturing activity is long standing. ABC constructs specialty vehicles, shelters and
trailers for early warning missile defense systems, mobile training centers for
Boeings Apache and Comanche helicopter systems and various classified programs. ABC
is also a recognized leader in the manufacture of expandable production trailers for the
broadcast and communications industry. The aggregate purchase price was approximately $8.6
million comprised of $7.5 million in cash and $1.1 million of our common stock. We
determined the value of our common stock issued by using an average closing price for the
two trading days prior to and after the closing date of the purchase agreement.
Approximately 150,000 shares were issued. We could pay an additional $4.7 million over the
next four years comprised of $3.5 million in cash, which was deposited into an escrow
account at closing, and $1.2 million in common stock in the event that certain objectives
are met. In May 2003, we released from escrow $1.75 million related to a portion of these
items. We recognized $9.8 million of goodwill related to this transaction, $2.5 million of
which is tax deductible.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12
|--



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|PRIME MEDICAL
SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSSEPTEMBER 30, 2003 (continued)(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------

5.    
          Acquisitions (continued)

|Effective February 7, 2003, we
acquired Winemiller Communications (Winemiller). Winemiller provides turnkey
remanufacturing and refurbishing of specialty vehicles utilized by the broadcast community
and is a recognized leader in the application of microwave technologysolutions. The
companys clients include NBC, ABC, CBS, Fox, Gannett, Cox Communications and
McGraw-Hill. Winemillers Solutions Group has been a mainstay consultant to the
Summer and Winter Olympic Games since 1988 and has provided technology support for the
Tour de France, the Goodwill Games, and other challenging broadcast events for the past
several years. The aggregate purchase price was approximately $5.4 million comprised of
$3.4 million in cash and $2 million of our common stock. We determined the value of our
common stock issued by using an average closing price for the two trading days prior to
and after the date of the purchase agreement. Approximately 244,000 shares were issued. We
could pay an additional $500,000 over the next year comprised of $48,000 in cash and
$452,000 in common stock in the event that certain objectives are met. We recognized $5.3
million of goodwill related to this transaction, which is not tax deductible.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 6. Subsequent Events

|On November 11, 2003, we announced
the execution of a definitive merger agreement pursuant to which we will acquire Medstone
International, Inc. (Medstone) for common stock. Pursuant to the merger
agreement, Medstone stockholders will receive $5.00 of our common stock for each share of
Medstone common stock they hold. The number of our shares to be issued to Medstone
stockholders will be calculated based on the average of our stock closing prices for the
30 trading days immediately preceding the third trading day before the closing of the
transaction.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Medstone, based in Aliso Viejo,
California, is a leading manufacturer of lithotripsy systems and urology tables and a
prominent provider of fee-per-procedure lithotripsy services. A pioneer in the manufacture
of shockwave lithotripsy, Medstones was the first FDA approved device to treat both
kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and
more than 325 urology and patient handling tables in use, the Medstone device is well
established in the urology office and hospital market. For the year ended December 31,
2002, Medstone had revenues of $23 million, comprised of $17 million in service revenue
and $6 million in equipment sales. For the trailing 12 months ended September 30, 2003,
revenues were $21 million, comprised of $16 million in service revenue and $5 million in
equipment sales. Upon completion of the merger, Medstone will become a wholly owned
subsidiary of ours.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 7. Condensed Financial
Information Regarding Guarantor Subsidiaries

|Our condensed consolidating financial
information, Guarantor Subsidiaries and Non-guarantor Subsidiaries for September 30, 2003
and 2002 is presented below for purposes of complying with the reporting requirements of
the Guarantor Subsidiaries. Separate financial statements and other disclosures concerning
each Guarantor Subsidiary have not been presented because we have determined that such
information is not material to investors. The Guarantor Subsidiaries are wholly owned
subsidiaries of ours who have fully and unconditionally guaranteed the 8.75% unsecured
senior subordinated notes.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--



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|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:                                 |                              |                        |                            |                     |                   
|Lithotripsy                              |                              |                        | $                          | 7,200               |                   
|Manufacturing                            |                              |                        |                            | 5,039               |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 12,239              |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Lithotripsy                              |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 73                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 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               |                   
|                                         |                              |                        |                            |                     |                   

|14
|--



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Nine Months Ended September 30, 2002
                   (Unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Lithotripsy                              |                              |                        | $                          | 10,332              |                   
|Manufacturing                            |                              |                        |                            | 8,931               |                   
|Refractive                               |                              |                        |                            | (9,838              | )                 
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 9,425               |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Lithotripsy                              |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Refractive                               |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 60                  |                   
|Impairment and other costs               |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 60                  |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 60                  |                   
|                                         |                              |                        |                            |                     |                   
|Operating income                         |                              |                        |                            | 9,365               |                   
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | 31                  |                   
|Interest expense                         |                              |                        |                            | (6,901              | )                 
|Loan fees                                |                              |                        |                            | (1,015              | )                 
|Other, net                               |                              |                        |                            | (118                | )                 
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (8,003              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | 1,362               |                   
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|Provision for income taxes               |                              |                        |                            | 4,332               |                   
|                                         |                              |                        |                            |                     |                   
|Net income (loss)                        |                              |                        | $                          | (2,970              | )                 
|                                         |                              |                        |                            |                     |                   

|15
|--



---

|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:                                 |                              |                        |                            |                     |                   
|Lithotripsy                              |                              |                        | $                          | 2,686               |                   
|Manufacturing                            |                              |                        |                            | 840                 |                   
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | 3,526               |                   
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Lithotripsy                              |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 20                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 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                 |                   
|                                         |                              |                        |                            |                     |                   

|16
|--



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           Condensed Consolidating Statement of Operations
      Three Months Ended September 30, 2002
                   (Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|---------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|Revenue:                                 |                              |                        |                            |                     |                   
|Lithotripsy                              |                              |                        | $                          | 2,521               |                   
|Manufacturing                            |                              |                        |                            | 3,553               |                   
|Refractive                               |                              |                        |                            | (10,237             | )                 
|Other                                    |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total revenue                            |                              |                        |                            | (4,163              | )                 
|                                         |                              |                        |                            |                     |                   
|Cost of services and general and         |                              |                       
|administrative expenses:                 |                              |                       
|Lithotripsy                              |                              |                        |                            | --                  |                   
|Manufacturing                            |                              |                        |                            | --                  |                   
|Refractive                               |                              |                        |                            | --                  |                   
|Corporate                                |                              |                        |                            | 21                  |                   
|Impariment and other costs               |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 21                  |                   
|Depreciation and amortization            |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|                                         |                              |                        |                            | 21                  |                   
|                                         |                              |                        |                            |                     |                   
|Operating income (loss)                  |                              |                        |                            | (4,184              | )                 
|                                         |                              |                        |                            |                     |                   
|Other income (expenses):                 |                              |                       
|Interest and dividends                   |                              |                        |                            | 1                   |                   
|Interest expense                         |                              |                        |                            | (2,195              | )                 
|Loan fees                                |                              |                        |                            | (556                | )                 
|Other, net                               |                              |                        |                            | --                  |                   
|                                         |                              |                        |                            |                     |                   
|Total other income (expenses)            |                              |                        |                            | (2,750              | )                 
|                                         |                              |                        |                            |                     |                   
|Income before provision for income       |                              |                       
|taxes and minority interest              |                              |                        |                            | (6,934              | )                 
|Minority interest in consolidated income |                              |                        |                            | --                  |                   
|Provision for income taxes               |                              |                        |                            | 1,173               |                   
|                                         |                              |                        |                            |                     |                   
|Net income (loss)                        |                              |                        | $                          | (8,107              | )                 
|                                         |                              |                        |                            |                     |                   

|17
|--



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             Condensed Consolidating Balance Sheet
September 30, 2003
                                                          (Unaudited)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                          | Prime Medical
Services, Inc. | Guarantor
Subsidiaries | Non-Guarantor
Subsidiaries | Eliminating
Entries | Consolidated
Total
|----------------------------------------- | ---------------------------- | ---------------------- | -------------------------- | ------------------- | ------------------
|ASSETS                                    |                              |                        |                            |                     |                   
|Current assets:                           |                              |                       
|Cash and cash equivalents                 |                              |                        | $                          | (16                 | )                 
|Accounts receivable, net                  |                              |                        |                            | --                  |                   
|Other receivables                         |                              |                        |                            | 291                 |                   
|Deferred income taxes                     |                              |                        |                            | (975                | )                 
|Prepaid expenses and other current assets |                              |                        |                            | 5,230               |                   
|Inventory                                 |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Total current assets                      |                              |                        |                            | 4,530               |                   
|                                          |                              |                        |                            |                     |                   
|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                     |                              |                        |                            | 227,369             |                   
|Goodwill, net of accumulated amortization |                              |                        |                            | --                  |                   
|Other noncurrent assets                   |                              |                        |                            | 4,147               |                   
|                                          |                              |                        |                            |                     |                   
|                                          |                              |                        | $                          | 236,046             |                   
|                                          |                              |                        |                            |                     |                   
|LIABILITIES                               |                              |                       
|Current liabilities:                      |                              |                       
|Current portion of long-term debt         |                              |                        | $                          | --                  |                   
|Accounts payable                          |                              |                        |                            | --                  |                   
|Accrued expenses                          |                              |                        |                            | 4,871               |                   
|Customer deposits                         |                              |                        |                            | --                  |                   
|                                          |                              |                        |                            |                     |                   
|Total current liabilities                 |                              |                        |                            | 4,871               |                   
|Long-term debt, net of current portion    |                              |                        |                            | 115,012             |                   
|Deferred income taxes                     |                              |                        |                            | 11,850              |                   
|                                          |                              |                        |                            |                     |                   
|Total liabilities                         |                              |                        |                            | 131,733             |                   
|                                          |                              |                        |                            |                     |                   
|Minority interest                         |                              |                        |                            | --                  |                   
|STOCKHOLDERS' EQUITY                      |                              |                       
|Common stock                              |                              |                        |                            | 173                 |                   
|Capital in excess of par value            |                              |                        |                            | 70,813              |                   
|Accumulated earnings                      |                              |                        |                            | 34,541              |                   
|Subsidiary net equity                     |                              |                        |                            | --                  |                   
|Treasury stock                            |                              |                        |                            | (1,214              | )                 
|                                          |                              |                        |                            |                     |                   
|Total stockholders' equity                |                              |                        |                            | 104,313             |                   
|                                          |                              |                        |                            |                     |                   
|                                          |                              |                        | $                          | 236,046             |                   
|                                          |                              |                        |                            |                     |                   

|18
|--



---

|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            |                              |                        |                            | --                  |                   
|Other                                          |                              |                        |                            | --                  |                   
|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                 | )                 
|                                               |                              |                        |                            |                     |                   

|19
|--



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        Condensed Consolidating Statement of Cash Flows
      Nine Months Ended September 30, 2002
                  (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                           |                              |                        | $                          | (4,150              | )                 
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM INVESTING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Purchases of operating entities                |                              |                        |                            | --                  |                   
|Purchases of equipment and leasehold           |                              |                        |                            |                     |                   
|improvements                                   |                              |                        |                            | --                  |                   
|Distributions from subsidiaries                |                              |                        |                            | 8,868               |                   
|Investments in subsidiaries                    |                              |                        |                            | (5,000              | )                 
|Distributions from investments                 |                              |                        |                            | --                  |                   
|Other                                          |                              |                        |                            | --                  |                   
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|investing activities                           |                              |                        |                            | 3,868               |                   
|                                               |                              |                        |                            |                     |                   
|CASH FLOWS FROM FINANCING                      |                              |                       
|ACTIVITIES:                                    |                              |                       
|Borrowings on notes payable                    |                              |                        |                            | 5,000               |                   
|Payments on notes payable exclusive            |                              |                        |                            |                     |                   
|interest                                       |                              |                        |                            | (6,500              | )                 
|Exercise of stock options                      |                              |                        |                            | 1,537               |                   
|Contributions by minority interest,            |                              |                       
|net of buyouts                                 |                              |                        |                            | --                  |                   
|Distributions to minority interest             |                              |                        |                            | --                  |                   
|Contributions by parent                        |                              |                        |                            | --                  |                   
|Distributions to equity owners                 |                              |                        |                            | --                  |                   
|                                               |                              |                        |                            |                     |                   
|Net cash provided by (used in)                 |                              |                       
|financing activities                           |                              |                        |                            | 37                  |                   
|                                               |                              |                        |                            |                     |                   
|NET DECREASE IN CASH AND                       |                              |                       
|CASH EQUIVALENTS                               |                              |                        |                            | (245                | )                 
|Cash and cash equivalents, beginning of period |                              |                        |                            | 259                 |                   
|                                               |                              |                        |                            |                     |                   
|Cash and cash equivalents, end of period       |                              |                        | $                          | 14                  |                   
|                                               |                              |                        |                            |                     |                   

|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 in the text surrounding such forward-looking statements, you
should consult our reports on Form 10-K and other filings under the Securities and
Exchange Commission for factors that could cause our actual results to differ materially
from those presented.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The forward-looking statements
included herein are necessarily based on various assumptions and estimates and are
inherently subject to various risks and uncertainties, including risks and uncertainties
relating to the possible invalidity of the underlying assumptions and estimates and
possible changes or developments in social, economic, business, industry, market, legal
and regulatory circumstances and conditions and actions taken or not taken by third
parties, including customers, suppliers, business partners and competitors and
legislative, judicial and other governmental authorities and officials. Assumptions
related to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond our
control. Any of such assumptions could be inaccurate and therefore, there can be no
assurance that the forward-looking statements included in this report will prove to be
accurate.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General

|We provide lithotripsy services and
design and manufacture trailers and coaches that transport high technology medical devices
as well as broadcast and communication equipment.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Lithotripsy Services.
Lithotripsy 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. We own 65 lithotripters, 61 of which are mobile
and four of which are fixed site. We do not render any medical services. Rather, the
physicians do.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Manufacturing.    
          We design, construct and engineer mobile trailers, coaches, and special purpose
          mobile units that transport high technology medical devices and equipment
          designed for broadcasting and communications applications, such as magnetic
          resonance imaging, cardiac catheterization labs, CT scanware, lithotripters,
          postitron emission tomography, mobile command and control centers and satellite
          news gathering vehicles.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21
|--



---

Recent Developments

|Effective January 1, 2003, we
acquired Aluminum Body Corporation (ABC). The acquisition of ABC extends our
position in the manufacture of command and control vehicles for the Homeland Security and
military and government markets. Additionally, the combination provides us an important
west coast hub for the service and sale of all of the products manufactured within our
manufacturing group.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Effective February 7, 2003, we
acquired Winemiller Communications (Winemiller). Winemiller provides turnkey
remanufacturing and refurbishing of specialty vehicles utilized by the broadcast community
and is a recognized leader in the application of microwave technology solutions.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In March 2003, we amended our
interest rate swap agreement to add an additional $25 million, to the existing $50
million. In May 2003, we terminated these two interest rate swaps and received a payment
of $1.5 million. We are amortizing this amount over the remaining life of the 8.75% notes.
In August 2003, we entered into two new interest rate swap contracts for $25 million each
with floating rates based on LIBOR plus 4.72% and 4.97%. Our swap agreements are
designated as fair value hedges. These swaps were executed to convert $50 million of the
8.75% notes from a fixed to floating rate instrument.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In July 2003, we entered into a
letter agreement with each of two previous minority interest owners of one of our
subsidiaries, AK Specialty Vehicles.  Under these two letter agreements, each
minority interest owner is entitled to require that we repurchase up to approximately
365,000 shares (for a total of approximately 730,000 shares) of our common stock that we
issued in connection with our repurchase of their interests in AK Specialty
Vehicles.  Each minority interest owners right to require a repurchase of his
shares can only be exercised in three equal increments of roughly 121,360 shares in July
of 2003, June of 2004 and June of 2005 at per share purchase prices of $7.05, $7.12 and
$7.19, respectively.  Both individuals exercised their right to require repurchase in
July of 2003 and, consequently, we purchased 242,720 shares under these letter agreements
for approximately $1.7 million. We recorded $1.2 million to treasury stock based on the
closing price of our stock on the date of repurchase and the remaining $498,000 was
recorded as compensation costs. The remaining obligations under these agreements are
accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 150 and resulted in an estimated liability and related compensation
costs of approximately $850,000.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On November 11, 2003, we announced
the execution of a definitive merger agreement pursuant to which we will acquire Medstone
International, Inc. (Medstone) for common stock. Pursuant to the merger
agreement, Medstone stockholders will receive $5.00 of our common stock for each share of
Medstone common stock they hold. The number of our shares to be issued to Medstone
stockholders will be calculated based on the average of our stock closing prices for the
30 trading days immediately preceding the third trading day before the closing of the
transaction.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Medstone, based in Aliso Viejo,
California, is a leading manufacturer of lithotripsy systems and urology tables and a
prominent provider of fee-per-procedure lithotripsy services. A pioneer in the manufacture
of shockwave lithotripsy, Medstones was the first FDA approved device to treat both
kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and
more than 325 urology and patient handling tables in use, the Medstone device is well
established in the urology office and hospital market. For the year ended December 31,
2002, Medstone had revenues of $23 million, comprised of $17 million in service revenue
and $6 million in equipment sales. For the trailing 12 months ended September 30, 2003,
revenues were $21 million, comprised of $16 million in service revenue and $5 million in
equipment sales. Upon completion of the merger, Medstone will become a wholly owned
subsidiary of ours.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Critical Accounting
Policies.

Management has identified the
following critical accounting policies:

|Consolidation of our investment in
certain limited partnerships where we, as the general partner, exercise effective control,
even though our ownership is less than 50%, requires judgment. 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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Impairments of intangible assets is
another critical accounting policy that requires judgment and is based on assumptions of
future operations. Effective January 1, 2002, we adopted SFAS No. 142. Under SFAS No. 142,
goodwill is no longer amortized, but must be tested for impairment at least annually.
Impairment testing is done at a reporting level. We currently have identified two
reporting units under the criteria set forth by SFAS No. 142.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A third critical accounting policy
which requires judgment of management is the estimated allowance for doubtful accounts and
in determining 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.
Actual results could vary from these estimates.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Nine months ended September 30,
2003 compared to the nine months ended September 30, 2002
|-----------------------------------------------------------------------------------------

|Our total revenues for the nine
months ended September 30, 2003 decreased $8,984,000 (7%) as compared to the same period
in 2002. Revenues from our lithotripter operations decreased by $7,682,000 (14%). Average
revenue per procedure remained constant between the two periods while the actual number of
procedures performed in the nine months ended September 30, 2003 decreased by 8% compared
to the same period in 2002. The most significant decreases totaling approximately $4
million related to lost contracts in Florida and Alabama. Our manufacturing revenues
increased $8,464,000 (14%) due to the acquisitions of Frontline Communications during May
2002, Smit Mobile Equipment Company in July 2002, Winemiller in February 2003 and ABC in
January 2003. Our refractive revenues decreased $9,955,000 (100%) as we fully disposed of
these operations in late 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our costs of services and general and
administrative expenses (excluding depreciation and amortization) for the nine months
ended September 30, 2003 decreased from 80% to 74% of revenues, primarily due to a $17
million impairment recorded in 2002 related primarily to our refractive operations as
discussed below partially offset by increases in our manufacturing operations, which has
lower operating margins than our lithotripsy operations. Our costs of services associated
with our lithotripsy operations decreased $1,065,000 (5%) in absolute terms but increased
from 38% to 41% of our lithotripsy revenues primarily due to the decrease in revenues
noted above. Our cost of services associated with our manufacturing operations increased
$12,593,000 (24%) in absolute terms and from 84% to 92% of our manufacturing revenues due
to increased sales and costs related to our acquisitions and a $1,348,000 charge related
to stock buyback agreements discussed more fully in the Recent Development
section. Cost of services associated with our refractive operations decreased $8,490,000
(100%) as we fully disposed of these operations in late 2002. Our corporate expenses
remained constant at 2% of revenues, decreasing $213,000 (8%) in absolute terms, as we
continue to successfully grow without proportionately adding corporate expenses.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|In the third quarter of 2002, we
recognized an impairment of approximately $17 million related to the disposal of our
refractive operations. Additionally, we recognized an impairment related to certain
lithotripsy assets located in south Florida due to a loss of the related revenue
contracts.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and amortization expense
increased $110,000 for the nine months ended September 30, 2003 compared to the same
period in 2002 due to the addition of Winemiller and ABC.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other income (expenses), net for the
nine months ended September 30, 2003 decreased $752,000 (10%) compared to the same period
in 2002, primarily due to a $688,000 decrease in interest expense and $812,000 decrease in
loan fees related to our senior credit facility partially offset by a $845,000 decrease in
other, net due to a settlement in a class action lawsuit during 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority interest in consolidated
income for the nine months ended September 30, 2003 decreased $4,175,000 compared to the
same period in 2002, primarily as a result of a decrease in income from our lithotripsy
segment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Provision for income taxes for the
nine months ended September 30, 2003 increased $3,853,000 compared to the same period in
2002 due to an increase in taxable income and a decrease in our effective tax rate.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Three months ended September 30,
2003 compared to the three months ended September 30, 2002
|-------------------------------------------------------------------------------------------

|Our total revenues for the three
months ended September 30, 2003 decreased $5,739,000 (13%) as compared to the same period
in 2002. Revenues from our lithotripter operations decreased by $2,548,000 (14%). Average
revenue per procedure remained consistent between the two periods while the actual number
of procedures performed in the three months ended September 30, 2003 decreased by 9%
compared to the same period in 2002. The most significant decreases totaling approximately
$1.3 million related to lost contracts in Florida and Alabama. Our manufacturing revenues
decreased $1,350,000 (5%) due to a significant decrease in our Chicago mobile medical
equipment division which had $3 million in lower sales from same quarter in 2002 partially
offset by revenues from the acquisition of Winemiller in February 2003 and ABC in January
2003. Our refractive revenues decreased $1,897,000 (100%) as we fully disposed of these
operations in late 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our costs of services and general and
administrative expenses (excluding depreciation and amortization) for three months ended
September 30, 2003 decreased from 107% to 74% of revenues, primarily due to a $17 million
impairment recorded in 2002 related primarily to our refractive operations as discussed
below. Our costs of services associated with our lithotripsy operations decreased $343,000
(5%) in absolute terms but increased from 35% to 38% of our lithotripsy revenues primarily
due to reduced revenues noted above. Our cost of services associated with our
manufacturing operations increased $1,315,000 (6%) in absolute terms and from 85% to 95%
of our manufacturing revenues due to a $1,348,000 charge related to stock buyback
agreements discussed more fully in the Recent Development section. Cost of
services associated with our refractive operations decreased $2,268,000 (100%) as we fully
disposed of these operations in late 2002. Our corporate expenses remained constant at 2%
of revenues, decreasing $35,000 (4%) in absolute terms, as we continue to successfully
grow without proportionately adding corporate expenses.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|In the third quarter of 2002, we
recognized an impairment of approximately $17 million related to the disposal of our
refractive operations. Additionally, we recognized an impairment related to certain
lithotripsy assets located in south Florida due to a loss of the related revenue
contracts.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and amortization expense
increased $68,000 for the three months ended September 30, 2003 compared to the same
period in 2002 due to the addition of Winemiller and ABC.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other income (expenses), net for the
three months ended September 30, 2003 increased $110,000 (5%) compared to the same period
in 2002, primarily due to a $561,000 decrease in other, net due to a settlement in a class
action lawsuit during 2002. Both interest expense and loan fees related to our senior
credit facility decreased in the quarter.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority interest in consolidated
income for the three months ended September 30, 2003 decreased $1,157,000 compared to the
same period in 2002, primarily as a result of a decrease in income from our lithotripsy
segment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Provision for income taxes for the
three months ended September 30, 2003 increased $5,429,000 compared to the same period in
2002 due to an increase in taxable income and a decrease in our effective tax rate.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital
Resources

|Cash and cash equivalents were
$8,701,000 and $20,174,000 at September 30, 2003 and December 31, 2002, respectively. Cash
provided by operations for the nine months ended September 30, 2003 was $24,809,000
compared to cash provided by operations for the nine months ended September 30, 2002 of
$35,167,000. Fee and other revenue collected decreased by $3,628,000 while cash paid to
employees, suppliers of goods and others increased by $5,852,000. These fluctuations are
attributable to increased operations and inventories primarily in our manufacturing
segment as well as the timing of accounts receivable collections and accounts payable and
accrued expense payments. A decrease in interest payments of $2,165,000 was due primarily
to our interest rate swap agreements. Taxes refunded decreased $2,528,000 from 2002 to
2003 due to the receipt of a 2001 tax refund in 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash used in 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 and ABC. We purchased equipment and leasehold
improvements totaling $5,128,000. We also had $1,742,000 remaining in an escrow account
related to certain contingent consideration for the ABC acquisition. Cash used by our
investing activities for the nine months ended September 30, 2002 was $18,156,000 due
primarily to our acquistion of Frontline Communications and the remaining 20% minority
interest in AK Specialty Vehicles.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. Cash used in our financing activities for the nine months
ended September 30, 2002 was $25,823,000, primarily due to distributions to minority
interests of $25,066,000 and net payments on notes payable of $3,542,000.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Senior Credit Facility

|Our senior credit facility is a
revolving line of credit. The revolving line of credit has a borrowing limit of $50
million, $13 million of which was drawn at September 30, 2003 and $8 million as of
November 11, 2003, respectively. 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 a result of our recording certain liabilities required by SFAS No. 150, we were
not in compliance with one financial ratio at September 30, 2003. We received a waiver of
this noncompliance from the lenders under our facility. We also amended our facility to
exclude certain noncash charges recorded under SFAS No. 150 from the calculation of this
ratio. As a result, assuming this amendment were in effect as of September 30, 2003, we
would have been in compliance with this ratio as of September 30, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|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 our subsidiaries on a full, unconditional, joint and
several basis.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In August 2002, we entered into an
interest rate swap which was designated as a fair value hedge pursuant to the provisions
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and
SFAS 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
is 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 these swaps in May 2003. Approximately $1.2 million in proceeds from the swaps
was capitalized and will be amortized as a reduction to future interest expense over the
remaining life of the 8.75% notes. In August 2003, we entered into two new interest rate
swaps for $25 million each which are designated as fair value hedges. These swaps were
executed to convert $50 million of the 8.75% notes from a fixed to floating rate
instrument. The floating rates of the two interest rate swap agreements are based on LIBOR
plus 4.72% and 4.97%, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General

|We seek opportunities to increase our
lithotripsy operations primarily through forming new operating subsidiaries in new markets
as well as by acquisitions. We seek opportunities to grow our manufacturing operations
through both acquisitions, expanding our product lines and 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 acquisitions where appropriate.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|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 did not
repurchase any of our common stock during 2002 or 2001. From time to time, we may, subject
to the terms of our senior credit facility and indenture covering the 8.75% notes,
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, through July
31, 2002, we had purchased 3,820,200 shares of our stock at total cost of $32,525,000.
These shares were retired in August 2002 and as of September 30, 2003, no additional
shares had been purchased under this program.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, to a
certain extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. 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 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.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS No. 146 did not have a material effect
on our consolidated financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not expected
to have a material effect on our consolidated financial statements. The disclosure
requirements are effective for financial statements of interim and annual periods ending
after December 15, 2002. The adoption of this Interpretation did not have a material
effect on our consolidated financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
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|In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123. This SFAS amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to these
consolidated financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation
of ARB No. 51. 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. The application of this
Interpretation is not expected to have a material effect on our consolidated financial
statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In April 2003, the FASB issued SFAS
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts and for
hedging activities. Statement No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of Statement No. 149 is not expected to have a material impact on our
consolidated financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In May 2003, the FASB issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 requires certain financial instruments that have
characteristics of both liabilities and equity to be classified as a liability on the
balance sheet. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. SFAS No. 150 will be effected by reporting
the cumulative effect of a change in accounting principle for contracts created before the
issuance date and still existing at the beginning of that interim period. The initial
adoption of SFAS No. 150 did not have an impact on our consolidated financial statements;
however, in July 2003, we entered into two separate letter agreements that will be
accounted for under this statement, as discussed more fully under the Recent
Development section.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28
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|Item 3  Quantitative and Qualitative DisclosuresAbout Market Risk
|------------------------------------------------------------------

Interest Rate Risk

|As of September 30, 2003, we had
long-term debt (including current portion) totaling $128,215,000, of which $100 million
has a fixed rate of interest of 8.75%, $53,000 has fixed rates of 5% to 11%, $4,141,000
bears interest at a variable rate equal to a specified prime rate, $19,659,000 bears
interest at a variable rate equal to LIBOR + 1 to 3.75%, $1,500,000 does not bear any
interest, $850,000 relates to the fair value of the remaining stock buyback agreements,
$861,000 relates to the fair value of our new interest rate swap which is discussed below
and $1,151,000 relates to unamortized portion of the proceeds from the termination of our
previous interest rate swap. We are exposed to some market risk due to the floating
interest rate debt totaling $23,800,000. We make monthly or quarterly payments of
principal and interest on $11,300,000 of the floating rate debt. An increase in interest
rates of 1% would result in a $238,000 annual increase in interest expense on this
existing principal balance.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Additionally, in August 2002, we
entered into an interest rate swap, which is designated as a fair value hedge pursuant to
the provisions of SFAS No. 133 and SFAS No. 138. 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 which are
designated as fair value hedges. These swaps were executed to convert $50 million of the
8.75% notes from a fixed to floating rate instrument. The floating rates of the two
interest rate swap agreements are based on LIBOR plus 4.72% and 4.97%, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|At September 30, 2003, 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, 2003, our
disclosure controls and procedures were effective.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|29
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|PART II


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

|30
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# Item 6. Exhibits and
Reports on Form 8-K.

|(a)      
         
         
         
         
         
         
         
         
         
         
         
         
         
(b) | Exhibits
10.1 Merger Agreement dated January 1, 2003 by and among Prime Medical Services,
        Inc., ABC Merger, Inc. and Aluminum Body Corporation.
10.2 Waiver and Amendment of Certain Provisions of the Fifth Amended and Restated
        Loan Agreement dated August 15, 2003.
10.3 Waiver and Amendment of Certain Provisions of the Fifth Amended and Restated
        Loan Agreement dated November 10, 2003.
10.4 Repurchase Agreement between Robert W. Bachman and Prime Medical Services, Inc.
10.5 Repurchase Agreement between Lawrence J. Sodomire and Prime Medical Services, Inc.
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
Current Reports on Form 8-K
On November 12, 2003, we filed a report on Form 8-K disclosing our third quarter 2003
earnings release.
On November 12, 2003, we filed a report on Form 8-K disclosing our entering into a
merger agreement with Medstone International, Inc. pursuant to which we would acquire
Medstone.
|----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31
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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 12, 2003 | PRIME MEDICAL SERVICES, INC.
By: /s/ John Q. Barnidge
     John Q. Barnidge, Senior Vice President
         and Chief Financial Officer
|------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------

|32
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