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


                                    FORM 10-Q


             [X] Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                For the quarterly period ended September 30, 2001

            [ ] 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         (I.R.S. Employer
       incorporation or organization)         Identification No.)


        1301 Capital of Texas Highway, Austin, TX         78746
        (Address of principal executive office)         (Zip code)


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


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

YES    X    NO  ___
     -----

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

                                          Number of Shares Outstanding at
             Title of Each Class               October 31, 2001
             -------------------               ----------------
        Common Stock, $.01 par value              15,562,734

<PAGE>

                                     PART I


                              FINANCIAL INFORMATION

                                       2
<PAGE>

                            PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (Unaudited)
<TABLE>

                                                      Three Months Ended         Nine Months Ended
                                                         September 30,             September 30,
($ in thousands, except per share data)              2001          2000         2001          2000
                                                   ----------    ---------    ----------    ---------
<CAPTION>
<S>                                                 <C>         <C>           <C>          <C>

Revenue:
     Lithotripsy:
        Fee revenues                                 $20,158     $ 20,678       $56,853     $ 58,961
        Management fees                                  944          931         2,721        2,759
        Equity income                                    421          690         1,541        1,926
                                                   ----------    ---------    ----------    ---------
                                                      21,523       22,299        61,115       63,646
     Manufacturing                                    16,547        5,757        34,566       16,861
     Refractive                                        4,349        6,941        18,411       16,021
     Other                                                 -          448             -        1,327
                                                   ----------    ---------    ----------    ---------
        Total revenue                                 42,419       35,445       114,092       97,855
                                                   ----------    ---------    ----------    ---------

Cost of services and general and
     administrative expenses:
     Lithotripsy                                       6,192        5,713        19,585       16,843
     Manufacturing                                    14,033        4,478        29,311       13,051
     Refractive                                        3,477        4,432        12,376        9,259
     Other                                                 -          302             -        1,070
     Corporate                                           977        1,232         2,698        3,365
     Relocation of central billing office                  -          220             -          570
                                                   ----------    ---------    ----------    ---------
                                                      24,679       16,377        63,970       44,158
Depreciation and amortization                          3,672        3,839        10,657       10,192
                                                   ----------    ---------    ----------    ---------
                                                      28,351       20,216        74,627       54,350
                                                   ----------    ---------    ----------    ---------

Operating income                                      14,068       15,229        39,465       43,505

Other income (deductions):
     Interest and dividends                               94          199           373          754
     Interest expense                                 (2,724)      (2,678)       (8,504)      (7,682)
     Loan fees                                             -           (4)         (163)        (111)
     Other, net                                          140           16           251           89
                                                   ----------    ---------    ----------    ---------
                                                      (2,490)      (2,467)       (8,043)      (6,950)
                                                   ----------    ---------    ----------    ---------
Income before provision for income
     taxes and minority interests                     11,578       12,762        31,422       36,555

Minority interest in consolidated income               7,788        7,828        21,051       20,983

Provision for income taxes                             1,492        1,766         4,058        6,004
                                                   ----------    ---------    ----------    ---------

Net income                                           $ 2,298      $ 3,168       $ 6,313      $ 9,568
                                                   ==========    =========    ==========    =========

Basic earnings per share:
     Net income                                       $ 0.15       $ 0.20        $ 0.40       $ 0.59
                                                   ==========    =========    ==========    =========
     Weighted average shares outstanding              15,704       15,943        15,704       16,198
                                                   ==========    =========    ==========    =========

Diluted earnings per share:
     Net income                                       $ 0.15       $ 0.20        $ 0.40       $ 0.59
                                                   ==========    =========    ==========    =========
     Weighted average shares outstanding              15,706       16,025        15,715       16,311
                                                   ==========    =========    ==========    =========

</TABLE>



                    See accompanying notes to consolidated financial statements.


                                       3
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>


                                                                     September 30,      December 31,
($ in thousands)                                                         2001               2000
                                                                     ------------       -----------
<CAPTION>
<S>                                                                    <C>               <C>

ASSETS

Current assets:
     Cash and cash equivalents                                          $ 11,256          $ 15,530
     Investments                                                             287             1,241
     Accounts receivable, less allowance for doubtful
        accounts of $243 in 2001 and $212 in 2000                         35,626            30,152
     Other receivables                                                     6,133             6,619
     Deferred income taxes                                                   545             1,032
     Prepaid expenses and other current assets                             1,064             1,629
     Inventory                                                            13,639             5,068
                                                                        ---------           --------

        Total current assets                                              68,550             61,271
                                                                        ---------           --------

Property and equipment:
     Equipment, furniture and fixtures                                    57,799             53,553
     Building and leasehold improvements                                   5,881              3,574
                                                                        ---------           --------

                                                                          63,680             57,127

     Less accumulated depreciation and amortization                      (35,782)           (30,873)
                                                                        ---------           --------

        Property and equipment, net                                       27,898             26,254
                                                                        ---------           --------

Other investments                                                          7,044             10,229
Goodwill, at cost, net of amortization                                   178,905            172,824
Other noncurrent assets                                                    6,538              5,640
                                                                        ---------           --------

                                                                        $288,935          $ 276,218
                                                                        =========           ========

</TABLE>


              See accompanying notes to consolidated financial statements.


                                       4
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (continued)
                                   (Unaudited)

<TABLE>


                                                                                    September 30,      December 31,
($ in thousands, except share data)                                                    2001              2000
                                                                                     ---------         --------
<CAPTION>
<S>                                                                                  <C>                <C>

LIABILITIES

Current liabilities:
     Current portion of long-term debt                                                 $ 2,691           $ 3,705
     Accounts payable                                                                    7,021             4,611
     Accrued distributions to minority interests                                             -             7,930
     Accrued expenses                                                                    8,774             6,908
                                                                                      ---------          --------

        Total current liabilities                                                       18,486            23,154

Long-term debt, net of current portion                                                 123,191           122,004
Deferred compensation liability                                                          1,168             1,168
Deferred income taxes                                                                   11,437             9,502
                                                                                      ---------          --------

        Total liabilities                                                              154,282           155,828

Minority interest                                                                       28,549            20,599

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; 19,524,533 shares
     issued in 2001 and 2000                                                               195               195
Capital in excess of par value                                                          88,978            88,978
Accumulated earnings                                                                    50,624            44,311
Treasury stock, at cost; 3,961,799 shares in 2001 and 2000                             (33,693)          (33,693)
                                                                                      ---------           --------

        Total stockholders' equity                                                     106,104            99,791
                                                                                      ---------          --------

                                                                                      $288,935         $ 276,218
                                                                                      =========          ========

</TABLE>


              See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

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


<TABLE>

                                                                                 Nine Months Ended September 30,
($ in thousands)                                                                      2001              2000
                                                                                    ---------         --------
<CAPTION>
<S>                                                                                 <C>               <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
     Fee and other revenue collected                                                $108,484          $ 92,473
     Cash paid to employees, suppliers of goods and others                           (70,507)          (47,123)
     Purchases of investments                                                         (1,644)           (1,992)
     Proceeds from sales and maturities of investments                                 2,636             5,091
     Interest received                                                                   334               641
     Interest paid                                                                   (10,725)           (9,753)
     Taxes paid, net of refunds                                                          236            (3,760)
                                                                                    ---------         ---------

        Net cash provided by operating activities                                     28,814            35,577
                                                                                    ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of operating entities                                                  (10,084)          (18,344)
     Purchases of equipment and leasehold improvements                                (4,115)           (8,352)
     Distributions from investments                                                    2,187             2,909
     Other                                                                               249               168
                                                                                    ---------         ----------
        Net cash used in investing activities                                        (11,763)          (23,619)
                                                                                    ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings on notes payable                                                      12,460            11,103
     Payments on notes payable, exclusive of interest                                (12,624)           (1,300)
     Distributions to minority interest                                              (23,434)          (25,780)
     Contributions by minority interest, net of buyouts                                2,273               329
     Purchases of treasury stock                                                           -            (6,963)
     Exercise of stock options, and sales and purchases of put options                     -               165
                                                                                    ---------         ---------

        Net cash used in financing activities                                        (21,325)          (22,446)
                                                                                    ---------         ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (4,274)          (10,488)

Cash and cash equivalents, beginning of period                                        15,530            20,064
                                                                                    ---------         ---------

Cash and cash equivalents, end of period                                            $ 11,256           $ 9,576
                                                                                    =========         =========


</TABLE>


                 See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

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

<TABLE>


                                                                                      Nine Months Ended September 30,
($ in thousands)                                                                           2001            2000
                                                                                         --------        --------
<CAPTION>
<S>                                                                                      <C>             <C>

Reconciliation of net income to cash provided by operating activities:
     Net income                                                                           $ 6,313         $ 9,568
     Adjustments to reconcile net income to cash provided by operating activities:
        Minority interest in consolidated income                                           21,051          20,983
        Depreciation and amortization                                                      10,657          10,192
        Provision for deferred income taxes                                                 2,422           2,881
        Equity in earnings of affiliates                                                   (1,499)         (1,805)
        Other                                                                                  40            (176)

     Changes in operating assets and liabilities, net of effect of purchase transactions:
        Investments                                                                           953           2,987
        Accounts receivable                                                                (3,253)         (2,586)
        Other receivables                                                                     813          (2,427)
        Other assets                                                                          118          (1,755)
        Accounts payable                                                                   (5,759)          2,105
        Accrued expenses                                                                   (3,042)         (4,390)
                                                                                          --------        --------

     Total adjustments                                                                     22,501          26,009
                                                                                          --------        --------

Net cash provided by operating activities                                                $ 28,814        $ 35,577
                                                                                          ========        ========

</TABLE>


                See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (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
statements reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position as of September 30,
2001 and the results of operations for the periods presented. These statements
have not been audited by the Company's independent certified public accountants.
The operating results for the interim periods are not necessarily indicative of
results for the full fiscal year.

The notes to consolidated financial statements appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities of the
Company.

During 2001, the Company changed its method of revenue recognition in its
manufacturing segment from the percentage of completion to the completed
contract method, due to a change in the segment's business model. The Company
changed its sales model during 2001. This change does not materially impact the
accompanying financial statements.

In July 2001, the Financial Accounting Standards Board ("FASB"), issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets. Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. Statement 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.

The Company is required to adopt the provisions of Statement 141 immediately and
Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.


                                       8
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)

1.   General  (continued)
--   --------------------

Statement 141 will require, upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary adjustments in
order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

As of the date of adoption, the Company expects to have unamortized goodwill of
approximately $175,000,000 and unamortized identifiable intangible assets of
approximately $1,800,000, all of which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was $6,100,000 and $5,000,000 for the year ended December 31, 2000 and the nine
months ended September 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the Company's
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

On October 3, 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement.


                                       9
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)


1.   General  (continued)
--   --------------------

Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. This Statement is effective beginning
January 1, 2002. The effect of adopting this Statement is currently being
evaluated; however, the Company does not believe the effects of adoption will be
material to its financial position or results of operations.

2.   Earnings per share
--   ------------------

Basic EPS is based on weighted average shares outstanding without any dilutive
effects considered. Diluted EPS reflects dilution from all contingently issuable
shares, including options and warrants. A reconciliation of such EPS data is as
follows:


                                                     Basic          Diluted
                                                   earnings        earnings
($ in thousands, except per share data)            per share       per share
                                                   ---------       ---------

Nine Months Ended September 30, 2001
------------------------------------

Net income                                          $6,313           $6,313
                                                    ======           ======

Weighted average shares outstanding                 15,704           15,704
Effect of dilutive securities                           --               11
                                                    ------           ------
     Shares for EPS calculation                     15,704           15,715
                                                    ======           ======

Net income per share                                 $0.40            $0.40
                                                     =====           ======

Nine Months Ended September 30, 2000
------------------------------------

Net income                                          $9,568           $9,568
                                                    ======           ======

Weighted average shares outstanding                 16,198           16,198
Effect of dilutive securities                           --              113
                                                    ------           ------
     Shares for EPS calculation                     16,198           16,311
                                                    ======           ======

Net income per share                                 $0.59            $0.59
                                                    ======           ======


                                       10
<PAGE>



                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)


2.   Earnings per share (continued)
--   ------------------------------
                                                   Basic          Diluted
                                                 earnings        earnings
($ in thousands, except per share data)          per share       per share
                                                 ---------       ---------

Three Months Ended September 30, 2001
-------------------------------------

Net income                                         $2,298         $2,298
                                                   ======         ======

Weighted average shares outstanding                15,704         15,704
Effect of dilutive securities                          --              2
                                                   ------         ------
     Shares for EPS calculation                    15,704         15,706
                                                   ======         ======

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

Three Months Ended September 30, 2000
-------------------------------------

Net income                                         $3,168         $3,168
                                                   ======         ======

Weighted average shares outstanding                15,943         15,943
Effect of dilutive securities                          --             82
                                                   ------         ------
     Shares for EPS calculation                    15,943         16,025
                                                   ======         ======

Net income per share                                $0.20          $0.20
                                                   ======         ======


Unexercised stock options and warrants to purchase 2,537,000 and 1,437,000
shares of the Company's common stock as of September 30, 2001 and 2000 were not
included in the computation of diluted EPS because the effect would be
antidilutive. The increase in the number of antidilutive shares relates
primarily to a decrease in the market price of the Company's common stock.

3.   Segment Reporting
--   -----------------

The Company has three reportable segments: lithotripsy, manufacturing and
refractive. 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. The refractive segment provides
services related to the operations of refractive vision correction centers.
Other operating segments, which do not meet the quantitative thresholds for
reportable segments, included prostatherapy services in 2000.

The Company measures performance based on the pretax income or loss from its
operating segments, which do not include unallocated corporate general and
administrative expenses and corporate interest revenue and expense.


                                       11
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)



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

($ in thousands)          Lithotripsy   Manufacturing    Refractive    Other
                          -----------   -------------    ----------    -----

Nine Months Ended
-----------------
    September 30, 2001
    ------------------

Revenue from
external customers           $61,115        $34,566        $18,411       --

Intersegment revenues            --              46            --        --

Segment profit                16,276          3,661            818       --


Nine Months Ended
-----------------
    September 30, 2000
    ------------------

Revenue from
external customers           $63,646        $16,861        $16,021     $1,327

Intersegment revenues            --             293            --         --

Segment profit                21,180          2,692          1,653        86


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



                                                Nine Months ended September 30,
($ in thousands)                                  2001                  2000
                                                  ----                  ----

Total segment profit                           $20,755                 $25,611

Unallocated corporate expenses:

    General and administrative                  (2,698)                 (3,365)

    Net interest expense                        (7,406)                 (5,896)

    Loan fees                                     (163)                   (111)

    Relocation of the central billing office        --                    (570)

    Other, net                                    (117)                    (97)
                                               -------                 -------

Total unallocated corporate expenses           (10,384)                (10,039)
                                               -------                 -------

Income before income taxes                     $10,371                 $15,572
                                               =======                 =======


                                       12
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)



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

($ in thousands)           Lithotripsy  Manufacturing   Refractive    Other
                           -----------  -------------   ----------    -----

Three Months Ended
------------------
    September 30, 2001
    ------------------

Revenue from
external customers            $21,523       $16,547        $4,349        --

Intersegment revenues             --            --            --         --

Segment profit (loss)           5,835         1,706         (412)        --


Three Months Ended
------------------
    September 30, 2000
    ------------------

Revenue from
external customers            $22,299        $5,757       $6,941       $448

Intersegment revenues             --             67          --         --

Segment profit                  7,265           966          540         53


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



                                              Three Months ended September 30,
($ in thousands)                                 2001                    2000
                                                 ----                    ----

Total segment profit                           $7,129                  $8,824

Unallocated corporate expenses:

    General and administrative                   (977)                 (1,232)

    Net interest expense                       (2,374)                 (2,394)

    Loan fees                                      --                      (4)

    Relocation of central billing office           --                    (220)

    Other, net                                     12                     (40)
                                             --------                 --------

Total unallocated corporate expenses           (3,339)                 (3,890)
                                               ------                  ------

Income before income taxes                     $3,790                  $4,934
                                               ======                  ======


                                       13
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)



4.   Acquisitions
--   ------------

On January 10, 2001, the Company acquired all the outstanding stock of the
Windsor Group, Inc. (Windsor) for approximately $1.7 million and accounted for
the transaction using the purchase method of accounting. Windsor's sole activity
was its 60% general partner interest in Sunbelt Lithotripsy Associates Ltd.
(Sunbelt). Sunbelt provided lithotripsy services at eight Houston, Texas area
hospitals. On January 11, 2001, all operating assets and related liabilities of
Sunbelt were sold to a new partnership formed by the Company. The Company
recognized approximately $1.7 million in goodwill related to these transactions.

On May 2, 2001, the Company acquired the assets of Calumet Coach Company
(Calumet) for approximately $6.4 million plus the assumption of certain
liabilities and accounted for the transaction using the purchase method of
accounting. Since its founding more than 50 years ago, Calumet has produced
thousands of special-purpose mobile units, earning a worldwide reputation for
leadership in innovative design and quality manufacturing. Calumet's key
strength has been its ability to effectively mobilize a broad spectrum of
specialty equipment for use in medical, industrial and military applications to
meet the individual needs of the end user. Current customers include industry
leaders such as GE Medical Systems, Philips, Siemens Medical Engineering and
Marconi Medical Systems, hundreds of hospital systems and healthcare providers,
as well as numerous broadcast and production companies. Headquartered in Calumet
City, Illinois, with an additional manufacturing operation in Sanford, Florida,
the company operates globally with a service and sales facility in Camberley,
England, and a sales office in Beijing, China. Calumet's sales totaled
approximately $50 million for the fiscal year 2000. The Company recognized
approximately $5.7 million in goodwill related to this transaction.

The proforma effects of these acquisitions on an aggregated basis are not
material.

5.   Condensed Financial Information Regarding Guarantor Subsidiaries
--   ----------------------------------------------------------------

Condensed consolidating financial information regarding the Company, Guarantor
Subsidiaries and Non-guarantor Subsidiaries for September 30, 2001 and 2000 is
presented below for purposes of complying with the reporting requirements of the
Guarantor Subsidiaries. Separate financial statements and other disclosures
concerning each Guarantor Subsidiary have not been presented because management
has determined that such information is not material to investors. The Guarantor
Subsidiaries are wholly owned subsidiaries of the Company who have fully and
unconditionally guaranteed the 8.75% unsecured senior subordinated Notes.


                                       14
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                      Nine Months Ended September 30, 2001
                                   (Unaudited)

<TABLE>


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

Revenue:
     Lithotripsy:
        Fee revenues                            $ -        $ 9,768        $ 47,085            $ -       $ 56,853
        Management fees                           -          1,467           1,254              -          2,721
        Equity income                        13,422         10,144             545        (22,570)         1,541
                                            -------        -------         -------       --------        -------
                                             13,422         21,379          48,884        (22,570)        61,115
     Manufacturing                            3,712          4,155          34,566         (7,867)        34,566
     Refractive                               1,032          2,561          18,411         (3,593)        18,411
                                            -------        -------         -------       --------        -------
        Total revenue                        18,166         28,095         101,861        (34,030)       114,092
                                            -------        -------         -------       --------        -------

Cost of services and general and
     administrative expenses:
        Lithotripsy                               -          1,693          17,892              -         19,585
        Manufacturing                             -              -          29,311              -         29,311
        Refractive                                -              -          12,376              -         12,376
        Corporate                                35          2,663               -              -          2,698
                                            -------        -------         -------       --------        -------
                                                 35          4,356          59,579              -         63,970
Depreciation and amortization                     -          5,806           4,851              -         10,657
                                            -------        -------         -------       --------        -------
                                                 35         10,162          64,430              -         74,627
                                            -------        -------         -------       --------        -------

Operating income                             18,131         17,933          37,431        (34,030)        39,465
                                            -------        -------         -------       --------        -------

Other income (deductions):
     Interest and dividends                      33            176             164              -            373
     Interest expense                        (7,613)           (22)           (869)             -         (8,504)
     Loan fees                                 (163)             -               -              -           (163)
     Other, net                                  72             65             114              -            251
                                            -------        -------         -------       --------        -------
        Total other income (deductions)      (7,671)           219            (591)             -         (8,043)
                                            -------        -------         -------       --------        -------

Income before provision for income
     taxes and minority interest             10,460         18,152          36,840        (34,030)        31,422

Minority interest in consolidated income          -              -               -         21,051         21,051

Provision for income taxes                    4,147            (14)            (75)             -          4,058
                                            -------        -------         -------       --------        -------

Net income                                  $ 6,313       $ 18,166        $ 36,915      $ (55,081)       $ 6,313
                                            =======        =======         =======       ========        =======

</TABLE>


                                       15
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                      Nine Months Ended September 30, 2000
                                   (Unaudited)

<TABLE>


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

Revenue:
     Lithotripsy:
        Fee revenues                              $ -       $ 12,234       $  46,727           $ -        $ 58,961
        Management fees                             -          1,571           1,188             -           2,759
        Equity income                          17,774         11,028             387       (27,263)          1,926
                                              -------        -------         -------       --------        -------
                                               17,774         24,833          48,302       (27,263)         63,646
     Manufacturing                              3,089          3,203          16,861        (6,292)         16,861
     Refractive                                 1,448          3,546          15,203        (4,176)         16,021
     Prostatherapy                                  -              -           1,203             -           1,203
     Other                                          -            124               -             -             124
                                              -------        -------         -------      --------         -------
        Total revenue                          22,311         31,706          81,569       (37,731)         97,855
                                              -------        -------         -------      --------         -------

Cost of services and general and
     administrative expenses:
        Lithotripsy                                 -            419          16,424             -          16,843
        Manufacturing                               -              -          13,051             -          13,051
        Refractive                                  -             83           9,176             -           9,259
        Prostatherapy                               -           (216)          1,151             -             935
        Other                                       -            135               -             -             135
        Corporate                                  55          3,310               -             -           3,365
        Relocation of central billing office        -            570               -             -             570
                                              -------        -------         -------      --------         -------
                                                   55          4,301          39,802             -          44,158
Depreciation and amortization                       -          5,251           4,941             -          10,192
                                              -------        -------         -------      --------         -------
                                                   55          9,552          44,743             -          54,350
                                              -------        -------         -------      --------         -------

Operating income                               22,256         22,154          36,826       (37,731)         43,505
                                              -------        -------         -------      --------         -------

Other income (deductions):
     Interest and dividends                       189            230             335             -             754
     Interest expense                          (7,121)            (6)           (555)            -          (7,682)
     Loan fees                                   (111)             -               -             -            (111)
     Other, net                                    84            (60)             65             -              89
                                              -------        -------         -------      --------         -------
        Total other income (deductions)        (6,959)           164            (155)            -          (6,950)
                                              -------        -------         -------      --------         -------

Income before provision for income
     taxes and minority interest               15,297         22,318          36,671       (37,731)         36,555

Minority interest in consolidated income            -              -               -        20,983          20,983

Provision for income taxes                      5,729              7             268             -           6,004
                                              -------        -------         -------      --------         -------

Net income                                    $ 9,568       $ 22,311        $ 36,403     $ (58,714)        $ 9,568
                                              =======        =======         =======      ========         =======

</TABLE>


                                       16
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                      Three Months Ended September 30, 2001
                                   (Unaudited)

<TABLE>


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

Revenue:
     Lithotripsy:
        Fee revenues                              $ -        $ 3,353        $ 16,805            $ -       $ 20,158
        Management fees                             -            487             457              -            944
        Equity income                           4,702          3,248             204         (7,733)           421
                                              -------        -------         -------       --------        -------
                                                4,702          7,088          17,466         (7,733)        21,523
     Manufacturing                              1,789          2,145          16,547         (3,934)        16,547
     Refractive                                  (232)           277           4,349            (45)         4,349
                                              -------        -------         -------       --------        -------
        Total revenue                           6,259          9,510          38,362        (11,712)        42,419
                                              -------        -------         -------       --------        -------

Cost of services and general and
     administrative expenses:
        Lithotripsy                                 -            515           5,677              -          6,192
        Manufacturing                               -              -          14,033              -         14,033
        Refractive                                  -              -           3,477              -          3,477
        Corporate                                  16            961               -              -            977
                                              -------        -------         -------       --------        -------
                                                   16          1,476          23,187              -         24,679
Depreciation and amortization                       -          1,917           1,755              -          3,672
                                              -------        -------         -------       --------        -------
                                                   16          3,393          24,942              -         28,351
                                              -------        -------         -------       --------        -------

Operating income                                6,243          6,117          13,420        (11,712)        14,068
                                              -------        -------         -------       --------        -------

Other income (deductions):
     Interest and dividends                         3             60              31              -             94
     Interest expense                          (2,436)            (7)           (281)             -         (2,724)
     Loan fees                                      -              -               -
     Other, net                                    10             84              46              -            140
                                              -------        -------         -------       --------        -------
        Total other income (deductions)        (2,423)           137            (204)             -         (2,490)
                                              -------        -------         -------       --------        -------

Income before provision for income
     taxes and minority interest                3,820          6,254          13,216        (11,712)        11,578

Minority interest in consolidated income            -              -               -          7,788          7,788

Provision for income taxes                      1,522             (5)            (25)             -          1,492
                                              -------        -------         -------       --------        -------

Net income                                    $ 2,298        $ 6,259        $ 13,241      $ (19,500)       $ 2,298
                                              =======        =======         =======       ========        =======

</TABLE>



                                       17
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                      Three Months Ended September 30, 2000
                                   (Unaudited)

<TABLE>


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

Revenue:
     Lithotripsy:
        Fee revenues                              $ -        $ 4,060        $ 16,618            $ -       $ 20,678
        Management fees                             -            552             379              -            931
        Equity income                           5,890          4,152             154         (9,506)           690
                                              -------        -------         -------       --------        -------
                                                5,890          8,764          17,151         (9,506)        22,299
     Manufacturing                              1,195          1,232           5,757         (2,427)         5,757
     Refractive                                   481          2,028           6,901         (2,469)         6,941
     Prostatherapy                                  -              -             410              -            410
     Other                                          -             38               -              -             38
                                              -------        -------         -------       --------        -------
        Total revenue                           7,566         12,062          30,219        (14,402)        35,445
                                              -------        -------         -------       --------        -------

Cost of services and general and
     administrative expenses:
        Lithotripsy                                 -            237           5,476              -          5,713
        Manufacturing                               -              -           4,478              -          4,478
        Refractive                                  -             66           4,366              -          4,432
        Prostatherapy                               -            (72)            334              -            262
        Other                                       -             40               -              -             40
        Corporate                                  31          1,201               -              -          1,232
        Relocation of central billing office        -            220               -              -            220
                                              -------        -------         -------       --------        -------
                                                   31          1,692          14,654              -         16,377
Depreciation and amortization                       -          2,053           1,786              -          3,839
                                              -------        -------         -------       --------        -------
                                                   31          3,745          16,440              -         20,216
                                              -------        -------         -------       --------        -------

Operating income                                7,535          8,317          13,779        (14,402)        15,229
                                              -------        -------         -------       --------        -------

Other income (deductions):
     Interest and dividends                        12             68             119              -            199
     Interest expense                          (2,470)          (819)            611              -         (2,678)
     Loan fees                                     (4)             -               -              -             (4)
     Other, net                                    31             (2)            (13)             -             16
                                              -------        -------         -------       --------        -------
        Total other income (deductions)        (2,431)          (753)            717              -         (2,467)
                                              -------        -------         -------       --------        -------

Income before provision for income
     taxes and minority interest                5,104          7,564          14,496        (14,402)        12,762

Minority interest in consolidated income            -              -               -          7,828          7,828

Provision for income taxes                      1,936             (2)           (168)             -          1,766
                                              -------        -------         -------       --------        -------

Net income                                    $ 3,168        $ 7,566        $ 14,664      $ (22,230)       $ 3,168
                                              =======        =======         =======       ========        =======

</TABLE>


                                       18
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      Condensed Consolidating Balance Sheet
                               September 30, 2001
                                   (Unaudited)

<TABLE>


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

ASSETS

Current assets:
     Cash                                        $ 614        $ 5,452        $ 5,190            $ -       $ 11,256
     Investments                                   287              -              -              -            287
     Accounts receivable, net                        -          4,223         31,403              -         35,626
     Other receivables                             291          2,066          3,776              -          6,133
     Deferred income taxes                        (182)           727              -              -            545
     Prepaid expenses and other current assets      30            272            762              -          1,064
     Inventory                                       -              -         13,639              -         13,639
                                             ---------      ---------       --------     ----------      ---------
        Total current assets                     1,040         12,740         54,770              -         68,550
                                             ---------      ---------       --------     ----------      ---------

Property and equipment:
     Equipment, furniture and fixtures               -          6,240         51,559              -         57,799
     Building and leasehold improvements             -            612          5,269              -          5,881
                                             ---------      ---------       --------     ----------      ---------
                                                     -          6,852         56,828              -         63,680
     Less accumulated depreciation
        and amortization                             -         (3,906)       (31,876)             -        (35,782)
                                             ---------      ---------       --------     ----------      ---------
        Property and equipment, net                  -          2,946         24,952              -         27,898
                                             ---------      ---------       --------     ----------      ---------

Investment in subsidiaries
     and other investments                     233,863         47,431              -       (274,250)         7,044
Goodwill, at cost, net of amortization               -        173,070          5,835              -        178,905
Other noncurrent assets                          1,027          4,439          1,072              -          6,538
                                             ---------      ---------       --------     ----------      ---------
                                             $ 235,930      $ 240,626       $ 86,629     $ (274,250)     $ 288,935
                                             =========      =========       ========     ==========      =========

LIABILITIES

Current liabilities:
     Current portion of long-term debt             $ -            $ -        $ 2,691            $ -        $ 2,691
     Accounts payable                                -            119          6,902              -          7,021
     Accrued expenses                            1,146          2,634          4,994              -          8,774
                                             ---------      ---------       --------     ----------      ---------
        Total current liabilities                1,146          2,753         14,587              -         18,486
Deferred compensation liability                  1,168              -              -              -          1,168
Long-term debt, net of current portion         120,000             85          3,106              -        123,191
Deferred income taxes                            7,512          3,925              -              -         11,437
                                             ---------      ---------       --------     ----------      ---------
        Total liabilities                      129,826          6,763         17,693              -        154,282
                                             ---------      ---------       --------     ----------      ---------

Minority interest                                    -              -              -         28,549         28,549

STOCKHOLDERS' EQUITY

Common stock                                       195              -              -              -            195
Capital in excess of par value                  88,978              -              -              -         88,978
Accumulated earnings                            50,624              -              -              -         50,624
Treasury stock                                 (33,693)             -              -              -        (33,693)
Subsidiary net equity                                -        233,863         68,936       (302,799)             -
                                             ---------      ---------       --------     ----------      ---------
        Total stockholders' equity             106,104        233,863         68,936       (302,799)       106,104
                                             ---------      ---------       --------     ----------      ---------
                                             $ 235,930      $ 240,626       $ 86,629     $ (274,250)     $ 288,935
                                             =========      =========       ========     ==========      =========

</TABLE>


                                       19
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                      Nine Months Ended September 30, 2001
                                   (Unaudited)

<TABLE>


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

CASH FLOWS FROM OPERATING
     ACTIVITIES:
        Net cash provided by (used in)
             operating activities              $ (12,270)       $ 6,691       $ 34,393            $ -       $ 28,814
                                                 -------        -------        -------        -------         ------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchases of operating entities                   -         (3,207)        (6,877)             -        (10,084)
     Purchases of equipment and leasehold
        improvements                                   -           (960)        (3,155)             -         (4,115)
     Distributions from subsidiaries              21,457         11,805              -        (33,262)             -
     Investments in subsidiaries                 (11,000)        (8,000)             -         19,000              -
     Distributions from investments                    -          2,187              -              -          2,187
     Other                                             -              -            249              -            249
                                                 -------        -------        -------        -------         ------

        Net cash provided by (used in)
             investing activities                 10,457          1,825         (9,783)       (14,262)       (11,763)
                                                 -------        -------        -------        -------         ------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Borrowings on notes payable                  11,000              -          1,460              -         12,460
     Payments on notes payable exclusive of
        interest                                  (9,000)             -         (3,624)             -        (12,624)
     Contributions by minority interest,
        net of buyouts                                 -              -          2,273              -          2,273
     Distributions to minority interest                -              -              -        (23,434)       (23,434)
     Contributions by parent                           -         11,000          8,000        (19,000)             -
     Distributions to equity owners                    -        (21,457)       (35,239)        56,696              -
                                                 -------        -------        -------        -------         ------

        Net cash provided by (used in)
               financing activities                2,000        (10,457)       (27,130)        14,262        (21,325)
                                                 -------        -------        -------        -------         ------

NET DECREASE IN CASH AND
     CASH EQUIVALENTS                                187         (1,941)        (2,520)             -         (4,274)

Cash and cash equivalents, beginning of period       427          7,393          7,710              -         15,530
                                                 -------        -------        -------        -------         ------

Cash and cash equivalents, end of period           $ 614        $ 5,452        $ 5,190            $ -       $ 11,256
                                                 =======        =======        =======        =======        =======
</TABLE>



                                       20
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                      Nine Months Ended September 30, 2000
                                   (Unaudited)

<TABLE>


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

CASH FLOWS FROM OPERATING
     ACTIVITIES:
        Net cash provided by (used in)
             operating activities              $ (10,047)      $ 10,727       $ 34,897            $ -       $ 35,577
                                                 -------        -------        -------        -------         ------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchases of operating entities                   -        (18,344)             -              -        (18,344)
     Purchases of equipment and leasehold
        improvements                                   -           (940)        (7,412)             -         (8,352)
     Distributions from subsidiaries              14,914         13,270              -        (28,184)             -
     Investments in subsidiaries                  (9,000)             -              -          9,000              -
     Distributions from investments                    -          2,909              -              -          2,909
     Other                                             -            168              -              -            168
                                                 -------        -------        -------        -------         ------

        Net cash provided by (used in)
             investing activities                  5,914         (2,937)        (7,412)       (19,184)       (23,619)
                                                 -------        -------        -------        -------         ------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Borrowings on notes payable                   9,000              -          2,103              -         11,103
     Payments on notes payable exclusive of
        interest                                       -              -         (1,300)             -         (1,300)
     Contributions by minority interest,
        net of buyouts                                 -              -            329              -            329
     Distributions to minority interest                -              -              -        (25,780)       (25,780)
     Purchases of treasury stock                  (6,963)             -              -              -         (6,963)
     Exercise of stock options, and sales
        and purchases of put options                 165              -              -              -            165
     Contributions by parent                           -          9,000              -         (9,000)             -
     Distributions to equity owners                    -        (14,914)       (39,050)        53,964              -
                                                 -------        -------        -------        -------         ------

        Net cash provided by (used in)
               financing activities                2,202         (5,914)       (37,918)        19,184        (22,446)

NET DECREASE IN CASH AND
     CASH EQUIVALENTS                             (1,931)         1,876        (10,433)             -        (10,488)

Cash and cash equivalents, beginning of period     2,043          2,682         15,339              -         20,064
                                                 -------        -------        -------        -------         ------

Cash and cash equivalents, end of period           $ 112        $ 4,558        $ 4,906            $ -        $ 9,576
                                                 =======        =======        =======        =======        =======

</TABLE>

                                       21
<PAGE>


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

Revenues
--------

For the nine months ended September 30, 2001, total revenues increased
$16,237,000 (17%) as compared to the same period in 2000. Revenues from
lithotripter operations decreased by $2,531,000 (4%) primarily due to
implementation of the outpatient Prospective Payment System, payor mix changes
and the renegotiation of contracts during the past year which resulted in
decreases in average revenue per procedure. Lithotripsy procedures performed
increased by 3%. Revenues from manufacturing increased $17,705,000 (105%)
primarily due to the acquisition of Calumet Coach Company in May of 2001.
Revenues from refractive services were $18,411,000 compared to $16,021,000 for
the same period in 2000 due to the acquisition of four centers and the internal
development of two centers in 2000. Refractive procedures actually decreased 25%
on a same store basis between the two periods. Our refractive operations
continue to be affected by weakness in the economy, which is an industry-wide
phenomenon. Prime's physician partners remain committed to our markets and
focused on lowering costs to reflect marketplace realities and maintaining
profitability. While we expect demand to return once general economic
uncertainty is alleviated, management does not intend to invest further into
this segment and is considering alternatives with respect to this business
segment, including the sale or selective divestiture of partnership interest.
Revenues from other operations declined $1,327,000 due to the disposal of both
prostatherapy and cardiac operations in 2000.

Total revenues for the three months ended September 30, 2001 increased
$6,974,000 (20%) as compared to the same period in 2000. Revenues from
lithotripsy operations decreased by $776,000 (3%) and revenues from
manufacturing increased $10,790,000 (187%) due to the acquisition of Calumet
Coach Company ("Calumet Acquisition") in May of 2001. Revenues from refractive
services decreased $2,592,000 (37%) due to a 40% decrease in procedures from the
same period a year ago. Revenues from other operations declined $448,000 due to
the disposal of both prostatherapy and cardiac operations in 2000.

Expenses
--------

For the nine months ended September 30, 2001, costs and expenses (excluding
depreciation and amortization) increased from 45% to 56% of revenues, primarily
due to increases in the manufacturing and refractive operations, both of which
have lower operating margins than the lithotripsy operations. Costs of services
associated with lithotripsy operations increased $2,742,000 (16%) in absolute
terms and increased from 26% to 32% of lithotripsy revenues due to increased
repair and maintenance costs and costs associated with Stark II compliance
issues. Cost of services and general and administrative expenses associated with
manufacturing increased $16,260,000 (124%) due to increased sales and costs
related to the Calumet Acquisition. Cost of services associated with refractive
operations increased $3,117,000 (33%) due to increased operations noted above.
Cost of services associated with other operations decreased $1,070,000 due to
the disposal of both prostatherapy and cardiac operations in 2000. Corporate
expenses decreased from 3% to 2% of revenues, decreasing $667,000 (20%) in
absolute terms due to lower variable expenses during the first nine months of
2001. During the second and third quarters of 2000, the Company recorded
nonrecurring charges totaling $570,000 for the relocation of its central
business office ("CBO") from North Carolina to Texas. The relocation of the CBO
was done in conjunction with the purchase and implementation of a new practice
management system in 2000.

                                       22
<PAGE>

Costs and expenses (excluding depreciation and amortization) for the three
months ended September 30, 2001 increased from 46% to 58% of revenues, primarily
due to increases in the manufacturing and refractive operations, both of which
have lower operating margins than the lithotripsy operations. Costs of services
associated with lithotripsy operations increased $479,000 (8%) and increased
from 26% to 29% of lithotripsy revenues. Cost of services and general and
administrative expenses associated with manufacturing increased $9,555,000
(213%) due to increased sales and costs related to the Calumet Acquisition. Cost
of services associated with refractive operations decreased $955,000 (22%) due
to the decrease in procedures compared to same period in the prior year. Cost of
services associated with other operations decreased $302,000 due to the disposal
of both prostatherapy and cardiac operations in 2000. Corporate expenses
decreased from 3% to 2% of revenues, decreasing $255,000 (21%) in absolute terms
due to lower variable expenses during the third quarter of 2001.


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

For the nine months ended September 30, 2001, other deductions increased
$1,093,000 (16%) compared to the same period in 2000, primarily due to increase
in interest expense of $822,000 and a decrease in interest income of $381,000.

Other deductions for the three months ended September 30, 2001 increased $23,000
(1%) compared to the same period in 2000.

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

Minority interest in consolidated income for the nine months ended September 30,
2001 increased $68,000 compared to the same period in 2000, primarily as a
result of the reengineering of certain lithotripsy partnerships. Earnings before
interest, taxes, depreciation and amortization (EBITDA) attributable to minority
interest was $24,081,000 for the nine months ended September 30, 2001 compared
to $24,041,000 for the same period in 2000.

Minority interest in consolidated income for the three months ended September
30, 2001 decreased $40,000 (1%)compared to the same period in 2000. Earnings
before interest, taxes, depreciation and amortization (EBITDA) attributable to
minority interest was $8,866,000 for the three months ended September 30, 2001
compared to $8,714,000 for the same period in 2000.

EBITDA is not intended to represent net income or cash flows from operating
activities in accordance with generally accepted accounting principles and
should not be considered a measure of the Company's profitability or liquidity.

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

Provision for income taxes for the nine months ended September 30, 2001
decreased $1,946,000 and for the three months ended September 30, 2001 decreased
$274,000 compared to the same periods in 2000 due to a decrease in taxable
income. The effective tax rate includes the impact of the Federal tax rate as
well as numerous state tax rates for the Company, and the impact of the Federal
and state rates for a partially owned consolidated corporation, which is
required to file separate tax returns.


                                       23
<PAGE>

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

Cash was $11,256,000 and $15,530,000 at September 30, 2001 and December 31,
2000, respectively. Cash provided by operations for the nine months ended
September 30, 2001 was $28,814,000 compared to cash provided by operations for
the nine months ended September 30, 2000 of $35,577,000. The decrease was
attributable to increased operations in manufacturing which have a lower margin
than lithoripsy as well as significant payments made on accounts payable and
accrued expenses acquired in the Calumet Acquisition.

Cash used in investing activities for the nine months ended September 30, 2001
was $11,763,000 compared to cash used in investing activities for the nine
months ended September 30, 2000 of $23,619,000. The decrease was attributable to
the three refractive acquisitions effective during 2000 and an increase in the
purchase of equipment in 2000. Cash used in financing activities for the nine
months ended September 30, 2001 was $21,325,000 compared to cash used for
financing activities for the nine months ended September 30, 2000 of
$22,446,000. The decrease in cash used was due to a decrease in distributions to
minority interests and a decrease in cash used to purchase treasury stock. These
decreases were partially offset by increased payments on the Company's senior
credit facility increased in 2001.

The Company's existing senior credit facility is comprised of a revolving line
of credit. The revolving line of credit has a borrowing limit of $100 million,
$20 million of which was drawn at September 30, 2001 and October 31, 2001.

On March 27, 1998, the Company completed an offering of $100 million of senior
subordinated notes due 2008 (the "Notes") to qualified institutional buyers. The
net proceeds from the offering of approximately $96 million was used to repay
all outstanding indebtedness under the Company's bank facility, with the
remainder used for general corporate purposes, including acquisitions. 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 Company intends to increase the volume of its lithotripsy operations
primarily through acquisitions, but also through the formation of our new
operating partnerships in new markets, and grow its manufacturing operations
through both acquisitions and expansion of its product lines. The Company
intends to fund the purchase price for future acquisitions and developments
using borrowings under its senior credit facility and cash flow from operations.
In addition, the Company may use shares of its common stock in such acquisitions
where appropriate.

During 1998, the Company announced a stock repurchase program of up to $25.0
million of common stock. In February 2000 the Company announced an increase in
the authorized repurchase amount from $25.0 million to $35.0 million and in
January 2001 this amount was increased to $45.0 million.. From time to time, the
Company may purchase additional shares of its common stock where, in the
judgment of management, market valuations of its stock do not accurately reflect
the Company's past and projected results of operations. The Company intends to
fund any such purchases using available cash, cash flow from operations and
borrowings under its senior credit facility. The Company has purchased 3,961,799
shares of stock for a total of $33,693,000 as of October 31, 2001.

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

                                       24
<PAGE>

Impact of Inflation
-------------------

The assets of the Company are not significantly affected by inflation because
the Company is not required to make large investments in fixed assets. However,
the rate of inflation will affect certain of the Company's expenses, such as
employee compensation and benefits.

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

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

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



                                       25
<PAGE>


                    Quantitative and Qualitative Disclosures
                                About Market Risk



Interest Rate Risk
------------------

As of September 30, 2001, the Company had long-term debt (including current
portion) totaling $125,882,000, of which $100 million has a fixed rate of
interest of 8.75%, $1,271,000 has fixed rates of 6% to 9%, $4,525,000 bears
interest at a variable rate equal to a specified prime rate, $20 million bears
interest at a variable rate equal to LIBOR + 1 to 2% and $86,000 does not bear
any interest. The Company is exposed to some market risk due to the floating
interest rate debt totaling $24,525,000. The Company makes monthly or quarterly
payments of principal and interest on $4,525,000 of the floating rate debt. An
increase in interest rates of 1.0% would result in a $245,000 annual increase in
interest expense on this existing principal balance.



                                       26
<PAGE>


                                     PART II


                                OTHER INFORMATION


                                       27
<PAGE>


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

(a)      Exhibits

12.      Computation of ratio of earnings to fixed charges.

(b)      Current Reports on Form 8-K

         NONE

                                       28
<PAGE>


                                   SIGNATURES


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

                                              PRIME MEDICAL SERVICES, INC.



Date:    November 14, 2001      By: /s/ Cheryl L. Williams
                                    ----------------------
                                     Cheryl L. Williams, Senior Vice President
                                         and Chief Financial Officer


                                       29
<PAGE>