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 June 30, 1998

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


                         Commission File Number: 0-22392


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

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

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

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

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

YES     X         NO
     ------

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



                                                Number of Shares Outstanding at
      Title of Each Class                                 July 31, 1998
   Common Stock, $.01 par value                            18,508,267









<PAGE>














                                     PART I


                              FINANCIAL INFORMATION








































                                       -2-

<PAGE>
                                         
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
($ in thousands, except per share data)
<TABLE>
<S>                                                 <C>                 <C>               <C>              <C>
                                                           Three Months Ended                 Six Months Ended
                                                                  June  30,                          June 30,
                                                       1998              1997              1998              1997
                                                      -----             ------            ------            -----
Fee revenue:
     Lithotripsy:
          Fee revenues                               $21,028            $20,643           $39,540          $39,732
          Management fees                              1,289              1,794             2,358            3,145
          Equity income                                  672                661             1,250              981
                                                     --------           -------           -------         --------
                                                      22,989             23,098            43,148           43,858

     Manufacturing                                     1,728               --               4,161             --
     Prostatherapy                                       224               --                 307             --
     Cardiac                                              88                122               208             251
                                                     --------           --------          -------         --------
                                                      25,029             23,220            47,824           44,109
                                                     --------           --------          -------         --------
Costs and expenses:
     Cost of services and general
          and administrative expense
          Lithotripsy                                  5,989              6,526            11,398           12,324
          Manufacturing                                1,459               --               3,157             --
          Prostatherapy                                  161               --                 269             --
          Cardiac                                         47                 70               148              162
          Corporate                                    1,266              1,476             2,427            2,838
          Nonrecurring restructuring/
            development costs                            --                --               1,617             --
                                                     --------           --------          -------          -------
                                                       8,922              8,072            19,016           15,324

    Depreciation and amortization                      2,605              2,399             5,173            4,817
                                                     --------           --------          -------          -------
                                                      11,527             10,471            24,189           20,141
                                                     --------           --------          -------          -------

Operating income                                      13,502             12,749            23,635           23,968

Other income (deductions):
         Interest and dividends                          403                156               586              295
         Interest expense                             (2,331)            (1,979)           (4,114)          (3,743)
         Financing costs                                 --                --              (4,982)            (360)
         Other, net                                      176                 50               332              153
                                                     --------           --------          -------          -------
                                                      (1,752)            (1,773)           (8,178)          (3,655)
                                                     --------           --------          -------          -------

Income before provision for income taxes
    and minority interest                             11,750             10,976            15,457           20,313

Minority interest in consolidated income               6,001              6,135            11,033           11,666

Provision for income taxes                             2,232              1,171             2,075            2,101
                                                    ---------           --------          -------          -------

Net income                                          $  3,517            $ 3,670           $ 2,349          $ 6,546
                                                    =========           ========          =======          =======

Basic earnings per share:
     Net income                                     $   0.18            $  0.19           $  0.12          $  0.34
                                                    ========            ========          =======          =======

     Weighted average shares outstanding              19,088             19,277            19,200           19,248
                                                    ========            ========          =======          =======

Diluted earnings per share:
     Net income                                     $   0.18            $  0.19           $  0.12          $  0.34
                                                    =========           ========          ========         =======

     Weighted average shares outstanding              19,223             19,427            19,344           19,411
                                                    ========            ========          =======          =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       -3-

<PAGE>


                                          


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

($ in thousands)
<TABLE>
<S>                                                                                   <C>              <C>

                                                                                        June 30,       December 31,
                                                                                        1998            1997
                                                                                      (Unaudited)
ASSETS

Current assets:
     Cash                                                                               $ 31,758         $  23,770
     Accounts receivable, less allowance
       for doubtful accounts of $642 in
       1998 and $811 in 1997                                                              20,499            19,387
     Other receivables                                                                     1,529             1,103
     Deferred income taxes                                                                 1,909             1,506
     Prepaid expenses and other current assets                                             3,072             1,776
                                                                                      ----------    --------------

          Total current assets                                                            58,767            47,542

Property and equipment:
     Equipment, furniture and fixtures                                                    33,760            32,673
     Leasehold improvements                                                                  607               531
                                                                                     -----------      ------------

                                                                                          34,367            33,204

Less accumulated depreciation and
     amortization                                                                       ( 15,613)          (13,497)
                                                                                        --------       -----------

     Property and equipment, net                                                          18,754            19,707


Other investments                                                                         11,509            12,305
Goodwill, at cost, net of amortization                                                   141,789           143,823
Other noncurrent assets                                                                    3,727             2,449
                                                                                      ----------       -----------

                                                                                        $234,546          $225,826
                                                                                        ========          ========


</TABLE>













          See accompanying notes to consolidated financial statements.


                                       -4-

<PAGE>


                                           

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


($ in thousands)
<TABLE>
<S>                                                                                   <C>              <C>

                                                                                        June 30,       December 31,
                                                                                         1998            1997
LIABILITIES:                                                                          (Unaudited)

Current liabilities:

  Current portion of long-term debt                                                   $    1,090        $   11,138
  Accounts payable                                                                         8,064             5,386
  Accrued expenses                                                                         8,744            20,859
                                                                                      ----------        ----------

     Total current liabilities                                                            17,898            37,383

Long-term debt, net of current portion                                                   101,173            71,198
Deferred income taxes                                                                      6,976             5,809
                                                                                      ----------        ----------
     Total liabilities                                                                   126,047           114,390

Minority interest                                                                         20,101            19,372

STOCKHOLDERS' EQUITY:

Preferred stock, $.01 par value,
  1,000,000 shares authorized;
  none outstanding                                                                          --                 --
Common stock, $.01 par value,
  40,000,000 shares authorized;
  19,322,267 issued in 1998 and
  19,306,267 issued in 1997                                                                  193               193
Capital in excess of par value                                                            84,160            84,050
Accumulated earnings                                                                      10,171             7,821
Treasury stock, at cost, 576,600 shares                                                   (6,126)               --
                                                                                      ----------    --------------

     Total stockholders' equity                                                           88,398            92,064
                                                                                       ---------        ----------

                                                                                        $234,546          $225,826
                                                                                        ========          ========


</TABLE>








          See accompanying notes to consolidated financial statements.




                                       -5-

<PAGE>


                                           

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

($ in thousands)
<TABLE>
<S>                                                                               <C>                    <C>     
                                                                                   Six  Months Ended June 30,
                                                                                     1998                  1997
                                                                                     ----                  ----
                                                                                    

CASH FLOWS FROM OPERATING ACTIVITIES:
  Fee and other revenue collected                                                 $  45,792              $  43,135
  Cash paid to employees, suppliers
         of goods and others                                                        (24,695)               (16,366)
  Interest received                                                                     586                    293
  Interest paid                                                                      (2,409)                (3,754)
  Income taxes paid                                                                  (6,312)                  (415)
                                                                                 -----------          ------------
         Net cash provided by
         operating activities                                                        12,962                 22,893
                                                                                 -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of lithotripter operations                                                   --                 (13,980)
  Purchase of equipment and
         leasehold improvements                                                      (2,068)                  (474)
  Distributions from investments                                                      1,843                  1,051
  Purchase of investments                                                              (107)                  (129)
  Other                                                                                 540                   (112)
                                                                                 ----------            ------------
         Net cash provided by (used in)
         investing activities                                                           208                (13,644)
                                                                                  ---------            ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on notes payable                                                       100,025                 50,010
  Payments on notes payable, exclusive of interest                                  (80,098)               (45,148)
  Distributions to minority interest                                                (19,053)               (20,779)
  Purchase of treasury stock                                                         (6,126)                 --
  Exercise of stock options                                                              70                    280
                                                                                -----------          -------------
         Net cash (used in)
         financing activities                                                        (5,182)               (15,637)
                                                                                  ---------           -------------

NET INCREASE (DECREASE) IN CASH AND
         CASH EQUIVALENTS                                                             7,988                 (6,388)

Cash and cash equivalents,  beginning of period                                      23,770                 20,096
                                                                                ------------           -----------

Cash and cash equivalents, end of period                                         $   31,758             $   13,708
                                                                                 ==========             ==========




</TABLE>





           See accompanying notes to consolidated financial statements



                                       -6-

<PAGE>


                                            


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

($ in thousands)
<TABLE>
<S>                                                                              <C>                   <C>  


                                                                                    Six  Months Ended June 30,
                                                                                     1998                  1997
                                                                                     ----                  ----
Reconciliation of net income to
  cash provided by operating activities
    Net income                                                                   $    2,349             $    6,546

    Adjustments  to  reconcile   net  income  to  cash   provided  by  operating
         activities:
            Minority interest in consolidated income                                 11,033                 11,666
            Depreciation and amortization                                             5,173                  4,817
            Provision (benefit) for deferred income taxes                              (766)                   667
            Provision for uncollectible accounts                                        --                     107
            Equity in earnings of affiliates                                         (1,250)                  (980)
            Other                                                                       --                      39

            Changes in  operating  assets  and  liabilities,  net of  effect  of
                  purchase transactions:
                    Accounts receivable                                             ( 1,113)                  (263)
                    Other receivables                                                  (426)                   419
                    Other current assets                                             (1,296)                  (142)
                    Accounts payable                                                  2,677                   (927)
                    Accrued expenses                                                 (3,419)                   944
                                                                                ------------            ----------

                    Total adjustments                                                10,613                 16,347
                                                                                 ----------             ----------

                  Net cash provided by
                    operating activities                                         $   12,962             $   22,893
                                                                                 ==========             ==========



</TABLE>













           See accompanying notes to consolidated financial statements




                                       -7-

<PAGE>


                                           

                          PRIME MEDICAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (Unaudited)

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

The accompanying  unaudited consolidated financial statements have been prepared
in conformity  with the accounting  principles  stated in the audited  financial
statements  for the year ended  December  31, 1997 and  reflect all  adjustments
which are, in the opinion of  management,  necessary for a fair statement of the
financial  position as of June 30, 1998 and the  results of  operations  for the
periods  presented.  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/A  for the year  ended  December  31,  1997  filed with the
Securities  and  Exchange  Commission  should be read in  conjunction  with this
Quarterly  Report on Form 10-Q.  There have been no  significant  changes in the
information  reported in those notes other than from normal business  activities
of the Company.

2.       Financing Activities and Charge to Operations:
--       ----------------------------------------------

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

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

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

3.       Earnings Per Share:
--       -------------------

SFAS No. 128 was adopted by the Company in 1997. The earnings per share data for
the six months and quarter  ended June 30, 1997 has been restated to comply with
SFAS No. 128. Basic EPS is based on weighted average shares outstanding  without
any  dilutive  effects  considered.  Diluted  EPS  reflects  dilution  from  all
contingently  issuable shares,  including  options. A reconciliation of such EPS
data is as follows:













                                       -8-

<PAGE>


                                           



                          PRIME MEDICAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (Unaudited)
                                   (continued)

<TABLE>
<S>                                                                                   <C>                <C>    
Six Months Ended June 30:
                                                                                       Basic              Diluted
                                                                                      earnings            earnings
                                                                                      per share          per share
                                                                                      ---------          ---------
                                                                                            (in thousands,
                                                                                        except per share data)
1998

Net income applicable to common stock                                                  $   2,349          $ 2,349
                                                                                       =========          =======



Average number of shares outstanding                                                     19,200            19,200
Average stock option shares                                                                --                 144
                                                                                    ------------      -----------


  Shares for EPS  calculation                                                            19,200            19,344
                                                                                      =========         =========

Net income per share                                                                 $     0.12         $    0.12
                                                                                     ==========         =========

1997

Net income applicable to common stock                                                $    6,546         $   6,546
                                                                                     ==========         =========

Average number of shares outstanding                                                     19,248            19,248
Average stock option shares                                                                --                 163
                                                                                  -------------        ----------


  Shares for EPS calculation                                                             19,248            19,411
                                                                                      =========         =========

Net income per share                                                                 $     0.34        $     0.34
                                                                                     ==========        ==========
</TABLE>

Unexercised  stock options to purchase  1,229,000 shares of the Company's common
stock as of June 30, 1998 were not  included in the  computation  of diluted EPS
because the effect would be antidilutive.  Unexercised stock options to purchase
756,000  shares  of the  Company's  common  stock as of June 30,  1997  were not
included  in the  computation  of  diluted  EPS  because  the  effect  would  be
antidilutive.









                                       -9-

<PAGE>


                              

                          PRIME MEDICAL SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (Unaudited)
(continued)

Quarter Ended June 30:
<TABLE>
<S>                                                                                   <C>                <C>   
                                                                                       Basic              Diluted
                                                                                      earnings           earnings
                                                                                      per share          per share
                                                                                      ---------          ---------
                                                                                              (in thousands,
                                                                                          except per share data)
1998

Net income applicable to common stock                                                  $   3,517          $ 3,517
                                                                                       =========          =======



Average number of shares outstanding                                                     19,088            19,088
Average stock option shares                                                                --                 135
                                                                                    ------------      -----------


  Shares for EPS  calculation                                                            19,088            19,223
                                                                                      =========         =========

Net income per share                                                                 $     0.18         $    0.18
                                                                                     ==========         =========

1997

Net income applicable to common stock                                                 $    3,670        $   3,670
                                                                                      ==========        =========

Average number of shares outstanding                                                     19,277            19,277
Average stock option shares                                                                --                 150
                                                                                     ----------        ----------


  Shares for EPS calculation                                                             19,277            19,427
                                                                                      =========         =========

Net income per share                                                                 $     0.19        $     0.19
                                                                                     ==========        ==========
</TABLE>

Unexercised  stock options to purchase  1,446,000 shares of the Company's common
stock as of June 30, 1998 were not  included in the  computation  of diluted EPS
because the effect would be antidilutive.  Unexercised stock options to purchase
756,000  shares  of the  Company's  common  stock as of June 30,  1997  were not
included  in the  computation  of  diluted  EPS  because  the  effect  would  be
antidilutive.

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

Condensed consolidating  financial information regarding the Company,  Guarantor
Subsidiaries and Non-guarantor Subsidiaries as of and for the periods ended June
30,  1998 and  1997 is  presented  below  for  purposes  of  complying  with the
reporting  requirements  of  the  Guarantor  Subsidiaries.   Separate  financial
statements and other disclosures  concerning each Guarantor  Subsidiary have not
been presented  because  management has determined that such  information is not
material to investors. The Guarantor Subsidiaries are wholly-owned  subsidiaries
of the Company who have fully and unconditionally guaranteed the Notes described
in Note 2 above.


                                                           -10-

<PAGE>


                                           

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
                   Condensed Consolidating Statement of Income


                                                 Six Months Ended June 30, 1998


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



Fee revenue:
Lithotripsy:
     Fee revenues                        $     --      $10,602       $28,938      $    --      $ 39,540
     Management fees                           --        1,367           991           --         2,358
     Equity income                          14,062       8,972            --       (21,784)       1,250
Manufacturing                                  --          --          4,161           --         4,161
Prostatherapy                                  --          --            307           --           307
Cardiac                                        --          208            --           --           208
                                         ---------     ---------     ----------   ----------    --------
                                            14,062      21,149        34,397       (21,784)      47,824
Costs and expenses:
Cost of services and general and
   administrative expenses:
     Lithotripsy                              --         1,692         9,706           --        11,398
        Manufacturing                         --           --          3,157           --         3,157
        Prostatherapy                         --           --            269           --           269
     Cardiac                                  --           148           --            --           148
     Corporate                                 75        2,352           --            --         2,427
        Nonrecurring restructuring /
          development costs                 1,617          --            --            --         1,617
                                          -------      -------        -------      -------      -------

                                            1,692        4,192        13,132           --        19,016
Depreciation and amortization                   3        2,620         2,550           --         5,173
                                           ------      -------        ------       -------      -------
             
                                              
Operating income                           12,367       14,337        18,715       (21,784)      23,635
                                           ------      -------        ------       -------      -------                           
Other income (deductions):
Interest income                               253          125           208           --           586
Interest expense                           (3,992)          (3)         (119)          --        (4,114)
Financing costs                            (4,982)         --            --            --        (4,982)
Other, net                                      3          328             1           --           332
                                           ------      -------        ------       -------      -------  
          Total other income
             (deductions)                  (8,718)         450            90           --        (8,178)

Income before provision for income
   taxes and minority interest              3,649       14,787        18,805       (21,784)      15,457
Minority interest in consolidated
   income                                     --           --            --         11,033       11,033
Provision for income taxes                  1,300          725            50          --          2,075
                                           ------      -------        ------       -------     --------                         
          Net income                      $ 2,349      $14,062        $18,755     $(32,817)    $  2,349
                                          =======      =======        =======     ========     ========

</TABLE>


                                                           -11-

<PAGE>


                                           
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
                   Condensed Consolidating Statement of Income


                                                 Six Months Ended June 30, 1997

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



Fee Revenue:
Lithotripsy:
     Fee revenues                             $   --         $ 9,418      $  30,314     $    --     $ 39,732
     Management fees                              --           1,870          1,275          --        3,145
     Equity income                             12,393          7,811            --       (19,223)        981

Cardiac                                           --             251            --          --           251
                                              --------       -------      ---------     --------    --------
                                               12,393         19,350         31,589      (19,223)     44,109
Cost and expenses:
Cost of services and general and
   administrative expenses
     Lithotripsy                                  --           2,244         10,080          --       12,324
     Cardiac                                      --             162            --           --          162
     Corporate                                    480          2,358            --           --        2,838
                                              --------       -------      ---------     --------    --------
                                                  480          4,764         10,080          --       15,324

     Depreciation and amortization                  3          1,737          3,077          --        4,817
                                              --------       -------      ---------     --------    --------

Operating income                               11,910         12,849         18,432      (19,223)     23,968
                                              --------       -------      ---------     --------    --------

Other income (deductions):
Interest income                                   --             125            170          --          295
Interest expense                               (3,501)          (105)          (137)         --       (3,743)
Financing costs                                  (360)           --             --           --         (360)
Other, net                                        --              83             70          --          153
                                              --------       -------      ---------     --------    --------

Total other income (deductions)                (3,861)           103            103          --       (3,655)

Income before provision for income
   taxes and minority interest                  8,049         12,952         18,535      (19,223)     20,313

Minority interest in consolidated income          --             --             --        11,666      11,666

Provision for income taxes                      1,503            559            39           --        2,101
                                              -------        -------      ---------     --------    --------
Net income                                    $ 6,546        $12,393        $18,496     $(30,889)   $  6,546
                                              =======        =======      =========     ========    ========


</TABLE>


                                                           -12-

<PAGE>


                                          

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
                   Condensed Consolidating Statement of Income


                                         Three Months Ended June 30, 1998


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



Fee revenue:
Lithotripsy:
     Fee revenues                        $     --      $  5,797     $  15,231     $    --       $ 21,028
     Management fees                           --           690           599          --          1,289
     Equity income                           7,406        4,664           --       (11,398)          672
Manufacturing                                  --           --          1,728          --          1,728
Prostatherapy                                  --           --            224          --            224
Cardiac                                        --            88           --           --             88
                                         ---------     --------     ---------     --------      --------
                                             7,406       11,239        17,782      (11,398)       25,029
Costs and expenses:
Cost of services and general and
   administrative expenses:
     Lithotripsy                               --         1,220         4,769          --          5,989
     Manufacturing                             --           --          1,459          --          1,459
     Prostatherapy                             --           --            161          --            161
     Cardiac                                   --            47           --           --             47
     Corporate                                  26        1,240           --           --          1,266
                                         ---------     --------     ---------     --------      --------


                                                26        2,507         6,389          --          8,922
Depreciation and amortization                    1        1,244         1,360          --          2,605
                                         ---------     --------     ---------     --------      --------
Operating income                             7,379        7,488        10,033      (11,398)       13,502
                                         ---------     --------     ---------     --------      --------
Other income (deductions):
Interest income                                240           66            97          --            403
Interest expense                            (2,265)          12           (78)         --         (2,331)
Other, net                                       3          197           (24)         --            176
                                         ---------     --------     ---------     --------      --------
          Total other income
             (deductions)                   (2,022)         275            (5)         --         (1,752)

Income before provision for income
   taxes and minority interest               5,357        7,763        10,028      (11,398)       11,750
Minority interest in consolidated
   income                                      --           --            --         6,001         6,001
Provision for income taxes                   1,840          357            35          --          2,232
                                         ---------     --------     ---------     --------      --------
          Net income                     $   3,517     $  7,406     $   9,993     $(17,399)     $  3,517
                                         =========     ========     =========     ========      ========

</TABLE>




                                      -13-

<PAGE>


                                           

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                   (Unaudited)
                   Condensed Consolidating Statement of Income


                                              Three Months Ended June 30, 1997
<TABLE>
<S>                                           <C>           <C>          <C>           <C>         <C>  
($ in thousands)
                                              Prime Medical  Guarantor   Non-Guarantor Eliminating Consolidated
                                              Services Inc. Subsidiaries Subsidiaries    Entries      Total
                                              ------------- ------------ ------------- ----------- ------------
 



Fee Revenue:
Lithotripsy:
     Fee revenues                             $      --     $  4,970      $  15,673     $    --     $  20,643
     Management fees                                 --          947            847          --         1,794
     Equity income                                 6,513       4,451            --       (10,303)         661

Cardiac                                              --          122            --           --           122
                                              ----------    --------      ---------     --------    ---------
                                                   6,513      10,490         16,520      (10,303)      23,220
Cost and expenses:
Cost of services and general and
   administrative expenses
     Lithotripsy                                     --        1,360          5,166          --         6,526
     Cardiac                                         --           70            --           --            70
     Corporate                                       145       1,331            --           --         1,476
                                              ----------    --------      ---------     --------    ---------
                                                     145       2,761          5,166          --         8,072

     Depreciation and amortization                     1         824          1,574          --         2,399
                                              ----------    --------      ---------     --------    ---------

Operating income                                   6,367       6,905          9,780      (10,303)      12,749
                                              ----------    --------      ---------     --------    ---------
Other income (deductions):
Interest income                                      --           67             89          --           156
Interest expense                                  (1,817)        (88)           (74)         --        (1,979)

Other, net                                           --         (102)           152          --            50
                                              ----------    --------      ---------     --------    ---------

Total other income (deductions)                   (1,817)       (123)           167          --        (1,773)

Income before provision for income
   taxes and minority interest                     4,550       6,782          9,947      (10,303)      10,976

Minority interest in consolidated income             --          --             --         6,135        6,135

Provision for income taxes                           880         269             22           --        1,171
                                              ----------    --------      ---------     --------    ---------
Net income                                    $    3,670    $  6,513      $   9,925    $ (16,438)     $ 3,670
                                              ==========    ========      =========    =========    =========

</TABLE>



                                      -14-

<PAGE>
                                         
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                   (Unaudited)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                      Condensed Consolidating Balance Sheet


             ($ in thousands)                              June 30, 1998
                                                           --------------
<TABLE>
<S>                                        <C>             <C>            <C>           <C>           <C> 

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



ASSETS:

Current Assets:
Cash                                       $  19,688       $    5,509     $   6,561     $     --       $ 31,758
Accounts receivable, net                         --             4,843        15,656           --         20,499
Other receivables                                539              990           --            --          1,529
Deferred income taxes                          1,182              727           --            --          1,909
Prepaid expenses and other current assets        --               916         2,156           --          3,072
                                           ---------       ----------     ---------     ---------      --------                  
  Total current assets                        21,409           12,985        24,373           --         58,767
                                           ---------       ----------     ---------     ---------      --------

Property and equipment:
Equipment, furniture and fixtures                --             5,846        27,914           --         33,760
Leasehold improvements                           --               491           116           --            607

Less accumulated depreciation and amortization   --            (4,291)      (11,322)          --        (15,613)
                                           ---------       ----------     ---------     ---------      --------

Property and equipment, net                      --             2,046        16,708           --         18,754
                                           ---------       ----------     ---------     ---------      --------
Investment in subsidiaries and other
 investments                                 172,973           26,402           --       (187,866)       11,509
Goodwill, at cost, net of amortization           --           141,789           --            --        141,789
Other noncurrent assets                        2,379            1,051           297           --          3,727
                                           ---------       ----------     ---------     ---------      --------
    Total Assets                           $ 196,761       $  184,273     $  41,378     $(187,866)     $234,546
                                           =========       ==========     =========    ==========      ========


LIABILITIES:

Current Liabilities:
Current portion of long-term debt          $     --        $     --       $   1,090     $     --       $  1,090
Accounts payable                                 (39)          4,934          3,169           --          8,064
Accrued expenses                               5,128           2,608          1,008           --          8,744
                                           ---------       ----------     ---------     ---------      --------
  Total current liabilities                    5,089           7,542          5,267           --         17,898
                                           ---------       ----------     ---------     ---------      --------
Long-term debt, net of current portion       100,000             162          1,011           --        101,173
Deferred income taxes                          3,274           3,702            --            --          6,976
                                           ---------       ----------     ---------     ---------      --------    
  Total liabilities                          108,363          11,406          6,278           --        126,047
                                           ---------       ----------     ---------     ---------      -------- 
Minority interest                                --              --             --         20,101        20,101


STOCKHOLDERS' EQUITY:

Common stock                                     193             --             --            --            193
Capital in excess of par value                84,160             --             --            --         84,160
Retained earnings                             10,171             --             --            --         10,171
Treasury stock                                (6,126)            --             --            --         (6,126)
Subsidiary net equity                            --          172,867         35,100      (207,967)          --
                                           ---------       ----------     ---------     ---------      --------
  Total stockholders' equity                  88,398         172,867         35,100      (207,967)       88,398
                                           ---------       ----------     ---------     ---------      --------
    Total Liabilities and 
     stockholders' equity                  $ 196,761       $ 184,273      $  41,378     $(187,866)     $234,546
                                           =========       =========      =========     =========      ========

</TABLE>




                                      -15-

<PAGE>


                                           

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

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


                                               Six Months Ended June 30, 1998
 ($ in thousands)
<TABLE>
<S>                                          <C>            <C>          <C>           <C>         <C>   

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


     Net cash (used) provided by
        operating activities                 $    (11,580)  $   2,891    $   21,651    $     --    $  12,962
                                             ------------   ---------    ----------    ---------   ---------

Cash flows from investing activities:
Purchases of equipment and leasehold
   improvements                                       --         (606)       (1,462)         --       (2,068)
Distributions from subsidiaries                    16,277      11,149           --       (27,426)        --
Investments                                          (107)      1,843           --           --        1,736
Other                                                 136         254           150          --          540
                                             ------------   ---------    ----------    ---------   ---------  
     Net cash provided (used) by
               investing activities                16,306      12,640        (1,312)     (27,426)        208

Cash flows from financing activities:
Payments on notes payable, exclusive of           (79,000)         (5)       (1,093)         --      (80,098)
interest
Borrowings on notes payable                       100,000         --             25          --      100,025
Distribution to minority interest                     --          --            --       (19,053)    (19,053)
Purchase of treasury stock                         (6,126)        --            --           --       (6,126)
Other                                                  70         --            --           --           70
Distributions to equity owners                        --      (16,277)      (30,202)      46,479         --
                                             ------------   ---------    ----------    ---------   ---------
     Net cash provided (used) by
        financing activities                       14,944     (16,282)      (31,270)      27,426      (5,182)
                                             ------------   ---------    ----------    ---------   ---------
     Net increase (decrease) in cash and
        cash equivalents                           19,670        (751)      (10,931)         --        7,988
Cash and cash equivalents at beginning
   of period                                           18       6,260        17,492          --       23,770
                                             ------------   ---------    ----------    ---------   ---------
Cash and cash equivalents at end of
   period                                    $     19,688   $   5,509    $    6,561    $     --    $  31,758
                                             ============   =========    ==========    =========   =========


</TABLE>













                                      -16-

<PAGE>


                                            

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

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


                                             Six Months Ended June 30, 1997
($ in thousands)
<TABLE>
<S>                                         <C>            <C>           <C>            <C>             <C>  

                                            Prime Medical   Guarantor    Non-Guarantor   Eliminating    Consolidated
                                            Services, Inc. Subsidiaries  Subsidiaries      Entries          Total
                                            -------------- ------------  -------------   -----------    ------------
                                            
                                                                     
     Net cash (used) provided by
        operating activities                $   (4,732)    $   6,488     $   21,137      $     --       $   22,893
                                            ----------     ---------     ----------      ---------      ---------- 
Cash flows from investing activities:
Purchase of lithotripter entities                  --        (13,980)           --             --          (13,980)
Purchases of equipment and leasehold
   improvements                                    --            (77)          (397)           --             (474)
Investments                                        --            922            --             --              922
Distributions from subsidiaries                    --         10,442            --         (10,442)            --
Contributions to subsidiaries                   (1,797)          --             --           1,797             --
Other                                              --            (39)           (73)           --             (112)
                                            ----------     ---------     ----------      ---------      ----------           
     Net cash used by investing
        activities                              (1,797)       (2,732)          (470)        (8,645)        (13,644)
                                            ----------     ---------     ----------      ---------      ----------
Cash flows from financing activities:
Payments on notes payable, exclusive of        (43,750)         (587)          (811)           --          (45,148)
interest
Borrowings on notes payable                     50,000           --              10            --           50,010
Distribution to minority interest                  --            --             --         (20,779)        (20,779)
Exercise of stock option                           280           --             --             --              280
Contributions from parent                          --          1,797            --          (1,797)            --
Distributions to equity owners                     --            --         (31,221)        31,221             --
                                            ----------     ---------     ----------      ---------      ----------
     Net cash provided (used) by
        financing activities                     6,530         1,210        (32,022)         8,645         (15,637)
                                            ----------     ---------     ----------      ---------      ----------
     Net increase (decrease) in cash
        and cash equivalents                         1         4,966        (11,355)           --           (6,388)
Cash and cash equivalents at beginning
   of period                                         1         2,598         17,497            --           20,096
                                            ----------     ---------     ----------      ---------      ----------
Cash and cash equivalents at end of
   period                                   $        2     $   7,564     $    6,142      $     --       $   13,708
                                            ==========    ==========     ==========      =========      ==========


</TABLE>







                                      -17-

<PAGE>


                                            

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



Results of Operations

Revenues
--------

For the six months ended June 30, 1998, total revenues increased $3,715,000 (8%)
as compared to the same period in 1997.  Revenues from  manufacturing  increased
$4,161,000 due to the acquisition of a 75% interest in a manufacturing entity in
September 1997. Revenues from lithotripter operations decreased by $710,000 (2%)
primarily due to a decline in  management  fees earned for managing a fixed site
in California  which has  experienced a reduction in revenues,  and a decline in
the average reimbursement per procedure. Revenues from cardiac centers decreased
$43,000 primarily due to two sold cardiac centers.

For the three months ended June 30, 1998,  total revenues  increased  $1,809,000
(8%) as  compared  to the same  period  in  1997.  Revenues  from  manufacturing
increased $1,728,000 due to the acquisition of a 75% interest in a manufacturing
entity in September 1997.  Revenues from  lithotripter  operations  decreased by
$109,000 (less than 1%) primarily due to a decline in management  fees as stated
above. Revenues from cardiac centers decreased $34,000 primarily due to two sold
cardiac centers.

Expenses
--------

For  the  six  months  ended  June  30,  1998,  costs  and  expenses  (excluding
depreciation  and  amortization)  increased  from  35%  to 40%  of  revenues  or
$3,692,000  (24%) in  absolute  terms,  primarily  due to  certain  nonrecurring
restructuring/development  costs of $1,617,000 and the lower margins experienced
by  manufacturing  compared to  lithotripsy.  Cost of  services  and general and
administrative  expenses associated with manufacturing  increased $3,157,000 due
to  the  acquisition   discussed  above.   Cost  of  services   associated  with
lithotripter  operations decreased $926,000 (8%) in absolute terms and decreased
from  28% to 26% of  lithotripter  revenues  primarily  due to cost  containment
measures  enacted.  Cost of services  associated with cardiac centers  decreased
$14,000 (9%)  primarily  due to two sold  cardiac  centers.  Corporate  expenses
decreased from 6% to 5% of revenues as the Company was able to successfully grow
without  proportionately adding overhead.  Corporate expenses decreased $411,000
(14%) primarily due to consolidation of functions and a reduction in the amounts
due under management incentive plans tied to the performance of the Company.

For the  three  months  ended  June 30,  1998,  costs  and  expenses  (excluding
depreciation and amortization) increased from 35% to 36% of revenues,  primarily
due to the lower margins  experienced by manufacturing  compared to lithotripsy,
and increased  $850,000 (11%) in absolute terms,  compared to the same period in
1997. Cost of services and general and administrative  expenses  associated with
manufacturing  increased $1,459,000 due to the acquisition discussed above. Cost
of services associated with lithotripter  operations  decreased $537,000 (8%) in
absolute terms and decreased from 28% to 26% of lithotripter  revenues primarily
due to cost  containment  measures  enacted.  Cost of services  associated  with
cardiac  centers  decreased  $23,000  (33%)  primarily  due to two sold  cardiac
centers.  Corporate  expenses decreased from 6% to 5% of revenues as the Company
was able to successfully grow without proportionately adding overhead. Corporate
expenses  decreased  $210,000 (14%) primarily due to  consolidation of functions
and a reduction

                                      -18-

<PAGE>


                                            

in the amounts due under  management  incentive plans tied to the performance of
the Company.

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

For the six months ended June 30, 1998,  other deductions  increased  $4,523,000
compared to the same period in 1997,  primarily due to financing  costs totaling
$4,982,000  associated  with the $100 million debt  offering and the $50 million
increase in the senior  revolving credit  facility.  Interest expense  increased
$371,000 (10%) due to the higher principal  balances in 1998 related to the $100
million  debt  offering,  which closed in March 1998.  The  increases in expense
discussed  above were  partially  offset by a $470,000  increase in interest and
other income resulting from higher cash balances and a gain of $166,000 from the
sale of 46,000 shares of American Physicians Service Group, Inc. common stock.

For the three months ended June 30, 1998,  other  deductions  decreased  $21,000
compared to the same period in 1997, primarily due to an increase of $352,000 in
interest  expense due to the higher  principal  balances in 1998  related to the
$100 million  debt  offering,  which  closed in March 1998,  and was offset by a
$373,000  increase  in  interest  and other  income  resulting  from higher cash
balances  and a gain of  $166,000  from the sale of 46,000  shares  of  American
Physicians Service Group, Inc. common stock.

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

Minority interest in consolidated  income for the six months ended June 30, 1998
decreased  $633,000  compared  to the same  period in 1997,  primarily  due to a
decline in fee revenue in certain of the partnerships. Earnings before interest,
taxes, depreciation and amortization (EBITDA) attributable to minority interests
was  $12,546,000  for the six months ended June 30, 1998 compared to $13,104,000
for the same period in 1997.  EBITDA is not intended to represent  net income or
cash flows from  operating  activities in  accordance  with  generally  accepted
accounting  principles  and should not be  considered a measure of the Company's
profitability or liquidity.

Minority  interest in  consolidated  income for the three  months ended June 30,
1998 decreased $134,000 compared to the same period in 1997,  primarily due to a
decline in fee revenue in certain of the partnerships. Earnings before interest,
taxes, depreciation and amortization (EBITDA) attributable to minority interests
was  $6,440,000  for the three months ended June 30, 1998 compared to $6,467,000
for the same period in 1997.  EBITDA is not intended to represent  net income or
cash flows from  operating  activities in  accordance  with  generally  accepted
accounting  principles  and should not be  considered a measure of the Company's
profitability or liquidity.

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

Income tax expense  for the six months  ended June 30,  1998  decreased  $26,000
compared to the same period in 1997 due  primarily  to the  reduction in pre-tax
earnings in 1998 offset in part by the 1997 provision  including the effect of a
reduction in the Company's valuation allowance related to its net operating loss
carryforwards.

Income tax expense for the three months ended June 30, 1998 increased $1,061,000
compared to the same period in 1997 due to the Company's Federal income tax rate
increasing  to 34% in 1998,  as compared to 18% for the same period in 1997,  as
the Company  reduced the valuation  allowance  related to its net operating loss
carry forwards during 1997.


                                      -19-

<PAGE>


                                           




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

Cash was  $31,758,000  and  $23,770,000  at June 30, 1998 and December 31, 1997,
respectively. Cash provided by operations for the six months ended June 30, 1998
was $12,962,000 compared to cash provided by operations for the six months ended
June  30,  1997  in  the  amount  of  $22,893,000.  The  decline  was  primarily
attributable to financing  costs and  development  costs incurred in the quarter
ended March 31, 1998 and an increase in income taxes paid.

Cash provided by investing activities for the six months ended June 30, 1998 was
$208,000 compared to cash used in investing  activities for the six months ended
June  30,  1997  in the  amount  of  $13,644,000.  In  1997,  the  Company  used
$13,980,000 to purchase (1) additional interests in 10 partnerships, (2) 100% of
the stock of a company  that  operates  two  lithotripsy  units and (3) a 38.25%
interest in a lithotripter operation that operates one lithotripter.

Cash used in  financing  activities  for the six months  ended June 30, 1998 was
$5,182,000,  primarily due to distributions to minority interests of $19,053,000
and  purchase  of  treasury  stock of  $6,126,000  offset by new  borrowings  of
$100,025,000  less  payments  on notes  payable  of  $80,098,000.  Cash  used in
financing  activities  for the six months  ended June 30, 1997 was  $15,637,000,
primarily due to  distributions to minority  interests of $20,779,000  offset by
new borrowings of $50,010,000 less payments on notes payable of $45,148,000.

In March 1998,  the  Company  completed  an  offering of $100  million of senior
subordinated notes due 2008 (the "Notes") to qualified  institutional  buyers. A
portion of the net proceeds from the offering of approximately  $96 million were
used to repay  all of the  outstanding  indebtedness  under the  Company's  bank
facility,  and the  remainder  will  be used  for  general  corporate  purposes,
including  acquisitions.  In  April  1998,  the  Company  increased  its  senior
revolving  credit  facility by $50 million to $100 million.  Advances  under the
revolver  will be  used  to fund  future  acquisitions  and to  finance  capital
expenditure and working  capital needs of the Company.  As of July 31, 1998, the
Company  had no  outstanding  indebtedness  under its  senior  revolving  credit
facility.

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

The  Company  intends  to  increase  the  number of its  lithotripsy  operations
primarily through acquisitions.  The Company believes that the fragmented nature
of the lithotripsy industry, combined with the operational challenges created by
increasing regulatory and business complexities, including Stark II, the Illegal
Remuneration   Statute  and  similar  state  laws,   will  provide   significant
lithotripsy acquisition opportunities.  Where appropriate, the Company will seek
to  increase  its  ownership  interest  in  current  lithotripsy  operations  by
purchasing  interests of urologists and other investors who desire to divest due
to concerns over regulatory

                                      -20-

<PAGE>
                                          
issues,  a desire to realize a return on their  investment  or  retirement.  The
Company  intends  to fund the  purchase  price  for  future  acquisitions  using
borrowings under its senior credit  facility,  proceeds from the offering of the
Notes and cash flow from operations.  In addition, the Company may use shares of
its common stock in such acquisitions where appropriate.

The Company has announced a stock  repurchase  program of up to $15.0 million of
common stock.  From time to time, the Company may purchase  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 814,000 shares of stock for a total of $8,330,000 as of July 31, 1998.

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

New Accounting Pronouncements
-----------------------------

In June 1997,  the FASB issued FASB No. 131,  Disclosures  about  Segments of an
Enterprise and Related  Information,  which the Company is required to adopt for
annual periods  beginning after December 15, 1997 and interim periods  beginning
in fiscal year 1999. SFAS No. 131 establishes  standards for the way that public
companies  report  information  about  operating  segments  in annual  financial
statements and requires that those companies report  information  about segments
in interim  financial  reports issued to  shareholders.  The Company has not yet
completed  its  analysis  of this  statement  and the  impact  on its  financial
statements.

In March 1998,  the  Accounting  Standards  Executive  Committee of the American
Institute of Certified Public  Accountants  issued Statement of Position ("SOP")
98-1,  Accounting for the Costs of Computer  Software  Developed or Obtained for
Internal Use, which the Company is required to adopt for fiscal years  beginning
after December 15, 1998. SOP 98-1 establishes  guidance on the capitalization or
expensing of the costs of computer  software  developed or obtained for internal
use. The Company does not expect this statement to have a material impact on the
its financial statements.

In April 1998,  the  Accounting  Standards  Executive  Committee of the American
Institute of Certified Public  Accountants  issued Statement of Position ("SOP")
98-5,  Reporting  on the Costs of  Start-Up  Activities,  which the  Company  is
required to adopt for fiscal years  beginning  after December 15, 1998. SOP 98-5
requires costs of start-up  activities and organization  costs to be expensed as
incurred.  The Company does not expect this statement to have a material  impact
on the its financial statements.

Impact of Year 2000
-------------------

The "Year  2000 " issue  refers to the  phenomenon  whereby  computer  programs,
having been  written  using two digits rather than four to define the applicable
year, may  erroneously  recognize a date using "00" as the year 1900 rather than
the year  2000.  This  error  could  potentially  result in a system  failure or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things,  a  temporary  inability  to process  transactions  or engage in similar
normal business activities.

The Company is in the process of reviewing its mission  critical data processing
systems, as part of strategic  initiatives to improve the systems and accomodate
growth.  This review may result in upgrading  or replacing  some of its existing
systems. As part of this process, the Company is ensuring that these new systems
are Year 2000 compliant.

To a degree,  the Company  relies on outside  software  vendors,  suppliers  and
customers for its operations.  The Company is initiating  formal  communications
with these  outside  entities  to  determine  the extent to which the  Company's
upgraded  systems are  vulnerable  to Year 2000  issues.  The Company  presently
believes that with  modifications  to existing  software and  conversions to new
software, the Year 2000 will not pose

                                      -21-

<PAGE>


                                           

significant operational problems for its systems. However, if such modifications
and conversions are not made, or are not completed  timely,  the Year 2000 issue
could have a material impact on the operations of the Company.

The Company will utilize both internal and external  resources to reprogram,  or
replace,  and test  the  software  for  Year  2000  modifications.  The  Company
anticipates  completing the Year 2000 project prior to any anticipated impact on
its operating  systems.  The total cost of the Year 2000  project,  although not
formally  assessed at this time,  is not  expected  to be material  and is being
funded through operating cash flows.

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,  regulatory,  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.


















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                                     PART II


                                OTHER INFORMATION





























                                      -23-

<PAGE>


                                            




Item 4.   Submission of Matters to a Vote of Security Holders.
-------   ----------------------------------------------------

   On June 10,  1998 an annual  meeting of the  shareholders  of the Company was
   held to consider and vote on the two proposals  described below.  Proxies for
   this meeting were solicited pursuant to Regulation 14 under the Act.

   1) Election of eight directors to the board of directors;

   The nominees for director were:
     Paul Butrus, William E. Foree,M.D., Joseph Jenkins,M.D.,J.D., Irwin Katz,
     J.A.  McEntire IV, William A. Searles,  Kenneth S. Shifrin,  and Michael J.
     Spalding, M.D.

   All nominees were elected.  The voting was as follows:

   Nominee                          Votes For    Votes Against  Votes Withheld
   -------                          ---------    -------------  --------------
   Paul Butrus                      16,371,452        --               167,670
   William E. Foree, M.D.           16,434,031        --               105,091
   Joseph Jenkins, M.D., J.D.       16,434,034        --               105,088
   Irwin Katz                       16,434,034        --               105,088
   J.A. McEntire IV                 16,434,034        --               105,088
   William A. Searles               16,434,034        --               105,088
   Kenneth S. Shifrin               16,434,034        --               105,088
   Michael J. Spalding, M.D.        16,434,034        --               105,088

    2)  Amendment  to the  Company's  1993  Stock  Option  Plan  increasing  the
   aggregate number of shares that may to be issued thereunder by 750,000.

    There were 15,606,787 affirmative votes, 738,845 negative votes and  56,117
     abstentions with respect to this proposal.

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

(a)   Exhibits.
   10.1 Indenture Agreement dated March 27, 1998 between Prime Medical Services,
           Inc. and State Street Bank and Trust Company of Missouri, N.A.
   12.   Computation of ratio of earnings to fixed charges
   27.   Financial Data Schedule
 
(b)  Current Reports on Form 8-K

   None







                                      -24-

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                                   SIGNATURES



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



Date:  August 14, 1998
                                                    By: /s/ Cheryl Williams
                                                    ---------------------------
                                                    Cheryl Williams
                                                    Chief Financial Officer


                                      -25-