_______________________________________________________

UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

_____________________________

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                  For the fiscal year ended December 31, 2003
                                       OR
            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                     the Securities and Exchange Act of 1934
                         For the transition period from
                                ______ to ______
Commission File Number: 0-22392

Prime
Medical Services, Inc.(Exact name of Registrant as specified in its charter)

| | Delaware                                                       |  |  |  | 74-2652727                       
| | -------------------------------------------------------------- |  |  |  | ---------------------------------
| | (State or other jurisdiction
of incorporation or organization) |  |  |  | (IRS Employer
Identification No.)

1301 Capitol of Texas
Highway Suite 200B, Austin, Texas 78746(Address of principal executive offices)                (Zip Code)

(512) 328-2892(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered to Section 12(g) of the Act:
Common Stock

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

|Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.
X
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second fiscal
quarter.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Aggregate Market Value at June 30, 2003: $ 80,172,000
|-----------------------------------------------------

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

| | Title of Each Class
     Common Stock, $.01 par value |  | Number of Shares Outstanding atFebruary 18, 2004
17,051,563
| | ----------------------------------------------------- |  | -----------------------------------------------------------

|DOCUMENTS INCORPORATED BY REFERENCE                                                                                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Selected portions of the Registrant's definitive proxy material for the 2004 annual meeting of shareholders
are incorporated by reference into Part III of the Form 10-K.



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# PRIME MEDICAL SERVICES, INC.

# ANNUAL REPORT ON FORM 10-K

# FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

|References in this report to we, us, our, and
 the Company mean Prime Medical Services, Inc. and (as the context may require) one or more of our
 subsidiaries.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------

# PART I

# ITEM 1. BUSINESS

|We provide lithotripsy services in 26 states and design
 and manufacture trailers and coaches for transporting high technology medical devices and equipment
 designed for mobile command and control centers and the media and broadcast industry. During 2002, we
 completed our divestiture of our operations in the refractive vision correction or RVC industry. Thus,
 we currently have two reportable segments: lithotripsy and manufacturing. RVC operations are also reported
 to allow for meaningful prior year comparisons. See Note M to the consolidated financial statements
 for segment disclosures.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Lithotripsy

|Lithotripsy is a non-invasive procedure for treating
 kidney stones, typically performed on an outpatient basis that eliminates the need for lengthy hospital
 stays and extensive recovery periods associated with surgery. Our services are provided principally
 through limited partnerships or other entities that we manage, which use lithotripsy devices. These
 partnerships were formed by us, and we have retained an equity interest ranging from approximately 17%
 to 100% while selling any remaining interests to physicians. We retain the sole general partnership
 interest in the partnerships and manage their daily operations. As of December 31, 2003, we had 62 lithotripters
 of which 58 are mobile and four are fixed sites. Our lithotripters performed approximately 28,100 procedures
 in the United States in 2003 serving approximately 372 hospitals and surgery centers in 26 states.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As the general partner of the limited partnerships,
 we provide 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. We also provide equipment maintenance services to the partnerships and supply them with various
 consumables. Urologists render medical care utilizing the lithotripters. We believe that we are one
 of the largest providers of lithotripsy services in the U.S. and that we have created the industrys
 largest and most comprehensive lithotripsy database containing detailed treatment and outcomes data
 on over 150,000 procedures. We and our associated urologists utilize this database in seeking to provide
 the highest quality of lithotripsy services as efficiently as possible.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In February 2004, we acquired Medstone International,
 Inc. Medstone manufactures, sells, and maintains lithotripters and makes them available for use by health
 care providers under various fee-for-service arrangements in both fixed and mobile settings. Medstone
 and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient
 handling tables for use by pain management clinics and other users, and x-ray generators for medical
 imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstones lithotripter was the first
 FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in
 operation worldwide, and more than 324 urology and patient handling tables in use, the Medstone devices
 are well established in the urology office and hospital market. For the year ended December 31, 2003,
 Medstone had revenue of $21 million, comprised of $15 million in service revenue and $6 million in equipment
 sales.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



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# Manufacturing

|We design, construct and engineer mobile trailers and
 coaches that transport high technology medical devices, equipment designed for mobile command and control
 centers, and equipment for broadcasting and communications applications. During 1997, we acquired a
 majority interest in AK Specialty Vehicles, which provides manufacturing services, installation, refurbishment
 and repair of trailers and coaches for mobile medical services providers, including non-lithotripsy
 medical services such as magnetic resonance imaging, cardiac catheterization labs, CT scanners, and
 postitron emission tomography. In May 2002, we acquired the remaining minority ownership interest in
 AK Specialty Vehicles which is now one of our wholly-owned subsidiaries.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In May 2001, we broadened our manufacturing platform
 by acquiring the assets of Calumet Coach Company, or Calumet. 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 customers include industry
 leaders such as GE Medical Systems, Philips, Siemens Medical Systems, Dornier Medical Systems, hundreds
 of hospital systems and healthcare providers, and numerous broadcast and production companies.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In May 2002, we acquired the assets and certain liabilities
 of Frontline Communications Corporation, or Frontline. Frontline is a leading manufacturer and integrator
 of custom vehicles exclusively for the broadcast and communications industry. This acquisition expanded
 our market share in the broadcast and communications industry.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In July 2002, we acquired Holland-based Smit Mobile
 Equipment Company, or Smit. Smit is a leading European manufacturer of mobile medical imaging vehicles.
 The Smit acquisition expanded our presence in the global marketplace as a manufacturer of specialty
 vehicles, strengthened our strategic position in the growing European market for high technology mobile
 medical imaging and broadcast and communication vehicles.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|Our manufacturing business is headquartered in Harvey,
 Illinois, with additional manufacturing operations in Calumet City, Illinois; Sanford, Florida; Clearwater,
 Florida; Riverside, California; Carlisle, Pennsylvania and Oud Bierjland, Holland. Additionally, we
 operate a service and sales facility in Camberley, England, and a sales office in Beijing, China.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Refractive

|RVC refers to the correction of common vision disorders
 such as myopia (nearsightedness), hyperopia (farsightedness) and astigmatism using specialized laser
 applications. During 1999 and 2000, we acquired eleven refractive centers, and affiliated with physicians
 specializing in refractive surgery.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In 2002, we completed the divesture of our RVC operations,
 thereby affording us the opportunity to focus our resources on opportunities in our manufacturing and
 lithotripsy businesses.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Potential Liabilities-Insurance

|All medical procedures performed in connection with
 our business activities are conducted directly by, or under the supervision of, physicians who are not
 our employees. We do not provide medical services to any patients. However, patients being treated at
 health care facilities at which we provide our non-medical services could suffer a medical emergency
 resulting in serious injury or death, which could subject us to the risk of lawsuits seeking substantial
 damages.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We currently maintain general and professional liability
 insurance with a total limit of $1,000,000 per loss event and $3,000,000 policy aggregate and an umbrella
 excess limit of $5,000,000, with a deductible of $50,000 per occurrence. In addition, we require medical
 professionals who utilize our services to maintain professional liability insurance. All of these insurance
 policies are subject to annual renewal by the insurer. If these policies were to be canceled or not
 renewed, or failed to provide sufficient coverage for our liabilities, we might be forced to self-insure
 against the potential liabilities referred to above. In that event, a single incident might result in
 an award of damages that might have a material adverse effect on our results of operations or financial
 condition.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Government Regulation and Supervision

|We are directly, or indirectly through physicians and
 hospitals and other health care facilities, which we will refer to as Customers, subject to extensive
 regulation by both the federal government and the governments in states in which we conduct business,
 including:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the federal False Claims Act;                                                             
|- | ------------------------------------------------------------------------------------------
|  |                                                                                           
| | the federal Medicare and Medicaid Anti-Kickback Law, and state anti-kickback prohibitions;

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| | federal and state billing and claims submission laws and regulations;                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                        
| | the federal Health Insurance Portability and Accountability Act of 1996 and state laws relating to patient privacy;                    
|  |                                                                                                                                        
| | the federal physician self-referral prohibition commonly known as the Stark Law and the state law equivalents of the Stark Law;        
|  |                                                                                                                                        
| | state laws that prohibit the practice of medicine by non-physicians, and prohibit fee-splitting arrangements involving physicians; and 
|  |                                                                                                                                        
| | federal and state laws governing the equipment we use in our business concerning patient safety and equipment operating specifications.

|Practices prohibited by these statutes include, but
 are not limited to, the payment, receipt, offer, or solicitation of money or other consideration in
 connection with the referral of patients for services covered by a federal or state health care program.
 We contract with physicians under a variety of financial arrangements, and physicians have ownership
 interests in some entities in which we also have an interest. If our operations are found to be in violation
 of any of the laws and regulations to which we or our Customers are subject, we may be subject to the
 applicable penalty associated with the violation, including civil and criminal penalties, damages, fines,
 exclusion from the Medicare, Medicaid, and other governmental healthcare programs, loss of licenses,
 and the curtailment of our operations. While we believe that we are in compliance with all applicable
 laws, we cannot assure that our activities will be found to be in compliance with these laws if scrutinized
 by regulatory authorities. Any penalties, damages, fines or curtailment of our operations, individually
 or in the aggregate, could adversely affect our ability to operate our business and our financial results.
 The risks of us being found in violation of these laws and regulations is increased by the fact that
 many of them have not been fully interpreted by the regulatory authorities or in the courts, and their
 provisions are open to a variety of interpretations. Any action brought against us for violation of
 these laws or regulations, even if we were to successfully defend against it, could cause us to incur
 significant legal expenses and divert our managements attention from the operation of our business.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Equipment

|We purchase our lithotripsy equipment and maintain
 that equipment with either internal personnel or pursuant to service contracts with the manufacturers
 or other service companies. For mobile lithotripsy, we either purchase or lease the tractor, usually
 for a term up to five years, and purchase the trailer or a self contained coach.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We are not dependent on one manufacturer of lithotripters
 and have no long term or multi-system purchase commitments for equipment in place.
|---------------------------------------------------------------------------------------------------------------------------------------------

# Employees

|As of February 18, 2004, we employed approximately
 628 full-time employees and approximately 15 part-time employees.
|---------------------------------------------------------------------------------------------------------------------

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# Competition

|The lithotripsy services market is highly fragmented
 and competitive. We compete with other private facilities and medical centers that offer lithotripsy
 services and with hospitals, clinics and individual medical practitioners that offer conventional and
 alternative medical treatment for kidney stones. We also compete with another public company, Healthtronics
 Surgical Services, Inc., which also manufactures and distributes lithotripsy equipment. Certain of our
 current and potential competitors have substantial financial resources and may compete with us for acquisitions
 and development of operations in markets we target. If the purchase price of lithotripters decreases,
 as a result of the development of less expensive lithotripsy equipment being developed or otherwise,
 competition could intensify. Increased competition could decrease our market share and prospects. Although
 most of our lithotripsy business is pursuant to lithotripsy service agreements, the duration of those
 agreements is limited to stated periods of time and most are either in their initial terms or have been
 renewed for a term of one to three years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our manufacturing segment competes with at least two
 privately held national companies in the mobile medical equipment market. We have at least five major
 competitors in the broadcast and satellite transmission industry. The primary competitive factors are
 price, quality, and product differences resulting from varying manufacturing techniques.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Risk Factors

|Our high levels of indebtedness may limit our financial
 and operating flexibility.
|-----------------------------------------------------------------------------------

|We continue to have high levels of debt and interest
 expense. Our long-term debt as of December 31, 2003 was approximately $111.7 million, not including
 the current portion of long-term debt of $3.3 million on that date. Our debt to equity ratio as of December
 31, 2003 was approximately 1.08.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We have a revolving line of credit with a borrowing
 limit of $50.0 million, $3.0 million of which was drawn at December 31, 2003. In addition, we have outstanding
 $100.0 million of 8.75% senior subordinated notes due April 2008. The 8.75% notes are unsecured general
 obligations and are subordinated in right of payment to all of our existing and future senior indebtedness
 and are guaranteed by our subsidiaries on a full, unconditional, joint and several basis.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We have been assigned a B-1 senior implied rating and
 the 8.75% notes have been assigned a B-3 rating by Moodys Investor Service Inc. We have also been assigned
 a BB- corporate credit rating by Standard and Poors Ratings Group. All of these ratings are below investment
 grade. As a result, at times we may have difficulty accessing capital markets or raising capital on
 favorable terms as we will incur higher borrowing costs than our competitors that have higher ratings.
 Therefore, our financial results may be negatively affected by our inability to raise capital or the
 cost of such capital as a result of our credit ratings.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We must comply with various covenants contained in
 our revolving credit facility, the indenture related to the 8.75% notes and any other future debt arrangements
 that, among other things, limit our ability to:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | incur additional debt or liens;                                                  
|- | ---------------------------------------------------------------------------------
|  |                                                                                  
| | make payments in respect of or redeem or acquire any debt or equity issued by us;
|  |                                                                                  
| | sell assets;                                                                     
|  |                                                                                  
| | make loans or investments;                                                       
|  |                                                                                  
| | acquire or be acquired by other companies; and                                   
|  |                                                                                  
| | amend some of our contracts.                                                     

|Our substantial debt could have important consequences
 to you. For example, it could:
|--------------------------------------------------------------------------------------

| | increase our vulnerability to general adverse economic and industry conditions;                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                         
| | limit our ability to fund future working capital and capital expenditures, to engage in future acquisitions, or to otherwise realize the value of our assets and opportunities fully because of the need to dedicate a substantial portion of our cash flow from operations to payments
on our debt or to comply with any restrictive terms of our debt;
|  |                                                                                                                                                                                                                                                                                                                                                         
| | limit our flexibility in planning for, or reacting to, changes in the industry in which we operate; and                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                         
| | place us at a competitive disadvantage as compared to our competitors that have less debt.                                                                                                                                                                                                                                                              

|In addition, if we fail to comply with the terms of
 any of our debt, our lenders will have the right to accelerate the maturity of that debt and foreclose
 upon the collateral, if any, securing that debt. Realization of any of these factors could adversely
 affect our financial condition and results of operations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|If we are not able to establish or maintain relationships
 with physicians and hospitals, our ability to successfully commercialize our current or future service
 offerings will be materially harmed.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We are dependent on health care providers in two respects.
 First, if physicians and hospitals and other health care facilities, which we will refer to as Customers,
 determine that our services are not of sufficiently high quality or reliability, or if our Customers
 determine that our services are not cost effective, they will not utilize our services. In addition,
 any change in the rates of or conditions for reimbursement could substantially reduce (1) the number
 of procedures for which we or our Customers can obtain reimbursement or (2) the amounts reimbursed to
 us or our Customers for services provided by us. If third-party payors reduce the amount of their payments
 to Customers, our Customers may seek to reduce their payments to us or seek an alternate supplier of
 services. Because unfavorable reimbursement policies have constricted and may continue to constrict
 the profit margins of the hospitals and clinics we bill directly, we may need to lower our fees to retain
 existing customers and attract new ones. These reductions could have a significant adverse effect on
 our revenues and financial results by decreasing demand for services or creating downward pricing pressure.
 Second, physicians generally own equity interests in our partnerships. We provide a variety of services
 to the partnerships and in general manage their day-to-day affairs. Our operations could become disrupted,
 and financial results adversely affected, if these physician partners became dissatisfied with our services
 or if we became involved in disputes with our partners.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|We are subject to extensive federal and state health
 care regulation.
|----------------------------------------------------------------------

|We are subject to extensive regulation by both the
 federal government and the governments in states in which we conduct business. See Government Regulation
 and Supervision under this Part I for further discussion on these regulations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Third party payors could refuse to reimburse health
 care providers for use of our current or future service offerings and products, which could make our
 revenues decline.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Third party payors are increasingly attempting to contain
 health care costs by limiting both coverage and the level of reimbursement of medical procedures and
 treatments. In addition, significant uncertainty exists as to the reimbursement status of newly approved
 health care products. Lithotripsy treatments are reimbursed under various federal and state programs,
 including Medicare and Medicaid, as well as under private health care programs, primarily at fixed rates.
 Governmental programs are subject to statutory and regulatory changes, administrative rulings, interpretations
 of policy and governmental funding restrictions, and private programs are subject to policy changes
 and commercial considerations, all of which may have the effect of decreasing program payments, increasing
 costs or requiring us to modify the way in which we operate our business. These changes could have a
 material adverse effect on us.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We face intense competition and rapid technological
 change that could result in products that are superior to the products we manufacture or superior to
 the products on which our current or proposed services are based.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Competition in our business segments is intense. We
 compete with national, regional and local providers of lithotripsy services and designers and manufacturers
 of trailers and coaches for transporting medical devices and mobile equipment designed for mobile command
 and control centers and equipment for the media and broadcast industry. This competition could lead
 to a decrease in our profitability. Moreover, if our customers determine that our competitors offer
 better quality products or services or are more cost effective, we could lose business to these competitors.
 The medical device and specialty vehicle industries are subject to rapid and significant technological
 change. Others may develop technologies or products that are more effective or less costly than our
 products or the products on which our services are based, which could render our products or services
 obsolete or noncompetitive. Our business is also impacted by competition between lithotripsy services,
 on the one hand, and surgical and other established methods for treating urological conditions, on the
 other hand.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We may be subject to costly and time-consuming product
 liability actions that would materially harm our business.Our lithotripsy services and manufacturing
 business exposes us to potential product liability risks that are inherent in these industries. All
 medical procedures performed in connection with our business activities are performed by or under the
 supervision of physicians who are not our employees. We do not perform medical procedures. However,
 we may be held liable if patients undergoing lithotripsy treatments using our devices are injured. We
 may also face product liability claims as a result of our specialty vehicle manufacturing. We cannot
 ensure that we will be able to avoid product liability exposure. Product liability insurance is generally
 expensive, if available at all. We cannot ensure that our present insurance coverage is adequate or
 that we can obtain adequate insurance coverage at a reasonable cost in the future.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Our success will depend partly on our ability to
 operate without infringing on or utilizing the proprietary rights of others.The medical
 device industry is characterized by a substantial amount of litigation over patent and other intellectual
 property rights. No one has claimed that any of our medical devices infringe on their intellectual property
 rights; however, it is possible that we may have unintentionally infringed on others patents or other
 intellectual property rights. Intellectual property litigation is costly. If we do not prevail in any
 litigation, in addition to any damages we might have to pay, we could be required to stop the infringing
 activity or obtain a license. Any required license may not be available to us on acceptable terms. If
 we fail to obtain a required license or are unable to design around a patent, we may be unable to sell
 some of our products, which would reduce our revenues and net income.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|If we fail to attract and retain key personnel and
 principal members of our management staff, our business, financial condition and operating results could
 be materially harmed.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our success depends greatly on our ability to attract
 and retain qualified management and technical personnel, as well as to retain the principal members
 of our existing management staff. The loss of services of any key personnel could adversely affect our
 current operations and our ability to implement our growth strategy. There is intense competition within
 our industry for qualified staff, and we cannot assure you that we will be able to attract and retain
 the necessary qualified staff to develop our business. If we fail to attract and retain key management
 staff, or if we lose any of our current management team, our business, financial condition and operating
 results could be materially harmed.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The market price of our common stock may experience
 substantial fluctuation for reasons over which we have little control.Our stock price has
 a history of volatility. Fluctuations have occurred even in the absence of significant developments
 pertaining to our business. Stock prices and trading volume of companies in the health care and health
 services industry have fallen and risen dramatically in recent years. Both company-specific and industry-wide
 developments may cause this volatility. During 2003, our stock price ranged from $4.05 to $8.88. Factors
 that could impact the market price of our common stock include the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|  future announcements concerning us, our competition or the health care services market generally;  developments relating to our relationships with hospitals, other health care facilities, or physicians;  developments relating to our sources of supply;  claims made or litigation filed against us;  changes in, or new interpretations of, government regulations;  changes in operating results from quarter to quarter;  sales of stock by insiders;  news reports relating to trends in our markets;  acquisitions and financings in our industry; and  overall volatility of the stock market.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Furthermore, stock prices for many companies fluctuate
 widely for reasons that may be unrelated to their operating results. These fluctuations, coupled with
 changes in our results of operations and general economic, political and market conditions, may adversely
 affect the market price of our common stock.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our acquisition strategy could fail or present unanticipated
 problems for our business in the future, which could adversely affect our ability to make acquisitions
 or realize anticipated benefits from those acquisitions.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We have followed an acquisition strategy since 1992
 that has resulted in rapid growth in our business. This acquisition strategy may include acquiring healthcare
 services and specialty vehicle manufacturing businesses and is dependent on the continued availability
 of suitable acquisition candidates and our ability to finance and complete any particular acquisition
 successfully. Moreover, the Federal Trade Commission, or FTC, initiated an investigation in 1991 to
 determine whether the limited partnerships in which Lithotripters, Inc., now one of our wholly-owned
 subsidiaries, was the general partner posed an unreasonable threat to competition in the healthcare
 field. While the FTC closed its investigation and took no action, the FTC or another governmental authority
 charged with the enforcement of federal or state antitrust laws or a private litigant might, due to
 our size and market share, seek to (1) restrict our future growth by prohibiting or restricting the
 acquisition of additional lithotripsy operations or (2) require that we divest of certain of our lithotripsy
 operations. Furthermore, acquisitions involve a number of risks and challenges, including:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  diversion of management's attention;  the need to integrate acquired operations;
|------------------------------------------------------------------------------------

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|  potential loss of key employees of the acquired companies; and  an increase in our expenses and working capital requirements.
|---------------------------------------------------------------------------------------------------------------------------------

|Any of these factors could adversely affect our ability
 to achieve anticipated levels of cash flows from our acquired businesses or realize other anticipated
 benefits from those acquisitions.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our results of operations could be adversely affected
 as a result of goodwill impairments.
|-------------------------------------------------------------------------------------------

|Goodwill represents the excess of the purchase price
 paid for a company over the fair value of that companys tangible and intangible net assets acquired.
 As of December 31, 2003, we had goodwill of $178 million. If we determine in the future that the fair
 value of any of our reporting segments does not exceed the carrying value of the related reporting segment,
 goodwill in that reporting segment will be deemed impaired. If impaired, the amount of goodwill will
 be reduced to the value determined by us to be the fair value of the reporting segment. The amount of
 the reduction will be deducted from earnings during the period in which the impairment occurs. An impairment
 will also reduce stockholders equity in the period incurred by the amount of the impairment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our manufacturing operations are partially dependent
 upon third-party suppliers, making us vulnerable to a supply shortage.We obtain materials
 and manufactured components from third-party suppliers. Some of our suppliers are the sole source for
 a particular supply item. Any delay in our suppliers abilities to provide us with necessary material
 and components may affect our manufacturing capabilities or may require us to seek alternative supply
 sources. Delays in obtaining supplies may result from a number of factors affecting our suppliers, such
 as capacity constraints, labor disputes, the impaired financial condition of a particular supplier,
 suppliers allocations to other purchasers, weather emergencies or acts of war or terrorism. Any delay
 in receiving supplies could impair our ability to deliver products to our customers and, accordingly,
 could have a material adverse effect on our business, results of operations and financial condition.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We could be adversely affected by special risks
 and requirements related to our medical equipment manufacturing business.As a result of
 our acquisition of Medstone and Medstones medical equipment manufacturing business, our consolidated
 operations have become subject to various special risks and requirements associated with being a medical
 equipment manufacturer, which could have adverse effects. These include the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the need to comply with applicable federal Food and Drug Administration regulations relating to good manufacturing practices and medical device approval requirements, and with state licensing requirements;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | the need for special non-governmental certifications and registrations regarding product safety, product
quality and manufacturing procedures in order to market products in the European Union;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                 
| | potential product liability claims for any defective goods that are distributed; and                                                                                                            
|  |                                                                                                                                                                                                 
| | the need for research and development expenditures to develop or enhance products and compete in the equipment markets.                                                                         

# Executive Officers

|As of February 26, 2004, our executive officers were
 as follows:
|-----------------------------------------------------------------

|Name                                                                                                                                                                                                                                                                                                                                    | Age                                                                                                  | Position                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Kenneth S. Shifrin                                 
Brad A. Hummel                                     
John Q. Barnidge                                   
                                                   
Bonnie Lankford                                    
Phillip J. Supple                                  
Richard A. Rusk | 54
47                
52                
                  
47                
53                
42 | Chairman of the Board 
Chief Executive Officer and President 
Chief Financial Officer, Senior Vice 
President and Secretary 
President of Urology Division 
President of Manufacturing Division 
Vice President and Controller

|The foregoing does not include positions held in our
 subsidiaries. Our officers are elected for annual periods. There are no family relationships between
 any of our executive officers and/or directors.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr. Shifrin has been our Chairman of the
 Board and a director since October 1989. In addition, Mr. Shifrin has served in various capacities with
 American Physicians Service Group, Inc., or APS, since February 1985, and is currently Chairman of the
 Board and Chief Executive Officer of APS. Since June 2003, Mr. Shifrin has also been a director of Financial
 Industries Corporation. Mr. Shifrin is a member of the World Presidents Organization.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr. Hummel has been our President and Chief
 Executive Officer since June 2000. From October 1999 until June 2000, Mr. Hummel was our Executive Vice
 President and Chief Operating Officer. Before joining us, Mr. Hummel was with Diagnostic Health Services,
 Inc. since 1984, most recently serving as their President and Chief Operating Officer from 1987 to 1999,
 Chief Executive Officer from January 1999 to October 1999 and as a member of its board of directors.
 Subsequent to Mr. Hummels departure, DHS filed for Chapter 11 bankruptcy reorganization in
 March 2000 and shortly thereafter re-emerged from bankruptcy in October 2000.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr. Barnidge has been our Chief Financial
 Officer, Senior Vice President and Secretary since December 2001. Mr. Barnidge was our Treasurer from
 August 2001 until December 2001. Before joining us, Mr. Barnidge, a CPA, was a partner in a public accounting
 and consulting firm from 1986 through July 2001. Mr. Barnidge is also a Certified Valuation Analyst
 and a Certified Fraud Examiner. He was formerly an Adjunct Professor in the University of Houstons
 Graduate School of Business.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11
|--



---

|Ms. Lankford was named President of our
 Urology division in January 2003. Ms. Lankford joined us in January 2001 and was named Vice President
 in June 2002. From January 2000 to January 2001, she served as an Account Executive for Sonosite and,
 prior to that, she served as Senior Vice President  Operations for Diagnostic Health Services. Ms. Lankford
 has twenty years experience in healthcare services and medical device sales, including senior sales
 and operations roles in a public company setting.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr. Supple was named President of our Manufacturing
 division in July 2002. Mr. Supple joined us in November 2000 as a Vice President in our Manufacturing
 division. Prior to that, he served as President of Calumet Coach Company. Mr. Supple has twenty-five
 years experience with U.S. and European capital goods manufacturing concerns, including senior executive
 positions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr. Rusk joined us in August 2000 as our
 Controller and was named Vice President in June 2002. Before joining us, Mr. Rusk, a CPA, was with KPMG
 LLP for approximately seventeen years, the last ten years as a senior audit manager.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Available Information

|We file annual, quarterly, and current reports, proxy
 statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities
 Exchange Act of 1934 (the Exchange Act). You may read and copy any materials that we file with the SEC
 at the SECs public reference room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain
 information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Also,
 the SEC maintains a website that contains these SEC filings. You can obtain these filings at the SECs
 website at http://www.sec.gov.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We also make available free of charge on or through
 our website (http://www.primemedical.com) our Annual Report on Form 10-K, Quarterly Reports on Form
 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished
 pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically
 file such material with, or furnish it to, the SEC.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 2.   PROPERTIES

|Our principal executive office is located in Austin,
 Texas in an office building owned by us. We purchased the building in November, 2001 from APS for approximately
 $6.0 million. This purchase allowed us to protect a significant investment in leasehold improvements,
 especially certain installed and fixed networking equipment related to our central business office,
 and to provide room for future growth. In 2003, we received positive cash flow of approximately $25,000
 per month from owning and leasing the building. Before this purchase, we paid APS approximately $21,000
 per month for approximately 11,600 square feet of office space, reception and telephone services, and
 other support services. Subsequent to this transaction, APS leased approximately 23,000 square feet
 of the building from us. This lease expires in September 2006.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12
|--



---

|For our manufacturing business, we own two buildings
 containing approximately 78,000 and 85,000 square feet of manufacturing and office space in Harvey and
 Calumet City, Illinois, respectively. Additionally, we lease approximately 35,000 square feet of manufacturing
 and office space in Sanford, Florida for approximately $16,000 a month, we lease approximately 64,000
 square feet of manufacturing and office space in Clearwater, Florida for approximately $19,000 a month,
 we lease approximately 68,000 square feet of manufacturing and office space in Riverside, California
 for approximately $32,000 a month, we lease approximately 32,000 square feet of manufacturing and office
 space in Carlisle, Pennsylvania for approximately $8,000 a month and we lease approximately 98,000 square
 feet of manufacturing and office space in Oud Bierjland, Holland for approximately $54,000 a month.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 3.  LEGAL PROCEEDINGS

|We are involved in various claims and legal actions
 that have arisen in the ordinary course of business. We believe that any liabilities arising from these
 actions will not have a material adverse effect on our financial condition, results of operations or
 cash flows.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

|On February 19, 2004, we held a special meeting of
 our stockholders to consider and vote on the two proposals we describe below. Management solicited proxies
 for this meeting.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1)     The proposal to approve
 the Medstone acquisition was approved. The votes for were 10,645,279, the votes against were 73,822
 and the votes withheld were 12,763.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2)     The proposal to approve
 our 2003 stock option plan was approved. The votes for were 10,211,877, the votes against were 493,213
 and the votes withheld were 26,774.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# PART II

# ITEM 5.   MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

|The following table sets forth the high and low closing
 prices per share for our common stock on the Nasdaq National Market for the years ended December 31,
 2003 and 2002 (NASDAQ Symbol PMSI).
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2002          
| |  | ---- | --------------
|
| |  |      | First Quarter 
| |  |      | Second Quarter
| |  |      | Third Quarter 
| |  |      | Fourth Quarter

|On February 18, 2004, we had 563 holders of record
 of our common stock.
|------------------------------------------------------------------------

|13
|--



---

|We are not currently paying dividends on our common
 stock. We have the authority to declare and pay dividends on our common stock in our discretion, as
 long as we have funds legally available to do so and our credit facility and indenture related to our
 8.75% notes permit the declaration and payment. Our credit facility and indenture restrict our ability
 to pay cash dividends. In addition, we intend to retain our earnings to finance the expansion of our
 business and for general corporate purposes. Therefore, we do not anticipate paying cash dividends on
 our common stock in the foreseeable future.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Equity Compensation Plan Information

|Our amended and restated 1993 stock option plan, which
 expired in October 2003, provided that the aggregate number of shares of our common stock that may be
 issued upon the exercise of all options under the plan shall not exceed 4,550,000. The plan, and all
 amendments thereto, had been approved by our shareholders. As of December 31, 2003, we had no equity
 compensation plans in effect. The following table sets forth certain information as of December 31,
 2003 about our equity compensation plan:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | (a) | (b) | (c)      
|----------------------------- | --- | --- | ---------
|
|Our 1993 stock option plan    |     |     | 2,522,000
|                              |     |     |          
|Other equity compensation     |     |     | N/A      
|plans approved by our         |     |    
|security holders              |     |    
|                              |     |     |          
|Equity compensation plans not |     |     | N/A      
|approved by our security      |     |    
|holders                       |     |    

|On February 19, 2004, our stockholders approved our
 new 2003 stock option plan, which provides that the aggregate number of shares of our common stock that
 may be issued upon the exercise of all options under the plan shall not exceed 600,000.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 6.   SELECTED FINANCIAL DATA

|The following tables set forth our summary consolidated
 historical financial information that has been derived from (a) our audited consolidated statements
 of income and cash flows for each of the years ended December 31, 2003, 2002, 2001, 2000 and 1999, (b)
 our audited consolidated balance sheets as of December 31, 2003, 2002, 2001, 2000 and 1999, and (c)
 our unaudited consolidated statements of income and cash flows for each of the three months ended December
 31, 2003, September 30, 2003, June 30, 2003, and March 31, 2003. You should read this financial information
 in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations
 and our historical financial statements and notes thereto included elsewhere in this Annual Report on
 Form 10-K.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--



---

|(In thousands, except per share data) | Years Ended December 31,
|------------------------------------- | ------------------------
|
|Revenues:                             |                         
|Lithotripsy                           |                         
|Manufacturing                         |                         
|RVC                                   |                         
|Other                                 |                         
|                                      |                         
|Total                                 |                         
|                                      |                         
|Income:                               |                         
|Net income (loss)                     |                         
|                                      |                         
|Diluted earnings (loss) per share     |                         
|                                      |                         
|Dividends per share                   |                         
|Total assets                          |                         
|                                      |                         
|Long-term obligations                 |                         
|                                      |                         

|Quarterly Data                      | Quarter Ended
|----------------------------------- | -------------
|
|
|2003                                |              
|Revenues                            |              
|Net income                          |              
|Per share amounts (basic):          |              
|Net income                          |              
|Weighted average shares outstanding |              
|Per share amounts (diluted):        |              
|Net income                          |              
|Weighted average shares outstanding |              
|                                    |              
|2002                                |              
|Revenues                            |              
|Net income (loss)                   |              
|Per share amounts
 (basic):         |              
|Net income (loss)                   |              
|Weighted average shares outstanding |              
|Per share amounts (diluted):        |              
|Net income (loss)                   |              
|Weighted average shares outstanding |              

|15
|--



---

|ITEM 7.   MANAGEMENT'S
 DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
|---------------------------------------------------------------------------------------------------------------

Forward-Looking Statements

|This Annual Report on Form 10-K includes forward-looking
 statements within the meaning of Section 21E of the Exchange Act and the Private Securities Litigation
 Reform Act of 1995 about us that are subject to risks and uncertainties. All statements other than statements
 of historical fact included in this document are forward-looking statements. Although we believe that
 in making such statements our expectations are based on reasonable assumptions, such statements may
 be influenced by factors that could cause actual outcomes and results to be materially different from
 those projected.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

General

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

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

|16
|--



---

|Our services are provided principally through limited
 partnerships or other entities that we manage, which use lithotripsy devices. As of December 31, 2003,
 we owned 62 lithotripters, 58 of which are mobile and four of which are fixed site. In 2003, physicians
 who are affiliated with us used our lithotripters to perform approximately 28,100 procedures in the
 U.S. We do not render any medical services. Rather, the physicians do.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As the general partner of the limited partnerships,
 we also provide services relating to operating our lithotripters, including scheduling, staffing, training,
 quality assurance, maintenance, regulatory compliance, and contracting with payors, hospitals and surgery
 centers.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Although, for 2003 and 2002, manufacturing revenue
 was higher than lithotripsy revenue, the operating margins on lithotripsy revenue have been, historically,
 much higher than on manufacturing revenue. We recognize lithotripsy revenue primarily from the following
 sources:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fees for lithotripsy services. A substantial
 majority of our lithotripsy revenue is derived from fees related to lithotripsy treatments performed
 using our lithotripters. We, through our partnerships or other entities, facilitate the use
of our equipment and provide other support services in connection with these treatments
 at hospitals and other health care facilities. (For a further discussion on our partnerships, see Lithotripsy
 and Government Regulation and Supervision in Part I.) The professional fee payable to the physician
 performing the procedure is generally billed and collected by the physician.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|17
|--



---

Recent Developments

|In February 2004, we acquired Medstone International,
 Inc. for approximately $18 million. Medstone manufactures, sells, and maintains lithotripters and makes
 them available for use by health care providers under various fee-for-service arrangements in both fixed
 and mobile settings. Medstone and its subsidiaries also market fixed and mobile tables for urological
 treatments and imaging, patient handling tables for use by pain management clinics and other users,
 and x-ray generators for medical imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstones
 lithotripter was the first FDA approved device to treat both kidney stones and gallstones. With more
 than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables
 in use, the Medstone devices are well established in the urology office and hospital market. For the
 year ended December 31, 2003, Medstone had revenue of $21 million, comprised of $15 million in service
 revenue and $6 million in equipment sales.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In July 2003, we entered into a letter agreement with
 each of two previous minority interest owners of one of our subsidiaries, AK Specialty Vehicles. 
 Under these two letter agreements, each minority interest owner is entitled to require that we repurchase
 up to approximately 365,000 shares (for a total of approximately 730,000 shares) of our common stock
 that we issued in connection with our repurchase of their interests in AK Specialty Vehicles. 
 Each such put right can only be exercised in three equal increments of approximately 121,360 shares
 in July 2003, June 2004 and June 2005 at per share purchase prices of $7.05, $7.12 and $7.19, respectively. 
 Both individuals exercised their right in July 2003 and, consequently, we purchased 242,716 shares under
 these letter agreements for approximately $1.7 million. We recorded $1.2 million as treasury stock based
 on the closing price of our stock on the date of repurchase and the remaining $498,000 was recorded
 as compensation expense. The remaining obligations under these agreements have been accounted for in
 accordance with Statement of Financial Accounting Standards (SFAS) No. 150 and resulted in an estimated
 liability and related compensation expense of approximately $850,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In February 2003, we acquired Carlisle, Pennsylvania-based
 Winemiller Communications, Inc. for approximately $6.0 million. Winemiller provides turnkey remanufacturing
 and refurbishing of specialty vehicles utilized by the broadcast community.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In January 2003, we acquired Aluminum Body Corporation
 for approximately $8.6 million. ABC extends our position in the manufacture of command and control vehicles
 for the Homeland Security, military and government markets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies and Estimates.

Management has identified the following critical accounting
 policies and estimates:

|Impairments of goodwill and other intangible assets
 is both a critical accounting policy and estimate that requires judgment and is based on assumptions
 of future operations. We are required to test for impairments at least annually or if circumstances
 change that would reduce the fair value of a reporting unit below its carrying value. The fair value
 of each reporting unit is calculated using estimated discounted future cash flow projections. As of
 December 31, 2003, we had goodwill of $178 million. We recognized impairments of goodwill totaling $21.6
 million in our refractive business segment in the fourth quarter of 2001 based on discounted future
 cash flows from this business compared to the carrying value of the related assets.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
|--



---

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

|A third critical accounting policy is consolidation
 of our investment in partnerships where we, as the general partner, exercise effective control, even
 though our ownership is less than 50%. We have reviewed each of the underlying agreements and determined
 we have effective control; however, if it was determined this control did not exist, these investments
 would be reflected on the equity method of accounting. Although this would change individual line items
 within our consolidated financial statements, it would have no effect on our net income and/or total
 stockholders equity.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended December 31, 2003 compared to the year
 ended December 31, 2002

|Our total revenues decreased $9,543,000 (6%) as compared
 to the same period in 2002. Revenues from our lithotripter operations decreased by $9,885,000 (14%).
 Average revenue per procedure decreased 5% from prior year, but has remained consistent for all four
 quarters in 2003 and we believe it should continue at these levels in 2004. The actual number of procedures
 performed for the year ended December 31, 2003 decreased by 9% from 30,800 in 2002 to 28,100 in 2003.
 The most significant
 decreases totaling approximately $6.1 million in revenue related to lost contracts in Florida and Alabama.
 These lost contracts related primarily to the elimination of the Certificate for Need Law in Alabama
 where we had a significant competitive advantage prior to the change. Our manufacturing revenues increased
 by $10,202,000 (11%) primarily due to our acquisition of Frontline Communications during May 2002, Smit
 Mobile Equipment in July 2002, ABC in January 2003 and Winemiller in February 2003. The actual increase
 in revenues attributable to the acquisitions was $28.8 million, partially offset by an $18 million decrease
 in revenue in our mobile medical device business. Although we have maintained our dominant market share
 in this business, we have been negatively impacted by the slow down in demand for high end imaging devices.
 Our RVC revenues decreased $10,143,000 (100%) as we fully disposed of these operations in late 2002.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our costs of services and general and administrative
 expenses (excluding depreciation and amortization) decreased from 77% to 73% of our revenues, primarily
 due to a $17.7 million impairment recorded in 2002 related primarily to our refractive operations as
 discussed below. Our cost of services associated with our lithotripsy operations decreased $1,490,000
 (6%) in absolute terms but increased from 37% to 41% of our lithotripsy revenues due to a decrease in
 revenues noted above applied to a primarily fixed cost base. The actual decrease in costs of services
 relates primarily to reduced personnel costs from an actual reduction in headcount in direct service
 personnel. Our cost of services associated with our manufacturing operations increased $15,387,000 (21%)
 in absolute terms and increased from 84% to 90% of our manufacturing revenues due to increase sales
 and costs related to our acquisitions and a $1,348,000 charge related to stock buyback agreements discussed
 more fully in the Recent Developments section. The remaining decrease in margins is primarily attributable to a shift in product
 mix from the mobile device business to the broadcast and media industry products which have lower operating
 margins. Cost of services associated with our RVC operations decreased $8,862,000 (100%) as we fully
 disposed of these operations in late 2002. Our corporate expenses remained constant at (2%) of revenues,
 decreasing $108,000 (3%) in absolute terms, as we continue to grow without adding a disproportionately
 higher amount of corporate expenses.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--



---

|Depreciation and amortization expense increased $392,000
 for the year ended December 31, 2003 compared to the same period in 2002 due primarily to the acquisition
 of Winemiller and ABC during 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Our other expenses decreased $978,000 from 2002 to
 2003, primarily due to a $706,000 decrease in interest expense and $812,000 decrease in loan fees related
 to our senior credit facility partially offset by an increase of $616,000 in other, net due to a settlement
 of a lawsuit during 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority interest in our consolidated income decreased
 $4,239,000 compared to the same period in 2002, as a result of a decrease in income from our lithotripsy
 segment.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our income tax expense for 2003 increased $2,642,000
 over 2002 due to an increase in taxable income partially offset by a decrease in our effective tax rate.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------

Year ended December 31, 2002 compared to the year
 ended December 31, 2001

|Our total revenues increased $15,068,000 (10%) as compared
 to the same period in 2001. Revenues from our lithotripter operations decreased by $10,586,000 (13%).
 Conversion of contracts from a retail style contract to a wholesale style contract, payor mix changes
 and renegotiation of contracts during the past year resulted in decreases in average revenue per procedure.
 The actual number of procedures performed increased in 2002 to 30,800 from 29,400. Our manufacturing
 revenues increased by $37,174,000 (72%) primarily due to our acquisition of Calumet in May 2001, Frontline
 in May 2002 and Smit in July 2002. Our RVC revenues decreased $12,189,000 (55%). We disposed of our
 refractive operations during 2002 as previously discussed.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our costs of services and general and administrative
 expenses (excluding depreciation, amortization and impairment and other costs discussed below) increased
 from 58% to 66% of our revenues, primarily due to increases in our manufacturing operations, which have
 lower operating margins than our lithotripsy operations. These expenses increased $23,591,000 (26%)
 in absolute terms, compared to the same period in 2001. Our cost of services associated with our lithotripsy
 operations increased $125,000 (.5%) in absolute terms and increased from 32% to 37% of our lithotripsy
 revenues primarily due to the decrease in revenues noted above. Our cost of services associated with
 our manufacturing operations increased $30,211,000 (69%) in absolute terms and decreased from 85% to
 84% of our manufacturing revenues as we were able to maintain our margins while acquiring two additional
 manufacturing companies during 2002. Cost of services associated with our RVC operations decreased $6,362,000
 (42%) in absolute terms, and increased from 68% to 87% of our RVC revenues because we disposed of our
 RVC operations during 2002 as previously discussed. Our corporate expenses remained constant at 2% of
 revenues, decreasing $383,000 (10%) in absolute terms, as we continue to grow without adding a disproportionately
 higher amount of corporate expenses.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--



---

|Depreciation and amortization expense decreased $7,564,000
 for the year ended December 31, 2002 compared to the same period in 2001, primarily due to the adoption
 of SFAS No. 142 on January 1, 2002, which eliminated amortization expense related to goodwill and due
 to certain lithotripsy units becoming fully depreciated in the fourth quarter of 2001.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Our other expenses decreased $473,000 from 2001 to
 2002, primarily due to a $1,286,000 decrease in interest expense related to our senior credit facility
 and partially offset by an increase of $906,000 in loan fees.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Minority interest in our consolidated income increased
 $2,580,000 primarily because minority interest in 2001 was significantly impacted by impairment and
 other costs, which occurred in 2001 and are discussed below.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our income tax expense for 2002 increased $8,539,000
 over 2001 primarily due to the increase in our pretax income from the 2001 nonrecurring items discussed
 below.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In the fourth quarter of 2001, we recognized an impairment
 and other costs totaling $44.6 million of which $8.2 million relates to minority interest leaving a
 net impact to us of $36.4 million, all but $2.5 million of which was non-cash. Of this amount, approximately
 $21.6 million was for our impairment of goodwill associated with acquisitions made in the RVC segment
 during 1999 and 2000, $4.4 million related to a loss on our sale of our Kansas City refractive center,
 $3.8 million related to us recognizing impairments of certain lithotripsy assets, $3.8 million related
 to an increase in reserves on lithotripsy receivables, net of the related minority interest portion
 of the increased reserves of $8.2 million, and $2.5 million for the severance of certain contractual
 obligations. We based our write down of goodwill in the RVC segment and our impairment of certain assets
 in the lithotripsy segment on the estimated fair value of the assets as compared to the related cost
 basis. We based our increase in reserves on certain lithotripsy receivables on negotiated settlements
 with hospitals and on additional information now available to us from a full years operations of our
 new receivables system, which was placed in service in late 2000.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Cash Flows

|Our cash and cash equivalents were $9,780,000 and $20,174,000
 at December 31, 2003 and 2002, respectively. Our subsidiaries generally distribute all of their available
 cash quarterly, after establishing reserves for estimated capital expenditures and working capital.
 For the years ended December 31, 2003 and 2002, our subsidiaries distributed cash of approximately $21,618,000
 and $25,063,000, respectively, to minority interest holders.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21
|--



---

|Cash provided by our operations, after minority interest,
 was $37,272,000 for the year ended December 31, 2003 and $48,131,000 for the year ended December 31,
 2002. From 2002 to 2003, fee and other revenue collected decreased by $13,814,000 due primarily to the
 $9.5 million decrease in revenue previously discussed and an increase in accounts receivable for our
 manufacturing segment. Cash paid to employees, suppliers of goods and others increased by $2,461,000.
 These fluctuations are attributable to increased operations and inventories primarily in our manufacturing
 segment as well as the timing of accounts payable and accrued expense payments. A decrease in interest
 payments of $2,239,000 was due primarily to our interest rate swap agreements. Taxes refunded increased
 $3,713,000 from 2002 to 2003 due to RVC write-offs in 2002, which were carried back to prior taxable
 years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash used by our investing activities for the year
 ended December 31, 2003, was $19,889,000 primarily due to $13,535,000 used in our acquisitions of ABC
 and Winemiller. We purchased equipment and leasehold improvements totaling $6,011,000. Cash used by
 our investing activities for the year ended December 31, 2002, was $20,607,000 primarily due to $17,354,000
 used in our acquisition of Frontline, Smit and the remaining ownership interest in AK Specialty Vehicles.
 We purchased equipment and leasehold improvements totaling $6,116,000. We received $2,196,000 in distributions
 from investments.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash used in our financing activities for the year
 ended December 31, 2003, was $27,777,000, primarily due to distributions to minority interests of $21,618,000
 and net payments on notes payable of $4,682,000 and purchases of treasury stock of $1,214,000. Cash
 used in our financing activities for the year ended December 31, 2002, was $23,853,000, primarily due
 to distributions to minority interests of $25,063,000 and net payments on notes payable of $1,822,000,
 partially offset by contributions of $1,495,000 received from holders of minority interests related
 to expanding existing partnerships and new partnership formations and $1,537,000 received from the exercise
 of stock options.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Senior Credit Facility

|Our senior credit facility is a revolving line of credit,
 and it expires on July 25, 2005. The revolving line of credit has a borrowing limit of $50 million,
 $3 million of which was drawn at December 31, 2003 and $2 million as of February 18, 2004, respectively.
 Our senior credit facility contains covenants that, among other things, limit the payment of cash dividends
 on our common stock, limit repurchases of our common stock, restrict the amount of our consolidated
 debt, restrict our ability to make certain loans and investments, and provide that we must maintain
 certain financial ratios. We were not in compliance with one financial ratio at December 31, 2003. We
 received a waiver of this noncompliance from the lenders under our facility and, as a result, there
 was no material impact on us as a result of this noncompliance.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22
|--



---

8.75% Notes

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

|The indenture governing our 8.75% notes contains covenants
 that: (1) limit the incurrence of additional indebtedness; (2) limit certain investments; (3) limit
 restricted payments; (4) limit the disposition of assets; (5) limit the payment of dividends and other
 payment restrictions affecting subsidiaries; (6) limit transactions with affiliates; (7) limit the creation
 of liens; and (8) restrict mergers, consolidations and transfers of assets. In the event of a change
 of control under the indenture, we will be required to make an offer to repurchase the 8.75% notes at
 101% of the principal amount thereof, plus accrued and unpaid interest to the date of the repurchase.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Other

|Interest Rate Swap. In August 2002, we entered
 into an interest rate swap which is designated as a fair value hedge pursuant to the provisions of FAS
 No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting
 for Certain Derivative Instruments and Certain Hedging Activities, An Amendment of FASB Statement No.
 133. This swap was executed to convert $50 million of the 8.75% notes from a fixed to floating rate
 instrument. The floating rate is based on LIBOR plus 4.56%. In March 2003, we amended our interest rate
 swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated
 the swaps in May 2003. Approximately $1.2 million in proceeds from the swaps was capitalized and will
 be amortized as a reduction to future interest expense over the remaining life of the 8.75% notes. In
 August 2003, we entered into two new interest rate swaps for $25 million each which are designated as
 fair value hedges. The floating rates of the two interest rate swap agreements are based on LIBOR plus
 4.72% and 4.97%, respectively. In January 2004, we terminated these swaps for approximately $150,000.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other long term debt.At December 31, 2003,
 we had approximately $4 million of debt related to our building in Austin, Texas which bears interest
 at prime plus 1% and is due in monthly installments until November, 2006. We also had notes totaling
 $6.7 million related to equipment purchased by our limited partnerships. These notes are paid from the
 cash flows of the related partnerships. They bear interest at LIBOR or prime plus a certain premium
 and are due over the next three years.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other long term obligations. At December 31,
 2003, we had an obligation totaling $1,500,000 related to payments to the previous owner of ABC for
 $75,000 per quarter until March 31, 2008 as consideration for a noncompetition agreement and $850,000
 related to the estimated fair values of puts as discussed more fully in the Recent Developments section.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23
|--



---

|Stock Repurchases. During 1998, we announced
 a stock repurchase program of up to $25.0 million of our common stock. In February 2000, we announced
 an increase in the authorized repurchase amount from $25.0 million to $35.0 million and in January 2001
 we increased this amount to $45.0 million. We did not repurchase any of our common stock during 2003,
 2002 or 2001. From time to time, we may purchase additional shares of our common stock where, in our
 judgment, market valuations of our stock do not accurately reflect our past and projected results of
 operations. We intend to fund any additional stock purchases using cash flows from operations and borrowings
 under our senior credit facility. Under our repurchase program, we had purchased 3,820,200 shares of
 our stock for a total cost of $32,524,000. These shares were retired in August 2002 and no additional
 shares have been purchased under the program.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General

The following table presents our contractual obligations
 as of December 31, 2003 (in thousands):

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

| | (1) | Represents long term debt as discussed above.
| | --- | ---------------------------------------------

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

| | (3) | Represents an obligation of $1,500 due to the previous owner of ABC, at a rate of $75 per quarter.
| | --- | --------------------------------------------------------------------------------------------------

| | (4) | Represents the estimated liability, in accordance with SFAS No. 150, of the put rights discussed in Recent Developments under this Item 7.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------

|In addition, the scheduled principal repayments for
 all long term debt as of December 31, 2003 are payable as follows:
|-----------------------------------------------------------------------------------------------------------------------

| |  | ($ in thousands)
| |  | ----------------
| |  |                 
| |  |                 
| |  |                 
| |  |                 
| |  |                 
| |  |                 
| |  |                 
| |  |                 
| |  |                 

|24
|--



---

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

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

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

Inflation

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

Recently Issued Accounting Pronouncements

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

|25
|--



---

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

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

# ITEM 7.   A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

|As of December 31, 2003, we had long-term debt (including
 current portion) totaling $115,073,000, of which $100 million has a fixed rate of interest of 8.75%,
 $49,000 has fixed rates of 5% to 11%, $4,077,000 bears interest at a variable rate equal to a specified
 prime rate and $9,622,000 bears interest at a variable rate equal to LIBOR + 2 to 3.5%. The remaining
 $1,325,000 relates to interest rate swaps which are discussed below. We are exposed to some market risk
 due to the floating interest rate debt totaling $13,699,000. We make monthly or quarterly payments of
 principal and interest on $10,699,000 of the floating rate debt. An increase in interest rates of 1%
 would result in a $137,000 annual increase in interest expense on this existing principal balance.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Additionally, in August 2002, we entered into an interest
 rate swap, which is designated as a fair value hedge pursuant to the provisions of FAS No. 133 and FAS
 No. 138. This swap had the effect of converting $50 million of our 8.75% notes from a fixed to floating
 rate instrument with a rate of LIBOR plus 4.56%. In March 2003, we amended our interest rate swap agreement
 to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated the swaps
 in May 2003. Approximately $1.2 million in proceeds from the swaps was capitalized and will be amortized
 as a reduction to future interest expense over the remaining life of the 8.75% notes. In August 2003,
 we entered into two new interest rate swaps for $25 million each which are designated as fair value
 hedges. The floating rates of the two interest rate swap agreements are based on LIBOR plus 4.72% and
 4.97%, respectively. In January 2004, we terminated these swaps for approximately $150,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|26
|--



---

# ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is contained
 in Appendix A attached hereto.

# ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

# ITEM 9A.  CONTROLS AND PROCEDURES

|At December 31, 2003, under the supervision and with
 the participation of our management, including our Chief Executive Officer (our principal executive
 officer) and our Chief Financial Officer (our principal financial officer), we evaluated the effectiveness
 of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange
 Act of 1934, as amended (the Exchange Act)). Based on this evaluation, our Chief Executive Officer
 and our Chief Financial Officer concluded that, as of December 31, 2003, our disclosure controls and
 procedures were effective.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# PART III

# ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

|The information required by this item will be contained
 in our definitive proxy statement to be filed in connection with our 2004 annual meeting of stockholders,
 except for the information regarding our executive officers, which is presented in Part I of this Form
 10-K. The information required by this item contained in our definitive proxy statement is incorporated
 herein by reference.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 11.   EXECUTIVE COMPENSATION

|The information required by this item will be contained
 in our definitive proxy statement to be filed in connection with our 2004 annual meeting of stockholders
 and is incorporated herein by reference.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

|The information required by this item will be contained
 in our definitive proxy statement to be filed in connection with our 2004 annual meeting of stockholders
 and is incorporated herein by reference.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

|The information required by this item will be contained
 in our definitive proxy statement to be filed in connection with our 2004 annual meeting of stockholders
 and is incorporated herein by reference.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--



---

# ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

|The information required by this item will be contained
 in our definitive proxy statement to be filed in connection with our 2004 annual meeting of stockholders
 and is incorporated herein by reference.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# PART IV

# ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|(a) 1. Financial Statements.         The information required by this item is contained in Appendix A attached hereto.     2. Financial Statement Schedules.         Schedule II-Valuation and Qualifying Accounts.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b) Reports on Form 8-K.

| | On February 2, 2004, we filed a report on form 8-K disclosing a presentation to the investment community.On February 20, 2004, we filed a report on form 8-K announcing the completion of the merger with Medstone International, Inc.On February 24, 2004, we filed a report on Form 8-K disclosing our fourth quarter 2003 earnings release.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(c) Exhibits. (1)

| | 3.1 3.2 4.1 10.1 10.2              10.3 | Certificate of Incorporation of the Company. (2)Bylaws of the Company. (2)Specimen of Common Stock Certificate. (2)Rights Agreement dated October 18, 1993 between the Company and American Stock Transfer and Trust Company. (3)Form of Indemnification Agreement dated October 11, 1993 between the Company and certain of its officers anddirectors. (3)Indenture Agreement dated March 27, 1998 between Prime Medical Services, Inc. and State Street Bank and Trust Company of Missouri, N.A. (4)
| | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28
|--



---

| | 10.4*          10.5          10.6 10.7 10.8 10.9          10.10                   10.11 10.12 10.13 10.14 10.15 10.16 10.17 12 21.1 23.1 | Executive Employment Agreement dated November 1, 2000 by and between Prime Medical Services, Inc. and Brad A.Hummel. (5)Non-Competition Release and Severance Agreement dated December 29, 2000 by and between Prime Medical Services, Inc. and
Joseph Jenkins, M.D. (5)Release and Severance Agreement dated December 30, 2001 by and between Prime Medical Services Inc. and Kenneth S. Shifrin. (6)Board Service Agreement dated December 30, 2001 by and between Prime Medical Services Inc. and Kenneth S. Shifrin. (6)Asset Purchase and Sale Agreement dated May 31, 2002 between Frontline Communications and Prime Kidney Stone Treatment, Inc. (7)Share Transfer Agreement dated September 30, 2002 between Prime Medical Services, Inc., AK Specialty Vehicles B.V. and J.W. Smit Holding B.V. (7)Fifth Amended and Restated Loan Agreement dated July 26, 2002 for $50,000,000 Revolving Credit Loan between Prime Medical Services, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer and Bank One, N.A. as Documentation Agent and the Lenders Named Therein. (7)Amended and Restated 1993 Stock Option Plan, as amended June 18, 2002. (7)Merger Agreement dated February 7, 2003 between
Prime Medical Services Inc. and Winemiller Communications, Inc. (7)Merger Agreement dated January 1, 2003 by and among Prime Medical Services, Inc., ABC Merger, Inc. and Aluminum Body Corporation. (8)Waiver and Amendment of Certain Provisions of the Fifth Amended and Restated Loan Agreement dated August 15, 2003. (8)Waiver and Amendment of Certain Provisions of the Fifth Amended and Restated Loan Agreement dated November 10, 2003. (8)Repurchase Agreement between Robert W. Bachman and Prime Medical Services, Inc. (8)Repurchase Agreement between Lawrence J. Sodomire and Prime Medical Services, Inc. (8)Computation of ratio of earnings to fixed charges. (9)List of subsidiaries of the Company. (9)Independent Auditors' Consent of KPMG LLP. (9)
| | ---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|29
|--



---

| | 31.1 31.2 32.1 32.2 | Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
| | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|*  Executive compensation plans and arrangements.
|-------------------------------------------------
|                                                 
|                                                 

|30
|--



---

|SIGNATURES
|----------

|Pursuant to the requirements of Section 13 or 15(d)
 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.
| | ----------------------------
| |                             
| | By:                         

|Pursuant to the requirements of the Securities Exchange
 Act of 1934, this report has been signed by the following persons on behalf of the registrant and in
 the capacities and on the dates indicated.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|By:                   Date: By:                                     Date: By:          Date: By:          Date: | /s/ Kenneth S. Shifrin Kenneth S. ShifrinChairman of the BoardFebruary 26, 2004/s/ John Q. Barnidge John Q. BarnidgeSenior Vice President, Secretaryand Chief Financial
Officer (PrincipalFinancial and Accounting Officer)February 26, 2004/s/ Joseph Jenkins Joseph Jenkins, M.D., DirectorFebruary 26, 2004/s/ William A. Searles William A. Searles, DirectorFebruary 26, 2004
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31
|--



---

|By:          Date: By:          Date: By:          Date: By:          Date: By:          Date: | /s/ Michael J. Spalding Michael J. Spalding, M.D., DirectorFebruary 26, 2004/s/ Michael R. Nicolais Michael R. Nicolais, DirectorFebruary 26, 2004/s/ R. Steven Hicks R. Steven Hicks, DirectorFebruary 26, 2004/s/ Carl S. Luikart Carl
S. Luikart, M.D., DirectorFebruary 26, 2004/s/ Perry M. Waughtal Perry M. WaughtalFebruary 26, 2004
|---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32
|--



---

|APPENDIX A
|----------

|INDEX
|-----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Page                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|
|Independent Auditors' Report Consolidated Financial Statements:     Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001.      Consolidated Balance Sheets at December 31, 2003 and 2002.      Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003,      2002 and 2001.     Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001.     Notes to Consolidated Financial Statements. Schedule II- Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002
     and 2001 | A-2A-3A-4A-6A-7A-10S-1



---

# Independent
Auditors Report

The Board of Directors and StockholdersPrime Medical
 Services, Inc.:

|We have audited the consolidated financial statements
 of Prime Medical Services, Inc. and subsidiaries (Company) as listed in the accompanying index. In
 connection with our audits, we have also audited the financial statement schedule as listed in the accompanying
 index. These consolidated financial statements and financial statement schedule are the responsibility
 of the Companys management. Our responsibility is to express an opinion on these consolidated financial
 statements and financial statement schedule based on our audits.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We conducted our audits in accordance with auditing
 standards generally accepted in the United States of America. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the financial statements are free of
 material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes assessing the accounting principles
 used and significant estimates made by management, as well as evaluating the overall financial statement
 presentation. We believe that our audits provide a reasonable basis for our opinion.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In our opinion, the consolidated financial statements
 referred to above present fairly, in all material respects, the financial position of Prime Medical
 Services, Inc. and subsidiaries at December 31, 2003 and 2002, and the results of their operations and
 their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity
 with accounting principles generally accepted in the United States of America. Also in our opinion,
 the related financial statement schedule, when considered in relation to the basic consolidated financial
 statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As discussed in notes B and C to the consolidated financial
 statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and
 other intangibles.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/:KPMG LLP

Austin, TexasFebruary 11, 2004



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESSTATEMENTS
 OF INCOME
|------------------------------------------------------------------

|($ in thousands, except per share data)                   | Years Ended December 31,
|--------------------------------------------------------- | ------------------------
|
|Revenue:                                                  |                         
|Lithotripsy                                               |                         
|Manufacturing                                             |                         
|Refractive                                                |                         
|Other                                                     |                         
|                                                          |                         
|Total revenue                                             |                         
|                                                          |                         
|Cost of services and general and administrative expenses: |                         
|Lithotripsy                                               |                         
|Manufacturing                                             |                         
|Refractive                                                |                         
|Corporate                                                 |                         
|Impairment and other costs                                |                         
|                                                          |                         
|                                                          |                         
|Depreciation and amortization                             |                         
|                                                          |                         
|                                                          |                         
|                                                          |                         
|Operating income                                          |                         
|                                                          |                         
|Other income (expenses):                                  |                         
|Interest and dividends                                    |                         
|Interest expense                                          |                         
|Loan fees                                                 |                         
|Other, net                                                |                         
|                                                          |                         
|                                                          |                         
|                                                          |                         
|Income (loss) before provision (benefit) for income taxes |                         
|and minority interest                                     |                         
|Minority interest in consolidated income                  |                         
|Provision (benefit) for income taxes                      |                         
|                                                          |                         
|Net income (loss)                                         |                         
|                                                          |                         
|Basic earnings (loss) per share:                          |                         
|Net income (loss)                                         |                         
|                                                          |                         
|Weighted average shares outstanding                       |                         
|                                                          |                         
|Diluted earnings (loss)
 per share:                       |                         
|Net income (loss)                                         |                         
|                                                          |                         
|Weighted average shares outstanding                       |                         
|                                                          |                         

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

|A-3
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
 BALANCE SHEETS
|-------------------------------------------------------------------------

|                                                 | December 31,
|------------------------------------------------ | ------------
|
|ASSETS                                           |             
|                                                 |             
|Current assets:                                  |             
|Cash and cash equivalents                        |             
|Accounts receivable, less allowance for doubtful |             
|accounts of $512 in 2003 and $629 in
2002        |             
|Other receivables                                |             
|Deferred income taxes                            |             
|Prepaid expenses and other current assets        |             
|Inventory                                        |             
|                                                 |             
|Total current assets                             |             
|                                                 |             
|Property and equipment:                          |             
|Equipment, furniture and fixtures                |             
|Building and leasehold improvements              |             
|                                                 |             
|                                                 |             
|Less accumulated depreciation and                |             
|amortization                                     |             
|                                                 |             
|Property and equipment, net                      |             
|                                                 |             
|Other investments                                |             
|Goodwill, at cost                                |             
|Other noncurrent assets                          |             
|                                                 |             
|                                                 |             
|                                                 |             

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

|A-4
|---



---

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

|                                                                     | December 31,
|-------------------------------------------------------------------- | ------------
|
|
|LIABILITIES                                                          |             
|                                                                     |             
|Current liabilities:                                                 |             
|Current portion of long-term debt                                    |             
|Accounts payable                                                     |             
|Accrued distributions to minority interests                          |             
|Accrued expenses                                                     |             
|Customer deposits                                                    |             
|                                                                     |             
|Total current liabilities                                            |             
|
|Long-term debt, net of current
 portion                              |             
|Other long term obligations                                          |             
|Deferred income taxes                                                |             
|                                                                     |             
|Total liabilities                                                    |             
|                                                                     |             
|Minority interest                                                    |             
|                                                                     |             
|STOCKHOLDERS' EQUITY                                                 |             
|                                                                     |             
|Preferred stock, $.01 par value, 1,000,000 shares                    |             
|authorized; none outstanding                                         |             
|Common stock, $.01 par value, 40,000,000 shares                      |             
|authorized; 17,324,585 issued in 2003 and 16,931,017 issued in 2002; |             
|17,081,869 outstanding in 2003 and 16,931,017 outstanding in 2002    |             
|Capital in






 excess of par
value                                |             
|Accumulated earnings                                                 |             
|Treasury stock, at cost, 242,716 shares in 2003                      |             
|                                                                     |             
|Total stockholders' equity                                           |             
|                                                                     |             
|                                                                     |             
|                                                                     |             

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

|A-5
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended December 31, 2003, 2002 and 2001
|-------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands, except share data)                  | Issued Common Stock | Capital inExcess of | Accumulated | Treasury Stock |  
|---------------------------------------------------- | ------------------- | ------------------- | ----------- | -------------- | -
|
|
|Balance, December 31, 2000                           |                     |                     |             | 19,524,533     |  
|                                                     |                     |                     |             |                |  
|
|Net loss                                             |                     |                     |             | --             |  
|                                                     |                     |                     |             |                |  
|Issuance of warrants                                 |                     |                     |             | --             |  
|                                                     |                     |                     |             |                |  
|Balance, December 31, 2001                           |                     |                     |             | 19,524,533     |  
|
|Net income                                           |                     |                     |             | --             |  
|                                                     |                     |                     |             |                |  
|Issuance of stock - deferred compensation            |                     |                     |             | --             |  
|Retirement of treasury stock                         |                     |                     |             | (3,820,200     | )
|Issuance of
stock                                    |                     |                     |             | 1,047,517      |  
|Exercise of stock options including tax              |                     |                    
|benefit of $365 on non-qualifying          exercises |                     |                     |             | 179,167        |  
|                                                     |                     |                     |             |                |  
|Balance, December 31, 2002                           |                     |                     |             | 16,931,017     |  
|
|                                                     |                     |                     |             |                |  
|Net income                                           |                     |                     |             | --             |  
|                                                     |                     |                     |             |                |  
|Purchase of treasury stock                           |                     |                     |             | --             |  
|Issuance of stock                                    |                     |                     |             | 393,568        |  
|                                                     |                     |                     |             |                |  
|Balance, December 31, 2003                           |                     |                     |             | 17,324,585     |  
|                                                     |                     |                     |             |                |  

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

|A-6
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESCONSOLIDATED
 STATEMENTS OF CASH FLOWS
|-----------------------------------------------------------------------------------

|                                                   | Years Ended December 31,
|-------------------------------------------------- | ------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:              |                         
|Fee and other revenue collected                    |                         
|Cash paid to employees, suppliers                  |                         
|of goods and others                                |                         
|Purchases of investments                           |                         
|Proceeds from sales and maturities of investments  |                         
|Interest received                                  |                         
|Interest paid                                      |                         
|Taxes refunded (paid)                              |                         
|                                                   |                         
|Net cash provided by operating activities          |                         
|                                                   |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:              |                         
|Purchase of entities, net of cash acquired         |                         
|Escrow deposits                                    |                         
|Purchases of equipment and leasehold improvements  |                         
|Proceeds from sales of equipment                   |                         
|Distributions from investments                     |                         
|                                                   |                         
|Net cash used in investing activities              |                         
|                                                   |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:              |                         
|Payments on notes payable, exclusive of interest   |                         
|Borrowings on






 notes payable                 |                         
|Distributions to
minority interest                 |                         
|Contributions by minority interest, net of buyouts |                         
|Exercise of stock options                          |                         
|Purchase of treasury stock                         |                         
|                                                   |                         
|Net cash used in financing activities              |                         
|                                                   |                         
|NET INCREASE (DECREASE) IN CASH                    |                         
|AND CASH EQUIVALENTS                               |                         
|                                                   |                         
|Cash and cash equivalents, beginning of year       |                         
|                                                   |                         
|Cash and cash equivalents, end of year             |                         
|                                                   |                         

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

|A-7
|---



---

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

|                                                            | Years Ended December 31,
|----------------------------------------------------------- | ------------------------
|
|
|Reconciliation of net income (loss) to net cash             |                         
|provided by operating activities:                           |                         
|Net income (loss)                                           |                         
|Adjustments to reconcile net income (loss) to cash provided |                         
|by operating activities:                                    |                         
|Minority interest in consolidated income                    |                         
|Depreciation and amortization                               |                         
|Provision for uncollectible accounts                        |                         
|Equity in earnings of affiliates                            |                         
|Provision for deferred income taxes                         |                         
|Stock buyback agreements                                    |                         
|Impairment of goodwill and other assets                     |                         
|Proceeds from termination of interest rate swap             |                         
|Other                                                       |                         
|Changes in operating assets and liabilities,                |                         
|net of effect of purchase transactions:                     |                         
|Investments                                                 |                         
|Accounts receivable                                         |                         
|Other receivables                                           |                         
|Other assets                                                |                         
|Accounts payable                                            |                         
|Accrued expenses                                            |                         
|                                                            |                         
|Total adjustments                                           |                         
|                                                            |                         
|Net cash provided by operating activities                   |                         
|                                                            |                         

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

|A-8
|---



---

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

|                                                                       | Years Ended December 31,
|---------------------------------------------------------------------- | ------------------------
|
|
|SUPPLEMENTAL INFORMATION OF NON-CASH                                   |                         
|INVESTING AND FINANCING ACTIVITIES:                                    |                         
|
|At December 31, the Company had accrued distributions payable          |                         
|to minority interests. The effect of this transaction was as follows:  |                         
|Current liabilities increased by                                       |                         
|Minority interest decreased by                                         |                         
|
|In 2003, the Company acquired two manufacturing companies.             |                         
|These transactions are discussed further in Note D. The acquired       |                         
|assets and liabilities were as follows:                                |                         
|Current assets increased by                                            |                         
|Noncurrent assets increased by                                         |                         
|Goodwill increased by                                                  |                         
|Current liabilities increased by                                       |                         
|Other long-term obligations increased by                               |                         
|Deferred income taxes decreased by                                     |                         
|Stockholder's equity increased by                                      |                         
|
|In 2002, the Company acquired the remaining minority interest in their |                         
|manufacturing segment.                                                 |                         
|These transactions are discussed further in Note D. The acquired       |                         
|assets and liabilities were as follows:                                |                         
|Noncurrent assets increased by                                         |                         
|Goodwill increased by                                                  |                         
|Minority interest decreased by                                         |                         
|Stockholder's equity increased by                                      |                         
|
|In 2002, the Company acquired two manufacturing companies.             |                         
|These transactions are discussed further in Note D. The acquired       |                         
|assets and liabilities were as follows:                                |                         
|Current assets increased by                                            |                         
|Noncurrent assets increased by                                         |                         
|Goodwill increased by                                                  |                         
|Current liabilities increased by                                       |                         
|Stockholder's equity increased by                                      |                         
|
|In 2002, 147,000 options were exercised into a deferred                |                         
|compensation plan.                                                     |                         
|Noncurrent liabilities (decreased) increased by                        |                         
|Stockholder's equity increased (decreased) by                          |                         
|
|In 2001, the Company acquired a lithotripsy company.                   |                         
|These transactions are discussed further in Note D. The acquired       |                         
|assets and liabilities were as follows:                                |                         
|Noncurrent assets increased by                                         |                         
|Goodwill increased by                                                  |                         
|Current liabilities increased by                                       |                         
|Noncurrent liabilities
increased by                                    |                         
|
|In 2001, the Company acquired a manufacturing company.                 |                         
|These transactions are discussed further in Note D. The acquired       |                         
|assets and liabilities were as follows:                                |                         
|Current assets increased by                                            |                         
|Noncurrent assets increased by                                         |                         
|Goodwill increased by                                                  |                         
|Current liabilities increased by                                       |                         
|Minority interest decreased by                                         |                         

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

|A-9
|---



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

A.    ORGANIZATION AND OPERATION
 OF THE COMPANY

|Prime Medical Services, Inc. (Prime, we, us,
 our, and the Company), is a specialty healthcare provider of lithotripsy services and is a manufacturer
 of trailers and coaches for transporting high technology medical devices, equipment designed for mobile
 command and control centers and the broadcast and communications industry. During 2002, we completed
 our divestiture from the refractive vision correction industry.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We are headquartered in Austin, Texas and provide lithotripsy
 services in 26 states. Our manufacturing segment is headquartered in Harvey, Illinois with additional
 manufacturing operations in Calumet City, Illinois; Sanford, Florida; Clearwater, Florida; Oud Bierjland,
 Holland; Carlisle, Pennsylvania and Riverside, California. We also operate a service and sales facility
 in Camberley, England, and a sales office in Beijing, China.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES

Consolidation

|The consolidated financial statements include the accounts
 of Prime, our wholly-owned subsidiaries, and entities more than 50% owned and limited partnerships where
 we, as the general partner, exercise effective control, even though our ownership is less than 50%.
 The related partnership agreements provide for broad powers by the general partner. The limited partners
 do not participate in the management of the partnership and do not have the right to remove the general
 partner without the unanimous vote of the limited partners. Investments in entities in which our investment
 is less than 50% ownership and we do not have significant control, are accounted for by the equity method
 if ownership is between 20%  50%, or by the cost method if ownership is less than 20%. Through December
 31, 2003, we had received approximately $323,000 in distributions in excess of our earnings recorded
 using the equity method. All significant intercompany accounts and transactions have been eliminated.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Equivalents

|We consider as cash equivalents demand deposits and
 all short-term investments with a maturity at date of purchase of three months or less.
|--------------------------------------------------------------------------------------------------------------------------------------------

Investments

|We classify our investments in debt and equity securities
 as trading securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
 Accounting for Certain Investments in Debt and Equity Securities. Trading securities are reported at
 fair value, with unrealized gains and losses included in earnings. The change in net unrealized holding
 gain or loss on trading securities was not material for the years ended December 31, 2003 and 2002.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-10
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES (continued)

Property and Equipment

|Property and equipment are stated at cost. Major betterments
 are capitalized while normal maintenance and repairs are charged to operations. Depreciation is computed
 by the straight-line method using estimated useful lives of three to twenty years. Leasehold improvements
 are generally amortized over ten years or the term of the lease, whichever is shorter. When assets are
 sold or retired, the corresponding cost and accumulated depreciation or amortization are removed from
 the related accounts and any gain or loss is credited or charged to operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Goodwill and Other Intangible Assets

|We record as goodwill the excess of the purchase price
 over the fair value of the net assets associated with acquired businesses. As of January 1, 2002, goodwill
 and intangible assets with indefinite useful lives are no longer amortized, but instead are tested for
 impairment at least annually. Intangible assets with definite useful lives are amortized over their
 respective estimated useful lives to their estimated residual values. Prior to January 1, 2002, goodwill
 was amortized using the straight-line basis over a period not to exceed thirty years for the manufacturing
 segment, twenty-five years for the refractive segment and forty years for the lithotripsy segment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue Recognition

|Our lithotripsy fee revenues are based upon fees charged
 for services to hospitals, commercial insurance carriers, state and federal health care agencies, and
 individuals, net of contractual fee reductions. Revenues generated from management services are recognized
 as the related management services are provided. Our refractive revenues were based on fees charged
 for services to individuals or commercial insurance carriers, net of contractual fee reductions.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Revenues from the manufacture of trailers are primarily
 recognized under the completed contract method. Prior to 2001, a unit in the production cycle almost
 always had a specific sales contract signed prior to the start of the manufacturing process. Revenue
 was recognized for these units on the percentage of completion method. We did occasionally have excess
 production capacity, which would allow for production of a limited number of units to begin prior to
 a signed contract. These limited numbers of units were accounted for on the completed contract method.
 Beginning in 2001, more units were placed into production prior to entering into actual sales contracts.
 A sales contract is often signed during the latter part of the production cycle. The use of the completed
 contract method became prevalent with the acquisition of Calumet in May, 2001, which more than doubled
 our production capacity.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Major Customers and Credit Concentrations

|For the year ending December 31, 2003, a significant
 portion of our manufacturing revenues are from nine customers. Sales to these nine customers accounted
 for 30% of 2003 manufacturing revenue. For the year ending December 31, 2002, a significant portion
 of our manufacturing revenues were from six customers. Sales
 to these six customers accounted for 27% of 2002 manufacturing revenue. One customer accounted for 10%
 of revenue in both 2003 and 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-11
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES (continued)

|Concentrations of credit risk with respect to receivables
 are limited due to the wide variety of customers, as well as their dispersion across many geographic
 areas. Other than as disclosed below, we do not consider ourself to have any significant concentrations
 of credit risk. At December 31, 2003, approximately 5% of accounts receivable relate to units operating
 in Texas, 3% relate to units located in Louisiana, 3% relate to units operating in Virginia, and 3%
 relate to units located in California. At December 31, 2002, approximately 6% of accounts receivable
 relate to units operating in Texas, 4% relate to units located in Louisiana, 3% relate to units located
 in Virginia, and 4% relate to units located in California.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income Tax

|Deferred tax assets and liabilities are recognized
 for the future tax consequences attributable to differences between the financial statement carrying
 amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
 credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
 to apply to taxable income in the years in which those temporary differences are expected to be recovered
 or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
 in income in the period that includes the enactment date.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Long-Lived Assets

|Long-lived assets are reviewed for impairment whenever
 events or changes in circumstances indicate that the carrying amount may not be recoverable. If the
 sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a
 loss is recognized, for the difference between the fair value and carrying value of the asset.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accounts Receivable

|Accounts receivable are recorded based on revenues,
 net of contractual fee reductions and less an estimated allowance for doubtful accounts.
|---------------------------------------------------------------------------------------------------------------------------------------------

Inventory

|Inventory is stated at the lower of cost or market.
 Cost is determined using the average cost method. Certain components that meet our manufacturing requirements
 are only available from a limited number of suppliers. The inability to obtain components as required
 or to develop alternative sources, if and as required in the future, could result in delays or reduction
 in product shipments, which in turn could have a material adverse effect on our manufacturing business,
 financial condition and results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-12
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES (continued)

Stock-Based Compensation

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

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

|                                    | 2003 | 2002 | 2001
|----------------------------------- | ---- | ---- | ----
|Net income (loss), as reported      |      |      | $   
|Stock-based employee compensation   |      |     
|expense, net of tax                 |      |      |     
|                                    |      |      |     
|Pro forma net income (loss)         |      |      | $   
|Pro forma earning (loss) per share: |      |     
|Basic                               |      |      | $   
|Diluted                             |      |      | $   

Debt Issuance Costs

We expense debt issuance costs as incurred.

Estimates Used to Prepare Consolidated Financial
 Statements

|Management uses estimates and assumptions in preparing
 financial statements in accordance with generally accepted accounting principles in the United States
 of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the
 disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results
 could vary from the estimates that were assumed in preparing the consolidated financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reclassification

|Certain reclassifications have been made to amounts
 presented in previous years to be consistent with the 2003 presentation.
|-----------------------------------------------------------------------------------------------------------------------------

|A-13
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES (continued)

Product Warranties

|The Company generally warrants its manufacturing products
 against certain manufacturing and other defects. These product warranties are provided for specific
 periods of time usually less than one year depending on the nature of the product, the geographic location
 of its sale and other factors. As of December 31, 2003 and 2002, the Company had less than $1 million
 accrued for estimated product warranty claims. The accrued product warranty costs are based on historical
 experience of actual warranty claims as well as current information on repair costs. Warranty claims
 expense for each of the years 2003, 2002, and 2001 was less than $500,000.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Earnings Per Share

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

|(In thousands, except per share data) | Net(Loss)Income | No. ofShares | Per ShareAmounts
|------------------------------------- | --------------- | ------------ | ----------------
|                                     
|For the year ended December 31, 2003  |                 |              |                 
|Basic                                 |                 |              | $               
|                                      |                 |              |                 
|Effect of dilutive securities:        |                 |             
|Options and warrants                  |                 |              |                 
|                                      |                 |              |                 
|Diluted                               |                 |              | $               
|                                      |                 |              |                 
|For the year ended December 31, 2002  |                 |             
|Basic                                 |                 |              | $               
|                                      |                 |              |                 
|Effect of dilutive securities:        |                 |             
|Options and warrants                  |                 |              |                 
|                                      |                 |              |                 
|Diluted                               |                 |              | $               
|                                      |                 |              |                 
|For the year ended December 31, 2001  |                 |             
|Basic                                 |                 |              | $               
|                                      |                 |              |                 
|Effect of dilutive
securities:        |                 |             
|Options and warrants                  |                 |              |                 
|                                      |                 |              |                 
|Diluted                               |                 |              | $               
|                                      |                 |              |                 

|Unexercised employee stock options and warrants to
 purchase 2,772,000, 731,000 and 2,462,000 shares of our common stock as of December 31, 2003, 2002 and
 2001, respectively, were not included in the computations of diluted EPS because the exercise prices
 were greater than the average market price of our common stock during the respective periods or because
 the effect of including the contingently issuable options would decrease the loss per share for 2001.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-14
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

B.    SUMMARY OF SIGNIFICANT
 ACCOUNTING POLICIES (continued)

Recently Issued Pronouncements

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

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

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

C.    GOODWILL AND OTHER INTANGIBLE
 ASSETS

|We adopted SFAS No. 142 Goodwill and Other Intangible
 Assets effective January 1, 2002. Under this standard, we no longer amortize goodwill and indefinite
 life intangible assets, but those assets are subject to annual impairment tests. Other intangible assets
 with finite lives consisted primarily of non-compete agreements, hospital contracts and patents at December
 31, 2003 and 2002 and we have included them as other noncurrent assets in the accompanying consolidated
 balance sheets. The agreements will continue to be amortized over their useful lives.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-15
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

C.    GOODWILL AND OTHER INTANGIBLE
 ASSETS (continued)

|In accordance with SFAS 142, we did not restate prior
 period amounts. A reconciliation of the previously reported net income and earnings per share fiscal
 year 2001, adjusted for the reduction of amortization expense, net of the related income tax effect,
 is as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the year ended December 31, 2001

|($ in thousands, except per share data) | Net (Loss) | Basic EPS | Diluted EPS
|--------------------------------------- | ---------- | --------- | -----------
|Reported net (loss)                     |            |           | $          
|Add: amortization adjustment            |            |           |            
|                                        |            |           |            
|Adjusted net (loss)                     |            |           | $          
|                                        |            |           |            

|The net carrying value of goodwill as of December 31, 2003 is comprised of the following:
|-----------------------------------------------------------------------------------------

|                          | Total | Lithotripsy | Manufacturing | RVC    
|------------------------- | ----- | ----------- | ------------- | -------
|Balance December 31, 2001 |       |             | $             | 151,687
|Additions                 |       |             |               | 20,726 
|Deletions                 |       |             |               | (10,630
|                          |       |             |               |        
|Balance December 31, 2002 |       |             |               | 161,783
|Additions                 |       |             |               | 16,191 
|Deletions                 |       |             |               | --     
|                          |       |             |               |        
|Balance December 31, 2003 |       |             | $             | 177,974
|                          |       |             |               |        
|                          |       |            

|Other intangible assets as of December 31, 2003, subject to amortization expense, are comprised of the
 following:
|------------------------------------------------------------------------------------------------------------------

|                                     | Gross CarryingAmount | AccumulatedAmortization | Net
|------------------------------------ | -------------------- | ----------------------- | ---
|For the year ended December 31, 2003 |                      |                         |    
|Lithotripsy                          |                      |                         | $  
|Manufacturing                        |                      |                         |    
|                                     |                      |                         |    
|Total                                |                      |                         | $  
|                                     |                      |                         |    
|For the year ended December 31, 2002 |                      |                        
|Lithotripsy                          |                      |                         | $  
|Manufacturing                        |                      |                         |    
|                                     |                      |                         |    
|Total                                |                      |                         | $  
|                                     |                      |                         |    

|Amortization expense for other intangible assets with finite lives was $453,000 and $559,000 for the
 years ended December 31, 2003 and 2002, respectively. We estimate annual amortization expense for each
 of the five succeeding fiscal years as follows
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year |  |      | Amount
| | ---- |  | ---- | ------
| |      |  | 2004 |       
| |      |  | 2005 |       
| |      |  | 2006 |       
| |      |  | 2007 |       
| |      |  | 2008 |       

|A-16
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

D.    ACQUISITIONS

|Effective January 1, 2003, we acquired Aluminum Body
 Corporation (ABC). The acquisition of ABC extends our position in the manufacture of command and control
 vehicles for the Homeland Security and military and government markets. Additionally, the combination
 provides an important west coast hub for the service and sale of all of the products manufactured within
 our manufacturing group. Founded in 1945, ABCs military and government vehicle manufacturing activity
 is long standing. ABC constructs specialty vehicles, shelters and trailers for early warning missile
 defense systems, mobile training centers for Boeings Apache and Comanche helicopter systems and various
 classified programs. ABC is also a recognized leader in the manufacture of expandable production trailers
 for the broadcast and communications industry. The aggregate purchase price was approximately $8.6 million
 comprised of $7.5 million in cash and $1.1 million of our common stock. We determined the value of our
 common stock issued by using an average closing price for the two trading days prior to and after the
 closing date of the purchase agreement. Approximately 150,000 shares were issued. We could pay an additional
 $4.7 million over the next four years comprised of $3.5 million in cash, which was deposited into an
 escrow account at closing, and $1.2 million in common stock in the event that certain objectives are
 met. In 2003, we released from escrow $2.5 million related to a portion of these items. We recognized
 $10.2 million of goodwill related to this transaction, $2.5 million of which is tax deductible.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Effective February 7, 2003, we acquired Winemiller
 Communications (Winemiller). Winemiller provides turnkey remanufacturing and refurbishing of specialty
 vehicles utilized by the broadcast community and is a recognized leader in the application of microwave
 technology solutions. The companys clients include NBC, ABC, CBS, Fox, Gannett, Cox Communications
 and McGraw-Hill. Winemillers Solutions Group has been a mainstay consultant to the Summer and Winter
 Olympic Games since 1988 and has provided technology support for the Tour de France, the Goodwill Games,
 and other challenging broadcast events for the past several years. The aggregate purchase price was
 approximately $5.5 million comprised of $3.6 million in cash and $1.8 million of our common stock. We
 determined the value of our common stock issued by using an average closing price for the two trading
 days prior to and after the date of the purchase agreement. Approximately 244,000 shares were issued.
 We paid an additional $500,000 in February 2004 comprised of $48,000 in cash and $452,000 in common
 stock since certain objectives as defined in the purchase agreement were met. We recognized $5.4 million
 of goodwill related to this transaction, which is not tax deductible.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Effective May 31, 2002, we acquired the assets and
 certain liabilities of Frontline Communications Corporation (Frontline). Frontline is a leading manufacturer
 and integrator of custom vehicles exclusively for the broadcast and communications industry with annualized
 sales at the date of acquisition of approximately $20 million (unaudited). This acquisition expands
 our market share in the broadcast and communications industry and provides opportunities for combination
 synergy with our existing manufacturing operations. The aggregate purchase price was approximately $12.8
 million, comprised of approximately $10.1
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-17
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

D.    ACQUISITIONS (continued)

|million in cash and $2.7 million of our common stock.
 We determined the number of shares of our common stock to be issued by using an average closing price
 of our common stock over the ten trading days ending 5 days prior to May 31, 2002. Approximately 300,000
 shares were issued. We recognized approximately $12 million of goodwill related to this transaction,
 which is all tax deductible.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Also effective May 31, 2002, we acquired the remaining
 20% ownership interest in our manufacturing subsidiary, AK Specialty Vehicles. The aggregate purchase
 price was approximately $8.2 million comprised of $1.8 million in cash and $6.4 million of our common
 stock. We determined the number of shares of our common stock to be issued by using an average closing
 price for the twenty trading days ending five days prior to the date of the Purchase Agreement. Approximately
 730,000 shares were issued. We recognized $4.5 million of goodwill related to this transaction, which
 is all tax deductible.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Effective July 1, 2002, we acquired Holland-based Smit
 Mobile Equipment Company, a leading European manufacturer of mobile medical imaging vehicles, with annualized
 sales at the date of acquisition of approximately $9 million (unaudited). This acquisition expands our
 presence in the global marketplace as a manufacturer of specialty vehicles, strengthens our strategic
 position to participate in the growing European market for high technology mobile medical imaging and
 broadcast and communication vehicles. Under the terms of the acquisition, we paid $3.5 million in cash
 and issued 20,900 shares of our common stock valued at $210,000. Additionally, we could pay an additional
 $1.7 million in common stock in the event that certain profitability objectives are met over the following
 two years. We recognized approximately $4 million of goodwill related to this transaction, which is
 not tax deductible.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Unaudited proforma combined income data for the years
 ended December 31, 2003 and 2002 of the Company assuming the acquisitions were effective January 1,
 2002 is as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands, except per share data) | 2003 | 2002
|--------------------------------------- | ---- | ----
|                                       
|Total revenues                          |      |     
|Total expenses                          |      |     
|                                        |      |     
|Net income                              |      |     
|                                        |      |     
|Diluted earnings per share              |      |     
|                                        |      |     

|A-18
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

E.    FAIR VALUE OF FINANCIAL
 INSTRUMENTS

|The carrying amounts and estimated fair values of our
 significant financial instruments as of December 31, 2003 and 2002 are as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------

|                            | 2003 | 2002
|--------------------------- | ---- | ----
|
|Financial assets:           |      |     
|Cash and cash equivalents   |      |     
|Financial
 liabilities:     |      |     
|Debt                        |      |     
|Other long-term obligations |      |     

|The following methods and assumptions were used by
 us in estimating our fair value disclosures for financial instruments.
|--------------------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents

|The carrying amounts for cash and cash equivalents
 approximate fair value because they mature in less than 90 days and do not present unanticipated credit
 concerns.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Debt

|The fair value at December 31, 2003 and 2002 for the
 $100 million fixed rate senior subordinated notes was valued using the market rate of 9.04% and 10.67%,
 respectively. The carrying value of the debt bearing interest at prime rate approximates fair value.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Long-Term Obligations

|Other long-term obligations include stock repurchase
 agreements totaling $422,000, which have been valued using the Black-Scholes option pricing model and
 $975,000 relating to non-compete agreement payable to one of the former owners of ABC for $75,000 per
 quarter. This agreement has been valued at discounted present value using our current incremental borrowing
 rate.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Limitations

|Fair value estimates are made at a specific point in
 time, based on relevant market information and information about the financial instrument. Fair value
 estimates are based on existing balance sheet financial instruments without attempting to estimate the
 value of anticipated future business and the value of assets and liabilities that are not considered
 financial instruments. In addition, the tax ramifications related to the realization of the unrealized
 gains and losses can have a significant effect on fair value estimates and have not been considered
 in the aforementioned estimates.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-19
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

F.    ACCRUED EXPENSES

Accrued expenses consist of the following:

| |  | December 31,
| |  | ------------
|
|
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             
| |  |             

G.    INDEBTEDNESS

Long-term debt is as follows:

| |  |  | December 31,                           
| |  |  | ---------------------------------------
|
|
| |  |  | 8.75%                                  
| |  |  | Floating                               
| |  |  | None                                   
| |  |  | 5%-11%                                 
| |  |  |                                        
| |  |  |                                        
| |  |  | Less current portion of long-term
 debt
| |  |  |                                        
| |  |  |                                        
| |  |  |                                        

|In March 1998, we completed an offering of an aggregate
 $100 million of unsecured senior subordinated notes (the Notes) due 2008. The issue price of the notes
 was 99.50 with an 8.75% coupon. Interest is payable semi-annually on April 1 and October 1, beginning
 October 1, 1998.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Notes Indenture Agreement restricts, among other
 things, both our and our Restricted Subsidiaries ability to incur additional indebtedness and issue
 preferred stock, enter into sale and leaseback transactions, incur liens, pay dividends or make certain
 other restricted payments, apply net proceeds from certain asset sales, enter into certain transactions
 with affiliates, merge or consolidate with any other person, sell stock of subsidiaries and assign,
 transfer, lease, convey or otherwise dispose of substantially all of our assets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In August 2002, we entered into an interest rate swap
 which is designated as a fair value hedge pursuant to the provisions of SFAS No. 133, Accounting for
 Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments
 and Certain Hedging Activities, An Amendment of FASB Statement No. 133. This swap was executed to convert
 $50 million of the 8.75% notes from a fixed to floating rate instrument. The floating rate is based
 on LIBOR plus 4.56%. In March 2003, we amended our interest rate swap agreement to add an additional
 $25 million with a floating rate based on LIBOR plus 5.11%. We terminated these swaps in May 2003. Approximately
 $1.2 million in proceeds
from the swaps was capitalized and will be amortized
 as a reduction to future interest expense over the remaining life of the 8.75% notes. In August 2003,
 we entered into two new interest rate swaps for $25 million each which are designated as fair value
 hedges. These swaps were executed to convert $50 million of the 8.75% notes from a fixed to floating
 rate instrument. The floating rates of the two interest rate swap agreements are based on LIBOR plus
 4.72% and 4.97%, respectively. The fair market value at December 31, 2003 and 2002 was $237,000 and
 $1,521,000, respectively. In January 2004, we terminated these swaps for approximately $150,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-20
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

G.    INDEBTEDNESS (continued)

|We have a $50 million revolving credit facility bearing
 interest of LIBOR + 1 to 2%, maturing in July 2005. At December 31, 2003 and 2002, we had drawn $3 million
 and $9.5 million on the revolving credit facility, respectively. At December 31, 2003 and 2002, interest
 on our revolving credit facility was 6% and 4.91%, respectively. Our assets and the stock of our subsidiaries
 collateralize the revolving credit facility. At December 31, 2003, we were not in compliance with all
 covenants related to this credit facility. We received a waiver of this noncompliance from the lenders
 under our facility.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The stated principal repayments for all indebtedness
 as of December 31, 2003 are payable as follows:
|-----------------------------------------------------------------------------------------------------

($
 in thousands)

| | Year       | Amount
| | ---------- | ------
| | 2004       |       
| | 2005       |       
| | 2006       |       
| | 2007       |       
| | 2008       |       
| | Thereafter |       

|In July 2003, we entered into a letter agreement with
 each of two previous minority interest owners of one of our subsidiaries, AK Specialty Vehicles. 
 Under these two letter agreements, each minority interest owner is entitled to require that we repurchase
 up to approximately 365,000 shares (for a total of approximately 730,000 shares) of our common stock
 that we issued in connection with our repurchase of their interests in AK Specialty Vehicles. 
 Each minority interest owners right to require a repurchase of his shares can only be exercised in
 three equal increments of roughly 121,360 shares in July of 2003, June of 2004 and June of 2005 at per
 share purchase prices of $7.05, $7.12 and $7.19, respectively.  Both individuals exercised their
 right to require repurchase in July of 2003 and, consequently, we purchased 242,716 shares under these
 letter agreements for approximately $1.7 million. We recorded $1.2 million to treasury stock based on
 the closing price of our stock on the date of repurchase and the remaining $498,000 was recorded as
 compensation costs. The remaining obligations under these agreements are accounted for in accordance
 with Statement of Financial Accounting Standards (SFAS) No. 150 and resulted in an estimated liability
 and related compensation costs of approximately $850,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-21
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

G.    INDEBTEDNESS (continued)

|Other long term obligations, net of current portions
 totaling $953,000, include $975,000 related to payments to the previous owner of ABC for $75,000 per
 quarter until March 31, 2008 and $422,000 related to the estimated fair values of puts as discussed
 above.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

H.    COSTS OF SERVICES AND
 GENERAL AND ADMINISTRATIVE EXPENSES

|Costs of services and general and administrative expenses
 consist of the following:
|------------------------------------------------------------------------------------

|                             | Years Ended December 31,
|---------------------------- | ------------------------
|
|                            
|Salaries, wages and benefits |                         
|Other costs of
services      |                         
|General and administrative   |                         
|Legal and professional       |                         
|Manufacturing costs          |                         
|Advertising                  |                         
|Impairment and other         |                         
|costs (see Note K.)          |                         
|Other                        |                         
|                             |                         
|                             |                         
|                             |                         

I.    COMMITMENTS AND CONTINGENCIES

|We are involved in various claims and legal actions
 that have arisen in the ordinary course of business. Management believes that any liabilities arising
 from these actions will not have a material adverse effect on our financial condition, results of operations
 or cash flows.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We sponsor a partially self-insured group medical insurance
 plan. The plan is designed to provide a specified level of coverage, with stop-loss coverage provided
 by a commercial insurer. Our maximum claim exposure is limited to $35,000 per person per policy year.
 At December 31, 2003, we had 280 employees enrolled in the plan. The plan provides non-contributory
 coverage for employees and contributory coverage for dependents. Our contributions totaled $1,373,000,
 $1,170,000 and $1,433,000, in 2003, 2002 and 2001 respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During the first quarter of 2002, we made loans totaling
 approximately $975,000 to 12 members of management. The loans bear interest at 6.5% and require annual
 payments of principal and interest due April 1 of each year. All of the loans are current.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In 2000, 147,000 options were exercised with exercise
 prices of $.25 and $.56 in conjunction with the establishment of a deferred compensation plan. The related
 common stock was held in the deferred compensation plan. We had a related deferred compensation liability
 of $1,168,000 recorded on the accompanying consolidated balance sheets. This plan was terminated during
 the first quarter of 2002. We satisfied the related deferred compensation liability through the issuance
 of treasury stock, which we had previously held in the deferred compensation plan.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-22
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

J.    COMMON STOCK OPTIONS AND
 WARRANTS

1993 Stock Option Plan

|On October 12, 1993, we adopted the 1993 Stock Option
 Plan which authorized, as amended to grant of up to 4,550,000 shares to certain of our key employees,
 directors, and consultants and advisors. Options granted under the 1993 Stock Option Plan shall terminate
 no later than ten years from the date the option is granted, unless the option terminates sooner by
 reason of termination of employment, disability or death. In October 2003, this plan expired.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A summary of our stock option activity, and related
 information for the years ended December 31, follows:
|----------------------------------------------------------------------------------------------------------

|                           | 2003 | 2002 | 2001
|-------------------------- | ---- | ---- | ----
|
|Outstanding-beginning      |      |      |     
|of year                    |      |      |     
|Granted                    |      |      |     
|Exercised                  |      |      |     
|Cancelled                  |      |      |     
|                           |      |      |     
|Outstanding-end of year    |      |      |     
|                           |      |      |     
|Exercisable at end of year |      |      |     
|                          
|Weighted-average fair      |      |     
|value of options           |      |     
|granted during the year    |      |      | $   

|The following table summarizes our outstanding options
 at December 31, 2003:
|-----------------------------------------------------------------------------

|               |  | Outstanding Options | Exercisable Options
|-------------- |  | ------------------- | -------------------
|
|              
|$4.49 - $6.25  |  |                     |                    
|$6.26 - $7.50  |  |                     |                    
|$7.51 - $7.81  |  |                     |                    
|$7.82 - $10.70 |  |                     |                    
|               |  |                     |                    
|Total          |  |                     | 2,522              
|               |  |                     |                    

|A-23
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

J.    COMMON STOCK OPTIONS AND
 WARRANTS (continued)

|Proforma information regarding net income and earnings
 per share is required by Statement 123, and has been determined as if we had accounted for our employee
 stock options under the fair value method of that Statement. The fair value for these options was estimated
 at the date of grant using a Black-Scholes option pricing model with the following weighted-average
 assumptions for 2003, 2002 and 2001, respectively: risk-free interest rates of 2.3%, 3.9% and 4.5%;
 dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of our common stock
 of .43, .43 and .39; and a weighted-average expected life of the option of 4 years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Black-Scholes option valuation model was developed
 for use in estimating the fair value of traded options which have no vesting restrictions and are fully
 transferable. In addition, option valuation models require the input of highly subjective assumptions
 including the expected stock price volatility. Because our employee stock options have characteristics
 significantly different from those of traded options, and because changes in the subjective input assumptions
 can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily
 provide a reliable single measure of the fair value of our employee stock options.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As of December 31, 2003, we had issued warrants to
 purchase approximately 410,000 shares of common stock to third parties. The exercise prices of the warrants
 range from $4.32 to $10.38 per share. There were 100,000 warrants issued during 2001 for consulting
 services, and there were 310,000 warrants issued during 2000 in conjunction with the refractive acquisitions.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

K.    IMPAIRMENT AND OTHER COSTS,
 NET

|During the third quarter of 2002, we substantially
 completed our exit from the RVC business by transferring our interests in the centers back to our physician
 partners. In connection with these transactions, which were either completed in the third quarter or
 shortly thereafter, we recognized an impairment on the related assets totaling approximately $17 million
 in the accompanying consolidated statements of income. This impairment included approximately $11 million
 of goodwill and $3 million of non-compete agreements. The total consideration received was approximately
 $4 million, which included $3 million of notes receivable to be repaid over the next three years. Additionally,
 we recognized an impairment related to certain lithotripsy assets in south Florida due to a loss of
 the related revenue contract.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In accordance with Statement of Financial Accounting
 Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
 Disposed Of, long-lived assets which management has both the ability and intent to remove from service
 are reported in the financial statements at the lower of carrying amount or fair value less costs to
 sell. In February 2002, we announced our intentions to divest our RVC operations in order to focus our
 resources towards greater growth opportunities in our manufacturing and lithotripsy businesses. Accordingly,
 as of December 31, 2001, we recognized an estimated impairment of approximately $21.6 million to goodwill,
 along with an actual loss of $4.4 million on the transfer of our Kansas City RVC center, to adjust the
 RVC segment net assets to fair value less
the estimated cost to sell. This impairment and loss
 was calculated based on the estimated future cash flows of the respective RVC centers.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-24
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

K.    IMPAIRMENT AND OTHER COSTS,
 NET (continued)

|Additionally, during the fourth quarter of 2001, we
 recognized an impairment totaling $3.8 million related to certain lithotripsy assets acquired in the
 mid-1990s. This impairment consists of a $1.8 million impairment to goodwill for a lithotripsy partnership
 acquired in 1997 which lost the majority of its service contracts during 2001, an $800,000 loss on the
 closing or sale of several other lithotripsy partnerships and a $1.2 million impairment on certain lithotripsy
 units that have been removed from service. The customers of these units are primarily being serviced
 by other equipment.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In the fourth quarter of 2001, we recognized an increase
 in reserves on lithotripsy receivables of approximately $3.8 million, net of the related minority interest
 portion of the increased reserves of $8.2 million. The increase in reserves on certain lithotripsy receivables
 is based on certain negotiated settlements with hospitals and on additional information now available
 from a full years operations of our new practice management system, which was placed in service in
 late 2000.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In 2001, we also accrued $2.5 million for the severance
 of certain contractual obligations related to two retiring members of management. In 2003 and 2002,
 $2.1 million of this amount was paid. The remaining $400,000 will be paid equally over the next two
 years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

L.    INCOME TAXES

|We file a consolidated tax return with our wholly-owned
 subsidiaries. A substantial portion of consolidated income is not taxed at the corporate level as it
 represents income from partnerships. Accordingly, only the portion of income from these partnerships
 attributable to our ownership interests is included in taxable income in the consolidated tax return
 and financial statements. The minority interest portion of this income is the responsibility of the
 individual partners.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income tax (benefit) expense consists of the following:

|         | Years Ended December 31,
|-------- | ------------------------
|
|Federal: |                         
|Current  |                         
|Deferred |                         
|State    |                         
|         |                         
|         |                         
|         |                         

|A-25
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

L.    INCOME TAXES (continued)

|A reconciliation of expected income tax (computed by
 applying the United States statutory income tax rate of 35% to earnings (loss) before income taxes)
 to total income tax (benefit) expense in the accompanying consolidated statements of income follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Years Ended December 31,
|--------------------------- | ------------------------
|
|                           
|Expected federal income tax |                         
|State
taxes                 |                         
|Other                       |                         
|                            |                         
|                            |                         
|                            |                         

|The tax effects of temporary differences that give
 rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
 2003 and 2002 are presented below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                        | 2003 | 2002
|--------------------------------------- | ---- | ----
|                                       
|Deferred tax assets:                    |      |     
|Capital and ordinary loss carryforwards |      |     
|Impairment charges not yet deductible   |      |     
|for tax purposes                        |      |     
|Capitalized costs                       |      |     
|Loan origination fees amortizable for   |      |     
|tax purposes                            |      |     
|Other                                   |      |     
|Accrued expenses deductible for tax     |      |     
|purposes when paid                      |      |     
|                                        |      |     
|Total gross deferred tax assets         |      |     
|Less valuation allowance                |      |     
|                                        |      |     
|Net deferred tax
assets                 |      |     
|                                        |      |     
|Deferred tax liabilities:               |      |     
|Property and equipment, principally due |      |     
|to differences in depreciation          |      |     
|Investments in affiliated entities,     |      |     
|principally due to undistributed income |      |     
|Intangible assets, principally due to   |      |     
|differences in amortization periods     |      |     
|for tax purposes                        |      |     
|                                        |      |     
|Total gross deferred tax liability      |      |     
|                                        |      |     
|Net deferred tax liability              |      |     
|                                        |      |     

|A-26
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

L.    INCOME TAXES (continued)

|At December 31, 2003, we have a federal tax net operating
 loss carryforward of approximately $5.1 million, which is available to offset federal taxable income
 in future years through 2023. We also have state tax net operating loss carryforwards totaling approximately
 $19.5 million to offset future state taxable income through 2013. In addition, we have capital loss
 carryforwards totaling $13.8 million, which begin to expire in 2006.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|There is no valuation allowance for deferred tax assets
 at December 31, 2003 and 2002.
|---------------------------------------------------------------------------------------

|In assessing the realizability of deferred tax assets,
 management considers whether it is more likely than not that some portion or all of the deferred tax
 assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
 of future taxable income during the periods in which those temporary differences become deductible.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Management considers the scheduled reversal of deferred
 tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------

|Based upon the level of historical taxable income and
 projections for future taxable income over the periods in which the deductible temporary differences
 reverse, management believes it is more likely than not we will realize the benefits of these deductible
 differences at December 31, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

M.    SEGMENT REPORTING

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

|The accounting policies of the segments are the same
 as those described in Note B, Summary of Significant Accounting Policies. We measure performance based
 on the pretax income or loss after consideration of minority interests from our operating segments,
 which do not include unallocated corporate general and administrative expenses and corporate interest
 income and expense. Additionally, certain consolidated entities that are reported as corporate own
 and operate lithotripsy equipment. The revenue and depreciation expense related to this equipment is
 included in the lithotripsy segment. However, the equipment is included in corporate assets.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our segments are divisions that offer different services,
 and require different technology and marketing approaches. The majority of the lithotripsy segment is
 comprised of acquired entities, as is the manufacturing segment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-27
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

M.    SEGMENT REPORTING
 (continued)

|Substantially all of our revenues are earned in the
 United States and long-lived assets are located in the United States. We do not have any major customers
 who account for more than 10% of our revenues.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)      | Lithotripsy | Manufacturing | Refractive
|--------------------- | ----------- | ------------- | ----------
|                     
|2003                  |             |               |           
|                     
|Revenue from          |             |              
|external customers    |             |               | $         
|Intersegment revenues |             |               |           
|Interest income       |             |               |           
|Interest expense      |             |               |           
|Depreciation and      |             |              
|amortization          |             |               |           
|Segment profit        |             |               |           
|Segment assets        |             |               |           
|Investment in         |             |              
|equity method         |             |              
|investees             |             |               |           
|Capital expenditures  |             |               |           
|                     
|2002                  |             |               |           
|Revenue from          |             |              
|external customers    |             |               | $         
|Intersegment revenues |             |               |           
|Interest income       |             |               |           
|Interest expense      |             |               |           
|Depreciation
 and     |             |              
|amortization          |             |               |           
|Segment profit        |             |               |           
|Segment assets        |             |               |           
|Investment in         |             |              
|equity method         |             |              
|investees             |             |               |           
|Capital expenditures  |             |               |           

|A-28
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

M.    SEGMENT REPORTING
 (continued)

|($ in thousands)      | Lithotripsy | Manufacturing | Refractive
|--------------------- | ----------- | ------------- | ----------
|                     
|2001                  |             |               |           
|Revenue from          |             |              
|external customers    |             |               | $         
|Intersegment revenues |             |               |           
|Interest income       |             |               |           
|Interest expense      |             |               |           
|Depreciation and      |             |              
|amortization          |             |               |           
|Segment profit        |             |               |           
|Segment assets        |             |               |           
|Investment in         |             |              
|equity method         |             |              
|investees             |             |               |           
|Capital expenditures  |             |               |           

|The following is a reconciliation of revenues per above
 to the consolidated revenues per the consolidated statements of income:
|--------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                       | 2003 | 2002 | 2001
|-------------------------------------- | ---- | ---- | ----
|                                      
|Total revenues for reportable segments |      |      | $   
|Corporate revenue                      |      |      |     
|Elimination of intersegment revenues   |      |      |     
|                                       |      |      |     
|Total
consolidated revenues            |      |      | $   
|                                       |      |      |     

|A-29
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

M.    SEGMENT REPORTING
 (continued)

|The following is a reconciliation of profit (loss)
 per above to income before taxes per the consolidated statements of income:
|-------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                            | 2003 | 2002 | 2001
|------------------------------------------- | ---- | ---- | ----
|                                           
|Total profit (loss) for reportable segments |      |      | $   
|Corporate revenue                           |      |      |     
|Unallocated corporate expenses:             |      |     
|General and
administrative                  |      |      |     
|Net interest expense                        |      |      |     
|Loan fees                                   |      |      |     
|Nonrecurring development and other costs    |      |      |     
|Other, net                                  |      |      |     
|                                            |      |      |     
|Unallocated corporate expenses total        |      |      |     
|                                            |      |      |     
|Income (loss) before income taxes           |      |      | $   
|                                            |      |      |     

|The following is a reconciliation of segment assets
 per above to the consolidated assets per the consolidated balance sheets:
|------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                     | 2003 | 2002 | 2001
|------------------------------------ | ---- | ---- | ----
|                                    
|Total assets for reportable segments |      |      | $   
|Unallocated corporate assets         |      |      |     
|                                     |      |      |     
|Consolidated total                   |      |      | $   
|                                     |      |      |     

|A-30
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

M.    SEGMENT REPORTING
 (continued)

|The reconciliation of the other significant items to
 the amounts reported in the consolidated financial statements is as follows:
|----------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)       | Segments | Corporate | EliminatingEntries | Consolidated
|---------------------- | -------- | --------- | ------------------ | ------------
|                      
|2003                   |          |           |                    |             
|                       |          |           |                    |             
|Interest and dividends |          |           | $                  | 111         
|Interest expense       |          |           |                    | 521         
|Depreciation and       |          |          
|amortization           |          |           |                    | 6,278       
|Capital expenditures   |          |           |                    | 5,196       
|                      
|2002                   |          |           |                    |             
|                       |          |           |                    |             
|Interest and dividends |          |           | $                  | 107         
|Interest expense       |          |           |                    | 522         
|Depreciation and       |          |          
|amortization           |          |           |                    | 6,197       
|Capital expenditures   |          |           |                    | 5,875       
|                      
|2001                   |          |           |                    |             
|                       |          |           |                    |             
|Interest and dividends |          |           | $                  | 204         
|Interest expense       |          |           |                    | 972         
|Depreciation and       |          |          
|amortization           |          |           |                    | 13,830      
|Capital expenditures   |          |           |                    | 4,801       

|The amounts in 2003, 2002 and 2001 for interest income
 and expense, depreciation and amortization and capital expenditures represent amounts recorded by the
 operations of our corporate functions, which have not been allocated to the segments.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

N.    CONDENSED FINANCIAL INFORMATION
 REGARDING GUARANTOR SUBSIDIARIES

|Condensed consolidating financial information regarding
 the Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of December 31, 2003 and 2002
 and for each of the years in the three-year period ended December 31, 2003 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
 G.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-31
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of IncomeYear Ended December 31, 2003
|--------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                         | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|---------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                        
|Revenue:                                 |                             |                       |                           |                    |                  
|Lithotripsy                              |                             |                       | $                         | 8,938              |                  
|Manufacturing                            |                             |                       |                           | 8,326              |                  
|Other                                    |                             |                       |                           | --                 |                  
|                                         |                             |                       |                           |                    |                  
|Total revenue                            |                             |                       |                           | 17,264             |                  
|                                         |                             |                       |                           |                    |                  
|Cost of services and general and         |                             |                      
|administrative expenses:                 |                             |                      
|Lithotripsy                              |                             |                       |                           | --                 |                  
|Manufacturing                            |                             |                       |                           | --                 |                  
|Corporate                                |                             |                       |                           | 62                 |                  
|                                         |                             |                       |                           |                    |                  
|                                         |                             |                       |                           | 62                 |                  
|Depreciation and amortization            |                             |                       |                           | --                 |                  
|                                         |                             |                       |                           |                    |                  
|Total operating expenses                 |                             |                       |                           | 62                 |                  
|                                         |                             |                       |                           |                    |                  
|Operating income                         |                             |                       |                           | 17,202             |                  
|                                         |                             |                       |                           |                    |                  
|Other income (expenses):                 |                             |                      
|Interest and dividends                   |                             |                       |                           | 65                 |                  
|Interest expense                         |                             |                       |                           | (8,235             | )                
|Loan
fees                                |                             |                       |                           | (257               | )                
|Other, net                               |                             |                       |                           | --                 |                  
|                                         |                             |                       |                           |                    |                  
|Total other income (deductions)          |                             |                       |                           | (8,427             | )                
|                                         |                             |                       |                           |                    |                  
|Income before provision (benefit) for    |                             |                      
|income taxes and minority interest       |                             |                       |                           | 8,775              |                  
|Minority interest in consolidated income |                             |                       |                           | --                 |                  
|Provision (benefit) for income taxes     |                             |                       |                           | 2,552              |                  
|                                         |                             |                       |                           |                    |                  
|Net income                               |                             |                       | $                         | 6,223              |                  
|                                         |                             |                       |                           |                    |                  

|A-32
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of IncomeYear Ended December 31, 2002
|--------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                           | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|------------------------------------------ | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                          
|Revenue:                                   |                             |                       |                           |                    |                  
|Lithotripsy                                |                             |                       | $                         | 13,717             |                  
|Manufacturing                              |                             |                       |                           | 13,264             |                  
|Refractive                                 |                             |                       |                           | (9,960             | )                
|Other                                      |                             |                       |                           | --                 |                  
|                                           |                             |                       |                           |                    |                  
|Total revenue                              |                             |                       |                           | 17,021             |                  
|                                           |                             |                       |                           |                    |                  
|Cost of services and general and           |                             |                      
|administrative expenses:                   |                             |                      
|Lithotripsy                                |                             |                       |                           | --                 |                  
|Manufacturing                              |                             |                       |                           | --                 |                  
|Refractive                                 |                             |                       |                           | --                 |                  
|Corporate                                  |                             |                       |                           | 192                |                  
|Impairment and other costs, net            |                             |                       |                           | --                 |                  
|                                           |                             |                       |                           |                    |                  
|                                           |                             |                       |                           | 192                |                  
|Depreciation and amortization              |                             |                       |                           | --                 |                  
|                                           |                             |                       |                           |                    |                  
|Total operating expenses                   |                             |                       |                           | 192                |                  
|                                           |                             |                       |                           |                    |                  
|Operating income                           |                             |                       |                           | 16,829             |                  
|                                           |                             |                       |                           |                    |                  
|Other income (expenses):                   |                             |                      
|Interest and dividends                     |                             |                       |                           | 31                 |                  
|Interest expense                           |                             |                       |                           | (8,900             | )                
|Loan fees                                  |                             |                       |                           | (1,015             | )                
|Other, net                                 |                             |                       |                           | (117               | )                
|                                           |                             |                       |                           |                    |                  
|Total other income (deductions)            |                             |                       |                           | (10,001            | )                
|                                           |                             |                       |                           |                    |                  
|Income before provision (benefit) for      |                             |                      
|income taxes and minority interest         |                             |                       |                           | 6,828              |                  
|Minority interest i
n
 consolidated income |                             |                       |                           | --                 |                  
|Provision (benefit) for income taxes       |                             |                       |                           | 6,058              |                  
|                                           |                             |                       |                           |                    |                  
|Net income                                 |                             |                       | $                         | 770                |                  
|                                           |                             |                       |                           |                    |                  

|A-33
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of IncomeYear Ended December 31, 2001
|--------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                                | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|----------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                               
|Revenue:                                        |                             |                       |                           |                    |                  
|Lithotripsy                                     |                             |                       | $                         | (4,038             | )                
|Manufacturing                                   |                             |                       |                           | 6,022              |                  
|Refractive                                      |                             |                       |                           | (14,968            | )                
|Other                                           |                             |                       |                           | --                 |                  
|                                                |                             |                       |                           |                    |                  
|Total revenue                                   |                             |                       |                           | (12,984            | )                
|                                                |                             |                       |                           |                    |                  
|Cost of services and general and                |                             |                      
|administrative expenses:                        |                             |                      
|Lithotripsy                                     |                             |                       |                           | --                 |                  
|Manufacturing                                   |                             |                       |                           | --                 |                  
|Refractive                                      |                             |                       |                           | --                 |                  
|Corporate                                       |                             |                       |                           | 312                |                  
|Impairment and other costs, net                 |                             |                       |                           | 218                |                  
|                                                |                             |                       |                           |                    |                  
|                                                |                             |                       |                           | 530                |                  
|Depreciation and amortization                   |                             |                       |                           | --                 |                  
|                                                |                             |                       |                           |                    |                  
|Total operating expenses                        |                             |                       |                           | 530                |                  
|                                                |                             |                       |                           |                    |                  
|Operating (loss) income                         |                             |                       |                           | (13,514            | )                
|                                                |                             |                       |                           |                    |                  
|Other income (expenses):                        |                             |                      
|Interest and dividends                          |                             |                       |                           | 35                 |                  
|Interest expense                                |                             |                       |                           | (9,985             | )                
|Loan fees                                       |                             |                       |                           | (163               | )                
|Other, net                                      |                             |                       |                           | 225                |                  
|                                                |                             |                       |                           |                    |                  
|Total other income (deductions)                 |                             |                       |                           | (9,888             | )                
|                                                |                             |                       |                           |                    |                  
|Income (loss) before (benefit) provision for    |                             |                      
|income taxes and minority interest              |                             |                       |                           | (23,402            | )                
|Minority interest in consolidated (loss) income |                             |                       |                           | --                 |                  
|(Benefit) provision for income taxes            |                             |                       |                           | (8,937             | )                
|                                                |                             |                       |                           |                    |                  
|Net (loss) income                               |                             |                       | $                         | (14,465            | )                
|                                                |                             |                       |                           |                    |                  

|A-34
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Balance SheetYear Ended December 31, 2003
|--------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                            | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                            |                             |                       |                           |                    |                  
|ASSETS                                      |                             |                       |                           |                    |                  
|                                            |                             |                       |                           |                    |                  
|Current assets:                             |                             |                      
|Cash and cash equivalents                   |                             |                       | $                         | 50                 |                  
|Accounts receivable, net                    |                             |                       |                           | --                 |                  
|Other receivables                           |                             |                       |                           | 303                |                  
|Deferred income
 taxes                      |                             |                       |                           | 1,193              |                  
|Prepaid expenses and other current assets   |                             |                       |                           | 9                  |                  
|Inventory                                   |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Total current assets                        |                             |                       |                           | 1,555              |                  
|                                            |                             |                       |                           |                    |                  
|Property and equipment:                     |                             |                      
|Equipment, furniture and
fixtures           |                             |                       |                           | --                 |                  
|Building and leasehold improvements         |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       |                           | --                 |                  
|Less accumulated depreciation               |                             |                      
|and amortization                            |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Property and equipment, net                 |                             |                       |                           | --                 |                  
|Investment in subsidiaries                  |                             |                      
|and other investments                       |                             |                       |                           | 226,344            |                  
|Goodwill, at cost, net of amortization      |                             |                       |                           | --                 |                  
|Other noncurrent assets                     |                             |                       |                           | 2,772              |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       | $                         | 230,671            |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       |                           |                    |                  
|LIABILITIES                                 |                             |                      
|                                            |                             |                       |                           |                    |                  
|Current liabilities:                        |                             |                      
|Current portion o





f
 long-term debt    |                             |                       | $                         | 256                |                  
|Accounts payable                            |                             |                       |                           | --                 |                  
|Accrued distributions to minority interests |                             |                       |                           | --                 |                  
|Accrued expenses                            |                             |                       |                           | 2,503              |                  
|Customer deposits                           |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Total current liabilities                   |                             |                       |                           | 2,759              |                  
|Long-term debt, net of current portion      |                             |                       |                           | 104,069            |                  
|Other long term obligations                 |                             |                       |                           | --                 |                  
|Deferred income taxes                       |                             |                       |                           | 17,232             |                  
|                                            |                             |                       |                           |                    |                  
|Total liabilities                           |                             |                       |                           | 124,060            |                  
|                                           
|Minority interest                           |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|STOCKHOLDERS' EQUITY                        |                             |                      
|                                            |                             |                       |                           |                    |                  
|Common stock                                |                             |                       |                           | 173                |                  
|Capital in excess of par value              |                             |                       |                           | 70,813             |                  
|Accumulated earnings                        |                             |                       |                           | 36,839             |                  
|Subsidiary net
 equity                      |                             |                       |                           | --                 |                  
|Treasury stock                              |                             |                       |                           | (1,214             | )                
|                                            |                             |                       |                           |                    |                  
|Total stockholders' equity                  |                             |                       |                           | 106,611            |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       | $                         | 230,671            |                  
|                                            |                             |                       |                           |                    |                  

|A-35
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Balance SheetYear Ended December 31, 2002
|--------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                            | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                            |                             |                       |                           |                    |                  
|ASSETS                                      |                             |                       |                           |                    |                  
|                                            |                             |                       |                           |                    |                  
|Current assets:                             |                             |                      
|Cash and cash equivalents                   |                             |                       | $                         | 66                 |                  
|Accounts receivable, net                    |                             |                       |                           | --                 |                  
|Other receivables                           |                             |                       |                           | 291                |                  
|Deferred income taxes                       |                             |                       |                           | (695               | )                
|Prepaid expenses and other current assets   |                             |                       |                           | 2,965              |                  
|Inventory                                   |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Total current assets                        |                             |                       |                           | 2,627              |                  
|                                            |                             |                       |                           |                    |                  
|Property and equipment:                     |                             |                      
|Equipment, furniture and fixtures           |                             |                       |                           | --                 |                  
|Building and leasehold improvements         |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       |                           | --                 |                  
|Less accumulated depreciation               |                             |                      
|and amortization                            |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Property and equipment, net                 |                             |                       |                           | --                 |                  
|Investment in subsidiaries                  |                             |                      
|and other investments                       |                             |                       |                           | 214,533            |                  
|Goodwill, at cost, net of amortization      |                             |                       |                           | --                 |                  
|Other noncurrent assets                     |                             |                       |                           | 3,074              |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       | $                         | 220,234            |                  
|                                            |                             |                       |                           |                    |                  
|LIABILITIES                                 |                             |                      
|                                            |                             |                       |                           |                    |                  
|Current liabilities:                        |                             |                      
|Current portion of long-term debt           |                             |                       | $                         | --                 |                  
|Account
s
 payable                          |                             |                       |                           | --                 |                  
|Accrued distributions to minority interests |                             |                       |                           | --                 |                  
|Accrued expenses                            |                             |                       |                           | 3,111              |                  
|Customer deposits                           |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Total current liabilities                   |                             |                       |                           | 3,111              |                  
|Long-term debt, net of current portion      |                             |                       |                           | 111,021            |                  
|Deferred income taxes                       |                             |                       |                           | 7,468              |                  
|                                            |                             |                       |                           |                    |                  
|Total liabilities                           |                             |                       |                           | 121,600            |                  
|                                           
|Minority interest                           |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|STOCKHOLDERS' EQUITY                        |                             |                      
|                                            |                             |                       |                           |                    |                  
|Common stock                                |                             |                       |                           | 169                |                  
|Capital in excess of par value              |                             |                       |                           | 67,849             |                  
|Accumulated earnings                        |                             |                       |                           | 30,616             |                  
|Subsidiary net equity                       |                             |                       |                           | --                 |                  
|                                            |                             |                       |                           |                    |                  
|Total stockholders' equity                  |                             |                       |                           | 98,634             |                  
|                                            |                             |                       |                           |                    |                  
|                                            |                             |                       | $                         | 220,234            |                  
|                                            |                             |                       |                           |                    |                  

|A-36
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of Cash
 FlowsYear Ended December 31, 2003
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                             | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|-------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM OPERATING                    |                             |                       |                           |                    |                  
|ACTIVITIES:                                  |                             |                      
|Net cash provided by (used in)               |                             |                      
|operating activities                         |                             |                       | $                         | (4,728             | )                
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM INVESTING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Purchase of equity investments and entities  |                             |                       |                           | --                 |                  
|Purchases of property and equipment          |                             |                       |                           | --                 |                  
|Proceeds from sales of equipment             |                             |                       |                           | --                 |                  
|Distributions from subsidiaries              |                             |                       |                           | 25,421             |                  
|Investments                                  |                             |                       |                           | (12,000            | )                
|Distributions from investments               |                             |                       |                           | --                 |                  
|Escrow
 deposits                             |                             |                       |                           | (995               | )                
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|investing activities                         |                             |                       |                           | 12,426             |                  
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM FINANCING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Payments on notes payable exclusive of       |                             |                      
|interest                                     |                             |                       |                           | (23,500            | )                
|Borrowings on notes payable                  |                             |                       |                           | 17,000             |                  
|Purchase of treasury stock                   |                             |                       |                           | (1,214             | )                
|Distributions to minority interest           |                             |                       |                           | --                 |                  
|Contributions by minority interest           |                             |                       |                           | --                 |                  
|Contributions from parent                    |                             |                       |                           | --                 |                  
|Distributions to equity owners               |                             |                       |                           | --                 |                  
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|financing activities                         |                             |                       |                           | (7,714             | )                
|                                             |                             |                       |                           |                    |                  
|NET INCREASE (DECREASE) IN CASH              |                             |                      
|AND CASH EQUIVALENTS                         |                             |                       |                           | (16                | )                
|Cash and cash equivalents, beginning of year |                             |                       |                           | 66                 |                  
|                                             |                             |                       |                           |                    |                  
|Cash and cash equivalents, end of year       |                             |                       | $                         | 50                 |                  
|                                             |                             |                       |                           |                    |                  

|A-37
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of Cash
 FlowsYear Ended December 31, 2002
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                             | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|-------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM OPERATING                    |                             |                       |                           |                    |                  
|ACTIVITIES:                                  |                             |                      
|Net cash provided by (used in)               |                             |                      
|operating activities                         |                             |                       | $                         | (6,693             | )                
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM INVESTING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Purchase of equity investments and entities  |                             |                       |                           | --                 |                  
|Purchases of property and equipment          |                             |                       |                           | --                 |                  
|Proceeds from sales of equipment             |                             |                       |                           | --                 |                  
|Distributions from subsidiaries              |                             |                       |                           | 15,463             |                  
|Investments                                  |                             |                       |                           | (9,000             | )                
|Distributions from investments               |                             |                       |                           | --                 |                  
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|investing activities                         |                             |                       |                           | 6,463              |                  
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM FINANCING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Payments on notes payable exclusive of       |                             |                      
|interest                                     |                             |                       |                           | (10,500            | )                
|Borrowings on notes payable                  |                             |                       |                           | 9,000              |                  
|Exercise of stock options                    |                             |                       |                           | 1,537              |                  
|Distributions to minority interest           |                             |                       |                           | --                 |                  
|Contributions by minority interest           |                             |                       |                           | --                 |                  
|Contributions from parent                    |                             |                       |                           | --                 |                  
|Distributions t





o
 equity owners        |                             |                       |                           | --                 |                  
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|financing activities                         |                             |                       |                           | 37                 |                  
|                                             |                             |                       |                           |                    |                  
|NET INCREASE (DECREASE) IN CASH              |                             |                      
|AND CASH EQUIVALENTS                         |                             |                       |                           | (193               | )                
|Cash and cash equivalents, beginning of year |                             |                       |                           | 259                |                  
|                                             |                             |                       |                           |                    |                  
|Cash and cash equivalents, end of year       |                             |                       | $                         | 66                 |                  
|                                             |                             |                       |                           |                    |                  

|A-38
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statement of Cash
 FlowsYear Ended December 31, 2001
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in thousands)                             | Prime MedicalServices, Inc. | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | EliminatingEntries | ConsolidatedTotal
|-------------------------------------------- | --------------------------- | --------------------- | ------------------------- | ------------------ | -----------------
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM OPERATING                    |                             |                       |                           |                    |                  
|ACTIVITIES:                                  |                             |                      
|Net cash provided by (used in)               |                             |                      
|operating activities                         |                             |                       | $                         | (11,682            | )                
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM
INVESTING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Purchase of equity investments and entities  |                             |                       |                           | --                 |                  
|Purchases of property and equipment          |                             |                       |                           | --                 |                  
|Proceeds from sales of equipment             |                             |                       |                           | --                 |                  
|Distributions from subsidiaries              |                             |                       |                           | 29,514             |                  
|Investments                                  |                             |                       |                           | (11,000            | )                
|Distributions from investments               |                             |                       |                           | --                 |                  
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|investing activities                         |                             |                       |                           | 18,514             |                  
|                                             |                             |                       |                           |                    |                  
|CASH FLOWS FROM FINANCING                    |                             |                      
|ACTIVITIES:                                  |                             |                      
|Payments on notes payable exclusive of       |                             |                      
|interest                                     |                             |                       |                           | (19,000            | )                
|Borrowings on notes payable                  |                             |                       |                           | 12,000             |                  
|Distributions to minority interest           |                             |                       |                           | --                 |                  
|Contributions by minority interest           |                             |                       |                           | --                 |                  
|Contributions from parent                    |                             |                       |                           | --                 |                  
|Distributions to equity owners               |                             |                       |                           | --                 |                  
|                                             |                             |                       |                           |                    |                  
|Net cash provided by (used in)               |                             |                      
|financing activities                         |                             |                       |                           | (7,000             | )                
|                                             |                             |                       |                           |                    |                  
|NET INCREASE (DECREASE) IN CASH              |                             |                      
|AND CASH EQUIVALENTS                         |                             |                       |                           | (168               | )                
|Cash and cash equivalents, beginning of year |                             |                       |                           | 427                |                  
|                                             |                             |                       |                           |                    |                  
|Cash and cash equivalents, end of year       |                             |                       | $                         | 259                |                  
|                                             |                             |                       |                           |                    |                  

|A-39
|----



---

|PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|----------------------------------------------------------------------------------------

O.    SUBSEQUENT EVENTS (UNAUDITED)

|In February 2004, we acquired Medstone International,
 Inc. or Medstone, a leading manufacturer of lithotripsy systems and urology tables and a prominent provider
 of fee-per-procedure lithotripsy services. A pioneer in the manufacture of shockwave lithotripsy, Medstones
 was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 of
 its lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use,
 the Medstone devices are well established in the urology office and hospital market. For the year ended
 December 31, 2003, Medstone had revenues of $21 million, comprised of $15 million in service revenue
 and $6 million in equipment sales.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In February 2004, our shareholders approved our new
 2003 stock option plan which provides that the aggregate number of shares of our common stock that may
 be issued upon the exercise of all options under the plan shall not exceed 600,000.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|A-40
|----



---

|PRIME MEDICAL SERVICES, INC.SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2003, 2002 and 2001
|-----------------------------------------------------------------------------------------------------------------------

($
 in thousands)

|                                | Balance atBeginning ofYear |  | Costs andExpenses |       | Deductions |   | Balance atEnd ofYear | 
|------------------------------- | -------------------------- |  | ----------------- | ----- | ---------- | - | -------------------- | 
|Allowance for Doubtful Accounts |                            |  |                   |       |            |   |                      | 
|                                |                            |  |                   |       |            |   |                      | 
|2003                            |                            |  | $                 | 629   |            | $ | 582                  | 
|                                |                            |  |                   |       |            |   |                      | 
|2002                            |                            |  | $                 | 2,172 |            | $ | 405                  | 
|                                |                            |  |                   |       |            |   |                      | 
|2001                            |                            |  | $                 | 212   |            | $ | 8,111                | 
|                                |                            |  |                   |       |            |   |                      | 

|S-1
|---



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