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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, 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, 1999

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

                         For the transition period from

                                 _____ to _____

                         Commission File Number: 0-22392

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

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

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

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

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES X NO
            ---   ---

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-K  contained  in  this  form,  and no  disclosure  will 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. _____

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock,  as of a specified date within 60 days prior
to the date of filing.

             Aggregate Market Value at March 15, 2000: $140,420,073

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

                                                Number of Shares Outstanding at

        Title of Each Class                              March 15, 2000
        -------------------                              --------------
    Common Stock, $.01 par value                           16,398,467

                       DOCUMENTS INCORPORATED BY REFERENCE

     Selected  portions of the  Registrant's  definitive  proxy material for the
2000 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, 1999

                                     PART I

ITEM 1.  BUSINESS
-------  --------

         Prime Medical Services,  Inc., a Delaware  corporation  ("Prime" or the
"Company"),  is the  largest  provider  of  lithotripsy  services  in the United
States.  Lithotripsy  is a  non-invasive  procedure  for the treatment of kidney
stones, typically performed on an outpatient basis, that eliminates the need for
lengthy hospital stays and extensive  recovery periods  associated with surgery.
The Company has 65  lithotripters of which 59 are mobile and six are fixed site.
The Company's  lithotripters  performed  approximately  38,000 procedures in the
United  States in 1999  through a network of  approximately  450  hospitals  and
surgery centers in 34 states.

         Lithotripters  fragment  kidney stones by use of  extracorporeal  shock
wave lithotripsy.  The Company 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.  Medical  care is rendered  by the  urologists  utilizing  the
lithotripters. Management believes that the Company has collected the industry's
largest  and  most  comprehensive  lithotripsy  database,   containing  detailed
treatment and outcomes data on over 160,000 lithotripsy procedures.  The Company
and its  associated  urologists  utilize this database in seeking to provide the
highest quality of lithotripsy services as efficiently as possible.

         From 1992 through 1999, the Company completed 13 acquisitions involving
58  lithotripters.  Since  1992,  the  Company has  substantially  divested  its
original non-lithotripsy businesses.

         During 1997 the  Company  acquired a 75%  interest  in a  manufacturing
company which provides manufacturing  services, and installation,  refurbishment
and repair of major medical equipment for mobile medical services providers. The
primary intention of this acquisition was to provide vertical integration with
the  lithotripsy  business.   However,  the  non-lithotripsy   business  of  the
manufacturing  segment has continued to increase.  In addition to  manufacturing
services for  lithotripsy  trailers,  the  manufacturing  segment also  provides
manufacturing  services  for magnetic  resonance  imaging  ("MRI")  trailers and
cardiac catheterization lab trailers.

         During  1999 the  Company  completed  two  acquisitions  in the rapidly
growing field of refractive  vision  correction  (RVC).  These two  acquisitions
included six laser vision  correction  facilities which performed  approximately
19,000 procedures during 1999. These facilities  provide laser vision correction
of  common  refractive  vision  disorders  such  as  myopia   (nearsightedness),
hyperopia (farsightedness) and astigmatism.

         There are currently two procedures that use the excimer laser ("laser")
to  correct  vision  disorders:   Laser  in-situ  Keratomileusis  ("LASIK")  and
Photorefractive  Keratectomy  ("PRK").  LASIK is an  outpatient  procedure  that
accounts for nearly 90% of laser  procedures done today. In LASIK, an ophthalmic
surgeon uses a special knife called a microkeratome  to peal back the top layers
of the cornea and ablates the  underlying  corneal  tissue with the laser before
replacing  the  corneal  layer.   LASIK  has  three  key  advantages   over  PRK
(photorefractive  keratectomy)  where the  laser is used  without  creating  the
corneal flap: less pain,  shorter  recovery time, and fewer visual side effects.
Patients' enthusiasm and word-of-mouth  referrals for the procedure have been an
important part of LASIK's rapid adoption.

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         The Company has three reportable segments:  lithotripsy,  manufacturing
and RVC. Other operating segments,  which do not meet the qualitative thresholds
for  reportable  segments,  include  prostatherapy  services.  See Note N to the
consolidated financial statements for segment disclosures.

Lithotripsy Segment Overview

----------------------------

         Kidney stones  develop from crystals made up primarily of calcium which
separate from urine and build up on the inner surfaces of the kidney.  The exact
cause of kidney stone formation is unclear,  and there is no known  preventative
cure in the vast  majority of cases.  Approximately  25% of all kidney stones do
not pass  spontaneously  and therefore  require  medical or surgical  treatment.
Kidney stone treatments used by urologists  include  lithotripsy,  drug therapy,
endoscopic extraction or open surgery. While the nature and location of a kidney
stone impacts the choice of treatment,  the Company believes the majority of all
kidney stones that require treatment are treated with lithotripsy  because it is
non-invasive,  typically  requires no general  anesthesia,  and rarely  requires
hospital stays. After  fragmentation by lithotripsy,  the resulting kidney stone
fragments pass out of the body naturally. Recovery from the procedure is usually
a matter of hours.

         Kidney stone disease is most  prevalent in the southern  United States.
Men are  afflicted  with kidney  stones more than twice as  frequently as women,
with the highest  incidence  occurring in men 45 to 64 years of age. During 1999
the Company  received  approximately  79% of its revenues  from the  lithotripsy
segment.

Kidney Stone Treatment Methods

         A number of kidney stone treatments are used by urologists ranging from
non-invasive  procedures,  such as drug  therapy  or  lithotripsy,  to  invasive
procedures, such as endoscopic extraction or open surgery. The type of treatment
a  urologist  chooses  depends  on a  number  of  factors,  such as the size and
chemical  make-up of the stone,  the stone's  location in the urinary system and
whether  the  stone is  contributing  to  other  urinary  complications  such as
blockage or infection.

         Certain  types of less common  kidney  stones may be dissolved by drugs
which allow normal  passage from the urinary  system.  Stones located in certain
areas of the urinary  tract may be extracted  endoscopically.  These  procedures
commonly  require general or local  anesthesia and can injure the involved areas
of the urinary tract.  Frequently,  kidney stones are located where they are not
accessible by an endoscopic procedure.  Prior to the development of lithotripsy,
stones  lodged in the upper  urinary tract were often treated by open surgery or
percutaneous stone removal,  both major operations requiring an incision to gain
access to the stone. After such procedures, the patient typically spends several
days in the hospital  followed by a convalescence  period of three to six weeks.
As the  technology  for treating  kidney stones has  improved,  there has been a
shift from more expensive and  complicated  invasive  procedures to safer,  more
cost efficient and less painful non-invasive procedures, such as lithotripsy.

Extracorporeal Shock Wave Lithotripsy

         General. The lithotripter has dramatically changed the course of kidney
stone disease treatment since lithotripsy is normally performed on an outpatient
basis, often without general anesthesia. Recovery times are generally only a few
hours,  and most  patients can return to work the next day.  There are two basic
types  of  lithotripsy   treatment  currently  available:   electromagnetic  and
spark-gap. A decision regarding which type is used in any instance may depend on
several factors, among which are the treating physician's preferences, treatment
times,  stone  location,  and  anesthesia  considerations.  The  Company  has 51
electromagnetic machines and 14 spark-gap machines.

                                        3

<PAGE>

         Electromagnetic   Technology.   Most  new   lithotripters   utilize  an
electromagnetic  shock wave  component  that  eliminates the need for disposable
electrodes. The use of lithotripters employing electromagnetic technology allows
for more  precise  focusing  of shock wave  energy and more  predictable  energy
delivery than other  lithotripsy  technologies,  which  eliminates  the need for
anesthesia  in most  cases.  Utilization  of systems  employing  electromagnetic
technology  usually results in  fragmentation  of the kidney stone in between 60
and 90 minutes.

         Spark Gap  Technology.  With these  lithotripsy  systems,  shock  waves
generated by a disposable  high-voltage  spark electrode are focused on a kidney
stone.  Utilization of systems employing spark gap technology usually results in
fragmentation of the kidney stone in less than 60 minutes.  The use of spark-gap
technology  often  requires  the  administration  of  sedatives  or  intravenous
anesthesia care and in some cases requires general anesthesia.

Manufacturing Segment Overview

------------------------------

         In  September  1997,  the  Company,  through its  acquisition  of a 75%
interest in AK Associates, L.L.C. ("AK"), began providing manufacturing services
and installation,  upgrade,  refurbishment and repair of major medical equipment
for mobile medical  services  providers.  The Company paid $4.8 million for this
interest,  plus an earn-out of $1.1  million,  which was paid in February  1999.
Certain  members of AK  management  own the  remaining 25% of AK. During 1998 AK
became  certified by General Electric Company ("GE") to provide trailers for MRI
equipment,  and during 1999 AK became  certified by two additional  companies to
provide  trailers for their  equipment.  These  certifications  have resulted in
increased   revenues  in  the  manufacturing   segment.   The  Company  received
approximately 16 % of its revenues from the manufacturing segment in 1999.

RVC Segment Overview

--------------------

         During  1999,  the  Company  entered  into the RVC  field  through  two
acquisitions.  Effective  September 1, 1999, the Company acquired a 60% interest
in two  refractive  surgery  centers,  owned and operated by Barnet  Dulaney Eye
Center,  for  approximately  $8.8 million in cash, a warrant to purchase  29,000
shares of Company common stock and a contingent  earn-out  obligation to be paid
at the end of the first year of operations  after  acquisition.  Also  effective
September 1, 1999, the Company  acquired,  through a majority owned  subsidiary,
60% of the  outstanding  stock of Horizon Vision Centers,  Inc.  ("Horizon") for
approximately  $10.9 million in cash.  Horizon operates four refractive  surgery
centers.  The Company  received  approximately  3% of its  revenue  from the RVC
segment in 1999.

Refractive Disorders

         The primary  function of the human eye is to focus light. The eye works
much like a camera;  light rays enter the eye through the cornea, which provides
most of the  focusing  power.  Light then  travels  through the lens where it is
fine-tuned to focus properly on the retina.  The retina,  located at the back of
the eye, acts like the film in the camera, changing light into electric impulses
that are carried by the optic nerve to the brain. To see clearly,  light must be
focused precisely on the retina.  The amount of refraction  required to properly
focus images  depends on the curvature of the cornea and the size of the eye. If
the curvature is not correct, the cornea cannot properly focus the light passing
through it onto the retina, and the viewer will see a blurred image.  Refractive
disorders,  such as myopia, hyperopia and astigmatism,  result from an inability
of the cornea and the lens to focus images on the retina properly.

                                        4

<PAGE>

Laser Vision Correction Procedures

         In both PRK and LASIK the  physician  assesses  the corneal  correction
required and  programs the laser.  Using a specially  developed  algorithm,  the
laser's  software  calculates the optimal number of pulses needed to achieve the
corneal  correction.  Both PRK and LASIK are  performed on an  outpatient  basis
without general  anesthesia,  using only topical  anesthetic eye drops.  The eye
drops  eliminate  the reflex to blink,  while an eyelid  holder is  inserted  to
prevent  blinking.  The patient reclines in a chair, with his or her eye focused
on a target,  and the surgeon  positions the patient's cornea for the procedure.
The  surgeon  uses a foot  pedal to apply the laser  beam,  which  emits a rapid
succession of laser pulses. The actual laser treatment takes 15 to 90 seconds to
perform  and the entire  procedure,  from set-up to  completion,  takes 10 to 15
minutes.

Prostatherapy Segment Overview

------------------------------

         In October 1997, the Company began providing thermotherapy services for
the treatment of benign prostatic  hyperplasia ("BPH"). BPH is the non-cancerous
enlargement  of  the  prostate,   a  condition   common  in  men  over  age  60.
Thermotherapy uses microwaves to apply heat to the prostate, resulting in relief
of the  symptoms  of BPH without  damaging  surrounding  tissues.  Thermotherapy
relieves the symptoms of BPH without incurring the risks of complications  often
associated with surgery and more invasive procedures. The Company operates three
mobile thermotherapy  devices servicing hospitals and surgery centers in eastern
North Carolina and southern California. The Company is monitoring the success of
its thermotherapy  operations and may expand such operations in the future.  The
Company received approximately 2% of its revenues from the prostatherapy segment
in 1999.

Potential Liabilities-Insurance

-------------------------------

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

         The Company  currently  maintains  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  $10,000,000,  with a deductible  of
$50,000 per occurrence.  In addition, the Company requires medical professionals
who utilize its 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  the  Company's  liabilities,  the  Company  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  which  might  have a
material adverse effect on the operations of the Company.

Government Regulation and Supervision

-------------------------------------

         The  Company is subject to  extensive  regulation  by both the  federal
government  and the  states in which the  Company  conducts  its  business.  The
Company is subject to Section  1128B of the Social  Security  Act (known as "the
Illegal  Remuneration  Statute"),  which imposes civil and criminal sanctions on
persons  who  solicit,  offer,  receive  or pay any  remuneration,  directly  or
indirectly,  for  referring,  or  arranging  for the  referral of, a patient for
treatment that is paid for in whole or in part by Medicare,  Medicaid or similar
government  programs.  The federal  government  has published  regulations  that
provide  exceptions  or a  "safe  harbor"  for  certain  business  transactions.
Transactions that are structured within the safe harbors are deemed not to

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violate the Illegal Remuneration  Statute.  Transactions that do not satisfy all
elements  of a relevant  safe  harbor do not  necessarily  violate  the  Illegal
Remuneration  Statute,  but may be subject to greater  scrutiny  by  enforcement
agencies.  The  arrangements  between the Company and the partnerships and other
entities in which it owns an  indirect  interest  and through  which the Company
provides most of its lithotripsy services and all of its prostatherapy  services
(and the corresponding arrangements between such partnerships and other entities
and  the  treating  physicians  who  own  interests  therein  and  who  use  the
lithotripsy and  prostatherapy  facilities owned by such  partnerships and other
entities)  could  potentially  be  questioned  under  the  illegal  remuneration
prohibition  and may not fall  within  the  protection  afforded  by these  safe
harbors.  Many states also have laws similar to the Federal Illegal Remuneration
Statute.  While  failure to fall within the safe harbors may subject the Company
to scrutiny  under the  Illegal  Remuneration  Statute,  such  failure  does not
constitute a violation of the Illegal Remuneration Statute. Nevertheless,  these
illegal remuneration laws, as applied to activities and relationships similar to
those of the Company,  have been  subjected to limited  judicial and  regulatory
interpretation,  and the Company has not  obtained or applied for any opinion of
any  regulatory  or  judicial   authority  that  its  business   operations  and
affiliations are in compliance with these laws. Therefore,  no assurances can be
given that the Company's activities will be found to be in compliance with these
laws if scrutinized by such authorities.

         In addition to the Illegal  Remuneration  Statute,  Section 1877 of the
Social  Security Act ("Stark II") imposes  certain  restrictions  upon referring
physicians  and  providers  of  certain  designated  health  services  under the
Medicare,  Medicaid and Champus  Programs  ("Government  Programs").  Subject to
certain exceptions, Stark II provides that if a physician (or a family member of
a physician) has a financial  relationship with an entity: (i) the physician may
not make a referral  to the  entity  for the  furnishing  of  designated  health
services reimbursable under the Government Programs; and (ii) the entity may not
bill Government Programs, any individual or any third-party payor for designated
health services furnished pursuant to a prohibited referral under the Government
Programs. The prohibitions of Stark II only apply to the treatment of Government
Program   patients,   and  have  no  application   to  services   performed  for
non-government  program patients.  Entities and physicians  committing an act in
violation of Stark II will be required to refund amounts  collected in violation
of the statute and also are subject to civil money  penalties and exclusion from
the  Government  Programs.  Physicians  are  investors in 51 of the Company's 65
lithotripsy  operations,   all  of  the  three  Company  affiliates  engaged  in
thermotherapy   services  and  each  of  the  Company's  six  refractive  vision
correction facilities. The Company lithotripsy and thermotherapy affiliates with
physician-investors are referred to herein as the "Company Physician Entities".

         Many key terms in Stark II are not  adequately  defined and the statute
is silent  regarding its application to vendors,  such as the Company  Physician
Entities,  contracting "'under arrangements" with hospitals for the provision of
outpatient services.  Prior to the publication of the Proposed Stark Regulations
described below, the Company interpreted Stark II consistently with the informal
view of the General  Counsel for Health and Human  Services,  and concluded that
the statute  did not apply to its method of  conducting  business.  Based upon a
reasonable  interpretation  of Stark II, by  referring  a patient  to a hospital
furnishing  the  outpatient   lithotripsy  or   thermotherapy   services  "under
arrangements"  with the Company Physician  Entities,  a physician  investor in a
Company Physician Entity is not making a referral to an entity (the hospital) in
which they have an ownership interest.

         On  January  9,  1998,  the  federal   government   published  proposed
regulations  under Stark II (the "Proposed  Stark  Regulations").  By clarifying
certain  ambiguities and defining  certain  statutory  terms, the Proposed Stark
Regulations   and   accompanying   commentary   apply  the  physician   referral
prohibitions  of  Stark  II to  the  Company  Physician  Entities'  practice  of
contracting  "under  arrangements"  with  hospitals for treatment and billing of
Government Program patients. Only hospitals can bill the Government Programs for
lithotripsy and thermotherapy services; thus contracting under arrangements with
hospitals was the way the Company Physician Entities  economically  participated
in the treatment of Government Program patients. Absent a restructuring of

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traditional  operations to comply with the government's  interpretation of Stark
II, the physician-investors will be prohibited from referring Government Program
patients to the hospitals  contracting with the Company Physician Entities.  The
Company  cannot  predict when final Stark II  regulations  will be issued or the
substance  of the final  regulations,  but the  interpretive  provisions  of the
Proposed Stark  Regulations  may be viewed as the federal  government's  interim
enforcement   position  until  final   regulations  are  issued.   Restructuring
traditional  operations may reduce  Company  revenues and limit future growth by
(i) reducing or eliminating revenues attributable to the treatment of Government
Program patients by the Company Physician Entities,  (ii) reducing revenues from
the treatment of non-government  patients by Company  Physician  Entities due to
physician,  hospital and third-party  payor anxiety and concern created by Stark
II,  (iii)  requiring  the  Company  Physician  Entities  to  restructure  their
operations  to comply  with  Stark  II,  (iv)  restricting  the  acquisition  or
development of additional lithotripsy or thermotherapy operations that will both
treat Government  Program patients and have referring  physician-investors,  (v)
impairing  the  Company's   relationship  with  urologists  and  (vi)  otherwise
materially adversely impacting the Company.

         Many states  currently  have laws  similar to Stark II that  restrict a
physician with a financial  relationship with an entity from referring  patients
to that entity.  Often these laws contain statutory exceptions for circumstances
where the referring  physician,  or a member of his practice group, treats their
own patients.  States also commonly  require  physicians to disclose to patients
their financial  relationship with an entity. The Company believes that it is in
material   compliance   with  these  state  laws.   Nevertheless,   these  state
self-referral laws, as applied to activities and relationships  similar to those
of  the  Company,  have  been  subjected  to  limited  judicial  and  regulatory
interpretation,  and the Company has not  obtained or applied for any opinion of
any  regulatory  or  judicial   authority  that  its  business   operations  and
affiliations are in compliance with these laws. Therefore,  no assurances can be
given that the Company's activities will be found to be in compliance with these
laws if scrutinized by such authorities.

         In  addition,  upon  the  occurrence  of  changes  in the law  that may
adversely affect  operations,  the Company is required to purchase the interests
of  physician-investors  for certain of the Company  Physician  Entities.  These
mandatory purchase  obligations require the payment by the Company of a multiple
of earnings  similar to  multiples  used by the Company in pricing the  original
acquisition of such interests. To the extent the Company is required to purchase
such  interests,  such  purchases  might cause a default  under the terms of the
Company's  senior  credit  facility and senior  subordinated  notes,  impair the
Company's  relationship  with  physicians and otherwise have a material  adverse
impact on the  Company.  Regulatory  developments,  such as Stark II, might also
dictate that the Company purchase all the interests of its  physician-investors,
regardless of any contractual  requirements to do so, or substantially alter its
business  and  operations  to  remain  in  compliance  with   applicable   laws.
Accordingly,  there can be no assurance that the Company will not be required to
change its business practices or its investment relationships with physicians or
that the Company will not  experience a material  adverse  effect as a result of
any challenge made by a federal or state regulatory  agency. In addition,  there
can be no assurance  that  physician-investors  who,  voluntarily  or otherwise,
divest of their interests in Company  Physician  Entities will continue to refer
patients at the same rate or at all.

         Some states require  approval,  usually in the form of a certificate of
need  ("CON"),  prior to the  purchase of major  medical  equipment  exceeding a
predesignated  capital expenditure  threshold or for the commencement of certain
clinical health services.  Such approval is generally based upon the anticipated
utilization  of the  service  and the  projected  need  for the  service  in the
relevant geographical area of the state where the service is to be provided. CON
laws  differ in many  respects,  and not every  state's  CON law  applies to the
Company.  Most of the  Company's  operations  originated in states which did not
require a CON for the Company's services,  and the Company has obtained a CON in
states  where  one  is  required.  Some  states  also  require  registration  of
lithotripters with the state agency which administers its CON program. Such

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registration  is  not  subject  to  any  required  approval,  but  rather  is an
administrative  matter  imposed so that the state will be aware of all  existing
clinical health  services.  The Company  registers in those states which require
these filings.

         All states in which the Company  operates  require  registration of the
fluoroscopic  x-ray tubes which are utilized to locate the kidney stones treated
with the Company's lithotripters.  The registration  requirements are imposed in
order to facilitate periodic inspection of the fluoroscopic tubes.

         Some states have  regulations  that require  facilities  such as mobile
lithotripters  and   thermotherapy   facilities  to  be  licensed  and  to  have
appropriate  emergency  care  resources and  qualified  staff meeting the stated
educational  and experience  criteria.  The Company's  lithotripsy  equipment is
subject to  regulation  by the U.S.  Food & Drug  Administration,  and the motor
vehicles   utilized  to  transport  the   Company's   mobile   lithotripsy   and
thermotherapy  equipment are subject to safety regulation by the U.S. Department
of  Transportation  and the  states in which the  Company  conducts  its  mobile
lithotripsy  and  thermotherapy  business.  The Company  believes  that it is in
material compliance with these regulations.

         Except as  provided  herein,  the  Company  believes it complies in all
material  respects  with the  foregoing  laws  and  regulations,  and all  other
applicable  regulatory  requirements;  however,  these laws are complex and have
been broadly construed by courts and enforcement agencies. Thus, there can be no
assurance  that the Company will not be required to change its  practices or its
relationships  with  treating  physicians  who  are  investors  in  the  Company
Physician  Entities,  or that the Company will not experience  material  adverse
effects as a result of any investigations or enforcement actions by a federal or
state regulatory agency.

         A number of proposals  for  healthcare  reform have been made in recent
years,  some of which have included  radical  changes in the healthcare  system.
Healthcare  reform  could  result  in  material  changes  in the  financing  and
regulation of the healthcare business,  and the Company is unable to predict the
effect  of  such  changes  on  its  future  operations.  It  is  uncertain  what
legislation  on healthcare  reform,  if any, will  ultimately be  implemented or
whether other changes in the  administration  or  interpretation of governmental
healthcare programs will occur. There can be no assurance that future healthcare
legislation  or  other  changes  in  the  administration  or  interpretation  of
governmental  healthcare programs will not have a material adverse effect on the
results of operations of the Company.

Equipment

---------

         The Company  purchases  its  equipment,  and  maintenance  is generally
provided  pursuant to service  contracts with the  manufacturer or other service
companies.  The cost of a new lithotripter ranges from $400,000 to $600,000. For
mobile lithotripsy and thermotherapy, the Company either purchases or leases the
tractor,  usually for a term up to five years,  and  purchases  the trailer or a
self contained  coach.  The cost of the laser  equipment  utilized in RVC ranges
from $300,000 to $500,000.  The cost of new prostatherapy  equipment ranges from
$200,000 to $400,000.

Employees

---------

         As of March 15, 2000, the Company employed  approximately 301 full-time
employees and approximately 72 part-time employees.

                                        8

<PAGE>

Competition

-----------

         The market to provide  lithotripsy  services is highly  fragmented  and
competitive.  The Company  competes  with other private  facilities  and medical
centers  that  offer  lithotripsy  services  and  with  hospitals,  clinics  and
individual medical  practitioners that offer conventional  medical treatment for
kidney stones.  Certain of the Company's current and potential  competitors have
substantially  greater financial resources than the Company and may compete with
the Company for  acquisitions  and development of operations in markets targeted
by the Company. A decrease in the purchase price of lithotripters as a result of
the  development  of less  expensive  lithotripsy  equipment  could decrease the
Company's  competitive  advantage.  Most of the Company's  lithotripsy  services
agreements  have matured past their initial terms and are now in annual  renewal
terms or are on a  month-to-month  basis.  The Company also  competes with three
public companies,  all of which are also manufacturers of lithotripsy equipment,
which may create different  incentives for such providers in pricing lithotripsy
services.  Moreover,  while the Company believes that lithotripsy has emerged as
the superior  treatment  for kidney stone  disease,  the Company  competes  with
alternative kidney stone disease treatments.

         The  Company's  manufacturing  segment  competes  with at  least  three
privately held,  national  companies.  The primary competitive factors are price
and quality, including product manufacturing differences.  Additionally,  two of
the three largest competitors are certified to provide GE trailers.  The Company
believes it manufactures a high quality product at a competitive price.

         The RVC market is fragmented and competitive. The Company competes with
several  national,  public  companies  as well as  individual  ophthalmologists,
hospitals and smaller service  companies.  The principal methods for competition
are pricing and quality issues.  The larger competitors are primarily focused on
pricing,  while the smaller  competitors  compete using both pricing and quality
issues. While there are lower cost competitors in the geographic areas where the
Company  currently  has  operations,  the Company  believes it provides a higher
quality service for a competitive price.

ITEM 2.  PROPERTIES
-------  ----------

         The Company's principal executive office is located in Austin, Texas in
an office building owned by American Physicians Service Group, Inc. ("APS"). The
Company pays APS approximately  $10,000 per month, which includes rental payment
for  approximately  6,700 square feet of office  space,  reception and telephone
services,  and certain  other  services and  facilities.  The office space lease
expires in December 2002.

         The Company leases  approximately 11,000 square feet of office space in
Fayetteville,  North  Carolina  under two leases  expiring in 2001.  The current
monthly lease amount is approximately $10,000.

         The  Company's  manufacturing  subsidiary  owns a  building  containing
approximately  78,000 square feet of  manufacturing  and office space in Harvey,
Illinois.

ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

         The Company is 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 the financial condition, results of operations or cash flows of the Company.

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

         NONE.

                                        9

<PAGE>

                                     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 for the
Company's  common  stock  in the  over-the-counter  market  as  reported  by the
National  Association of Securities Dealers,  Inc., Automated Quotations System,
for the years ended December 31, 1999 and 1998 (NASDAQ Symbol "PMSI").

                                 1999                        1998
                           -------------------          ------------------
                             High         Low            High         Low

     First Quarter         $ 8.44       $ 7.13          $13.38       $9.88
     Second Quarter        $ 7.56       $ 6.75          $12.06       $8.62
     Third Quarter         $ 9.75       $ 7.44          $ 9.06       $7.00
     Fourth Quarter        $10.63       $ 8.13          $ 8.00       $6.88

         On March 15, 2000, the Company had  approximately 627 holders of record
of its common stock.

         The Company has not  declared  any cash  dividends  on its common stock
during the last two years and has no present  intention  of  declaring  any cash
dividends in the foreseeable  future. In addition,  the Company is not permitted
by its current credit facility and terms of senior subordinated notes to declare
or make any payments  for  dividends.  It is the present  policy of the Board of
Directors to retain all earnings to provide funds for the growth of the Company.
The declaration and payment of dividends in the future will be determined by the
Board of  Directors  based upon the  Company's  earnings,  financial  condition,
capital  requirements,  loan  covenants  and such other  factors as the Board of
Directors may deem relevant.

ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------

<TABLE>

<S>                           <C>            <C>            <C>            <C>            <C>

(In thousands, except
per share data)                                   Years Ended December 31
                                                  -----------------------

                                1999           1998           1997           1996           1995
                                ----           ----           ----           ----           ----

Revenues:

    Lithotripsy                $89,180        $92,053        $93,113        $71,602        $22,153

    Other                       22,994         12,583          2,866            802          1,042
                              --------       --------       --------       --------       --------

    Total                     $112,174       $104,636        $95,979        $72,404        $23,195
                              ========       ========       ========       ========       ========

Income:

    Net income                 $15,039        $10,794        $14,856         $8,961         $7,204
                               =======        =======        =======         ======         ======

Diluted earnings per share       $0.88          $0.57          $0.76          $0.49          $0.48
                                 =====          =====          =====          =====          =====

Dividends per share               None           None           None           None           None

Total assets                  $246,826       $240,198       $224,905       $201,175        $77,627
                              ========       ========       ========       ========        =======

Long-term obligations         $103,797       $100,987        $71,198        $70,910        $22,323
                              ========       ========        =======        =======        =======
</TABLE>

                                       10

<PAGE>

Quarterly Data                  March 31    June 30     Sept 30      Dec 31
                                --------    --------    --------    --------

1999

Revenues                         $25,382     $28,608     $30,632     $27,552
Net income                        $3,162      $4,302      $4,339      $3,236
Per share amounts (basic):
    Net income                     $0.18       $0.25       $0.26       $0.20
    Weighted average shares
       outstanding                17,387      17,098      16,818      16,553
Per share amounts (diluted):
    Net income                     $0.18       $0.25       $0.26       $0.19
    Weighted average shares
       outstanding                17,495      17,196      17,000      16,788

1998

Revenues                         $22,795     $25,029     $28,936     $27,876
Net income (loss)                $(1,168)     $3,517      $3,941      $4,505
Per share amounts (basic):
    Net income                    $(0.06)      $0.18       $0.21       $0.25
    Weighted average shares
       outstanding                19,313      19,088      18,437      17,781
Per share amounts (diluted):
    Net income                    ($0.06)       $0.18       $0.21       $0.25
    Weighted average shares
       outstanding                19,313      19,223      18,561      17,890


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

Forward-Looking Statements

--------------------------

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

                                       11

<PAGE>

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

Year ended December 31, 1999 compared to the year ended December 31, 1998
-------------------------------------------------------------------------

         Total revenues increased $7,538,000 (7%) as compared to the same period
in 1998.  Revenues from  lithotripter  operations  decreased by $2,873,000  (3%)
primarily due to renegotiation of contracts which resulted in a larger number of
contracts providing for per diem pricing,  and contracts lost due to non-renewal
and competition. Despite the lithotripsy revenue declines, lithotripsy procedure
volume was constant from 1998 to 1999,  which the Company believes is indicative
of its market share preservation.  Manufacturing revenue increased by $6,461,000
(58%) due to increased sales of MRI trailers as well as the Company's  expansion
into  manufacturing and sales of cardiac  catheterization  lab trailers.  During
1998 the  manufacturing  facility became certified by GE to provide trailers for
MRI equipment.  RVC revenues were $3,414,000 in 1999 and included fee revenue of
$3,004,000  and  equity  income of  $410,000.  The  refractive  operations  were
acquired  during the third  quarter of 1999.  Prostatherapy  revenues  increased
$627,000  (52%) as1999  revenues  included a full year of  operations  for three
entities,  while 1998 revenues included a full year of operations for one entity
and a partial year of operations for two entities.

         Costs of services and general and  administrative  expenses  (excluding
depreciation  and  amortization)  increased  from  38% to 40%  of  revenues  and
increased  $5,466,000  (14%) in absolute  terms,  compared to the same period in
1998.  Cost  of  services  associated  with  lithotripter  operations  increased
$327,000 (1%) in absolute  terms and from 25% to 26% of  lithotripter  revenues.
Cost of services associated with manufacturing increased $3,676,000 (40%) due to
the  increase in sales.  Cost of services  associated  with RVC was  $1,954,000,
which  represents  approximately  4  months  of  operations.  Cost  of  services
associated with prostatherapy  increased  $482,000 due to increased  operations.
Corporate  expenses  decreased from 5% to 4% of revenues and increased  $101,000
(2%) in absolute  terms,  as the Company was able to  successfully  grow without
proportionately adding overhead.

         Other deductions  decreased $4,318,000 from 1998 to 1999. This decrease
is  attributable  to a  decrease  in loan  fees  and  stock  offering  costs  of
$4,412,000  due to costs  recognized in 1998 of $4,978,000  associated  with the
$100 million senior  subordinated notes offering and the $50 million increase in
the senior  revolving  credit  facility,  partially  offset by 1999  expenses of
$566,000  related  to a  restructuring  of the  Company's  $100  million  senior
revolving credit facility. Also contributing to the decrease in other deductions
was income recognition in 1999 of $1,140,000 due to the release of a contractual
obligation  related to a management  incentive  compensation  program accrued at
December 31,  1998.  These  decreases  were  partially  offset by an increase in
interest  expense of $939,000,  primarily  due to the $100 million debt offering
which closed in March 1998.

                                       12

<PAGE>

         Minority interest in consolidated  income decreased $282,000 in 1999 as
compared to 1998 primarily due to the decline in lithotripsy  revenue  discussed
above in certain of the Company's subsidiaries. Earnings before interest, taxes,
depreciation,  and amortization  (EBITDA) attributable to minority interests was
$28,554,000 for the year ended December 31, 1999 compared to $28,077,000 for the
same  period in 1998.  EBITDA is not  intended to  represent  net income or cash
flows from operating activities in accordance with generally accepted accounting
principles and should not be considered a measure of the Company's profitability
or liquidity.

         Income tax expense for 1999  increased  $2,055,000  over 1998 primarily
due to the increase in pretax income.

Year ended December 31, 1998 compared to the year ended December 31, 1997
-------------------------------------------------------------------------

         Total revenues increased $8,657,000 (9%) as compared to the same period
in 1997.  Revenues from  lithotripter  operations  decreased by $1,060,000  (1%)
primarily due to a decline in average reimbursement per procedure. Manufacturing
revenue  increased by  $8,708,000  (369%) due to the fact that the 1998 revenues
were for the full year while 1997 revenues  were for four months of  operations.
The Company acquired the trailer  manufacturer in September 1997.  Prostatherapy
revenues  rose  $1,207,000  due to the fact that 1998 revenues were for the full
year for one entity and a partial year for another  entity,  while 1997 revenues
included one entity which began operations in the fourth quarter. Other revenues
decreased $198,000 primarily due to four discontinued/sold cardiac centers.

         Costs of services and general and  administrative  expenses  (excluding
depreciation  and  amortization)  increased  from  35% to 38%  of  revenues  and
increased  $6,188,000  (19%) in absolute  terms,  compared to the same period in
1997.  Cost  of  services  associated  with  lithotripter  operations  decreased
$2,707,000 (11%) in absolute terms and from 27% to 25% of lithotripter revenues.
Cost of services associated with manufacturing  increased  $7,461,000 (428%) due
to full year of  operations  in 1998 while 1997 costs  represent  four months of
operations.  Cost of services  associated with prostatherapy  increased $803,000
due to a full year of  operations  for the  first  time in 1998.  Other  cost of
services  decreased  $229,000  (48%)  primarily  due to  four  discontinued/sold
cardiac centers.  Corporate expenses decreased from 6% to 5% of revenues, as the
Company was able to successfully grow without  proportionately  adding overhead.
Corporate  expenses decreased $757,000 (13%) primarily due to a consolidation of
corporate functions.

         Other deductions increased $4,635,000 primarily due to (i) the increase
of $4,618,000 for the write-off of fees paid to lenders to obtain financing, and
(ii) an  increase  in  interest  expense of  $992,000  due to an increase in new
borrowings in March 1998 related to the $100 million senior  subordinated  notes
offering.  The  increased  deductions  were offset  partially  by an increase in
interest income of $677,000.

         Minority interest in consolidated  income decreased  $251,000 primarily
due to the  decline in  revenue  discussed  above in  certain  of the  Company's
subsidiaries.  EBITDA attributable to minority interests was $28,077,000 for the
year ended  December  31, 1998  compared to  $28,591,000  for the same period in
1997.

         Income tax expense for 1998 increased $1,582,000 over 1997, despite the
12%  reduction  in pretax  earnings  over the same period as the 1997  provision
included the effect of a reduction in the Company's  valuation allowance related
to net operating loss carryforwards.

Liquidity and Capital Resources

         Cash and cash  equivalents were $20,064,000 and $40,146,000 at December
31, 1999 and 1998, respectively. The Company's 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, 1999
and  1998,  the  Company's   subsidiaries   distributed  cash  of  approximately
$27,180,000 and $25,799,000, respectively, to minority interest holders.

                                       13

<PAGE>

         Cash provided by operations was $35,744,000 for the year ended December
31, 1999 and $45,551,000 for the year ended December 31, 1998. From 1998 to 1999
fee and other revenue  collected  increased by $9,602,000  and was offset by the
increase  in  cash  paid  to  employees,   suppliers  of  goods  and  others  of
$12,396,000. These fluctuations are attributable to increased operations as well
as the timing of  accounts  receivable  collections  and  accounts  payable  and
accrued expense payments. An increase in interest payments of $2,092,000 was due
to the $100 million of senior subordinated notes issued in March 1998, resulting
in a partial  year of interest  payments on this debt in 1998 versus a full year
of interest  payments on this debt in 1999.  Taxes paid increased  $790,000 from
1998 to 1999 due to higher  income tax expense  during 1999.  Additionally,  the
Company purchased  investments in a trading portfolio of $9,222,000 during 1999,
partially offset by proceeds from sales and maturities of $5,003,000.

         Cash used by investing activities for the year ended December 31, 1999,
was $26,241,000 primarily due to $23,580,000 used in two refractive acquisitions
and one  lithotripter  acquisition  as well as payments  of earnouts  related to
prior year  acquisitions.  Purchases of equipment and leasehold  improvements of
$5,790,000   were  partially   offset  by  $2,352,000  in   distributions   from
investments.  Cash used by investing  activities for the year ended December 31,
1998, was  $2,142,000  primarily due to $5,213,000 for the purchase of equipment
and leasehold improvements, partially offset by $2,532,000 in distributions from
investments.

         Cash used in financing activities for the year ended December 31, 1999,
was $29,585,000,  which was primarily due to distributions to minority interests
of $27,180,000 and purchases of treasury stock of $8,382,000 partially offset by
net  borrowings  of $3,181,000  and  contributions  of $2,636,000  received from
holders of minority interests related to expansion of existing  partnerships and
new partnership formations. Cash used in financing activities for the year ended
December 31, 1998, was  $27,033,000,  primarily due to distributions to minority
interests of  $25,799,000,  purchases of treasury stock of $16,439,000  and debt
issuance costs of $4,417,000, partially offset by net borrowings of $19,541,000.

         The Company's credit facility as of December 31, 1999 is comprised of a
revolving line of credit.  The revolving line of credit has a borrowing limit of
$100  million,  none of which was drawn at December 31, 1999 and March 15, 2000.
Subsequent  to December 31, 1999 the Company  completed a  restructuring  of its
revolving  line of credit to enable the Company to draw on the  revolver for RVC
acquisitions.  The  restructuring  splits the revolver  into two  facilities  of
$14,000,000  for  refractive   acquisitions  by  certain  subsidiaries  and  the
remaining   $86,000,000   for   lithotripsy,   manufacturing,   refractive   and
prostatherapy  acquisitions as well as for working  capital.  On March 27, 1998,
the Company completed an offering of $100 million of senior  subordinated  notes
due 2008 (the "Notes") to qualified  institutional buyers. The net proceeds from
the  offering of  approximately  $96  million was used to repay all  outstanding
indebtedness  under the Company's  bank  facility,  with the remainder  used for
general corporate purposes, including acquisitions. In connection therewith, the
Company recorded a charge to earnings in 1998 of approximately  $4.4 million for
debt issuance costs  associated with the 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  Company   intends  to  increase  the  number  of  its  lithotripsy
operations  primarily through  acquisitions and the number of its RVC operations
through  both  acquisitions  and  development.  The Company  intends to fund the
purchase price for future  acquisitions and developments  using borrowings under
its senior  credit  facility and cash flow from  operations.  In  addition,  the
Company  may  use  shares  of  its  common  stock  in  such  acquisitions  where
appropriate.

                                       14

<PAGE>

         During 1998, the Company announced a stock repurchase  program of up to
$25.0  million of common  stock.  In  February  2000 the  Company  announced  an
increase  in the  authorized  repurchase  amount  from  $25.0  million  to $35.0
million.  From time to time, the Company may purchase  additional  shares of its
common stock where,  in the judgment of  management,  market  valuations  of its
stock do not  accurately  reflect the Company's  past and  projected  results of
operations. The Company intends to fund any such purchases using available cash,
cash flow from operations and borrowings under its senior credit  facility.  The
Company has purchased 2,968,800 shares of stock for a total of $25,572,000 as of
March 15, 2000.

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

Inflation

---------

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

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

Interest Rate Risk:
         The Company has long-term debt  (including  current  portion)  totaling
$105,560,000,  of which  $100.8  million  has a fixed rate of interest of 8.75%,
$126,000  has fixed rates of 6% to 9% and $162,000  does not bear any  interest.
The  remaining  $4,464,000  bears  interest  at the prime  rate.  The Company is
exposed to some market risk due to the floating interest rate on the $4,464,000.
The Company makes monthly or quarterly payments of principal and interest on the
$4,464,000.  An  increase in  interest  rates of 1.5% would  result in a $67,000
annual increase in interest expense on this existing principal balance.

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.



                                       15

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

     The information  required by this item is contained in the definitive proxy
material of the Company to be filed in connection  with its 2000 annual  meeting
of shareholders,  except for the information regarding executive officers of the
Company,  which is  presented  below.  The  information  required  by this  item
contained in such definitive proxy material is incorporated herein by reference.

As of March 15, 2000, the executive officers of the Company are as follows:

Name                          Age   Position

----                          ---   --------

Kenneth S. Shifrin            50    Chairman of the Board
Joseph Jenkins, M.D., J.D.    52    President, Chief Executive Officer and
                                       Director

Brad A. Hummel                43    Executive Vice President and Chief
                                       Operating Officer
Cheryl L. Williams            48    Chief  Financial  Officer, Senior Vice
                                       President-Finance and Secretary
Teena E. Belcik               37    Vice President and Treasurer
John R. Hedrick               47    Senior Vice President of Development
Stan Johnson                  46    Vice President

The foregoing  does not include  positions  held in the Company's  subsidiaries.
Officers  are  elected  for annual  periods.  There are no family  relationships
between any of the executive officers and/or directors of the Company.

Mr.  Shifrin has been  Chairman of the Board and a director of the Company since
October 1989. In addition, Mr. Shifrin has served in various capacities with APS
since February 1985, and is currently  Chairman of the Board and Chief Executive
Officer of APS. Mr. Shifrin is a member of the World Presidents' Organization.

Dr. Jenkins has been President and Chief Executive Officer and a director of the
Company since April 1996.  From May 1990 until  December 1991, Dr. Jenkins was a
Vice President of  Lithotripters,  Inc. Since January 1992, Dr. Jenkins has been
President of Lithotripters,  Inc. Dr. Jenkins is a board certified urologist and
is a founding  member, a past president and currently a director of the American
Lithotripsy  Society.

Mr. Hummel has been the Executive Vice President and Chief Operating  Officer of
the Company  since October  1999.  Prior to joining the Company,  Mr. Hummel was
with Diagnostic Health Services,  Inc. ("DHS") since 1984, most recently serving
as the President and Chief  Executive  Officer,  and as a member of the Board of
Directors.  The Company believes that DHS filed for Chapter 11 reorganization on
or about March 20, 2000.  From 1981 to 1984,  Mr.  Hummel was an associate  with
Covert,  Crispin and Murray,  a  Washington,  D.C. and  London-based  management
consulting firm. Mr. Hummel also serves as a member of APS's Board of Directors.

Ms. Williams has been Chief Financial  Officer,  Senior Vice President - Finance
and Secretary of the Company since October 1989. Ms.  Williams was Controller of
Fairchild  Aircraft  Corporation  from August 1988 to October 1989. From 1985 to
1988, Ms. Williams served as the Chief Financial Officer of APS Systems, Inc., a
wholly-owned subsidiary of APS.



                                       16

<PAGE>

Ms. Belcik has been Vice President and Treasurer  since October 1999. Ms. Belcik
served  various  positions  with Bank of America,  N.A.  since 1994 and was most
recently a Senior Vice President in the Health Care Banking  Group.  Previously,
Ms. Belcik taught at Valdosta State University,  was a financial consultant, and
held several positions with Chase Bank's Corporate Banking Group.

Mr. Hedrick has been the Senior Vice President of  Development  since  September
1999.  Mr. Hedrick was with a subsidiary of American  Physicians  Service Group,
Inc. ("APS") since 1997 serving as Senior Vice President.  From 1988 to 1997 Mr.
Hedrick's experience included providing merger and acquisition advisory services
to privately held healthcare entities, including ophthalmology, and the practice
of law.

Mr.  Johnson  has been a Vice  President  of the Company  and  President  of Sun
Medical Technologies,  Inc. ( "Sun "), a wholly-owned subsidiary of the Company,
since November 1995.  Mr.  Johnson was the Chief  Financial  Officer of Sun from
1990 to 1995.

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

         The  information  required by this item is contained in the  definitive
proxy  statement of the Company to be filed in  connection  with its 2000 annual
meeting of shareholders, which information is incorporated herein by reference.

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

         The  information  required by this item is contained in the  definitive
proxy  statement of the Company to be filed in  connection  with its 2000 annual
meeting of shareholders, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

         The  information  required by this item is contained in the  definitive
proxy  statement of the Company to be filed in  connection  with its 2000 annual
meeting of shareholders, which information is incorporated herein by reference.

                                     PART IV

ITEM 14. 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.
         -----------------------------

         None.

(b)  Reports on Form 8-K.
     -------------------

         None.



                                       17

<PAGE>
(c)  Exhibits. (1)
     --------

     3.1    Certificate of Incorporation of the Company. (2)

     3.2    Bylaws of the Company. (2)

     4.1    Specimen of Common Stock Certificate. (2)

     10.1*  Prime Medical Services, Inc. 1993 Stock Option Plan. (3)

     10.2*  First Amendment to the Prime Medical Services, Inc. 1993 Stock
            Option Plan. (12)

     10.3*  Second Amendment to the Prime Medical Services, Inc. 1993 Stock
            Option Plan. (12)

     10.4*  Third Amendment to the Prime Medical Services, Inc. 1993 Stock
            Option Plan. (13)

     10.5   Rights Agreement dated October 18, 1993 between the Company and
            American Stock Transfer and Trust Company. (3)

     10.6   Form of  Indemnification  Agreement  dated  October 11, 1993
            between the Company and certain of its officers and directors. (3)

     10.7   Partnership Agreement of Metro Atlanta Stonebusters, G.P. (5)

     10.8   Management Agreement dated July 28, 1994 between the Alabama Renal
            Stone Institute, Inc. and Alabama Kidney Stone Foundation, Inc. (6)

     10.9   Asset Purchase Agreement dated July 21, 1999 among Prime Lithotripsy
            Services, Inc., Reston Hospital Lithotripter Joint Venture, Reston
            Lithotripsy Associates, Inc., Columbia Arlington Healthcare System,
            L.L.C. and Robert Ball, M.D. (15)

     10.10  Not used

     10.11  Not used

     10.12  Not used

     10.13  Not used

     10.14  Amended and Restated Joint Venture Agreement dated April 1989,
            between Prime Diagnostic Imaging Services, Inc. and The Shasta
            Diagnostic Imaging Medical Group. (4)

     10.15  Agreement of Limited Partnership of Mobile Kidney Stone Centers of
            California III, L.P. (15)

     10.16  Amendments to First Amended and Restated Agreement of Limited
            Partnership of Ohio Mobile Lithotripter, Ltd. (15)

     10.17  Second Amendment to Agreement of Limited Partnership of Pacific
            Medical Limited Partnership (15)



                                       18

<PAGE>

     10.18  Amendments to Agreement of Limited Partnership of Texas Lithotripsy
            Limited Partnership VII, L.P. (15)

     10.19  Fourth Amendment to Agreement of Limited Partnership of San Diego
            Lithotripters Limited Partnership (15)

     10.20  Amendment to Agreement of Limited Partnership of Fayetteville
            Lithotripters Limited Partnership - Virginia I (15)

     10.21  Amendments to Agreement of Limited Partnership of Fayetteville
            Lithotripters Limited Partnership - South Carolina II (15)

     10.22  Amendment to Agreement of Limited Partnership of Fayetteville
            Lithotripters Limited Partnership - Utah I (15)

     10.23  Third Amendment to Agreement of Limited Partnership of Florida
            Lithotripters Limited Partnership I (15)

     10.24  Fourth Amendment to Agreement of Limited Partnership of Indiana
            Lithotripters Limited Partnership I (15)

     10.25  Sixth Amendment to Agreement of Limited Partnership of Texas
            Lithotripsy Limited Partnership III, L.P. (15)

     10.26  Agreement of Limited Partnership of Mobile Kidney Stone Centers of
            California II, L.P. (15)

     10.27  Fourth Amendment to Agreement of Limited Partnership of Louisiana
            Lithotripsy Investment Limited Partnership (15)

     10.28  Operating Agreement for Southern California Stone Center, L.L.C. (9)

     10.29  Lease Agreement  dated July 1, 1995 between Kidney Stone Center of
            South Florida, L.C. and Madorsky and Pinon Kidney Stone Center of
            South Florida, P.A. (9)

     10.30  Agreement of Limited Partnership of Texas I Prostatherapy Limited
            Partnership (15)

     10.31  Not used

     10.32  Partnership Interest Purchase Agreement dated May 1, 1997 among
            Prime Lithotripter Operations, Inc., Tenn-Ga Stone Group Two, L.P.,
            NGST, Inc. and all the Shareholders of NGST, Inc. (12)

     10.33  Stock Purchase Agreement dated June 1, 1997 between Sun Medical
            Technologies, Inc. and Executive Medical Enterprises, Inc. (12)

     10.34  Contribution Agreement dated October 8, 1997 between Prime Medical
            Services, Inc. and AK Associates. (12)

     10.35  Confidential Assignment Summary for Pacific Medical Limited
            Partnership. (14)

     10.36  Limited Partnership Agreement for Texas Lithotripsy VII, L.P. (14)



                                       19

<PAGE>

     10.37  Agreement and Plan of Merger of Texas Lithotripsy Limited
            Partnership II, L.P., Texas Lithotripsy Limited Partnership IV, L.P.
            and Texas ESWL/Laser Lithotripter, Ltd. (14)

     10.38  Limited Partnership Agreement for Big Sky Urological Limited
            Partnership. (14)

     10.39  Operating Agreement for Kentucky I Lithotripsy, LLC. (14)

     10.40  Confidential Private Placement Memorandum for Tennessee Valley
            Lithotripter Limited Partnership. (14)

     10.41  Confidential Private Placement Memorandum for Fayetteville
            Lithotripters Limited Partnership - Arkansas I. (14)

     10.42  Confidential Private Placement Memorandum for Texas Lithotripsy
            Limited Partnership I, L.P. (14)

     10.43  Operating Agreement for Washington Urological Services, LLC. (14)

     10.44* Amended and Restated 1993 Stock Option Plan, as amended June 10,
            1998. (10)

     10.45  Agreement of Limited Partnership of Wyoming Urological Services,
            L.P. (14)

     10.46  Indenture Agreement dated March 27, 1998 between Prime Medical
            Services, Inc. and State Street Bank and Trust Company of Missouri,
            N.A. (8)

     10.47  Loan Agreement dated January 31, 2000 for $14,000,000 Advancing Term
            Loan between Prime Refractive Management, L.L.C., Bank of America,
            N.A. as Administrative Agent, Bank Boston, N.A. as Documentation
            Agent and the Lenders Named Therein (15)

     10.48  Fourth Amended and Restated Loan Agreement dated January 31, 2000
            for $86,000,000 Revolving Credit Loan between Prime Medical Services
            Inc., Bank of America, N.A. as Administrative Agent, BankBoston,
            N.A. as Documentation Agent and the Lenders Named Therein (15)

     10.49  Pledge and Security  Agreements  dated  January 31, 2000 relating to
            $14,000,000  Advancing Term Loan and  $86,000,000  Revolving  Credit
            Loan (15)

     10.50  Borrower  Security  Agreements  dated  January 31, 2000  relating to
            $14,000,000  Advancing Term Loan and  $86,000,000  Revolving  Credit
            Loan (15)

     10.51  Guarantor  Security  Agreements  dated  January 31, 2000 relating to
            $14,000,000  Advancing Term Loan and  $86,000,000  Revolving  Credit
            Loan (15)

     10.52  Guarantor Copyright Security Agreements dated January 31, 2000
            relating to $14,000,000 Advancing Term Loan and $86,000,000
            Revolving Credit Loan (15)

     10.53  Guaranty  Agreements  dated January 31, 2000 relating to $14,000,000
            Advancing Term Loan and $86,000,000 Revolving Credit Loan (15)

     10.54  Note dated January 31, 2000 in the amount of $1,050,000 between
            Prime Refractive Management and Guaranty Federal Bank, F.S.B. (15)



                                       20

<PAGE>

     10.55  Note dated  January  31,  2000 in the amount of  $1,575,000  between
            Prime Refractive Management and Fleet National Bank (15)

     10.56  Note dated January 31, 2000 in the amount of $3,150,000 between
            Prime Refractive Management and BankBoston, N.A. (15)

     10.57  Note dated January 31, 2000 in the amount of $4,725,000 between
            Prime Refractive Management and Bank of America, N.A. (15)

     10.58  Note dated January 31, 2000 in the amount of $2,100,000 between
            Prime Refractive Management and Bank One, Texas, N.A. (15)

     10.59  Note dated January 31, 2000 in the amount of $12,900,000 between
            Prime Medical Services, Inc. and Bank One, Texas, N.A. (15)

     10.60  Note dated January 31, 2000 in the amount of $8,600,000 between
            Prime Medical Services, Inc. and LaSalle Bank, National
            Association (15)

     10.61  Note dated January 31, 2000 in the amount of $8,600,000 between
            Prime Medical Services, Inc. and Cooperative Centrale
            Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York
            Branch (15)

     10.62  Note dated January 31, 2000 in the amount of $8,600,000 between
            Prime Medical Services, Inc. and Credit Lyonnais New York
            Branch (15)

     10.63  Note dated January 31, 2000 in the amount of $5,375,000 between
            Prime Medical Services, Inc. and Fleet National Bank (15)

     10.64  Note dated January 31, 2000 in the amount of $8,600,000 between
            Prime Medical Services, Inc. and Imperial Bank(15)

     10.65  Note dated January 31, 2000 in the amount of $6,450,000 between
            Prime Medical Services, Inc. and Guaranty Federal Bank, F.S.B. (15)

     10.66  Note dated January 31, 2000 in the amount of $16,125,000 between
            Prime Medical Services, Inc. and Bank of America, N.A. (15)

     10.67  Note dated January 31, 2000 in the amount of $10,750,000 between
            Prime Medical Services, Inc. and BankBoston,  N.A. (15)

     10.68  Note dated  January  31,  2000 in the amount of  $1,400,000  between
            Prime Refractive Management and LaSalle Bank, National
            Association (15)

     10.69  Not used

     10.70  Contribution Agreement dated September 1, 1999 and First Amendment
            dated January 31, 2000 among Barnet Dulaney Eye Center,  P.L.L.C.,
            David Dulaney,  M.D., Ronald W. Barnet, M.D., Mark Rosenberg,
            Prime Medical Services Inc., Prime Medical Operating Inc., LASIK
            Investors, L.L.C., Prime/BDR Acquisition, L.L.C. and Prime/BDEC
            Acquisition,  L.L.C. (15)



                                       21

<PAGE>

     10.71  Loan Agreement dated September 1, 1999 between Prime Medical
            Operating, Inc. and Prime/BDR Acquisition, L.L.C. (15)

     10.72  Limited Liability Company Agreement of Prime/BDR Acquisition,
            L.L.C. (15)

     10.73  Limited Liability Company Agreement of Prime/BDEC Acquisition,
            L.L.C. (15)

     10.74  Non-Competition Agreements dated September 1, 1999 between Robert
            B. Pinkert, O.D. and Scott A. Perkins, M.D. for the benefit of Prime
            Medical Services Inc., Prime Medical Operating, Inc., Prime/BDR
            Acquisition, L.L.C., Prime/BDEC Acquisition,  L.L.C., Barnet Dulaney
            Eye Center, P.L.L.C., LASIK Investors, L.L.C., Ronald W. Barnet,
            M.D., David D. Dulaney, M.D., and Mark Rosenberg (15)

     10.75  Promissory Note dated September 1, 1999 from Prime/BDR Acquisition,
            L.L.C., to Prime Medical Operating, Inc. (15)

     10.76  Collocation Agreement dated September 1, 1999 by and between Barnet
            Dulaney Eye Center, P.L.L.C. and Prime/BDR Acquisition, L.L.C. (15)

     10.77  Membership Interest Transfer Restriction Agreement dated
            September 1, 1999 (15)

     10.78  Assignment and Security Agreement dated September 1, 1999 between
            Prime Medical Operating, Inc. and LASIK Investors, L.L.C. (15)

     10.79  Promissory Note dated September 1, 1999 from Prime/BDR Acquisition,
            L.L.C., to Prime Medical Operating, Inc. (15)

     10.80  Loan Agreement dated January 31, 2000 between Prime Refractive,
            L.L.C. and Prime Refractive Management, L.L.C. (15)

     10.81  Promissory Note dated January 31, 2000 between Prime Refractive,
            L.L.C. and Prime Refractive Management, L.L.C. (15)

     10.82  Assignment and Security Agreement dated January 31, 2000 between
            Prime Refractive Management, L.L.C. and LASIK Investors, L.L.C. (15)

     10.83  Limited Liability Company Agreement dated September 1, 1999 of Prime
            Refractive, L.L.C. (15)

     10.84  Stock Purchase Agreements dated September 1, 1999 relating to the
            acquisition of Horizon Vison Center, Inc. (15)

     10.85  Assignment and Security Agreements relating to the acquisition of
            Horizon Vison Center, Inc. (15)

     10.86  Exclusive Use Agreements relating to the acquisition of Horizon
            Vison Center, Inc. (15)

     10.87  Amended and Restated Bylaws for the regulation of Horizon Vison
            Centers, Inc. (15)

     10.88  Assignment and Security Agreement by and between Prime Medical
            Operating, Inc. and Prime/BDR Acquisition, L.L.C. (15)

     12     Computation of ratio of earnings to fixed charges.  (15)

     21.1   List of subsidiaries of the Company.  (15)

     23.1   Independent Auditors' Consent of KPMG LLP.   (15)

     27     Financial Data Schedule (15)

 --------------


     * Executive compensation plans and arrangements.


                                       22

<PAGE>
(1)  The exhibits  listed  above will be  furnished to any security  holder upon
     written  request  for such  exhibit to Cheryl L.  Williams,  Prime  Medical
     Services,  Inc., 1301 Capital of Texas Highway,  Suite C-300, Austin, Texas
     78746.  The  Securities  and Exchange  Commission  (the "SEC")  maintains a
     website that contains reports,  proxy and information  statements and other
     information  regarding registrants that file electronically with the SEC at
     "http://www.sec.gov".

(2)  Filed as an Exhibit to the Registration Statement on Form S-4 (Registration
     No. 33-56900) of the Company and incorporated herein by reference.

(3)  Filed as an Exhibit to the Current  Report on Form 8-K of the Company dated
     October 18, 1993 and incorporated herein by reference.

(4)  Filed  as an  Exhibit  to the  Annual  Report  on Form  10-K of Old  Prime,
     Commission  File Number 0- 9963,  for the year ended  December 31, 1992 and
     incorporated herein by reference.

(5)  Filed as an Exhibit to the Current  Report on Form 8-K dated May 5, 1994 of
     the Company and incorporated herein by reference.

(6)  Filed as an Exhibit to the  Current  Report on Form 8-K dated July 28, 1994
     of the Company and incorporated herein by reference.

(7)  Not used.

(8)  Filed as an  Exhibit  to the  Quarterly  Report on Form 10-Q for the period
     ended June 30,  1998

(9)  Filed as an Exhibit to the Annual  Report on Form 10-K of the  Company  for
     the year ended December 31, 1995.

(10) Filed as an Exhibit to the Registration Statement on Form S-8 (Registration
     No. 333-62245) of the Company and incorporated herein by reference.

(11) Not used.

(12) Filed as an Exhibit to the Annual  Report on Form 10-K of the  Company  for
     the year ended December 31, 1997.

(13) Filed as an  Exhibit  to the  Quarterly  Report on Form 10-Q for the period
     ended September 30, 1998.

(14) Filed as an Exhibit to the Annual  Report on Form 10-K of the  Company  for
     the year ended December 31, 1998.

(15) Filed herewith.



                                  23

<PAGE>

                                   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: /s/ Joseph Jenkins, M.D., J.D.
                                   -------------------------------
                                   Joseph Jenkins, M.D., J.D., President,
                                   Chief Executive Officer and Director


                                   Date:  March 30, 2000



     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: /s/ Kenneth S. Shifrin

    ----------------------
    Kenneth S. Shifrin
    Chairman of the Board

Date:  March 30, 2000





By: /s/ Cheryl L. Williams

    ----------------------
    Cheryl L. Williams

    Senior Vice President of Finance, Secretary
    and Chief Financial Officer (Principal
    Financial and Accounting Officer)

Date:  March 30, 2000



                                  24

<PAGE>

By: /s/ Joseph Jenkins

    ----------------------
    Joseph Jenkins, M.D., President,
    Chief Executive Officer and Director

Date:  March 30, 2000





By: /s/ John McEntire

    ----------------------
     John McEntire, Director

Date:   March 30, 2000





By: /s/ William A. Searles

    ----------------------
    William A. Searles, Director

Date:  March 30, 2000





By: /s/ Michael Spalding

    ----------------------
    Michael Spalding, M.D., Director

Date:  March 30, 2000




By: /s/ James M. Usdan

    ----------------------
    James M. Usdan, Director

Date:  March 30, 2000



                                  25

<PAGE>

                                   APPENDIX A

                                      INDEX

                                                                         Page

Independent Auditors' Report                                             A-2
Consolidated Financial Statements:
     Consolidated Statements of Income for the years ended
        December 31, 1999, 1998 and 1997.                                A-3
     Consolidated Balance Sheets at December 31, 1999 and 1998.          A-4
     Consolidated Statements of Stockholders' Equity for the
        years ended December 31, 1999, 1998 and 1997.                    A-6
     Consolidated Statements of Cash Flows for the years ended
        December 31, 1999, 1998 and 1997.                                A-7
     Notes to Consolidated Financial Statements.                         A-10




                                       A-1

<PAGE>

                          Independent Auditors' Report

The Board of Directors and Shareholders
Prime Medical Services, Inc.:

We have audited the  accompanying  consolidated  financial  statements  of Prime
Medical   Services,   Inc.  and  subsidiaries   ("Company")  as  listed  in  the
accompanying   index.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

/s/:KPMG LLP

Austin, Texas
March 6, 2000

                                       A-2

<PAGE>

            PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except per share data)
<TABLE>

<S>                                                             <C>            <C>            <C>
                                                                     Years Ended December 31,
                                                                  1999           1998           1997
Revenue:
     Lithotripsy:
         Fee revenues                                            $ 80,880       $ 83,879       $ 84,537
         Management fees                                            5,719          5,284          6,237
         Equity income                                              2,581          2,890          2,339
                                                                 --------       --------       --------
                                                                   89,180         92,053         93,113
     Manufacturing                                                 17,527         11,066          2,358
     Refractive                                                     3,414              -              -
     Prostatherapy                                                  1,834          1,207              -
     Other                                                            219            310            508
                                                                 --------       --------       --------
         Total revenue                                            112,174        104,636         95,979
                                                                 --------       --------       --------
Cost of services and general and administrative expenses:

     Lithotripsy                                                   23,001         22,674         25,381
     Manufacturing                                                 12,880          9,204          1,743
     Refractive                                                     1,954              -              -
     Prostatherapy                                                  1,285            803              -
     Other                                                            165            249            478
     Corporate                                                      5,027          4,926          5,683
     Nonrecurring development, impairment
          and other costs, net                                        627          1,617              -
                                                                 --------       --------       --------
                                                                   44,939         39,473         33,285
Depreciation and amortization                                      10,848         10,476          9,911
                                                                 --------       --------       --------
         Total operating expenses                                  55,787         49,949         43,196
                                                                 --------       --------       --------

Operating income                                                   56,387         54,687         52,783

Other income (deductions):
     Interest and dividends                                         1,505          1,417            740
     Interest expense                                              (9,408)        (8,469)        (7,477)
     Loan fees and stock offering costs                              (566)        (4,978)          (360)
     Release of contractual obligation                              1,140              -              -
     Other, net                                                       (79)           304              6
                                                                 --------       --------       --------
                                                                   (7,408)       (11,726)        (7,091)
                                                                 --------       --------       --------
Income before provision for income taxes
     and minority interest                                         48,979         42,961         45,692

Minority interest in consolidated income                           24,508         24,790         25,041

Provision for income taxes                                          9,432          7,377          5,795
                                                                 --------       --------       --------

Net income                                                       $ 15,039       $ 10,794       $ 14,856
                                                                 ========       ========       ========

Basic earnings per share:
     Net income                                                    $ 0.89         $ 0.58         $ 0.77
                                                                 ========       ========       ========
     Weighted average shares outstanding                           16,958         18,650         19,275
                                                                 ========       ========       ========

Diluted earnings per share:
     Net income                                                    $ 0.88         $ 0.57         $ 0.76
                                                                 ========       ========       ========
     Weighted average shares outstanding                           17,114         18,783         19,461
                                                                 ========       ========       ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-3

<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

($ in thousands)
<TABLE>

<S>                                                                                   <C>                <C>
                                                                                             December 31,
                                                                                        1999               1998
ASSETS

Current assets:
     Cash and cash equivalents                                                         $20,064            $40,146
     Investments                                                                         4,120                  -
     Accounts receivable, less allowance for doubtful
        accounts of $224 in 1999 and $966 in 1998                                       23,273             21,400
     Other receivables                                                                   3,491              2,693
     Deferred income taxes                                                               1,066              2,330
     Prepaid expenses and other current assets                                           2,322                949
     Inventory                                                                           3,676              1,825
                                                                                      --------           --------
        Total current assets                                                            58,012             69,343
                                                                                      --------           --------

Property and equipment:
     Equipment, furniture and fixtures                                                  42,128             34,485
     Building and leasehold improvements                                                 2,092              2,073
                                                                                      --------           --------

                                                                                        44,220             36,558
     Less accumulated depreciation and
        amortization                                                                   (25,567)           (18,471)
                                                                                      --------           --------

        Property and equipment, net                                                     18,653             18,087
                                                                                      --------           --------

Other investments                                                                       18,963             11,026
Goodwill, at cost, net of amortization                                                 149,088            140,863
Other noncurrent assets                                                                  2,110                879
                                                                                      --------           --------
                                                                                      $246,826           $240,198
                                                                                      ========           ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-4

<PAGE>

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

($ in thousands, except share data)
<TABLE>

<S>                                                                                   <C>                <C>
                                                                                            December 31,
                                                                                        1999               1998
LIABILITIES

Current liabilities:
     Current portion of long-term debt                                                 $ 1,763              $ 890
     Accounts payable                                                                    3,290              5,287
     Accrued distributions to minority interests                                         8,332              8,951
     Accrued expenses                                                                    7,108             12,051
                                                                                      --------           --------

         Total current liabilities                                                      20,493             27,179

Long-term debt, net of current portion                                                 103,797            100,987
Deferred income taxes                                                                    6,400              4,789
                                                                                      --------           --------

         Total liabilities                                                             130,690            132,955

Minority interest                                                                       19,454             17,493


STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value, 1,000,000 shares
     authorized; none outstanding                                                           -                  -
Common stock, $0.01 par value, 40,000,000 shares
     authorized; 19,367,267 issued in 1999 and
     19,350,267 isssued in 1998                                                            194                194
Capital in excess of par value                                                          87,655             87,380
Accumulated earnings                                                                    33,654             18,615
Treasury stock, at cost, 2,875,300 shares in 1999
     and 1,845,200 shares in 1998                                                      (24,821)           (16,439)
                                                                                      --------           --------

         Total stockholders' equity                                                     96,682             89,750
                                                                                      --------           --------

                                                                                      $246,826           $240,198
                                                                                      ========           ========

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-5

<PAGE>

                          PRIME MEDICAL SERVICES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1999, 1998 and 1997

($ in thousands, except share data)
<TABLE>

<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>
                                                                   Capital in    Accumulated

                                           Issued Common Stock      Excess of     Earnings          Treasury Stock
                                            Shares       Amount     Par Value     (Deficit)       Shares       Amount       Total
                                          ----------     ------    ----------      --------     ----------   ---------    --------

Balance, January 1, 1997                  19,078,933      $ 191     $ 83,271       $ (7,035)            -       $   -     $ 76,427

     Net income for the year                      -          -            -          14,856             -           -       14,856

     Exercise of stock options
        including tax benefit of
        $438 on non-qualifying
        exercises                            227,334          2          779             -              -           -          781
                                          ----------     ------    ----------      --------     ----------   ---------    --------
Balance, December 31, 1997                19,306,267        193       84,050          7,821             -           -       92,064

     Net income for the year                      -          -            -          10,794             -           -       10,794

     Tax benefits on exercised warrants           -          -         3,096             -              -           -        3,096

     Exercise of stock options
        including tax benefit of
        $140 on non-qualifying
        exercises                             44,000          1          234             -              -           -          235

     Purchase of treasury stock                   -          -            -              -      (1,845,200)    (16,439)    (16,439)
                                          ----------     ------    ----------      --------     ----------   ---------    --------

Balance, December 31, 1998                19,350,267        194       87,380         18,615     (1,845,200)    (16,439)     89,750

     Net income of the year                       -          -            -          15,039             -           -       15,039

     Issuance of put options                      -          -            73             -              -           -           73

     Issuance of warrants                         -          -            97             -              -           -           97

     Exercise of stock options
        including tax benefit of
        $18 on non-qualifying
        exercises                             17,000         -           105             -              -           -          105

     Purchase of treasury stock                   -          -            -              -      (1,030,100)     (8,382)     (8,382)
                                          ----------     ------    ----------      --------     ----------   ---------    --------

Balance, December 31, 1999                19,367,267      $ 194     $ 87,655       $ 33,654     (2,875,300)  $ (24,821)   $ 96,682
                                          ==========     ======    ==========      ========     ==========   =========    ========

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-6

<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)
<TABLE>

<S>                                                                 <C>               <C>              <C>
                                                                               Years Ended December 31,
                                                                       1999              1998             1997
                                                                    ------------      -----------      ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
     Fee and other revenue collected                                  $ 108,251         $ 98,649          $ 90,924
     Cash paid to employees, suppliers
         of goods and others                                            (52,144)         (39,748)          (31,685)
     Purchases of investments                                            (9,222)               -                 -
     Proceeds from sales and maturities of investments                    5,003                -                 -
     Interest received                                                    1,505            1,417               739
     Interest paid                                                       (9,353)          (7,261)           (7,521)
     Taxes paid                                                          (8,296)          (7,506)             (764)
                                                                    ------------      -----------      ------------

         Net cash provided by operating activities                       35,744           45,551            51,693
                                                                    ------------      -----------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of equity investments and entities                        (23,580)               -           (20,217)
     Purchases of equipment and leasehold
         improvements                                                    (5,790)          (5,213)           (4,546)
     Proceeds from sales of equipment                                       207              224                30
     Distributions from investments                                       2,352            2,532             1,690
     Other                                                                  570              315                94
                                                                    ------------      -----------      ------------

         Net cash used in investing activities                          (26,241)          (2,142)          (22,949)
                                                                    ------------      -----------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on notes payable, exclusive of interest                    (1,403)         (80,484)          (50,328)
     Borrowings on notes payable                                          4,584          100,025            51,201
     Distributions to minority interest                                 (27,180)         (25,799)          (28,667)
     Debt issuance costs                                                      -           (4,417)                -
     Contributions by minority interest                                   2,636               72             2,381
     Exercise and issuance of stock options                                 160                9               343
     Purchase of treasury stock                                          (8,382)         (16,439)                -
                                                                    ------------      -----------      ------------

         Net cash used in financing activities                          (29,585)         (27,033)          (25,070)
                                                                    ------------      -----------      ------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                                               (20,082)          16,376             3,674

Cash and cash equivalents, beginning of period                           40,146           23,770            20,096
                                                                    ------------      -----------      ------------

Cash and cash equivalents, end of period                               $ 20,064         $ 40,146          $ 23,770
                                                                    ============      ===========      ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-7

<PAGE>

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


($ in thousands)
<TABLE>

<S>                                                              <C>              <C>              <C>
                                                                            Years Ended December 31,
                                                                    1999             1998             1997
                                                                 ------------     ------------     ------------

Reconciliation of net income to net cash provided by
   operating activities:

Net income                                                          $ 15,039         $ 10,794         $ 14,856
Adjustments to reconcile net income to cash provided
     by operating activities:
         Minority interest in consolidated income                     24,508           24,790           25,041
         Depreciation and amortization                                10,848           10,476            9,911
         Provision for uncollectible accounts                            702              252              427
         Equity in earnings of affiliates                             (2,802)          (2,890)          (2,339)
         Debt issuance costs                                               -            4,417                -
         Provision for deferred income taxes                           2,875             (442)              68
         Write down of equipment                                       1,149                -                -
         Settlement of contingent liability                             (500)               -                -
         Release of contractual liability                             (1,140)               -                -
         Other                                                           (66)            (100)           1,159
     Changes in  operating  assets and  liabilities,
         net of effect of  purchase transactions:
             Investments                                              (4,120)               -                -
             Accounts receivable                                      (1,851)          (3,186)          (3,156)
             Other receivables                                        (1,424)            (910)             754
             Other assets                                             (2,585)          (1,244)            (602)
             Accounts payable                                         (2,665)             822              934
             Accrued expenses                                         (2,224)           2,772            4,640
                                                                 ------------     ------------     ------------

     Total adjustments                                                20,705           34,757           36,837
                                                                 ------------     ------------     ------------

Net cash provided by operating activities                           $ 35,744         $ 45,551         $ 51,693
                                                                 ============     ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-8

<PAGE>

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


($ in thousands)
<TABLE>

<S>                                                                         <C>            <C>             <C>
                                                                                     Years Ended December 31,
                                                                               1999           1998            1997
                                                                            -----------    ------------    ------------
SUPPEMENTAL INFORMATION OF NON-CASH
     INVESTING AND FINANCING ACTIVITIES:

At December 31, 1999, the Company had accrued distributions payable to
minority interests. The effect of this transaction was as follows:

         Current liabilities increased by                                      $ 8,332
         Minority interest decreased by                                          8,332

In 1999, the Company acquired, through a majority owned subsidiary 60% of the
outstanding stock of Horizon Vision Centers. This transaction is discussed
further in Note D. The acquired assets and liabilities were as follows:

         Current assets increased by                                               710
         Noncurrent assets increased by                                          3,057
         Goodwill increased by                                                   9,174
         Current liabilities increased by                                        1,489
         Noncurrent liabilities increased by                                       413
         Minority interest increased by                                            910

At December 31, 1998, the Company had accrued distributions payable to
minority interests. The effect of this transaction was as follows:

         Current liabilities increased by                                                      $ 8,951
         Minority interest decreased by                                                          8,951

In 1998, the Company recognized tax benefits associated with warrants
previously exercised. The effect of this was as follows:

         Current liabilities decreased by                                                        1,512
         Noncurrent liabilities decreased by                                                     1,584
         Stockholders' equity increased by                                                       3,096

In 1997, the Company acquired (1) additional ownership interests in 10
partnerships, (2) a 38.25% general partnership interest in a lithotripter
operation, (3) 100% of the stock of a lithotripter operator, and (4) 75%
equity interest in a trailer manufacturer. These transactions are discussed
further in Notes C and D. The acquired assets and liabilities were as
follows:

         Noncurrent assets increased by                                                                          4,041
         Goodwill increased by                                                                                  15,836
         Current liabilities increased by                                                                        1,343
         Minority interest decreased by                                                                            998

At December 31, 1997, the Company had accrued distributions payable to
minority interests. The effect of this transaction was as follows:

         Current liabilities increased by                                                                        8,655
         Minority interest decreased by                                                                          8,655

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       A-9

<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.  ORGANIZATION AND OPERATION OF THE COMPANY

Prime Medical Services, Inc. ("Prime"), through its direct and indirect
wholly-owned subsidiaries, provides non-medical management services for
lithotripsy, refractive and prostatherapy operations. The Company
provides its services in 34 states. The Company also manufactures
trailers for major medical equipment manufacturers and mobile medical
service providers. References to the Company are to Prime and its
controlled and affiliated entities.

B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The  consolidated  financial  statements  include  the  accounts  of Prime,  its
wholly-owned  subsidiaries,  entities more than 50% owned and partnerships where
Prime has control,  even though its ownership is less than 50%.  Investments  in
entities in which the Company's  investment is less than 50% ownership,  and the
Company  does not have  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,  1999,  the  Company had  recognized  approximately
$675,000  in  undistributed  earnings  using  the  equity  method.  This  amount
represents  undistributed  earnings from entities, in which the Company owns 50%
or less, and does not exhibit control. All significant intercompany accounts and
transactions have been eliminated.

Cash Equivalents

The Company  considers as cash  equivalents  demand  deposits and all short-term
investments with an original maturity of three months or less.

Investments

The Company  classifies its investments in debt securities as trading securities
in  accordance  with  Statement  of  Financial  Accounting  Standards  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 for the year ended December 31, 1999 was not material.

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
ten 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.

                                      A-10
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets

The Company  records as goodwill the excess of the purchase  price over the fair
value  of the net  assets  associated  with  acquired  businesses.  Goodwill  is
amortized using the straight-line  basis over a period not to exceed twenty five
years for the refractive  segment and forty years for the  lithotripsy  segment.
Accumulated  amortization  at  December  31,  1999 and 1998 is  $18,155,000  and
$13,807,000,  respectively.  Goodwill is 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  goodwill,  a loss  is  recognized  for  the
difference between the discounted cash flows and carrying value of the goodwill.

Revenue Recognition

Revenues generated from management  services and the manufacture of trailers are
recognized as they are earned. The Company's  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.

Major Customers and Credit Concentrations

A  significant  portion of the  Company's  manufacturing  revenues are from four
customers.  For the years ended December 31, 1999 and 1998,  sales to these four
customers accounted for 71% of each year's manufacturing revenues.

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,  the Company does not consider itself to
have any  significant  concentrations  of credit  risk.  At December  31,  1999,
approximately 14% of accounts  receivable relate to units operating in Texas, 8%
relate  to units  located  in  Louisiana,  and 12%  relate to units  located  in
California.  At December  31,  1998,  approximately  17% of accounts  receivable
relate to units  operating in Texas,  11% relate to units  located in Louisiana,
and 10% 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.

                                      A-11
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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,  less allowance for doubtful
accounts and contractual adjustments.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the
average cost method.  Certain  components that meet the Company's  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 the Company's
manufacturing business, financial condition and results of operations.

Stock-Based Compensation

Upon adoption of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based  Compensation  ("Statement 123"), in 1996, the Company continued
to measure compensation expense for its stock-based employee  compensation plans
using the intrinsic  value method  prescribed by APB Opinion No. 25,  Accounting
for Stock Issued to Employees.  The Company provides 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. (See Note J).

Debt Issuance Costs

The Company expenses debt issuance costs as incurred.

Estimates Used to Prepare Financial Statements

Management uses estimates and assumptions in preparing  financial  statements in
accordance with generally accepted  accounting  principles.  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 financial statements.

                                      A-12
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassification

Certain  reclassifications have been made to amounts presented in previous years
to be consistent with the 1999 presentation.

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                 Per Share
For the year ended December 31, 1999         Income     Shares     Amounts
------------------------------------        -------     ------     -------

   Basic                                    $15,039     16,958       $0.89
                                                                   =======
   Effect of dilutive securities:
   Options                                       -         156
                                            -------     ------
   Diluted                                  $15,039     17,114       $0.88
                                            =======     ======     =======

For the year ended December 31, 1998
------------------------------------

   Basic                                    $10,794     18,650       $0.58
                                                                   =======
   Effect of dilutive securities:
   Options                                       -         133
                                            -------     ------
   Diluted                                  $10,794     18,783       $0.57
                                            =======     ======     =======

For the year ended December 31, 1997
------------------------------------

   Basic                                    $14,856     19,275       $0.77
                                                                   =======

   Effect of dilutive securities:
   Options                                       -         186
                                            -------     ------
   Diluted                                  $14,856     19,461       $0.76
                                            =======     ======     =======

Unexercised employee stock options and warrants to purchase 1,247,000, 1,708,000
and 841,000 shares of Prime common stock as of December 31, 1999, 1998 and 1997,
respectively,  were not included in the  computations of diluted EPS because the
option  exercise  prices were greater  than the average  market price of Prime's
common stock during the respective periods.

                                      A-13
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


C.  INVESTMENTS

Barnet Dulaney Eye Center

Effective  September  1, 1999 the Company  purchased a 60% interest in two laser
(refractive)   surgery  centers  operated  by  Barnet  Dulaney  Eye  Center  for
approximately  $8,807,000  in cash and a warrant to  purchase  29,000  shares of
Company common stock,  plus a contingent  earn-out  obligation to be paid at the
end of the first  year of  operations  after  the  acquisition.  The  contingent
earn-out  obligation  is based on the  operating  performance  of one of the two
surgery centers during the first year of operations after the acquisition.  This
investment is accounted for using the equity method.

Tenn-GA

In May 1997,  the  Company  acquired  a 38.25%  general  partner  interest  in a
partnership that provides mobile  lithotripsy  service in Tennessee and Georgia.
The purchase  price was cash of  $3,470,000.  This  investment  is accounted for
using the equity method.

Southern California

Effective  June 1, 1995,  the  Company  acquired a 32.5%  interest  in a limited
liability  company  that  operates a fixed site  lithotripter  near Los Angeles,
California. This investment is accounted for using the equity method.

Ohio and Louisiana Partnerships

In  December  1994,  the  Company  acquired  all  of  the  common  stock  of two
corporations.  Each  corporation is the general partner and holds an approximate
20% interest in a limited partnership which operates a mobile lithotripter. Ohio
Mobile Lithotripter, Ltd. operates a mobile lithotripter in Ohio. Arklatx Mobile
Lithotripter,   L.P.  operates  a  mobile   lithotripter  in  Louisiana.   These
investments are accounted for using the equity method.

American Physicians Service Group, Inc.

At December 31, 1999 and 1998,  the Company  owned 1,000 shares of common stock,
representing  less  than  1%,  of  the  outstanding  common  stock  of  American
Physicians Service Group, Inc. (APS). APS owned approximately 14% and 18% of the
outstanding  common  stock  of the  Company  at  December  31,  1999  and  1998,
respectively.  Two of the  Company's  six board members are also on the board of
APS.

The Company  occupies  approximately  6,700 square feet of office space owned by
APS. The Company also shares  certain  personnel  with APS. The monthly rent and
personnel cost is approximately  $10,000.  The Company purchased  treasury stock
shares through APS Financial Services,  Inc. (a wholly owned subsidiary of APS).
For the years ended December 31, 1999 and 1998, the Company paid  commissions of
approximately  $25,000  and  $100,000,  respectively,  to  acquire  420,100  and
1,845,000 shares,  respectively,  which management believes was competitive with
commissions charges by other firms offering such services.

                                      A-14
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


D.  ACQUISITIONS

Effective  September  1, 1999 the  Company  acquired,  through a majority  owned
acquisition subsidiary,  60% of the outstanding stock of Horizon Vision Centers,
Inc.  (Horizon).  Horizon  operates four laser  (refractive)  surgery centers in
California.  The  Company  paid  approximately  $10,866,000  in  cash  for  this
acquisition and has accounted for the  transaction  using the purchase method of
accounting.

Unaudited  proforma  combined  income data for the years ended December 31, 1999
and 1998 of the Company, the Horizon acquisition  discussed above and the equity
investment  acquisition  of the Barnet Dulaney Eye Center's  refractive  surgery
centers assuming they were effective January 1, 1998 is as follows:

($ in thousands, except per share data)

                                         1999                  1998
                                       --------              --------

Total revenues                         $121,710              $111,545
Total expenses                         $105,989              $100,522
                                       --------              --------

Net income                              $15,721               $11,023
                                       ========              ========

Diluted earnings per share                $0.92                 $0.59
                                       ========              ========

Effective  September 1, 1997, the Company  acquired a 75% equity  interest in AK
Associates,  LLC ("AK"), which provides  installation,  upgrade,  manufacturing,
refurbishment and repair services for major medical equipment  manufacturers and
mobile medical service providers. The purchase price was $4,761,000 in cash with
contingent  consideration  of $1,050,000  which was accrued at December 31, 1998
and paid in the first quarter of 1999. This  transaction was accounted for using
the purchase method of accounting.

Effective  June 1, 1997,  the Company  acquired  100% of the stock of  Executive
Medical  Enterprises,  Inc.  ("EME"),  which  operated  three  lithotripters  in
California, Oregon and Washington. The purchase price was $1,339,000 in cash and
potential   contingent   consideration  based  upon  the  performance  of  these
operations during 1998, 1999 and 2000. Contingent  consideration of $400,000 was
paid in 1998,  $843,000  was accrued at December  31, 1998 and paid in the first
quarter of 1999, and $54,000 was accrued  December 31, 1999. The transaction was
accounted for using the purchase method of accounting.

In January 1997,  the Company  purchased  additional  ownership  interests in 10
partnerships,  which the Company controls. The purchase price for the additional
ownership  interests was $10,510,000 in cash. These  transactions were accounted
for using the purchase method of accounting.

                                      A-15
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


E.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards  No. 107,  Disclosures  About Fair
Value of  Financial  Instruments  (Statement  107),  requires  that the  Company
disclose estimated fair values for its financial  instruments as of December 31,
1999 and 1998. The carrying amounts and fair values of the Company's significant
financial instruments are as follows:

                                    1999                        1998
                             ------------------         ------------------
                             Carrying    Fair           Carrying    Fair
($in thousands)               Amount     Value           Amount     Value
                             -------    -------         -------    -------
Financial assets:
Cash                         $20,064    $20,064         $40,146    $40,146
Investments                    4,120      4,120              -          -
Accounts receivable           23,273     23,273          21,400     21,400
Other receivables              3,491      3,491           2,693      2,693

Financial liabilities:
Debt                         105,560     97,560         101,877     92,603
Accounts payable               3,290      3,290           5,287      5,287

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.

Cash

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

Investments

The carrying value of investments  approximates  fair value as they are reported
based on quoted market rates.

Accounts Receivable and Other Receivables

The carrying value of these receivables approximates the fair value due to their
short-term nature and historical collectibility.

Debt

The fair value at  December  31, 1999 and 1998 for the $100  million  fixed rate
senior subordinated notes was valued using the market rate of 10.2% and 10.456%,
respectively.  The  carrying  value of the debt  bearing  interest at prime rate
approximates fair value.

Accounts Payable

The carrying value of the payables approximates fair value due to the short-term
nature of the obligation.

                                      A-16
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


E.  FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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 on 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.  Other
significant  assets and liabilities that are not considered  financial assets or
liabilities include deferred tax assets and liabilities, property and equipment,
equity investment in partnerships, goodwill, other noncurrent assets and accrued
expenses.  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.

F.  ACCRUED EXPENSES

Accrued expenses consist of the following:

                                                 December 31,
($ in thousands)                          1999               1998
                                        -------            -------

Legal fees                                 $291             $1,280
Accrued group insurance costs               193                206
Compensation and payroll
related expense                           1,393              2,958
Taxes, other than income taxes              343              1,301
Accrued interest                          2,247              2,192
Income taxes payable (receivable)          (146)             1,229
Deferred payments for acquisitions           54              1,950
Other                                     2,733                935
                                        -------            -------

                                         $7,108            $12,051
                                        =======            =======


                                      A-17
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


G.  INDEBTEDNESS

Long-term debt is as follows:

($ in thousands)                               December 31,
                                         1999               1998
                                       --------           --------
Interest Rates    Maturities

   8.75%          2000-2008            $100,808           $100,000
   Prime          2000-2003               4,464              1,715
   None           2000-2006                 162                162
   6%-9%          2000-2004                 126                 -
                                       --------           --------
                                       $105,560           $101,877
Less current portion of
        long-term debt                    1,763                890
                                       --------           --------
                                       $103,797           $100,987
                                       ========           ========

In March 1998, the Company 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 financing costs associated
with  this  offering  totaling  $4,418,000  were  expensed  during  1998  in the
accompanying  consolidated  statements of income. A portion of the proceeds from
the offering  were used to pay off the Company's $77 million of term loans under
its existing credit facility.

The Note Indenture restricts, among other things, the ability of the Company and
its Restricted Subsidiaries 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 the assets of the Company.

During 1998, the Company  amended its syndicated bank facility from $135 million
to $100  million.  The  facility  consists of a $100  million  revolving  credit
facility  bearing  interest  of  LIBOR + 1 to 2%,  maturing  in April  2003.  At
December  31,  1999,  the entire $100  million  revolving  credit  facility  was
undrawn.  At December  31, 1999,  interest on the  Company's  bank  facility was
7.385%.   The  assets  of  the  Company  and  the  stock  of  its   subsidiaries
collateralize the bank facility.

The stated principal repayments for all indebtedness as of December 31, 1999 are
payable as follows:

                                 ($ in thousands)
                        2000          $1,763
                        2001           1,845
                        2002           1,363
                        2003             280
                        2004             178
                      Thereafter     100,131

                                      A-18
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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,
                                  1999           1998           1997
($ in thousands)                -------        -------        -------

Salaries, wages and benefits    $16,230        $16,294        $15,779
Other costs of services           7,789          7,136          7,569
General and administrative        5,770          3,225          3,595
Legal and professional            2,167          2,551          2,064
Manufacturing costs              11,902          8,294          1,394
Other                             1,081          1,973          2,884
                                -------        -------        -------
                                $44,939        $39,473        $33,285
                                =======        =======        =======

I.  COMMITMENTS AND CONTINGENCIES

The Company is 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 the
financial condition, results of operations or cash flows of the Company.

The Company sponsors 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.  The Company's maximum claim exposure
is limited to $35,000 per person per policy  year.  At December  31,  1999,  the
Company   had  255   employees   enrolled  in  the  plan.   The  plan   provides
non-contributory   coverage  for   employees  and   contributory   coverage  for
dependents. The Company's contributions totaled $966,000, $623,000 and $351,000,
in 1999, 1998 and 1997 respectively.

J.  COMMON STOCK OPTIONS

1993 Stock Option Plan

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
Interpretations  in  accounting  for its  employee  stock  options.  The Company
provides  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. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

On October  12,  1993,  the  Company  adopted  the 1993 Stock  Option Plan which
authorizes  the  grant of up to  2,000,000  shares  to  certain  key  employees,
directors,  and consultants  and advisors to the Company.  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.

                                      A-19
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


J.  COMMON STOCK OPTIONS (continued)

In June 1997,  the Company  adopted an  amendment  to the 1993 Stock Option Plan
that authorized an additional  500,000 shares. In June 1998, the Company adopted
an amendment to the 1993 Stock Option Plan that authorized an additional 750,000
shares.

A summary of the Company's stock option  activity,  and related  information for
the years ended December 31, follows:
<TABLE>
<S>                         <C>        <C>                 <C>        <C>                 <C>        <C>
                                       1999                           1998                           1997
                            --------------------------     --------------------------     --------------------------
                            Options   Weighted-Average     Options   Weighted-Average     Options   Weighted-Average
                             (000)     Exercise Price       (000)     Exercise Price       (000)     Exercise Price

Outstanding-beginning

of year                       1,892        $10.10           1,394        $11.04            1,228         $8.99

Granted                         695          7.56             825          8.63              428         11.94

Exercised                       (17)         5.10             (44)         3.73             (227)         1.51

Forfeited                      (276)        12.20            (283)        12.58              (35)        12.19
                             ------        ------           ------       ------            ------       ------

Outstanding-end of year       2,294         $9.10            1,892       $10.10             1,394       $11.04
                             ======        ======           ======       ======            ======       ======

Exercisable at end of year    1,137         $9.89              806       $10.74               466        $8.21

Weighted-average fair
   value of options
   granted during the year    $2.96           -              $3.40           -              $5.21           -
</TABLE>

The following table summarizes the Company's outstanding options at December 31,
1999:

<TABLE>
<S>                           <C>      <C>            <C>           <C>        <C>
                                         Outstanding Options        Exercisable Options
                                       -----------------------      -------------------
                                        Weighted
                                         Average      Weighted                 Weighted
                                        Remaining      Average                  Average
                              Options  Contractual    Exercise      Options    Exercise
Range of Exercise Prices       (000)      Life          Price        (000)      Price
------------------------      ------   -----------    --------      ------     --------

$0.25 - $4.12                    151    0.4 years       $0.37          151        $0.37
$4.13 - $8.25                    963    4.0 years        7.35          193         7.43
$8.26 - $12.37                   625    4.3 years        9.80          312        10.15
$12.38 - $16.50                  555    2.2 years       13.79          481        13.70
                              ------                                ------
                 Total         2,294                                 1,137
                              ======                                ======
</TABLE>

Proforma information  regarding net income and earnings per share is required by
Statement  123, and has been  determined as if the Company had accounted for its
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 1999,
1998 and 1997,  respectively:  risk-free  interest rates of 6.5%, 5.2% and 6.2%;
dividend  yields of 0%, 0% and 0%;  volatility  factors of the  expected  market
price of the Company's common stock of .44, .42 and .46; and a  weighted-average
expected life of the option of 4 years.

                                      A-20
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


J.  COMMON STOCK OPTIONS (continued)

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
the  Company's  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 its employee stock options.

For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options'  vesting period.  The Company's  proforma
information follows (in thousands except for earnings per share information):

                                  1999           1998           1997
                                -------        -------        -------

Pro forma net income            $11,960         $7,817        $12,448
Pro forma earning per share:
   Basic                          $0.71          $0.42          $0.65
   Diluted                        $0.70          $0.42          $0.64

K.  LONG-LIVED ASSETS TO BE DISPOSED OF

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,  equipment  which  management has both the ability and intent to
remove  from  service is reported in the  financial  statements  at the lower of
carrying  amount or fair  value  less  costs to sell.  During  1999 the  Company
approved  the removal from service of five  lithotripter  units.  Three of these
units were removed from service by the end of 1999 and the remaining two will be
removed from service within the first quarter of 2000.  These assets are held by
the lithotripsy segment. The customers of these units are or will be serviced by
other  equipment.  A loss of  approximately  $1.1 million was  recognized on the
write-down  to fair  value  less  costs  to sell  in the  caption  "nonrecurring
development,  impairment and other costs, net" of the accompanying  statement of
income. The minority interest portion of this loss was approximately $600,000.

L. INCOME TAXES

The Company files a consolidated tax return with its 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 the Company's 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.

                                      A-21
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


L.  INCOME TAXES (continued)

Income tax expense consists of the following:

                                       Years Ended December 31,
                                  1999           1998           1997
($ in thousands)                -------        -------        -------

Federal:
   Current                       $5,490         $6,404         $4,369
   Deferred                       2,875           (442)            68
State                             1,067          1,415          1,358
                                -------        -------        -------
                                 $9,432         $7,377         $5,795
                                =======        =======        =======


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

                                       Years Ended December 31,
                                  1999           1998           1997
($ in thousands)                -------        -------        -------

Expected federal income tax      $8,565         $6,360         $7,228
Change in beginning of year
   valuation allowance               -              -          (2,399)
State taxes                       1,067          1,415          1,358
Other                              (200)          (398)          (392)
                                -------        -------        -------
                                 $9,432         $7,377         $5,795
                                =======        =======        =======

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are presented below:

($ in thousands)                                 1999               1998
                                               -------            -------
Deferred tax assets:
   Capitalized costs                            $1,948             $2,381
   Loan origination fees amortizable
      for tax purposes                             949              1,267
   Accounts receivable, principally due
      to allowance for doubtful accounts            73                248
   Accrued expenses deductible for tax
      purposes when paid                           994              2,082
                                               -------            -------
   Total gross deferred tax assets               3,964              5,978
   Less valuation allowance                         -                  -
                                               -------            -------
   Net deferred tax assets                       3,964              5,978
                                               -------            -------


                                      A-22
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


L.  INCOME TAXES (continued)

($ in thousands)                                 1999               1998
                                               -------            -------
Deferred tax liabilities:
   Property and equipment, principally due
      to differences in depreciation           $  (99)            $  (166)
   Investments in affiliated entities,
      principally due to undistributed
      income                                   (2,329)             (2,703)
   Intangible assets, principally due to
      differences in amortization periods
      for tax purposes                         (6,870)             (5,568)
                                               -------            -------
      Total gross deferred tax liability       (9,298)             (8,437)
                                               -------            -------
Net deferred tax liability                     $(5,334)           $(2,459)
                                               =======            =======

There is no valuation allowance for deferred tax assets at December 31, 1999 and
1998. A decrease of $2,399,000  in 1997,  primarily  due to  utilization  of net
operating loss carryforwards was recorded in 1997.

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  which the  deductible  temporary  differences
reverse, management believes it is more likely than not the Company will realize
the benefits of these deductible differences at December 31, 1999.

M.  RELATED PARTY TRANSACTIONS

See Note C for related party transactions involving investments in affiliates.

N.  SEGMENT REPORTING

The  Company  has three  reportable  segments:  lithotripsy,  manufacturing  and
refractive.  The lithotripsy  segment provides services related to the operation
of  the  lithotripters,   including  scheduling,   staffing,  training,  quality
assurance,  maintenance,  regulatory  compliance  and  contracting  with payors,
hospitals and surgery centers. The manufacturing segment provides  manufacturing
services and  installation,  upgrade,  refurbishment and repair of major medical
equipment for mobile medical service providers. The refractive segment, which is
new in 1999,  provides  services related to the operations of refractive  vision
correction centers.  Other operating segments which do not meet the quantitative
thresholds for reportable segments include prostatherapy services.

                                      A-23
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


N.  SEGMENT REPORTING (continued)

The accounting  policies of the segments are the same as those described in Note
B,  the  summary  of  significant  accounting  policies.  The  Company  measures
performance  based on the pretax income or loss after  consideration of minority
interests  from  its  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.

The Company's 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 are  the  manufacturing  and
refractive segments.  The prostatherapy  segment was developed  internally.  The
presentation  of segments  for 1998 and 1997,  which  included  two segments for
medical  and  manufacturing,  have  been  recast  to  conform  to the  Company's
operating segments for 1999.

All of the  Company's  revenues are earned in the United  States and  long-lived
assets are located in the United  States.  The  Company  does not have any major
customers who account for more than 10% of its revenues.

                                      A-24
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


N.  SEGMENT REPORTING (continued)

($ in thousands)
                          Lithotripsy    Manufacturing    Refractive    Other
                          -----------    -------------    ----------    -----
1999
----
Revenue from
   external customers       $89,180         $17,527          $3,414     $2,053

Intersegment revenues            -              243              -          -

Interest income                 341              -               -           4

Interest expense                269              98             457         -

Depreciation and
   amortization               9,754             264             363        336

Segment profit               32,115           3,430             450        337

Segment assets              195,012          13,122          23,254      3,021

Investment in
   equity method
   investees                  8,814              -            9,375         -

Capital expenditures          4,367             161             548        298

1998
----
Revenue from
   external customers       $92,053         $11,066              -      $1,517

Intersegment revenues            -              255              -          -

Interest income                 444              -               -           3

Interest expense                235              38              -          -

Depreciation and
   amortization               9,899             223              -         252

Segment profit               35,484           1,142              -         209

Segment assets              203,653           9,916              -       2,628

Investment in
   equity method
   investees                 10,696              -               -          -

Capital expenditures          2,770           1,580              -         787






                                      A-25
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


N.  SEGMENT REPORTING (continued)

($ in thousands)
                          Lithotripsy    Manufacturing    Refractive    Other
                          -----------    -------------    ----------    -----
1997
----
Revenue from
   external customers       $93,113          $2,358              -        $508

Intersegment revenues            -              185              -          -

Interest income                 536              -               -          24

Interest expense                314              -               -          -

Depreciation and
   amortization               9,793              18              -          75

Segment profit               33,187             403              -          92

Segment assets              211,282           6,223              -       2,216

Investment in
   equity method
   investees                 10,658              -               -          -

Capital expenditures          3,741              23              -         732


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

                                            1999        1998        1997
($ in thousands)                          --------    --------    --------

Total revenues for reportable segments    $110,364    $103,374     $95,656

Other segment                                2,053       1,517         508

Elimination of intersegment revenues          (243)       (255)       (185)
                                          --------    --------    --------
Total consolidated revenues               $112,174    $104,636     $95,979
                                          ========    ========    ========


                                      A-26
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


N.  SEGMENT REPORTING (continued)

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

                                                1999        1998        1997
($ in thousands)                               -------     -------     -------


Total profit for reportable segments           $35,995     $36,626     $33,590

Other segment                                      337         209          92

Unallocated corporate expenses:

   General and administrative                   (5,027)     (4,926)     (5,683)

   Net interest expense                         (7,424)     (7,226)     (6,983)

   Loan fees and stock offering costs             (566)     (4,978)       (360)

   Nonrecurring development and other costs        475      (1,617)          -

   Release of contractual obligation             1,140          -            -

   Other, net                                     (459)         83          (5)
                                               -------     -------     -------

   Unallocated corporate expenses total        (11,861)    (18,664)    (13,031)
                                               -------     -------     -------

Income before income taxes                     $24,471      $18,171    $20,651
                                               =======      =======    =======

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

                                                1999        1998        1997
($ in thousands)                              --------    --------    --------

Total assets for reportable segments          $231,388    $213,569    $217,505

Other segment                                    3,021       2,628       2,216

Unallocated corporate assets                    12,417      24,001       5,184
                                              --------    --------    --------

Consolidated total                            $246,826    $240,198    $224,905
                                              ========    ========    ========




                                      A-27
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


N.  SEGMENT REPORTING (continued)

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

                                                 Eliminating
($ in thousands)          Segments    Corporate    Entries    Consolidated
                          --------    ---------    -------    ------------
1999

Interest income              $345       $1,250       $(90)        $1,505
Interest expense              824        8,674        (90)         9,408
Depreciation and
   amortization            10,717          131         -          10,848
Capital expenditures        5,374          416         -           5,790

1998

Interest income              $447       $1,007       $(37)        $1,417
Interest expense              273        8,233        (37)         8,469
Depreciation and
   amortization            10,374          102         -          10,476
Capital expenditures        5,137           76         -           5,213

1997

Interest income              $560         $180         -            $740
Interest expense              314        7,163         -           7,477
Depreciation and
   amortization             9,886           25         -           9,911
Capital expenditures        4,496           50         -           4,546

The amounts in 1999, 1998 and 1997 for interest income and expense, depreciation
and  amortization  and capital  expenditures  represent  amounts recorded by the
operations of the Company's corporate  functions,  which have not been allocated
to the segments.

O.  CONDENSED FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES

Condensed consolidating  financial information regarding the Company,  Guarantor
Subsidiaries and non-guarantor subsidiaries as of December 31, 1999 and 1998 and
for each of the  years in the  three-year  period  ended  December  31,  1999 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-28
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                          Year Ended December 31, 1999

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

Revenue:
     Lithotripsy:
         Fee revenues                                $ -        $ 20,303         $ 60,577             $ -        $ 80,880
         Management fees                               -           3,304            2,415               -           5,719
         Equity income                            32,763          18,799                -         (48,981)          2,581
                                           --------------  --------------   --------------  --------------  --------------
                                                  32,763          42,406           62,992         (48,981)         89,180
     Manufacturing                                     -               -           17,527               -          17,527
     Refractive                                      346             410            3,004            (346)          3,414
     Prostatherapy                                     -               -            1,834               -           1,834
     Other                                             -             219                -               -             219
                                           --------------  --------------   --------------  --------------  --------------
         Total revenue                            33,109          43,035           85,357         (49,327)        112,174
                                           --------------  --------------   --------------  --------------  --------------

Cost of services and general and
     administrative expenses:
         Lithotripsy                                   -           1,995           21,006               -          23,001
         Manufacturing                                 -               -           12,880               -          12,880
         Refractive                                    -               -            1,954               -           1,954
         Prostatherapy                                 -            (198)           1,483               -           1,285
         Other                                         -             165                -               -             165
         Corporate                                   248           4,779                -               -           5,027
         Nonrecurring development,
         impairment and other costs, net            (570)            173            1,024               -             627
                                           --------------  --------------   --------------  --------------  --------------
                                                    (322)          6,914           38,347               -          44,939
Depreciation and amortization                          5           5,216            5,627               -          10,848
                                           --------------  --------------   --------------  --------------  --------------
         Total operating expenses                   (317)         12,130           43,974               -          55,787
                                           --------------  --------------   --------------  --------------  --------------

Operating income                                  33,426          30,905           41,383         (49,327)         56,387
                                           --------------  --------------   --------------  --------------  --------------

Other income (deductions):
     Interest income                                 749             510              246               -           1,505
     Interest expense                             (9,111)            438             (735)              -          (9,408)
     Loan fees and stock offering costs             (492)            (74)               -               -            (566)
     Release of contractual obligation                 -           1,140                -               -           1,140
     Other, net                                     (662)            522               61               -             (79)
                                           --------------  --------------   --------------  --------------  --------------
         Total other income (deductions)          (9,516)          2,536             (428)              -          (7,408)
                                           --------------  --------------   --------------  --------------  --------------

Income before provision for income
     taxes and minority interest                  23,910          33,441           40,955         (49,327)         48,979

Minority interest in consolidated income               -               -                -          24,508          24,508

Provision for income taxes                         8,871             332              229               -           9,432
                                           --------------  --------------   --------------  --------------  --------------

Net income                                      $ 15,039        $ 33,109         $ 40,726       $ (73,835)       $ 15,039
                                           ==============  ==============   ==============  ==============  ==============

</TABLE>


                                      A-29
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                          Year Ended December 31, 1998

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

Revenue:
     Lithotripsy:
         Fee revenues                                $ -        $ 22,487         $ 61,392             $ -        $ 83,879
         Management fees                               -           3,126            2,158               -           5,284
         Equity income                            30,952          20,077                -         (48,139)          2,890
                                           --------------  --------------   --------------  --------------  --------------
                                                  30,952          45,690           63,550         (48,139)         92,053
     Manufacturing                                     -               -           11,066               -          11,066
     Prostatherapy                                     -               -            1,207               -           1,207
     Other                                             -             310                -               -             310
                                           --------------  --------------   --------------  --------------  --------------
         Total revenue                            30,952          46,000           75,823         (48,139)        104,636
                                           --------------  --------------   --------------  --------------  --------------

Cost of services and general and
     administrative expenses:
         Lithotripsy                                   -           3,977           18,697               -          22,674
         Manufacturing                                 -               -            9,204               -           9,204
         Prostatherapy                                 -               -              803               -             803
         Other                                         -             249                -               -             249
         Corporate                                   203           4,723                -               -           4,926
         Nonrecurring development,
         impairment and other costs, net           1,617               -                -               -           1,617
                                           --------------  --------------   --------------  --------------  --------------
                                                   1,820           8,949           28,704               -          39,473
Depreciation and amortization                          7           5,221            5,248               -          10,476
                                           --------------  --------------   --------------  --------------  --------------
         Total operating expenses                  1,827          14,170           33,952               -          49,949
                                           --------------  --------------   --------------  --------------  --------------

Operating income                                  29,125          31,830           41,871         (48,139)         54,687
                                           --------------  --------------   --------------  --------------  --------------

Other income (deductions):
     Interest income                                 735             305              377               -           1,417
     Interest expense                             (8,234)            (44)            (191)              -          (8,469)
     Loan fees and stock offering costs           (4,978)              -                -               -          (4,978)
     Other, net                                      (39)            331               12               -             304
                                           --------------  --------------   --------------  --------------  --------------
         Total other income (deductions)         (12,516)            592              198               -         (11,726)
                                           --------------  --------------   --------------  --------------  --------------

Income before provision for income
     taxes and minority interest                  16,609          32,422           42,069         (48,139)         42,961

Minority interest in consolidated income               -               -                -          24,790          24,790

Provision for income taxes                         5,815           1,470               92               -           7,377
                                           --------------  --------------   --------------  --------------  --------------

Net income                                      $ 10,794        $ 30,952         $ 41,977       $ (72,929)       $ 10,794
                                           ==============  ==============   ==============  ==============  ==============
</TABLE>


                                      A-30
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Condensed Consolidating Statement of Income
                          Year Ended December 31, 1997
<TABLE>
<S>                                        <C>              <C>             <C>             <C>              <C>
                                             Prime Medical    Guarantor      Non-Guarantor   Eliminating      Consolidated
($ in thousands)                            Services, Inc.   Subsidiaries    Subsidiaries      Entries           Total
                                           ---------------  --------------  --------------  --------------   --------------

Revenue:
     Lithotripsy:
         Fee revenues                                $ -         $ 20,863        $ 63,674             $ -         $ 84,537
         Management fees                               -            3,978           2,259               -            6,237
         Equity income                            27,386           18,587               -         (43,634)           2,339
                                           --------------   --------------  --------------  --------------   --------------
                                                  27,386           43,428          65,933         (43,634)          93,113
     Manufacturing                                     -                -           2,358               -            2,358
     Other                                             -              508               -               -              508
                                           --------------   --------------  --------------  --------------   --------------
         Total revenue                            27,386           43,936          68,291         (43,634)          95,979
                                           --------------   --------------  --------------  --------------   --------------

Cost of services and general and
     administrative expenses:
         Lithotripsy                                   -            4,646          20,735               -           25,381
         Manufacturing                                 -                -           1,743               -            1,743
         Other                                         -              478               -               -              478
         Corporate                                   567            5,116               -               -            5,683
                                           --------------   --------------  --------------  --------------   --------------
                                                     567           10,240          22,478               -           33,285
Depreciation and amortization                          7            5,157           4,747               -            9,911
                                           --------------   --------------  --------------  --------------   --------------
         Total operating expenses                    574           15,397          27,225               -           43,196
                                           --------------   --------------  --------------  --------------   --------------

Operating income                                  26,812           28,539          41,066         (43,634)          52,783
                                           --------------   --------------  --------------  --------------   --------------

Other income (deductions):
     Interest income                                   -              309             431               -              740
     Interest expense                             (7,160)             (52)           (265)              -           (7,477)
     Loan fees and stock offering costs             (360)               -               -               -             (360)
     Other, net                                        -             (128)            134               -                6
                                           --------------   --------------  --------------  --------------   --------------
                                           --------------   --------------  --------------  --------------   --------------
         Total other income (deductions)          (7,520)             129             300               -           (7,091)
                                           --------------   --------------  --------------  --------------   --------------

Income before provision for income
     taxes and minority interest                  19,292           28,668          41,366         (43,634)          45,692

Minority interest in consolidated income               -                -               -          25,041           25,041

Provision for income taxes                         4,436            1,282              77               -            5,795
                                           --------------   --------------  --------------  --------------   --------------

Net income                                      $ 14,856         $ 27,386        $ 41,289       $ (68,675)        $ 14,856
                                           ==============   ==============  ==============  ==============   ==============
</TABLE>


                                      A-31
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      Condensed Consolidating Balance Sheet
                                December 31, 1999

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

ASSETS

Current assets:
     Cash                                          $ 2,043         $ 2,682        $ 15,339             $ -        $ 20,064
     Investments                                     4,120               -               -               -           4,120
     Accounts receivable, net                            -           3,069          20,204               -          23,273
     Other receivables                                 291           1,689           1,511               -           3,491
     Deferred income taxes                              94             972               -               -           1,066
     Prepaid expenses and other current assets          14           1,195           1,113               -           2,322
     Inventory                                           -               -           3,676                           3,676
                                             --------------  --------------  --------------  --------------   -------------
        Total current assets                         6,562           9,607          41,843               -          58,012
Property and equipment:
     Equipment, furniture and fixtures                   -           5,549          36,579               -          42,128
     Building and leasehold improvements                 -             498           1,594               -           2,092
                                             --------------  --------------  --------------  --------------   -------------
                                                         -           6,047          38,173               -          44,220
     Less accumulated depreciation
        and amortization                                 -          (4,514)        (21,053)              -         (25,567)
                                             --------------  --------------  --------------  --------------   -------------
        Property and equipment, net                      -           1,533          17,120               -          18,653

Investment in subsidiaries
     and other investments                         196,347          50,721               -        (228,105)         18,963
Goodwill, at cost, net of amortization                   -         139,989           9,099               -         149,088
Other noncurrent assets                                281             643           1,186               -           2,110
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 203,190       $ 202,493        $ 69,248      $ (228,105)      $ 246,826
                                             ==============  ==============  ==============  ==============   =============


LIABILITIES

Current liabilities:
     Current portion of long-term debt                 $ -             $ -         $ 1,763             $ -         $ 1,763
     Accounts payable                                   70           1,256           1,964               -           3,290
     Accrued expenses                                3,524           1,242          10,674               -          15,440
                                             --------------  --------------  --------------  --------------   -------------
        Total current liabilities                    3,594           2,498          14,401               -          20,493
Long-term debt, net of current portion             100,000             162           3,635               -         103,797
Deferred income taxes                                2,914           3,486               -               -           6,400
                                             --------------  --------------  --------------  --------------   -------------
        Total liabilities                          106,508           6,146          18,036               -         130,690

Minority interest                                        -               -               -          19,454          19,454

STOCKHOLDERS' EQUITY

Common stock                                           194               -               -               -             194
Capital in excess of par value                      87,655               -               -               -          87,655
Accumulated earnings                                33,654               -               -               -          33,654
Treasury stock                                     (24,821)              -               -               -         (24,821)
Subsidiary net equity                                    -         196,347          51,212        (247,559)              -
                                             --------------  --------------  --------------  --------------   -------------
        Total stockholders' equity                  96,682         196,347          51,212        (247,559)         96,682
                                             --------------  --------------  --------------  --------------   -------------
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 203,190       $ 202,493        $ 69,248      $ (228,105)      $ 246,826
                                             ==============  ==============  ==============  ==============   =============
</TABLE>


                                      A-32
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      Condensed Consolidating Balance Sheet
                                December 31, 1998

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

ASSETS

Current assets:
     Cash                                         $ 15,798         $ 7,585        $ 16,763             $ -        $ 40,146
     Accounts receivable, net                            -           3,319          18,081               -          21,400
     Other receivables                                   -           2,693               -               -           2,693
     Deferred income taxes                           1,603             727               -               -           2,330
     Prepaid expenses and other current assets           -             456             493               -             949
     Inventory                                           -               -           1,825                           1,825
                                             --------------  --------------  --------------  --------------   -------------
        Total current assets                        17,401          14,780          37,162               -          69,343
Property and equipment:
     Equipment, furniture and fixtures                   -           5,301          29,184               -          34,485
     Building and leasehold improvements                 -             491           1,582               -           2,073
                                             --------------  --------------  --------------  --------------   -------------
                                                         -           5,792          30,766               -          36,558
     Less accumulated depreciation
        and amortization                                 -          (4,485)        (13,986)              -         (18,471)
                                             --------------  --------------  --------------  --------------   -------------
        Property and equipment, net                      -           1,307          16,780               -          18,087

Investment in subsidiaries
     and other investments                         178,611          28,038               -        (195,623)         11,026
Goodwill, at cost, net of amortization                   -         140,863               -               -         140,863
Other noncurrent assets                                105             488             286               -             879
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 196,117       $ 185,476        $ 54,228      $ (195,623)      $ 240,198
                                             ==============  ==============  ==============  ==============   =============


LIABILITIES

Current liabilities:
     Current portion of long-term debt                 $ -             $ -           $ 890             $ -           $ 890
     Accounts payable                                1,501           1,254           2,532               -           5,287
     Accrued expenses                                3,563           1,929          15,510               -          21,002
                                             --------------  --------------  --------------  --------------   -------------
        Total current liabilities                    5,064           3,183          18,932               -          27,179
Long-term debt, net of current portion             100,000             162             825               -         100,987
Deferred income taxes                                1,303           3,486               -               -           4,789
                                             --------------  --------------  --------------  --------------   -------------
        Total liabilities                          106,367           6,831          19,757               -         132,955

Minority interest                                        -               -               -          17,493          17,493

STOCKHOLDERS' EQUITY

Common stock                                           194               -               -               -             194
Capital in excess of par value                      87,380               -               -               -          87,380
Accumulated earnings                                18,615               -               -               -          18,615
Treasury stock                                     (16,439)              -               -               -         (16,439)
Subsidiary net equity                                    -         178,645          34,471        (213,116)              -
                                             --------------  --------------  --------------  --------------   -------------
        Total stockholders' equity                  89,750         178,645          34,471        (213,116)         89,750
                                             --------------  --------------  --------------  --------------   -------------
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 196,117       $ 185,476        $ 54,228      $ (195,623)      $ 240,198
                                             ==============  ==============  ==============  ==============   =============
</TABLE>


                                      A-33
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                                December 31, 1999

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

CASH FLOWS FROM OPERATING
     ACTIVITIES:
         Net cash provided by (used in)
              operating activities                $ (20,940)        $ 5,205       $ 51,479             $ -        $ 35,744
                                              --------------  --------------  -------------  --------------  --------------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchase of investments and entities                 -         (13,451)       (10,129)              -         (23,580)
     Purchases of equipment and leasehold
         improvements                                     -          (1,193)        (4,597)              -          (5,790)
     Proceeds from sales of equipment                     -             167             40               -             207
     Distributions from subsidiaries                 15,407          17,424              -         (32,831)              -
     Investments                                          -           2,352              -               -           2,352
     Other                                                -               -            570               -             570
                                              --------------  --------------  -------------  --------------  --------------

         Net cash provided by (used in)
              investing activities                   15,407           5,299        (14,116)        (32,831)        (26,241)
                                              --------------  --------------  -------------  --------------  --------------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Payments on notes payable exclusive of
         interest                                         -               -         (1,403)              -          (1,403)
     Borrowings on notes payable                          -               -          4,584               -           4,584
     Distributions to minority interest                   -               -              -         (27,180)        (27,180)
     Contributions by minority interest                   -               -          2,636               -           2,636
     Exercise and issuance of stock options             160               -              -               -             160
     Purchase of treasury stock                      (8,382)              -              -               -          (8,382)
     Distributions to equity owners                       -         (15,407)       (44,604)         60,011               -
                                              --------------  --------------  -------------  --------------  --------------

         Net cash provided by (used in)
                financing activities                 (8,222)        (15,407)       (38,787)         32,831         (29,585)
                                              --------------  --------------  -------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                           (13,755)         (4,903)        (1,424)              -         (20,082)

Cash and cash equivalents, beginning of period       15,798           7,585         16,763               -          40,146
                                              --------------  --------------  -------------  --------------  --------------

Cash and cash equivalents, end of period            $ 2,043         $ 2,682       $ 15,339             $ -        $ 20,064
                                              ==============  ==============  =============  ==============  ==============
</TABLE>


                                      A-34
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                                December 31, 1998

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

CASH FLOWS FROM OPERATING
     ACTIVITIES:
         Net cash provided by (used in)
              operating activities                $ (10,215)        $ 9,608       $ 46,158             $ -        $ 45,551
                                              --------------  --------------  -------------  --------------  --------------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchases of equipment and leasehold
         improvements                                     -          (2,000)        (3,213)              -          (5,213)
     Proceeds from sales of equipment                     -             179             45               -             224
     Distributions from subsidiaries                 26,228          16,665              -         (42,893)              -
     Investments                                       (408)          2,940              -               -           2,532
     Other                                               22             166            127               -             315
                                              --------------  --------------  -------------  --------------  --------------

         Net cash provided by (used in)
              investing activities                   25,842          17,950         (3,041)        (42,893)         (2,142)
                                              --------------  --------------  -------------  --------------  --------------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Payments on notes payable exclusive of
         interest                                   (79,000)             (5)        (1,479)              -         (80,484)
     Borrowings on notes payable                    100,000               -             25               -         100,025
     Distributions to minority interest                   -               -              -         (25,799)        (25,799)
     Debt issuance costs                             (4,417)              -              -               -          (4,417)
     Contributions by minority interest                   -               -             72               -              72
     Exercise and issuance of stock options               9               -              -               -               9
     Purchase of treasury stock                     (16,439)              -              -               -         (16,439)
     Distributions to equity owners                       -         (26,228)       (42,464)         68,692               -
                                              --------------  --------------  -------------  --------------  --------------

         Net cash provided by (used in)
                financing activities                    153         (26,233)       (43,846)         42,893         (27,033)
                                              --------------  --------------  -------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                            15,780           1,325           (729)              -          16,376

Cash and cash equivalents, beginning of period           18           6,260         17,492               -          23,770
                                              --------------  --------------  -------------  --------------  --------------

Cash and cash equivalents, end of period           $ 15,798         $ 7,585       $ 16,763             $ -        $ 40,146
                                              ==============  ==============  =============  ==============  ==============
</TABLE>


                                      A-35
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                                December 31, 1997

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

CASH FLOWS FROM OPERATING
     ACTIVITIES:
        Net cash provided by (used in)
             operating activities                  $ (9,441)       $ 14,879        $ 46,255             $ -        $ 51,693
                                              --------------  --------------  --------------  --------------  --------------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchase of lithotripter entities                    -         (20,217)              -               -         (20,217)
     Purchases of equipment and leasehold
          improvements                                    -          (1,516)         (3,030)              -          (4,546)
     Proceeds from sales of equipment                     -              30               -               -              30
     Distributions from subsidiaries                  6,865          16,667               -         (23,532)              -
     Investments                                          -           1,690               -               -           1,690
     Other                                                -              94               -               -              94
                                              --------------  --------------  --------------  --------------  --------------
        Net cash provided by (used in)
             investing activities                     6,865          (3,252)         (3,030)        (23,532)        (22,949)
                                              --------------  --------------  --------------  --------------  --------------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Payments on notes payable exclusive of
        interest                                    (47,750)         (1,100)         (1,478)              -         (50,328)
     Borrowings on notes payable                     50,000               -           1,201               -          51,201
     Distributions to minority interest                   -               -               -         (28,667)        (28,667)
     Contributions by minority interest                   -               -           2,381               -           2,381
     Exercise and issuance of stock options             343               -               -               -             343
     Distributions to equity owners                       -          (6,865)        (45,334)         52,199               -
                                              --------------  --------------  --------------  --------------  --------------

        Net cash provided by (used in)
             financing activities                     2,593          (7,965)        (43,230)         23,532         (25,070)
                                              --------------  --------------  --------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                                17           3,662              (5)              -           3,674

Cash and cash equivalents, beginning of period            1           2,598          17,497               -          20,096
                                              --------------  --------------  --------------  --------------  --------------

Cash and cash equivalents, end of period               $ 18         $ 6,260        $ 17,492             $ -        $ 23,770
                                              ==============  ==============  ==============  ==============  ==============
</TABLE>


                                      A-36
<PAGE>