Name of Prospective Investor                                   Memorandum Number

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                           MOBILE KIDNEY STONE CENTERS

                             OF CALIFORNIA II, L.P.

            A Limited Partnership Formed Under the Laws of California

                    CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

                             up to $169,320 in Cash

                      up to $97,425 in Personal Guaranties

                    40 Units of Limited Partnership Interest

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         THIS MEMORANDUM IS FURNISHED  PURSUANT TO A  CONFIDENTIALITY  AGREEMENT
         BETWEEN THE PARTNERSHIP AND THE INVESTOR WHOSE NAME APPEARS ABOVE.  THE
         CONFIDENTIALITY  AGREEMENT PROHIBITS THE DISCLOSURE OF THE CONFIDENTIAL
         MATERIAL  CONTAINED  IN THIS  MEMORANDUM,  EXCEPT  TO THE  EXTENT  SUCH
         INVESTOR DEEMS IT NECESSARY TO SHARE SUCH  INFORMATION  WITH HIS LEGAL,
         ACCOUNTING OR OTHER FINANCIAL ADVISORS,  WHO LIKEWISE SHALL BE BOUND BY
         THE SAME CONFIDENTIALITY  RESTRICTIONS SET FORTH IN THE CONFIDENTIALITY
         AGREEMENT.

                            MEDTECH INVESTMENTS, INC.

                              Exclusive Sales Agent

                                2008 Litho Place

                       Fayetteville, North Carolina 28304

                                 1-800-682-7971

<PAGE>

iii
WINSTON #892462 v 2


                  The Date of this Memorandum is April 21, 2000

               MOBILE KIDNEY STONE CENTERS OF CALIFORNIA II, L.P.

                             up to $169,320 in Cash

                 up to 40 Units of Limited Partnership Interest
         at $4,233 in Cash and $2,435.63 in Personal Guaranties per Unit


                  Mobile  Kidney  Stone  Centers  of  California   II,  L.P.,  a
California  limited  partnership  (the  "Partnership")  operated  by its general
partner, Mobile Kidney Stone Centers of California, Ltd. I, a California limited
partnership (the "General  Partner") and an affiliate of Prime Medical Services,
Inc., a Delaware corporation,  hereby offers on the terms set forth herein up to
40 Units (the "Units") of limited partnership interest in the Partnership,  at a
price  per Unit of  $4,233  in cash,  plus a  personal  guaranty  of 0.5% of the
Partnership's  obligations under a loan of $487,125 from  First-Citizens  Bank &
Trust Company (the "Loan") (a $2,435.63 principal guaranty obligation per Unit).
See "Terms of the  Offering."  Each Unit will represent an initial 0.5% economic
interest  in the  Partnership.  See  "Risk  Factors - Other  Investment  Risks -
Dilution of Limited  Partners'  Interests." The Partnership  owns and operates a
Storz  Modulith(R)  SLX-T model  extracorporeal  shockwave  lithotripter for the
lithotripsy of kidney stones.  The  lithotripter  is transported in a mobile van
(together  with the installed and  operational  lithotripter,  the  "Lithotripsy
System")  enabling the  Partnership to provide  lithotripsy  services at various
locations  primarily  within a 150 mile radius of  Sacramento,  California  (the
"Service Area").

                  The  Partnership  intends  to use  the  net  proceeds  of this
Offering (after  deduction of expenses payable by the Partnership) to reduce the
Partnership's  currently  outstanding  indebtedness under the Loan. See "Sources
and Applications of Funds." The cash purchase price and personal  guaranties are
due  at   subscription;   however,   prospective   Investors  who  meet  certain
requirements may be able to personally borrow funds from a third-party financial
institution in order to pay a portion of their cash purchase price per Unit. See
"Terms of the Offering - Limited  Partner Loans." The Offering will terminate on
June 1,  2000 (or  earlier  upon the sale of all 40 Units as  provided  herein),
unless  extended at the  discretion  of the General  Partner for a period not to
exceed 180 days.

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

                  Purchase  of Units  involves  risks and is  suitable  only for
persons of substantial  means who have no need for liquidity in this investment.
Among  other  factors,  prospective  investors  should note that the health care
industry is undergoing  significant  government  regulatory reforms and that the
Partnership  faces  substantial  competition  in the  Service  Area.  See  "Risk
Factors" and "Terms of the Offering - Suitability Standards."

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

                 Cash             Selling         Net Cash           Amount of
                 Offering Price   Commissions(1) Proceeds (2)     Guaranties(3)

Per Unit(4)      $    4,233      $      75       $    4,158       $   2,435.63

Total Maximum(5) $169,320        $ 3,000         $166,320         $ 97,425.00

(See Footnotes on Back of Cover Page)

                     See  Glossary  for  capitalized  terms used  herein and not
otherwise defined.

         (1)     The Units will be sold on a "best-efforts"  any or all basis by
                 MedTech Investments,  Inc., a broker-dealer registered with the
                 Securities  and Exchange  Commission,  a member of the National
                 Association of Securities Dealers, Inc. and an Affiliate of the
                 General Partner (the "Sales Agent").  The Partnership  will pay
                 the Sales  Agent a $75  commission  for each Unit sold and will
                 reimburse the Sales Agent for its Offering costs (not to exceed
                 $7,000).  The  Partnership  has agreed to  indemnify  the Sales
                 Agent against certain liabilities, including liabilities vender
                 the Securities Act of 1933 (the "Securities Act"). See "Plan of
                 Distribution."

         (2)     Net Cash Proceeds do not reflect  deduction of expenses payable
                 by the  Partnership.  See "Sources and  Applications of Funds."
                 The cash  price  per Unit  ($4,233)  is  payable  in cash  upon
                 subscription;  provided,  that  prospective  Investors who meet
                 certain  requirements  may be able to  personally  borrow funds
                 from a  third-party  financial  institution  in  order to pay a
                 portion  of  their  cash  purchase  price  per  Unit.  For  the
                 convenience of the Investors,  the Partnership has arranged for
                 financing of a portion of the Units' cash  purchase  price (the
                 "Limited  Partner  Loan")  with  First-Citizens  Bank  &  Trust
                 Company, which is headquartered in Raleigh, North Carolina, and
                 has  approximately  370  offices  throughout  the  southeastern
                 United  States (the "Bank").  Therefore,  in lieu of paying the
                 entire  purchase  price  in cash at  subscription,  prospective
                 Investors may execute and deliver to the Sales Agent,  together
                 with their Subscription  Packets, at least $2,500 in cash and a
                 Limited Partner Note payable to the Bank in a maximum principal
                 amount of up to  $1,733  per Unit to be  purchased,  a Loan and
                 Security   Agreement,   Security   Agreement  and  two  Uniform
                 Commercial Code Financing Statements ("UCC-1's") (collectively,
                 the "Loan  Documents").  See  "Terms of the  Offering - Limited
                 Partner  Loans" and the forms of the Limited  Partner Note, the
                 Loan and Security  Agreement and Security Agreement attached to
                 the  Form  of  Loan   Commitment   as  Exhibits  A,  B  and  C,
                 respectively,  which is  attached  hereto as Appendix B and the
                 UCC-1's attached as part of the Subscription Packet.

(3)  At subscription,  each Investor must execute and deliver to the Sales Agent
     a guaranty  agreement (the "Guaranty") under which he or she will guarantee
     payment of a portion of the  Partnership's  obligations under the Loan, the
     proceeds of which were used by the  Partnership  to (i) acquire a new Storz
     Modulith(R)SLX-T   model   extracorporeal   shock-wave   lithotripter  with
     accessories;  (ii)  acquire  and upfit a new  mobile van to  transport  the
     lithotripter;  and (iii) pay sales taxes on the purchase of the Lithotripsy
     System. As a class, the initial Limited Partners  guaranteed $292,275 (60%)
     of the Partnership's  principal obligations under the Loan. In its capacity
     as general  partner  of the  Partnership,  the  General  Partner  initially
     guaranteed 40% of the Loan, which represents a $194,850  principal guaranty
     obligation.  See "Risk  Factors -  Operating  Risks -  Partnership  Limited
     Resources and Risks of Leverage." For each Unit purchased, an Investor will
     be  required  to  guarantee  0.5% of the  Loan,  which  represents  up to a
     $2,435.63 principal guaranty obligation.  As of the date of this Memorandum
     the  outstanding  balance on the Loan is $441,205.79.  A Limited  Partner's
     liability under the Guaranty may exceed the principal  guaranty per Unit as
     provided above because such  liability  includes not only  principal,  bast
     also accrued and unpaid  interest,  late payment  penalties and legal costs
     incurred by the Bank in collecting defaulted obligations. For a description
     of the guaranty


<PAGE>

             requirements  and the terms of the  Guaranties,  see  "Terms of the
             Offering - Guaranty Arrangements" and the form of Guaranty included
             in the Subscription Packet accompanying this Memorandum.

     (4)     Each  Investor  may  purchase  no less than one Unit.  The  General
             Partner,  however, reserves the right to sell less than one Unit as
             an additional  investment,  and to reject, in whole or in part, any
             subscription.

     (5)     Offering  proceeds  will  first be used by the  Partnership  to pay
             Offering  costs and expenses and the remainder of the proceeds will
             be  used  to  reduce  the   Partnership's   currently   outstanding
             indebtedness  under the Loan.  See  "Sources  and  Applications  of
             Funds."  The  Partnership  seeks by this  Offering to sell up to 40
             Units for an aggregate of up to $169,320 in cash  ($166,320  net of
             Sales Agent's commissions) and up to $97,425 in personal guaranties
             of the  Partnership's  principal  obligations  under the Loan.  All
             subscription  funds,  Guaranties and Loan Documents will be held in
             an  interest  bearing  escrow  account  with  the  Bank  until  the
             acceptance of the Investor's subscription (and approval by the Bank
             if the  Investor is  financing a portion of the Unit cash  purchase
             price through a Limited Partner Loan),  rejection of the Investor's
             subscription  or termination of the Offering.  The  Partnership has
             set no  minimum  number  of  Units  to be sold  in  this  Offering.
             Accordingly,  upon the  receipt  and  acceptance  of an  Investor's
             subscription  by the  Partnership  and the  approval  of his or her
             Guaranty  by the Bank as provided  herein,  such  Investor  will be
             admitted to the  Partnership  as a Limited  Partner,  provided that
             acceptance of subscriptions by an Investor that elects to finance a
             portion of his or her Unit cash purchase price is also  conditioned
             upon approval by the Bank of his or her Limited  Partner Loan. Upon
             admission as a Limited Partner,  the Investor's  subscription funds
             will be released to the Partnership and the Guaranties and the Loan
             Documents,  if any,  will be released  to the Bank.  In the event a
             subscription   is  rejected,   all   subscription   funds  (without
             interest),  Guaranty  and the Loan  Documents,  if any,  and  other
             subscription  documents held in escrow will be promptly returned to
             the rejected Investor. The Offering will terminate on June 1, 2000,
             unless it is sooner  terminated by the General  Partner,  or unless
             extended  for an  additional  period  not to exceed  180 days.  See
             "Terms of the Offering."

                          [The  remainder  of this  page is  intentionally  left
blank.]


<PAGE>

WINSTON #892462 v 2
                                       iv

o        The  Units  are  being  offered  pursuant  to  an  exemption  from  the
         registration  requirements  of the  Securities Act of 1933, as amended,
         provided  by  Section  4(2)  thereof  and  Rule  506  of  Regulation  D
         promulgated  thereunder,  as  amended,  and  an  exemption  from  state
         registration  requirements  provided by the National Securities markets
         Improvement  Act of 1996. A  registration  statement  relating to these
         securities  has  not  been  filed  with  the  Securities  and  exchange
         Commission or any state securities commission.

o        Neither the Securities and Exchange Commission nor any state securities
         commission has approved or disapproved of the Units or determined  that
         this  Memorandum  is truthful or complete.  Any  representation  to the
         contrary is a criminal offense.

o        The Units are subject to restrictions on transferability and resale and
         may not be  transferred  or resold  without  the consent of the General
         Partner and  satisfaction  of certain  other  conditions  including the
         availability  of an  exemption  under  the  Securities  Act of 1933 and
         applicable state  securities laws. See "Risk Factors -Other  Investment
         Risks - Limited Transferability and Illiquidity of Units." No public or
         other  market  exists or will develop for the Units.  Investors  should
         proceed only on the assumption  that they may have to bear the economic
         risk of an investment in the Units for an indefinite period of time.

o        Prospective   Investors  should  not  construe  the  contents  of  this
         Memorandum or any prior or subsequent  communications,  whether written
         or oral, from the Partnership,  its General Partner, the Sales Agent or
         any of their  agents or  representatives  as  investment,  tax or legal
         advice.  This  Memorandum  and the  appendices  hereto,  as well as the
         nature  of the  investment,  should  be  reviewed  by each  prospective
         Investor,  such  Investor's  investment,  tax or  other  advisors,  and
         accountants and/or legal counsel.

o        No offering  literature in whatever form will or may be employed in the
         offering of Units,  except this  Memorandum  (including  amendments and
         supplements,  if any) and  documents  summarized  herein.  No person is
         authorized to give any  information or to make any  representation  not
         contained in this Memorandum or in the appendices hereto, and, if given
         or made, such other  information or  representation  must not be relied
         upon.

<PAGE>

WINSTON #892462 v 2
                                       vi

                                TABLE OF CONTENTS

                                                                         Page

RISK FACTORS..................................................................1
         Operating Risks......................................................1
         Tax Risks............................................................7
         Other Investment Risks..............................................13

THE PARTNERSHIP..............................................................16

TERMS OF THE OFFERING........................................................17
         The Units and Subscription Price....................................17
         Acceptance of Subscriptions.........................................17
         Guaranty Arrangements...............................................18
         Limited Partner Loans...............................................21
         Subscription Period; Closing........................................23
         Offering Exemption..................................................23
         Suitability Standards...............................................23
         How to Invest.......................................................24
         Restrictions on Transfer of Units...................................24

PLAN OF DISTRIBUTION.........................................................25

BUSINESS ACTIVITIES..........................................................26
         General  26
         Treatment Methods for Kidney Stone Disease..........................26
         The Lithotripsy System..............................................27
         Acquisition of Additional Assets....................................28
         Hospital Contracts..................................................28
         Management..........................................................30

THE GENERAL PARTNER..........................................................30

COMPENSATION AND REIMBURSEMENT TO THE GENERAL PARTNER AND ITS AFFILIATES.....32

CONFLICTS OF INTEREST........................................................33

FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER..............................34

COMPETITION..................................................................35
         Affiliated Competition..............................................35
         Other Competition...................................................35

REGULATION...................................................................36
         Federal Regulation..................................................36
         State Regulation....................................................45

PRIOR ACTIVITIES.............................................................47

SOURCES AND APPLICATIONS OF FUNDS............................................48

FINANCIAL CONDITION OF THE PARTNERSHIP.......................................49

SUMMARY OF THE PARTNERSHIP AGREEMENT.........................................53
         Nature of Limited Partnership Interest..............................53
         Dilution Offerings..................................................53
         Fundamental Changes.................................................54
         Profits, Losses and Distributions...................................56
         Management of the Partnership.......................................59
         Powers of the General Partner.......................................59
         Rights and Liabilities of the Limited Partners......................60
         Restrictions on Transfer of Partnership Interests...................61
         Dissolution and Liquidation.........................................61
         Optional Purchase of Limited Partner Interests......................62
         Noncompetition Agreement and Protection of Confidential
                Information..................................................63
         Arbitration.........................................................63
         Power of Attorney...................................................64
         Reports to Limited Partners.........................................64
         Records  64

LEGAL MATTERS................................................................64

ADDITIONAL INFORMATION.......................................................64

GLOSSARY 65


<PAGE>

WINSTON #892462 v 2
                                       vii

                                   APPENDICES

Appendix A        AGREEMENT OF LIMITED PARTNERSHIP OF MOBILE KIDNEY STONE
                         CENTERS OF CALIFORNIA II, L.P.

Appendix B        LIMITED PARTNER LOAN COMMITMENT (WITH EXHIBITS)

Appendix C        FORM OF OPINION OF WOMBLE CARLYLE SANDRIDGE & RICE,
                         A PROFESSIONAL LIMITED LIABILITY COMPANY

Appendix D        NOTES TO FINANCIAL STATEMENTS


<PAGE>

WINSTON #892462 v 2

                                  RISK FACTORS

                  Prior to subscribing  for Units,  Investors  should  carefully
examine this entire Memorandum, including the Appendices hereto, and should give
particular   consideration   to  the  general  risks  attendant  to  speculative
investments and investments in partnerships generally,  and to the other special
operating,  tax and other  investment  risks set forth below. See the "Glossary"
for terms used in this Memorandum and not otherwise defined.

Operating Risks

                  General Risks of Operations.  The Partnership was formed under
the laws of the State of  California  on  December  11,  1998 and only  recently
commenced  operations  in  May,  1999.  Although  the  General  Partner  and its
personnel  have  significant  experience  in managing  lithotripsy  enterprises,
whether the Partnership can continue to effectively  operate its business cannot
be accurately  predicted.  The benefits of an investment in the Partnership also
depend on many  factors  over which the  Partnership  has no control,  including
competition,  technological  innovations  rendering the Lithotripsy  System less
competitive or obsolete,  and other matters.  The  Partnership  may be adversely
affected  by  various  changing  local  factors  such as an  increase  in  local
unemployment, a change in general economic conditions, changes in interest rates
and  availability of financing,  and other matters that may render the operation
of the  Lithotripsy  System  difficult or  unattractive.  Other factors that may
adversely  affect  the  operation  of  the  Lithotripsy  System  are  unforeseen
increased operating expenses,  energy shortages and costs attributable  thereto,
uninsured losses and the capabilities of the Partnership's management personnel.

                  Uncertainties Related to Changing Healthcare Environment.  The
healthcare industry has experienced substantial changes in recent years. Managed
care is becoming a major factor in the delivery of  lithotripsy  services in the
Service Area and the General  Partner  anticipates  that managed care  programs,
including  capitation  plans,  will continue to play an  increasing  role in the
delivery of  lithotripsy  services and that  competition  for these services may
shift from individual  practitioners  to health  maintenance  organizations  and
other significant  providers of managed care. No assurance can be given that the
changing  healthcare  environment will not have a material adverse effect on the
Partnership.

                  Lack of Diversification.  The Partnership's  principal purpose
will be to continue to operate the Lithotripsy  System.  Because the Partnership
is dependent on only one line of business and one Lithotripsy System, there will
be greater risks from unexpected service  interruptions,  equipment  breakdowns,
technological  developments,   kidney  stone  treatment  medical  breakthroughs,
economic  problems  and  similar  matters  than  would be the  case  with a more
diversified business.

<PAGE>

WINSTON #892462 v 2
                                       26

                  Impact of Insurance Reimbursement.  The Partnership's revenues
are  expected to be derived from the fees paid by Contract  Hospitals  and other
health care facilities under lithotripsy service contracts with the Partnership.
The  Partnership  does not currently  directly bill or collect for services from
patients or their third-party payors.  Payments received from Contract Hospitals
and other health care  facilities may be subject to  renegotiation  depending on
the  reimbursement  such parties  receive.  The  increasing  influence of health
maintenance  organizations  and other  managed  care  companies  has resulted in
pressure to reduce the reimbursement available for lithotripsy procedures.  Some
of the General Partner's Affiliates have recently experienced declining revenues
based  on  these   managed  care   pressures  in  other  health  care   markets.
Additionally,  the Health Care Financing  Administration  ("HCFA"),  the federal
agency which  administers the Medicare  program,  has proposed rules which would
reduce the  reimbursement  available  for  lithotripsy  procedures  provided  at
hospitals  to  $2,235.  See  "Regulation  - Federal  Regulation."  In some cases
reimbursement rates payable to the General Partner and other Affiliates are less
than the proposed HCFA rate.  Because of the competitive  pressures from managed
care companies as well as threatened reductions in Medicare  reimbursement,  the
General  Partner  anticipates  that  reimbursement   available  for  lithotripsy
procedures  may  continue  to  decrease.  Such  decreases  would have a material
adverse effect on Partnership revenues.  Regarding the professional fees paid to
physicians who treat patients on the  Lithotripsy  System,  the General  Partner
anticipates that similar competitive pressures may result in lower reimbursement
paid to physicians,  both by private insurers and by government programs such as
Medicare.

See "Regulation."

                  Reliability and Efficacy of the Storz  Modulith(R)  SLX-T. The
Modulith(R)  SLX-T received FDA premarket  approval on March 27, 1997.  Although
the General Partner and its Affiliates have positive direct  experience with the
use of the Modulith(R) SLX-T, "downtime" periods necessitated by maintenance and
repairs of the Lithotripsy  System will adversely effect  Partnership  revenues.
Preliminary  reports from abroad and "word of mouth" anecdotal evidence indicate
that  the  Modulith(R)   SLX-T  is  as  effective  as  most  of  the  "portable"
lithotripters  in the market.  The General Partner is aware that early data from
abroad  concerning  one  precursor  to the  Modulith(R)  SLX-T  reflected a high
retreatment  rate,  and that an  Affiliate  of the General  Partner  experienced
electrical and mechanical problems using another precursor, the Modulith(R) SLX.
However,  the General Partner's and its Affiliates'  limited experience with the
transportable  Modulith(R) SLX-T has shown acceptable  retreatment rates. A high
retreatment  rate may adversely  affect the  Partnership.  Investors should note
that some studies  indicate that  lithotripsy  may cause high blood pressure and
tissue damage.  The General  Partner  questions the reliability of these studies
and believes  lithotripsy  has become a widely accepted method for the treatment
of renal stones.

                  Technological  Obsolescence.  The  history of  lithotripsy  of
kidney stones as an accepted treatment  procedure is relatively recent, with the
first clinical trials being conducted in West Germany  beginning in 1980 and the
first  premarket  approval for a renal  lithotripter  in the United States being
granted  by the  FDA in  December  1984.  Today,  lithotripsy  is the  treatment
procedure of choice for kidney stone disease,  having  replaced other  treatment
methods.  Published reports indicate that certain  researchers are attempting to
improve  a  laser  technology  to  more  easily  eradicate  kidney  stones,  and
pharmaceutical  companies and researchers  have attempted to develop a safe drug
that can be used to dissolve  kidney  stones in all cases.  The General  Partner
cannot  predict the outcome of ongoing  research in these areas,  and any one or
more  developments  could  reduce  or  eliminate  lithotripsy  as an  acceptable
procedure or treatment method of choice for the treatment of kidney stones.

                  Partnership  Limited  Resources  and  Risks of  Leverage.  The
Partnership used the Loan proceeds to acquire the Lithotripsy  System and to pay
state sales taxes on such  equipment.  The net proceeds of this Offering will be
used to reduce the Partnership's  currently  outstanding  indebtedness under the
Loan. While the General Partner  anticipates that cash generated from operations
will  continue  to  enable  the  Partnership  to  repay  the  remainder  of  the
obligations under the Loan in accordance with its terms,  lower than anticipated
revenues,  greater than  anticipated  expenses,  or unexpected  interruptions in
operations could result in the Partnership failing to make payments of principal
or interest when due under the Loan, and the Partnership's  equity being reduced
or  eliminated.  In such event,  the Limited  Partners  could lose their  entire
investment  and be called  upon to pay  their  Guaranties.  See "Risk  Factors -
Operating  Risks -  Liability  Under the  Guaranty."  Moreover,  in the event of
unanticipated expenses, it may be necessary to supplement Partnership funds with
the proceeds of additional  debt  financing.  The terms of the Loan may restrict
the Partnership's ability to obtain another financing  commitment,  and although
the General Partner maintains good relationships with certain commercial lending
institutions, it cannot be determined whether any additional commitment would be
available on terms acceptable to the Partnership. The General Partner and/or its
Affiliates  may, but are under no obligation to, make loans to the  Partnership,
and there is no  assurance  that they  would be  willing or able to do so at the
time,  in amounts and on terms  required by the  Partnership.  While the General
Partner  does  not  anticipate  that it would  cause  the  Partnership  to incur
indebtedness unless cash generated from Partnership  operations were at the time
expected  to enable  repayment  of such loan in  accordance  with its terms,  as
discussed above, lower than anticipated revenues and/or greater than anticipated
expenses could result in the Partnership's failure to make payments of principal
or  interest  when due  under  such a loan and the  Partnership's  equity  being
reduced or eliminated. In such event, the Limited Partners could also lose their
entire investment.

                  Acquisition of Additional Assets. If in the future the General
Partner determines that it is in the best interest of the Partnership to acquire
(i) one or more additional fixed base or mobile Lithotripsy  Systems or (ii) any
other  urological  device or  equipment  so long as such device has received FDA
premarket  approval at the time it is acquired by the Partnership,  and/or (iii)
an  interest  in any  business  entity  that  engages in a  urological  business
described  above, the General Partner has the authority  (without  obtaining the
Limited  Partners'   consent)  to  establish  reserves  or  subject  to  certain
restrictions  in  the  Loan,  to  borrow  additional  funds  on  behalf  of  the
Partnership  to  accomplish  such  goals,  and may use  Partnership  assets  and
revenues to secure and repay such  borrowings.  The  acquisition  of  additional
assets may substantially  increase the Partnership's monthly obligations and may
result in increased personnel requirements.  See "Risk Factors - Operating Risks
- Partnership Limited Resources and Risks of Leverage." The General Partner does
not  anticipate  acquiring   additional   Partnership  assets  unless  projected
Partnership  Cash Flow or proceeds  from a Dilution  Offering are  sufficient to
finance such acquisitions. See "Risk Factors - Other Investment Risks - Dilution
of Limited  Partners'  Interests."  In any event,  no Limited  Partner  would be
personally  liable  on any  additional  Partnership  indebtedness  without  such
Limited  Partner's prior written  consent.  There is no assurance that financing
would be available to the  Partnership to acquire  additional  assets or to fund
any additional  working capital  requirements.  In any event, the  Partnership's
ability  to incur  additional  indebtedness  while  the Loan is  outstanding  is
severely  restricted.  Any  such  borrowing  by the  Partnership  will  serve to
increase  the risks to the  Partnership  associated  with  leverage  as provided
above.

                  Liability  Under the  Guaranty.  For each Unit  purchased,  an
Investor will be required to execute and deliver to the Bank a Guaranty pursuant
to which the Investor will personally  guarantee 0.5% of the Partnership's total
obligations  under  the  Loan,  which is  equivalent  to a  $2,435.63  principal
guaranty per Unit.  Although as of the date of this Memorandum,  the outstanding
principal balance of the Loan is $441,205.79, the terms of the Loan provide that
it can be renewed for its initial full amount (i.e.,  $487,125),  and therefore,
Investors should view their potential liability under their Guaranties as if the
full Loan  amount  is  outstanding.  Liability  under the  Guaranty  may  exceed
$2,435.63 per Unit because the guaranty  obligation  per Unit also includes 0.5%
of all accrued and unpaid  interest,  late  payment  penalties,  and legal costs
incurred by the Bank in collecting any defaulted  payments.  An Investor  should
not purchase a Unit if he does not have resources sufficient to bear the loss of
this  entire  amount.  See  "Terms of the  Offering -  Guaranty  Arrangements  -
Liability  Under  the  Guaranty"  and  "Terms  of  the  Offering  -  Suitability
Standards."

                  If  Partnership  operations  continue to  generate  sufficient
revenues to enable the Partnership to make all payments under the Loan when due,
no Limited Partner will be required to perform under his Guaranty.  If a default
occurs under the Loan, the Bank may, among other remedies, seek payment directly
from the Limited Partners under the Guaranties. The Guaranties are a guaranty of
payment and not of collection and require the Limited  Partners to waive certain
rights to which they might otherwise be entitled.  As a result, the liability of
the  Limited  Partners  under the  Guaranties  is direct and  immediate  and not
conditioned  or contingent  upon either the pursuit of any remedies  against the
Partnership or any other person  (including any other  guarantor) or foreclosure
of any security  interest or liens  available to the Bank.  The Guaranties are a
continuing  guaranty  that by their terms will survive the death,  bankruptcy or
disability of a Limited Partner guarantor.  A Limited Partner's  liability under
the  Guaranty  continues  regardless  of whether the Limited  Partner  remains a
limited  partner in the Partnership and is not affected or limited by any claims
or offsets the Limited  Partner may have against the  Partnership or the General
Partner. See the form of Guaranty Agreement included in the Subscription Packet.

                  Competition.  Many  fixed-site  and mobile  lithotripters  are
currently  operating  in and  around  the  Service  Area  which  are  in  direct
competition with the Partnership's  Lithotripsy  System. The General Partner and
entities  which are  Affiliates of the General  Partner also compete in and near
the Service Area. The competing  lithotripsy  service  providers,  including the
General  Partner and its  Affiliates,  generally  have existing  contracts  with
hospitals  and  other   facilities.   The  General  Partner  competes  with  the
Partnership in the Service Area by providing  lithotripsy services at the Kaiser
Foundation  Hospital in Sacramento.  The General Partner and its Affiliates also
compete with the Partnership by providing  lithotripsy services near the Service
Area. In addition,  except as provided by law,  neither the General  Partner nor
its Affiliates are prohibited from engaging in any business or arrangement  that
may  compete  with  the  Partnership.  See  "Prior  Activities,"  "Conflicts  of
Interest" and "Competition."

                  There is no  assurance  that other  parties  will not,  in the
future,  operate  fixed-base or mobile  lithotripters  in and around the Service
Area. To the General Partner's  knowledge,  no manufacturers are restricted from
selling their  lithotripters to other parties in the Service Area.  Furthermore,
the Partnership  competes with facilities and individual  medical  practitioners
who offer conventional treatment (e.g., surgery) for kidney stones. Managed care
companies  generally  contract  either  directly  with  hospitals  or  specified
providers for lithotripsy  services for  beneficiaries of their plans. It is not
uncommon for managed  care  companies  to have  contracts  already in place with
hospitals  or  specified  providers,  and the  Partnership  will  not be able to
provide  services to beneficiaries of those plans unless it convinces either the
managed care companies or the hospitals to switch to the Partnership's services.

                  Restrictions on Limited  Partners.  The Partnership  Agreement
severely  restricts the Limited  Partners' ability to own interests in competing
equipment or ventures,  other than interests held by the General  Partner or its
Affiliates.  However, the General Partner may, in its sole discretion, waive the
restrictions  with  respect  to  interests  held by an  Investor  at the time he
becomes  a  Limited  Partner.  See  "Summary  of  the  Partnership  Agreement  -
Noncompetition  Agreement  and  Protection  of  Confidential  Information."  The
enforceability of these noncompetition agreements is generally a matter of state
law.  No  assurance  can be given  that  one or more  Limited  Partners  may not
successfully compete with the Partnership. See "Competition."

                  Government  Regulation.  All facets of the healthcare industry
are highly  regulated and will become more so in the future.  The ability of the
Partnership to operate  legally and be profitable  may be adversely  affected by
changes   in   governmental   regulations,   including   expected   changes   in
reimbursement,  Medicare and Medicaid  certification  requirements,  federal and
state fraud and abuse laws,  including the federal  Anti-Kickback  Statute,  the
federal  False  Claims  Act,  federal  and  state   self-referral   laws,  state
restrictions   on  fee  splitting  and  other   governmental   regulation.   See
"Regulation".  These laws and  regulations  may  adversely  affect the  economic
viability of the Partnership.  The laws are broad in scope, and  interpretations
by courts have been limited.  Violations of these laws would subject the General
Partner  and  all  Limited  Partners  to  governmental  scrutiny  and/or  felony
prosecution  and  punishment  in the  form  of  large  monetary  fines,  loss of
licensure,  imprisonment  and  exclusion  from  Medicare and  Medicaid.  Certain
provisions  of Medicare and Medicaid law limit  provider  ownership  and control
over the various health care services to which  physicians may make Medicare and
Medicaid referrals. The primary laws involved are the "Stark II" federal statute
prohibiting  financial  relationships between physicians and certain entities to
which  they  refer  patients,  and the  Anti-Kickback  Statute  which  prohibits
compensation in exchange for or to induce referrals.

                  Regarding   Stark  II,  HCFA   published   proposed  Stark  II
regulations in 1998. Under the proposed  regulations,  physician Limited Partner
referrals  of  Medicare  and  Medicaid   patients  to  Contract   Hospitals  for
lithotripsy  services would be prohibited.  If HCFA adopts the proposed Stark II
regulations  as final,  or if a reviewing  court were to interpret  the Stark II
statute  using the proposed  regulations  as  interpretive  authority,  then the
Partnership  and its  physician  Limited  Partners  would  likely  be  found  in
violation of Stark II. In such instance,  the  Partnership  and/or its physician
Limited  Partners may be required to refund any amounts  collected from Medicare
and Medicaid  patients in  violation of the statute,  and they may be subject to
civil  monetary  penalties  and/or  exclusion  from the  Medicare  and  Medicaid
programs.

                  The  Anti-Kickback  Statute  prohibits paying or receiving any
remuneration in exchange for making a referral for healthcare services which may
be  paid  for by  Medicare,  Medicaid  or  CHAMPUS.  The law  has  been  broadly
interpreted to include any payments which may induce or influence a physician to
refer  patients.  One of the federal  agencies that  enforces the  Anti-Kickback
Statute has issued several "safe  harbors"  which,  if complied  with,  mean the
payment or transaction will be deemed not to violate the law. This Offering does
not comply with any "safe  harbor."  There is limited  guidance  from  reviewing
courts  regarding the  application  of the broad  language of the  Anti-Kickback
Statute to joint  ventures  similar to the one  described in this  Offering.  In
order  to  prove  violations  of the  Anti-Kickback  law,  the  government  must
establish that one or more parties  offered,  solicited or paid  remuneration to
induce or reward referrals.  The government has said that in certain  situations
the mere  offering of an  opportunity  to invest in a venture  would  constitute
illegal  remuneration in violation of the  Anti-Kickback  Statute.  Although the
General  Partner  believes the structure and purpose of the  Partnership  are in
compliance  with the  Anti-Kickback  Statute,  no  assurances  can be given that
government  officials  or a  reviewing  court  would  agree.  Violation  of  the
Anti-Kickback Statute could subject the Partnership, the General Partner and the
physician  Limited Partners to criminal  penalties,  imprisonment,  fines and/or
exclusion from the Medicare and Medicaid programs.

                  The  federal  False  Claims  Act and  similar  laws  generally
prohibit an individual or entity from knowingly and willfully presenting a claim
(or causing a claim to be  presented)  for payment  from  Medicare,  Medicaid or
other third party payors that is false and  fraudulent.  In recent cases,  False
Claims  Act  violations  have been  based on  allegations  that  Stark II or the
Anti-Kickback Statute has been violated.

                  In  addition  to Stark II, the  Anti-Kickback  Statute and the
False Claims Act, an  unfavorable  interpretation  of other  existing  laws,  or
enactment of future laws or regulations,  could potentially adversely affect the
operation of the Partnership.  If this occurs,  the General Partner is obligated
either to purchase or cause the sale of the Partnership  Interests of all of the
Limited Partners or to dissolve the Partnership. See "Summary of the Partnership
Agreement - Optional Purchase of Limited Partner Interests."

                  Regarding  state law,  California  prohibits  physicians  from
referring  patients to  facilities  in which the  physicians  have a significant
financial interest unless the physician's return on investment is based upon the
proportional  ownership interest in the facility and the physician discloses the
ownership  interest to the  patient in writing and advises the patient  that the
patient may choose  another  provider to obtain the service.  Various  licensure
requirements  must be met for the  Partnership  to  provide  mobile  lithotripsy
services in California.  The General Partner and the Management  Agent have been
seeking and will continue to seek to cause the  Partnership  to comply with such
requirements. See "Regulation - State Regulation".

                  Contract  Terms  and  Termination.  The  Partnership  provides
lithotripsy  services to 10 Contract  Hospitals  pursuant to 7 separate Hospital
Contracts.  All of the Hospital  Contracts  grant the  Partnership the exclusive
right to provide lithotripsy  services at the particular Contract Hospital.  Two
of the Hospital Contracts provide for automatic renewal on a year-to-year basis.
These  Hospital  Contracts  are  terminable  without cause upon 180 days or less
prior  written  notice by either party prior to any renewal  date.  Three of the
Hospital  Contracts  have no automatic  renewal  provision and will terminate on
December  31, 2000 unless the parties  mutually  agree to extend the terms.  One
Hospital  Contract's  term also  expires on  December  31,  2000,  however,  the
contract provides for an indefinite term thereafter which is terminable  without
cause upon 180 days written notice by either party. In addition, the Partnership
is negotiating a contract  extension with Catholic Health Care West,  which will
cover  services at four more Contract  Hospitals.  The  Partnership is currently
providing services at such Contract  Hospitals on a month-to-month  basis. It is
expected  that  most new  lithotripsy  service  contracts,  if any,  would  have
one-year terms and be automatically renewed unless either party elects to cancel
prior  to the  end of the  term.  The  General  Partner  believes  it has a good
relationship  with the Contract  Hospitals and does not  anticipate  significant
terminations.  There is no assurance, however, that terminations will either not
occur or that the resulting impact to the Partnership  would not have a material
adverse effect on Partnership  operations.  In addition,  competing  vendors may
attempt to cause certain Contract Hospitals to contract with them instead of the
Partnership. The loss of Contract Hospitals to competition will adversely affect
Partnership  revenues  and such  effect  could be  material.  Thus,  there is no
assurance  that  Partnership  operations  as  conducted  on  the  date  of  this
Memorandum  will  continue  as  herein  described  or   contemplated,   and  the
cancellation of a significant  number of service  contracts or the Partnership's
inability  to secure  new ones  could  have a  material  negative  impact on the
financial condition and results of the Partnership.  See "Business  Activities -
Hospital Contracts" and "Risk Factors - Competition."

                  Loss on Dissolution and Termination.  Upon the dissolution and
termination of the  Partnership,  the proceeds  realized from the liquidation of
its assets, if any, will be distributed to its partners only after  satisfaction
of the claims of all  creditors,  including,  but not limited to, the Bank.  See
"Risk  Factors-Operating Risks - Liability Under the Guaranty" and "Risk Factors
- other Investment  Risks - Liability Under Limited Partner Loan."  Accordingly,
the ability of a Limited Partner to recover all or any portion of his investment
under such  circumstances will depend on the amount of funds so realized and the
claims to be satisfied  therefrom.  See "Summary of the Partnership  Agreement -
Optional Purchase of Limited Partner Interests."

Tax Risks

                  Investors should note that the General Partner  anticipates no
significant tax benefits associated with the operation of the Lithotripsy System
or the  Partnership.  No ruling  will be sought  from the  Service on the United
States federal income tax  consequences of any of the matters  discussed in this
Memorandum  or any other tax issues  affecting  the  Partnership  or the Limited
Partners.  The Partnership is relying upon an opinion of Counsel with respect to
certain material United States federal income tax issues.  Counsel's  opinion is
not binding on the Service as to any issue,  and there can be no assurance  that
any deductions,  or the period in which  deductions may be claimed,  will not be
challenged by the Service.  Each Investor should  carefully review the following
risk factors and consult his or her own tax advisor with respect to the federal,
state and local income tax consequences of an investment in the Partnership.

                  THE TAX RISKS SET FORTH IN THIS SECTION ARE NOT INTENDED TO BE
AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC TAX RISKS RELATING TO THE PURCHASE
OF UNITS IN THE  PARTNERSHIP.  EACH  INVESTOR IS DIRECTED TO THE FULL OPINION OF
COUNSEL  (APPENDIX C TO THE  MEMORANDUM).  IT IS STRONGLY  RECOMMENDED THAT EACH
INVESTOR  INDEPENDENTLY  CONSULT HIS OR HER PERSONAL TAX COUNSEL  CONCERNING THE
TAX  CONSEQUENCES  ASSOCIATED  WITH HIS OR HER  OWNERSHIP  OF AN INTEREST IN THE
PARTNERSHIP.  THE CONCLUSIONS  REACHED IN COUNSEL'S OPINION ARE RENDERED WITHOUT
ASSURANCE THAT SUCH  CONCLUSIONS HAVE BEEN OR WILL BE ACCEPTED BY THE SERVICE OR
THE COURTS.

                  THIS MEMORANDUM AND COUNSEL'S OPINION DO NOT DISCUSS, NOR WILL
COUNSEL BE RENDERING AN OPINION REGARDING,  ANY ESTATE AND GIFT TAX OR STATE AND
LOCAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP.  FURTHERMORE,
INVESTORS SHOULD NOTE THAT THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN THE PARTNERSHIP MAY BE ADVERSELY AFFECTED BY FUTURE CHANGES IN THE
FEDERAL  INCOME  TAX  LAWS,  WHETHER  BY  FUTURE  ACTS  OF  CONGRESS  OR  FUTURE
ADMINISTRATIVE  OR JUDICIAL  INTERPRETATIONS  OF APPLICABLE  FEDERAL  INCOME TAX
LAWS. ANY OF THE FOREGOING MAY BE GIVEN RETROACTIVE EFFECT.

                  INVESTORS SHOULD NOTE THAT THE UNITS ARE BEING MARKETED BY THE
PARTNERSHIP AS AN ECONOMIC  INVESTMENT AND THAT THE PARTNERSHIP  ANTICIPATES AND
INTENDS NO  SIGNIFICANT  TAX  BENEFITS  FROM AN  INVESTMENT  IN THE  UNITS.  SEE
"PASSIVE  INCOME  AND  LOSSES" IN THIS  SECTION.  THE  INVESTMENT  IN UNITS IS A
LONG-TERM INVESTMENT.  INVESTORS SHOULD NOT INVEST IN THE PARTNERSHIP TO ACHIEVE
TAX BENEFITS AS THE GENERAL PARTNER ANTICIPATES  SIGNIFICANT PARTNERSHIP TAXABLE
INCOME THROUGHOUT THE TERM OF THE PARTNERSHIP.

                  Possible   Legislative   or  Other   Actions   Affecting   Tax
Consequences.   The  federal  income  tax  treatment  of  an  investment  in  an
equipment/service  oriented  limited  partnership such as the Partnership may be
modified by legislative,  judicial or administrative action at any time, and any
such action may  retroactively  affect  investments and  commitments  previously
made. The rules dealing with federal income taxation of limited partnerships are
constantly  under  review  by  the  Service,   resulting  in  revisions  of  its
regulations and revised  interpretations of established  concepts. In evaluating
an investment in the  Partnership,  each Investor should consult with his or her
personal  tax  advisor  with  respect  to  possible  legislative,  judicial  and
administrative developments.

                  Disqualification of Employee Benefit Plans.  Purchase of Units
in the  Partnership may cause certain Limited  Partners,  certain  hospitals and
healthcare treatment centers, the Partnership, and employees of the foregoing to
be treated under Section  414(m) of the Code as being  employed in the aggregate
by a single  employer  or  "affiliated  service  group" for  purposes of minimum
coverage,  participation and other employee benefit plan requirements imposed by
the Code. In contrast, an employer not affiliated under Section 414(m) need only
consider its own  employees in  determining  whether its employee  benefit plans
satisfy  Code   requirements.   Aggregation   of   employees   could  cause  the
disqualification of the retirement plans of certain Limited Partners and related
entities.  Aggregation  could also  require  the value of the vested  retirement
benefit of a highly compensated  employee who is a participant in a disqualified
plan to be  included  in his or her gross  income,  regardless  of  whether  the
employee is a Limited  Partner.  These rules may adversely  affect Investors who
are currently involved in a medical practice joint venture,  regardless of their
purchase of Units in the Partnership.  The General Partner and Counsel have been
informally advised by officials of the Service that the Service would not likely
attempt to apply the affiliated service group rules to the Partnership,  nor has
the Service applied these rules to similar  arrangements  in the past.  Informal
discussions with the Service, however, are not binding on the Service, and there
can be no guarantee that the Service will not apply the affiliated service group
rules to the Partnership.

                  INVESTORS  ARE URGED TO CONSULT  WITH  THEIR OWN TAX  ADVISORS
REGARDING THE  APPLICABILITY  OF THE  AFFILIATED  SERVICE GROUP RULES  DESCRIBED
HEREIN  TO THE  EMPLOYEE  BENEFIT  PLANS  MAINTAINED  BY THEM OR  THEIR  MEDICAL
PRACTICES.

                  Partnership  Allocations.  The Partnership  Agreement contains
certain  allocations  of profits  and losses  that could be  reallocated  by the
Service if it were determined  that the  allocations  did not have  "substantial
economic  effect." On December 31, 1985, the Treasury  Regulations  dealing with
the propriety of  partnership  allocations  were  finalized.  As a general rule,
allocations of profits and losses must have "substantial economic effect." Based
upon  current  law,  Counsel  is of  the  opinion  that,  if the  question  were
litigated,  it is more  probable  than not that the  allocation  of profits  and
losses set forth in the  Partnership  Agreement  would be sustained  for federal
income tax purposes. Investors are cautioned that the foregoing opinion is based
in part upon final Regulations which have not been extensively commented upon or
construed by the courts.

                  Income in Excess of Distributions.  The Partnership  Agreement
provides  that in each year annual  Distributions  may be made to the  Partners.
Excluded from the definition of cash available for distribution is the amount of
funds necessary to discharge Partnership debts (including scheduled payments and
certain prepayments under the Loan) and to maintain certain cash reserves deemed
necessary by the General Partner.  If Partnership cash flow declines,  a Limited
Partner  could be subject to income taxes  payable out of personal  funds to the
extent of the Partnership's  income, if any, attributed to him without receiving
from the Partnership  sufficient  Distributions to pay the Limited Partner's tax
with respect to such income.

                  Effect of Classification  as Corporation.  The Partnership has
not and will not seek a ruling from the Service concerning the tax status of the
Partnership.  It is the opinion of Counsel that the Partnership  will be treated
as a  partnership  for federal  income tax  purposes  and not as an  association
taxable as a corporation  unless the Partnership so elects.  The Partnership has
not and will not make an election to be  classified  as other than a partnership
for federal income tax purposes. Although the Partnership intends to rely on the
legal opinion of Counsel, the service will not be bound thereby. Moreover, there
can  be no  assurance  that  legislative  or  administrative  changes  or  court
decisions  may not in the future result in the  Partnership  being treated as an
association  taxable  as a  corporation,  with a  resulting  greater  tax burden
associated with the purchase of Units.

                  The General  Partner,  in order to comply with  applicable tax
law, will keep the Partnership's books and records and otherwise compute Profits
and  Losses  based on the  accrual  method,  and not the cash basis  method,  of
accounting pursuant to Section 448 of the Code. The accrual method of accounting
generally  records  income and  expenses  when they are accrued or  economically
incurred.

                  Passive Income and Losses.  The General  Partner  expects that
the  Partnership  will continue to realize taxable income and not taxable losses
during the foreseeable  future.  Nevertheless,  if it instead  realizes  taxable
losses, the use of such losses by the Limited Partners will generally be limited
by Code Section 469.

                  Code Section 469 provides  limitations  for the use of taxable
losses attributable to "passive activities." Code Section 469 operates generally
to  prohibit   passive  losses  from  being  used  against  income  from  active
activities.  The passive activity rules are extremely  complex and Investors are
urged to consult their own tax advisors as to their applicability,  particularly
as they relate to the ability to deduct any losses from the Partnership  against
other income of the Investor.

                  THE PASSIVE  ACTIVITY  LOSS RULES WILL  AFFECT  EACH  INVESTOR
DIFFERENTLY,  DEPENDING ON HIS OWN TAX SITUATION.  EACH INVESTOR  SHOULD CONSULT
WITH HIS OWN TAX ADVISOR TO DETERMINE  THE EFFECT OF THESE RULES ON THE INVESTOR
IN LIGHT OF THE INVESTOR'S INDIVIDUAL FACTS AND CIRCUMSTANCES.

                  Depreciation.   The   Partnership   will   use  the   Modified
Accelerated  Cost  Recovery  System  ("MACRS")  to  depreciate  the  cost of any
equipment or improvements  hereafter acquired.  Any additions or improvements to
the Lithotripsy  System will also be depreciated over a five year term using the
200% declining  balance method of depreciation,  switching to the  straight-line
method to maximize the depreciation  allowance. If purchases or improvements are
made  after the  beginning  of any year,  only a  fraction  of the  depreciation
deduction may be claimed in that year.

                  As under prior law, the 1986 Act provides that the full amount
of  depreciation  on  personal  property  (such as the  Lithotripsy  System)  is
recaptured upon  disposition  (i.e., is taxed as ordinary  income) to the extent
gain is realized  on the  disposition.  Investors  should note that the 1986 Act
repealed the investment tax credit for all personal property.

                  Partnership  Elections.  The Code permits partnerships to make
elections for the purpose of adjusting the basis of partnership  property on the
distribution of property by a partnership to a partner and on the transfer of an
interest in a partnership by sale or exchange or on the death of a partner.  The
general  effect of such elections is that  transferees of Partnership  Interests
will be treated, for the purposes of depreciation and gain, as though they had a
direct interest in the Partnership's  assets,  and the difference  between their
adjusted bases for their  Partnership  Interests and their allocable  portion of
the  Partnership's  bases for its assets will be  allocated to such assets based
upon the fair  market  value of the  assets  at the  times of  transfers  of the
Partnership Interests.  Any such election,  once made, cannot be revoked without
the consent of the Service.  Under the terms of the Partnership  Agreement,  the
General Partner, in its discretion, may make the requisite election necessary to
effect such adjustment in basis.

                  Sale of Partnership  Units. Gain realized on the sale of Units
by a Limited  Partner who is not a "dealer"  in Units or in limited  partnership
interests  will be taxed as capital  gain,  except that the portion of the sales
price  attributable to inventory items and unrealized  receivables will be taxed
as ordinary  income.  "Unrealized  receivables" of the  Partnership  include the
Limited  Partner's  share of the  ordinary  income  that the  Partnership  would
realize as a result of the recapture of depreciation (as described above) if the
Partnership had sold Partnership  depreciable  property  immediately  before the
Limited Partner sold his Partnership  Interest.  Investors  should note that the
IRS Restructuring and Reform Act of 1998 generally imposes a maximum tax rate of
20% on net long-term  capital gains.  To the extent the  Partnership  has income
attributable to depreciation  recapture incurred on the sale of a capital asset,
such income will be taxed at a maximum rate of 25%.  The Revenue  Reconciliation
Act of 1993 imposed a maximum  potential  individual income tax rate of 39.6% on
ordinary income.

                  Tax  Treatment  Of  Certain  Fees  and  Expenses  Paid  By The
Partnership.  Under the Code, a partnership expenditure will, as a general rule,
fall  into  one  of  the  following  categories:   (1)  deductible  expenses  --
expenditures  such as  interest,  taxes,  and ordinary  and  necessary  business
expenses  which  the  partnership  is  entitled  to  deduct in full when paid or
incurred;  (2)  amortizable  expenses --  expenditures  which the partnership is
entitled to amortize  (i.e.,  deduct  ratably) over a fixed period of time;  (3)
capital  expenditures -- expenditures which must be added to the amortization or
depreciation  base of partnership  property (or partnership  loans) and deducted
over a period of time as the  property  (or  partnership  loan) is  amortized or
depreciated;   (4)  organization   expenses  --  expenditures   related  to  the
organization  of the  partnership,  which  under  Section  709 of the  Code  are
amortized  over a 60-month  period,  provided an election to do so is made;  (5)
syndication  expenses -- expenditures  paid or incurred in promoting the sale of
interests  in the  partnership,  which  under  Section  709 of the Code  must be
capitalized but may be neither depreciated,  amortized,  nor otherwise deducted;
(6) partnership distributions -- payments to partners representing distributions
of partnership funds, which may be neither capitalized,  amortized nor deducted;
(7)  start-up  expenses  --  expenditures  incurred by a  partnership  during an
initial  period,  which under  Section 195 of the Code may be  amortized  over a
60-month period; and (8) guaranteed payments to partners -- payments to partners
for  services  or use of capital  which are  deductible  or treated in the other
categories  of  expenditures  listed above,  provided  they meet the  applicable
requirements.

                  Several  amendments  to the Code enacted by the Tax Reform Act
of 1984  alter  established  tax  accounting  principles.  One or more of  these
amendments  may affect the federal  income tax  treatment of fees and  expenses,
particularly fees paid or incurred by a partnership for services. In particular,
new Code Section  461(h) now  provides  that an expense or fee paid to a service
provider may not be accrued for federal  income tax  purposes  prior to the time
"economic  performance" occurs.  "Economic performance" occurs as (and no sooner
than) the service provider provides the required services.

                  All expenditures of the Partnership  must constitute  ordinary
and necessary  business expenses in order to be deducted by the Partnership when
paid or incurred,  unless the deduction of any such item is otherwise  expressly
permitted by the Code (e.g.,  taxes).  Expenditures  must also be  reasonable in
amount.  The Service could  challenge a fee deducted by the  Partnership  on the
ground that such fee is a capital  expenditure,  which must either be  amortized
over an extended  period or  indefinitely  deferred,  rather than deducted as an
ordinary and necessary  business  expense.  The Service could also challenge the
deduction  of any fee on the  basis  that the  amount  of such fee  exceeds  the
reasonable  value of the  services  performed,  the goods  acquired or the other
benefits to the Partnership.

                  Under  Section  482  of  the  Code,   the  Service  has  broad
discretion  to reallocate  income,  deductions,  credits or  allowances  between
entities  with  common  ownership  or  control  if it is  determined  that  such
reallocation  is  necessary  to prevent  the  evasion of taxes or to reflect the
income of such entities. The Partnership and the General Partner are entities to
which Section 482 applies and it is possible that the Service could contend that
certain  items  should  be  reallocated  in  a  manner  that  would  change  the
Partnership's proposed tax treatment of such items.

                  The  General  Partner  believes  the  payments  to it and  its
Affiliates  are customary and reasonable  payments for the services  rendered by
them to the Partnership; however, these fees were not determined by arm's length
negotiations.  Nothing  has come to the  attention  of Counsel  which would give
Counsel  reasonable cause to question the General  Partner's  determination.  On
audit the Service may  challenge  such payments and contend that the amount paid
for the services exceeds the reasonable value of those services.  Because of the
factual  nature of the question of the  reasonableness  of any  particular  fee,
Counsel cannot express an opinion as to the outcome of the reasonableness of the
amount of any fee should the issue be litigated.

                  Syndication  Expenses.  Section  709 of the Code  prohibits  a
partnership  from deducting or amortizing costs that are incurred to promote the
sale of partnership  interests  (i.e.,  syndication  expenses).  The Regulations
provide   definitions  for  syndication   expenses  that  must  be  capitalized.
Syndication  expenses include brokerage fees,  registration fees, legal fees for
securities  advice,  accounting  fees for preparation of  representations  to be
included  in  the  offering  materials,  and  printing  costs  of  the  offering
materials.  The  Partnership  intends to treat the entire amount  payable to the
Sales Agent as a sales  commission  for  selling  the Units,  as well as certain
other fees and expenses  allocable to the  preparation of this Memorandum and to
the offering of the Units in the Partnership,  as nondeductible,  nonamortizable
syndication expenses.

                  Investors   will    economically    bear   their    respective
proportionate  share of syndication  expenses as these costs likely will be paid
out of proceeds from the  Offering.  These costs will be borne  irrespective  of
their amount,  timing and ability of the  Partnership  to deduct these costs for
tax purposes.

                  Management Fee to General  Partner.  The Partnership  pays the
Management Agent a monthly management fee equal to 7.5% of Partnership Cash Flow
per month.  The management fee is paid to the Management  Agent for the time and
attention  devoted by it for  supervising  and  coordinating  the management and
administration of the Partnership's  day-to-day operations pursuant to the terms
of the  Management  Agreement.  The  Partnership  will  continue  to deduct  the
management fee in full in the year paid.  Assuming the management fee to be paid
to the Management Agent is ordinary, necessary and reasonable in relation to the
services provided, Counsel is of the opinion that the Partnership may deduct the
management fee in full in the year paid.

                  State and Local Taxation. Each Investor should consult his own
attorney or tax advisor  regarding  the effect of state and other local taxes on
his personal situation.

Other Investment Risks

                  Conflicts  of  Interest.  The  activities  of the  Partnership
involve  numerous  existing  and  potential  conflicts  of interest  between the
Partnership,  the General Partner and their  Affiliates.  See  "Compensation and
Reimbursement to the General Partner and its Affiliates," "The General Partner,"
"Competition" and "Conflicts of Interest."

                  No Participation  in Management.  The General Partner has full
authority to supervise the business and affairs of the  Partnership  pursuant to
the  Partnership  Agreement and the  Management  Agreement.  Except as otherwise
provided in the Partnership Agreement or the Act, Limited Partners have no right
to  participate  in the  management,  control or  conduct  of the  Partnership's
business and affairs.  The General Partner, its employees and its Affiliates are
not required to devote their full time to the  Partnership's  affairs and intend
to continue  devoting  substantial  time and effort to organizing other ventures
throughout  the United States that are similar to the  Partnership.  The General
Partner  will  continue to devote such time to the  Partnership's  business  and
affairs as it deems  necessary  and  appropriate  in the exercise of  reasonable
judgment.  The participation by any Limited Partner in the management or control
of  the  Partnership's  affairs  could  render  him  generally  liable  for  the
liabilities  of the  Partnership  that could not be  satisfied  by assets of the
Partnership.  See the  Form of Legal  Opinion  of  Counsel  attached  hereto  as
Appendix C.

                  Ability of the General Partner to Effect Fundamental  Changes.
The General  Partner,  with the prior  approval of a Majority in Interest of the
Limited  Partners,  has the authority under the Partnership  Agreement to effect
transactions  that could  result in the  termination  or  reorganization  of the
Partnership,  a total or partial dilution of the Limited Partners'  interests in
the Partnership,  and/or the exchange of interests in another enterprise for the
limited partnership interests held by the Limited Partners.  See "Summary of the
Partnership Agreement - Fundamental Changes."

                  Limited Partners' Obligation to Return Certain  Distributions.
Except as provided by other  applicable law and provided that a Limited  Partner
does not  participate in the management or control of the  Partnership,  he will
not  be  liable  for  the  liabilities  of  the  Partnership  in  excess  of his
investment,  his  Guaranty  and his  ratable  share  of  undistributed  profits.
However,  a Limited  Partner shall be liable for a period of up to four years to
return to the Partnership any distributions received from the Partnership if, at
the  time of such  distributions,  he knew  that  after  giving  effect  to such
distributions,  all liabilities of the Partnership, other than liabilities as to
Partners on account of their  Partnership  Interests and liabilities as to which
recourse of creditors is limited to specified Partnership  property,  exceed the
fair value of the Partnership's  assets.  For purposes of calculating the assets
and  liabilities  of the  Partnership,  the fair value of  property in which the
recourse  of  creditors  is  limited  to  such  property  may  be  treated  as a
Partnership  asset  to the  extent  that  the  fair  value  exceeds  outstanding
liabilities on the property.

                  Dilution of Limited Partners'  Interests.  The General Partner
has the authority  under the  Partnership  Agreement to cause the Partnership to
issue, offer and sell additional limited partnership  interests in the future (a
"Dilution  Offering").  Upon  the  sale of  interests  in the  Partnership  in a
Dilution   Offering,   the   Percentage   Interests  of  the  Partners  will  be
proportionately  diluted.  See "Summary of the Partnership  Agreement - Dilution
Offerings."

                  Liability  Under Limited  Partner Loan.  Investors  personally
borrowing  funds to finance a portion of their Unit cash purchase price with the
proceeds of a Limited  Partner  Loan will be directly  obligated  to the Bank as
provided in the Loan  Documents.  A default under the Limited Partner Loan could
result in the  foreclosure  of the Investor's  right to receive any  Partnership
Distributions  as well as the loss of other  personal  assets  unrelated  to his
Partnership  Interest.  Prospective  Investors  should review  carefully all the
provisions contained in the Loan Commitment and the terms of the Limited Partner
Note and Loan and Security Agreement with their counsel and financial  advisors.
Neither the Partnership  nor the General  Partner  endorses or recommends to the
prospective  Investors the desirability of obtaining financing from the Bank nor
does the summary of the Loan Documents  provided herein constitute legal advice.
A Limited Partner's liability under a Limited Partner Note continues  regardless
of whether the Limited Partner remains a limited partner in the Partnership.  As
a consequence,  such liability cannot be avoided by claims, defenses or set-offs
the Limited  Partner may have against the  Partnership,  the General  Partner or
their Affiliates.  In addition to the suitability  requirements discussed below,
any prospective  Investor applying for a Bank loan to fund a portion of his Unit
purchase  must be  approved  by the Bank for  purposes  of his  delivery  of the
Limited  Partner Note. The Bank has  established  its own criteria for approving
the creditworthiness of a prospective Investor and has not established objective
minimum  suitability  standards.  Instead,  the Bank is  empowered  to accept or
reject prospective Investors.

                  Long-term Investment. The General Partner anticipates that the
Partnership  will continue to operate the  Lithotripsy  System for an indefinite
period of time and that the Partnership will not liquidate prior to its intended
termination.  Accordingly,  Investors  should  consider their  investment in the
Partnership as a long-term investment of indefinite duration.

                  Limited    Transferability    and    Liquidity    of    Units.
Transferability of Units is severely restricted by the Partnership Agreement and
the Subscription Agreement,  and with the exception of certain limited permitted
transfers,  the  consent  of the  General  Partner  is  necessary  for any other
transfers.  No  public  market  for the Units  exists  and none is  expected  to
develop. Moreover, the Units generally may not be transferred unless the General
Partner is  furnished  with an opinion of counsel,  satisfactory  to the General
Partner,  to the effect that such assignment or transfer may be effected without
registration  under the Securities Act and any state  securities laws applicable
to the  transfer.  The  Partnership  will be under no obligation to register the
Units or otherwise  take any action that would enable the assignment or transfer
of a Unit to be in compliance with applicable federal and state securities laws.
Thus,  a Limited  Partner  may not be able to  liquidate  an  investment  in the
Partnership  in the  event of an  emergency  and the  Units  may not be  readily
accepted  as  collateral  for  loans.  Moreover,  a sale of a Unit by a  Limited
Partner may cause adverse tax  consequences to the selling Limited  Partner,  as
well as potentially effect a default under any outstanding Limited Partner Loan.
Accordingly,  the purchase of Units must be  considered a long-term and illiquid
investment.

                  Offering  Price.  The  offering  price of the  Units  has been
determined  by the General  Partner  based upon a valuation  of the  Partnership
conducted by an  independent  third-party  valuation  firm, and based on various
assumptions  that may or may not occur.  A copy of this  valuation  will be made
available  on  request.  The  offering  price  of the  Units  is  not,  however,
necessarily  indicative  of their value,  if any, and no assurance  can be given
that the Units, if and when  transferable,  could be sold for the offering price
or for any amount.

                  Limitation of General Partner's Liability and Indemnification.
The Partnership  Agreement  provides that the General Partner will not be liable
to the  Partnership or to any Partner of the  Partnership for errors in judgment
or other acts or omissions in  connection  with the  Partnership  as long as the
General  Partner,  in good faith,  determined  such course of conduct was in the
best interest of the Partnership,  and such course of conduct did not constitute
willful misconduct or gross negligence. Therefore, the Limited Partners may have
a more limited right of action  against the General  Partner in the event of its
misfeasance  or malfeasance  than they would have absent the  limitations in the
Partnership  Agreement.  The  Partnership  will  indemnify  the General  Partner
against  losses  sustained  by  the  General  Partner  in  connection  with  the
Partnership,  unless  such losses are a result of the  General  Partner's  gross
negligence or willful misconduct. In the opinion of the SEC, indemnification for
liabilities  arising out of the  Securities Act is contrary to public policy and
therefore is unenforceable.

                  Insurance.  The terms of the Loan require the  Partnership  to
cover the  Lithotripsy  System by  insurance  for  losses  due to fire and other
casualties  under  policies  customarily  obtained for  properties of this type.
Prime Medical Services,  Inc. ("Prime"), an Affiliate of the General Partner and
the sole  shareholder of Sun Medical,  the Management Agent and the sole general
partner of the General  Partner,  maintains active policies of insurance for the
benefit of itself and  certain  affiliated  entities  covering  employee  crime,
workers'   compensation,   business  and   commercial   automobile   operations,
professional liability, inland marine, business interruption,  real property and
commercial  liability risks.  These policies  include the  Partnership,  and the
General  Partner  believes  that  coverage  limits of these  policies are within
acceptable norms for the extent and nature of the risks covered. The Partnership
is  responsible  for its share of  premium  costs.  There are  certain  types of
losses,  however, that are either uninsurable or are not economically insurable.
For  instance,  contractual  liability is generally  not covered  under  Prime's
policies.  Should such losses occur with respect to Partnership  operations,  or
should losses exceed insurance  coverage limits,  the Partnership could suffer a
loss of the capital invested in the Partnership and any anticipated profits from
such investment.

                  Optional Purchase of Limited Partner Interests. As provided in
the Partnership  Agreement,  certain Affiliates of the existing Limited Partners
have the first option,  and the General  Partner has the second option (which it
may assign to the  Partnership  in its sole  discretion),  to  purchase  all the
interest  of a Limited  Partner  who (i) dies,  (ii)  becomes  the  subject of a
domestic proceeding, (iii) becomes insolvent, (iv) acquires a direct or indirect
ownership of an interest in a competing venture (including the lease or sublease
of competing technology), or (v) defaults on his obligations under the Guaranty.
Except in the case of the death of a Limited Partner,  the option purchase price
is an amount  equal to the lesser of the fair  market  value of the  Partnership
Interest to be purchased  or the Limited  Partner's  share of the  Partnership's
book value, if any, as reflected by the Limited Partner's capital account in the
Partnership  (unadjusted  for any  appreciation  in  Partnership  assets  and as
reduced by depreciation deductions claimed by the Partnership for tax purposes).
The option purchase price is likely to be considerably less than the fair market
value of a  Limited  Partner's  interest  in the  Partnership.  Because  losses,
depreciation  deductions and Distributions reduce capital accounts,  and because
appreciation in assets is not reflected in capital  accounts,  it is the opinion
of the General  Partner that the option purchase price may be nominal in amount.
In addition,  in the event  existing or newly enacted laws or regulations or any
other legal developments  adversely affect (or potentially adversely affect) the
operation of the  Partnership  or the  business of the  Partnership  (e.g.,  any
prohibitions  on  provider   ownership),   the  General  Partner,  in  its  sole
discretion, is obligated to either (i) purchase the Partnership Interests of all
of the  Limited  Partners  for an amount  equal to the lesser of the fair market
value or book  value  or (ii)  dissolve  the  Partnership.  See the  Partnership
Agreement attached hereto as Appendix A, "Summary of the Partnership Agreement -
Optional  Purchase of Limited Partner  Interests," and "Risk Factors - Operating
Risks - Liability Under the Guaranty."

                                 THE PARTNERSHIP

                  Mobile  Kidney  Stone  Centers  of  California   II,  L.P.,  a
California  limited  partnership (the  "Partnership")  was organized and created
under the California Revised Limited Partnership Act (the "Act") on December 11,
1998. The general  partner of the  Partnership is Mobile Kidney Stone Centers of
California,  Ltd. I, a California limited  partnership (the "General  Partner").
The General Partner  currently holds a 41.62% interest in the Partnership in its
capacity as the general partner and the existing  limited partners (the "Initial
Limited Partners") currently hold the remaining interest in the Partnership.  In
the event that all 40 Units offered  hereby are sold,  the General  Partner will
hold  approximately a 33.3% general  partner  interest in the  Partnership,  the
Initial  Limited  Partners  will  hold  approximately  a 46.7%  limited  partner
interest in the  Partnership  and the  Investors  who purchase the Units offered
hereby (the "New Limited  Partners")  will hold  approximately  an aggregate 20%
interest in the Partnership. The Percentage Interests of the General Partner and
the Initial Limited Partners  (aggregate) will decrease by approximately .2% and
 .3%, respectively, for each Unit sold. In addition, all Percentage Interests are
subject to further reduction in the future by any additional dilution offerings.
The principal  executive  office of the  Partnership  and the General Partner is
located at 15195 National Avenue,  Suite 203, Los Gatos,  California  95032. The
telephone number of the Partnership and the General Partner is (800) 750-0786.

                              TERMS OF THE OFFERING

The Units and Subscription Price

                  Mobile Kidney Stone Centers of California  II, L.P., a limited
partnership  formed under the laws of the State of California,  hereby offers an
aggregate of up to 40 Units of limited  partnership  interest in the Partnership
(the  "Units").  Each Unit  represents an initial 0.5% economic  interest in the
Partnership.  See "Risk Factors - Other  Investment  Risks - Dilution of Limited
Partners'  Interests."  Each  Investor may purchase not less than one Unit.  The
General Partner may, however, in its sole discretion, sell less than one Unit as
an additional  investment and reject in whole or in part any  subscription.  The
price for each Unit is $4,233 in cash,  plus a personal  guaranty of 0.5% of the
Partnership's  obligations under the Loan of $487,125 from the Bank (a $2,435.63
principal  guaranty  obligation per Unit). See "Terms of the Offering - Guaranty
Arrangements."  The cash  purchase  price and Guaranty are due at  subscription;
however,  certain  qualified  Investors  may  personally  borrow  funds  from  a
third-party  financial  institution to pay a portion of the cash purchase price.
For the convenience of the Investors, the Partnership has arranged for financing
of a portion of the Unit cash  purchase  price with the Bank.  See "Terms of the
Offering - Limited  Partner  Loans." The proceeds of the Offering  will first be
used by the  Partnership  to pay  Offering  costs and  expenses.  The  remaining
proceeds,  if  any,  will  then  be used to  reduce  the  Partnership's  current
outstanding  indebtedness  under the Loan.  See  "Sources  and  Applications  of
Funds."

Acceptance of Subscriptions

                  To enable the Bank and the General  Partner to make credit and
investor decisions,  respectively,  each prospective  Investor must complete and
deliver to the  General  Partner a  Purchaser  Financial  Statement  in the form
included  in  the  Subscription  Packet  accompanying  this  Memorandum,   or  a
substitute  financial  statement  containing  the same  information  as provided
therein, and pages one and two of the prospective Investor's most recently filed
Form 1040 U.S.  Individual  Income Tax Return.  An  Investor  that pays the full
amount  of his Unit  purchase  price  with a check  at  subscription  and  whose
subscription  is received and accepted by the  Partnership and the Bank (for the
purposes of the Guaranty), will become a Limited Partner in the Partnership, and
his  subscription  funds  will  be  released  from  escrow  to the  Partnership.
Acceptance by the General  Partner of a subscription  of an Investor that elects
to finance a portion of the Unit cash  purchase  price  with the  proceeds  of a
Limited  Partner Note is conditioned  upon the Bank's  approval of such loan. If
the financing Investor is otherwise acceptable to the Partnership, after receipt
of the Bank's approval, the Partnership will inform the Escrow Agent that it has
accepted  the  Investor's  subscription  and the Escrow  Agent will  release the
Investor's cash subscription  proceeds to the Partnership and the Loan Documents
to the Bank,  and the Bank,  in turn,  will pay the  proceeds  from the  Limited
Partner Note to the  Partnership.  The Investor will become a Limited Partner in
the  Partnership  at the time the Bank  releases  the  proceeds  of his  Limited
Partner Note to the  Partnership.  Subscriptions  may be rejected in whole or in
part by the Partnership  and need not be accepted in the order received.  To the
extent the Partnership rejects or reduces an Investor's subscription as provided
above,  the Investor's  Unit cash purchase  price,  Guaranty,  and the principal
amount of his Limited Partner Note will be proportionately refunded and reduced,
as the case may be.  Notice  of  acceptance  of an  Investor's  subscription  to
purchase Units and his Percentage  Interest in the Partnership will be furnished
promptly after acceptance of the Investor's subscription.

Guaranty Arrangements

                  Each Investor will be required to execute a Guaranty as a part
of his subscription.  Each Limited Partner will have substantial  exposure under
his Guaranty.  See "Risk Factors - Liability  Under the Guaranty." The following
summary of certain  provisions of the Guaranty does not constitute legal advice.
The form of the Guaranty is set forth in the  Subscription  Packet  accompanying
this  Memorandum and should be reviewed  carefully by prospective  Investors and
their counsel.

                  Liability  Under the Guaranty.  Each Investor will be required
to  execute  and  deliver  to the  Bank a  Guaranty  pursuant  to  which he will
personally  guarantee  the  payment  by  the  Partnership  of a  portion  of its
obligations  to the Bank under the Loan.  For each Unit  purchased,  an Investor
will be required to guarantee 0.5% of the Partnership's  total obligations under
the Loan, which is equivalent to up to a $2,435.63 principal obligation guaranty
per Unit. As of the date of this Memorandum,  the outstanding  principal balance
of the Loan is  $441,205.79,  however  the  terms of the  Loan  provide  for the
renewal thereof, and therefore, Investors should view their personal obligations
under their Guaranties to equal their pro rata share of the original Loan amount
(i.e.,  $487,125).  Liability  under the Guaranty may exceed  $2,435.63 per Unit
because the guaranty  obligation per Unit includes not only principal,  but also
0.5% of all accrued and unpaid interest,  late payment penalties and legal costs
incurred by the Bank in collecting any defaulted payments.

                  The  amount  of  the  Limited  Partners'  Guaranties  will  be
proportionately  reduced from time to time to the extent of the payments made by
the  Partnership  under the Loan.  Interest-only  was payable monthly during the
first six months of the Loan.  The  interest-only  period expired on October 31,
1999 and the outstanding Loan principal,  plus accrued interest, is payable over
36 monthly  installments as provided  below.  The amount of each of the first 35
equal  monthly  installments  of principal  and interest is equal to the monthly
payment  resulting from  amortization of the outstanding  Loan principal over 36
months,  assuming a fixed 10% per annum  interest  rate. A final  payment of all
outstanding  principal  and accrued  interest will be payable in the 36th month.
The 10%  interest  rate,  as  provided  above,  is used  only  for  purposes  of
calculating  the  amount of the  equal  monthly  installments  over the 35 month
period. Loan interest actually accrues at the Bank's Prime Rate, as the same may
change from time to time. Pursuant to a formula set forth in the Loan promissory
note,  prepayments  of Loan  principal  must be made annually out of Partnership
Cash Flow until the Loan is paid in full. As of the date of this Memorandum, the
Partnership has not made any prepayments. The General Partner believes that Loan
principal  prepayments will reduce the term of the Loan. The monthly installment
payments of principal and interest for the term of the Loan are equal to $15,718
per month.

                  If  Partnership  operations  continue to  generate  sufficient
revenues to enable the  Partnership  to make all payments  under the Loan to the
Bank when due, such payments will be sufficient to repay the Bank fully over the
term of the Loan, and no Partner will be required to perform under his Guaranty.
However,  a default by the  Partnership,  the  General  Partner  or the  Limited
Partners under the Loan or the Guaranties  will entitle the Bank to exercise one
or more of the  following  remedies:  (i) declare  all  principal  payments  and
accrued  interest  immediately  due and payable;  (ii) foreclose on its security
interest in the Partnership's  assets (including the Lithotripsy  System and the
Partnership's accounts receivable);  and/or (iii) seek payment directly from the
Limited Partners under the Guaranties.  Events of default include the following:
(i)  default in the  payment  or  performance  of any  obligation,  covenant  or
liability  contained  or  referred  to in  the  Loan  documents,  including  the
Guaranties,  unless  remedied to the reasonable  satisfaction  of Bank within 30
days;  (ii) any warranty,  representation  or statement made or furnished to the
Bank by or on behalf of the Partnership or any of its guarantors  (including the
Limited  Partners)  proving to have been false in any material respect when made
or  furnished;  (iii) loss,  theft,  substantial  damage,  destruction,  sale or
encumbrance to or of any of the collateral,  or the making of any levy,  seizure
or  attachment  thereof or thereon,  which is not removed  within 30 days;  (iv)
dissolution,  termination  of  existence  (or,  in  the  case  of an  individual
guarantor,  death), insolvency,  business failure,  appointment of a receiver of
any part of the property of,  assignment for the benefit of creditors by, or the
commencement  of any proceeding  under any  bankruptcy or insolvency  laws by or
against the  Partnership  or any  guarantor  which is not  favorably  terminated
within 30 days; (v) the Partnership's  failure to maintain its existence in good
standing  unless  remedied  within  30 days of  notice  by the  Bank;  (vi)  the
assertion  or  making  of any  seizure,  vesting  or  intervention  by or  under
authority  of any  government  by which the  management  of the  Partnership  is
displaced of their  authority in the conduct of their business or their business
is curtailed;  (vii) upon the entry of any monetary  judgment or the  assessment
and/or filing of any tax lien against the  Partnership  or any guarantor or upon
the issuance of any writ or garnishment  or attachment  against any property of,
debts due or rights of the Partnership or such guarantor to specifically include
the  commencement of any action or proceeding to seize monies of the Partnership
or such  guarantor on deposit in any bank  account  with the Bank,  which is not
removed or terminated within 30 days. However, any default by any one or more of
the Partnership's guarantors under the above provisions applicable thereto, will
only be an actionable  default if one or more such defaulting  guarantors either
alone or in the  aggregate  guarantees  25% or more of the  Loan,  and  provided
further that the Bank has not,  within twelve  months of the  occurrence of such
guarantor's  default,  received,  accepted and approved a substitute guaranty or
guaranties from a party or parties acceptable to it in an amount greater than or
equal  to  the  amount  of  such  defaulting  guarantor's  guaranties,   or  the
Partnership  has not made a prepayment of the Loan  principal in an amount equal
to the  amount  of the  defaulting  guarantor's  guaranty.  The  Bank  may  also
accelerate the Loan if it should deem itself, or its collateral, insecure or the
payment  or  performance  under  the Loan  impaired  and may  demand  additional
collateral  at any  time it  deems  the Loan to be  insufficiently  secured.  As
discussed  below,  under the terms of the  Guaranties,  Limited  Partners  waive
certain  rights to which they might  otherwise be entitled,  and are required to
pay their  share of the Bank's  attorneys'  fees and court  costs if the Bank is
successful  in  enforcing  the  Guaranties  through  a  lawsuit.  Copies  of the
Partnership's Loan documentation with the Bank are available upon request to the
General Partner.

                  The   Guaranties   are  a  guaranty  of  payment  and  not  of
collection.  As a  result,  the  liability  of the  Limited  Partners  under the
Guaranties is direct and immediate and not conditional or contingent upon either
the  pursuit  of any  remedies  against  the  Partnership  or any  other  person
(including any other guarantor) or foreclosure of any security interest or liens
available to the Bank.  The Bank may accept any payment,  plan for adjustment of
debts,  plan  for  reorganization  or  liquidation,  or plan of  composition  or
extension  proposed  by, or on behalf  of,  the  Partnership  without in any way
affecting or discharging the liability of the Limited Partners. Limited Partners
waive  any  right to  require  that an  action  first  be  brought  against  the
Partnership, the General Partner, any other guarantor or any other person, or to
require  that  resort be had to any  security  or to any  balance of any deposit
account or credit on the books of Bank in favor of the  Partnership or any other
person.  The Guaranty is a continuing  guaranty  that by its terms  survives the
death,  bankruptcy,  dissolution or disability of a Limited Partner guarantor. A
Limited Partner's liability under a Guaranty continues regardless of whether the
Limited Partner remains a limited partner in the Partnership.

                  Under  the  terms  of the  Guaranties,  the  Limited  Partners
expressly  waive:  (i) notice of acceptance of the guaranty and of extensions of
credit to the  Partnership;  (ii)  presentment  and  demand  for  payment of the
Partnership's  promissory  note;  (iii)  protest  and notice of  dishonor  or of
default; (iv) demand for payment under the Guaranty; and (v) all other notice to
which the Limited Partner might otherwise be entitled.

                  The principal liability of an Investor under the Guaranty will
be up to $2,435.63  per Unit.  Each  Investor  should  regard his exposure  with
respect to his investment in the Partnership to be his cash subscription ($4,233
per Unit) plus the amount for which he is personally  liable under his Guaranty,
up to $2,435.63 per Unit in principal, plus accrued and unpaid interest, as well
as late payment  penalties,  legal fees and court costs.  An Investor should not
purchase  a Unit if he does not have  resources  sufficient  to bear the loss of
this entire  amount.  The Guaranty  generally  provides  that within thirty days
following the Bank's  determination that the Partnership is in default under the
Loan, the Bank will send a notice to each Limited Partner (the "Notice") setting
forth the  Partnership's  total  Loan  obligations  as of the date of the Notice
(inclusive of all interest,  late payment  penalties and legal costs incurred in
connection with the  enforcement of such  obligation  accrued but unpaid through
such date), together with a statement of the amount which the Limited Partner is
responsible for paying (the "Guaranty Amount").  Failure by the Bank to send the
Notice in a timely  fashion  will not,  however,  release  the  Limited  Partner
guarantor  from any liability  under his Guaranty.  The Notice will provide that
unless the Bank receives payment of the Guaranty Amount from the Limited Partner
within five business days following the date of the Notice,  the Guaranty Amount
will be increased by the Limited  Partner's  pro rata share (based on the number
of guarantors  who did not pay the Guaranty  Amount within five days of the date
of the notice) of any  additional  accrued  but unpaid  interest,  late  payment
penalties  and legal costs  through the date such payment is made.  Because each
Guaranty runs directly from the Limited Partner to the Bank,  claims or defenses
the Limited  Partner may have against the Partnership or the General Partner may
not be used to avoid payment  under the  Guaranty.  See the form of the Guaranty
included in the  Subscription  Packet  accompanying  this  Memorandum.  See also
"Terms of the Offering - Suitability Standards."

                  Approval  of Bank.  In  addition  to meeting  the  suitability
requirements  discussed below under "Suitability  Standards," each Investor must
be approved by the Bank for purposes of their delivery of the Guaranty. The Bank
has  established  its  own  criteria  for  approving  the  credit-worthiness  of
Investors,  either individually or as a group, and has not established objective
minimum suitability standards. Instead, the Bank is empowered under the terms of
the Loan to accept or reject any Investor. See "Risk Factors - Operating Risks -
Liability Under the Guaranty."

Limited Partner Loans

                  The  purchase  price for the  Units is  payable  in cash.  The
prospective  Investor may pay for the Units with personal funds alone or in part
with such funds,  together with either loan proceeds  personally borrowed by the
Investor under a Limited Partner Loan or other loan. Financing under the Limited
Partner Loans was arranged by the  Partnership  with the Bank as provided in the
Loan  Commitment,  attached hereto as Appendix B.  Prospective  Investors should
review  carefully all the  provisions  contained in the Loan  Commitment and the
terms of the Limited  Partner  Note and Loan and Security  Agreement  with their
counsel and financial advisors.  Neither the Partnership nor the General Partner
endorses  or  recommends  to  the  prospective  Investors  the  desirability  of
obtaining  financing  from the Bank nor does the  summary of the Loan  Documents
provided herein constitute legal advice.  If the prospective  Investor wishes to
finance a portion of the cash purchase price of his Units as provided herein, he
must deliver to the Sales Agent upon  submission of his  Subscription  Packet an
executed Limited Partner Note payable to the Bank and Note Addendum, the form of
which are  attached  as Exhibit A to the Loan  Commitment,  a Loan and  Security
Agreement,  the form of which is attached as Exhibit B to the Loan Commitment, a
Security  Agreement,  the form of which is  attached  as  Exhibit  C to the Loan
Commitment and two UCC-1's,  the forms of which are attached to the Subscription
Packet (collectively,  the "Loan Documents"). In no event may the maximum amount
borrowed per Unit exceed $1,733. The Limited Partner Note is repayable in twelve
(12) predetermined  installments in the respective amounts set forth in the Loan
Commitment.  The installments are payable on each January 15th, April 15th, June
15th and September  15th  commencing on September 15, 2000 (assuming the Closing
occurs prior to May 31, 2000), with a thirteenth (13th) and final installment in
an amount equal to the principal  balance then owed on the Limited  Partner Note
and  all  accrued,  unpaid  interest  thereon  due  and  payable  on  the  third
anniversary of the first installment date. Interest accrues at the Bank's "Prime
Rate," as the same may change  from time to time.  The Prime Rate refers to that
rate of interest  established  by the Bank and  identified as such in literature
published and circulated within the Bank's offices. Such term is used as a means
of identifying a rate of interest index and not as a representation  by the Bank
that such rate is  necessarily  the lowest or most  favorable  rate of  interest
offered to borrowers of the Bank generally.  A prospective Investor will have no
claim or right of  action  based on such  premise.  See the form of the  Limited
Partner  Note  attached  as Exhibit A to the Loan  Commitment  which is attached
hereto as Appendix B.

                  The  Limited  Partner  Note will be  secured  by the cash flow
distributions  payable with respect to the  prospective  Investor's  Partnership
Interest  as  provided  in the  Loan and  Security  Agreement  and the  Security
Agreement  and as  evidenced by the UCC-1s.  By executing  the Loan and Security
Agreement,  the  prospective  Investor  requests  the  Bank to  extend  the Loan
Commitment  to him if he is approved for a Limited  Partner  Loan.  The Loan and
Security  Agreement  also  authorizes  (i) the Bank to pay the  proceeds  of the
Limited  Partner Note directly to the  Partnership  and (ii) the  Partnership to
remit funds directly to the Bank out of the prospective  Investor's share of any
Distributions  represented by the prospective  Investor's percentage Partnership
Interest to fund installment payments due on the prospective  Investor's Limited
Partner  Note.  See the form of the  Loan and  Security  Agreement  attached  as
Exhibit B to the Loan Commitment which is attached hereto as Appendix B.

                  If the  prospective  Investor  is  approved by the Bank and is
acceptable to the General Partner, the Escrow Agent will, upon acceptance of the
Investor's  subscription by the General  Partner,  release the Loan Documents to
the Bank and the Bank will pay the  proceeds of the Limited  Partner Note to the
Partnership to fund a portion of the Investor's  Unit purchase.  The prospective
Investor  will  have  substantial  exposure  under  the  Limited  Partner  Note.
Regardless  of  the  results  of the  Partnership's  operations,  a  prospective
Investor will remain liable to the Bank under his Limited Partner Note according
to its terms. The Bank can accelerate the entire principal amount of the Limited
Partner Note in the event the Bank in good faith believes the prospect of timely
payment or  performance  by the  prospective  Investor  is  impaired or the Bank
otherwise in good faith deems itself or its collateral insecure and upon certain
other events, including, but not limited to, nonpayment of any installment.  The
Bank may also request  additional  collateral  in the event it deems the Limited
Partner Note  insufficiently  secured.  A Limited  Partner's  liability  under a
Limited  Partner Note also continues  regardless of whether the Limited  Partner
remains a limited  partner in the  Partnership.  A Limited  Partner's  liability
under a Limited  Partner Note is directly with the Bank. As a consequence,  such
liability cannot be avoided by claims,  defenses or set-offs the Limited Partner
may have against the Partnership,  the General Partner or their  Affiliates.  In
addition  to the  suitability  requirements  discussed  below,  the  prospective
Investor  must be  approved  by the Bank for  purposes  of his  delivery  of the
Limited  Partner Note. The Bank has  established  its own criteria for approving
the creditworthiness of a prospective Investor and has not established objective
minimum  suitability  standards.  Instead,  the Bank is  empowered  to accept or
reject  prospective  Investors.  See "Risk  Factors - Other  Investment  Risks -
Liability Under Limited Partner Loan."

Subscription Period; Closing

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m., Eastern time, on June 1, 2000 (the "Closing Date"),
unless  sooner  terminated  by the  General  Partner or unless  extended  for an
additional period up to 180 days. See "Plan of Distribution."

Offering Exemption

                  The Units are being offered and will be sold in reliance on an
exemption from the  registration  requirements of the Securities Act of 1933, as
amended,  provided  by  Section  4(2)  thereof  and  Rule  506 of  Regulation  D
promulgated  thereunder,  as amended,  and an exemption from state  registration
provided  by the  National  Securities  Markets  Improvement  Act of  1996.  The
suitability  standards set forth below have been  established in order to comply
with the terms of these offering exemptions.

Suitability Standards

                  In addition to the suitability  requirements  discussed below,
each Investor  wishing to obtain a Limited  Partner Loan must be approved by the
Bank.   The  Bank  has   established   its  own  criteria  for   approving   the
credit-worthiness  of  Investors  and  has  not  established  objective  minimum
suitability  standards.  The Bank has sole  discretion  to accept or reject  any
Investor.

                  An  investment  in the  Partnership  involves a high degree of
financial risk and is suitable only for persons of substantial  financial  means
who have no need for liquidity in their  investments  and who can afford to lose
all of their  investment.  See "Risk Factors - Other  Investment Risks - Limited
Transferability  and  Illiquidity  of Units." An Investor  should not purchase a
Unit if the Investor does not have resources  sufficient to bear the loss of the
entire amount of the purchase price, including any portion financed. The General
Partner anticipates  selling Units only to individual  investors;  however,  the
General Partner reserves the right to sell Units to entities.

                  Because of the risks involved, the General Partner anticipates
selling the Units only to Investors  residing in  California  who it  reasonably
believes meet the definition of "accredited investor" as that term is defined in
Rule 501 under  the  Securities  Act,  but  reserves  the right to sell up to 35
Investors  who  are  nonaccredited  investors.   Certain  institutions  and  the
following individuals are "accredited investors":

(1)  An  individual  whose net worth (or joint net worth with his or her spouse)
     exceeds $1,000,000 at the time of subscription;

                  (2)         An individual who has had an individual  income in
                              excess of  $200,000 in each of the two most recent
                              fiscal  years  and  who   reasonably   expects  an
                              individual  income in excess  of  $200,000  in the
                              current year; or

                  (3)         An individual who has had with his or her spouse a
                              joint  income in excess of $300,000 in each of the
                              two most recent  fiscal  years and who  reasonably
                              expects a joint  income in excess of  $300,000  in
                              the current year.

                  Individual  Investors  must  also be at least 21 years old and
otherwise duly qualified to acquire and hold partnership interests.  The General
Partner  reserves  the right to refuse to sell Units to any  person,  subject to
federal and applicable state securities laws.

                  Each  Investor   must  make  an   independent   judgment,   in
consultation with his own counsel,  accountant,  investment  advisor or business
advisor, as to whether an investment in the Units is advisable. The fact that an
Investor meets the Partnership's suitability standards should in no way be taken
as an indication that an investment in the Units is advisable for that Investor.

                  It is anticipated  that  suitability  standards  comparable to
those set forth  above will be imposed by the  Partnership  in  connection  with
resales,  if any, of the Units.  Transferability of Units is severely restricted
by the Partnership Agreement and the Subscription Agreement. See "Summary of the
Partnership Agreement - Restrictions on Transfer of Partnership Interests."

                  Investors  who wish to subscribe  for Units must  represent to
the  Partnership  that they  meet the  foregoing  standards  by  completing  and
delivering to the Sales Agent a Purchaser  Questionnaire in the form included in
the Subscription Packet. Each Purchaser Representative, if any, acting on behalf
of an Investor in connection with this Offering must complete and deliver to the
Sales  Agent a  Purchaser  Representative  Questionnaire  (a copy  of  which  is
available upon request to the General Partner).

How to Invest

                  Investors who meet the  qualifications  for  investment in the
Partnership  and who wish to  subscribe  for  Units may do so by  following  the
instructions  included in the Subscription  Packet accompanying this Memorandum.
All  information  provided  by  Investors  will  be  kept  confidential  and not
disclosed  except to the Partnership,  the General  Partner,  the Bank and their
respective  counsel  and  Affiliates  and,  if  required,  to  governmental  and
regulatory authorities.

Restrictions on Transfer of Units

                  The Units have not been registered under the Securities Act or
under any state  securities  laws and  holders of Units have no right to require
the  registration  of such  Units or to  require  the  Partnership  to  disclose
publicly information  concerning the Partnership.  Units can be transferred only
in accordance with the provisions of, and upon  satisfaction  of, the conditions
set forth in the  Partnership  Agreement.  Among other things,  the  Partnership
Agreement  provides that no  assignment of Units may be made if such  assignment
could not be effected  without  registration  under the  Securities Act or state
securities  laws.  Moreover,  the  assignment  generally  must  be  made  to  an
individual   approved  by  the  General   Partner  who  meets  the   suitability
requirements described in this Memorandum.

                  Assignors  of  Units  will  be  required  to  execute  certain
documents,   in  form  and  substance   satisfactory  to  the  General  Partner,
instructing  it to effect the  assignment.  Assignees of Units may also,  in the
discretion of the General Partner,  be required to pay all costs and expenses of
the Partnership with respect to the assignment.

                  Any  assignment  of Units or the right to receive  Partnership
distributions  in  respect  of Units  will not  release  the  assignor  from any
liabilities  connected with the assigned Units,  including liabilities under the
Guaranty and any Limited  Partner Loan.  Such assignment may constitute an event
of default  under such loan.  An assignee,  whether by sale or  otherwise,  will
acquire  only the  rights of the  assignor  in the  profits  and  capital of the
Partnership  and not the  rights  of a Limited  Partner,  unless  such  assignee
becomes a substituted  Limited Partner. An assignee may not become a substituted
Limited  Partner  without (i) either the written consent of the assignor and the
General  Partner,  or the  consent  of a Majority  in  Interest  of the  Limited
Partners (except the assignor Limited Partner) and the General Partner, (ii) the
submission of certain  documents  and (iii) the payment of expenses  incurred by
the  Partnership  in effecting  the  substitution.  An assignee,  regardless  of
whether he becomes a substituted  Limited Partner,  will be subject to and bound
by all the terms and conditions of the Partnership Agreement with respect to the
assigned  Units.  See "Summary of the  Partnership  Agreement - Restrictions  on
Transfer of Partnership Interests."

                              PLAN OF DISTRIBUTION

                  Subscriptions   for  Units  will  be   solicited   by  MedTech
Investments,  Inc.,  the  Sales  Agent,  which is an  Affiliate  of the  General
Partner.  The Sales Agent has entered  into a Sales  Agency  Agreement  with the
Partnership  pursuant  to which the Sales  Agent has agreed to act as  exclusive
agent for the placement of the Units on a "best  efforts" any or all basis.  The
Sales Agent is not obligated to purchase any Units.

                  The  Sales  Agent  is a North  Carolina  corporation  that was
formed on December 23, 1987, and became a member of the National  Association of
Securities  Dealers on March 15, 1988.  The Sales Agent will be engaged in other
similar offerings on behalf of the General Partner and its Affiliates during the
pendency of this  Offering and in the future.  The Sales Agent is a wholly owned
subsidiary of Prime. Investors should note the material relationship between the
Sales  Agent and the General  Partner,  and are  advised  that the  relationship
creates  conflicts  in  the  Sales  Agent's  performance  of its  due  diligence
responsibilities under the Federal securities laws.

                  As compensation for its services, the Sales Agent will receive
a commission equal to $75 for each Unit sold. No other  commissions will be paid
in connection  with this Offering.  Subject to the conditions as provided above,
the Sales  Agent may be  reimbursed  by the  Partnership  for its  out-of-pocket
expenses  associated  with the  sale of the  Units in an  amount  not to  exceed
$7,000.  The Partnership has agreed to indemnify the Sales Agent against certain
liabilities, including liabilities under the Securities Act.

                  The  Partnership  will  not  pay  the  fees  of any  purchaser
representative,  financial advisor, attorney, accountant or other agent retained
by an Investor in connection with his decision to purchase Units.

                  The  subscription  period will commence on the date hereof and
will terminate at 5:00 p.m., Eastern time, on June 1, 2000, (or earlier,  in the
discretion of the General  Partner),  unless  extended at the  discretion of the
General  Partner for an additional  period not to exceed 180 days. See "Terms of
the Offering - Subscription Period; Closing."

<PAGE>

WINSTON #892462 v 2
                                       49

                  The Partnership seeks by this Offering to sell a maximum of 40
Units for a maximum of an aggregate of $169,320 in cash  ($166,320  net of Sales
Agent  Commissions).  The  Partnership  has set no minimum number of Units to be
sold in this Offering.  The subscription funds, Guaranty and Loan Documents,  if
any,  received from each Investor will be held in escrow (which,  in the case of
cash  subscription  funds,  shall be held in an interest  bearing escrow account
with the Bank)  until  either the  Investor's  subscription  is  accepted by the
Partnership (and approved by the Bank in the case of the Guaranties and financed
purchases of Units), the Partnership rejects the subscription or the Offering is
terminated. Upon the receipt and acceptance of an Investor's subscription by the
Partnership  (and the Bank), the Investor will be admitted to the Partnership as
a Limited Partner.  In connection with his admission as a Limited  Partner,  the
Investor's  subscription  funds will be released from escrow to the Partnership,
and his Guaranty and Loan Documents,  if any, will be released to the Bank which
will pay the proceeds from the Limited Partner Note to the  Partnership.  In the
event a subscription is not accepted, all subscription funds (without interest),
the Guaranty, the Loan Documents and other subscription documents held in escrow
will be promptly  returned  to the  rejected  Investor.  A  subscription  may be
rejected in part,  in which case a portion of the  subscription  funds  (without
interest),  the  Guaranty  and any Limited  Partner Note will be returned to the
Investor.

                               BUSINESS ACTIVITIES

General

                  The  Partnership  was formed to (i)  acquire  the  Lithotripsy
System and  operate it in the  Service  Area,  (ii)  improve  the  provision  of
health-care in the  Partnership's  Service Area by taking  advantage of both the
technological   innovations   inherent   in  the   Modulith(R)   SLX-T  and  the
Partnership's  quality assurance and outcome analysis  programs,  and (iii) make
cash  distributions to its partners from revenues  generated by the operation of
the Lithotripsy System. The Partnership owns and operates the Lithotripsy System
in the Service  Area and has  contracted  with the nine  Contract  Hospitals  to
provide lithotripsy services.

Treatment Methods for Kidney Stone Disease

                  Urolithiasis,  or kidney stone  disease,  affects an estimated
600,000  persons per year in the United States.  The exact cause of kidney stone
formation  is  unclear,  although  it has  been  attributed  to  diet,  climate,
metabolism and certain medications. Approximately 75% of all urinary stones pass
spontaneously,  usually  within  one to two  weeks,  and  require  little  or no
clinical or surgical  intervention.  All other kidney stones,  however,  require
some form of medical or surgical  treatment.  A number of methods are  currently
used to treat kidney stones. These methods include drug therapy,  endoscopic and
laser  procedures,  open surgery,  percutaneous  lithotripsy and  extracorporeal
shock wave  lithotripsy.  The type of treatment a urologist chooses depends on a
number of factors  such as the size of the stone,  its  location  in the urinary
system and whether the stone is contributing to other urinary complications such
as blockage or infection. The extracorporeal shock wave lithotripter, introduced
in the United  States from West Germany in 1984,  has  dramatically  changed the
course of kidney stone disease  treatment.  The General  Partner  estimates that
currently up to 95% of all kidney  stones that require  treatment can be treated
by  lithotripsy.  Lithotripsy  involves  the use of shock waves to  disintegrate
kidney stones noninvasively.

The Lithotripsy System

                  Upon closing the Loan, the  Partnership  used a portion of the
Loan  proceeds  (approximately  $400,000)  to  acquire a new  Modulith(R)  SLX-T
lithotripter. The Modulith(R) SLX-T received FDA premarket approval on March 27,
1997. The General Partner and its Affiliates have limited, but positive,  direct
experience  with  the use of the  Modulith(R)  SLX-T  lithotripter.  Preliminary
reports from abroad and "word of mouth"  anecdotal  evidence  indicates that the
Modulith(R) SLX-T is as effective as most of the "portable" lithotripters in the
market.  See "Risk Factors - Operating  Risks - Reliability  and Efficacy of the
Storz Modulith(R) SLX-T."

                  The Modulith(R) SLX-T was especially adapted for the treatment
of urological stones. In addition to the efficient fragmentation of all types of
urinary tract stones,  the Modulith(R)  SLX-T is suitable for performing a range
of  urological  examinations  including  cystoscopy  and  ureterorenoscopy.  The
Modulith(R) SLX-T consists of a cylindrical pressure wave generator, an OEC 9800
C-arm x-ray system unit and a patient table.  The  Modulith(R)  SLX-T  generates
pressure  waves  electromagnetically  from the  cylindrical  energy  source  and
parabolic  reflector.  The pressure wave generator  operates without an acoustic
lens,  thus  avoiding  such  disadvantages  as energy  dissipation  and aperture
limitations.  The  pressure  at the  focal  point  can be varied by means of the
energy control in nine steps from 10 Mpa to 100 Mpa. The energy source is fitted
with an axial and lateral  air-bag.  When  expanded  during  fluoroscopy,  these
air-bags  ensure  optimal  X-ray image  quality  for  monitoring  purposes.  The
pressure wave coupling is dry (water  cushion is used).  The  shock-wave  may be
released at fixed frequencies of 1 Hz, 1.5 Hz or 2 Hz, or may be triggered using
the ECG and/or respiration.  The Modulith(R) SLX-T localizes stones using an OEC
9800 C-arm X-ray system. The X-ray system employs an image intensifier, cassette
film,  digital  spot imaging  capability  and two high  resolution  16" monitors
capable of  displaying  stored  digital  images.  The patient table can be moved
electronically in all three dimensions, and a floating function allows for quick
patient positioning.  The table is X-ray transparent and allows visualization of
the entire  urinary  tract.  The table  includes a patient cradle which provides
comfortable and secure support in the prone, supine and lateral positions.

                  The  Partnership's  Modulith(R)  SLX-T  came with an  eighteen
month limited warranty during which time all maintenance,  repairs, shock tubes,
glassware  and  capacitors  are  provided  free of charge.  The General  Partner
anticipates  that upon the  expiration of the  warranty,  the  Partnership  will
either  pay for  maintenance  service on the  Modulith(R)  SLX-T on an as needed
basis, or enter into an annual maintenance  agreement with a third-party service
provider. The General Partner estimates that expenditures for maintenance of the
Modulith(R) SLX-T will be approximately $40,000 per year.

                  The  Partnership  also  used a  portion  of the Loan  proceeds
($69,510) to acquire  from AK  Associates,  L.L.C.,  an Affiliate of the General
Partner,  a Ford 400 Series van which was  customized to include a 14' cargo box
to house the  lithotripter  while it is transported from site to site. The floor
of the van is loading dock height so the  lithotripter  can be easily  loaded on
and off the van at each treatment facility. The van is also upfitted with a lift
gate with a load  capacity of 3,000 pounds for easy loading of the  lithotripter
from street level.  The van has been modified for securing the  lithotripter and
its accessories during transport and for heating the cargo box during the winter
to prevent freezing of the lithotripter and its components.  The General Partner
did not purchase the manufacturer's  service contract for the van. Instead,  the
Partnership  pays  for  service  on an as  needed  basis.  The  General  Partner
estimates  that  expenditures  for  maintenance  and  repair  of the van will be
approximately $6,000 per year.

Acquisition of Additional Assets

                  If in the future the General Partner  determines that it is in
the best  interest of the  Partnership  to acquire (i) one or more fixed base or
mobile Lithotripsy  Systems,  (ii) any other urological device or equipment,  so
long as such device has FDA premarket approval at the time it is acquired by the
Partnership,  and/or (iii) an interest in any business  entity that engages in a
urological  business  described  above,  the General  Partner has the  authority
(without  obtaining  the Limited  Partners'  consent) to establish  reserves or,
subject to  certain  restrictions  in the Loan,  to borrow  additional  funds on
behalf of the  Partnership  to accomplish  such goals,  and may use  Partnership
assets and revenues to secure and repay such borrowings. The acquisition of such
assets likely would result in higher  operating costs for the  Partnership.  The
General  Partner does not anticipate  acquiring  additional  Partnership  assets
unless projected  Partnership Cash Flow or proceeds from a Dilution Offering are
sufficient to finance such acquisitions.  No Limited Partner would be personally
liable on any  Partnership  indebtedness  without such Limited  Partner's  prior
written  consent.  There is no  assurance  that  additional  financing  would be
available  to the  Partnership  to  acquire  additional  assets  or to fund  any
additional  working  capital  requirements.  Any  additional  borrowing  by  the
Partnership will serve to increase the risks to the Partnership  associated with
leverage,  as well as to increase  the risks that cash from  operations  will be
insufficient  to  fund  the  obligations   secured  by  the  Limited   Partners'
Guaranties.  See "Risk Factors - Operating Risks - Partnership Limited Resources
and Risks of Leverage" and "Risk Factors - Operating Risks - Liability Under the
Guaranty."

Hospital Contracts

                  The Partnership has entered into Hospital Contracts to provide
lithotripsy  services at ten treatment centers in the Service Area. The Contract
Hospitals are:

                              Greater Sacramento Surgery Center
                              Mark Twain St. Joseph's Hospital
                              Sutter Roseville Community Center
                              Sutter General Hospital
                              Sutter Davis Hospital
                              Marshall Hospital
                              Mercy American River Hospital
                              Mercy Folsom Hospital
                              Mercy General Hospital
                              Woodland Memorial Hospital

                  All  of the  Hospital  Contracts  grant  the  Partnership  the
exclusive  right  to  deliver  lithotripsy  services  to the  relevant  Contract
Hospital.  The Hospital Contracts require the Partnership to make a lithotripter
available  at the  facilities  as agreed  to by the  Contract  Hospital  and the
Partnership.  The  Partnership  generally also provides a technician and certain
ancillary services such as scheduling  necessary for the lithotripsy  procedure.
The Contract Hospitals  generally pay the Partnership a fee for each lithotripsy
procedure performed at that health care facility.  The contracts expire by their
terms at various times  through  December 31, 2003 and generally may be extended
only  upon  mutual  agreement  with  the  health  care  facility.  Most of these
contracts may be terminated  without cause upon 180 days or less written  notice
by either party prior to any renewal date, or upon customary  events of default.
The Mercy  American  River,  Mercy Folsom,  Mercy General and Woodland  Memorial
contracts  recently  expired by their  terms,  though the parties are  currently
negotiating for renewals and are continuing to maintain a business  relationship
on a  month-to-month  basis  substantially in accordance with the terms of those
agreements. The General Partner believes it has a good relationship with many of
the Contract Hospitals. There is no assurance,  however, that one or more of the
Hospital  Contracts  will not  terminate  in the  future.  See  "Risk  Factors -
Operating Risks - Contract Terms and Termination."

                  Reimbursement  Agreements.   Prime  and  its  Affiliates  have
negotiated third-party  reimbursement agreements with certain national and local
payors. The national  agreements apply to all the lithotripsy  partnerships with
which Prime is affiliated.  Although the Partnership currently provides services
under the Hospital  Contracts on a wholesale basis, the Partnership will be able
to take  advantage  of these  reimbursement  agreements  in the future if in the
event it  contracts  with a treatment  facility on a retail  basis.  Some of the
national and local  payors have agreed to pay a fixed price for the  lithotripsy
services. Generally the agreements may be terminated by either party on 90 days'
notice.  The  national  and  local  reimbursement   agreements  that  have  been
negotiated or renegotiated in the past two to four years almost entirely provide
for  lower  reimbursement   rates  for  lithotripsy   services  than  the  older
agreements.

Operation of the Lithotripsy System

                  It is  anticipated  that  the  Partnership  will  continue  to
provide  services  under the Hospital  Contracts and similar  arrangements.  See
"Business Activities - Hospital Contracts" and "Risk Factors - Operating Risks -
Contract  Terms and  Termination."  Qualified  physicians  who make  appropriate
arrangements with Contract Hospitals receiving  lithotripsy services pursuant to
the Hospital Contracts and other lithotripsy  service agreements may treat their
own patients using the Lithotripsy System after they have received any necessary
training  required by the rules of such Contract  Hospital.  The Partnership may
also make  arrangements  to make the Lithotripsy  System  available to qualified
physicians  (including but not limited to qualified  physician Limited Partners)
desiring to treat their own  patients  after they have  received  any  necessary
training.  The General Partner and Management Agent will endeavor to the best of
their abilities to require that physicians using the  Partnership's  Lithotripsy
System comply with the  Partnership's  quality  assurance  and outcome  analysis
programs in order to maintain the highest  quality of patient care. In addition,
the  General  Partner  reserves  the right to request  that (i)  physicians  (or
members  of their  practice  groups)  treat  only  their own  patients  with the
Lithotripsy  System,  and (ii)  physician  Limited  Partners  disclose  to their
patients  in  writing  their  financial  interest  in the  Partnership  prior to
treatment,  if it determines that such practices are advisable under  applicable
law.   The  latter   disclosure   is  required   under   California   law.   See
"Regulation-State  Regulation." The treating qualified  physician will be solely
responsible  for  billing  and  collecting  on his own behalf  the  professional
service  component  of  the  treatment  procedure.  Owning  an  interest  in the
Partnership  is not a condition to using the  Lithotripsy  System.  Thus,  local
qualified  physicians  who are not  Limited  Partners  will be  given  the  same
opportunity  to treat their patients  using the  Lithotripsy  System as provided
above.

Management

                  The Partnership  has entered into a management  agreement (the
"Management  Agreement")  with the Management Agent whereby the Management Agent
is obligated to supervise and coordinate the  management and  administration  of
the operation of the Lithotripsy System on behalf of the Partnership in exchange
for a monthly  management fee equal to 7.5% of Partnership  Cash Flow per month.
See  "Compensation and Reimbursement to the General Partner and its Affiliates."
The Management  Agent's services under the Management  Agreement  include making
available  any  necessary  training  of  physicians  in  the  proper  use of the
lithotripsy   equipment,   monitoring   technological   developments   in  renal
lithotripsy  and  advising  the  Partnership  of these  developments,  arranging
continuing  education programs for qualified  physicians who use the lithotripsy
equipment and providing  advertising,  billing,  accounts collection,  equipment
maintenance,  medical supply inventory and other incidental  services  necessary
for the efficient  operation of the  Lithotripsy  System.  Costs incurred by the
Management Agent in performing its duties under the Management Agreement are the
responsibility of the Partnership.  The Management  Agent's engagement under the
Management Agreement is as an independent contractor and neither the Partnership
nor its Limited Partners have any authority or control over the method or manner
in  which  the  Management  Agent  performs  its  duties  under  the  Management
Agreement.  The  Management  Agreement  is in the  first  year  of  its  initial
five-year  term.  Thereafter,   it  will  be  automatically  renewed  for  three
additional   five-year  terms  unless  terminated  by  the  Partnership  or  the
Management Agent.

                               THE GENERAL PARTNER

                  The General  Partner of the Partnership is Mobile Kidney Stone
Centers of  California,  Ltd.  I, a  California  limited  partnership  formed on
October 6, 1987.  The  general  partner of the  General  Partner is Sun  Medical
Technologies,  Inc.,  a  California  corporation  formed on June 20,  1990 ("Sun
Medical").  Prime acquired all the outstanding  stock of Sun Medical on November
10,  1995 and Sun  Medical  remains a  wholly-owned  subsidiary  of  Prime.  The
principal  executive  office of the General Partner is located at 15195 National
Avenue,  Suite 203,  Los Gatos,  California  95032 and the  principal  executive
office of Sun Medical is located at 1301 Capital of Texas Highway,  Suite C-300,
Austin, Texas 78746.

                  Management.  The  General  Partner is  managed by Sun  Medical
under an arrangement  similar to the Management  Agreement.  The following table
sets forth the names and  respective  positions  of the  individuals  serving as
executive  officers and  directors  of Sun  Medical,  many of whom also serve as
executive officers of Prime.

                              Name                               Office

                     Stan Johnson                        President and Director
                     Ken Shifrin                         Director
                     Joseph Jenkins, M.D.                Director

                     Cheryl Williams                     Vice President,
                                                         Chief Financial
                                                         Officer and Director
                     James D. Clark                      Secretary

     Supervision  of  the  day-to-day   management  and  administration  of  the
Partnership is the  responsibility of Sun Medical in its capacity as the general
partner of the General  Partner and  Management  Agent of the  Partnership.  Sun
Medical  itself is managed by a four-member  Board of Directors  composed of Mr.
Shifrin, Dr. Jenkins, Ms. Williams and Mr. Johnson.

                  Set  forth  below  are  the  names  and  descriptions  of  the
background of the key executive officers and directors of Sun Medical.

     Stan  Johnson  has been a Vice  President  of Prime  and  President  of Sun
Medical since November 1995. Mr. Johnson was the Chief Financial  Officer of Sun
Medical from 1990 to 1995.

                  Kenneth  S.  Shifrin  has been  Chairman  of the  Board  and a
Director of Prime since  October  1989 and was elected a Director of Sun Medical
following  Prime's  acquisition of all of Sun Medical's  stock. Mr. Shifrin also
has served in various  capacities with American  Physicians  Service Group, Inc.
("APS") since February  1985,  and is currently  Chairman of the Board and Chief
Executive Officer of APS.

     Joseph  Jenkins,  M.D. has been  President and Chief  Executive  Officer of
Prime since April 1996, and previously  practiced  urology in Washington,  North
Carolina.  Dr. Jenkins was recently elected to Sun Medical's Board of Directors.
Dr.  Jenkins  is  a  board  certified   urologist  and  is  a  founding  member,
past-president and currently a Director of the American Lithotripsy Society.

     Cheryl  Williams is Vice  President-Finance,  Chief  Financial  Officer and
Director   of  Sun  Medical  and  has  been  Chief   Financial   Officer,   Vice
President-Finance  and Secretary of Prime 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.

     James D. Clark recently  became  Secretary of Sun Medical after  previously
serving as its Assistant Treasurer. Mr. Clark has served as Tax Manager of Prime
since  January  1998 and is a Certified  Public  Accountant  in Texas.  Prior to
joining Prime, Mr. Clark was Controller for ERISA Administrative Services, Inc.

                      COMPENSATION AND REIMBURSEMENT TO THE

                       GENERAL PARTNER AND ITS AFFILIATES

                  The  following   summary   describes  the  types  and,   where
determinable,  the estimated amounts of  reimbursements,  compensation and other
benefits the General  Partner and its Affiliates will receive in connection with
the continued  operation and management of the  Partnership  and the Lithotripsy
System.  None of such fees,  compensation and other benefits has been determined
at arm's length.  Except for the items set forth below, the General Partner does
not expect to receive any distribution,  fee, compensation or other remuneration
from the  Partnership.  See  "Business  Activities  -  Management"  and "Plan of
Distribution."

                  1. Management Fee. Pursuant to the Management  Agreement,  the
Management Agent has contracted with the Partnership to supervise the management
and administration of the day-to-day operations of the Partnership's lithotripsy
business for a monthly fee equal to 7.5% of Partnership Cash Flow per month. All
costs  incurred  by the  Management  Agent in  performing  its duties  under the
Management  Agreement  are the  responsibility  of,  and are  paid  directly  or
reimbursed by, the Partnership. The Management Agent is the management agent for
various  affiliated  lithotripsy  ventures.  As  a  consequence,   many  of  the
Management  Agent's  employees  provide  various  management and  administrative
services for numerous ventures,  including the Partnership. In order to properly
allocate  the costs of the  Management  Agent's  employees  and  other  overhead
expenses  among the  entities for which they  provide  services,  such costs are
divided  among all the  ventures  based  upon the  relative  number of  patients
treated by each. The General Partner  believes that the sharing of personnel and
overhead costs among various entities  results in significant  costs savings for
the Partnership.  The management fee for any given month is payable on or before
the 30th day of the next succeeding  month.  The Management  Agreement is in the
first year of its initial  five-year  term.  The  Management  Agreement  will be
automatically  renewed for up to three  additional  successive  five-year  terms
unless it is earlier  terminated by the Partnership or the General Partner.  The
General  Partner and the Management  Agent are reimbursed by the Partnership for
all  of  their   out-of-pocket  costs  associated  with  the  operation  of  the
Partnership  and  the  Lithotripsy  System,  and  the  Partnership  will  pay or
reimburse to the General Partner all expenses related to this Offering. No other
fees or  compensation  will be payable to the General  Partner,  the  Management
Agent or their Affiliates for managing the Partnership other than the management
fee payable to the Management Agent as provided in the Management Agreement. The
Partnership  may,  however,  contract with the General  Partner,  the Management
Agent or their  Affiliates to render other services or provide  materials to the
Partnership  provided that the  compensation  is at the then prevailing rate for
the type of services and/or materials provided.

                  2.  Partnership  Distributions.  In its  capacity  as  general
partner of the Partnership, the General Partner is entitled to its distributable
share (41.62%  before  dilution) of  Partnership  Cash Flow,  Partnership  Sales
Proceeds and  Partnership  Refinancing  Proceeds as provided by the  Partnership
Agreement.  See  "Summary of the  Partnership  Agreement  - Profits,  Losses and
Distributions" and the Partnership Agreement attached as Appendix A.

                  3.  Sales   Commissions.   The  Sales  Agent,  a  wholly-owned
subsidiary  of  Prime,  has  entered  into a Sales  Agency  Agreement  with  the
Partnership  pursuant to which the Sales Agent has agreed to sell the Units on a
"best efforts" any or all basis.  As  compensation  for its services,  the Sales
Agent  will  receive  a  commission  equal to $75 for each  Unit  sold (up to an
aggregate of $3,000).  If the Offering is successful,  the Sales Agent will also
be reimbursed by the Partnership for its out-of-pocket  expenses associated with
its  sale  of the  Units  in an  amount  not to  exceed  $7,000.  See  "Plan  of
Distribution" and "Conflicts of Interest."

4. Loans.  The General Partner or its Affiliates  will also receive  interest on
loans,  if any, made by them to the  Partnership.  See  "Conflicts of Interest."
Neither the General Partner nor any of its Affiliates are, however, obligated to
make loans to the  Partnership.  While the General  Partner does not  anticipate
that it would cause the Partnership to incur indebtedness  unless cash generated
from the Partnership's  operations were at the time expected to enable repayment
of such loan in  accordance  with its  terms,  lower than  anticipated  revenues
and/or  greater than  anticipated  expenses  could  result in the  Partnership's
failure to make payments of principal or interest when due under such a loan and
the Partnership's equity being reduced or eliminated. In such event, the Limited
Partners could lose their entire investment.

                              CONFLICTS OF INTEREST

                  The operation of the Partnership  involves numerous  conflicts
of interest  between the Partnership and the General Partner and its Affiliates.
Because the Partnership is operated by the General  Partner,  such conflicts are
not resolved through arm's length negotiations,  but through the exercise of the
judgment of the General Partner consistent with its fiduciary  responsibility to
the Limited Partners and the Partnership's investment objectives and policies.

The General Partner, its Affiliates and employees of the General Partner will in
good faith continue to attempt to resolve  potential  conflicts of interest with
the  Partnership,  and the General Partner will act in a manner that it believes
to be in or not opposed to the best interests of the Partnership.

                  The  Management   Agent  and  the  Sales  Agent  will  receive
management fees and broker-dealer sales commissions, respectively, in connection
with the business  operations of the  Partnership and the sale of the Units that
will be paid regardless of whether any sums hereafter are distributed to Limited
Partners.  None of such fees,  compensation  and benefits has been determined by
arm's length  negotiations.  In addition,  the Partnership may contract with the
General Partner or its Affiliates to render other services or provide  materials
to the Partnership provided that the compensation is at the then prevailing rate
for the type of services  and/or  materials  provided.  The General Partner will
also  receive  interest  on  loans,  if any,  it makes to the  Partnership.  See
"Compensation and Reimbursement to the General Partner and its Affiliates."

                   The General Partner and its Affiliates will devote as much of
their time to the business of the Partnership as in their judgment is reasonably
required. Principals of Sun Medical may have conflicts of interest in allocating
management time,  services and functions among their various existing and future
business activities in which they are or may become involved.  See "Competition"
and "Prior  Activities."  The General  Partner  believes  it and its  Affiliates
together,  have  sufficient  resources  to be capable of fully  discharging  the
General Partner's and its Affiliates'  responsibilities to the Partnership.  The
General Partner and its Affiliates may engage for their own account,  or for the
account of others,  in other business  ventures,  related to medical services or
otherwise, and neither the Partnership nor the holders of any of the Units shall
be  entitled  to any  interest  therein.  The General  Partner,  its  Affiliates
(including  affiliated  limited  partnerships  and  other  entities),  and their
employees  engage in medical  service  activities  for their own  accounts.  See
"Prior  Activities."  The General Partner or the Management Agent may serve as a
general  partner  of  other  limited   partnerships  that  are  similar  to  the
Partnership and they do not intend to devote their entire  financial,  personnel
and other resources to the Partnership.  Except as provided by law, none of such
entities or their  respective  Affiliates  is  prohibited  from  engaging in any
business or arrangement  that may be in competition  with the  Partnership.  The
General  Partner,  the Management  Agent,  and their  Affiliates  are,  however,
obligated  to act in a fiduciary  manner with respect to the  management  of the
Partnership and any other limited partnership in which they serve as the general
partner.  In the event an issue  arises as to whether a  particular  lithotripsy
service opportunity in or near the Service Area belongs to the Partnership,  the
General  Partner or another  Affiliate,  the General  Partner will in good faith
attempt  to  resolve  the  issue in a manner  that it  believes  to be in or not
opposed to the best interest of the Partnership.  Notwithstanding the foregoing,
no assurance can be given that one or more limited  partners of such  Affiliates
or the  Limited  Partners  themselves,  may not  challenge  the  decision of the
General  Partner on fiduciary or other grounds.  The General  Partner  presently
provides   lithotripsy   services  in  the  Service   Area  under  one  separate
arrangement,  and Affiliates of the General  Partner  provide  services near the
Service Area. See "Competition" and "Prior Activities."

     The Sales Agent is MedTech Investments,  Inc., which is an Affiliate of the
General  Partner.  Because of the Sales  Agent's  affiliation  with the  General
Partner,  there  are  conflicts  in the  Sales  Agent's  performance  of its due
diligence  responsibilities  under the  federal  securities  laws.  See "Plan of
Distribution."

                   The   interests  of  the  Limited   Partners  have  not  been
separately  represented  by  independent  counsel  in  the  formulation  of  the
transactions  described herein. The attorneys and accountants who have performed
and will  perform  services  for the  Partnership  were  retained by the General
Partner,  and have in the past  performed  and are  expected  in the  future  to
perform similar services for the General Partner, and Prime.

                 FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER

                  The General  Partner is  accountable  to the  Partnership as a
fiduciary and  consequently  must  exercise  good faith in handling  Partnership
affairs.  This is a rapidly  developing and changing area of the law and Limited
Partners who have questions  concerning the duties of the General Partner should
consult with their counsel. Under the Partnership Agreement, the General Partner
and its  Affiliates  have no liability to the  Partnership or to any Partner for
any loss suffered by the  Partnership  that arises out of any action or inaction
of  the  General  Partner  or  its  Affiliates  if the  General  Partner  or its
Affiliates,  in good  faith,  determined  that such course of conduct was in the
best interest of the  Partnership  and such course of conduct did not constitute
gross negligence or willful misconduct of the General Partner or its Affiliates.
Accordingly,  Limited  Partners  have a more  limited  right of action than they
otherwise would absent the  limitations set forth in the Partnership  Agreement.
The General  Partner and its Affiliates  will be indemnified by the  Partnership
against  any  losses,  judgments,  liabilities,  expenses  and  amounts  paid in
settlement of any claims  sustained by them in connection with the  Partnership,
provided  that the same  were not the  result  of gross  negligence  or  willful
misconduct  on the part of the  General  Partner or its  Affiliates.  Insofar as
indemnification  for  liabilities  under the  Securities Act may be permitted to
persons controlling the Partnership  pursuant to the foregoing  provisions,  the
Partnership   has  been   informed   that  in  the   opinion  of  the  SEC  such
indemnification  is against public policy as expressed in the Securities Act and
therefore is unenforceable.

                                   COMPETITION

                  Many   fixed-site   and   mobile   extracorporeal   shock-wave
lithotripsy services are currently operating in and around the Service Area. The
following  discussion  identifies the existing  services in and near the Service
Area, to the best knowledge of the General Partner.

Affiliated Competition

                  The Partnership faces competition from lithotripters placed in
service in California,  including lithotripters owned by the General Partner and
its Affiliates.  The General Partner and an Affiliate  provide and will continue
to provide  lithotripsy  services  in and near the  Service  Area.  The  General
Partner  directly  provides  mobile  lithotripsy  services at Kaiser  Foundation
Hospital in Sacramento and will continue to compete with the Partnership at this
location.  Mobile Kidney Stone Centers of California  III, L.P., an Affiliate of
the General Partner,  provides lithotripsy services using a Modulith(R) SLX-T in
Alameda  County,  Contra Costa County,  Merced  County,  Nevada  County,  Placer
County,  San Joaquin  County and  Stanislaus  County.  Other  Affiliates  of the
General Partner provide services in other areas of California.

Other Competition

                  Various  hospitals  and other  facilities  in the Service Area
have  access  to  lithotripters  which  will be in direct  competition  with the
Partnership.  The General  Partner is aware of a fixed-site  lithotripter  which
operates at the University of California Davis Medical Center in Sacramento.  In
addition, a Medstone mobile lithotripter  provides services at various hospitals
and ambulatory  surgery  centers near the Service Area. The General Partner also
believes  that a  competing  Modulith(R)  SLX-T  operated  by a  physician-owned
venture is  providing  services  near the  Service  Area and may try to commence
providing services within the Service Area in the near future.  Other hospitals,
ambulatory  surgery centers and other healthcare  facilities may have fixed-base
or mobile  lithotripters  of which  the  General  Partner  is not  aware.  These
lithotripters would be in competition with the Partnership.

                  Although the General Partner  anticipates that the Partnership
will continue to operate primarily in the Service Area, the actual itinerary for
the Lithotripsy System is expected to be influenced by the number of patients in
particular  areas and  arrangements  with  various  hospitals  and  health  care
centers. See "Business Activities - Operation of the Lithotripsy System".

                  Other  hospitals  in and near  the  Service  Area may  operate
lithotripters which are not extracorporeal  shock-wave  lithotripters but rather
use lasers or are electrohydraulic  lithotripters.  The General Partner believes
these machines have a competitive disadvantage because such machines are capable
of  treating  stones  only in the  ureter.  The  General  Partner  believes  the
Lithotripsy System can be used on stones in locations other than the ureter. See
"Business Activities - Treatment Methods for Kidney Stone Disease."

                  The  health  care  market  in  the  Service  Area  is  heavily
influenced by managed care companies such as health  maintenance  organizations.
Managed care  companies  generally  contract  either  directly with hospitals or
specified  providers for lithotripsy  services for beneficiaries of their plans.
It is not uncommon for managed care companies to have contracts already in place
with hospitals or specified  providers,  and the Partnership will not be able to
provide  services to beneficiaries of those plans unless it convinces either the
managed care companies or the hospitals to switch to the Partnership's services.

                  No  assurances  can be given  that new  competing  lithotripsy
clinics  will not open in the future or that  innovations  in  lithotripters  or
other  treatments  of  kidney  stone  disease  will not  make the  Partnership's
Lithotripsy System competitively obsolete. See "Risk Factors - Operating Risks -
Technological Obsolescence". In addition, the General Partner and its Affiliates
are not restricted from engaging in lithotripsy  ventures  unassociated with the
Partnership which may compete with the Partnership. See "Conflicts of Interest."

                  The  manufacturer  of  the  Lithotripsy  System  is  under  no
obligation to the General Partner or the Partnership to refrain from selling its
lithotripters  to urologists,  hospitals or other persons for use in the Service
Area or elsewhere.  In addition, the availability of lower-priced  lithotripters
in the United States could dramatically  increase the number of lithotripters in
the United States,  increase  competition for lithotripsy  procedures and create
downward  pressure on the prices the  Partnership  can charge for its  services.
Many potential  competitors of the Partnership,  including hospitals and medical
centers, have financial resources,  staffs and facilities  substantially greater
than those of the Partnership and of the General Partner.

                                   REGULATION

Federal Regulation

                  The Partnership,  the General Partner and the Limited Partners
are subject to  regulation  at the federal,  state and local  level.  An adverse
review or determination by certain regulatory  organizations (federal,  state or
private)  may result in the  Partnership,  the  General  Partner and the Limited
Partners  being  subject  to  imprisonment,  loss  of  reimbursement,  fines  or
exclusion from  participation  in Medicare or Medicaid.  Adverse  reviews of the
Partnership's  operations at any of the various  regulatory levels may adversely
affect the operations and profitability of the Partnership.

                  Reimbursement. The Partnership charges hospitals a per-use fee
for use of the Lithotripsy System and does not directly bill or collect from any
patients or third  party  payors for  lithotripsy  services  provided  using its
Lithotripsy  System.  The amount of this  per-use fee  primarily  depends on the
amount  that  governmental  and  commercial  third  party  payors are willing to
reimburse hospitals for lithotripsy  procedures.  The primary governmental third
party payor is Medicare. Medicare reimbursement policies are statutorily created
and are  regulated by the federal  government.  The Balanced  Budget Act of 1997
required the Health Care Financing  Administration  ("HCFA"), the federal agency
that administers the Medicare program, to establish a prospective payment system
for outpatient  procedures.  One of the goals of the prospective  payment system
was to lower medical costs paid by the Medicare  program.  HCFA issued  proposed
regulations in 1998 which would reduce the reimbursement rate currently paid for
lithotripsy  procedures  performed  on Medicare  patients at hospitals to a base
rate of $2,235.  The base rate includes  anesthesia and sedation,  equipment and
supplies  necessary  for the  procedure,  but  does  not  include  the  treating
physician's professional fee. The base rate is subject to adjustment for various
hospital-specific  factors. The General Partner believes the lower reimbursement
rate will be  implemented  in the latter  half of the year 2000.  In some cases,
reimbursement  rates payable to the General  Partner and its Affiliates are less
than the proposed HCFA rate.

                  The Partnership  currently provides services at one ambulatory
surgery  center and the  General  Partner  retains  the  discretion  to make the
Lithotripsy  System  available at other  ambulatory  surgery centers  ("ASCs") .
Medicare does not currently  reimburse for  lithotripsy  procedures  provided at
ASCs. However, HCFA issued proposed rules in 1998 which would authorize Medicare
reimbursement  for lithotripsy  procedures  provided at ASCs. While the proposed
rules had a target  effective  date of October 1, 1998,  the effective  date has
been postponed  indefinitely for reasons unrelated to lithotripsy coverage.  The
proposed rules assign a Medicare reimbursement rate of $2,107 if the lithotripsy
procedure is  performed  at an ASC.  Whether  these  proposed  rules will become
effective to  authorize  Medicare  reimbursement  at ASCs and, if they do become
effective,  what the  reimbursement  rate will be,  is  unknown  to the  General
Partner.

                  The Medicare program has  historically  influenced the setting
of reimbursement standards by commercial insurers.  Therefore,  reduced rates of
Medicare  reimbursement for lithotripsy  services may result in reduced payments
by  commercial  insurers for the same  services.  As was  discussed  previously,
competitive  pressure from health  maintenance  organizations  and other managed
care  companies  has  in  some  circumstances  already  resulted  in  decreasing
reimbursement  rates from  commercial  insurers.  See "Risk  Factors - Impact of
Insurance  Reimbursement." No assurances can be given that HCFA will not seek to
reduce its  proposed  reimbursement  rates even more to avoid  paying  more than
commercial insurers.  As a result,  hospitals may seek to lower the fees paid to
the  Partnership  for the use of the  Lithotripsy  System.  The General  Partner
anticipates that reimbursement for lithotripsy procedures, and therefore overall
Partnership revenues, may continue to decline.

                  The  physician  service  (Part B) Medicare  reimbursement  for
renal  lithotripsy  is determined  using  Resource  Based-Relative  Value Scales
("RB-RVS").  The system includes  limitations on future physician  reimbursement
increases tied to annual expenditure  targets legislated annually by Congress or
set based upon  recommendation of the Secretary of the U.S. Department of Health
and Human  Services.  Medicare  has in the  past,  with  regard to other  Part B
services such as cataract implant  surgery,  imposed  significant  reductions in
reimbursement  based upon  changes in  technology.  HCFA has  produced a lengthy
report  whose  conclusion  is  that   professional   fees  for  lithotripsy  are
overvalued. Thus, potential future decreases in reimbursement must be considered
probable.

                  Medi-Cal  is the name of the  Medicaid  program in  California
jointly  sponsored by the federal and state  governments  to  reimburse  service
providers  for  medical  services  provided  to  Medi-Cal  recipients,  who  are
primarily  the  indigent.   Medi-Cal   currently   provides   reimbursement  for
lithotripsy services.  The federal Personal  Responsibility and Work Opportunity
Reconciliation  act of 1996  requires  state health plans,  such a Medi-Cal,  to
limit Medicaid  coverage for certain  otherwise  eligible  persons.  The General
Partner does not believe this legislation will have a significant  impact on the
Partnership's  revenues.  In addition,  federal  regulations permit state health
plans to limit the  provision  of services  based upon such  criteria as medical
necessity  or  other  criteria  identified  in  utilization  or  medical  review
procedures. The General Partner does not know whether Medi-Cal has taken or will
take such steps.

                  Self-Referral  Restrictions.  Health care entities  which seek
reimbursement  for  services  covered by  Medicare  or  Medicaid  are subject to
federal regulation  restricting  referrals by certain physicians or their family
members.  Congress has passed legislation prohibiting physician self-referral of
patients  for  "designated   health  services",   which  include  inpatient  and
outpatient  hospital  services (42 U.S.C. ss. 1395nn) ("Stark II").  Lithotripsy
services were not specifically identified as a designated health service by this
legislation,  but the  prohibition  includes any service which is provided to an
individual  who is registered as an inpatient or outpatient of a hospital  under
proposed  regulations  discussed  below.  Lithotripsy  services  provided by the
Partnership  to Medicare  and Medicaid  patients  are billed by the  contracting
hospital  in its name and under  its  Medicare  and  Medicaid  program  provider
numbers.  Accordingly,  these  lithotripsy  services  would likely be considered
inpatient or outpatient services under Stark II.

                  Following  the passage of the Stark II  legislation  effective
January 1, 1995, the General Partner determined that the statute would not apply
to the type of lithotripsy services to be provided by the Partnership.  Stark II
applies only to ownership  interests  directly or  indirectly in the entity that
"furnishes" the designated health care service. The  physician-investors and the
Partnership will not have an ownership  interest in any Contract Hospitals which
offer the  lithotripsy  services to the patients on an  inpatient or  outpatient
basis.  See 42 U.S.C.  ss.  1395nn(a)(1)(A).  Thus,  by referring a patient to a
hospital  offering the  service,  the  physician-investors  will not be making a
referral to an entity in which they maintain an ownership  interest for purposes
of the application of Stark II.

                  This  interpretation   adopted  by  the  General  Partner  was
consistent  with the informal view of the General  Counsel's  Office of the U.S.
Department   of  Health  and  Human   Services.   Based  upon  this   reasonable
interpretation of Stark II, by referring a patient to a hospital  furnishing the
outpatient  lithotripsy  services "under  arrangements" with the Partnership,  a
physician investor in the Partnership is not making a referral to an entity (the
hospital) in which he or she has an ownership interest.

                  In 1998, HCFA published proposed regulations  interpreting the
Stark II statute (the "Proposed  Stark II  Regulations").  The Proposed Stark II
Regulations  and  HCFA's  accompanying  commentary  would  apply  the  physician
referral  prohibitions of Stark II to the Partnership's  contracts for provision
of the Lithotripsy  System.  Under the Proposed Stark II Regulations,  physician
Limited  Partner  referrals  of  Medicare  and  Medicaid  patients  to  Contract
Hospitals  would be prohibited  because the Partnership is regarded as an entity
that "furnishes" inpatient and outpatient hospital services. The General Partner
cannot  predict when final  regulations  will be issued or the  substance of the
final  regulations,  but the  interpretive  provisions of the Proposed  Stark II
Regulations may be viewed as HCFA's interim position until final regulations are
issued.  If the Proposed Stark II  Regulations  are adopted as final (or, in the
meantime,   if  a  reviewing   court  adopted  their  reasoning  as  the  proper
interpretations  of the Stark II  statute),  then the  Partnership's  operations
would not be in  compliance  with  Stark II, as Limited  Partners  would have an
ownership interest in an entity to which they referred patients.

                  HCFA  acknowledges  in its commentary to the Proposed Stark II
Regulations  that  physician  overutilization  of  lithotripsy  is unlikely  and
specifically solicits comments on whether there should be a regulatory exception
for lithotripsy.  HCFA has received a substantial  volume of comments in support
of a regulatory exception for lithotripsy.  HCFA representatives have informally
acknowledged  in published  commentary  that some form of regulatory  relief for
lithotripsy  is  under  consideration  and  may  be  forthcoming;   however,  no
assurances  can be made that such will be the case.  The  General  Partner  will
continue to carefully  review the Proposed Stark II Regulations and accompanying
HCFA commentary,  and explore other  alternative  plans of operations that would
allow the  Partnership  to  operate  in  compliance  with Stark II and its final
regulations.

                  HCFA's  adoption of the current  Proposed Stark II Regulations
as final or a  reviewing  court's  interpretation  of the  Stark II  statute  in
reliance on the Proposed  Stark II  Regulations  and in a manner  adverse to the
Partnership operations would mean that the Partnership and its physician Limited
Partners  would likely be found in violation of Stark II. In such  circumstance,
it is possible the  Partnership  may be given the opportunity to restructure its
operations to bring them into  compliance.  In the event the General  Partner is
unable to  devise a plan  pursuant  to which  the  Partnership  may  operate  in
compliance  with  Stark II and its final  regulations,  the  General  Partner is
obligated under the Partnership Agreement either (i) to purchase the Partnership
Interests  of all the Limited  Partners  at the lesser of fair  market  value or
their Capital Account values (including in certain cases the assumption of their
Guaranties) or (ii) to dissolve and liquidate the  Partnership.  See "Summary of
the Partnership Agreement - Optional Purchase of Limited Partner Interests." The
Partnership  and/or the  physician  Limited  Partners may not be  permitted  the
opportunity to restructure  operations and thereby avoid an obligation to refund
any amounts  collected  from Medicare and Medicaid  patients in violation of the
statute.  Further,  under these  circumstances  the  Partnership  and  physician
Limited  Partners may be assessed  with  substantial  civil  monetary  penalties
and/or exclusion from providing services reimbursed by Medicare and Medicaid.

                  Two bills are currently pending in Congress which would modify
the  reach of the  Stark II  self-referral  prohibition.  One  (H.R.  2650)  was
introduced  by  Representative  Stark,  the other (H.R.  2651) by House Ways and
Means health subcommittee chair Representative Bill Thomas. The Stark bill would
modify,  and the  Thomas  bill  would  repeal,  the ban on  physicians  who have
compensation  arrangements with entities to which they refer patients.  However,
neither  bill,  nor  any  other  bill  currently  pending  in  Congress,   would
substantively  modify the  regulation of referrals of physicians  with ownership
interests.  Thus,  neither bill would affect the  Partnership's  analysis of the
potential impact of Stark II on this Offering discussed above.

                  Fraud and Abuse. The provisions of the federal Social Security
Act addressing  illegal  remuneration  (the  "Anti-Kickback  Statute")  prohibit
providers and others from soliciting, receiving, offering or paying, directly or
indirectly,  any  remuneration  in return  for either  making a  referral  for a
Medicare,  Medicaid or CHAMPUS  covered  service or ordering,  arranging  for or
recommending any such covered service.  Violations of the Anti-Kickback  Statute
may be  punished by a fine of up to $25,000 or  imprisonment  for up to five (5)
years,  or both. In addition,  violations may be punished by  substantial  civil
penalties  and/or exclusion from the Medicare and Medicaid  programs.  Regarding
exclusion,  the Office of Inspector  General ("OIG") of the Department of Health
and Human  Services may exclude a provider  from  participation  in the Medicare
program for a 5-year  period upon a finding that the  Anti-Kickback  Statute has
been  violated.  After OIG  establishes a factual basis for excluding a provider
from the  program,  the  burden  of proof  shifts to the  provider  to prove the
Anti-Kickback Statute has not been violated.

                  The Limited  Partners are to receive cash  Distributions  from
the Partnership.  Since it is anticipated that some of the Limited Partners will
be physicians or others in a position to refer and perform lithotripsy  services
using Partnership  equipment and personnel,  such Distributions could come under
scrutiny under the Anti-Kickback  Statute. The Third Circuit United States Court
of Appeals  has held that the  Anti-Kickback  Statute is violated if one purpose
(as  opposed to the  primary or sole  purpose)  of a payment to a provider is to
induce referrals.  United States v. Greber,  760 F.2d 68 (1985). The Greber case
was followed by the United States Court of Appeals for the Ninth Circuit, United
States v. Kats, 871 F.2d 105 (9th Cir.  1989),  and cited favorably by the First
Circuit in United  States v. Bay State  Ambulance and Hospital  Rental  Service,
Inc., 874 F.2d 20 (1st Cir. 1989).

                  The OIG has indicated that it is giving increased  scrutiny to
health care joint ventures involving  physicians and other referral sources.  In
1989, it published a Special Fraud Alert that outlined  questionable features of
"suspect"  joint  ventures,  including  some features which may be common to the
Partnership.  While OIG Special  Fraud Alerts do not  constitute  law,  they are
informative  because they reflect the general  views of the OIG as a health care
fraud and abuse investigator and enforcer.

                  The  OIG  has  published  regulations  which  protect  certain
transactions  from scrutiny under the  Anti-Kickback  Statute (the "Safe Harbor"
regulations).  A Safe Harbor,  if complied with fully, will exempt such activity
from prosecution under the Anti-Kickback  Statute.  However, the preamble to the
Safe  Harbor  regulations  states  that the  failure  of a  particular  business
arrangement to comply with the regulations does not determine whether or not the
arrangement  violates the  Anti-Kickback  Statute because the regulations do not
themselves make any particular  conduct illegal.  This Offering and the business
of the Partnership do not comply with any Safe Harbor.

                  A Safe  Harbor  has  been  adopted  which  protects  equipment
leasing  arrangements.  It requires that the  aggregate  rental charge be set in
advance,  be consistent with fair market value in arms-length  transactions  and
not be determined in a manner that takes into account the volume or value of any
referrals  or business  otherwise  generated  between the  parties.  To the best
knowledge of the General  Partner,  the Hospital  Contracts  entered into by the
Partnership  do not require that the  aggregate  rental charge be set in advance
and contain  other terms which cause the Hospital  Contracts  not to comply with
the Safe  Harbor's  requirements.  When it  issued  this  Safe  Harbor,  the OIG
commented  on "per use"  charges  for  equipment  rentals.  It stated  that such
arrangements  must be  examined  on a  case-by-case  basis and may be abusive in
certain  situations.  According to the OIG, payments on a "per use" basis do not
necessarily  violate  the  Anti-Kickback  Statute,  but  such  payments  are not
provided Safe Harbor protection.  The General Partner cannot give any assurances
that the Partnership's  Hospital  Contracts which involve a "per use" payment to
the  Partnership  by  Contract  Hospitals  would not be deemed  to  violate  the
Anti-Kickback Statute.

                  In the commentary introducing the Safe Harbor regulations, the
OIG recognized the beneficial effect that business investments in small entities
may have on the health  care  industry.  The OIG  promulgated  a Safe Harbor for
investment  interests,  including limited partnership  ownership  interests,  in
small  entities which are held by persons in a position to make referrals to the
entities so long as eight  criteria  are met.  This  Offering  does not meet all
eight  criteria;  however,  this  Offering  does  meet  some  of  the  criteria.
Specifically,  the terms on which limited  partnership  interests are offered to
physicians who treat their patients on the Lithotripsy System are not related to
the previous or expected volume of referrals or amount of business  generated by
the physicians;  there is no requirement that any physician make referrals or be
in a position to make referrals as a condition for remaining an investor;  there
is no cross-referral  arrangement involved with the business of the Partnership;
the Partnership  does not loan funds or guarantee loans for physicians who refer
patients for  treatment on the  Lithotripsy  System;  and the  Distributions  to
physicians who are Limited  Partners are directly  proportional to the amount of
their capital  investment.  In order to qualify for Safe Harbor protection,  all
eight  criteria  must be met.  The General  Partner can give no  assurance  that
compliance  with some,  but not all, of the  criteria  of the Safe Harbor  would
prevent the OIG from finding a potential violation of the Anti-Kickback  Statute
by virtue of this Offering.

                  In  November  1999,  the OIG issued a Safe  Harbor  protecting
certain physician investment interests in ASCs. The commentary  accompanying the
new Safe Harbor  specifically  distinguished  physician  ownership  in ASCs from
physician  ownership  in other  facilities,  including  lithotripsy  facilities,
end-stage  renal disease  facilities,  comprehensive  outpatient  rehabilitation
facilities and others. The OIG concluded that ASCs benefit from favorable public
policy considerations relating to reducing Medicare costs (including through the
impending   prospective  payment  system  discussed  above);  other  facilities,
including lithotripsy facilities, do not share the same policy considerations or
reimbursement  structures.  Therefore,  the Safe Harbor  status given to certain
physician  investments in ASCs cannot be viewed as an indication  that physician
investments in other facilities,  including lithotripsy facilities, would not be
deemed to violate the Anti-Kickback Statute.

                  Although a separate Safe Harbor was not adopted, HCFA noted in
its  commentary  when the Safe  Harbor  regulations  were  issued  in 1991  that
additional  protection  may be merited for  situations  where a physician sees a
patient in his or her own  office,  makes a referral to an entity in which he or
she has an ownership interest and performs the service for which the referral is
made. In such cases, Medicare makes a payment to the facility for the service it
furnishes,  which may result in a profit  distribution  to the  physician.  HCFA
noted that, with respect to the physician's professional fee, such a referral is
simply a referral to oneself, and that in such situations, both the professional
service fee and the profit  distribution  from the associated  facility fee that
are  generated  from the referral may warrant  protection.  HCFA stated that its
primary  concern  regarding  the  above  referral  situation  was the  investing
physician's ability to profit from any diagnostic testing that is generated from
the services he or she performs.  The General Partner believes the potential for
overutilization posed by referrals for diagnostic services is not present to the
same degree with  therapeutic  services such as lithotripsy  where the necessity
for the  treatment  can be  objectively  determined;  i.e., a renal stone can be
definitely determined before treatment.

                  The  applicability of the  Anti-Kickback  Statute to physician
investments in health care  businesses to which they refer patients and which do
not qualify  for a Safe  Harbor has not been the focus of many court  decisions,
and therefore,  judicial guidance is limited.  In the only case in which the OIG
has  attempted  to  exercise  the civil  exclusion  remedy in the  context  of a
physician-owned  joint venture,  The Hanlester Network,  et al. v. Shalala,  the
Ninth Circuit for the United States Court of Appeals (the "Court") held that the
Anti-Kickback  Statute  is  violated  when a person or entity (a) knows that the
statute  prohibits  offering or paying  remuneration to induce referrals and (b)
engages in  prohibited  conduct  with the  specific  intent to violate  the law.
Although  the  Court  upheld a lower  court  ruling  that the joint  venture  in
question violated the Anti-Kickback  Statute vicariously through the knowing and
willful  actions of one of its agents,  who was acting outside the parameters of
the  joint  venture's  offering  documents,  the Court  concluded  there was not
sufficient  evidence  indicating  that a return on  investment  to physicians or
other  investors in the joint venture  could on its own  constitute an "offer or
payment" of  remuneration  to make  referrals.  The Court also stated that since
profit  distributions in Hanlester were made based on each investor's  ownership
share and not on the  volume of  referrals,  the fact that  large  referrals  by
investors would result in potentially high investment  returns did not, standing
alone, cause a violation of the Anti-Kickback Statute.

                  The Health  Insurance  Portability and  Accountability  Act of
1996 directed the OIG to respond to requests for advisory opinions regarding the
effect of the  Anti-Kickback  Statute on  proposed  business  transactions.  The
General  Partner has not  requested  the OIG to review this Offering and, to the
best knowledge of the General  Partner,  the OIG has not been asked by anyone to
review offerings of this type.

                  Federal  regulatory  authorities  could take the  position  in
future advisory opinions that business transactions similar to this Offering are
a  means  to  illegally  influence  the  referral  patterns  of the  prospective
physician  Limited  Partners.  Because there is no legal precedent  interpreting
circumstances  identical to these facts,  it is not possible to predict how this
issue would be resolved if litigated.

                  Whenever an offering of ownership  interests is made available
to  persons  with the  potential  to refer  patients  for  services,  there is a
possibility  that the OIG,  HCFA or other  government  agencies or officials may
question whether the ownership  interests are being provided in return for or to
induce referrals by the new owners.  Remuneration,  which  government  officials
have said can include the provision of an opportunity to invest in a facility to
which a person refers patients for services, may be challenged by the government
as  constituting a violation of the  Anti-Kickback  Statute.  The risk of such a
challenge may be increased in connection with this Offering because the proceeds
of any Unit sales will not provide  additional capital for the Partnership which
would be a  typical  justification  for  sales  to new  investors.  Whether  the
offering of  ownership  interests  to  investors  who may refer  patients to the
Partnership  might constitute a violation of this law must be determined in each
case based upon the specific facts involved.  The various mechanisms in place to
avoid  providing a financial  benefit to  prospective  Limited  Partners for any
referrals of patients  (including  the  requirement  that all  distributions  of
earnings  to  Limited  Partners  be  made  in  proportion  to  their  investment
interest), the Partnership's  utilization review and quality assurance programs,
the fact that  lithotripsy  is a therapeutic  treatment the need of which can be
objectively determined, and the existence in the General Partner's view of valid
business  reasons to engage in this  transaction,  form the basis in part of the
General Partner's belief that this Offering is appropriate.

                  The  General  Partner  of  the  Partnership  intends  for  all
business activities and operations of the Partnership to conform in all respects
with all  applicable  anti-kickback  statutes  (federal  or state).  The General
Partner does not believe that the Partnership's  proposed operations violate the
Anti-Kickback  Statute.  No assurance can be given,  however,  that the proposed
activities of the Partnership  will not be reviewed and challenged by regulatory
authorities  empowered to do so, or that if  challenged,  the  Partnership  will
prevail.

                  If  the  activities  of the  Partnership  were  determined  to
violate these  provisions,  the Partnership,  the General Partner,  officers and
directors of the General  Partner,  and each Limited  Partner  could be subject,
individually,  to substantial monetary liability, felony prison sentences and/or
exclusion from  participation in Medicare,  Medicaid and CHAMPUS.  A prospective
Limited Partner with questions  concerning these matters should seek advice from
his or her own independent counsel.

                  False Claims  Statutes.  Federal laws governing  reimbursement
for medical services  generally  prohibit an individual or entity from knowingly
and  willfully  presenting  a claim  (or  causing a claim to be  presented)  for
payment  from  Medicare,  Medicaid or other third party  payors that is false or
fraudulent. The standard for "knowing and willful" includes conduct that amounts
to a reckless disregard for whether accurate  information is presented by claims
processors.  Penalties  under  these  statutes  include  substantial  civil  and
criminal fines, exclusion from the Medicare program and imprisonment. One of the
most  prominent  of these laws is the federal  False  Claims  Act,  which may be
enforced by the federal government  directly,  or by a qui tam private plaintiff
on the  government's  behalf.  Under the  federal  False  Claims  Act,  both the
government and the private  plaintiff,  if successful,  are permitted to recover
substantial  monetary  penalties  and  judgments,  as well as an amount equal to
three times actual damages.  In recent cases, some qui tam plaintiffs have taken
the position that violations of the Anti-Kickback  Statute (discussed above) and
Stark II  (discussed  above)  should also be  prosecuted  as  violations  of the
federal False Claims Act. The Partnership cannot assure that the government,  or
a reviewing  court,  would not take the position that billing  errors,  employee
misconduct  or  violations of other  federal  statutes,  should they occur,  are
violations of the federal False Claims Act or similar statutes.

                  Some federal  courts have recently taken the position that qui
tam lawsuits by private plaintiffs are  unconstitutional.  Most notably, a panel
of judges on the Fifth Circuit Court of Appeals took this position in a decision
issued in November  1999.  That decision is being  reviewed by all the judges on
the Fifth Circuit.  The panel's  decision was a minority view;  most courts have
concluded  that qui tam lawsuits are  constitutional.  In another case, the U.S.
Supreme Court may review this issue.  Unless and until the Supreme Court decides
the issue, prospective Limited Partners should consider the ramifications of the
False Claims Act issues discussed in the preceding paragraph.

                  New Legislation. Two bills currently pending in Congress which
would  amend or  repeal  the  compensation  provisions  of the Stark II law were
discussed above in the disclosures  related to self-referral  restrictions.  The
General Partner is not aware of any other bill currently  before Congress which,
if  enacted  into  law,  would  have  an  adverse  effect  on the  Partnership's
operations  in a  fashion  similar  to the Stark II and the  Anti-Kickback  laws
discussed  above. In the event that legislation is enacted which, in the opinion
of  the  General   Partner,   would  adversely   affect  the  operation  of  the
Partnership's  business, the General Partner is obligated either to purchase the
Partnership   Interests  of  all  the  Limited   Partners  or  to  dissolve  the
Partnership.  See "Summary of the Partnership  Agreement - Optional  Purchase of
Limited Partner Interests."

                  ALS Fraud and Abuse Compliance Guidelines.  On March 24, 2000,
the American  Lithotripsy Society ("ALS") (a voluntary  membership  organization
made up of physicians,  health care management personnel,  treatment centers and
medical suppliers) published Fraud and Abuse Compliance Guidelines for Physician
- Owned  Lithotripsy  Ventures (the "ALS  Guidelines").  The ALS  Guidelines are
aimed at assisting ALS members in  recognizing  and avoiding  certain  practices
which the ALS believes are unethical or illegal. The ALS Guidelines  acknowledge
that they are neither authoritative,  nor constitute legal advice. Moreover, the
ALS  Guidelines  stipulate that the laws upon which they are based (all of which
are   discussed  in  this   "Regulation"   section)  are  open  to   alternative
interpretations.  Because of the various  reasons set forth in this  Memorandum,
the Company believes the Offering and its operations are appropriate  under such
laws,  however,  no assurance  can be given that the  activities  of the Company
would be viewed by regulatory  authorities  as complying  with these laws or the
ALS Guidelines.

                  FTC Investigation.  Issues relating to physician-owned  health
care facilities have been investigated by the Federal Trade Commission  ("FTC"),
which  investigated  two lithotripsy  limited  partnerships  affiliated with the
General  Partner,  to  determine  whether they posed an  unreasonable  threat to
competition in the health care field. The affiliated  limited  partnerships were
advised in 1996 that the FTC's  investigation was terminated  without any formal
action taken by the FTC or any  restrictions  being placed on the  activities of
the limited  partnerships.  However,  the General Partner cannot assure that the
FTC will  not  investigate  issues  arising  from  physician-owned  health  care
facilities in the future with respect to the General  Partner or any  Affiliate,
including the Partnership.

                  Ethical  Considerations.  The American  Medical  Association's
Code of Medical  Ethics  states  that  physicians  should not refer  patients to
facilities  in which  they have an  ownership  interest  unless  such  physician
directly  provides  care or services to such  patient at the  facility.  Because
physician investors will be providing lithotripsy services,  the General Partner
believes  that an  investment  by a physician  will not be in  violation  of the
American  Medical  Association's  Code of Medical Ethics.  In the event that the
American Medical Association changes its ethical code to preclude such referrals
by  physicians  and such  ethical  requirements  are  applied to  facilities  or
services  which,  at the  time of  adoption,  are  owned  in whole or in part by
referring physicians,  the Partnership and the interests of the Limited Partners
may be adversely affected.

State Regulation

                  California  law  prohibits  the  offer,  delivery,  receipt or
acceptance  by any  licensed  person  (including  physicians)  of any money,  as
compensation  or inducement  for referring  patients.  The  California  Attorney
General  issued an opinion  in 1999  which  stated  the  statute  prohibits  any
situation where the referral of a patient may be induced by considerations other
than the best  interests  of the  patients.  However,  the statute  specifically
permits  referrals  to health  care  facilities  in which the  physician  has an
ownership  interest,  so long as the  physician's  return on investment  for the
ownership  interest is based on the proportional  ownership of the physician and
not based on the number or value of any patients referred. To the best knowledge
of the General  Partner,  the  Partnership's  ownership  and  investment  return
structure falls within the exemption to this statute.

                  In  1993,   California  passed  the  Physician  Ownership  and
Referral Act, which  prohibits  physicians  from  referring  patients to certain
health services in which the physicians have a financial interest.  Those health
services  are  laboratory,  diagnostic  nuclear  medicine,  radiation  oncology,
physical therapy,  physical rehabilitation,  psychometric testing, home infusion
therapy  and  diagnostic  imaging  goods  and  services.  If the list of  health
services  were  expanded to include  lithotripsy  services (or surgery  services
generally), the Partnership would be prohibited from operating under its current
method of operations.  The General Partner is not aware of any such  legislation
currently  pending in California  which would expand the list of health services
in this fashion.

                  The  Physician  Ownership  and  Referral  Act states  that any
physician who refers a patient to an  organization  in which the physician has a
financial  interest for  services  other than those  identified  in the previous
paragraph,  must  provide the patient (or the  patient's  legal  guardian)  with
written  notice  of such  financial  interest  at the  time of the  referral.  A
separate law requires written disclosure of a physician's "significant financial
interest"  in an  entity  to  which  he or  she  refers  patients;  "significant
financial  interest"  means  $5,000 or five (5) percent of the  entity.  The law
requires  disclosure  of the  financial  interest  to the patient in writing and
advising the patient that the patient may choose another  provider to obtain the
service. The Partnership will require that its physician Limited Partners comply
with this disclosure requirement.

                  California has a false claims  statute  similar to the federal
False Claims Act discussed  above.  The California false claims statute would be
applicable  to claims  submitted  to Medi-Cal  for  reimbursement  for  services
rendered to Medi-Cal patients.  California also prohibits kickbacks for services
provided to Medi-Cal  patients.  For the reasons discussed above with respect to
their federal law  counterparts,  to the best knowledge of the General  Partner,
neither this  Offering nor the business of the  Partnership  violates  either of
these California laws.

                  California  requires  hospitals and ambulatory surgery centers
which wish to offer mobile healthcare  services at their facilities to apply for
an amendment to their licensure  status.  The amendment  assures the hospital or
ambulatory  surgery  center has the physical  facilities to accommodate a mobile
unit in which  patients  will be treated.  To the best  knowledge of the General
Partner, this amendment process will not apply with respect to the Partnership's
Lithotripsy  System, as patients will not be treated in the mobile unit; rather,
the  lithotripter  will be rolled off the  Partnership's  mobile van and wheeled
into  an  appropriate  location  within  the  hospital  or  center,  such as the
operating  suite.  Since  patients  will be treated on the  machine  while it is
located within the hospital or center,  the mobile healthcare  service licensure
amendment process will not apply. The California  Department of Health Services'
Licensing and  Certification  Office,  which  licenses  hospitals and ambulatory
surgery  centers,  expects that the facilities  contracting with the Partnership
will have  appropriate  policies  and  procedures  in place with  respect to the
transportable  lithotripter  to assure patient care and physical  facility needs
are met. A certificate of need (CON) is not required before offering lithotripsy
services in California.  California requires  registration of x-ray machines and
requires that radiologic technologists be licensed.

                  Many  bills  introduced  in  both  houses  of  the  California
legislature in 1999 concerned  health care  regulation,  and Governor Gray Davis
signed a series of health-care related bills into law. Among other things, a new
Department of Managed Care was established,  and other managed care requirements
were enacted.  However,  to the best knowledge of the General  Partner,  none of
these new laws would have a material  adverse effect on the  Partnership or this
Offering.  The General  Partner cannot predict  whether  additional  health-care
regulatory bills will be introduced or enacted by the California  legislature in
2000.

                  The Partnership and the Management Agent have been seeking and
will continue to seek to comply with all  applicable  statutory  and  regulatory
requirements.  Further  regulations  may be imposed in California at any time in
the future.  Predictions as to the form or content of such potential regulations
would  be  highly  speculative.  They  could  apply  to  the  operation  of  the
Lithotripsy  System or to the  physicians  who invest in the  Partnership.  Such
restrictive  regulations  could  materially  adversely affect the ability of the
Partnership to conduct its business.

                  THE GENERAL  PARTNER AND THE PARTNERSHIP  BELIEVE  LITHOTRIPSY
SERVICES WILL CONTINUE TO BE SUBJECT TO INTENSE  GOVERNMENTAL  REGULATION AT THE
FEDERAL AND STATE  LEVELS AND,  THEREFORE,  CANNOT  PREDICT THE SCOPE AND EFFECT
THEREOF.

                  PROSPECTIVE  LIMITED  PARTNERS SHOULD CONSULT WITH THEIR LEGAL
COUNSEL  AS TO THE  IMPLICATIONS  OF  FEDERAL  AND STATE  LAWS AND  PROFESSIONAL
ETHICAL  CODES  DEALING  WITH  PHYSICIAN  OWNERSHIP  OF  MEDICAL  EQUIPMENT  AND
FACILITIES BEFORE PURCHASING UNITS.

                                PRIOR ACTIVITIES

                  Sun  Medical is the general  partner of the  General  Partner.
Prime, the sole  shareholder of Sun Medical,  is the largest and fastest growing
provider of  lithotripsy  services in the United States,  providing  lithotripsy
services at  approximately  450 hospitals and surgery  centers in 31 states,  as
well  as  delivering  non-medical  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,  while  medical care is rendered by  urologists  utilizing the
lithotripters.  Prime has an  economic  interest in 59 mobile and six fixed site
lithotripters,  all but two of which are operated by Prime,  Sun Medical and its
Affiliates.  Prime began providing  lithotripsy  services with an acquisition in
1992 and has grown  rapidly  since that time  through  acquisitions  and de novo
development.   In  November  1995,  Prime  acquired  Sun  Medical  and  thus,  a
controlling  interest in the General  Partner.  The  acquisition  of Sun Medical
provided  Prime with  complementary  geographic  coverage as well as  additional
expertise  in  forming  and  managing  lithotripsy  operations.  Prime  and  Sun
Medical's  lithotripters  together  performed  approximately  38,000 lithotripsy
procedures  in 1999.  Approximately  2,300  urologists  utilized  Prime  and Sun
Medical's lithotripters in 1999, representing approximately 30% of the estimated
7,700 active urologists in the United States.

                  Prime  manages the  operations of  approximately  63 of its 65
lithotripters.  All  of  its  lithotripters  are  operated  in  connection  with
hospitals or surgery centers. Prime operates its lithotripters  primarily as the
general partner of a limited partnership or through a subsidiary, as is the case
with entities affiliated with Sun Medical,  including the General Partner. Prime
provides a full range of management and other  non-medical  support  services to
the  lithotripsy  operations,  while  medical  care is  provided  by  urologists
utilizing the facilities and certain  medical  support  services are provided by
the  hospital  or  surgery  center.  Urologists  are  investors  in 50 of its 65
operations.

                  Prime's  lithotripters  range in age from one to twelve years.
Of its 65  lithotripters,  59 are mobile units  mounted in  tractor-trailers  or
self-contained  coaches serving locations in 31 states.  Prime also operates six
fixed site  lithotripters in four states. All of Prime's fixed lithotripsy units
are located and operated in conjunction with a hospital or surgery center.  Most
of these  locations are in major  metropolitan  markets where the population can
support  such  an  operation.  Fixed  site  lithotripters  generally  cannot  be
economically justified in other locations.

                  Prime and Sun  Medical  believe  that they  maintain  the most
comprehensive   quality  outcomes   database  and  information   system  in  the
lithotripsy  services industry.  Prime has detailed  information on over 160,000
procedures covering patient demographic  information and medical condition prior
to  treatment,  the clinical  and  technical  parameters  of the  procedure  and
resulting  outcomes.  Information  is collected  before,  during and up to three
months after the procedure  through internal data collection by doctors,  nurses
and technicians and through patient questionnaires.

                  For  numerous  reasons,  including  differences  in  financial
structure,  program size,  economic  conditions and distribution  policies,  the
success of the  General  Partner and its  Affiliates  in the  lithotripsy  field
should not be considered as  indicative of the operating  results  obtainable by
the Partnership.

                        SOURCES AND APPLICATIONS OF FUNDS

                  The  following  table  sets  forth  the funds  expected  to be
available  to the  Partnership  from this  Offering if all 40 Units are sold and
other sources and their anticipated and estimated uses.

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

                        Sources of Funds              Sale of 40 Units
----------------------------- --------------------------------------------------
----------------------------- --------------------- ----------------------------

Offering Proceeds(1)                             $169,320              (100%)
                                                 --------              ------
----------------------------- --------------------- ----------------------------
----------------------------- --------------------- ----------------------------

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

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

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

Repayment of Partnership Debt(3)                 $134,320          (  79%)
                                                 ---------         -------
----------------------------- --------------------- ----------------------------

   TOTAL APPLICATIONS                            $169,320          (100%)
                                                 ========          ======

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

Notes to Sources and Applications of Funds Table

(1)      Assumes 40 Units are purchased by qualified investors.

(2)      Includes   $3,000  in   commissions   payable   to  the  Sales   Agent,
         reimbursement of $7,000 to the Sales Agent for  out-of-pocket  expenses
         incurred in selling the Units and $25,000 in legal and accounting costs
         associated with the preparation of this Memorandum.

(3)      The total outstanding debt of the Partnership  incurred pursuant to the
         Loan from First  Citizens Bank & Trust Company for the  acquisition  of
         the Partnership's  Lithotripsy  System is $441,205.79 as of the date of
         the Memorandum;  however,  the terms of the Loan provide that it may be
         renewed for its full amount  ($487,125).  See "Risk Factors - Operating
         Risks - Liability Under the Guaranty."  Offering Proceeds will first be
         used by the  Partnership  to pay  offering  costs and  expenses  (up to
         $35,000), and then the remainder of the proceeds will be used to reduce
         the existing Partnership debt (up to $134,320).

                     FINANCIAL CONDITION OF THE PARTNERSHIP

                  Set  forth  on  the  following  pages  are  the  Partnership's
internally  prepared  accrual  based (i) Income  Statement  for the  eight-month
period  ended  December 31,  1999,  (ii) Balance  Sheet as of December 31, 1999,
(iii) Cash Flow  Statement for the  eight-month  period ended December 31, 1999,
and (iv)  Statements  of  Partner's  Equity  for the  eight-month  period  ended
December 31, 1999.

                  Past financial  performance is not  necessarily  indicative of
future  performance.  There is no assurance that the Partnership will be able to
maintain its current revenues or earnings.

               MOBILE KIDNEY STONE CENTERS OF CALIFORNIA II, L.P.

                                INCOME STATEMENT

                                                          Eight Months Ended
                                                          December 31, 1999*

Revenues                                                      $979,234

Operating Expenses

Employee compensation and benefits                              98,304
Equipment maintenance and repairs                               14,555
Depreciation and amortization                                   64,966
Management fees                                                 36,761
Overhead allocation                                             76,917
Other operating expenses                                        60,248
                                                      --------------------------
  Total operating expenses                                     351,751

Operating income                                               627,483

Other income (expense)
  Interest and other income, net                                   440
  Interest expense                                             (17,842)
  Organization and syndication costs                           (41,259)
                                                      --------------------------
     Total other income (expense)                              (58,661)
                                                      --------------------------
Net income                                                     $568,822
                                                      ==========================


                         *See notes to financial  statements  attached hereto as
Appendix D.


<PAGE>

WINSTON #892462 v 2
                                       70

               MOBILE KIDNEY STONE CENTERS OF CALIFORNIA II, L.P.

                                  BALANCE SHEET

                                                              December 31, 1999*

ASSETS

Cash                                                                $76,878
Accounts receivable, net                                            205,300
Other current assets                                                  3,269
                                                      --------------------------
     Total current assets                                           285,447

Equipment                                                           504,681
Accumulated depreciation                                            (64,966)
                                                      --------------------------
                                                                    439,715

Other assets                                                            328

     Total assets                                                  $725,490
                                                      ==========================


LIABILITIES

Accounts payable                                                     $55,623
Distributions payable                                                      0
                                                      --------------------------
     Total current liabilities                                        55,623

Long term debt                                                       466,045

PARTNERS' EQUITY
Capital contributions                                                250,000
Syndication costs                                                    (15,000)
Distributions paid                                                  (600,000)
Accumulated earnings                                                 568,822
                                                      --------------------------
     Total partners' equity                                          203,822

     Total liabilities and partners' equity                         $725,490
                                                      ==========================





                         *See notes to financial  statements  attached hereto as
Appendix D.


<PAGE>

               MOBILE KIDNEY STONE CENTERS OF CALIFORNIA II, L.P.

                             STATEMENT OF CASH FLOWS

Eight Months Ended

                                                             December 31, 1999*

Cash flows from Operating Activities:
     Net income                                                      $568,822
     Adjustments to reconcile net income
          to cash provided by operating activities:
              Depreciation and amortization                            64,966

Change in operating assets and liabilities:

     Accounts receivable                                             (205,300)
     Other current assets                                              (3,269)
     Accrued expenses                                                   55,623
                                                      --------------------------

Net cash provided by operating activities                              480,842
                                                      --------------------------

Cash flows from Investing Activities:

     Purchase of equipment, furniture and fixture                     (504,681)
     Deposits paid                                                        (328)
                                                      --------------------------

Net cash (used in) investing activities                               (505,009)
                                                      --------------------------

Cash flows from Financing Activities:
     Cash borrowed from banks                                           466,045
     Capital contributed by partners (net)                              235,000
     Distributions to partners                                         (600,000)
                                                      --------------------------

Net cash (used in) financing activities                                 101,045
                                                      --------------------------

Net increase(decrease) in cash during the period                         76,878
                                                      --------------------------

Cash, beginning of period                                                     0
                                                      --------------------------

Cash, end of period                                                     $76,878
                                                      ==========================
                                                                        $76,878

                         *See notes to financial  statements  attached hereto as
Appendix D.


<PAGE>

               MOBILE KIDNEY STONE CENTERS OF CALIFORNIA II, L.P.

                          STATEMENT OF PARTNERS' EQUITY

                                                           Eight Months Ended
                                                            December 31, 1999*

Beginning partners' equity                                                   $0

Capital contributions                                                  $250,000

Syndication costs                                                      ($15,000)

Net income                                                             $568,822

Distributions to partners                                              (600,000)
                                                      --------------------------

Ending partners' equity                                                $203,822
                                                      ==========================
                                                                        203,822

                         *See notes to financial  statements  attached hereto as
Appendix D.

            [The remainder of the page is intentionally left blank.]

                      SUMMARY OF THE PARTNERSHIP AGREEMENT

                  The  Partnership  Agreement sets forth the powers and purposes
of the  Partnership  and the  respective  rights and  obligations of the General
Partner and the Limited  Partners.  The  following  is only a summary of certain
provisions of the Partnership  Agreement,  and does not purport to be a complete
statement of the various rights and  obligations  set forth therein.  A complete
copy of the Partnership Agreement is set forth as Appendix A to this Memorandum,
and Investors are urged to read the Partnership Agreement in its entirety and to
review it with their counsel and advisors.

Nature of Limited Partnership Interest

                  The Investors will acquire their  interests in the Partnership
in the form of  Units.  For each Unit  purchased,  a cash  payment  of $4,233 is
required  in  addition  to a  personal  guaranty  of 0.5%  of the  Partnership's
obligations under the Loan (up to a $2,435.63  principal  guaranty  obligation).
The per Unit cash purchase  price and  execution and delivery of the  Guaranties
are both due upon subscription; however, certain qualified Investors may finance
a portion of the cash purchase price through either individually  borrowed funds
or through  the  Limited  Partner  Loans.  See "Terms of the  Offering - Limited
Partner  Loans." No Limited  Partner will have any  liability  for the debts and
obligations of the  Partnership  by reason of being a Limited  Partner except to
the extent of (i) his Capital Contribution and liability under a Limited Partner
Loan,  if any, (ii) his liability  under his Guaranty,  (iii) his  proportionate
share of the  undistributed  profits of the Partnership,  and (iv) the amount of
certain  Distributions  received from the  Partnership as provided by the Act or
other  applicable  law.  See "Risk  Factors - Other  Investment  Risks - Limited
Partners'  Obligation to Return Certain  Distributions."  See also Form of Legal
Opinion of Counsel, attached hereto as Appendix C.

Dilution Offerings

                  The General  Partner has the authority to  periodically  offer
and  sell  additional  limited  partnership  interests  in  the  Partnership  (a
"Dilution  Offering")  to  persons  who are  not  investors  in the  Partnership
("Qualified  Investors").  The primary purpose of Dilution Offerings would be to
raise additional capital for any legitimate Partnership purpose.

                  Any  sale  of  limited  partnership  interests  in a  Dilution
Offering will result in  proportionate  dilution of the Percentage  Interests of
the existing  Partners;  i.e.,  the interests of the General  Partner and of the
Limited  Partners in  Partnership  allocations,  cash  distributions  and voting
rights  will be  proportionately  reduced as a result of a  successful  Dilution
Offering.  Limited  Partners  have  no  right  to  purchase  additional  limited
partnership  interests  offered  by  the  Partnership  in a  Dilution  Offering;
however,  the General  Partner has the right to make  capital  contributions  or
purchase additional limited partnership interests offered in a Dilution Offering
in order to avoid dilution. Unless otherwise agreed by the General Partner and a
Majority in Interest of the Limited Partners, any additional limited partnership
interests  offered in a Dilution Offering will be sold for a price no lower than
the highest price for which proportionate  limited partnership  interests in the
Partnership have been previously sold by the Partnership.

Fundamental Changes

                  Under  the terms of the  Partnership  Agreement,  the  General
Partner  with the prior  approval  of a  Majority  in  Interest  of the  Limited
Partners  may cause the  Partnership  to engage in certain  transactions  in the
future,   any  of  which   transactions  could  result  in  the  termination  or
reorganization of the Partnership and a partial or total dilution of all Limited
Partners' interests in the Partnership. The General Partner could propose a plan
providing for merger or  consolidation  of the Partnership  with another entity;
the sale of all or  substantially  all of the  Partnership's  assets to  another
entity;  or  any  other  reorganization,  reclassification  or  exchange  of the
Partnership Interests,  including without limitation the exchange of Partnership
Interests  for  equity  interests  in  another  entity  or  for  cash  or  other
consideration.  If such a plan were adopted,  the Limited Partners are obligated
by the terms of the Partnership Agreement to take or refrain from taking, as the
case  may  be,  such  actions  as  the  plan  may  provide,  including,  without
limitation,  executing such  instruments,  and providing such information as the
General  Partner  may  reasonably  request.  Any such plan may also result in an
amendment to the  Partnership  Agreement  or the  adoption of a new  partnership
agreement in connection with the merger of the  Partnership  with another entity
as provided in Section 15678.2(e) of the Act. The plan may also provide that the
General  Partner and its affiliates  will receive fees for services  rendered in
connection  with  the  operation  of the  Partnership  or any  successor  entity
following  the  consummation  of the  transactions  described  in the plan,  and
neither the Partnership  nor the Limited  Partners will have any right by virtue
of the Partnership Agreement in the fees to be derived therefrom. Any securities
or other  consideration  to be distributed to the Partners  pursuant to any such
plan shall be distributed in the manner set forth in the  Partnership  Agreement
as though the Partnership  were being  liquidated.  Although the General Partner
will endeavor to keep the Limited Partners apprised of all relevant  information
regarding  the above  transactions,  the  General  Partner is not  obligated  to
provide such  information  in any  particular  manner  concerning  the risks and
effect of the proposed transaction;  the fairness of the proposed transaction to
the  Partnership  and the Limited  Partners;  comparative  distributions  to the
General  Partner  under  the  Partnership  operations  and  under  the  proposed
reorganization;   the  method  of  valuing  the   Partnership  in  the  proposed
transaction and the method of allocating value among various participants in the
proposed  transaction;  the  background,  reasons  for and  alternatives  to the
transaction;  and  conflicts of interest of the General  Partner in the proposed
reorganization.

                  In  December  1993,   Congress  passed  legislation   amending
portions of the  Securities  Exchange Act of 1934 to afford new  protections  to
limited  partnership  investors  in the context of certain  limited  partnership
mergers and  reorganizations  commonly  known as partnership  rollups.  The law,
known as the "Limited Partnership Rollup Reform Act of 1993" (the "Reform Act"),
became   effective  on  December  17,  1994,   and  applies  to  certain  rollup
transactions  proposed after such date. The Reform Act and the Rules promulgated
thereunder are applicable only to certain types of partnership rollups and, when
applicable, provide limited partners with the following protections:

     (i) allows and facilitates  communication  between limited  partners during
their consideration of a proposed rollup;

     (ii)  allows the  limited  partners  to obtain a list of the other  limited
partners involved in the rollup;

                  (iii)   disallows   the  practice  of   compensating   persons
         soliciting  the limited  partners'  approval of the rollup based on the
         number of approvals received;

                  (iv) requires  greater  disclosure to the limited  partners of
         the  terms  of the  rollup  and its  effects  on the  limited  partners
         including  (a) the  reason  for the  rollup  and  consideration  of the
         alternatives;  (b) the method of allocating  interests in the successor
         entity to the limited  partners  and why such  method was  chosen;  (c)
         comparative  information  including  changes in limited  partner voting
         rights, changes in distributions to the limited partners and changes in
         compensation to the general  partner;  (d) conflicts of interest of the
         general partner;  (e) changes in the  partnership's  business plan; (f)
         the valuation of the limited partnership interests; (g) any significant
         difference between the exchange values of the limited  partnerships and
         the  trading  price  of the  securities  to be  issued  in  the  rollup
         transaction;   (h)  the  risks  and  effects  of  the  proposed  rollup
         transaction;  (i) a statement by the general partner of the fairness of
         the rollup and the general  partner's basis for such opinion;  (j) full
         disclosure of any opinion (other than opinions of counsel) or appraisal
         received by the general partner related to the proposed transaction, or
         if no such opinion or appraisal was sought by the general  partner,  an
         explanation  of why no such opinion or appraisal is necessary to permit
         the  limited  partners  to  make an  informed  decision  regarding  the
         proposed  transaction;  (k)  the  rights  of the  limited  partners  to
         exercise  dissenters' or appraisal  rights or similar  rights;  (l) the
         method for allocating rollup  consideration to the limited partners and
         an explanation why such method was chosen;  and (m) tax consequences of
         the rollup; and

                  (v) requires a minimum 60 day offering period during which the
         limited  partners may  consider  the  proposed  rollup (or such shorter
         period as required by state law).

                  Further,  the Reform Act also  provides  that related Rules of
Fair  Practice  will be amended to prohibit  exchanges  and national  securities
associations  from listing  securities issued in connection with a rollup unless
the limited partners are afforded the following protections:

                  (i) dissenting  limited partners must have the right to one of
         the  following:  (a) to receive an appraisal and  compensation;  (b) to
         retain a security  under  substantially  similar  terms as the original
         issue;  (c) to  approve of the rollup by a vote of not less than 75% of
         the outstanding securities of each participating  partnership,  or; (d)
         to  use  an  independent  committee  to  negotiate  the  terms  of  the
         transaction.

(ii) not to have their voting power unfairly reduced or abridged.

(iii) not to bear an unfair proportion of the costs of the rollup transaction.

                  The  Reform  Act  applies  only to  certain  types  of  rollup
transactions,  and  there  is no  certainty  that  any  plan  considered  by the
Partnership  at any time would be subject to the Reform Act. Thus Investors must
assume in making an investment in the Units that their Partnership Interest will
be subject to the provisions of the Partnership Agreement permitting fundamental
changes  which  could  result  in  the  termination  or  reorganization  of  the
Partnership and a partial or total dilution of all Limited  Partners'  interests
in the Partnership.

Profits, Losses and Distributions

                  The  following  is a  summary  of  certain  provisions  of the
Partnership  Agreement  relating  to  the  allocation  and  distribution  of the
Profits,  Losses,  Partnership  Cash  Flow,  Partnership  Refinancing  Proceeds,
Partnership  Sales  Proceeds,  and cash  upon  dissolution  of the  Partnership.
Investors should note that the Percentage Interests referenced in the discussion
below could change as a consequence of a future  Dilution  Offering.  Because an
understanding  of the defined  financial  terms is essential to an evaluation of
the information  presented  below,  Investors are urged to review  carefully the
definitions of the terms appearing in the Glossary.

                  1.       Allocations.

                  Losses.  After giving  effect to the special  allocations  set
forth below, the  Partnership's  Losses, if any, for each Year generally will be
allocated  to the  Partners  in  accordance  with  their  respective  Percentage
Interests.

                  Profits.  After giving effect to the special  allocations  set
forth below, the Partnership's  Profits for any Year generally will be allocated
to the Partners in accordance with their respective Percentage Interests.

                  All items of income, gain, loss, deduction,  or credit will be
allocated  among the  Partners  proportionately.  Further,  notwithstanding  the
foregoing,  after  giving  effect to certain  special  allocations,  the General
Partner  must be  allocated  at least 1% of all  items of  income,  gain,  loss,
deduction or credit.

     2. Special Allocations.  The following special allocations shall be made in
the following order:

                  (i)  Partnership  Minimum Gain  Chargeback.  If there is a net
decrease in  Partnership  Minimum Gain during any Year,  each  Partner  shall be
specially  allocated items of Partnership income and gain for such Year (and, if
necessary,  subsequent  Years) in an amount equal to such Partner's share of the
net decrease in Partnership Minimum Gain, determined in accordance with Treasury
Regulations  Section  1.704-2(g)(2).  Allocations  made pursuant to the previous
sentence  will be made in proportion to the  respective  amounts  required to be
allocated to each  Partner  pursuant to that  section of the  Regulations.  This
provision relating to Partnership Minimum Gain Chargebacks is intended to comply
with Treasury Regulations Section 1.704-2(f) and will be interpreted and applied
in a manner consistent with that Regulation.

                  (ii)  Partner  Minimum  Gain  Chargeback.  If  there  is a net
decrease in Partner  Minimum Gain  attributable  to a Partner  Nonrecourse  Debt
during  any Year,  each  Partner  who has a share of the  Partner  Minimum  Gain
attributable to such Partner Nonrecourse Debt shall be specially allocated items
of  Partnership  income and gain for such Year (and,  if  necessary,  subsequent
Years) in an amount equal to such Partner's share of the net decrease in Partner
Minimum  Gain  attributable  to such  Partner  Nonrecourse  Debt,  to the extent
required  and  determined  in  accordance  with  Treasury   Regulations  Section
1.704-2(i)(4).  Allocations  pursuant to the previous  sentence  will be made in
proportion to the  respective  amounts  required to be allocated to each Partner
pursuant to that section of the Regulations.  This provision relating to Partner
Minimum  Gain  Chargebacks  is  intended  to  comply  with  Regulation   Section
1.704-2(i)(4)  and will be interpreted  and applied in a manner  consistent with
that Regulation.

                  (iii)  Qualified  Income  Offset.  If a  Partner  unexpectedly
receives any  adjustments,  allocations or  distributions  described in Treasury
Regulations  Sections   1.704-1(b)(2)(ii)(d)(4)  through  (6)  which  causes  or
increases a deficit  balance in such  Partner's  Capital  Account  (as  adjusted
pursuant  to  Treasury  Regulations  Section  1.704-1(b)(2)(ii)(d)),   items  of
Partnership income and gain will be specially  allocated to each such Partner in
an amount and manner  sufficient  to  eliminate,  to the extent  required by the
Regulations, the deficit Capital Account of such Partner as quickly as possible,
provided that an allocation pursuant to this provision shall be made only if and
to the extent that such Partner would have a deficit  Capital  Account after all
other  allocations  have been  tentatively made as if this provision were not in
the Partnership Agreement.  This provision is intended to be a "qualified income
offset," as defined in Regulation Section 1.704-1(b)(2)(ii)(d).

     (iv) Sales Commission. The Sales Commission shall be allocated to the Units
which are acquired in this  Offering in  proportion  to the  respective  capital
contributions represented by such Units (i.e., $75 in Sales Commissions per each
such Unit).

                  3. Allocations Between Transferor and Transferee. In the event
of the transfer of all or any part of a Partner's  interest (in accordance  with
the  provisions of the  Partnership  Agreement) in the  Partnership  at any time
other  than  at the  end  of a  year,  or the  admission  of a new  Partner  (in
accordance with the provisions of the Partnership  Agreement),  the transferring
or new Partner's share of the Partnership's  income, gain, loss,  deductions and
credits,  as computed both for  accounting  purposes and for federal  income tax
purposes,  will be allocated  between the transferor  Partner and the transferee
Partner (or Partners),  or the new Partner and the other  Partners,  as the case
may be, in the same  ratio as the  number of days in such year  before and after
the date of the transfer or admission; provided, however, that if there has been
a sale or  other  disposition  of the  assets  of the  Partnership  (or any part
thereof)  during such year,  then upon the mutual  agreement of all the Partners
(excluding the new Partner and the transferring Partner), the Partnership may in
its sole discretion  treat the periods before and after the date of the transfer
or admission as separate years and allocate the Partnership's net income,  gain,
net  loss,  deductions  and  credits  for each of such  deemed  separate  years.
Notwithstanding the foregoing,  the Partnership's  "allocable cash basis items,"
as that term is used in Section  706(d)(2)(B) of the Code, shall be allocated as
required by Section  706(d)(2) of the Code and the Regulations  thereunder.  See
"Risk Factors - Tax Risks - Partnership Allocations."

                  4.  Incoming  Partner  Allocations.  The  Code  prohibits  the
retroactive  allocation of a full share of partnership items to persons who were
partners  for less than the entire  year.  As provided  above,  the  Partnership
Agreement provides that items of income, gain, loss, deductions and credits will
be allocated between a transferor  Partner and a transferee  Partner in the same
ratio  as the  number  of days in the  year  before  and  after  the date of the
transfer or admission,  unless the Partnership has sold any of its assets in the
year of the transfer or admission. If the Partnership has sold any of its assets
in the year of the transfer or admission, then the General Partner may elect, in
its sole  discretion,  to use the interim closing of the books method  described
above. See "Risk Factors - Tax Risks - Partnership Allocations."

     5.  Other  Allocations.   The  Partnership  Agreement  provides  for  other
allocations.  Investors  are  encouraged  carefully  to review  the  Partnership
Agreement attached as Appendix A.

                  6.       Distributions.

                  The Limited  Partnership  Agreement  authorizes  the following
Distributions to be made to the Partners:

                  Distribution of Partnership  Cash Flow.  Partnership Cash Flow
will be distributed to the Partners within 60 days after the end of each Year of
the  Partnership,  or  earlier  in the  discretion  of the  General  Partner  in
accordance with their respective Percentage Interests.

                  Distribution  of Partnership  Sales  Proceeds and  Partnership
Refinancing  Proceeds.  Partnership  Sales Proceeds and Partnership  Refinancing
Proceeds  will be  distributed  to the  Partners  within 60 days of the  Capital
Transaction giving rise to such proceeds.

                  Distribution  Upon  Dissolution.   Upon  the  dissolution  and
termination  of the  Partnership,  the General  Partner,  or if there is none, a
representative  of the  Limited  Partners,  will cause the  cancellation  of the
Partnership's  Certificate of Limited  Partnership,  liquidate the assets of the
Partnership,  and apply and distribute  the proceeds of such  liquidation in the
following order of priority:

(i)  First,  to  the  payment  of  debts  and  liabilities  of  the  Partnership
     (including  amounts owed to the General Partner and its Affiliates) and the
     expenses of liquidation;

(ii)                       Second,  to the  creation  of any  reserves  that the
                           General Partner or the representatives of the Limited
                           Partners  may  deem  reasonably   necessary  for  the
                           payment of any  contingent or unforeseen  liabilities
                           or obligations  of the  Partnership or of the General
                           Partner  arising  out of or in  connection  with  the
                           business and operation of the Partnership; and

(iii)Third,  the  balance,  if  any,  will be  distributed  to the  Partners  in
     accordance with the Partners'  positive Capital Account balances after such
     Capital Accounts are adjusted as provided in the Partnership Agreement, and
     any other  adjustments  required  by the final  Regulations  under  Section
     704(b) of the Code.  Any general  partner with a negative  Capital  Account
     following  distribution of the  liquidation  proceeds or the liquidation of
     its interest in the  Partnership  must  contribute  to the  Partnership  an
     amount equal to such negative capital account on or before the later of the
     end of the  Partnership's  taxable year or within 90 days after the date of
     liquidation.  Any capital so contributed  will be (i)  distributed to those
     Partners with positive  capital  accounts  until such capital  accounts are
     reduced to zero, and/or (ii) used to discharge recourse liabilities.  It is
     intended  that Capital  Accounts will allow for  liquidation  distributions
     consistent  with  the  manner  in  which  Partnership  Sales  Proceeds  and
     Partnership Refinancing Proceeds are distributed;  however, there can be no
     assurance that such will be the case.

                  Tax  Withholding.  The  Partnership  is  authorized to pay, on
behalf  of any  Partner,  any  amounts  to any  federal,  state or local  taxing
authority,  as  may  be  necessary  for  the  Partnership  to  comply  with  tax
withholding  provisions  of the Code or the income  tax or  revenue  laws of any
taxing  authority.  To the extent the Partnership  pays any such amounts that it
may be required to pay on behalf of a Partner, such amounts will be treated as a
cash  Distribution  to  such  Partner  and  will  reduce  the  amount  otherwise
distributable to him.

Management of the Partnership

                  The General  Partner has the sole right to manage the business
of the Partnership and at all times is required to exercise its responsibilities
in a fiduciary capacity. The consent of the Limited Partners is not required for
any  sale or  refinancing  of the  Lithotripsy  System  or the  purchase  of new
equipment by the Partnership. The Partnership has contracted with the Management
Agent to manage and  administer  the  day-to-day  operations of the  Lithotripsy
System. See "Business Activities - Management."

                  Under the  Partnership  Agreement,  if the General  Partner is
adjudged  by a court of  competent  jurisdiction  to be  liable  to the  Limited
Partners  or the  Partnership  for  acts or  omissions  of gross  negligence  or
constituting willful misconduct,  the General Partner may be removed and another
substituted with the consent of all of the Limited Partners.

Powers of the General Partner

                  1.       General.

                  The General  Partner may, in its absolute  discretion,  borrow
money,  acquire,  encumber,  hold title to, pledge,  sell,  release or otherwise
dispose  of,  all or any part of the  Partnership's  assets,  when and upon such
terms as it determines to be in the best interest of the  Partnership and employ
such persons as it deems  necessary  for the operation of the  Partnership.  The
General Partner,  however, is expressly prohibited from, among other things: (i)
possessing  Partnership  assets or assigning  the rights of the  Partnership  in
Partnership  assets  or  the  Lithotripsy  System  for  other  than  Partnership
purposes;  (ii) admitting Limited Partners except as provided in the Partnership
Agreement;  and (iii)  performing  any act (other  than an act  required  by the
Partnership  Agreement or any act taken in good faith  reliance  upon  Counsel's
opinion) which would, at the time such act occurred, subject any Limited Partner
to liability as a general partner in any jurisdiction.

                  2.       Tax Matters.

                  (i)  Elections.   The  General   Partner  will,  in  its  sole
discretion,  make for the Partnership  any and all elections for federal,  state
and local tax purposes including, without limitation, any election, if permitted
by applicable law, to adjust the basis of the Partnership's property pursuant to
Code Sections 754, 734(b) and 743(b), or comparable provisions of state or local
law,  in  connection   with  transfers  of  interests  in  the  Partnership  and
Partnership Distributions.

                  (ii) Tax Matters Partner. The Partnership Agreement designates
the General  Partner as the Tax Matters  Partner (as defined in Section  6231 of
the Code) and authorizes it to act in any similar  capacity under state or local
law.  As the Tax Matters  Partner,  the General  Partner is  authorized  (at the
Partnership's  expense):  (i) to represent the  Partnership  and Partners before
taxing authorities or courts of competent  jurisdiction in tax matters affecting
the  Partnership or Partners in their  capacity as Partners;  (ii) to extend the
statute of limitations for assessment of tax deficiencies  against Partners with
respect to adjustments to the Partnership's federal, state or local tax returns;
(iii) to execute any agreements or other documents relating to or affecting such
tax matters, including agreements or other documents that bind the Partners with
respect to such tax matters or  otherwise  affect the rights of the  Partnership
and Partners; and (iv) to expend Partnership funds for professional services and
costs associated therewith.  In its capacity as Tax Matters Partner, the General
Partner shall oversee the  Partnership  tax affairs in the manner which,  in its
best  judgment,  are in the  interests of the  Partners.  Moreover,  the General
Partner will, in its sole discretion,  not make an election pursuant to Treasury
Regulation 301.7701.3 to be treated as an association taxable as a corporation.

Rights and Liabilities of the Limited Partners

                  The Limited  Partners do not have any right to  participate in
the management or control of the business of the  Partnership.  Limited Partners
are not required to make any capital  contributions  to the  Partnership  except
amounts  agreed by them to be paid,  or pay or be  personally  liable  for,  any
expense, liability or obligation of the Partnership, except (i) to the extent of
their respective interests in the Partnership, (ii) for the obligation to return
certain  Distributions  made to them as  provided  by the Act,  and (iii) to the
extent of their liabilities pursuant to their respective  Guaranties.  See "Risk
Factors - Other  Investment  Risks -  Limited  Partners'  Obligations  to Return
Certain Distributions" and "Operating Risks - Liability Under the Guaranty."

  Restrictions on Transfer of Partnership Interests

                  No  Partnership  Interest  nor any  Units  may be  transferred
without the prior written consent of the General Partner,  which approval may be
granted or denied in the sole discretion of the General Partner,  and subject to
the  satisfaction  of  certain  other  conditions  set forth in the  Partnership
Agreement.   The  Partnership  Agreement  contains  additional   limitations  on
transfer,  including provisions  prohibiting transfer that would violate federal
or state securities laws. No transferee of the Units will automatically become a
Limited  Partner.  Admission of a transferee  requires the  fulfillment of other
obligations  enumerated  in the  Partnership  Agreement,  including  either  the
approval of a Majority in Interest of the Limited  Partners (except the assignor
Limited  Partner)  and the General  Partner,  or the  approval  of the  assignor
Limited  Partner  and the  General  Partner.  Any  transferee  of a  Partnership
Interest who has not been admitted to the  Partnership as a Partner shall not be
entitled to any of the rights, powers or privileges of his transferor except the
right to receive  and be  credited or debited  with his  proportionate  share of
Partnership   income,   gains,   profits,   losses,   deductions,   credits   or
distributions.  A  transferor  Limited  Partner  will not be  released  from his
personal  liability  under the  Guaranty  upon the  transfer of his  Partnership
Interest,  unless otherwise  specifically  agreed by the Bank at the time of the
transfer.  In addition,  a transferor  Limited Partner will not be released from
his to her personal  liability under the Limited Partner Loan,  unless otherwise
specifically agreed by the Bank, and the sale of his or her Partnership Interest
may constitute an event of default under any outstanding Limited Partner Loan.

                  The  General  Partner  may  transfer  all or a portion  of its
Partnership  Interest  only with the  consent of a Majority  in  Interest of the
Limited  Partners before the transferee can be admitted as a Substitute  General
Partner.  Notwithstanding  the foregoing,  the  Partnership  Agreement gives the
General  Partner the  authority to transfer  all or part of its General  Partner
interest to any  transferee  controlled  by it or one or more of its  Affiliates
without  obtaining the Limited  Partners'  consent.  Any such  transferee  would
automatically  be a Substitute  General  Partner.  Both the admission of any new
shareholder and the withdrawal of any  shareholder  from the General Partner may
be done without the approval of the Limited Partners.

Dissolution and Liquidation

                  The  Partnership  will  dissolve and  terminate for any of the
following reasons:

                  1. The sale,  exchange or disposition of all or  substantially
all  of the  property  of the  Partnership  without  making  provision  for  the
replacement thereof (except to the extent otherwise provided in a reorganization
plan  approved by the General  Partner and a Majority in Interest of the Limited
Partners as described above);

                  2.       The expiration of its term on December 31, 2049;

     3. The bankruptcy or occurrence of certain other events with respect to the
General Partner;

     4. The determination of the General Partner that the Partnership  should be
dissolved; or

     5. The election to dissolve the Partnership  made by the General Partner in
the event of  certain  legislation,  case law or  regulatory  changes  adversely
affecting the operation of the Partnership.

     6. The election to dissolve the Partnership made by all of the Partners.

                  The retirement,  resignation,  bankruptcy,  assignment for the
benefit of creditors,  dissolution,  death,  disability or legal incapacity of a
general partner will not, however, result in a termination of the Partnership if
the remaining general partner or general partners, if any, elect to continue the
business of the Partnership, or if no general partner remains, if within 90 days
of the  occurrence of one of such events,  a Majority in Interest of the Limited
Partners  elect in  writing to  continue  the  Partnership  and,  if  necessary,
designate a new general partner.

                  Upon dissolution,  the General Partner or, if there is none, a
representative of the Limited Partners,  will liquidate the Partnership's assets
and distribute the proceeds  thereof in accordance with the priorities set forth
in  the  Partnership  Agreement.  See  "Profits,   Losses  and  Distributions  -
Distributions - Distribution upon Dissolution"  above and "Optional  Purchase of
Limited Partner Interests" below.

Optional Purchase of Limited Partner Interests

                  As provided in the Partnership  Agreement,  certain Affiliates
of the existing Limited Partners have the first option,  and the General Partner
has the  second  option  (which  it may  assign to the  Partnership  in its sole
discretion),  to purchase  all the  interest of a Limited  Partner who (i) dies,
(ii) becomes the subject of a domestic proceeding, (iii) becomes insolvent, (iv)
acquires a direct or indirect  ownership  of an interest in a competing  venture
(including  the lease or sublease of competing  technology),  or (v) defaults on
his obligations under the Guaranty. Except in the case of the death of a Limited
Partner,  the option purchase price is an amount equal to the lesser of the fair
market  value  of the  Partnership  Interest  to be  purchased  or  the  Limited
Partner's  share of the  Partnership's  book value,  if any, as reflected by the
Limited  Partner's  capital  account  in the  Partnership  (unadjusted  for  any
appreciation  in Partnership  assets and as reduced by  depreciation  deductions
claimed by the  Partnership  for tax  purposes).  The option  purchase  price is
likely to be considerably less than the fair market value of a Limited Partner's
interest  in  the  Partnership.  Because  losses,  depreciation  deductions  and
Distributions reduce capital accounts, and because appreciation in assets is not
reflected in capital accounts, it is the opinion of the General Partner that the
option  purchase  price may be  nominal  in amount.  In  addition,  in the event
existing or newly enacted laws or  regulations  or any other legal  developments
adversely  affect  (or  potentially  adversely  affect)  the  operation  of  the
Partnership  or the  business of the  Partnership  (e.g.,  any  prohibitions  on
provider ownership),  the General Partner, in its sole discretion,  is obligated
to either (i) purchase the Partnership  Interests of all of the Limited Partners
for an amount  equal to the  lesser of fair  market  value or book value or (ii)
dissolve the Partnership.  In the event of the death of a Limited  Partner,  the
option purchase price for that Partner's Partnership Interest is an amount equal
to the greater of (i) one and one-half  times the aggregate  distributions  made
with respect to the Partnership  Interest during the twelve-month  period ending
the last day of the  month  immediately  preceding  the month in which the death
occurs or (ii) the Limited Partner's share of the  Partnership's  book value, if
any  (prorated in the event that only a portion of his  Partnership  Interest is
being purchased) as reflected by the Capital Account of the Limited Partner.  If
the General  Partner  exercises the purchase  option,  the General  Partner will
assume any  liabilities  under any  personal  Guaranty  still  outstanding  with
respect to the withdrawing Limited Partner. The withdrawing Limited Partner will
not be released from his obligations  under the Guaranty unless so agreed by the
Bank.  See the  Partnership  Agreement  attached  hereto as Appendix A and "Risk
Factors - Operating Risks - Liability Under the Guaranty."

Noncompetition Agreement and Protection of Confidential Information

                  The Partnership  Agreement  provides that each Limited Partner
is  prohibited  from having a direct or indirect  ownership  of an interest in a
competing  venture  (including  the lease or sublease of  competing  technology)
other than an interest held by a Limited  Partner in the General  Partner or one
of its Affiliates (such non-excluded interests, the "Outside Activities"). While
they are Limited Partners in the Partnership,  each Limited Partner is precluded
from engaging in any Outside  Activities,  provided that the General  Partner is
authorized,  in its sole  discretion,  to waive this restriction with respect to
any  ownership  interest of a Limited  Partner in an Outside  Activity  acquired
before  the date the  person  becomes a  Limited  Partner.  In the event  that a
Limited Partner's  interest in the Partnership is terminated or transferred upon
the occurrence of certain events as provided in the Partnership Agreement, he or
she is  precluded,  for a  period  of two (2)  years  following  the date of his
withdrawal,  from  engaging  in any Outside  Activity  within any market area in
which the Partnership is providing  services or has provided services within the
twelve months  preceding the withdrawal.  This prohibition is in addition to the
right of the  General  Partner  to acquire  the  interest  of a Limited  Partner
engaged in an Outside  Activity as provided in the  Partnership  Agreement.  See
"Optional  Purchase  of Limited  Partner  Interests"  in this  Section,  and the
Partnership Agreement attached hereto as Appendix A.

                  In addition,  the  Partnership  Agreement  provides  that each
Limited  Partner   acknowledges  and  agrees  that  his   participation  in  the
Partnership necessarily involves his access to confidential  information that is
proprietary in nature and, therefore, the exclusive property of the Partnership.
Accordingly,  the  Limited  Partners  (other  than the  General  Partner and its
Affiliates who hold Limited  Partner  interests)  are precluded from  disclosing
such confidential  information during their participation as Limited Partners in
the  Partnership or thereafter  unless required by law or with the prior written
consent of the Partnership.

Arbitration

                  The  Partnership  Agreement  provides  that  disputes  arising
thereunder shall be resolved by submission to arbitration in accordance with the
provisions of California law.

<PAGE>

Power of Attorney

                  Each  Investor,  by  executing  the  Subscription   Agreement,
irrevocably  appoints  Cheryl  Williams and Stan Johnson,  severally,  to act as
attorneys-in-fact to execute the Partnership  Agreement,  any amendments thereto
and any certificate of limited  partnership  filed by the General  Partner.  The
Partnership  Agreement,  in turn,  contains  provisions  by which  each  Limited
Partner irrevocably appoints Cheryl Williams and Stan Johnson, severally, to act
as his  attorneys-in-fact  to make,  execute,  swear  to and  file any  document
necessary  to the  conduct  of the  Partnership's  business,  such as  deeds  of
conveyance  of real  or  personal  property  as  well  as any  amendment  to the
Partnership  Agreement  or to  any  certificate  of  limited  partnership  which
accurately reflects actions properly taken by the Partners.

Reports to Limited Partners

                  Within 90 days after the end of each Year of the  Partnership,
the General  Partner  will send to each person who was a Limited  Partner at any
time  during  such year such tax  information,  including,  without  limitation,
Federal Tax Schedule K-1, as will be reasonably necessary for the preparation by
such  person  of his  federal  income  tax  return,  and  such  other  financial
information as may be required by the Act.

Records

                  Proper and complete  records and books of account will be kept
by the General  Partner or the  Management  Agent in which will be entered fully
and accurately all transactions and other matters relative to the  Partnership's
business as are usually entered into records,  books and accounts  maintained by
persons engaged in businesses of a like  character.  Pursuant to applicable law,
the  Partnership  books and records will be kept on the accrual  method basis of
accounting.  The Partnership's  fiscal year will be the calendar year. The books
and records will be located at the Partnership's office, and will be open to the
reasonable  inspection  and  examination  of the Limited  Partners or their duly
authorized representatives during normal business hours as provided by the Act.

                                  LEGAL MATTERS

                  On the  Closing  Date,  it is  expected  that  Womble  Carlyle
Sandridge & Rice, a Professional  Limited Liability  Company,  of Winston-Salem,
North Carolina,  will render an opinion as to the formation and existence of the
Partnership, the status of Investors as limited partners and certain federal tax
matters,  the form of which is attached as  Appendix C to this  Memorandum.  See
"Risk Factors - Tax Risks."

                             ADDITIONAL INFORMATION

  The Partnership will make available to you the opportunity to ask questions of
its  management  and to  obtain  information  to the  extent it  possesses  such
information or can acquire it without an unreasonable  effort or expense,  which
is necessary to verify the accuracy of the information contained herein or which
you or your  professional  advisors desire in evaluating the merits and risks of
an  investment  in the  Partnership.  Copies of certain  Hospital  Contracts and
insurance  reimbursement  agreements  may  not,  however,  be  available  due to
confidentiality restrictions contained therein.

                                    GLOSSARY

                  Certain  terms in this  Memorandum  shall  have the  following
meanings:

     Act. The Act means the California  Revised Limited  Partnership  Act, as in
effect on the date hereof.

                  Affiliate.  An  Affiliate  is  (i)  any  person,  partnership,
corporation, association or other legal entity ("person") directly or indirectly
controlling, controlled by or under common control with another person, (ii) any
person owning or controlling 10% or more of the outstanding  voting interests of
such other  person,  (iii) any  officer,  director or partner of such person and
(iv) if such other  person is an officer,  director  or partner,  any entity for
which such person acts in such capacity.

                  Bank.  First-Citizens Bank & Trust Company.
                  ----

     Capital Account.  The Partnership  capital account of a Partner as computed
pursuant to the Partnership Agreement.

                  Capital  Contributions.  All capital  contributions  made by a
Partner or his predecessor in interest which shall include,  without limitation,
contributions made pursuant Article VII of the Partnership Agreement.

     Capital  Transaction.  Any transaction which, were it to generate proceeds,
would produce Partnership Sales Proceeds or Partnership Refinancing Proceeds.

     Closing Date.  5:00 p.m.,  Eastern Time, on June 1, 2000 (or earlier in the
discretion  of the  General  Partner).  The Closing  Date may be extended  for a
period of up to 180 days in the discretion of the General Partner.

     Code.  The Internal  Revenue Code of 1986, or  corresponding  provisions of
subsequent, superseding revenue laws.

     Contract  Hospitals.  The 10  hospitals  and  medical  centers to which the
Partnership  provides  lithotripsy  services  pursuant  to 7  separate  Hospital
Contracts.

     Counsel.  Womble Carlyle Sandridge & Rice, a Professional Limited Liability
Company, P.O. Drawer 84, Winston-Salem, North Carolina 27102.

                  Dilution  Offering.  Pursuant to the terms of the  Partnership
Agreement,  the future offering of additional limited  partnership  interests in
the  Partnership  by the  General  Partner.  Any such  offering  generally  will
proportionally  reduce the  existing  Percentage  Interests  of the then current
Partners in the  Partnership;  provided,  however,  that the General Partner may
avoid dilution by either making a proportional  additional capital  contribution
or buying units in a Dilution Offering.

     Distributions.  Cash or other  property,  from any source,  distributed  to
Partners.

                  Escrow Agent.  First-Citizens Bank & Trust Company.
                  ------------

                  FDA.  The United States Food and Drug Administration.
                  ---

                  Financial   Statement.   The  Purchaser  Financial  Statement,
included  in  the  Subscription  Packet  accompanying  this  Memorandum,  to  be
furnished  by the  Investors  for review by the General  Partner and the Bank in
connection with their decision to accept or reject a subscription.

     General  Partner.  The general  partner of the  Partnership,  Mobile Kidney
Stone Centers of California,  Ltd. I, a California  limited  partnership  and an
Affiliate of Prime.

                  Guaranty.  The Guaranty  Agreement in the form included in the
Subscription  Packet  accompanying  this  Memorandum  pursuant to which each new
Limited  Partner  will  guarantee  his pro  rata  portion  of the  Partnership's
obligations to the Bank under the Loan.

     Hospital  Contracts.  The 7 separate  lithotripsy  services  agreements the
Partnership has entered into with the Contract Hospitals.

                  Investors.  Potential purchasers of Units.
                  ---------

     Limited Partner Loan. The loan to be made by the Bank to certain  qualified
Investors that wish to finance a portion of the Unit purchase price.

                  Limited  Partner Note.  The  promissory  note from an Investor
financing  a portion  of the Unit  purchase  price to the Bank in the  principal
amount of up to $1,733 per Unit,  the proceeds of which will be paid directly to
the  Partnership.  The form of the  Limited  Partner  Note  (including  the Note
Addendum  attached  thereto)  is  attached  as  Exhibit  A to the  Form  of Loan
Commitment which is attached hereto as Appendix B.

                  Limited  Partners.  The  current  Limited  Partners  and those
Investors in the Units admitted to the Partnership pursuant to this Offering and
any person  admitted as a  substitute  Limited  Partner in  accordance  with the
provisions of the Partnership Agreement.

     Lithotripsy   System.   The  van  with  the   installed   and   operational
Modulith(R)SLX-T  owned and operated by the Partnership and any other additional
or replacement lithotripter and transport vehicle

                  Loan.  The loan of $487,125 from the Bank to the  Partnership.
Loan proceeds were used by the  Partnership  to (i) acquire a new  lithotripter,
(ii)  acquire  and upfit a new  mobile  van and  (iii)  pay  sales  taxes on the
purchases  of  the  lithotripter  and  the  van.  The  Loan  is  secured  by the
Lithotripsy System, the Partnership's  accounts receivable and other Partnership
assets, the guaranty of the General Partner, and the Limited Partner Guaranties.

                  Loan and Security  Agreement.  The agreement to be executed in
conjunction  with the Limited Partner Note by an Investor who finances a portion
of the Unit purchase price through a Limited  Partner Loan. The form of the Loan
and Security  Agreement is attached as Exhibit B to the Loan Commitment which is
attached hereto as Appendix B.

     Loan Documents. The Loan Commitment, the Limited Partner Note, the Loan and
Security Agreement, the Security Agreement and UCC-1's, collectively.

                  Loss. The net loss (including capital losses and excluding Net
Gains from Capital  Transactions) of the Partnership for each year as determined
by the Partnership for federal income tax purposes.

     Management Agent. Sun Medical Technologies, Inc., a California corporation,
and a wholly-owned  subsidiary of Prime.  The Management  Agent is also the sole
general partner of the General Partner.

     Memorandum.  This Confidential Private Placement Memorandum,  including all
Appendices hereto, and any amendment or supplement hereto.

                  Modulith(R)  SLX-T. The  Partnership's  Storz  Modulith(R) SLX
Transportable    ("SLX-T")   model   extracorporeal    shock-wave   lithotripter
manufactured  by Storz which the  Partnership  acquired with the proceeds of the
Loan.

                  Net Gains from Capital Transactions. The gains realized by the
Partnership  as a result of or upon any sale,  exchange,  condemnation  or other
disposition of the capital assets of the Partnership (which assets shall include
Code Section 1231 assets) or as a result of or upon the damage or destruction of
such capital assets.

                  Nonrecourse  Deductions.  A deduction as set forth in Treasury
Regulations Section  1.704-2(b)(1).  The amount of Nonrecourse  Deductions for a
given Year equals the excess, if any, of the net increase, if any, in the amount
of  Partnership  Minimum Gain during such Year over the aggregate  amount of any
Distributions  during such Year of proceeds of a Nonrecourse  Liability that are
allocable to an increase in Partnership  Minimum Gain,  determined  according to
the provisions of Treasury Regulations Section 1.704-2(h).

                  Nonrecourse  Liability.  Any partnership liability (or portion
thereof)  for which no Partner  bears the  "economic  risk of loss,"  within the
meaning of Treasury Regulations Section 1.704-2(i).

                  Offering.  The offering of Units pursuant to this Memorandum.
                  --------

                  Partner Minimum Gain. An amount,  with respect to each Partner
Nonrecourse  Debt,  equal to the  Partnership  Minimum Gain that would result if
such  Partner  Nonrecourse  Debt  were  treated  as  a  Nonrecourse   Liability,
determined in accordance with Treasury Regulations Section 1.704-2(i).

                  Partner  Nonrecourse  Debt.  Any  nonrecourse  debt  (for  the
purposes of Treasury  Regulations Section 1.1001-2) of the Partnership for which
any Partner  bears the  "economic  risk of loss," within the meaning of Treasury
Regulations Section 1.752-2.

                  Partner  Nonrecourse  Deductions.  Deductions  as described in
Treasury  Regulations Section  1.704-2(i)(2).  The amount of Partner Nonrecourse
Deductions  with respect to a Partner  Nonrecourse  Debt for any Year equals the
excess,  if any, of the net increase,  if any, in the amount of Partner  Minimum
Gain  attributable  to such Partner  Nonrecourse  Debt during such Year over the
aggregate amount of any Distributions during that Year to the Partner that bears
the economic risk of loss for such Partner  Nonrecourse  Debt to the extent such
Distributions  are from the  proceeds of such Partner  Nonrecourse  Debt and are
allocable to an increase in Partner  Minimum Gain  attributable  to such Partner
Nonrecourse  Debt,  determined in accordance with Treasury  Regulations  Section
1.704-2(i).

     Partners. The General Partner and the Limited Partners,  collectively, when
no distinction is required by the context in which the term is used herein.

     Partnership.  Mobile  Kidney  Stone  Centers  of  California  II,  L.P.,  a
California limited partnership, which owns and operates the Lithotripsy System.

     Partnership Agreement.  The Partnership's Agreement of Limited Partnership,
a copy of which is attached  as Appendix A, as such may be amended  from time to
time.

                  Partnership  Cash Flow. For the applicable  period the excess,
if any,  of (A) the sum of (i) all  gross  receipts  from  any  source  for such
period,  other than the  Partnership  loans,  Capital  Transactions  and Capital
Contributions,  and (ii) any funds released by the  Partnership  from previously
established  reserves,  over  (B) the sum of (i) all cash  expenses  paid by the
Partnership  for such  period,  (ii) the amount of all  payments of principal on
loans to such Partnership,  (iii) capital  expenditures of the Partnership,  and
(iv) such  reasonable  reserves as the General  Partner shall deem  necessary or
prudent to set aside for future repairs,  improvements, or equipment replacement
or additions,  or to meet working capital requirements or foreseen or unforeseen
future liabilities and contingencies of the Partnership; provided, however, that
the  amounts  referred  to in (B) (i),  (ii) and (iii) above shall be taken into
account  only to the extent not funded by Capital  Contributions,  loans or paid
out of previously  established reserves.  Such term shall also include all other
funds deemed  available for  distribution  and designated as  "Partnership  Cash
Flow" by the General Partner.

     Partnership  Interest.  The  interest  of a Partner in the  Partnership  as
defined by the Act and the Partnership Agreement.

     Partnership  Minimum Gain. Gain as defined in Treasury  Regulations Section
1.704-2(d).

                  Partnership  Refinancing Proceeds.  The cash realized from the
refinancing of Partnership assets after retirement of any secured loans and less
(i) payment of all expenses  relating to the transaction and (ii)  establishment
of such  reasonable  reserves as the General  Partner  shall deem  necessary  or
prudent to set aside for future repairs,  improvements, or equipment replacement
or additions,  or to meet working capital requirements or foreseen or unforeseen
future liabilities or contingencies of the Partnership.

                  Partnership  Sales Proceeds.  The cash realized from the sale,
exchange,  casualty  or other  disposition  of all or a portion  of  Partnership
assets after the retirement of all secured loans and less (i) the payment of all
expenses  related to the transaction and (ii)  establishment  of such reasonable
reserves as the General Partner shall deem necessary or prudent to set aside for
future repairs,  improvements, or equipment replacement or additions, or to meet
working  capital  requirements or foreseen or unforeseen  future  liabilities or
contingencies of the Partnership.

                  Percentage  Interest.  The  interest  of each  Partner  in the
Partnership,  to be  determined in the case of each Investor by reference to the
percentage oppositive his or her name set forth in Schedule A to the Partnership
Agreement.  Each Unit sold pursuant to this Offering  represents an initial 0.5%
economic interest in the Partnership.  The Percentage Interest will be set forth
in Schedule A to the  Partnership  Agreement or any other document or agreement,
as a percentage or a fraction or on any numerical  basis deemed  appropriate  by
the General Partner.

     Prime.  Prime Medical Services,  Inc. a publicly held Delaware  corporation
and parent of the Management Agent and Sales Agent.

     Prime Rate. The rate of interest  periodically  established by the Bank and
identified as such in  literature  published  and  circulated  within the Bank's
offices.

                  Pro  Rata  Basis.   In   connection   with  an  allocation  or
distribution,  an allocation  or  distribution  in proportion to the  respective
Percentage Interest of the class of Partners to which reference is made.

     Profit.  The net income of the  Partnership  for each year as determined by
the Partnership for federal income tax purposes.

                  Qualified  Income  Offset Item. An  adjustment,  allocation or
distribution described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5)  or  1.704-1(b)(2)(ii)(d)(6)  unexpectedly received by a
Partner.

     Sales Agent. MedTech Investments, Inc., a registered broker-dealer,  member
of the National Association of Securities Dealers,  Inc. and an Affiliate of the
General Partner.

                  SEC.  The United States Securities and Exchange Commission.
                  ---

                  Securities Act.  The Securities Act of 1933, as amended.
                  --------------

                  Security   Agreement.   The   agreement   to  be  executed  in
conjunction  with the Limited  Partner  Note by an  Investor  who  finances  the
purchase  price  of his  Units as  provided  herein.  The  form of the  Security
Agreement  is  attached  as  Exhibit C to the Form of Loan  Commitment  which is
attached hereto as Appendix B.

                  Service.  The Internal Revenue Service.
                  -------

                  Service  Area.  The  geographic  region  in which  Partnership
operations are conducted and which presently  consists primarily of areas within
a 150 mile  radius of  Sacramento,  California.  The  General  Partner  has sole
discretion  to expand the Service Area  subject to fiduciary  duties owed by the
General Partner to its Limited Partners.

                Storz.  Karl Storz Lithotripsy-America, Inc. and its Affiliates.
                  -----

                  Subscription Agreement.  The Subscription Agreement,  included
in the Subscription Packet  accompanying this Memorandum,  to be executed by the
prospective Limited Partners in connection with their purchase of Units.

     Subscription  Packet. The packet of subscription  materials to be completed
by Investors in connection with their subscription for Units.

                  UCC-1. The Uniform  Commercial Code Financing  Statement,  two
copies of which are attached to the  Subscription  Packet and are to be executed
in  conjunction  with the Limited  Partner  Note by an Investor  who  finances a
portion of the Unit  purchase  price through a Limited  Partner Loan.  The UCC-1
will be used by the Bank to perfect its  security  interest  in such  Investor's
share of Distributions.

                  Units.   The  40  equal  limited  partner   interests  in  the
Partnership  offered  pursuant to this Memorandum for a price per Unit of $4,233
in cash, plus 0.5% in guaranties of the Partnership's obligations under the Loan
(a $2,435.63 principal Loan guaranty per Unit).

                  Year of the Partnership. An annual accounting period ending on
December 31 of each year during the term of the Partnership.