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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-K

              [X] Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 2000

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

                         For the transition period from

                                 _____ to _____

                         Commission File Number: 0-22392

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

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

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

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

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

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-K  contained  in  this  form,  and no  disclosure  will be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K. _____

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

             Aggregate Market Value at March 15, 2001: $101,157,771

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

                                                Number of Shares Outstanding at

        Title of Each Class                              March 15, 2001
        -------------------                              --------------
    Common Stock, $.01 par value                           15,562,734

                       DOCUMENTS INCORPORATED BY REFERENCE

     Selected  portions of the  Registrant's  definitive  proxy material for the
2001 annual meeting of shareholders  are incorporated by reference into Part III
of the Form 10-K.

                                        1

<PAGE>

                          PRIME MEDICAL SERVICES, INC.,

                           ANNUAL REPORT ON FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                     PART I

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

Prime Medical Services, Inc., a Delaware corporation ("Prime" or the "Company"),
is  the  largest  provider  of  lithotripsy   services  in  the  United  States.
Lithotripsy  is a  non-invasive  procedure for the  treatment of kidney  stones,
typically performed on an outpatient basis, that eliminates the need for lengthy
hospital  stays and extensive  recovery  periods  associated  with surgery.  The
Company  has 67  lithotripters  of which 60 are mobile and seven are fixed site.
The Company's  lithotripters  performed  approximately  36,000 procedures in the
United  States in 2000  through a network of  approximately  450  hospitals  and
surgery centers in 34 states.

Lithotripters  fragment  kidney  stones  by use  of  extracorporeal  shock  wave
lithotripsy.  The Company  provides  services  related to the  operation  of the
lithotripters,  including  scheduling,  staffing,  training,  quality assurance,
maintenance,  regulatory  compliance and contracting with payors,  hospitals and
surgery  centers.  Medical  care is rendered  by the  urologists  utilizing  the
lithotripters. Management believes that the Company has collected the industry's
largest  and  most  comprehensive  lithotripsy  database,   containing  detailed
treatment and outcomes data on over 160,000 lithotripsy procedures.  The Company
and its  associated  urologists  utilize this database in seeking to provide the
highest quality of lithotripsy services as efficiently as possible.

From 1992  through  2000,  the Company  completed 13  acquisitions  involving 58
lithotripters. Since 1992, the Company has divested its original non-lithotripsy
businesses.

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

During 1999 and 2000, the Company  completed six  acquisitions  totaling  eleven
refractive  centers in the rapidly growing field of refractive vision correction
(RVC).  These six  acquisitions  now operate  fifteen  laser  vision  correction
facilities,  which performed  approximately  33,000  procedures on an annualized
basis during 2000.  These facilities  provide laser vision  correction of common

<PAGE>

refractive  vision  disorders  such  as  myopia   (nearsightedness),   hyperopia
(farsightedness)  and astigmatism.  The Company also opened its first internally
developed center in 2000.

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

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

Lithotripsy Segment Overview
----------------------------

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

Kidney stone disease is most prevalent in the southern  United  States.  Men are
afflicted  with kidney stones more than twice as  frequently as women,  with the
highest  incidence  occurring  in men 45 to 64  years  of age.  During  2000 the
Company received approximately 64% of its revenues from the lithotripsy segment.

Kidney Stone Treatment Methods

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

Certain types of less common kidney stones may be dissolved by drugs which allow
normal passage from the urinary  system.  Stones located in certain areas of the
urinary tract may be extracted endoscopically. These procedures commonly require
general or local  anesthesia  and can injure the  involved  areas of the urinary
tract. Frequently, kidney stones are located where they are not accessible by an
                                        2
<PAGE>

endoscopic procedure. Prior to the development of lithotripsy,  stones lodged in
the upper urinary tract were often treated by open surgery or percutaneous stone
removal,  both major  operations  requiring  an  incision  to gain access to the
stone.  After such procedures,  the patient typically spends several days in the
hospital  followed  by a  convalescence  period  of three to six  weeks.  As the
technology for treating kidney stones has improved,  there has been a shift from
more expensive and complicated invasive procedures to safer, more cost efficient
and less painful non-invasive procedures, such as lithotripsy.

Extracorporeal Shock Wave Lithotripsy

General.  The lithotripter  has dramatically  changed the course of kidney stone
disease  treatment  since  lithotripsy  is normally  performed on an  outpatient
basis, often without general anesthesia. Recovery times are generally only a few
hours,  and most  patients can return to work the next day.  There are two basic
types  of  lithotripsy   treatment  currently  available:   electromagnetic  and
spark-gap. A decision regarding which type is used in any instance may depend on
several factors, among which are the treating physician's preferences, treatment
times,  stone  location  and  anesthesia  considerations.  The  Company  has  55
electromagnetic machines and 12 spark-gap machines.

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

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

Manufacturing Segment Overview
------------------------------

In September 1997, the Company,  through its acquisition of a 75% interest in AK
Associates,   L.L.C.   ("AK"),  began  providing   manufacturing   services  and
installation,  upgrade,  refurbishment and repair of major medical equipment for
mobile  medical  services  providers.  The  Company  paid $4.8  million for this
interest,  plus an earn-out of $1.1  million,  which was paid in February  1999.
Certain  members of AK  management  own the  remaining 25% of AK. During 1998 AK
became  certified by General Electric Company ("GE") to provide trailers for MRI
equipment,  and during 1999 AK became  certified by two additional  companies to
provide  trailers for their  equipment.  These  certifications  have resulted in
increased revenues in the manufacturing segment. Currently, AK manufactures MRI,
cardiac  catheterization  lab and PET  trailers.  The  sales  prices  for  these
trailers  range from $270,000 to $360,000.  AK either has a sales contract prior
to beginning the manufacturing  process or enters into a sales contract prior to
                                        3
<PAGE>

completion  of the  trailer.  AK is certified  to  manufacture  trailers for GE,
Siemens, Philips and Marconi. In addition, AK repairs,  refurbishes and upgrades
existing  trailers.  Although  repair and upgrade work was less than 5% of total
sales in 2000, this opportunity will continue to grow as more and more units are
placed into service.  The Company  received  approximately  17 % of its revenues
from the manufacturing segment in 2000.

RVC Segment Overview
--------------------

During 1999,  the Company  entered into the RVC field through two  acquisitions.
Effective  September  1, 1999,  the  Company  acquired a 60%  interest  in three
refractive  surgery centers,  owned and operated by Barnet Dulaney Eye Center in
Phoenix and Tucson, Arizona for approximately $8.8 million in cash, a warrant to
purchase 29,000 shares of the Company's  common stock and a contingent  earn-out
obligation  totaling $1 million which was paid in 2000. Also effective September
1, 1999, the Company acquired,  through a majority owned subsidiary,  60% of the
outstanding stock of Horizon Vision Centers,  Inc. ("Horizon") for approximately
$10.9 million in cash, which operated four refractive surgery centers in the San
Francisco and Oakland bay area.  During 2000,  Horizon  opened three  additional
refractive centers.

Effective  March 1, 2000,  the Company  purchased a 60% interest in a refractive
surgery  center owned and operated by the Mann  Berkeley  Caplan Laser Center of
Austin,  Texas. The Company paid  approximately  $3.8 million in cash and issued
warrants to purchase 27,000 shares of the Company's  common stock.  Additionally
in conjunction  with this  transaction,  the Company issued warrants to purchase
28,000 shares of common stock to a third party.

Also  effective  March 1,  2000,  the  Company  purchased  a 60%  interest  in a
refractive  surgery  center in Los Angeles  owned and operated by the Caster Eye
Center.  The Company paid  approximately  $5.8 million in cash.  Additionally in
conjunction  with this  transaction,  the  Company  issued  warrants to purchase
44,000 shares of the Company's common stock to a third party.

Effective  April 1, 2000,  the Company  purchased a 65% interest in a refractive
surgery center in New York City owned and operated by New York Eye  Specialists.
The Company paid approximately $8.9 million in cash. Additionally in conjunction
with this transaction,  the Company issued warrants to purchase 67,000 shares of
the  Company's  common  stock  to a  third  party.  During  2000,  this  Company
subsidiary opened a new center in Connecticut.

Effective  September 1, 2000,  the Company  purchased a 65% interest in a Kansas
City refractive  surgery center owned and operated by Vision Correction  Centers
of Kansas  City.  The Company  paid  approximately  $4.5 million in cash for the
center in October 2000.  Additionally in conjunction with this transaction,  the
Company issued warrants to purchase 33,750 shares of the Company's  common stock
to a third party.

In 2000,  the Company  also  opened its first  internally  developed  refractive
vision  correction center in St. Louis. This center was developed in conjunction
with certain principals in Barnet Dulaney Eye Center and two local doctors.
                                        4
<PAGE>


The Company  received  approximately  18% of its revenue from the RVC segment in
2000.

Refractive Disorders

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

Laser Vision Correction Procedures

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

Prostatherapy Segment Overview
------------------------------

In October 1997,  the Company  began  providing  thermotherapy  services for the
treatment of benign  prostatic  hyperplasia  ("BPH").  BPH is the  non-cancerous
enlargement  of  the  prostate,   a  condition   common  in  men  over  age  60.
Thermotherapy uses microwaves to apply heat to the prostate, resulting in relief
of the  symptoms  of BPH without  damaging  surrounding  tissues.  Thermotherapy
relieves the symptoms of BPH without incurring the risks of complications  often
associated with surgery and more invasive procedures. The Company operated three
mobile thermotherapy  devices servicing hospitals and surgery centers in eastern
North  Carolina,   Texas,   and  southern   California.   The  Company  received
approximately  1% of its revenues  from the  prostatherapy  segment in 2000.  In
January 2001, the Company sold its prostatherapy segment in exchange for a three
year  unsecured  non-recourse  note  receivable  for $950,000.  The Company also
entered into a mutual  covenant not to compete with the buyer in exchange for an
unsecured non-recourse note receivable for $150,000.

Potential Liabilities-Insurance
-------------------------------

All medical  procedures  performed in  connection  with the  Company's  business
activities are conducted  directly by, or under the supervision  of,  physicians
                                        5
<PAGE>

who are not  employees  of the  Company.  The Company  does not provide  medical
services  to any  patients.  However,  patients  being  treated  at health  care
facilities at which the Company provides its non-medical services could suffer a
medical emergency  resulting in serious injury or death, which could subject the
Company to the risk of lawsuits seeking substantial damages.

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

Government Regulation and Supervision
-------------------------------------

 The Company is subject to extensive  regulation by both the federal government
 and the states in which the  Company  conducts  its  business.  The  Company is
 subject to  Section  1128B of the Social  Security  Act (known as "the  Illegal
 Remuneration  Statute"),  which imposes civil and criminal sanctions on persons
 who solicit,  offer,  receive or pay any remuneration,  directly or indirectly,
 for  referring,  or arranging for the referral of, a patient for treatment that
 is paid for in whole or in part by  Medicare,  Medicaid  or similar  government
 programs.  The  federal  government  has  published  regulations  that  provide
 exceptions or a "safe harbor" for certain business  transactions.  Transactions
 that are  structured  within the safe  harbors  are  deemed not to violate  the
 Illegal Remuneration Statute. Transactions that do not satisfy all elements for
 a relevant  safe harbor do not  necessarily  violate  the Illegal  Remuneration
 Statute,  but may be subject to greater scrutiny by enforcement  agencies.  The
 arrangements  between the Company and the  partnerships  and other  entities in
 which it owns an indirect  interest and through which the Company provides most
 of its  lithotripsy  services and all of its  prostatherapy  services  (and the
 corresponding arrangements between such partnerships and other entities and the
 treating  physicians who own interests  therein and who use the lithotripsy and
 prostatherapy  facilities owned by such  partnerships and other entities) could
 potentially  be  questioned  under the  illegal  remuneration  prohibition  and
 generally  do not fall within the  protection  afforded by these safe  harbors.
 Many states also have laws similar to the Federal Illegal Remuneration Statute.
 While  failure to fall  within the safe  harbors  may  subject  the  Company to
 scrutiny under the Illegal Remuneration  Statute,  such failure does not in and
 of  itself  constitute  a  violation  of  the  Illegal  Remuneration   Statute.
 Nevertheless,  these illegal  remuneration  laws, as applied to activities  and
 relationships  similar to those of the Company,  have been subjected to limited
 judicial  and  regulatory  interpretation,  and the Company has not obtained or
 applied  for any  opinion of any  regulatory  or  judicial  authority  that its
 business  operations  and  affiliations  are in  compliance  with  these  laws.
 Therefore,  no assurances  can be given that the Company's  activities  will be
 found to be in compliance with these laws if scrutinized by such authorities.
                                        6
<PAGE>

  In addition to the Illegal  Remuneration  Statute,  Section 1877 of the Social
 Security  Act  ("Stark  II")  imposes  certain   restrictions   upon  referring
 physicians  and  providers  of certain  designated  health  services  under the
 Medicare  and Medicaid  Programs  ("Government  Programs").  Subject to certain
 exceptions,  Stark II  provides  that if a physician  (or a family  member of a
 physician) has a financial  relationship with an entity:  (i) the physician may
 not make a referral  to the  entity for the  furnishing  of  designated  health
 services  reimbursable under the Government  Programs;  and (ii) the entity may
 not bill  Government  Programs,  any  individual or any  third-party  payor for
 designated health services  furnished  pursuant to a prohibited  referral under
 the Government Programs. Entities and physicians committing an act in violation
 of Stark II will be required to refund  amounts  collected  in violation of the
 statute and also are subject to civil money  penalties and  exclusion  from the
 Government  Programs.  Physicians  are  investors  in 51 of  the  Company's  65
 lithotripsy  operations,  all  of  the  three  Company  affiliates  engaged  in
 thermotherapy  services and each of the Company's  refractive vision correction
 facilities.   The  Company   lithotripsy  and  thermotherapy   affiliates  with
 physician-investors are referred to herein as the "Company Physician Entities".

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

On January 9, 1998, the Health Care Financing  Administration ("HCFA") published
proposed  regulations designed to interpret and clarify the application of Stark
II. As these regulations were simply proposed and subject to future modification
or repeal,  the Company awaited the issuance of final Stark II  regulations.  On
January 4, 2001 HCFA  issued the first of two rules  intended to  implement  the
final Stark II regulations (the "Final Regulations"). The first rule ("Phase I")
implements  the  Final   Regulations   pertaining  to  (i)  Stark  II's  general
prohibition  against  physician  self-referrals to entities in which they have a
financial  relationship,  (ii) the  general  exceptions  applicable  to both the
ownership  and  compensation   arrangement   prohibitions,   (iii)  certain  new
regulatory  exceptions,  and (iv) the definitions that are used throughout Stark
II. HCFA intends to publish a second final rule ("Phase II") shortly  which will
address  the  remainder  of the  Stark II  statute  and its  application  to the
Medicaid  program,  as well as certain proposals for new exceptions not included
in the proposed  Stark II  regulations,  but  suggested  in the public  comments
thereto.  Phase I will become effective on January 4, 2002. HCFA has delayed the
effective date of Phase I to allow  individuals and entities engaged in business
arrangements  impacted  by Phase I time to  restructure  those  arrangements  to
comply with the provisions in Phase I.
                                        7
<PAGE>

Currently,  Medicare and Medicaid only reimburse for  lithotripsy if the service
is provided through a hospital.  The lithotripsy  services to be provided by the
Company  Physician  Entities  pursuant  to the  hospital  service  contracts  to
Medicare/Medicaid  hospital  outpatients  will be provided "under  arrangements"
with hospitals,  with the treatment  being billed under the hospital's  provider
billing  number.  HCFA  acknowledged  in its commentary to the proposed Stark II
regulations  that  physician  overutilization  of  lithotripsy  is unlikely  and
solicited comments on whether there should be a regulatory exception to Stark II
specifically  for lithotripsy  services.  Upon  consideration of numerous public
comments  received on the proposed  regulations  and upon review of the Stark II
legislative  history,  HCFA concluded in its commentary to the Final Regulations
that it does not have the  authority to exclude  lithotripsy  from the inpatient
and outpatient hospital services covered by Stark II. Consequently,  the Company
Physician   Entities   practice  of  providing   lithotripsy   services   "under
arrangements" to hospitals for treatment of Medicare and Medicaid  patients must
comply with the provisions of the Final Regulations.

Although the Final  Regulations do not provide a specific Stark II exception for
lithotripsy  services,  the  regulations  do provide  needed clarity and certain
opportunities for the Partnership to operate in compliance with Stark II. In the
Commentary  to  the  Final   Regulations,   HCFA  notes  its  desire  to  permit
physician-owned lithotripsy ventures to continue if such ventures are structured
such that no direct or indirect  compensation  arrangement  is  created,  or the
arrangement  fits within a compensation  arrangement  exception to Stark II. The
Final  Regulations  accomplish  HCFA's  desire in part by: (i)  clarifying  that
physician-owned lithotripsy vendors providing services "under arrangements" with
hospitals can comply with Stark II by either being structured such that they are
not  compensation  arrangements,   as  defined  in  the  Final  Regulations,  or
qualifying  under  a  compensation  exception  (but  not an  ownership  interest
exception  as  well);  (ii)  broadening  certain  existing  Stark  II  statutory
exceptions  by  redefining  certain  standards  to allow  "per-use"  lithotripsy
payments,  as long as such payments are at fair market  value;  and (iii) adding
two new  Stark II  regulatory  exceptions  that are  potentially  available  for
Company Physician Entity operations.

In order for the Company Physician  Entities to comply with Stark II as modified
by the Final Regulations,  the entities  financial  relationships with hospitals
must either fall outside the definition of a compensation arrangement, or comply
with a Stark II compensation  arrangement  exception.  The Company has worked to
establish a  compliance  program  that is in the process of  implementation.  As
noted above, due to the Final  Regulations  delayed  effective date, the Company
has  until  January  4, 2002 to take  reasonable  steps to  review  the  Company
Physician  Entities  operations under the Final Regulations.  Specifically,  the
Company  Physician  Entities intend to work with hospitals to review and modify,
if necessary, the service contracts so that they satisfy the standards set forth
in the new Final  Regulations.  To the extent  financial  arrangements  with the
contract hospitals meet the definition of "indirect  compensation  arrangements"
under the Final  Regulations,  then the Company Physician Entities intend to see
that such  agreements  fit  within  the new  indirect  compensation  arrangement
exception.  Indirect compensation  arrangements have several important elements,
including the presence of an intervening  entity,  that directly links referring
physician owners with the entity providing the designated  health service (e.g.,
the  contract  hospital).  In order to  comply  with the  indirect  compensation
exception,  the Company Physician  Entities hospital contracts must meet each of
the following standards:
                                        8
<PAGE>

o             The  compensation  received  directly  by  the  Company  Physician
              Entities  from the  hospitals  must be fair  market  value for the
              items or services provided under the arrangement and must not take
              into account the value or volume of  referrals  or other  business
              generated by the referring physician for the contract hospital;

o             The  compensation   arrangement   between  the  Company  Physician
              Entities and the hospitals  must be set out in writing,  signed by
              the parties,  and specify the services covered by the arrangement;
              and

o             The compensation  arrangement  must not violate the  Anti-Kickback
              Statute  or any laws or  regulations  governing  billing or claims
              submission.

In regard to the Company Physician  Entities proposed  operations,  the indirect
compensation  arrangement  exception  may be  used  with  respect  to any or all
payments made by the hospitals to the entities,  including  payments for the use
of the  lithotripters,  as well as the personal  services of a technician and/or
nurse.  It is  important  to note that the Final  Regulations  allow fair market
value per-use payments for lithotripsy  services.  The Company believes that its
current financial  relationships with hospitals are compliant or can be modified
to the extent necessary to satisfy the requirements of the indirect compensation
arrangement exception, and that accordingly, the Company Physician Entities will
be able to operate in compliance  with Stark II. To succeed with its  compliance
plan, the Company Physician  Entities must obtain the hospitals'  cooperation in
making any necessary  revisions to their service  contracts  consistent with the
indirect compensation  arrangement exception.  Whereas the Company believes that
the service  contracts which create financial  relationships  with the hospitals
have always met the fair market value standard,  the Final Regulations place the
burden  on the  contracting  parties  that  rely  on the  indirect  compensation
exception  to prove  the  standard  is met.  The  Company  intends  to  engage a
valuation expert or pursue other commercially reasonable methodologies to assist
it in meeting that burden of proof.

The  Company  believes  it  will  successfully  implement  the  above  described
compliance plan, however,  there can be no assurance that such will be the case.
The  hospitals  may not  cooperate  with  the  Company  Physician  Entities.  If
hospitals  chose not to  continue  a  financial  relationship  with the  Company
Physician  Entities,  this could have a material adverse effect on the entities.
Should that occur,  then the Company  intends to explore and implement any other
available options that would allow the Company Physician Entities to comply with
Stark II, as well as all other  material  health care statutes and  regulations.
Such alternative options may include contracting with ambulatory surgery centers
("ASCs")  rather  than  hospitals,  since  lithotripsy  services at ASCs are not
covered  by Stark II.  The  Medicare  and  Medicaid  programs,  however,  do not
reimburse for lithotripsy  services at ASCs at this time. It is anticipated that
ASCs will receive  reimbursement for treatment of Medicare and Medicaid patients
in the near future, but there can be no assurance that such will be the case. It
should be noted that there can be no assurance that  compliance  action taken by
the Company under any potential alternative, or contract decisions by hospitals,
will  occur in a manner  that  does not have a  material  adverse  effect on the
Company Physician Entities.
                                        9
<PAGE>

Stark II compliance  efforts may reduce Company revenues and limit future growth
by (i)  reducing  or  eliminating  revenues  attributable  to the  treatment  of
Government  Program patients by the Company  Physician  Entities,  (ii) reducing
revenues  from the  treatment of  non-government  patients by Company  Physician
Entities due to physician,  hospital and  third-party  payor anxiety and concern
created  by  Stark  II,  (iii)  requiring  the  Company  Physician  Entities  to
restructure  their  operations  to comply  with Stark II, (iv)  restricting  the
acquisition or development of additional lithotripsy or thermotherapy operations
that  will  both  treat   Government   Program   patients  and  have   referring
physician-investors,  (v) impairing the Company's  relationship  with urologists
and (vi) otherwise materially adversely impacting the Company.

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

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

Some  states  require  approval,  usually in the form of a  certificate  of need
("CON"),   prior  to  the  purchase  of  major  medical  equipment  exceeding  a
predesignated  capital expenditure  threshold or for the commencement of certain
clinical health services.  Such approval is generally based upon the anticipated
utilization  of the  service  and the  projected  need  for the  service  in the
relevant geographical area of the state where the service is to be provided. CON
                                        10
<PAGE>

laws  differ in many  respects,  and not every  state's  CON law  applies to the
Company.  Most of the  Company's  operations  originated in states which did not
require a CON for the Company's services,  and the Company has obtained a CON in
states  where  one  is  required.  Some  states  also  require  registration  of
lithotripters  with the state agency  which  administers  its CON program.  Such
registration  is  not  subject  to  any  required  approval,  but  rather  is an
administrative  matter  imposed so that the state will be aware of all  existing
clinical health  services.  The Company  registers in those states which require
these filings.

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

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

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

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

Equipment
---------

The Company  purchases its  equipment,  and  maintenance  is generally  provided
pursuant to service contracts with the manufacturer or other service  companies.
The cost of a new  lithotripter  ranges from  $400,000 to  $600,000.  For mobile
lithotripsy  and  thermotherapy,  the  Company  either  purchases  or leases the
                                        11
<PAGE>

tractor,  usually for a term up to five years,  and  purchases  the trailer or a
self contained  coach.  The cost of the laser  equipment  utilized in RVC ranges
from $300,000 to $500,000.

Employees
---------

As of March 15, 2001, the Company employed approximately 350 full-time employees
and approximately 50 part-time employees.

Competition
-----------

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

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

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

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

The  Company's  principal  executive  office is located  in Austin,  Texas in an
office building owned by American  Physicians  Service Group, Inc. ("APS").  The
Company pays APS approximately  $18,000 per month, which includes rental payment
for  approximately  11,600 square feet of office space,  reception and telephone
services,  and certain  other  services and  facilities.  The office space lease
expires in December 2002.
                                        12
<PAGE>

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

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

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

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

On June 14, 2000, an annual meeting of the  shareholders of the Company was held
to consider and vote on the proposal  described below.  Proxies for this meeting
were solicited pursuant to Regulation 14 under the Act.

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

         The nominees for director were:

         David Dulaney,  M.D.,  Joseph  Jenkins,  M.D., J.D., J.A.  McEntire IV,
         William A. Searles,  Kenneth S. Shifrin,  Michael J.Spalding, M.D.  and
         James M. Usdan.

         All nominees were elected.  The voting was as follows:

         Nominee                        Votes For   Votes Against Votes Withheld

         David Dulaney, M.D.            15,195,059    1,010,579          --
         Joseph Jenkins, M.D., J.D.     15,195,059    1,010,579          --
         J.A. McEntire IV               15,195,059    1,010,579          --
         William A. Searles             15,195,059    1,010,579          --
         Kenneth S. Shifrin             15,195,059    1,010,579          --
         Michael J. Spalding, M.D.      15,195,059    1,010,579          --
         James M. Usdan                 15,195,059    1,010,579          --

                                        13
<PAGE>



                                    PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------           -------------------------------------------------
                  STOCKHOLDER MATTERS
                  -------------------

The following table sets forth the high and low closing prices for the Company's
common  stock  in the  over-the-counter  market  as  reported  by  the  National
Association of Securities Dealers,  Inc.,  Automated  Quotations System, for the
years ended December 31, 2000 and 1999 (NASDAQ Symbol "PMSI").

                                      2000                       1999
                               ----------------           ----------------
                               High         Low           High         Low
                               ----         ---           ----         ---

        First Quarter         $ 9.06       $ 7.13        $ 8.44       $ 7.13
        Second Quarter        $ 9.06       $ 6.81        $ 7.56       $ 6.75
        Third Quarter         $ 9.50       $ 7.50        $ 9.75       $ 7.44
        Fourth Quarter        $ 8.25       $ 4.91        $ 10.63      $ 8.13




On March 15, 2001,  the Company had  approximately  594 holders of record of its
common stock.

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

                                        14
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------
<TABLE>
<S>                                             <C>            <C>               <C>                <C>              <C>

(In thousands, except per share data)                                  Years Ended December 31,
                                                                       ------------------------
                                                 2000             1999              1998               1997           1996
                                                 ----             ----              ----               ----           ----
Revenues:
    Lithotripsy                                 $83,335         $89,180            $92,053          $93,113         $71,602
    Manufacturing                                22,157          17,527             11,066            2,358             --
    RVC                                          23,501           3,414                --               --              --
    Other                                         1,702           2,053              1,517              508             802
                                               --------         -------            -------          -------         -------
    Total                                      $130,695        $112,174           $104,636          $95,979         $72,404
                                               ========        ========           ========          =======         =======
Income:
    Net income                                  $10,657         $15,039            $10,794          $14,856          $8,961
                                                =======         =======            =======          =======          ======
Diluted earnings per share                        $0.66           $0.88              $0.57            $0.76           $0.49
                                                  =====           =====              =====            =====           =====
Dividends per share                                None            None               None             None            None
Total assets                                   $276,218        $246,972           $240,198         $224,905        $201,175
                                               ========        ========           ========         ========        ========
Long-term obligations                          $123,172        $103,797           $100,987          $71,198         $70,910
                                               ========        ========           ========          =======         =======

</TABLE>

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

2000
----

Revenues                                $29,443   $32,966    $35,445     $32,841
Net income                               $3,297    $3,102     $3,168      $1,090
Per share amounts (basic):
 Net income                               $0.20     $0.19      $0.20       $0.07
 Weighted average shares outstanding     16,435    16,218     15,943      15,749
Per share amounts (diluted):

 Net income                               $0.20     $0.19      $0.20       $0.07
 Weighted average shares outstanding     16,607    16,303     16,025      15,750


1999
----

Revenues                                $25,382   $28,608    $30,632     $27,552
Net income                               $3,162    $4,302     $4,339      $3,236
Per share amounts (basic):
 Net income                               $0.18     $0.25      $0.26        $.20
 Weighted average shares outstanding     17,387    17,098     16,818      16,553
Per share amounts (diluted)

 Net income                               $0.18     $0.25      $0.26       $0.19
 Weighted average shares outstanding     17,495    17,196     17,000      16,788

                                                15
<PAGE>



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

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

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

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

Year ended December 31, 2000 compared to the year ended December 31, 1999
-------------------------------------------------------------------------

Total  revenues  increased  $18,521,000  (17%) as compared to the same period in
1999.  Revenues  from  lithotripter  operations  decreased  by  $5,845,000  (7%)
primarily due to renegotiation of contracts which resulted in a larger number of
contracts  providing for per diem pricing,  and slightly lower procedure volumes
related to contracts  lost due to  non-renewal  and  competition.  Manufacturing
revenue  increased by $4,630,000 (26%) due to increased sales of MRI and cardiac
catheterization  lab trailers as well as the Company's  expansion into the sales
of PET  trailers.  RVC revenues  increased  $20,087,000  (588%) as 2000 revenues
included  a full  year of  operations  for  five  centers  and  partial  year of
operations for eleven new centers,  while 1999 revenues included partial year of
operations for two entities. Prostatherapy revenues decreased $256,000 (14%).

                                        16
<PAGE>

Costs  of  services   and  general  and   administrative   expenses   (excluding
depreciation  and  amortization)  increased  from  40% to 47%  of  revenues  and
increased  $16,955,000  (38%) in absolute terms,  compared to the same period in
1999.  Cost  of  services  associated  with  lithotripter  operations  decreased
$585,000 (3%) in absolute  terms and increased  from 26% to 27% of  lithotripter
revenues.  Cost of services associated with manufacturing  increased  $4,269,000
(33%) in absolute  terms and from 73% to 77% of  manufacturing  revenues  due to
expansion  into  new  product  lines.  Cost  of  services  associated  with  RVC
operations  increased  $11,902,000 (609%) in absolute terms, and from 57% to 59%
of RVC  revenues  due to full year of  operation  for five  centers  in 2000 and
partial year of operations for the additional  eleven centers.  Cost of services
associated with  prostatherapy  increased $39,000 and the Company  recognized an
impairment on its prostatherapy segment of $1,230,000 in 2000 in connection with
approving the disposal of this segment in a transaction  which closed in January
2001. Corporate expenses decreased from 4% to 3% of revenues, as the Company was
able to successfully  grow without  proportionately  adding overhead.  Corporate
expenses  decreased $541,000 (11%) primarily due to a consolidation of corporate
functions.

Other  deductions  increased  $2,069,000  from 1999 to 2000.  This  increase  is
partially  attributable to an increase in interest expense of $1,155,000  during
2000.  Also  contributing  to  the  increase  in  other  deductions  was  income
recognition in 1999 of $1,140,000 due to the release of a contractual obligation
related to a management  incentive  compensation program accrued at December 31,
1998.

Minority interest in consolidated income increased  $3,246,000  primarily due to
the decline in lithotripsy  revenue  discussed above.  Earnings before interest,
taxes,   depreciation,   and  amortization  (EBITDA)  attributable  to  minority
interests  was  $32,328,000  for the year ended  December  31, 2000  compared to
$28,554,000 for the same period in 1999. EBITDA is not intended to represent net
income or cash flows from  operating  activities  in accordance  with  generally
accepted  accounting  principles  and should not be  considered a measure of the
Company's profitability or liquidity.

Income tax expense for 2000 decreased  $2,706,000 over 1999 primarily due to the
decrease in pretax income.

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

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

                                        17
<PAGE>

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

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

Minority interest in consolidated  income decreased $282,000 in 1999 as compared
to 1998 primarily due to the decline in  lithotripsy  revenue  discussed  above.
EBITDA  attributable  to minority  interests was  $28,554,000 for the year ended
December 31, 1999 compared to $28,077,000 for the same period in 1998.

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

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

Cash and cash  equivalents were $15,530,000 and $20,064,000 at December 31, 2000
and 1999,  respectively.  The Company's subsidiaries generally distribute all of
their  available  cash  quarterly,  after  establishing  reserves for  estimated
capital  expenditures and working capital. For the years ended December 31, 2000
and  1999,  the  Company's   subsidiaries   distributed  cash  of  approximately
$27,092,000 and $27,180,000, respectively, to minority interest holders.

Cash provided by operations was $45,180,000 for the year ended December 31, 2000
and  $35,744,000 for the year ended December 31, 1999. From 1999 to 2000 fee and
other revenue collected  increased by $12,256,000 and was offset by the increase
in cash paid to employees,  suppliers of goods and others of $11,092,000.  These
fluctuations are  attributable to increased  operations as well as the timing of
accounts  receivable  collections  and  accounts  payable  and  accrued  expense
payments.  An increase in interest payments of $1,052,000 was due to the Company
drawing on its line of credit during 2000 related to the refractive acquisitions

                                        18
<PAGE>

made  during  2000.   Taxes  paid  decreased   $2,555,000  from  1999  to  2000.
Additionally,  the Company  purchased  investments  of  $3,714,000  during 2000,
offset by proceeds from sales and maturities of $6,615,000.

Cash used by investing  activities  for the year ended  December  31, 2000,  was
$33,802,000  primarily due to $23,784,000  used in four refractive  acquisitions
and as well as  payments of earnouts  related to a prior year  acquisition.  The
Company purchased equipment and leasehold improvements totaling $12,975,000. The
Company received  $2,680,000 in  distributions  from  investments.  Cash used by
investing  activities  for the year ended  December  31, 1999,  was  $26,241,000
primarily due to $23,580,000 used in two refractive  acquisitions and as well as
payments  totaling  $5,790,000  for the  purchase  of  equipment  and  leasehold
improvements. The Company received $2,352,000 in distributions from investments.

Cash used in financing  activities  for the year ended  December  31, 2000,  was
$15,912,000,  which was primarily due to distributions to minority  interests of
$27,092,000  and purchases of treasury stock of $7,703,000  partially  offset by
net  borrowings  of  $18,517,000  and  contributions  of $202,000  received from
holders of minority interests related to expansion of existing  partnerships and
new partnership formations. Cash used in financing activities for the year ended
December 31, 1999, was  $29,585,000,  primarily due to distributions to minority
interests of $27,180,000,  purchases of treasury stock of $8,382,000,  partially
offset by net borrowings of $3,181,000 and contributions of $2,636,000  received
from holders of minority interests related to expansion of existing partnerships
and new partnership formations.

The  Company's  credit  facility  as of  December  31,  2000 is  comprised  of a
revolving line of credit.  The revolving line of credit has a borrowing limit of
$100  million,  $18 million  and $12 million of which was drawn at December  31,
2000 and March 15,  2001,  respectively.  During 2000,  the Company  completed a
restructuring  of its  revolving  line of credit to enable the Company to borrow
for RVC  acquisitions.  The  restructuring  split the credit  facility  into two
facilities:   one  for  $14,000,000  for  refractive   acquisitions  by  certain
subsidiaries,   another  for  the   remaining   $86,000,000   for   lithotripsy,
manufacturing,  refractive and prostatherapy acquisitions, stock repurchases and
working  capital.  On March 27, 1998, the Company  completed an offering of $100
million  of  senior  subordinated  notes  due 2008 (the  "Notes")  to  qualified
institutional  buyers.  The net proceeds from the offering of approximately  $96
million was used to repay all outstanding  indebtedness under the Company's bank
facility,  with the remainder  used for general  corporate  purposes,  including
acquisitions. In connection therewith, the Company recorded a charge to earnings
in 1998 of  approximately  $4.4 million for debt issuance costs  associated with
the  Notes.   The  Notes  bear   interest  at  8.75%  and  interest  is  payable
semi-annually on April 1st and October 1st. Principal is due April 2008.

The  Company  intends  to  increase  the  number of its  lithotripsy  operations
primarily through  acquisitions,  the number of its RVC operations  through both
acquisitions  and  development,   and  its  manufacturing   operations   through
acquisitions   and  by  increasing   its  product   lines   through   additional
certifications.  The  Company  intends  to fund the  purchase  price for  future
acquisitions and developments  using borrowings under its senior credit facility
and cash flow from  operations.  In addition,  the Company may use shares of its
common stock in such acquisitions where appropriate.

                                        19
<PAGE>

During 1998,  the Company  announced a stock  repurchase  program of up to $25.0
million of common stock. In February 2000, the Company  announced an increase in
the  authorized  repurchase  amount from $25.0  million to $35.0  million and in
January 2001 this amount was increased to $45.0 million.  From time to time, the
Company  may  purchase  additional  shares of its  common  stock  where,  in the
judgment of management, market valuations of its stock do not accurately reflect
the Company's past and projected  results of operations.  The Company intends to
fund any such purchases  using  available  cash,  cash flow from  operations and
borrowings under its senior credit facility. The Company has purchased 3,820,200
shares of stock for a total of $32,524,000 as of March 15, 2001.

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

Inflation
---------

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

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

As of December 31,  2000,  the Company had  long-term  debt  (including  current
portion)  totaling  $125,709,000,  of which  $100  million  has a fixed  rate of
interest  of 8.75%,  $1,517,000  has fixed rates of 6% to 9%,  $6,030,000  bears
interest at a variable rate equal to a specified  prime rate,  $18 million bears
interest at a variable  rate equal to LIBOR + 1 to 2% and $162,000 does not bear
any  interest.  The Company is exposed to some  market risk due to the  floating
interest rate debt totaling $24,030,000.  The Company makes monthly or quarterly
payments of principal  and interest on  $6,030,000 of the floating rate debt. An
increase in interest rates of 1.5% would result in a $360,000 annual increase in
interest expense on this existing principal balance.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------   -------------------------------------------
     The  information  required by this item is contained in Appendix A attached
hereto.

                                        20
<PAGE>

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

None.


                                    PART III

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

The  information  required by this item is  contained  in the  definitive  proxy
material of the Company to be filed in connection  with its 2001 annual  meeting
of shareholders,  except for the information regarding executive officers of the
Company,  which is  presented  below.  The  information  required  by this  item
contained in such definitive proxy material is incorporated herein by reference.

As of March 15, 2001, the executive officers of the Company are as follows:

Name                    Age                Position

Kenneth S. Shifrin       51                Chairman of the Board
Brad A. Hummel           44                Chief Executive Officer and President
Cheryl L. Williams       49                Chief Financial Officer, Senior Vice
                                           President-Finance and Secretary
Stan Johnson             47                Vice President
David Vela, M. D.        53                Vice President

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

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

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

                                        21
<PAGE>

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

Mr.Johnson has been a Vice President of the Company and President of Sun Medical
Technologies,  Inc. ( "Sun "), a wholly-owned subsidiary  of the Company,  since
November  1995. In March 2000,  Mr. Johnson was named a Group Vice  President of
the Company.   Mr. Johnson  was  the Chief Financial Officer of Sun from 1990 to
1995.

Dr. Vela has  been  a  Group Vice President of the Company since March 2000. Dr.
Vela  received  his  medical  degree  in 1984.  Dr. Vela  developed and operated
various  outpatient  centers  throughout  the  United States from 1986 to  1995.
From February 1997 to March 2000, Dr. Vela served as Regional Vice President  of
the Company for the Central Region.

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

The  information  required by this item is  contained  in the  definitive  proxy
statement of the Company to be filed in connection  with its 2001 annual meeting
of shareholders, which information is incorporated herein by reference.

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

The  information  required by this item is  contained  in the  definitive  proxy
statement of the Company to be filed in connection  with its 2001 annual meeting
of shareholders, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------
The  information  required by this item is  contained  in the  definitive  proxy
statement of the Company to be filed in connection  with its 2001 annual meeting
of shareholders, which information is incorporated herein by reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------  ----------------------------------------------------------------

(a)  1.  Financial Statements.
         --------------------

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

                                        22
<PAGE>

     2.  Financial Statement Schedules.
         -----------------------------

         None.

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

         None.

(c)  Exhibits. (1)
     --------

     3.1          Certificate of Incorporation of the Company. (2)

     3.2          Bylaws of the Company. (2)

     4.1          Specimen of Common Stock Certificate. (2)

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

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

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

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

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

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

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

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

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

     10.10        Not used

     10.11        Not used

     10.12        Not used

                                                23
<PAGE>

     10.13        Not used

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                24
<PAGE>

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

     10.30        Not used

     10.31        Not used

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

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

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

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

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

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

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

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

     10.40        Not used

     10.41        Not used

     10.42        Not used

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

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

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

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

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

                                                25
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                26
<PAGE>

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

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

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

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

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

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

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

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

     10.69        Not used

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

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

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

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

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

                                                27
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     10.89        Limited Liability Company Agreement of Caster One, L.L.C. (16)

     10.90        Contribution  Agreement dated March 1, 2000 among Prime
                  Medical  Services,  Inc.,  Prime  Refractive,  L.L.C.,
                  Andrew Caster, M.D., and Caster Eye Center Medical Group (16)

                                                28
<PAGE>

     10.91        Facility Use  Agreement  dated March 1, 2000 by and among
                  Caster One,L.L.C., Andrew Caster,  M.D., and Caster Eye Center
                  Medical Group (16)

     10.92        First Amendment and Restated Limited Liability Company
                  Agreement dated March 1, 2000 of Caster One, L.L.C. (16)

     10.93        First Amendment to Facility Use Agreement  dated July 2000 by
                  and among Caster One, L.L.C., Andrew Caster,  M.D., and Caster
                  Eye Center Medical Group (16)

     10.94        Contribution  Agreement  dated  September 1, 2000 among Prime
                  Medical  Services,  Inc., Prime RVC, Inc.,  Prime Refractive -
                  Kansas City,  L.L.C.,  Vision Correction  Centers of Kansas
                  City, P.C., Kansas City Laser Vision Correction  Centers,
                  L.L.C., and Jeffrey Couch, M.D. (16)

     10.95        Limited Liability Company Agreement dated September 1, 2000 of
                  Prime Refractive - Kansas City, L.L.C. (16)

     10.96        Facility Use Agreement dated September 2000 by and among
                  Vision  Correction  Centers of Kansas City,  P.C., Kansas City
                  Laser Vision Correction Centers, L.L.C., Jeffrey Couch, M.D.
                  and Prime Refractive - Kansas City (16)

     10.97        Limited Liability Company Agreement of Horizon Vision
                  Centers, L.L.C. (16)

     10.98        Non-Competition  Agreement  dated April 1, 2000 by Horizon
                  Vision  Centers,  L.L.C.,  for the benefit of Prime RVC and
                  each of Prime RVC's affiliates (16)

     10.99        Specimen of First  Amendment to Assignment  and Security
                  Agreement  dated April 1, 2000 relating to Horizon  Vision
                  Centers, Inc. (16)

     10.100       Specimen of Consent and  Agreement  dated  April 1, 2000 of
                  Horizon  Vision  Centers,  Inc.,  for the benefit of the
                  Existing  Center,  Horizon Vision  Centers,  L.L.C.,  Prime
                  RVC,  Inc., and the parent  companies and affiliates of each
                  of the Existing Center, the New Center and Prime RVC (16)

     10.101       Contribution  Agreement dated March 1, 2000 among Prime MBC,
                  L.L.C., MBC Holding Company, L.L.C., Mann Berkeley Eye Center,
                  P.A., Paul Michael Mann, M.D., Ralph G. Berkeley,  M.D.,
                  Michael B. Caplan,  M.D., Mark F. Micheletti and Prime RVC,
                  Inc. (16)

     10.102       Membership  Interest - Transfer  Restriction  Agreement dated
                  March 1, 2000 by and among MBC Holding Company,  L.L.C., Prime
                  RVC, Inc., Paul Michael Mann, M.D., Ralph G. Berkeley, M.D.
                  Michael B. Caplan, M.D., and Mark Micheletti (16)

     10.103       Limited Liability Company Agreement of Prime MBC, L.L.C. (16)

                                                29
<PAGE>

     10.104       Refractive  Laser Center Management Agreement  dated March 1,
                  2000 by and between  Prime MBC,  L.L.C.  and Mann Berkeley Eye
                  Center, P.A. (16)

     10.105       Incidental  Registration  Rights  Agreement  dated March 1,
                  2000 by and among Prime Medical Services, Inc. and MBC Holding
                  Company, L.L.C. (16)

     10.106       Contribution Agreement dated April 1, 2000 among Prime Medical
                  Services,  Inc., Prime RVC, Inc., New York Laser  Management,
                  L.L.C., Ken Moadel, M.D., and Ken Moadel, M.D., P.C. (16)

     10.107       Limited Liability Company Agreement of New York Laser
                  Management, L.L.C. (16)

     10.108       Office and Equipment Use Agreement dated April 1, 2000 by and
                  among New York Laser Management, L.L.C., Ken Moadel, M.D. and
                  Ken Moadel, M.D., P.C. (16)

     10.109       Loan Agreement dated April 1, 2000 by and between Prime
                  Medical Services, Inc. and New York Laser Management,L.L.C(16)

     10.110       Assignment and Security Agreement dated April 1, 2000 by and
                  between Prime Medical Services, Inc. and Ken Moadel, M.D. (16)

     10.111       Limited Liability Company Agreement of Prime Refractive
                  Management, L.L.C. (16)

     10.112       Delaware Certificate of Incorporation Prime RVC, Inc. (16)

     10.113       Bylaws as of January 31, 2000 of Prime RVC, Inc. (16)

     10.114       Intercompany  Agreement dated April 1, 2000 by and between
                  Prime Medical Operating,Inc., Prime RVC, Inc.,Prime Refractive
                  Management, L.L.C. and Prime/BDR Acquisition, L.L.C. (16)

     10.115       First Amended and Restated Limited Liability Company Agreement
                  dated September 1, 1999 of Prime/BDEC Acquisition, L.L.C. (16)

     10.116       Consent and Liability Waiver dated March 31, 2000 by David D.
                  Dulaney,  M.D., Ronald W. Barnet, M.D., Mark Rosenberg, Barnet
                  Dulaney Eye Center, P.L.L.C., LASIK Investors,  L.L.C., Prime
                  Refractive,  L.L.C., Prime/BDR Acquisition,  L.L.C. for
                  the benefit of Prime Medical Services, Inc. (16)

     10.117       Assignment  Agreement  and Second  Amendment  to  Contribution
                  Agreement  dated  April 1, 2000 by and between  Prime  Medical
                  Services, Inc., Prime Medical Operating, Inc., Prime RVC,Inc.,
                  Prime Refractive Management,L.L.C., Barnet Dulaney Eye Center,
                  P.L.L.C., LASIK Investors, L.L.C., Prime/BDR Acquisition,
                  L.L.C., Prime/BDEC Acquisition,  L.L.C., Prime Refractive,
                  L.L.C., David D. Dulaney, M.D., Ronald W. Barnet, M.D. and
                  Mark Rosenberg (16)

                                                30
<PAGE>


     10.118       Stock  Purchase  Agreement  dated  December  31, 2000 by and
                  between  Prime  Medical Services, Inc. and  Innovative Medical
                  Technologies, Inc. (16)

     10.119       Mutual  Non-Competition  Agreement  dated  December 31, 2000
                  between Prime Medical  Services, Inc., Prostatherapies,  Inc.,
                  Innovative Medical Technologies, Inc. and Ronald Sorensen,
                  M.D. (16)

     10.120       Assignment and Security  Agreement dated December 31, 2000 by
                  and between Prime Medical Services,  Inc. and Innovative
                  Medical Technologies, Inc. (16)

     10.121       Promissory Note dated December 31, 2000 by Innovative Medical
                  Technologies, Inc. to Prime Medical Services Inc. (16)

     10.122       Promissory Note dated December 31, 2000 by Innovative Medical
                  Technologies, Inc. to Prime Medical Services Inc. (16)

     10.123       Executive Employment Agreement dated November 1, 2000 by and
                  between Prime Medical Services,Inc. and Kenneth S, Shifrin(16)

     10.124       Executive Employment Agreement dated November 1, 2000 by and
                  between Prime Medical Services, Inc. and Brad A. Hummel (16)

     10.125       Executive Employment Agreement dated September 1, 2000 by and
                  between Prime Medical Services, Inc. and Cheryl Williams (16)

     10.126       Non-Competition  Release and Severance  Agreement  dated
                  December 29, 2000 by and between Prime Medical Services,  Inc.
                  and Joseph Jenkins, M.D. (16)

     10.127       Confidential Private Placement Memorandum for Fayetteville
                  Lithotripters Limited Partnership - Arizona I (16)

     10.128       First  Amendment  to the  Confidential  Private  Placement
                  Memorandum dated August 14,2000 for Fayetteville Lithotripters
                  Limited Partnership - Arizona I (16)

     10.129       Second  Amendment to the Confidential  Private  Placement
                  Memorandum  dated February 6, 2001 for  Fayetteville
                  Lithotripters Limited Partnership - Arizona I (16)

     10.130       Confidential Private Placement Memorandum for Florida
                  Lithotripters Limited Partnership I (16)

     10.131       First Amendment to the  Confidential  Private  Placement
                  Memorandum  dated March 31, 2000 for Florida  Lithotripters
                  Limited Partnership I (16)

     10.132       Second Amendment to the Confidential  Private  Placement
                  Memorandum  dated April 14, 2000 for Florida  Lithotripters
                  Limited  Partnership I (16)

                                                31
<PAGE>

     10.133       Third Amendment to the  Confidential  Private  Placement
                  Memorandum  dated April 19, 2000 for Florida  Lithotripters
                  Limited Partnership I (16)

     10.134       Fourth  Amendment  to the  Confidential  Private  Placement
                  Memorandum  dated May 2, 2000 for Florida  Lithotripters
                  Limited  Partnership I (16)


     10.135       Confidential Private Placement Memorandum for Indiana
                  Lithotripters Limited Partnership I (16)

     10.136       First Amendment to the  Confidential  Private  Placement
                  Memorandum  dated August 9, 2000 for Indiana  Lithotripters
                  Limited Partnership I (16)

     10.137       Second Amendment to the Confidential Private Placement
                  Memorandum dated September 12, 2000 for Indiana  Lithotripters
                  Limited  Partnership I (16)

     10.138       Third Amendment to the Confidential  Private Placement
                  Memorandum dated September 26, 2000 for Indiana  Lithotripters
                  Limited Partnership I (16)

     10.139       Confidential Private Placement Memorandum for Mobile Kidney
                  Stone Centers of California III, L.P. (16)

     10.140       First  Amendment to the  Confidential  Private  Placement
                  Memorandum  dated June 28, 2000 for Mobile  Kidney Stone
                  Centers of  California III, L.P. (16)

     10.141       Confidential Private Placement Memorandum for Mobile Kidney
                  Stone Centers of California II, L.P. (16)

     10.142       First  Amendment to the  Confidential  Private  Placement
                  Memorandum  dated June 1, 2000 for Mobile  Kidney Stone
                  Centers of  California II, L.P. (16)

     10.143       Second Amendment to the  Confidential  Private  Placement
                  Memorandum dated September 28, 2000 for Mobile Kidney Stone
                  Centers of California II, L.P. (16)

     10.144       Confidential Private Placement Memorandum for Fayetteville
                  Lithotripters Limited Partnership - South Carolina II (16)

     10.145       Amendment  to  the Confidential Private  Placement  Memorandum
                  and  Consent  dated  February  18,  2000  for  Fayetteville
                  Lithotripters Limited Partnership - South Carolina II (16)

     10.146       First Amendment to the  Confidential  Private  Placement
                  Memorandum  dated December 22, 1999 for  Fayetteville
                  Lithotripters  Limited Partnership - South Carolina II (16)

                                                32
<PAGE>

     10.147       Second  Amendment to the Confidential  Private  Placement
                  Memorandum  dated January 14, 2000 for  Fayetteville
                  Lithotripters Limited Partnership - South Carolina II (16)

     10.148       Confidential Private Placement Memorandum for Tennessee
                  Lithotripters Limited Partnership I (16)

     10.149       First Amendment to the Confidential  Private Placement
                  Memorandum dated January 14, 2000 for Tennessee  Lithotripters
                  Limited Partnership I Assignment Offering (16)

     10.150       Second  Amendment to the  Confidential  Private  Placement
                  Memorandum dated February 29, 2000 for Tennessee Lithotripters
                  Limited Partnership I Assignment Offering (16)

     10.151       Confidential Private Placement Memorandum for Fayetteville
                  Lithotripters Limited Partnership - Utah I (16)

     10.152       First  Amendment to the  Confidential  Private  Placement
                  Memorandum  dated October 17, 2000 for  Fayetteville
                  Lithotripters  Limited Partnership - Utah I (16)

     10.153       Confidential Private Placement Memorandum for Washington
                  Urological Services, LLC (16)

     10.154       First Amendment to the Confidential  Private Placement
                  Memorandum dated June 6, 2000 for Washington  Urological
                  Services,  L.L.C.  (16)

     10.155       Second  Amendment to the  Confidential  Private  Placement
                  Memorandum  dated  September  28, 2000 for  Washington
                  Urological  Services, LLC (16)

     10.156       Confidential Private Placement Memorandum for Western Kentucky
                  Lithotripters Limited Partnership(16)

     10.157       Agreement of Limited Partnership for Western Kentucky
                  Lithotripters Limited Partnership (16)

     10.158       First Amendment to the Confidential  Private  Placement
                  Memorandum dated January 31, 2000 for Western Kentucky
                  Lithotripters  Limited Partnership (16)

     10.159       Second Amendment to the Confidential Private Placement
                  Memorandum dated February 24, 2000 for Western Kentucky
                  Lithotripters Limited Partnership (16)

     10.160       Third Amendment to the Confidential  Private  Placement
                  Memorandum  dated March 29, 2000 for Western  Kentucky
                  Lithotripters  Limited Partnership (16)

     10.161       Limited Liability Company Agreement of Connecticut Laser
                  Management, L.L.C. (16)

                                                33
<PAGE>

     10.162       Limited Liability Company Agreement of Prime Refractive -
                  St. Louis, L.L.C. (16)

     10.163       Amended and Restated Agreement of Limited Partnership of Texas
                  Lithotripsy Limited Partnership VIII (16)

     10.164       Management  Agreement dated October 13, 2000 by and between
                  Texas Lithotripsy Limited Partnership VIII and Lithotripers,
                  Inc.  (16)

     10.165       Acquisition of 100% of the Issued and Outstanding Capital
                  Stock of the Windsor Group, Inc. (16)

     10.166       Confidential Private Placement Memorandum for Texas
                  Lithotripsy Limited Partnership VII, L.P.(16)

     10.167       First Amendment to Confidential Private Placement Memorandum
                  for Texas Lithotripsy Limited Partnership VII, L.P.(16)

     10.168       Second Amendment to Confidential Private Placement Memorandum
                  for Texas Lithotripsy Limited Partnership VII, L.P.(16)

     10.169       Third Amendment to Confidential Private Placement Memorandum
                  for Texas Lithotripsy Limited Partnership VII, L.P.(16)

     12           Computation of ratio of earnings to fixed charges.  (16)

     21.1         List of subsidiaries of the Company.  (16)

     23.1         Independent Auditors' Consent of KPMG LLP.   (16)

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

     * Executive compensation plans and arrangements.

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

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

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

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

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

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

     (7)          Filed as an Exhibit to the Current  Report on Form 8-K dated
                  September  13,  1994 of the  Company  and  incorporated
                  herein by reference.

                                                34
<PAGE>

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

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


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

     (11)         Not used.

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

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

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

     (15)         Filed as an Exhibit to the Annual Report on Form 10-K of the
                  Company for the year ended December 31, 1999.

     (16)         Filed herewith.

                                                35

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                              PRIME MEDICAL SERVICES, INC.







                                               By: /s/ Brad A. Hummel
                                               ----------------------
                                               Brad A. Hummel, President
                                                 and Chief Executive Officer

                                               Date:  March 30, 2001



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

By: /s/ Kenneth S. Shifrin
--------------------------
    Kenneth S. Shifrin
    Chairman of the Board

Date:  March 30, 2001





By: /s/ Cheryl L. Williams
--------------------------
    Cheryl L. Williams

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

Date:  March 30, 2001

                                        36
<PAGE>

By: /s/ Joseph Jenkins
----------------------
    Joseph Jenkins, M.D., Director

Date:  March 30, 2001





By: /s/ John McEntire
---------------------
     John McEntire, Director

Date:   March 30, 2001





By: /s/ William A. Searles
--------------------------
    William A. Searles, Director

Date:  March 30, 2001





By: /s/ Michael Spalding
------------------------
    Michael Spalding, M.D., Director

Date:  March 30, 2001




By: /s/ James M. Usdan
----------------------
    James M. Usdan, Director

Date:  March 30, 2001



By: /s/ David Dulaney, M. D.
----------------------------
    David Dulaney, M. D., Director

Date:  March 30, 2001

                                        37

<PAGE>



                                   APPENDIX A

                                      INDEX

                                                                         Page

Independent Auditors' Report                                              A-2

Consolidated Financial Statements:

   Consolidated Statements of Income for the years
    ended  December 31, 2000, 1999 and 1998.                              A-3

   Consolidated Balance Sheets at December 31, 2000
     and 1999.                                                            A-4

   Consolidated  Statements of  Stockholders' Equity for
     the years ended December 31, 2000, 1999 and 1998.                    A-6

   Consolidated  Statements of Cash Flows for the
     years ended December 31, 2000, 1999 and 1998.                        A-7

   Notes to  Consolidated Financial Statements.                           A-10


<PAGE>


                          Independent Auditors' Report

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

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

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Prime  Medical
Services,  Inc. and  subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December 31,  2000,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

/s/:KPMG LLP

Austin, Texas
March 6, 2001


<PAGE>

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


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

<S>                                                                  <C>                <C>               <C>
                                                                               Years Ended December 31,
                                                                       2000               1999              1998
Revenue:
     Lithotripsy:
         Fee revenues                                                 $ 77,143           $ 80,880          $ 83,879
         Management fees                                                 3,684              5,719             5,284
         Equity income                                                   2,508              2,581             2,890
                                                                        ------             ------            ------
                                                                        83,335             89,180            92,053
     Manufacturing                                                      22,157             17,527            11,066
     Refractive                                                         23,501              3,414                 -
     Prostatherapy                                                       1,578              1,834             1,207
     Other                                                                 124                219               310
                                                                       -------            -------           -------
         Total revenue                                                 130,695            112,174           104,636
                                                                       -------            -------           --------

Cost of services and general and administrative expenses:
     Lithotripsy                                                        22,416             23,001            22,674
     Manufacturing                                                      17,149             12,880             9,204
     Refractive                                                         13,856              1,954                -
     Prostatherapy                                                       1,324              1,285               803
     Other                                                                 135                165               249
     Corporate                                                           4,486              5,027             4,926
      Relocation of central billing office                                 698                 -                 -
     Nonrecurring development, impairment
          and other costs, net                                           1,830                627             1,617
                                                                        ------             ------            ------
                                                                        61,894             44,939            39,473
Depreciation and amortization                                           14,187             10,848            10,476
                                                                        ------             ------            ------
         Total operating expenses                                       76,081             55,787            49,949
                                                                        ------             ------            ------
Operating income                                                        54,614             56,387            54,687

Other income (deductions):
     Interest and dividends                                              1,176              1,505             1,417
     Interest expense                                                  (10,563)            (9,408)           (8,469)
     Loan fees                                                            (173)              (566)           (4,978)
     Release of contractual obligation                                       -              1,140                 -
     Other, net                                                             83                (79)              304
                                                                        ------             ------           -------
                                                                        (9,477)            (7,408)          (11,726)
                                                                        ------             ------           -------
Income before provision for income taxes
     and minority interest                                              45,137             48,979            42,961

Minority interest in consolidated income                                27,754             24,508            24,790

Provision for income taxes                                               6,726              9,432             7,377
                                                                        ------             ------            ------
Net income                                                            $ 10,657           $ 15,039          $ 10,794
                                                                        ======             ======            ======
Basic earnings per share:
     Net income                                                         $ 0.66             $ 0.89            $ 0.58
                                                                        ======             ======            ======
     Weighted average shares outstanding                                16,085             16,958            18,650
                                                                        ======             ======            ======
Diluted earnings per share:
     Net income                                                         $ 0.66             $ 0.88            $ 0.57
                                                                        ======             ======            ======
     Weighted average shares outstanding                                16,170             17,114            18,783
                                                                        ======             ======            ======
</TABLE>

               See accompanying notes to consolidated financial statements.

                                        A-3
<PAGE>


                     PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<S>                                                                                   <C>                <C>
                                                                                            December 31,
                                                                                        2000               1999
ASSETS                                                                                  ----               ----

Current assets:
     Cash and cash equivalents                                                         $15,530            $20,064
     Investments                                                                         1,241              4,120
     Accounts receivable, less allowance for doubtful
        accounts of $212 in 2000 and $224 in 1999                                       30,152             23,273
     Other receivables                                                                   6,619              3,637
     Deferred income taxes                                                               1,032              1,066
     Prepaid expenses and other current assets                                           1,629              2,322
     Inventory                                                                           5,068              3,676
                                                                                        ------             ------
        Total current assets                                                            61,271             58,158
                                                                                        ------             ------
Property and equipment:
     Equipment, furniture and fixtures                                                  53,553             42,128
     Building and leasehold improvements                                                 3,574              2,092
                                                                                        ------             ------
                                                                                        57,127             44,220
     Less accumulated depreciation and
        amortization                                                                   (30,873)           (25,567)
                                                                                        ------             ------
        Property and equipment, net                                                     26,254             18,653
                                                                                        ------             ------
Other investments                                                                       10,229             18,963
Goodwill, at cost, net of amortization                                                 172,824            149,088
Other noncurrent assets                                                                  5,640              2,110
                                                                                      --------           --------
                                                                                      $276,218           $246,972
                                                                                      ========           ========
</TABLE>

           See accompanying notes to consolidated financial statements.
                                        A-4

<PAGE>

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


($ in thousands, except share data)
<TABLE>
<S>                                                                               <C>                <C>
                                                                                           December 31,
                                                                                    2000                1999
                                                                                    ----                ----
LIABILITIES

Current liabilities:
     Current portion of long-term debt                                            $ 3,705             $ 1,763
     Accounts payable                                                               4,611               3,290
     Accrued distributions to minority interests                                    7,930               8,332
     Accrued expenses                                                               6,908               7,254
                                                                                   ------              ------
         Total current liabilities                                                 23,154              20,639

Long-term debt, net of current portion                                            122,004             103,797
Deferred compensation liability                                                     1,168                   -
Deferred income taxes                                                               9,502               6,400
                                                                                  -------             -------
         Total liabilities                                                        155,828             130,836

Minority interest                                                                  20,599              19,454


STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value, 1,000,000 shares
     authorized; none outstanding                                                       -                   -
Common stock, $0.01 par value, 40,000,000 shares
     authorized; 19,524,533 issued in 2000 and
     19,367,267 isssued in 1999                                                       195                 194
Capital in excess of par value                                                     88,978              87,655
Accumulated earnings                                                               44,311              33,654
Treasury stock, at cost, 3,961,799 shares in 2000
     and 2,875,300 shares in 1999                                                 (33,693)            (24,821)
                                                                                   ------              ------
         Total stockholders' equity                                                99,791              96,682
                                                                                 --------            --------
                                                                                 $276,218            $246,972
                                                                                 ========            ========
</TABLE>





             See accompanying notes to consolidated financial statements.

                                        A-5

<PAGE>
                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       For the years ended December 31, 2000, 1999 and 1998

($ in thousands, except share data)
<TABLE>
<S>                                              <C>            <C>       <C>         <C>          <C>            <C>      <C>
                                                                            Capital in
                                                    Issued   Common Stock    Excess of  Accumulated        Treasury Stock
                                                    Shares       Amount     Par Value    Earnings        Shares      Amount   Total
                                                    ------       ------     ---------    --------        ------      ------   -----
Balance, January 1, 1998                          19,306,267      $ 193    $ 84,050     $ 7,821           -         $ -    $ 92,064

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

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

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

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

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

     Issuance of warrants                               -           -           170        -              -           -         170

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

     Purchase of treasury stock                         -           -           -          -        (1,030,100)     (8,382)  (8,382)
                                                  ----------       ----      ------      ------     -----------    --------  ------
Balance, December 31, 1999                        19,367,267        194      87,655      33,654     (2,875,300)    (24,821)  96,682

     Net income of the year                             -           -           -        10,657           -           -      10,657

     Issuance of warrants                               -           -         1,211        -              -           -       1,211

     Stock options exercised under
        a deferred compension plan                   141,599          1        -           -          (141,599)     (1,169)  (1,168)

     Exercise of stock options including tax
     benefit of $18 on non-qualifying exercises       15,667        -           112        -              -           -         112

     Purchase of treasury stock                         -           -           -          -          (944,900)     (7,703)  (7,703)
                                                  ----------       ----      ------      ------     -----------    --------  ------
Balance, December 31, 2000                        19,524,533      $ 195    $ 88,978    $ 44,311   $ (3,961,799)  $ (33,693)$ 99,791
                                                  ==========       ====      ======      ======     ===========    ========  ======

</TABLE>

  See accompanying notes to consolidated financial statements.

                                A-6
<PAGE>
                             PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)
<TABLE>
<S>                                                                  <C>             <C>                <C>
                                                                                Years Ended December 31,
                                                                       2000              1999             1998
                                                                    ------------      -----------      ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
     Fee and other revenue collected                                  $ 120,507        $ 108,251          $ 98,649
     Cash paid to employees, suppliers
         of goods and others                                            (63,236)         (52,144)          (39,748)
     Purchases of investments                                            (3,714)          (9,222)                -
     Proceeds from sales and maturities of investments                    6,615            5,003                 -
     Interest received                                                    1,154            1,505             1,417
     Interest paid                                                      (10,405)          (9,353)           (7,261)
     Taxes paid                                                          (5,741)          (8,296)           (7,506)
                                                                    ------------      -----------      ------------

         Net cash provided by operating activities                       45,180           35,744            45,551
                                                                    ------------      -----------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of equity investments and entities                        (23,784)         (23,580)                -
     Purchases of equipment and leasehold
         improvements                                                   (12,975)          (5,790)           (5,213)
     Proceeds from sales of equipment                                       277              207               224
     Distributions from investments                                       2,680            2,352             2,532
     Other                                                                    -              570               315
                                                                    ------------      -----------      ------------

         Net cash used in investing activities                          (33,802)         (26,241)           (2,142)
                                                                    ------------      -----------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on notes payable, exclusive of interest                    (3,075)          (1,403)          (80,484)
     Borrowings on notes payable                                         21,592            4,584           100,025
     Distributions to minority interest                                 (27,092)         (27,180)          (25,799)
     Debt issuance costs                                                      -                -            (4,417)
     Contributions by minority interest                                     202            2,636                72
     Exercise of stock options                                              164              160                 9
     Purchase of treasury stock                                          (7,703)          (8,382)          (16,439)
                                                                    ------------      -----------      ------------

         Net cash used in financing activities                          (15,912)         (29,585)          (27,033)
                                                                    ------------      -----------      ------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                                                (4,534)         (20,082)           16,376

Cash and cash equivalents, beginning of period                           20,064           40,146            23,770
                                                                    ------------      -----------      ------------

Cash and cash equivalents, end of period                               $ 15,530         $ 20,064          $ 40,146
                                                                    ============      ===========      ============

</TABLE>


              See accompanying notes to consolidated financial statements.

                                        A-7
<PAGE>
                           PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

($ in thousands)
<TABLE>
<S>                                                                <C>              <C>             <C>
                                                                           Years Ended December 31,
                                                                    2000             1999             1998
                                                                 ------------     ------------     ------------

Reconciliation of net income to net cash
     provided by operating activities:
Net income                                                          $ 10,657         $ 15,039         $ 10,794
Adjustments to reconcile net income to cash provided
     by operating activities:
         Minority interest in consolidated income                     27,754           24,508           24,790
         Depreciation and amortization                                14,187           10,848           10,476
         Provision for uncollectible accounts                            110              702              252
         Equity in earnings of affiliates                             (2,342)          (2,802)          (2,890)
         Debt issuance costs                                               -                -            4,417
         Provision for deferred income taxes                           1,298            2,875             (442)
         Write down of equipment                                       1,230            1,149                -
         Settlement of contingent liability                                -             (500)               -
         Release of contractual liability                                  -           (1,140)               -
         Other                                                          (161)             (66)            (100)
     Changes in operating assets and liabilities,
         net of effect of purchase transactions:
             Investments                                               2,879           (4,120)               -
             Accounts receivable                                      (7,729)          (1,851)          (3,186)
             Other receivables                                        (3,400)          (1,570)            (910)
             Other assets                                               (839)          (2,585)          (1,244)
             Accounts payable                                            556           (2,665)             822
             Accrued expenses                                            980           (2,078)           2,772
                                                                 ------------     ------------     ------------

     Total adjustments                                                34,523           20,705           34,757
                                                                 ------------     ------------     ------------

Net cash provided by operating activities                           $ 45,180         $ 35,744         $ 45,551
                                                                 ============     ============     ============


</TABLE>


             See accompanying notes to consolidated financial statements.

                                   A-8
<PAGE>

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

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

                                                                                      Years Ended December 31,
                                                                                2000           1999            1998
                                                                            ----------    ------------    ------------
SUPPEMENTAL INFORMATION OF NON-CASH
     INVESTING AND FINANCING ACTIVITIES:

At December 31, the Company had accrued distributions payable
     to minority interests.  The effect of this transaction was as follows:
         Current liabilities increased by                                     $ 7,930         $ 8,332         $ 8,951
         Minority interest decreased by                                         7,930           8,332           8,951

In 2000, the Company acquired four refractive centers.
     These transactions are discussed further in Note D.  The acquired
     assets and liabilities were as follows:
         Current assets increased by                                              594               -               -
         Noncurrent assets increased by                                         7,221               -               -
         Goodwill increased by                                                 20,899               -               -
         Current liabilities increased by                                         701               -               -
         Noncurrent liabilities increased by                                    2,082               -               -
         Minority interest increased by                                         1,005               -               -
         Capital in excess of par value increased by                            1,142               -               -

In 2000, 147,000 options were exercised into a deferred
     compensation plan.
         Noncurrent liabilities increased by                                    1,168               -               -
         Stockholder's equity decreased by                                      1,168               -               -


In 1999, the Company acquired, through a majority owned subsidiary
     60% of the outstanding stock of Horizon Vision Centers.  This
     transaction is discussed further in Note D.  The acquired assets
     and liabilities were as follows:
         Current assets increased by                                                -             710               -
         Noncurrent assets increased by                                             -           3,057               -
         Goodwill increased by                                                      -           9,174               -
         Current liabilities increased by                                           -           1,489               -
         Noncurrent liabilities increased by                                        -             413               -
         Minority interest increased by                                             -             910               -

In 1998, the Company recognized tax benefits associated with
     warrants previously exercised.  The effect of this was as follows:
         Current liabilities decreased by                                           -               -           1,512
         Noncurrent liabilities decreased by                                        -               -           1,584
         Stockholders' equity increased by                                          -               -           3,096



</TABLE>


                 See accompanying notes to consolidated financial statements.

                                        A-9
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



A.       ORGANIZATION AND OPERATION OF THE COMPANY

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

B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The  consolidated  financial  statements  include  the  accounts  of Prime,  its
wholly-owned  subsidiaries,  entities more than 50% owned and partnerships where
Prime has control,  even though its ownership is less than 50%.  Investments  in
entities in which the Company's  investment is less than 50% ownership,  and the
Company does not have  significant  influence,  are  accounted for by the equity
method if  ownership is between 20% - 50%, or by the cost method if ownership is
less  than  20%.   Through   December  31,  2000,  the  Company  had  recognized
approximately  $274,000 in undistributed  earnings using the equity method. This
amount  represents  undistributed  earnings from entities,  in which the Company
owns 50% or less,  and does not  have  significant  influence.  All  significant
intercompany accounts and transactions have been eliminated.

Cash Equivalents

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

Investments

The Company  classifies its investments in debt securities as trading securities
in  accordance  with  Statement  of  Financial  Accounting  Standards  No.  115,
Accounting  for  Certain  Investments  in Debt and  Equity  Securities.  Trading
securities are reported at fair value, with unrealized gains and losses included
in  earnings.  The  change in net  unrealized  holding  gain or loss on  trading
securities was not material for the years ended December 31, 2000 and 1999.

Property and Equipment

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

                                A-10

<PAGE>


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets

The Company  records as goodwill the excess of the purchase  price over the fair
value  of the net  assets  associated  with  acquired  businesses.  Goodwill  is
amortized using the straight-line  basis over a period not to exceed twenty five
years for the refractive  segment and forty years for the  lithotripsy  segment.
Accumulated  amortization  at  December  31,  2000 and 1999 is  $23,950,000  and
$18,155,000,  respectively.  Goodwill is reviewed for impairment whenever events
or  changes  in  circumstances  indicate  that the  carrying  amount  may not be
recoverable.  If the sum of the expected future  undiscounted cash flows is less
than  the  carrying  amount  of the  goodwill,  a loss  is  recognized  for  the
difference between the discounted cash flows and carrying value of the goodwill.

Revenue Recognition

Revenues generated from management  services and the manufacture of trailers are
recognized as they are earned. The Company's  lithotripsy fee revenues are based
upon fees  charged for services to  hospitals,  commercial  insurance  carriers,
state and federal health care agencies, and individuals,  net of contractual fee
reductions.  The  Company's  refractive  revenues  are based on fees charged for
services to individuals or commercial insurance carriers, net of contractual fee
reductions.

Major Customers and Credit Concentrations

A  significant  portion of the  Company's  manufacturing  revenues are from four
customers.  For the years ended December 31, 2000 and 1999,  sales to these four
customers  accounted  for 80% and 71% of  each  year's  manufacturing  revenues,
respectively.

Concentrations of credit risk with respect to receivables are limited due to the
wide variety of customers,  as well as their  dispersion  across many geographic
areas.  Other than as disclosed  below,  the Company does not consider itself to
have any  significant  concentrations  of credit  risk.  At December  31,  2000,
approximately 15% of accounts  receivable relate to units operating in Texas, 8%
relate to units located in Louisiana,  8% relate to units operating in Virginia,
and  9%  relate  to  units  located  in   California.   At  December  31,  1999,
approximately 14% of accounts  receivable relate to units operating in Texas, 8%
relate to units  located in  Louisiana,  7% relate to units located in Virginia,
and 12% relate to units located in California.

Income Tax

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

                                A-11
<PAGE>


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

deferred tax assets and  liabilities  of a change in tax rates is  recognized in
income in the period that includes the enactment date.

Long-Lived Assets

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

Accounts Receivable

Accounts receivable are recorded based on revenues,  less allowance for doubtful
accounts and contractual adjustments.

Inventory

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

Stock-Based Compensation

Upon adoption of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based  Compensation  ("Statement 123"), in 1996, the Company continued
to measure compensation expense for its stock-based employee  compensation plans
using the intrinsic  value method  prescribed by APB Opinion No. 25,  Accounting
for Stock Issued to Employees.  The Company provides proforma disclosures of net
income and earnings per share as if the fair  value-based  method  prescribed by
Statement 123 had been applied in measuring compensation expense. (See Note J).

Debt Issuance Costs

The Company expenses debt issuance costs as incurred.

Estimates Used to Prepare Financial Statements

Management uses estimates and assumptions in preparing  financial  statements in
accordance with generally accepted  accounting  principles.  Those estimates and
assumptions  affect  the  reported  amounts  of  assets  and  liabilities,   the
disclosure of contingent assets and liabilities, and

                                A-12
<PAGE>


B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

the reported revenues and expenses. Actual results could vary from the estimates
that were assumed in preparing the financial statements.

Reclassification

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

Earnings Per Share

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

(In thousands, except per share data)

                                             Net           Per Share
For the year ended December 31, 2000         Income        Shares       Amounts
------------------------------------         ------        ------       -------

         Basic                              $10,657        16,085       $0.66
                                                                        =====
         Effect of dilutive securities:
                Options                        -               85
                                            -------        ------       -----
         Diluted                            $10,657        16,170       $0.66
                                            =======        ======       =====
For the year ended December 31, 1999
------------------------------------
         Basic                              $15,039        16,958       $0.89
                                                                        =====
         Effect of dilutive securities:
                Options                        -              156
                                            -------        ------       -----
         Diluted                            $15,039        17,114       $0.88
                                            =======        ======       =====
For the year ended December 31, 1998
------------------------------------
         Basic                              $10,794        18,650        $0.58
                                                                         =====
         Effect of dilutive securities:
                Options                        -              133
                                            -------        ------        -----
         Diluted                            $10,794        18,783        $0.57
                                            =======        ======        =====

         Unexercised  employee stock options and warrants to purchase 1,638,000,
         1,247,000 and 1,708,000 shares of Prime common stock as of December 31,
         2000,   1999  and  1998,   respectively,   were  not  included  in  the
         computations  of diluted EPS because the  exercise  prices were greater
         than the  average  market  price of  Prime's  common  stock  during the
         respective periods.

                                        A-13
<PAGE>


C.  INVESTMENTS

Barnet Dulaney Eye Center

Effective  September  1, 1999 the Company  purchased a 60% interest in two laser
(refractive)   surgery  centers  operated  by  Barnet  Dulaney  Eye  Center  for
approximately  $8,807,000  in cash and a warrant to  purchase  29,000  shares of
Company common stock, plus a contingent  earn-out obligation totaling $1 million
which  was  paid  in  2000 at the end of the  first  year of  post-  acquisition
operations.  The  contingent  earn-out  obligation  was  based on the  operating
performance of one of the two surgery  centers for one year. This investment was
accounted  for using the equity  method until June 30, 2000.  Effective  July 1,
2000,  the Company  amended  certain  agreements  related to its 60% interest in
Barnet  Dulaney  Eye  Center.  As a result of these  amendments,  the  Company's
investment  in the  Barnet  Dulaney  Eye  Center  has been  consolidated  in the
accompanying financial statements as of July 1, 2000.

Tenn-GA

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

Southern California

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

Ohio and Louisiana Partnerships

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

American Physicians Service Group, Inc.

At December  31, 2000 and 1999,  the Company  owned  111,000 and 1,000 shares of
common stock, respectively, representing less than 1%, of the outstanding common
stock of American  Physicians Service Group, Inc. (APS). APS owned approximately
15% and 14% of the outstanding  common stock of the Company at December 31, 2000
and 1999,  respectively.  Two of the Company's six board members are also on the
board of APS.

The Company occupies  approximately  11,600 square feet of office space owned by
APS. The Company also shares  certain  personnel  with APS. The monthly rent and
personnel cost is approximately  $18,000.  The Company purchased  treasury stock
shares through APS Financial

                                A-14
<PAGE>

C.  INVESTMENTS (continued)

Services,  Inc. (a wholly owned subsidiary of APS). For the years ended December
31, 2000 and 1999,  the Company paid  commissions  of  approximately  $8,000 and
$25,000,  respectively,  to acquire  136,200 and 420,100  shares,  respectively,
which  management  believes was competitive  with  commissions  charged by other
firms offering such services.

D.  ACQUISITIONS

Effective  March 1, 2000,  the  Company  purchased  a 60%  interest  in the Mann
Berkeley Caplan Laser Center of Austin,  Texas, a refractive  vision  correction
center.  The Company paid approximately $3.8 million in cash and issued warrants
to  purchase  27,000  shares  of  common  stock,  and  has  accounted  for  this
transaction using the purchase method of accounting. Additionally in conjunction
with this transaction,  the Company issued warrants to purchase 28,000 shares of
common stock to a third party.

Effective March 1, 2000, the Company  purchased a 60% interest in the Caster Eye
Center, a refractive vision correction  center.  The Company paid  approximately
$5.8 million in cash, and has accounted for this transaction  using the purchase
method of accounting.  Additionally in conjunction  with this  transaction,  the
Company  issued  warrants to purchase  44,000  shares of common stock to a third
party.

Effective  April 1, 2000,  the Company  purchased a 65% interest in New York Eye
Specialists,   a  refractive   vision  correction   center.   The  Company  paid
approximately $8.9 million in cash, and has accounted for this transaction using
the  purchase  method  of  accounting.  Additionally  in  conjunction  with this
transaction,  the Company  issued  warrants to purchase  67,000 shares of common
stock to a third party.

Effective  September  1, 2000,  the Company  purchased a 65%  interest in Vision
Correction  Centers of Kansas City, a refractive vision correction  center.  The
Company paid  approximately $4.5 million in cash for the center in October 2000,
and has accounted for this transaction  using the purchase method of accounting.
Additionally in conjunction with this  transaction,  the Company issued warrants
to purchase 34,000 shares of common stock to a third party.

Effective  September 1, 1999, the Company acquired 60% of the outstanding  stock
of  Horizon  Vision  Centers,  Inc.  (Horizon).  Horizon  operates  seven  laser
(refractive) surgery centers in California. The Company paid approximately $10.9
million in cash for this acquisition and has accounted for the transaction using
the  purchase  method  of  accounting.   Additionally  in  conjunction   with  a
modification  to the purchase  agreement in 2000, the Company issued warrants to
purchase 81,000 shares of common stock to a third party.

Certain of the  acquisitions  discussed above have contingent  earn-out  clauses
based  on  the  future  operations  of the  related  centers  exceeding  certain
performance measurements. The Company does not believe any future payments would
be significant.

                                        A-15
<PAGE>

D.  ACQUISITIONS (continued)

Unaudited  proforma  combined  income data for the years ended December 31, 2000
and 1999 of the Company, the acquisitions discussed above and the acquisition of
Barnet  Dulaney Eye  Center's  refractive  surgery  centers  discussed in Note C
assuming they were effective January 1, 1999 is as follows:

         ($ in thousands, except per share data)         2000             1999
                                                         ----             ----

                  Total revenues                      $140,865         $139,919
                  Total expenses                      $128,485         $122,516
                                                      --------         --------

                     Net income                       $ 12,380          $17,403
                                                      ========          =======

                     Diluted earnings per share          $0.77            $1.02
                                                      ========         ========

E.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  amounts and  estimated  fair values of the  Company's  significant
financial instruments as of December 31, 2000 and 1999 are as follows:

                                   2000                           1999
                                   ----                           ----
                            Carrying       Fair       Carrying         Fair
  ($in thousands)            Amount       Value        Amount          Value
                             ------       -----        ------          -----
   Financial assets:
     Cash                   $15,530      $15,530       $20,064        $20,064
     Investments              1,241        1,241         4,120          4,120
     Accounts receivable     30,152       30,152        23,273         23,273
     Other receivables        6,619        6,619         3,637          3,637

  Financial liabilities:
     Debt                   125,709      111,709       105,560         97,560
     Accounts payable         4,611        4,611         3,290          3,290

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

Cash

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

Investments

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

                                        A-16
<PAGE>


E.  FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

Accounts Receivable and Other Receivables

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

Debt

The fair value at  December  31, 2000 and 1999 for the $100  million  fixed rate
senior  subordinated notes was valued using the market rate of 11.66% and 10.2%,
respectively.  The  carrying  value of the debt  bearing  interest at prime rate
approximates fair value.

Accounts Payable

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

Limitations

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information and information about the financial  instrument.  Fair value
estimates are based on existing on balance sheet financial  instruments  without
attempting to estimate the value of anticipated future business and the value of
assets and  liabilities  that are not considered  financial  instruments.  Other
significant  assets and liabilities that are not considered  financial assets or
liabilities include deferred tax assets and liabilities, property and equipment,
equity investment in partnerships, goodwill, other noncurrent assets and accrued
expenses.  In addition,  the tax ramifications related to the realization of the
unrealized  gains  and  losses  can  have a  significant  effect  on fair  value
estimates and have not been considered in the aforementioned estimates.

                                        A-17


<PAGE>


F.  ACCRUED EXPENSES

Accrued expenses consist of the following:

                                                          December 31,
($ in thousands)                                     2000            1999
                                                     ----            ----
     Legal fees                                     $ 146            $291
     Accrued group insurance costs                     60             193
     Compensation and payroll related expense       1,472           1,393
     Taxes, other than income taxes (benefit)         (26)            343
     Accrued interest                               2,404           2,247
     Deferred payments for acquisitions                --              54
     Other                                          2,852           2,733
                                                    -----           -----

                                                  $ 6,908         $ 7,254
                                                    =====           =====

G.  INDEBTEDNESS

Long-term debt is as follows:

($ in thousands)                                            December 31,
                                                    2000                1999
                                                    ----                ----
     Interest Rates         Maturities

        8.75%                2000-2008            $100,000            $100,808
        Floating             2000-2003              24,030               4,464
        None                 2000-2006                 162                 162
        6%-9%                2000-2004               1,517                 126
                                               -----------        ------------
                                                  $125,709            $105,560

     Less current portion of long-term debt          3,705               1,763
                                               -----------         -----------
                                                  $122,004            $103,797
                                                  ========            ========

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

The Note Indenture restricts, among other things, the ability of the Company and
its Restricted Subsidiaries to incur additional indebtedness and issue preferred
stock, enter into sale and leaseback transactions, incur liens, pay dividends or
make certain other restricted payments,

                                A-18
<PAGE>


G.  INDEBTEDNESS (continued)

apply net proceeds  from certain  asset sales,  enter into certain  transactions
with  affiliates,  merge or  consolidate  with any other  person,  sell stock of
subsidiaries  and  assign,  transfer,  lease,  convey or  otherwise  dispose  of
substantially all of the assets of the Company.

During 1998, the Company  amended its syndicated bank facility from $135 million
to $100  million.  The  facility  consists of a $100  million  revolving  credit
facility  bearing  interest  of  LIBOR + 1 to 2%,  maturing  in April  2003.  At
December 31,  2000,  the Company had drawn $18 million on the  revolving  credit
facility.  At December 31, 2000,  interest on the  Company's  bank  facility was
8.59%. The assets of the Company and the stock of its subsidiaries collateralize
the bank facility.

The stated principal repayments for all indebtedness as of December 31, 2000 are
payable as follows:

                   ($ in thousands)
                                        2001          $ 3,705
                                        2002            2,292
                                        2003           19,165
                                        2004              217
                                        2005              261
                                      Thereafter      100,069

H.  COSTS OF SERVICES AND GENERAL AND ADMINISTRATIVE EXPENSES

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

                                            Years Ended December 31,
                                         2000         1999            1998
                                         ----         ----            ----
  ($ in thousands)

     Salaries, wages and benefits      $19,767      $16,230         $16,294
     Other costs of services            11,121        7,789           7,136
     General and administrative          6,844        5,770           3,225
     Legal and professional              2,516        2,167           2,551
     Manufacturing costs                15,851       11,902           8,294
     Advertising                         3,143          255             157
     Other                               2,652          826           1,816
                                       -------      -------         -------
                                       $61,894      $44,939         $39,473
                                       =======      =======         =======

                                        A-19

<PAGE>


I.  COMMITMENTS AND CONTINGENCIES

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

The Company sponsors a partially  self-insured group medical insurance plan. The
plan is  designed  to provide a  specified  level of  coverage,  with  stop-loss
coverage provided by a commercial insurer.  The Company's maximum claim exposure
is limited to $35,000 per person per policy  year.  At December  31,  2000,  the
Company   had  256   employees   enrolled  in  the  plan.   The  plan   provides
non-contributory   coverage  for   employees  and   contributory   coverage  for
dependents.  The  Company's  contributions  totaled  $1,025,000,   $966,000  and
$623,000, in 2000, 1999 and 1998 respectively.

In 2000, 147,000 options were exercised with exercise prices of $.25 and $.56 in
conjunction with the establishment of a deferred compensation plan.  The related
common stock is held in the deferred compensation plan.The Company has a related
deferred  compensation  liability of  $1,168,000  recorded  on  the accompanying
balance sheet.

J.  COMMON STOCK OPTIONS AND WARRANTS

1993 Stock Option Plan

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
Interpretations  in  accounting  for its  employee  stock  options.  The Company
provides  proforma  disclosures  of net income and  earnings per share as if the
fair-value  based  method  prescribed  by  Statement  123 had  been  applied  in
measuring  compensation expense. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

On October  12,  1993,  the  Company  adopted  the 1993 Stock  Option Plan which
authorizes  the  grant of up to  2,000,000  shares  to  certain  key  employees,
directors,  and consultants  and advisors to the Company.  Options granted under
the 1993 Stock Option Plan shall terminate no later than ten years from the date
the  option  is  granted,  unless  the  option  terminates  sooner  by reason of
termination of employment, disability or death.

In June 1997,  the Company  adopted an  amendment  to the 1993 Stock Option Plan
that authorized an additional  500,000 shares. In June 1998, the Company adopted
an amendment to the 1993 Stock Option Plan that authorized an additional 750,000
shares.  In June 1999 the Company  adopted an amendment to the 1993 Stock Option
Plan that authorized an additional 400,000 shares.

                                        A-20
<PAGE>


J.  COMMON STOCK OPTION AND WARRANTS (continued)

A summary of the Company's stock option  activity, and  related information  for
  the years ended December 31, follows:
<TABLE>
<S>                           <C>         <C>                   <C>          <C>                 <C>         <C>


                                         2000                               1999                        1998

                               Options     Weighted-Average      Options    Weighted-Average      Options  Weighted-Average
                               (000)       Exercise Price         (000)     Exercise Price        (000)     Exercise Price
                               --------------------------------- -------------------------------- ------------------------

Outstanding-beginning

of year                          2,294          $9.10             1,892         $10.10             1,394         $11.04

Granted                            441           7.21               695           7.56               825           8.63

Exercised                         (163)           .89               (17)          5.10               (44)          3.73

Forfeited                         (168)         12.49              (276)         12.20              (283)         12.58
                                ------          -----             -----        -------           -------        -------

Outstanding-end of year          2,404          $9.09             2,294          $9.10             1,892         $10.10
                                ======                            =====                            =====

Exercisable at end of year       1,563          $9.82             1,137          $9.89               806         $10.74

Weighted-average fair
value of options

granted during the year          $2.71            --              $2.96            --              $3.40           --

</TABLE>

The following table summarizes the Company's outstanding options at December 31,
2000:
<TABLE>
<S>                                <C>               <C>                   <C>                  <C>             <C>
                                                           Outstanding Options                    Exercisable Options
                                                       Weighted
                                                       Average             Weighted                            Weighted
                                                      Remaining             Average                             Average
                                   Options            Contractual           Exercise               Options     Exercise
Range of Exercise Prices            (000)                 Life               Price                  (000)         Price
------------------------            -----                 ----               -----                  -----         -----

$0.25 - $4.91                         130              4.1 years              $4.91                   --         $  --
$4.92 - $8.50                       1,198              3.4 years               7.53                  626           7.38
$8.51 - $12.25                        621              3.1 years               9.78                  517           9.92
$12.26 - $15.32                       455              1.3 years              13.43                  420          13.35
                                      ---                                                            ---

Total                               2,404                                                          1,563
                                    =====                                                          =====
</TABLE>


Proforma information  regarding net income and earnings per share is required by
Statement  123, and has been  determined as if the Company had accounted for its
employee stock options under the fair value method of that  Statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following  weighted-average  assumptions for 2000,
1999 and 1998, respectively: risk-free interest rates of 6.6%, 6.5% and

                                        A-21
<PAGE>


J.  COMMON STOCK OPTION AND WARRANTS (continued)

5.2%;  dividend  yields of 0%, 0% and 0%;  volatility  factors  of the  expected
market  price  of the  Company's  common  stock  of  .42,  .44  and  .42;  and a
weighted-average expected life of the option of 4 years.

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

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

                                 2000                   1999             1998

Pro forma net income            $8,512                $11,960           $7,817
Pro forma earning per share:
Basic                            $0.53                  $0.71            $0.42
Diluted                          $0.53                  $0.70            $0.42

As  of  December  31,  2000,  the  Company  had  issued   warrants  to  purchase
approximately  310,000  shares of common  stock to third  parties.  The exercise
prices of the warrants range from $7.73 to $10.38 per share. These warrants were
issued in conjunction with the refractive acquisitions discussed in Note D.

K.  LONG-LIVED ASSETS TO BE DISPOSED OF

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed Of,  equipment  which  management has both the ability and intent to
remove  from  service is reported in the  financial  statements  at the lower of
carrying  amount or fair value less costs to sell. In December 2000, the Company
committed to dispose of its prostatherapy  segment and entered into an agreement
to dispose of this segment in January 2001. In exchange for 100% of its interest
in its  prostatherapy  segment,  the Company received an unsecured  non-recourse
note receivable.  An estimated impairment of $1,230,000 was recognized to adjust
the  segment  net assets to fair value less the  estimated  costs to sell in the
caption  "nonrecurring  development,  impairment  and other  costs,  net" in the
accompanying statement of income.

                                A-22
<PAGE>


K.  LONG-LIVED ASSETS TO BE DISPOSED OF (continued)

 During 1999, the Company approved the removal from service of five lithotripter
units. Three of these units were removed from service by the end of 1999 and the
remaining  two were  removed from  service in the first  quarter of 2000.  These
assets were held by the  lithotripsy  segment.  The customers of these units are
now  serviced  by other  equipment.  A loss of  approximately  $1.1  million was
recognized  on the  write-down  to fair value less costs to sell in the  caption
"nonrecurring development,  impairment and other costs, net" of the accompanying
statement  of  income.   The  minority   interest   portion  of  this  loss  was
approximately $600,000.

L.  INCOME TAXES

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

Income tax expense consists of the following:

                                           Years Ended December 31,
($ in thousands)                     2000             1999            1998
                                     ----             ----            ----
   Federal:
     Current                       $4,494           $5,490          $6,404
     Deferred                       1,298            2,875            (442)
     State                            934            1,067           1,415
                                   ------           ------          ------
                                   $6,726           $9,432          $7,377
                                   ======           ======          ======

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

                                           Years Ended December 31,
($ in thousands)                    2000              1999            1998
                                    ----              ----            ----

  Expected federal income tax     $6,084            $8,565          $6,360
  State taxes                        607               694             920
  Other                               35               173              97
                                  ------            ------          ------
                                  $6,726            $9,432          $7,377
                                  ======            ======          ======

                                        A-23
<PAGE>


L.  INCOME TAXES (continued)

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2000 and
1999 are presented below:

($ in thousands)
                                                    2000               1999
                                                    ----               ----
  Deferred tax assets:
   Capitalized costs                              $1,079             $1,948
   Loan origination fees amortizable for
        tax purposes                                 644                949
   Accounts receivable, principally due to
        allowance for doubtful accounts               -                  73
   Accrued expenses deductible for tax
        purposes when paid                         1,032                994
                                                   -----              -----
        Total gross deferred tax assets            2,755              3,964
        Less valuation allowance                     --                 --
                                                   -----              -----
        Net deferred tax assets                   $2,755             $3,964
                                                   -----              -----


 ($ in thousands)
                                                    2000               1999
                                                    ----               ----
  Deferred tax liabilities:
    Property and equipment, principally due
        to differences in depreciation           $  (245)           $   (99)
    Investments in affiliated entities,
        principally due to undistributed income   (1,820)            (2,329)
    Intangible assets, principally due to
        differences in amortization periods
        for tax purposes                          (9,160)            (6,870)
                                                   ------            ------
    Total gross deferred tax liability           (11,225)            (9,298)
                                                 -------             ------
        Net deferred tax liability              $ (8,470)          $ (5,334)
                                                 =======             ======

There is no valuation allowance for deferred tax assets at December 31, 2000 and
1999.

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.

Based upon the level of historical  taxable  income and  projections  for future
taxable  income  over the periods  which the  deductible  temporary  differences
reverse, management believes it is more likely than not the Company will realize
the benefits of these deductible differences at December 31, 2000.

                                        A-24
<PAGE>


M.  SEGMENT REPORTING

The  Company  has three  reportable  segments:  lithotripsy,  manufacturing  and
refractive.  The lithotripsy  segment provides services related to the operation
of  the  lithotripters,   including  scheduling,   staffing,  training,  quality
assurance,  maintenance,  regulatory  compliance  and  contracting  with payors,
hospitals and surgery centers. The manufacturing segment provides  manufacturing
services and  installation,  upgrade,  refurbishment and repair of major medical
equipment for mobile medical service providers.  The refractive  segment,  which
was added in 1999,  provides  services  related to the  operations of refractive
vision  correction  centers.  Other  operating  segments  which  do not meet the
quantitative  thresholds for reportable segments include prostatherapy services,
which was disposed in January 2000.

The accounting  policies of the segments are the same as those described in Note
B,  the  summary  of  significant  accounting  policies.  The  Company  measures
performance  based on the pretax income or loss after  consideration of minority
interests  from  its  operating  segments,  which  do  not  include  unallocated
corporate general and administrative  expenses and corporate interest income and
expense.  Additionally,  certain  consolidated  entities  that are  reported  as
"corporate" own and operate lithotripsy equipment.  The revenue and depreciation
expense  related to this  equipment  is  included  in the  lithotripsy  segment.
However, the equipment is included in corporate assets.

The Company's segments are divisions that offer different services,  and require
different technology and marketing  approaches.  The majority of the lithotripsy
segment  is  comprised  of  acquired  entities,  as are  the  manufacturing  and
refractive segments.  The prostatherapy  segment was developed  internally.  The
presentation  of segments for 1998,  which included two segments for medical and
manufacturing,  have been recast to conform to the Company's  operating segments
for 2000 and 1999.

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

                                       A-25
<PAGE>


M.  SEGMENT REPORTING (continued)

 ($ in thousands)
                       Lithotripsy    Manufacturing   Refractive       Other
                       -----------    -------------   ----------       -----
2000
----
Revenue from
external customers         $83,335        $22,157      $23,501         $1,702

Intersegment revenues         --              298          --             --

Interest income                408             12            5             14

Interest expense               499            125        1,003            --

Depreciation and
  amortization               9,798            165        3,688            394

Segment profit              26,916          3,541        2,418             82

Segment assets             193,683         13,489       57,403              4

Investment in
  equity method
  investees                  9,696            --           --             --

Capital expenditures         4,961            172        6,283            500

1999
----
Revenue from
external customers         $89,180        $17,527        $3,414         $2,053

Intersegment revenues          --             243           --             --

Interest income                341            --            --               4

Interest expense               269             98           457            --

Depreciation and
  amortization               9,754            264           363            336

Segment profit              32,115          3,430           450            337

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

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

Capital expenditures         4,367            161           548            298



                                        A-26



<PAGE>


M.  SEGMENT REPORTING (continued)

($ in thousands)
                        Lithotripsy    Manufacturing   Refractive      Other
                        -----------    -------------   ----------      -----
         1998
         ----
Revenue from
external customers         $92,053        $11,066          --         $1,517

Intersegment revenues         --              255          --            --

Interest income               444             --           --              3

Interest expense              235             38           --            --

Depreciation and
  amortization              9,899            223           --            252

Segment profit             35,484          1,142           --            209

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

Investment in
  equity method
  investees                10,696            --            --            --

Capital expenditures        2,770          1,580           --            787


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

 ($ in thousands)                            2000          1999         1998
                                             ----          ----         ----

  Total revenues for reportable segments   $129,291     $110,364     $103,374

  Other segment                               1,702        2,053        1,517

  Elimination of intersegment revenues         (298)        (243)        (255)
                                           --------       -------    --------

     Total consolidated revenues           $130,695      $112,174    $104,636
                                           ========      ========    ========

                                        A-27

<PAGE>


M.  SEGMENT REPORTING (continued)

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

($ in thousands)                           2000           1999           1998
                                           ----           ----           ----

Total profit for reportable segments     $32,875        $35,995        $36,626

Other segment                                 82            337            209

Unallocated corporate expenses:

General and administrative                (4,486)        (5,027)        (4,926)

Net interest expense                      (8,199)        (7,424)        (7,226)

Loan fees and stock offering costs          (173)          (566)        (4,978)

Relocation of central billing office        (698)           --             --

Nonrecurring development and other costs  (1,830)           475         (1,617)

Release of contractual obligation            --           1,140            --

Other, net                                  (188)          (459)            83
                                         --------       --------      --------

Unallocated corporate expenses total     (15,574)       (11,861)       (18,664)
                                         --------        -------       -------

Income before income taxes               $17,383        $24,471        $18,171
                                         =======        =======        =======

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

($ in thousands)                          2000          1999            1998
                                          ----          ----            ----

Total assets for reportable segments   $264,575      $231,388         $213,569

Other segment                                 4         3,021            2,628

Unallocated corporate assets             11,639        12,563           24,001
                                       --------      --------         --------

Consolidated total                     $276,218      $246,972         $240,198
                                       ========      ========         ========

                                        A-28


<PAGE>


M.  SEGMENT REPORTING (continued)

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

                                                     Eliminating
($ in thousands)             Segments    Corporate     Entries   Consolidated
                             --------    ---------     -------   ------------
2000

Interest income                $439      $1,992        $(1,255)     $1,176
Interest expense              1,627      10,191         (1,255)     10,563
Depreciation and
  amortization               14,045         142            --       14,187
Capital expenditures         11,916       1,059            --       12,975

1999

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

1998

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

The amounts in 2000, 1999 and 1998 for interest income and expense, depreciation
and  amortization  and capital  expenditures  represent  amounts recorded by the
operations of the Company's corporate  functions,  which have not been allocated
to the segments.

N.  CONDENSED FINANCIAL INFORMATION REGARDING GUARANTOR  SUBSIDIARIES

Condensed consolidating  financial information regarding the Company,  Guarantor
Subsidiaries and non-guarantor subsidiaries as of December 31, 2000 and 1999 and
for each of the  years in the  three-year  period  ended  December  31,  2000 is
presented below for purposes of complying with the reporting requirements of the
Guarantor  Subsidiaries.  Separate  financial  statements and other  disclosures
concerning each Guarantor  Subsidiary have not been presented because management
has determined that such information is not material to investors. The Guarantor
Subsidiaries  are  wholly-owned  subsidiaries  of the Company who have fully and
unconditionally guaranteed the Notes described in Note G.

                                        A-29
<PAGE>

                         PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           Condensed Consolidating Statement of Income
                                  Year Ended December 31, 2000
<TABLE>
<S>                                           <C>             <C>             <C>             <C>              <C>

                                               Prime Medical    Guarantor      Non-Guarantor   Eliminating     Consolidated
($ in thousands)                               Services, Inc.  Subsidiaries    Subsidiaries      Entries          Total
                                              ------------------------------  --------------  --------------  --------------

Revenue:
     Lithotripsy:
         Fee revenues                                   $ -        $ 15,490        $ 61,653             $ -        $ 77,143
         Management fees                                  -           2,131           1,553               -           3,684
         Equity income                               24,615          18,666             530         (41,303)          2,508
                                              --------------  --------------  --------------  --------------  --------------
                                                     24,615          36,287          63,736         (41,303)         83,335
     Manufacturing                                        -               -          22,157               -          22,157
     Refractive                                       2,211           5,025          22,577          (6,312)         23,501
     Prostatherapy                                        -               -           1,578               -           1,578
     Other                                                -             124               -               -             124
                                              --------------  --------------  --------------  --------------  --------------
         Total revenue                               26,826          41,436         110,048         (47,615)        130,695
                                              --------------  --------------  --------------  --------------  --------------

Cost of services and general and
     administrative expenses:
         Lithotripsy                                      -             792          21,624               -          22,416
         Manufacturing                                    -               -          17,149               -          17,149
         Refractive                                       -             164          13,692               -          13,856
         Prostatherapy                                    -            (288)          1,612               -           1,324
         Other                                            -             135               -               -             135
         Corporate                                       54           4,432               -               -           4,486
         Relocation of central billing office             -             698               -               -             698
         Nonrecurring development, impairment                                             -               -               -
            and other costs                           1,230             600               -               -           1,830
                                              --------------  --------------  --------------  --------------  --------------
                                                      1,284           6,533          54,077               -          61,894
Depreciation and amortization                             -           7,266           6,921               -          14,187
                                              --------------  --------------  --------------  --------------  --------------
         Total operating expenses                     1,284          13,799          60,998               -          76,081
                                              --------------  --------------  --------------  --------------  --------------

Operating income                                     25,542          27,637          49,050         (47,615)         54,614
                                              --------------  --------------  --------------  --------------  --------------

Other income (deductions):
     Interest income                                    197             542             437               -           1,176
     Interest expense                                (9,741)            (28)           (794)              -         (10,563)
     Loan fees and stock offering costs                (173)              -               -               -            (173)
     Other, net                                          49             (51)             85               -              83
                                              --------------  --------------  --------------  --------------  --------------
         Total other income (deductions)             (9,668)            463            (272)              -          (9,477)
                                              --------------  --------------  --------------  --------------  --------------

Income before provision for income
     taxes and minority interest                     15,874          28,100          48,778         (47,615)         45,137

Minority interest in consolidated income                  -               -               -          27,754          27,754

Provision for income taxes                            5,217           1,274             235               -           6,726
                                              --------------  --------------  --------------  --------------  --------------

Net income                                         $ 10,657        $ 26,826        $ 48,543       $ (75,369)       $ 10,657
                                              ==============  ==============  ==============  ==============  ==============


</TABLE>

                                        A-30
<PAGE>

                   PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    Condensed Consolidating Statement of Income
                           Year Ended December 31, 1999

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

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

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

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

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

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

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

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

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


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

                                            Prime Medical    Guarantor       Non-Guarantor   Eliminating     Consolidated
($ in thousands)                            Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total
                                           ------------------------------   --------------  --------------  --------------

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

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

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

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

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

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

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

Net income                                      $ 10,794        $ 30,952         $ 41,977       $ (72,929)       $ 10,794
                                           ==============  ==============   ==============  ==============  ==============


</TABLE>
                                       A-32
<PAGE>
                     PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         Condensed Consolidating Balance Sheet
                                   December 31, 2000

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

ASSETS

Current assets:
     Cash                                            $ 427         $ 7,393         $ 7,710             $ -        $ 15,530
     Investments                                     1,241               -               -               -           1,241
     Accounts receivable, net                            -           3,453          26,699               -          30,152
     Other receivables                               2,137           2,720           1,762               -           6,619
     Deferred income taxes                             305             727               -               -           1,032
     Prepaid expenses and other current assets          40             312           1,277               -           1,629
     Inventory                                           -               -           5,068                           5,068
                                             --------------  --------------  --------------  --------------   -------------
        Total current assets                         4,150          14,605          42,516               -          61,271
                                             --------------  --------------  --------------  --------------   -------------
Property and equipment:
     Equipment, furniture and fixtures                   -           6,301          47,252               -          53,553
     Building and leasehold improvements                 -             535           3,039               -           3,574
                                             --------------  --------------  --------------  --------------   -------------
                                                         -           6,836          50,291               -          57,127
     Less accumulated depreciation
        and amortization                                 -          (4,109)        (26,764)              -         (30,873)
                                             --------------  --------------  --------------  --------------   -------------
        Property and equipment, net                      -           2,727          23,527               -          26,254

Investment in subsidiaries
     and other investments                         226,154          35,342               -        (251,267)         10,229
Goodwill, at cost, net of amortization                   -         172,824               -               -         172,824
Other noncurrent assets                                770           4,154             716               -           5,640
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 231,074       $ 229,652        $ 66,759      $ (251,267)      $ 276,218
                                             ==============  ==============  ==============  ==============   =============


LIABILITIES

Current liabilities:
     Current portion of long-term debt                 $ -             $ -         $ 3,705             $ -         $ 3,705
     Accounts payable                                   73             555           3,983               -           4,611
     Accrued expenses                                4,613             751           9,474               -          14,838
                                             --------------  --------------  --------------  --------------   -------------
        Total current liabilities                    4,686           1,306          17,162               -          23,154
Long-term debt, net of current portion             118,000             119           3,885               -         122,004
Deferred compensation liability                      1,168               -               -               -           1,168
Deferred income taxes                                7,429           2,073               -               -           9,502
                                             --------------  --------------  --------------  --------------   -------------
        Total liabilities                          131,283           3,498          21,047               -         155,828

Minority interest                                        -               -               -          20,599          20,599

STOCKHOLDERS' EQUITY

Common stock                                           195               -               -               -             195
Capital in excess of par value                      88,978               -               -               -          88,978
Accumulated earnings                                44,311               -               -               -          44,311
Treasury stock                                     (33,693)              -               -               -         (33,693)
Subsidiary net equity                                    -         226,154          45,712        (271,866)              -
                                             --------------  --------------  --------------  --------------   -------------
        Total stockholders' equity                  99,791         226,154          45,712        (271,866)         99,791
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 231,074       $ 229,652        $ 66,759      $ (251,267)      $ 276,218
                                             ==============  ==============  ==============  ==============   =============

</TABLE>
                                        A-33
<PAGE>
                        PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            Condensed Consolidating Balance Sheet
                                      December 31, 1999

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

ASSETS

Current assets:
     Cash                                          $ 2,043         $ 2,682        $ 15,339             $ -        $ 20,064
     Investments                                     4,120               -               -               -           4,120
     Accounts receivable, net                            -           3,069          20,204               -          23,273
     Other receivables                                 437           1,689           1,511               -           3,637
     Deferred income taxes                              94             972               -               -           1,066
     Prepaid expenses and other current assets          14           1,195           1,113               -           2,322
     Inventory                                           -               -           3,676                           3,676
                                             --------------  --------------  --------------  --------------   -------------
        Total current assets                         6,708           9,607          41,843               -          58,158
                                             --------------  --------------  --------------  --------------   -------------
Property and equipment:
     Equipment, furniture and fixtures                   -           5,549          36,579               -          42,128
     Building and leasehold improvements                 -             498           1,594               -           2,092
                                             --------------  --------------  --------------  --------------   -------------
                                                         -           6,047          38,173               -          44,220
     Less accumulated depreciation
        and amortization                                 -          (4,514)        (21,053)              -         (25,567)
                                             --------------  --------------  --------------  --------------   -------------
        Property and equipment, net                      -           1,533          17,120               -          18,653

Investment in subsidiaries
     and other investments                         196,347          50,721               -        (228,105)         18,963
Goodwill, at cost, net of amortization                   -         139,989           9,099               -         149,088
Other noncurrent assets                                281             643           1,186               -           2,110
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 203,336       $ 202,493        $ 69,248      $ (228,105)      $ 246,972
                                             ==============  ==============  ==============  ==============   =============


LIABILITIES

Current liabilities:
     Current portion of long-term debt                 $ -             $ -         $ 1,763             $ -         $ 1,763
     Accounts payable                                   70           1,256           1,964               -           3,290
     Accrued expenses                                3,670           1,242          10,674               -          15,586
                                             --------------  --------------  --------------  --------------   -------------
        Total current liabilities                    3,740           2,498          14,401               -          20,639
Long-term debt, net of current portion             100,000             162           3,635               -         103,797
Deferred income taxes                                2,914           3,486               -               -           6,400
                                             --------------  --------------  --------------  --------------   -------------
        Total liabilities                          106,654           6,146          18,036               -         130,836

Minority interest                                        -               -               -          19,454          19,454

STOCKHOLDERS' EQUITY

Common stock                                           194               -               -               -             194
Capital in excess of par value                      87,655               -               -               -          87,655
Accumulated earnings                                33,654               -               -               -          33,654
Treasury stock                                     (24,821)              -               -               -         (24,821)
Subsidiary net equity                                    -         196,347          51,212        (247,559)              -
                                             --------------  --------------  --------------  --------------   -------------
        Total stockholders' equity                  96,682         196,347          51,212        (247,559)         96,682
                                             --------------  --------------  --------------  --------------   -------------
                                                 $ 203,336       $ 202,493        $ 69,248      $ (228,105)      $ 246,972
                                             ==============  ==============  ==============  ==============   =============


</TABLE>
                                A-34
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Condensed Consolidating Statement of Cash Flows
                           Year Ended December 31, 2000
<TABLE>
<S>                                           <C>             <C>            <C>             <C>              <C>

                                               Prime Medical    Guarantor      Non-Guarantor   Eliminating     Consolidated
($ in thousands)                               Services, Inc.  Subsidiaries    Subsidiaries      Entries          Total
                                              ------------------------------  --------------  --------------  --------------

CASH FLOWS FROM OPERATING
     ACTIVITIES:
        Net cash provided by (used in)
             operating activities                 $ (13,222)       $ 17,034        $ 41,368             $ -        $ 45,180
                                              --------------  --------------  --------------  --------------  --------------

CASH FLOWS FROM INVESTING
     ACTIVITIES:
     Purchase of investments and entities                 -         (23,784)              -               -         (23,784)
     Purchases of equipment and leasehold
          improvements                                    -          (2,032)        (10,943)              -         (12,975)
     Proceeds from sales of equipment                     -               -             277               -             277
     Distributions from subsidiaries                 19,145          11,958               -         (31,103)              -
     Investments                                    (18,000)              -               -          18,000               -
     Distributions from investments                       -           2,680               -               -           2,680
     Other                                                -               -               -               -               -
                                              --------------  --------------  --------------  --------------  --------------
        Net cash provided by (used in)
             investing activities                     1,145         (11,178)        (10,666)        (13,103)        (33,802)
                                              --------------  --------------  --------------  --------------  --------------

CASH FLOWS FROM FINANCING
     ACTIVITIES:
     Payments on notes payable exclusive of
        interest                                          -               -          (3,075)              -          (3,075)
     Borrowings on notes payable                     18,000               -           3,592               -          21,592
     Distributions to minority interest                   -               -               -         (27,092)        (27,092)
     Contributions by minority interest                   -               -             202               -             202
     Exercise and issuance of stock options             164               -               -               -             164
     Purchase of treasury stock                      (7,703)              -               -               -          (7,703)
     Contributions from parent                            -          18,000               -         (18,000)              -
     Distributions to equity owners                       -         (19,145)        (39,050)         58,195               -
                                              --------------  --------------  --------------  --------------  --------------

        Net cash provided by (used in)
             financing activities                    10,461          (1,145)        (38,331)         13,103         (15,912)
                                              --------------  --------------  --------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                            (1,616)          4,711          (7,629)              -          (4,534)

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

Cash and cash equivalents, end of period              $ 427         $ 7,393         $ 7,710             $ -        $ 15,530
                                              ==============  ==============  ==============  ==============  ==============

</TABLE>
                                A-35
<PAGE>
                 PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Condensed Consolidating Statement of Cash Flows
                           Year Ended December 31, 1999
<TABLE>
<S>                                           <C>             <C>             <C>            <C>            <C>

                                               Prime Medical    Guarantor      Non-Guarantor  Eliminating     Consolidated
($ in thousands)                               Services, Inc.  Subsidiaries    Subsidiaries     Entries          Total
                                              ------------------------------  -------------  --------------  --------------

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

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

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

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

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

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

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

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


</TABLE>
                                        A-36
<PAGE>
                   PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Condensed Consolidating Statement of Cash Flows
                            Year Ended December 31, 1998
<TABLE>
<S>                                           <C>             <C>            <C>             <C>            <C>

                                               Prime Medical    Guarantor      Non-Guarantor  Eliminating     Consolidated
($ in thousands)                               Services, Inc.  Subsidiaries    Subsidiaries     Entries          Total
                                              ------------------------------  -------------  --------------  --------------

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

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

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

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

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

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

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

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

</TABLE>
                                        A-37
<PAGE>