UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                     ______________________________________

                                   FORM 10-K/A

             [ X ] Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 1997

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

     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 April 23, 1998: $215,643,000

    Indicate  the  number of  shares  outstanding  of each of the  registrants'
classes of common stock, as of the latest practicable date.
                                               Number of  Shares Outstanding 
          Title of Each Class                           April 23, 1998         
          -------------------                           --------------         
    Common Stock, $.01 par value                          19,168,267           
                                                           
                                                                                
                       DOCUMENTS INCORPORATED BY REFERENCE
     Selected  portions of the  registrant's  definitive  proxy material for the
1998 annual meeting of shareholders  are incorporated by reference into Part III
of the Form 10-K.
<PAGE>
                                                                                
1. The undersigned registrant hereby amends Item 6, Part II of its Annual Report
on Form 10-K for the  calendar  year ended  December 31, 1997 by deletion of the
original  Item 6 in its entirety and the  substitution  of the  following in its
place:

ITEM 6. SELECTED FINANCIAL DATA.
--------------------------------
($ in thousands, except per share data)
<TABLE>
<S>                                    <C>            <C>            <C>            <C>            <C>    
                                                            Years Ended December 31,
                                         1997          1996            1995          1994          1993
                                         ----          ----            ----          ----          ----

Revenues:

  Lithotripsy                          $ 93,113       $ 71,602       $ 22,153       $ 14,843       $  7,309

  Other                                   2,866            802          1,042          9,925         13,259
                                       --------       --------       --------      ---------       --------

  Total                                $ 95,979       $ 72,404       $ 23,195       $ 24,768       $ 20,568
                                       ========       ========       ========       ========       ========

Income:

  Net income                           $ 14,856       $   8,961      $  7,204       $  4,504       $  2,539
                                       ========       =========      ========       ========       ========

Diluted earnings per share:
  Net income                             $ 0.76         $ 0.49         $ 0.48         $ 0.31         $ 0.21
                                         ======         ======         ======         ======         ======

Dividends per share                       None           None           None          None            None

Total assets                           $225,826       $202,534       $ 77,627       $ 53,861       $ 38,678
                                       ========       ========       ========       ========       ========

Long-term obligations                  $ 71,198       $ 70,910       $ 22,323       $ 12,734       $  2,675
                                       ========       ========       ========       ========       ========

</TABLE>

Quarterly Data 

($ in thousands, except share amounts)

1996                                3/31       6/30      9/30     12/31
----                                ----       ----      ----     -----
Revenues                           $7,224    $18,695   $24,300   $22,185
Net income (loss)                   1,906      ( 353)    4,017     3,391
Per share amounts (basic):
   Net income (loss)                  .14      ( .02)      .21       .18
   Weighted average shares 
     outstanding                   14,754     17,597    19,071    19,079
Per share amounts (diluted):
   Net income (loss)                  .12      ( .02)      .21       .18
   Weighted average shares 
     outstanding                   16,155     18,114    19,365    19,362
1997
----
Revenues                          $20,889    $23,220   $26,361   $25,509
Net income                          2,876      3,670     4,520     3,790
Per share amounts (basic):
   Net income                         .15        .19       .23       .20
   Weighted average shares 
     outstanding                   19,218     19,277    19,299    19,306
Per share amounts (diluted):
   Net income                         .15        .19       .23       .19
   Weighted average shares 
     outstanding                   19,395     19,435    19,483    19,496 
       
2. The undersigned registrant hereby amends Item 8, Part II of its Annual Report
on Form 10-K for the  calendar  year ended  December 31, 1997 by deletion of the
original  Item 8 in its entirety and the  substitution  of the  following in its
place:

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------           --------------------------------------------

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


<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 Form 10-K/A,  amending
the  registrant's  Form 10-K for the fiscal year ended  December 31, 1997, to be
signed on its  behalf  by the  undersigned,  thereunto  duly  authorized.  

                                             PRIME MEDICAL SERVICES, INC.
 
 
 
                                             By   /s/ Joseph Jenkins, M.D., J.D.
                                                  ------------------------------
                                                  Joseph Jenkins, M.D., J.D.,
                                                  President, Chief Executive 
                                                  Officer and Director
 
                                             Date:  April 30, 1998

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Form  10-K/A,  amending  the  registrant's  Form 10-K for the fiscal  year ended
December 31,  1997,  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:  April 30, 1998

By:    /s/  Cheryl L. Williams                                   
       ------------------------                                   
       Cheryl L. Williams
       Vice President of Finance, Secretary
       and Chief Financial Officer (Principal
       Financial and Accounting Officer)

Date:  April 30, 1998



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

Date:  April 30, 1998

<PAGE>


By:    /s/  Paul R. Butrus                                  
       ------------------------                                    
       Paul R. Butrus, Director

Date:  April 30, 1998



By:    /s/ William E. Foree, M.D.                                   
       --------------------------                                    
       William E. Foree, M.D., Director,

Date:  April 30, 1998



By:    /s/ Irwin Katz 
       -----------------                                  
       Irwin Katz, Director

Date:  April 30, 1998



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

Date:  April 30, 1998



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

Date:  April 30, 1998



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

Date:  April 30, 1998



<PAGE>
                                   APPENDIX A

                                      INDEX
                                                                        Page


Independent Auditors' Report                                             A-2

Consolidated Financial Statements:
     Consolidated Statements of Income 
          for the years ended December 31, 1997, 1996 and 1995.          A-3

     Consolidated Balance Sheets at December 31, 1997 and 1996.          A-4

     Consolidated Statements of Stockholders' Equity 
          for the years ended December 31, 1997, 1996 and 1995.          A-6

     Consolidated Statements of Cash Flows 
          for the years ended December 31, 1997, 1996 and 1995.          A-7

     Notes to Consolidated Financial Statements.                         A-11








                                       A-1

<PAGE>



                          Independent Auditors' Report




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

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

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Prime  Medical
Services,  Inc. and  subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.  


/s/ KPMG Peat Marwick, LLP
--------------------------
Austin, Texas
February 27, 1998, except Note N,
  to which the date is March 27, 1998










                                       A-2

<PAGE>



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

($ in thousands, except per share data)      Years Ended December 31,
                                         1997           1996            1995
                                         ----           ----            ----
Fee Revenue:
   Lithotripsy:
         Fee revenues                  $84,537         $65,138          $19,306
         Management fees                 6,237           4,698            1,617
         Equity income                   2,339           1,766            1,230
                                      --------       ---------       ----------
                                        93,113          71,602           22,153

   Manufacturing                         2,358              --               --
   Cardiac                                 479             802            1,042
   Other                                    29              --               --
                                      --------     -----------     ------------
         Total fee revenue              95,979          72,404           23,195
                                      --------     -----------     ------------

   Cost of services and general and
       administrative expenses
         Lithotripsy                    25,381          19,922            5,979
         Manufacturing                   1,743              --               --
         Cardiac                           310             632            1,505
         Other                             168              --               --
         Corporate                       5,683           4,245            2,573
                                      --------       ---------       ----------
                                        33,285          24,799           10,057

    Depreciation and amortization        9,911           8,422            3,195
                                      --------       ---------       ----------
         Total operating expenses       43,196          33,221           13,252
                                       -------       ---------        ---------

Operating income                        52,783          39,183            9,943

Other income (deductions):
     Interest and dividends                740             459              152
     Interest expense                   (7,477)         (5,977)         ( 1,231)
     Loan fees and stock offering costs   (360)         (3,535)             --
     Other, net                              6             370              647
                                    ----------     -----------      ------------

                                        (7,091)         (8,683)         (   432)
                                     ---------     -----------       -----------
Income before provision for income taxes
     and minority interest              45,692          30,500            9,511

Minority interest in 
     consolidated income                25,041          19,543            1,421

Provision for income taxes               5,795           1,996              886
                                      --------      ----------       -----------

Net income                             $14,856       $   8,961        $   7,204
                                     =========       =========        ==========

Basic earnings per share:
     Net income                          $0.77           $0.51            $0.51
                                         =====           =====            =====

     Weighted average shares 
          outstanding                   19,275          17,633           14,226
                                        ======          ======           ======

Diluted earnings per share:
     Net income                          $0.76           $0.49            $0.48
                                         =====           =====            =====

     Weighted average shares 
          outstanding                   19,461          18,638           15,350
                                        ======          ======           ======

          See accompanying notes to consolidated financial statements.
                                       A-3

                                                            A-3

<PAGE>




                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


($ in thousands)


                                                            December 31,
                                                       1997              1996
                                                     --------          --------

ASSETS

Current assets:
     Cash                                            $ 23,770          $ 20,096
     Accounts receivable, less allowance
       for doubtful accounts of $811 in 1997
       and $335 in 1996                                19,387            16,346
     Other receivables                                  1,103             1,842
     Deferred income taxes                              1,506               948
     Prepaid expenses and other current assets          1,776               841
                                                    ---------        ----------

          Total current assets                         47,542            40,073
                                                     --------          --------

Property and equipment:
     Equipment, furniture and fixtures                 32,673            28,318
     Leasehold improvements                               531               113
                                                    ---------         ---------

                                                       33,204            28,431
Less accumulated depreciation and
     amortization                                     (13,497)           (8,089)
                                                     --------          --------

     Property and equipment, net                       19,707            20,342
                                                     --------           -------


Other investments                                      12,305             8,100
Goodwill, at cost, net of amortization                143,823           131,415
Other noncurrent assets                                 2,449             2,604
                                                    ---------         ---------

                                                     $225,826          $202,534
                                                     ========          ========







                                                                   (continued)
          See accompanying notes to consolidated financial statements.
                                       A-4

                                                            

<PAGE>



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


($ in thousands)

                                                           December 31,
                                                      1997              1996
                                                  ----------        -----------
LIABILITIES:

Current Liabilities:

  Current portion of long-term debt                $  11,138          $ 10,522
  Accounts payable                                     5,386             4,451
  Accrued expenses                                    20,859            16,582
                                                   ----------         ---------

     Total current liabilities                        37,383            31,555

Long-term debt, net of current portion                71,198            70,910
Deferred income taxes                                  5,809             4,907
                                                  -----------        ----------

     Total liabilities                               114,390           107,372

Minority interest                                     19,372            18,735

STOCKHOLDERS' EQUITY:

Preferred stock, $.01 par value,
  1,000,000 shares authorized;
  none outstanding                                      --                 --
Common stock, $.01 par value,
  40,000,000 shares authorized;
  19,306,267 issued in 1997 and
  19,078,933 issued in 1996                              193               191
Capital in excess of par value                        84,050            83,271
Accumulated earnings (deficit)                         7,821           ( 7,035)
                                                  -----------        -----------

     Total stockholders' equity                       92,064            76,427
                                                   ----------        ----------

                                                   $ 225,826          $202,534
                                                   =========          ========












          See accompanying notes to consolidated financial statements.
                                       A-5

                                                            

<PAGE>



                          PRIME MEDICAL SERVICES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1997, 1996 and 1995

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

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

                                       Issued            Capital in   Accumulated
                                     Common Stock         Excess of     Earnings    Treasury Stock     Reciprocal
                                Shares        Amount     Par Value     (Deficit)  Shares    Amount   Stockholdings    Total
                             -------------- ----------   ------------  --------- -------- ---------- -------------  ---------

Balance, January 1, 1995        14,594,663       $146        $58,631   ($23,200)   30,000     ($101)     ( $1,055)  $ 34,421

  Net income for the year              --         --             --       7,204       --        --            --       7,204
  Exercise of stock options        135,000          1             69        --        --        --            --          70
  Reclassification of
    reciprocal stockholdings           --         --             --         --        --        --          1,055      1,055
                             -------------- ----------  -------------  --------- --------  --------- -------------  ---------
Balance, December 31, 1995      14,729,663        147         58,700   ( 15,996)   30,000      (101)          --      42,750

  Net income for the year              --         --             --       8,961       --        --            --       8,961
  Issuance of stock              1,636,364         17         14,903        --        --        --            --      14,920
  Exercise of stock options
      including tax benefit of
      $130 on non-qualifying
      exercises                    477,666          5            488        --        --        --            --         493
  Debt converted to stock          921,415          9          5,241        --        --        --            --       5,250
  Exercise of warrants           1,343,825         13          4,040        --        --        --            --       4,053
  Retirement of treasury
      stock                  (      30,000)       --       (     101)       --    (30,000)      101           --         --
                             -------------- ----------     ----------  --------- ---------  -------- -------------  --------
Balance, December 31, 1996      19,078,933        191          83,271  (  7,035)      --        --            --      76,427

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

  Exercise of stock options
      including tax benefit of
      $438 on non-qualifying
      exercises                    227,334          2            779        --        --        --            --         781
                             -------------- ----------     ----------  --------- ---------  -------- ------------- ---------

Balance, December 31, 1997      19,306,267     $  193      $  84,050   $  7,821       --    $   --   $        --   $  92,064
                             ============== ==========     ==========  ========= =========  ======== ============= =========

</TABLE>

          See accompanying notes to consolidated financial statements.
                                       A-6

                                                                   

<PAGE>




                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S>                                                <C>               <C>            <C>    

($ in thousands)
                                                             Years Ended December 31,
                                                     -------------------------------------
                                                     1997              1996           1995
                                                     ----              ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES:
  Fee and other revenue collected                  $90,924           $ 72,452       $ 21,640
  Cash paid to employees, suppliers
      of goods and others                          (31,685)           (25,190)       ( 9,094)
  Interest received                                    739                459            157
  Interest paid                                    ( 7,521)           ( 5,104)       ( 1,275)
  Taxes paid                                       (   764)           ( 1,015)       (   530)
                                                   --------          ---------      ---------

      Net cash provided by operating activities     51,693             41,602         10,898
                                                   --------          ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of lithotripter entities                (20,217)           (66,742)       (15,033)
  Proceeds from sale of investment in American
                Physicians Service Group, Inc. stock   --                 --           2,753
  Purchases of equipment and leasehold
       improvements                                ( 4,546)           ( 2,526)      (    473)
  Deferred payments on lithotripter entities           --             ( 3,387)           --
  Proceeds from sales of equipment                      30                  6             21
  Investments                                        1,690              1,257            864
  Other                                                 94           (    378)      (      6)
                                                   --------          ---------      ---------

       Net cash used by investing activities       (22,949)           (71,770)      ( 11,874)
                                                   --------          ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes payable & capital  leases,
       exclusive of interest                       (50,328)           (15,351)       ( 9,588)
  Borrowings on notes payable                       51,201             74,000         14,284
  Distributions to minority interest               (28,667)           (13,440)       ( 1,644)
  Contributions by minority interest                 2,381                --             --
  Exercise of stock options                            343                363             70
  Other                                                --                 --          (  366)
                                                   --------          ---------      ---------

      Net cash provided by (used in) 
          financing activities                     (25,070)            45,572          2,756
                                                   --------          ---------      ---------

NET INCREASE IN CASH AND CASH
    EQUIVALENTS                                      3,674             15,404          1,780

Cash and cash equivalents, beginning of period      20,096              4,692          2,912
                                                   --------          ---------      ---------


Cash and cash equivalents, end of period           $23,770           $ 20,096       $  4,692
                                                   ========          =========      =========
</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,
                                                      1997              1996             1995
                                                      ----              ----             ----

Reconciliation of net income to net
 cash provided by operating activities
  Net income                                       $ 14,856           $ 8,961        $   7,204
  Adjustments to reconcile net
    income to cash provided by
    operating activities:
       Minority interest in consolidated income      25,041            19,543            1,421
       Depreciation and amortization                  9,911             8,422            3,195
       Provision for uncollectible accounts             427               319              771
       Equity in earnings of affiliates              (2,342)          ( 1,773)          (1,234)
       Gain on sale of investment in American
              Physicians Service Group, Inc. stock      --                 --            ( 559)
       Provision for deferred income taxes               68               974              193
       Writeoff of loan fees                            --                696              --
       Other                                          1,162                --             (226)
       Changes in operating  assets and  liabilities,
          net of effect of purchase transactions:
           Accounts receivable                       (3,156)            1,284           (  541)
           Other receivables                            754               472            2,197
           Other current assets                        (602)              529             (447)
           Accounts payable                             934               452           (1,224)
           Accrued expenses                           4,640             1,723              148
                                                   --------         ---------      -----------

        Total adjustments                            36,837            32,641            3,694
                                                   --------          --------       ----------

        Net cash provided by operating activities  $ 51,693          $ 41,602         $ 10,898
                                                   ========          ========         ========



</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,
                                                       ---------------------------------------
                                                       1997              1996             1995
                                                       ----              ----             ----

SUPPLEMENTAL INFORMATION OF
  NON-CASH INVESTING AND
  FINANCING ACTIVITIES:

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

           Current assets decreased by             $    9,532
           Noncurrent assets increased by               4,041
           Goodwill increased by                       15,836
           Current liabilities increased by             1,343
           Noncurrent liabilities increased            10,000
           Minority interest decreased by                 998

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

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

In 1996, the Company acquired (1) 
100% of the outstanding stock of a
corporation which operated 31 
lithotripters and (2) increased ownership
in two partnerships, in which the Company
is the managing general partner. These 
transactions are discussed further in 
Note D. The acquired assets
and liabilities were as follows:

           Current assets increased by                               $19,032
           Noncurrent assets increased by                             12,630
           Goodwill increased by                                      82,297
           Current liabilities increased by                           13,110
           Noncurrent liabilities increased by                        69,712
           Minority interest increased by                             16,218
           Stockholders' equity                                       14,919

</TABLE>

          See accompanying notes to consolidated financial statements.
                                       A-9



<PAGE>



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

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

                                                             Years Ended December 31,
                                                      ------------------------------------
                                                      1997              1996          1995
                                                      ----              ----          ----

In 1996, several holders of notes
issued by the Company elected to convert 
the outstanding balances of the notes 
into 921,000 shares of the Company stock.
In addition, certain holders of warrants 
exercised their warrants and the Company 
issued 1,344,000 shares of the Company's 
stock to the warrant holders. The effect
of these transactions were as follows:

           Current assets increased by                                  1,749
           Current liabilities decreased by                             4,062
           Noncurrent liabilities decreased by                          3,493
           Stockholders' equity increased by                            9,304

At December 31, 1996, the Company had accrued
distributions payable to minority interests. The
effect of this transaction was as follows:

           Current liabilities increased by                            10,705
           Minority interest decreased by                              10,705

In 1995, the Company acquired (1) 100% of
the outstanding stock of a corporation
which owned or managed eight lithotripter
operations and (2) 70% interest in a 
lithotripter operation. These transactions 
are discussed further in Note D. The
acquired assets and liabilities were as follows:

           Current assets decreased by                                              $   9,905
           Noncurrent assets increased by                                               2,491
           Goodwill increased by                                                       19,553
           Current liabilities increased by                                             7,249
           Noncurrent liabilities increased by                                          4,890

In 1995, the Company retired a note payable
to American Physicians Service Group, Inc.
("APS"). This note was retired by the Company
transferring to APS shares of stock of APS
that the Company owned. The effect of this
transaction is as follows:

           Current assets decreased by                                                     3
           Investment in APS decreased by                                                301
           Notes payable decreased by                                                    297
           Stockholders' equity                                                            7
</TABLE>

          See accompanying notes to consolidated financial statements.
                                      A-10


<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 to
         lithotripsy,  prostatherapy,  and cardiac  rehabilitation  centers. 
         References to the Company are to Prime and its controlled and 
         affiliated entities.  The Company also manufactures trailers for  major
         medical equipment manufacturers and mobile medical  service  providers.
         The Company operates lithotripters in 34 states.

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 control,  are  accounted  for by the equity  method if ownership is
         between 20% - 50%, or by the cost method if ownership is less than 20%.
         Through  December  31,  1997,  the Company had  recognized  $466,000 in
         undistributed  earnings using the equity method. This amount represents
         undistributed  earnings  from  entities,  in which the Company  owns 50
         percent or less, and does not exhibit control.  All  significant 
         intercompany  accounts  and  transactions  have  been eliminated.

         Cash Equivalents

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

         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 five 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-11

<PAGE>


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





B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

        
         Intangible Assets

         The Company  records as goodwill the excess of the purchase  price over
         the fair value of the net assets associated with acquired  businesses.
         Goodwill is amortized over a period not to exceed forty years using the
         straight-line basis.  Accumulated amortization at December 31, 1997 and
         1996 is $9,745,000 and $5,798,000,  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 fair value and  carrying  value of the goodwill.

         Revenue Recognition

         Revenues generated from management services 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. 

         Revenues  for the  manufacture  of trailers  are  recognized  using the
         percentage of completion method.

         At December 31, 1997,  approximately 15% of accounts  receivable relate
         to units operating in Texas, 11% relate to units located in California,
         11% relate to  operations  located in North  Carolina  and 9% relate to
         units located in Louisiana.

         Reciprocal Stockholdings

         The  Company  had   accounted   for  its   investment  in  its  largest
         shareholder's  common stock on the equity basis prior to 1995 (see Note
         C). The  Company's  investment  was reduced for the  Company's pro rata
         interest in the common stock of the Company owned by such  shareholder.
         This  reduction  was  reflected in an  offsetting  charge to reciprocal
         stockholdings.   When  the  Company's   investment  dropped  below  5%
         in 1995, reciprocal stockholdings were eliminated.


                                      A-12

<PAGE>


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





B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Income Tax

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

         Long-Lived Assets

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

         Accounts Receivable

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

         Stock-Based Compensation

         The Financial  Accounting Standards Board issued Statement of Financial
         Accounting  Standards No. 123, Accounting for Stock-Based  Compensation
         ("Statement  123"), in October 1995 for  implementation in fiscal years
         beginning  after  December 15,  1995.  Statement  123 became  effective
         beginning with the Company's  first quarter of fiscal year 1996 and did
         not have a  material  effect on the  Company's  financial  position  or
         results of  operations.  Upon  adoption of  Statement  123, 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).






                                      A-13

<PAGE>


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





B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

         Debt Issuance Costs

         The Company expenses debt issuance costs as incurred.

         Estimates Used to Prepare Financial Statements

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

         Reclassification

         Certain  reclassifications  have  been  made to  amounts  presented  in
         previous years to be consistent with the 1997 presentation.

         Earnings Per Share

         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
         Share",   specifies  new   measurement,   presentation  and  disclosure
         requirements  for  earnings  per share and is  required  to be  applied
         retroactively  upon initial adoption.  The Company has adopted SFAS No.
         128 effective  with the release of December 31, 1997 earnings data, and
         accordingly,  has restated herein all previously  reported earnings per
         share data.  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 convertible  debt. A reconciliation  of
         such earnings per share data is as follows:



                                      A-14

<PAGE>


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





B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

     ($ in thousands, except per share data)

               1997
                                                        Per Share
                                      Income    Shares   Amounts
     Basic EPS
     Net Income.....................    $14,856   19,275 $   0.77
                                                         ========

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


               1996
                                                        Per Share
                                      Income    Shares   Amounts
     Basic EPS
     Net Income.....................    $ 8,961   17,633 $   0.51
                                                         ========

     Effect of dilutive securities:
     Warrants.......................                 400
     Convertible Debt...............        101      224
     Options      .                                  381
                                       --------      ---
     Diluted EPS....................     $9,062   18,638 $   0.49
                                         ======   ====== ========

               1995
                                                        Per Share
                                      Income    Shares   Amounts
     Basic EPS
     Net Income.....................    $ 7,204   14,226 $   0.51
                                                         ========

     Effect of dilutive securities:
     Warrants.......................                 402
     Convertible Debt...............         97      209
     Options      .                                  513
                                       --------      ---
     Diluted EPS....................     $7,301   15,350 $   0.48
                                         ======   ====== ========


        Unexercised  employee stock options to purchase  841,000 and 706,000 
        shares of Prime common stock as of December  31,  1997 and 1996,  
        respectively,  were not  included  in the  computations  of diluted  EPS
        because the options exercise prices were greater than the average market
        price of Prime's common stock during the respective periods.

                                      A-15

<PAGE>


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





C.   INVESTMENTS

        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.

        Texas, Ohio & Louisiana Partnerships

        In December  1994,  the Company  acquired  all of the common stock of 
        three  corporations.  Each  corporation  is the  general  partner  and 
        holds an approximate  20%  interest  in a limited  partnership  which  
        operates  a mobile lithotripter. Texas ESWL/Laser Lithotripter, Ltd.
        operates a mobile lithotripter in Texas,  Oklahoma and  Arkansas.  Ohio 
        Mobile  Lithotripter,  Ltd.  operates a mobile lithotripter in Ohio. 
        Arklatx Mobile Lithotripter, L.P. operates a mobile lithotripter  in  
        Louisiana.  This  investment is accounted for using the equity method.

        American Physicians Service Group, Inc.

        At December 31, 1997 and 1996, the Company owned 50,000 shares of common
        stock, representing approximately 1%, of the outstanding common stock of
        American  Physicians Service Group, Inc. (APS). APS owned  approximately
        16% of the outstanding  common stock of the Company at December 31, 1997
        and 1996.  The  Company's  pro rata interest in its own shares of common
        stock  had  been   included  in   stockholders'   equity  as  reciprocal
        stockholdings prior to 1995. (See Note B).  Two of the  Company's  eight
        board members are also on the board of APS.

        The Company  occupies  approximately  5,600  square feet of office space
        owned by APS. The Company also shares  certain  personnel  with APS. The
        monthly rent and personnel cost is approximately $8,000.

D.       ACQUISITIONS

         Effective September 1, 1997, the Company acquired a 75% equity interest
         in AK Associates,  LLC ("AK"),  which provides  installation,  upgrade,
         manufacturing,  refurbishment  and repair  services  for major  medical
         equipment  manufacturers  and mobile  medical  service  providers.  The
         purchase price was $4,761,000 in cash with contingent  consideration up
         to another  $1,050,000  being  payable  based upon certain  performance
         criteria being met by AK during 1998.  This  transaction  was accounted
         for using the purchase method of accounting.

                                      A-16

<PAGE>


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





D.       ACQUISITIONS, continued

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

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

         Unaudited proforma combined income data for the years ended December 
         31,  1997  and  1996  of the  Company  and  the  acquisitions
         discussed  above assuming all were effective January 1, 1996 is as
         follows:
         ($ in thousands except per share data)
                                                1997           1996
                                             --------        -------

                  Total revenues             $100,228        $81,143
                  Total expenses               84,941         71,080
                                             --------       --------
                    Net income               $ 15,287        $10,063
                                             ========        =======

                  Diluted earnings per share    $0.79          $0.54
                                                =====          =====

         Effective May 1, 1996, the Company acquired 100% of the common stock of
         Lithotripters,  Inc. ("Litho"). Litho operated 31 lithotripters serving
         approximately  200  locations  in 19  states.  The  purchase  price was
         $86,500,000  consisting of $71,600,000 cash and 1,636,000 shares of the
         Company's  common stock valued at  $14,900,000.  This  transaction  was
         accounted for using the purchase method of accounting.

         Effective  November  1,  1996,  the  Company  increased  its  ownership
         interest in two partnerships that operate lithotripters in Arkansas and
         South Carolina.  The Company  acquired an additional  12.0% interest in
         Fayetteville  Lithotripters  Limited  Partnership - Arkansas I and 2.7%
         interest in  Fayetteville  Lithotripters  Limited  Partnership  - South
         Carolina II, which the Company manages as General Partner. The purchase
         price was $1,291,000 in cash. This  transaction was accounted for using
         the purchase method of accounting.

         Unaudited proforma combined income data for the years ended December 
         31,  1996  and  1995  of the  Company  and  the  acquisitions
         discussed  immediately above assuming both were effective January 1,
         1995 is as follows:



                                      A-17

<PAGE>


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





         D.       ACQUISITIONS, continued

                  ($ in thousands except per share data)

                                                   1996             1995
                                                  ------          -------

                  Total revenues                  $92,499         $82,934
                  Total expenses                   82,684          74,409
                                                  -------         -------

                    Net income                    $ 9,815        $  8,525
                                                  =======        ========

                  Diluted earnings per share      $  0.51        $   0.50
                                                  =======        ========

         Effective October 1, 1995, the Company acquired 100% of the outstanding
         stock of Sun Medical  Technologies,  Inc.  ("Sun").  Sun operates eight
         lithotripters  serving  clients in California,  Arizona,  Montana, New
         Mexico,  Washington  and Wyoming.  The purchase  price was  $16,150,000
         consisting of cash of $9,438,000,  deferred payments payable in January
         1996 of  $2,687,000,  notes  payable of  $4,025,000,  and  warrants  to
         purchase  200,000  shares of the Company's  common stock.  The exercise
         price of the warrants  represented  the market  price of the  Company's
         common stock at the date the warrants were issued. The notes payable of
         $4,025,000 were convertible into 672,000 shares of the Company's common
         stock. These noteholders elected to convert the outstanding balances of
         their notes into the  Company's  stock in 1996.  This  acquisition  was
         accounted for using the purchase method of accounting.

         Effective  July 1, 1995 the Company  acquired an undivided 70% interest
         in a fixed site lithotripter  located in Fort Lauderdale,  Florida. The
         purchase  price was  $5,550,000  consisting of cash of  $3,885,000  and
         notes  payable of  $1,665,000, which could be converted into 326,000 
         shares of the Company's common stock. The noteholder elected to convert
         the outstanding balance of such note into the Company's stock in 1996.
         The acquisition was accounted for using the purchase method of 
         accounting.

         


                                      A-18

<PAGE>


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





E.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial  Accounting Standards No. 107, Disclosures About
         Fair Value of Financial Instruments  (Statement 107), requires that the
         Company disclose estimated fair values for its financial instruments as
         of December 31, 1997 and 1996.  The carrying amounts and fair values of
         the Company's financial instruments are as follows:
<TABLE>
           <S>                                         <C>           <C>        <C>         <C>   

                                                                   1997                    1996
                                                        ----------------------  -------------------------
                                                       Carrying       Fair      Carrying     Fair
           ($ in Thousands)                             Amount        Value      Amount      Value
                                                        ------        -----      ------      -----
              Financial assets:
           Cash                                         $23,770       $23,770   $20,096     $20,096
           Accounts receivable                           19,387        19,387    16,346      16,346
           Other receivables                              1,103         1,103     1,842       1,842
           Investment in American
               Physicians Service Group, Inc.               173           356       173         325

              Financial liabilities:
           Debt                                          82,336        82,336    81,432      81,432
           Accounts payable                               5,386         5,386     4,451       4,451
</TABLE>

           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.

           Accounts Receivable and Other Receivables

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

           Investment in American Physicians Service Group, Inc.

           The fair value of the stock is based on the last  trade  value at the
           end of the year.

           Debt

           The carrying value of debt approximates fair value since the majority
           is primarily floating rate debt based on current market rates.



                                      A-19

<PAGE>


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





E.         FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

           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 the deferred tax assets and liabilities,  property
          and equipment,  equity  investment in  partnerships,  goodwill,  other
          noncurrent  assets  and  accrued  expenses.   In  addition,   the  tax
          ramifications  related to the realization of the unrealized  gains and
          losses can have a significant  effect on fair value estimates and have
          not been considered in the aforementioned estimates.

F.       ACCRUED EXPENSES

         Accrued expenses consist of the following:

                                                  December 31,      December 31,
                                                     1997              1996
         ($ in Thousands)

         Legal fees                                 $ 634             $ 452
         Accrued group insurance costs                228               164
         Compensation and payroll
           related expense                          1,787             1,502
         Taxes, other than income taxes               439               334
         Accrued interest                             984             1,028
         Provision for closed centers                 159               163
         Income taxes payable                       4,229               761
         Dividends payable to minority interest     8,655            10,705
         Deferred payments for acquisitions         1,339               --
         Other                                      2,405             1,473
                                                  -------           -------
                                                  $20,859           $16,582
                                                  =======           =======


                                      A-20

<PAGE>


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





G.       INDEBTEDNESS

         Long-term debt, other than bank debt, are as follows:

         ($ in thousands) 

         Interest                        December 31,
           Rates      Maturities       1997        1996
         --------     ----------     -------     ------

         None         2000 - 2006    $   161     $  241
         6%               --              --        984
         11.5%           1998              6         12
                                     -------    -------

                                         167      1,237
         Less current portion of
          long-term debt                   6      1,100
                                     -------     ------

                                     $   161     $  137
                                     =======     ======

       The non-interest bearing notes totaling $161,000 are unsecured. The 11.5%
       note is secured by computer equipment.

       Long-term bank notes payable are as follows:

       ($ in thousands)

       Interest                         December 31,
         Rates         Maturities      1997       1996
       --------        ----------    -------     ------

       60-day LIBOR
         plus 2 1/2%    1998-2003    $79,000     $76,750
       Prime            1998-2001      2,969       3,245
       Prime + 1%         1998           200         200
                                     -------     -------
                                      82,169      80,195
       Less current portion of
             long-term bank debt      11,132       9,422
                                     -------     -------
                                     $71,037     $70,773
                                     =======     =======

       During 1997,  the Company  increased  its bank  facility with Bank Boston
       from $90 million to $135 million. The facility consists of three separate
       loans:  (1) a $45 million term loan bearing an interest  rate of LIBOR +2
       to 3%, payable quarterly, with quarterly principal payments,  maturing in
       April 2001, (2) a $40 million term loan bearing an interest rate of LIBOR
       +2 to 3%, payable quarterly, with annual principal payments,  maturing in
       April  2003,  and (3) a $50 million  revolving  credit  facility  bearing
       interest of LIBOR +2 to 3%, maturing in April 2001. At December 31, 1997,
       the entire $50 million revolving credit facility was undrawn. At December
       31, 1997,


                                      A-21

<PAGE>


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





G.   INDEBTEDNESS, continued

     interest on the  Company's  bank  facility was 8.6%.  The bank  facility is
     collateralized  by the assets of the Company, including  the  stock  of its
     subsidiaries. (See Note N)

     The stated  principal  repayments for all indebtedness as of December 31,
     1997 are payable as follows:
                                                       ($ in thousands) 
                           1998                              $11,138
                           1999                               13,134
                           2000                               13,706
                           2001                                7,426
                           2002                                  800
                           Thereafter                         36,132

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,      
                                             1997        1996      1995
                                          ----------  ---------  ---------

            ($ in thousands)

            Salaries, wages and benefits     $15,779   $11,953   $ 4,027
            Other costs of services            7,569     6,878     3,412
            General and administrative         3,595     1,941       718
            Legal and professional             2,064     1,315       659
            Manufacturing costs                1,394      --         --
            Other                              2,884     2,712     1,241
                                           ---------   -------   -------
                                             $33,285   $24,799   $10,057
                                           =========   =======   =======

I.   COMMITMENTS AND CONTINGENCIES

     At  December  31,  1997,   minimum  annual  rental   commitments  under
     non-cancelable  operating leases for equipment and office space,  which
     may contain renewal and escalation clauses through 2001, are:
         
                             ($ in thousands)

                    1998             $ 439
                    1999               365
                    2000               309
                    2001                 2
                    

                                      A-22

<PAGE>


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





I.         COMMITMENTS AND CONTINGENCIES

           Rent  expense  for  equipment  and office  space for the years  ended
           December 31, 1997, 1996 and 1995 are $568,000, $360,000, and 
           $239,000, respectively.

           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, 1997,  the Company had 172 employees
           enrolled in the plan. The plan provides non-contributory coverage for
           employees and  contributory  coverage for  dependents.  The Company's
           contributions  totaled  $351,000  in  1997,  $224,000  in  1996,  and
           $150,000 in 1995.

J.         COMMON STOCK OPTIONS

           1993 Stock Option Plan:

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

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

           In June 1997,  the  Company  adopted an  amendment  to the 1993 Stock
           Option Plan that raised the number of shares to be issued by 500,000.

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






                                      A-23

<PAGE>


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





J.         COMMON STOCK OPTIONS, continued
<TABLE>
<S>                             <C>        <C>                <C>       <C>               <C>      <C>

                                           1997                        1996                        1995
                                ---------------------------   --------------------------  --------------------

                                Options    Weighted-Average   Options   Weighted-Average  Options  Weighted-Average
                                 (000)      Exercise Price     (000)     Exercise Price    (000)    Exercise Price
Outstanding - beginning
    of year                       1,228         $8.99             975        $1.31          1,055        $0.98
Granted                             428         11.94             730        13.87             55         5.58
Exercised                          (227)         1.51            (477)        0.52           (135)        0.52
Forfeited                           (35)        12.19             (--)         --             (--)         --
                                 ------                       -------

Outstanding-end of year           1,394        $11.04           1,228        $8.99            975        $1.31
                                 ======                       =======                     =======

Exercisable at end of year          466        $ 8.21             422        $2.03            816        $0.75

Weighted-average fair
     value of options granted
     during the year              $5.21         --              $6.13          --           $2.07         --

</TABLE>

           The following table summarizes the Company's  outstanding  options at
December 31, 1997:
<TABLE>
          <S>                         <C>        <C>              <C>           <C>            <C>    
                                                    Outstanding options         Exercisable options
                                                 -------------------------      ----------------------
                                                   Average        Weighted                     Weighted
                                                  Remaining        Average                      Average
                                      Options    Contractual      Exercise      Options        Exercise
           Range of Exercise Prices   (000)         Life           Price         (000)          Price
           ------------------------   ------     -----------      ---------     -------        --------

           $  0.25 - $  4.12             223       2.0 years       $  1.39          195         $ 1.10
           $  4.13 - $  8.25              37       3.9 years       $  5.75           10         $ 5.99
           $  8.26 - $12.37              292       2.3 years       $ 10.55            5         $ 8.94
           $12.38 - $16.50               842       3.9 years       $ 14.04          256         $13.72
                                      ------                                    -------

           Total                       1,394                                        466
                                     =======                                    =======
</TABLE>

           Pro forma 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 1995, 1996,
           and 1997

                                      A-24

<PAGE>


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





J.   COMMON STOCK OPTIONS, continued

     respectively:  risk-free  interest  rates  of 5.7%,  6.2%  and  6.2%;
     dividend yields of 0%, 0% and 0%; volatility  factors of the expected
     market price of the Company's common stock of .38, .53 and .46; 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 pro forma  disclosures,  the estimated  fair value of
     the options is amortized to expense over the options' vesting period.
     The Company's pro forma information  follows (in thousands except for
     earnings per share information):

                                            1997           1996         1995
                                           -------       -------       ------

                  Pro forma net income     $12,448       $ 8,109       $7,197
                  Pro forma earnings
                    per share
                      Basic                  $0.65         $0.46        $0.51
                      Diluted                $0.64         $0.44        $0.47

     Statement 123 calls for a prospective application of compensation 
     relating to the grant of stock options and, consequently pro-forma 
     financial information may not be indicative of future amounts until
     the new rules are applied to all outstanding nonvested awards.

K.   OTHER INCOME (EXPENSE)

     Included in other, net in the consolidated statements of operations are
     the following components:

     ($ in thousands)
                                                 Years Ended December 31,
                                           1997           1996         1995
     Collections on amounts               -----          -----        -----
          previously written off          $ --           $ 192          --
     Gain on sale of investment 
          in American Physicians Service
          Group, Inc. Stock                 --              --          559
     Equipment rental                       --              58          --
     Other income                             6            120           88
                                          -----          -----        -----
     Other, net                           $   6          $ 370        $ 647
                                          =====          =====        =====



                                      A-25

<PAGE>


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







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:
         ($ in thousands)
                                                  Years ended December 31,
                                                 ----------------------------
                                                  1997        1996      1995
                                                 ------      ------    ------
               Federal                           
                  Current                        $4,369      $   97    $ 110
                  Deferred                           68         974      193 
               State                              1,358         925      583
                                                 ------      ------    -----
                                                 $5,795      $1,996    $ 886
                                                 ======      ======    =====

          A reconciliation of expected income tax (computed by applying the 
          United States statutory income tax rate of 35% for 1997 and 34% for  
          1996 and 1995, to earnings before income taxes) to total income
          tax expense in the accompanying consolidated statements of income 
          follows:
          ($ in thousands)                        Years ended December 31,
                                                 ------------------------
                                                  1997        1996      1995
                                                 ------      ------    ------
               Expected federal income tax       $7,228      $3,725    $2,751
               Change in beginning of year
                    valuation allowance          (2,399)     (3,093)   (2,091)
               State taxes                        1,358         925       583
               Other                             (  392)        439    (  357) 
                                                 ------      ------    ------
                                                 $5,795      $1,996    $  886
                                                 ======      ======    ======
        
         The tax effects of temporary  differences that give rise to significant
         portions of the deferred tax assets and  deferred  tax  liabilities  at
         December 31, 1997 and 1996 are presented below.
         ($ in thousands)
                                                  1997             1996
                                                 -----           ------
         Deferred tax assets:
           Accounts receivable,
             principally due to allowance
             for doubtful accounts               $ 266           $  114
           AMT credit carryforwards                --               249
           Net operating loss carryforwards        --               944
           Investment tax credit carryforwards     --             1,200
           Accrued expenses deductible
             for tax purposes when paid          1,240              834
           Property and equipment,
             principally due to
             differences in depreciation           --               656
           Other                                   932              829
                                                 -----           ------
             Total gross deferred tax assets     2,438            4,826
             Less valuation allowance              --            (2,399)
                                                 -----           ------
             Net deferred tax assets             2,438            2,427
                                                 -----           ------
         Deferred tax liabilities:
           Property and equipment,
             principally due to
             differences in depreciation       (  583)              --
           Investments in affiliated
             entities, principally due to
             undistributed income              (2,807)           (2,860)
           Intangible assets, principally
             due to differences in
             amortization periods for tax
             purposes                          (2,419)           (1,872)
           IRS Section 481(A) adjustment
             for partnerships acquired         (  -- )           (  175)
                                              -------            ------


                                      A-26

<PAGE>


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





L.       INCOME TAXES, continued
                                                  1997          1996
           Total gross deferred tax             -------       -------
               liabilities                      ( 5,809)      ( 4,907)
                                                -------       -------
           Net deferred tax liability           ($3,371)      ($2,480)
                                                =======       =======

         The valuation allowance for deferred tax assets as of December 31, 1997
         was $-0-  representing  a  decrease  of  $2,399,000,  primarily  due to
         utilization  of  net  operating  loss   carryforwards.   The  valuation
         allowance for deferred tax assets as of January 1, 1996 was  $5,492,000
         with the  change in the total  valuation  allowance  for the year ended
         December 31, 1996 being a decrease of $3,093,000. The Company  believed
         that the valuation  allowance at December 31, 1996 was necessary due to
         uncertainties  regarding the Company's use of the net operating loss 
         carryforwards and tax credit  carryforwards  which could have become 
         limited in the event  that the Company experienced a greater than 50%
         stock ownership  change in a  three-year  period (as defined in the 
         Internal Revenue Service regulations).
                
         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,  net
         of the existing  valuation  allowances. 

M.       RELATED PARTY TRANSACTIONS

         See Notes B and C for additional related party  transactions  involving
         investments in affiliates.

N.       SUBSEQUENT EVENT

         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  $96.0  million  will be used to  repay  all  outstanding
         indebtedness under the Company's bank facility, with the remainder  to
         be  used  for  general  corporate  purposes,   including acquisitions.
         In connection herewith, the Company will take a charge to earnings of
         approximately $3.8 million for debt issuance costs associated with the 
         Notes.  (See Note B)

O.       CONDENSED FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES

         Condensed consolidating financial information regarding the Company, 
         Guarantor Subsidiaries and non-guarantor subsidiaries as of December
         31, 1997 and 1996 and for each of the years in the three-year period 
         ended December 31, 1997 is presented below for purposes of complying 
         with the reporting requirements of the Guarantor Subsidiaries.  
         Separate financial statements and other disclosures concerning each 
         Guarantor Subsidiary have not been presented because management has 
         determined that such information is not material to investors. The 
         Guarantor Subsidiaries are wholly-owned subsidiaries of the Company
         who have fully and unconditionally guaranteed the Notes described in
         Note N.
                   

                                      A-27
                                   
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

($ in thousands) 
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C>    
                                                            Year Ended December 31, 1997
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  
Fee Revenue:
   Lithotripsy:
         Fee revenues                 $    --        $  20,863       $   63,674      $      --      $    84,537
         Management fees                   --            3,978            2,259             --            6,237
         Equity income                  27,386          18,587              --          (43,634)          2,339    
                                      --------       ---------       ----------      -----------    -----------
                                        27,386          43,428           65,933         (43,634)         93,113  

   Manufacturing                           --              --             2,358             --            2,358
   Cardiac                                 --              479              --              --              479
   Other                                   --               29              --              --               29
                                      --------     -----------     ------------      -----------    -----------
         Total fee revenue              27,386          43,936           68,291         (43,634)         95,979  
                                      --------     -----------     ------------      -----------    -----------

   Cost of services and general and
       administrative expenses
         Lithotripsy                       --            4,646           20,735             --           25,381   
         Manufacturing                     --              --             1,743             --            1,743
         Cardiac                           --              310              --              --              310
         Other                             --              168              --              --              168
         Corporate                         567           5,116              --              --            5,683 
                                      --------       ---------       ----------      -----------    -----------
                                           567          10,240           22,478             --           33,285                

    Depreciation and amortization            7           5,157            4,747             --            9,911              
                                      --------       ---------       ----------      -----------    -----------
         Total operating expenses          574          15,397           27,225             --           43,196
                                       -------       ---------       ----------      -----------    -----------

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

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

                                        (7,520)            129              300             --           (7,091)
                                     ---------     -----------       -----------     -----------     ----------
Income before provision for income taxes
     and minority interest              19,292          28,668           41,366         (43,634)         45,692

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

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

Net income                             $14,856       $  27,386        $  41,289      $  (68,675)     $   14,856
                                     =========       =========        ==========     ===========     ==========


                                  A-28
</TABLE>
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

($ in thousands) 
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C>    
                                                            Year Ended December 31, 1996
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  
Fee Revenue:
   Lithotripsy:
         Fee revenues                 $    --        $  18,688       $   46,450      $      --      $    65,138
         Management fees                   --            3,180            1,518             --            4,698
         Equity income                  19,382          10,701              --          (28,317)          1,766    
                                      --------       ---------       ----------      -----------    -----------
                                        19,382          32,569           47,968         (28,317)         71,602  
   Cardiac                                 --              802              --              --              802
                                      --------     -----------     ------------      -----------    -----------
         Total fee revenue              19,382          33,371           47,968         (28,317)         72,404  
                                      --------     -----------     ------------      -----------    -----------

   Cost of services and general and
       administrative expenses
         Lithotripsy                       --            5,093           14,829             --           19,922   
         Cardiac                           --              632              --              --              632
         Corporate                         257           3,988              --              --            4,245 
                                      --------       ---------       ----------      -----------    -----------
                                           257           9,713           14,829             --           24,799                

    Depreciation and amortization          127           3,537            4,758             --            8,422              
                                      --------       ---------       ----------      -----------    -----------
         Total operating expenses          384          13,250           19,587             --           33,221
                                       -------       ---------       ----------      -----------    -----------

Operating income                        18,998          20,121           28,381         (28,317)         39,183

Other income (deductions):
     Interest and dividends                --              202              257             --              459
     Interest expense                   (5,431)         (  299)         (   247)            --           (5,977) 
     Loan fees and stock offering costs (3,535)            --               --              --           (3,535) 
     Other, net                            --              207              163             --              370  
                                    ----------     -----------      ------------     -----------     ----------

                                        (8,966)            110              173             --           (8,683)
                                     ---------     -----------       -----------     -----------     ----------
Income before provision for income taxes
     and minority interest              10,032          20,231           28,554         (28,317)         30,500


Minority interest in 
     consolidated income                   --              --               --           19,543          19,543

Provision for income taxes               1,071             849               76             --            1,996
                                      --------      ----------       -----------     -----------     ----------

Net income                             $ 8,961       $  19,382        $  28,478      $  (47,860)     $    8,961
                                     =========       =========        ==========     ===========     ==========


                                  A-29
</TABLE>
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

($ in thousands) 
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C>    
                                                            Year Ended December 31, 1995
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  
Fee Revenue:
   Lithotripsy:
         Fee revenues                 $    --        $  15,032       $    4,274      $      --      $    19,306
         Management fees                   --              690              927             --            1,617
         Equity income                   7,988           3,502              --          (10,260)          1,230    
                                      --------       ---------       ----------      -----------    -----------
                                         7,988          19,224            5,201         (10,260)         22,153  

   Cardiac and Imaging                     --            1,042              --              --            1,042
                                      --------     -----------     ------------      -----------    -----------
         Total fee revenue               7,988          20,266            5,201         (10,260)         23,195  
                                      --------     -----------     ------------      -----------    -----------

   Cost of services and general and
       administrative expenses
         Lithotripsy                       --            4,885            1,094             --            5,979   
         Cardiac                           --            1,505              --              --            1,505
         Corporate                          38           2,535              --              --            2,573 
                                      --------       ---------       ----------      -----------    -----------
                                            38           8,925            1,094             --           10,057                

    Depreciation and amortization          296           2,516              383             --            3,195              
                                      --------       ---------       ----------      -----------    -----------
         Total operating expenses          334          11,441            1,477             --           13,252
                                       -------       ---------       ----------      -----------    -----------

Operating income                         7,654           8,825            3,724         (10,260)          9,943

Other income (deductions):
     Interest and dividends                --              150                2             --              152
     Interest expense                   (  672)         (  518)         (    41)            --           (1,231) 
     Other, net                            222             417                8             --              647
                                    ----------     -----------      ------------     -----------     ----------

                                        (  450)             49          (    31)            --           (  432)
                                     ---------     -----------       -----------     -----------     ----------
Income before provision for income taxes
     and minority interest               7,204           8,874            3,693         (10,260)          9,511

Minority interest in 
     consolidated income                   --              --               --            1,421           1,421

Provision for income taxes                 --              886              --              --              886
                                      --------      ----------       -----------     -----------     ----------

Net income                             $ 7,204       $   7,988        $   3,693      $  (11,681)     $    7,204
                                     =========       =========        ==========     ===========     ==========


                                  A-30
</TABLE>
<PAGE>


                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATING BALANCE SHEET


($ in thousands)
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C> 
                                                                      December 31, 1997
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  

ASSETS

Current assets:
     Cash                           $        18     $    6,260       $   17,492       $    --        $    23,770
     Accounts receivable, net               --           4,564           14,823            --             19,387 
     Other receivables                      291            578              234            --              1,103 
     Deferred income taxes                  779            727              --             --              1,506
     Prepaid expenses and 
        other current assets                 24          1,098              654            --              1,776 
                                    -----------     ----------       ----------      ---------        ----------

          Total current assets            1,112         13,227           33,203            --             47,542     
                                    -----------     ----------       ----------      ---------        ----------         

Property and equipment:
     Equipment, furniture 
          and fixtures                      --           5,970           26,703            --             32,673    
     Leasehold improvements                 --             515               16            --                531  
                                    -----------     ----------       ----------      ---------        ---------- 

                                            --           6,485           26,719            --             33,204   
Less accumulated depreciation 
     and amortization                       --         ( 4,646)          (8,851)           --            (13,497)  
                                    -----------     ----------       ----------      ---------        ----------

     Property and equipment, net            --           1,839           17,868            --             19,707
                                    -----------     ----------       ----------      ---------        ----------


Investment in subsidiaries and 
     other investments                  175,082         24,376              --        (187,153)           12,305      
Goodwill, at cost, 
     net of amortization                    --         143,790               33            --            143,823  
Other noncurrent assets                     344          1,721              384            --              2,449
                                    -----------      ---------       ----------      ---------        ----------

     Total Assets                   $   176,538      $ 184,953       $   51,488      $(187,153)       $  225,826 
                                    ===========     ==========       ==========      =========        ==========

</TABLE>






                                                                   (continued)
          
                                       
                                      A-31
                                                            

<PAGE>



                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING BALANCE SHEET (continued)


($ in thousands)
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C> 
                                                                      December 31, 1997
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  

                                                 
LIABILITIES:

Current Liabilities:

  Current portion of 
     long-term debt                 $      9,800    $         6      $   1,332       $     --       $   11,138
  Accounts payable                           --           3,439          1,947             --            5,386
  Accrued expenses                         3,367          2,563         14,929             --           20,859
                                    ------------    -----------      ---------       ---------      ----------

     Total current liabilities            13,167          6,008         18,208             --           37,383

Long-term debt, 
     net of current portion               69,200            161          1,837             --           71,198 
Deferred income taxes                      2,107          3,702            --              --            5,809
                                   -------------    -----------      ---------       ---------      ----------

     Total liabilities                    84,474          9,871         20,045             --          114,390 

Minority interest                            --             --             --           19,372          19,372

STOCKHOLDERS' EQUITY:

Common stock                                 193            --             --              --              193
Capital in excess of par value            84,050            --             --              --           84,050
Accumulated earnings                       7,821            --             --              --            7,821
Subsidiary net equity                        --         175,082         31,443        (206,525)            --
                                    ------------    -----------       --------       ---------       ---------

     Total stockholders' equity          92,064         175,082         31,443        (206,525)         92,064
                                    ------------    -----------       --------       ---------       ---------

     Total Liabilities and
          stockholders' equity      $   176,538     $   184,953       $ 51,488       $(187,153)      $ 225,826          
                                    ============    ===========       ========       =========      ==========

                                      A-32
</TABLE>
<PAGE>
                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATING BALANCE SHEET


($ in thousands)
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C> 
                                                                      December 31, 1996
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  

ASSETS

Current assets:
     Cash                           $         1     $    2,598       $   17,497       $    --        $    20,096
     Accounts receivable, net               --           4,061           12,285            --             16,346 
     Other receivables                    1,048            758               36            --              1,842 
     Deferred income taxes                  948            --               --             --                948
     Prepaid expenses and 
        other current assets                --             660              181            --                841  
                                    -----------     ----------       ----------      ---------        ----------

          Total current assets            1,997          8,077           29,999            --             40,073     
                                    -----------     ----------       ----------      ---------        ----------         

Property and equipment:
     Equipment, furniture 
          and fixtures                      --           5,035           23,283            --             28,318    
     Leasehold improvements                 --             113              --             --                113  
                                    -----------     ----------       ----------      ---------        ---------- 

                                            --           5,148           23,283            --             28,431   
Less accumulated depreciation 
     and amortization                       --         ( 3,924)          (4,165)           --            ( 8,089)  
                                    -----------     ----------       ----------      ---------        ----------

     Property and equipment, net            --           1,224           19,118            --             20,342
                                    -----------     ----------       ----------      ---------        ----------


Investment in subsidiaries and
     other investments                  153,846         17,891              --        (163,637)            8,100      
Goodwill, at cost, 
     net of amortization                    --         131,391               24            --            131,415  
Other noncurrent assets                     558          1,987               59            --              2,604
                                    -----------      ---------       ----------      ---------        ----------

     Total Assets                   $   156,401      $ 160,570       $   49,200      $(163,637)       $  202,534 
                                    ===========     ==========       ==========      =========        ==========

</TABLE>






                                                                   (continued)
          
                                       
                                      A-33
                                                            

<PAGE>



                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING BALANCE SHEET (continued)


($ in thousands)
<TABLE>
<S>                                 <C>             <C>              <C>             <C>            <C> 
                                                                      December 31, 1996
                                    ----------------------------------------------------------------------------
                                    Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                    Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                    --------------  ------------     ------------      -------          -----  

                                                 
LIABILITIES:

Current Liabilities:

  Current portion of 
     long-term debt                 $      8,000    $     1,100      $   1,422       $     --       $   10,522
  Accounts payable                           320          2,718          1,413             --            4,451
  Accrued expenses                         1,182          ( 313)        15,713             --           16,582
                                    ------------    -----------      ---------       ---------      ----------

     Total current liabilities             9,502          3,505         18,548             --           31,555

Intercompany                                 --           ( 103)           103             --              --
Long-term debt, 
     net of current portion               68,750            137          2,023             --           70,910 
Deferred income taxes                      1,722          3,185            --              --            4,907
                                   -------------    -----------      ---------       ---------      ----------

     Total liabilities                    79,974          6,724         20,674             --          107,372 

Minority interest                            --             --             --           18,735          18,735

STOCKHOLDERS' EQUITY:

Common stock                                 191            --             --              --              191
Capital in excess of par value            83,271            --             --              --           83,271
Accumulated earnings                      (7,035)           --             --              --           (7,035)
Subsidiary net equity                        --         153,846         28,526        (182,372)            --
                                    ------------    -----------       --------       ---------       ---------

     Total stockholders' equity          76,427         153,846         28,526        (182,372)         76,427
                                    ------------    -----------       --------       ---------       ---------

     Total Liabilities and
          stockholders' equity      $   156,401     $   160,570       $ 49,200       $(163,637)      $ 202,534          
                                    ============    ===========       ========       =========      ==========

                                      A-34
</TABLE>
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S>                                      <C>             <C>              <C>             <C>            <C> 
  

($ in thousands)
                                                                   Year Ended December 31, 1997
                                         ----------------------------------------------------------------------------
                                         Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                         Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                         --------------  ------------     ------------      -------          -----  
                                                  

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


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of lithotripter entities               --         (20,217)             --            --          (20,217)   
  Purchases of equipment and leasehold
     improvements                                 --         ( 1,516)         ( 3,030)          --          ( 4,546)   
  Proceeds from sales of equipment                --              30              --            --               30
  Distributions from subsidiaries               6,865         16,667              --        (23,532)            -- 
  Investments                                     --           1,690              --            --            1,690 
  Other                                           --              94              --            --               94
                                         ------------     ----------       ----------     ---------      ----------

    Net cash provided by (used in)
       investing activities                     6,865        ( 3,252)        ( 3,030)       (23,532)        (22,949)                
                                         ------------     ----------       ----------     ---------      ----------

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

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

NET INCREASE (DECREASE) IN CASH AND 
    CASH EQUIVALENTS                               17          3,662         (     5)                         3,674
   
Cash and cash equivalents, 
    beginning of period                             1          2,598          17,497                         20,096   
                                         ------------     ----------       ---------                     ----------


Cash and cash equivalents, 
    end of period                         $        18     $    6,260       $  17,492                     $   23,770   
                                          ===========     ==========        =========                    ==========
</TABLE>
                                      A-35
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S>                                      <C>             <C>              <C>             <C>            <C> 
  

($ in thousands)
                                                                  Year Ended December 31, 1996
                                         ----------------------------------------------------------------------------
                                         Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                         Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                         --------------  ------------     ------------      -------          -----  
                                                  

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net cash provided by (used in)
          operating activities           $    ( 7,045)   $     7,912       $   40,735      $    --       $   41,602       
                                         ------------    -----------       ----------      ----------     ----------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of lithotripter entities               --         (66,742)             --            --          (66,742)   
  Purchases of equipment and leasehold
     improvements                                 --         ( 1,131)         ( 1,395)          --          ( 2,526)   
  Deferred payments on lithotripter 
     entities                                     --         ( 3,387)             --            --          ( 3,387)  
  Proceeds from sales of equipment                --             --                 6           --                6
  Contributions to subsidiaries               (57,510)           --               --         57,510             -- 
  Distributions from subsidiaries                 --           7,180              --        ( 7,180)            -- 
  Investments                                     --           1,257              --            --            1,257 
  Other                                           --         (   378)             --            --          (   378)
                                         ------------     ----------       ----------      ---------      ----------

    Net cash provided by (used in)
       investing activities                   (57,510)       (63,201)        (  1,389)        50,330        (71,770)                
                                         ------------     ----------       ----------      ---------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes payable 
       exclusive of interest                  (12,300)       ( 1,515)        (  1,536)          --          (15,351)
  Borrowings on notes payable                  74,000            --               --            --           74,000
  Distributions to minority interest              --             --               --         (13,440)       (13,440)       
  Contributions from parent                       --          57,510              --         (57,510)           --  
  Exercise of stock options                       363            --               --             --             363 
  Distributions to equity owners                  --             --          ( 20,620)        20,620            -- 
                                         ------------     ----------       ----------      ---------      ----------

     Net cash provided by (used in) 
          financing activities                 62,063         55,995         ( 22,156)       (50,330)        45,572         
                                         ------------     ----------       ----------      ---------      ----------

NET INCREASE (DECREASE) IN CASH AND 
    CASH EQUIVALENTS                          ( 2,492)           706           17,190                        15,404
   
Cash and cash equivalents, 
    beginning of period                         2,493          1,892              307                         4,692   
                                         ------------     ----------        ---------                     ---------


Cash and cash equivalents, 
    end of period                         $         1     $    2,598       $   17,497                     $  20,096   
                                          ===========     ==========        =========                     =========
</TABLE>
                                      A-36
<PAGE>

                  PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S>                                      <C>             <C>              <C>             <C>            <C> 
  

($ in thousands)
                                                                  Year Ended December 31, 1995
                                         ----------------------------------------------------------------------------
                                         Prime Medical    Guarantor       Non-Guarantor   Eliminating    Consolidated
                                         Services, Inc.  Subsidiaries     Subsidiaries      Entries          Total  
                                         --------------  ------------     ------------      -------          -----  
                                                  

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net cash provided by (used in)
          operating activities           $    (   687)   $     7,565        $   4,020     $     --       $   10,898       
                                         ------------    -----------        ---------     ----------     ----------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of lithotripter entities               --         (15,033)             --            --          (15,033)   
  Proceeds from sale of Investment in
     American Physicians Service Group,
     Inc.                                         585          2,168              --            --            2,753
  Purchases of equipment and leasehold
     improvements                                 --         (   473)             --            --          (   473)   
  Proceeds from sales of equipment                --              21              --            --               21
  Contributions to subsidiaries                (4,241)           --               --          4,241             --
  Distributions from subsidiaries                 --           2,142              --        ( 2,142)            -- 
  Investments                                     --             864              --            --              864 
  Other                                           --         (     6)             --            --          (     6)
                                         ------------     ----------        ---------     ---------      ----------

    Net cash provided by (used in)
       investing activities                    (3,656)       (10,317)             --          2,099         (11,874)                
                                         ------------     ----------        ---------     ---------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes payable 
       exclusive of interest                  ( 6,751)       ( 2,319)        (    518)          --          ( 9,588)
  Borrowings on notes payable                  13,800            --               484           --           14,284
  Distributions to minority interest              --             --               --        ( 1,644)        ( 1,644)       
  Contributions from parent                       --           4,241              --        ( 4,241)            --
  Exercise of stock options                        70            --               --            --               70 
  Distributions to equity owners                  --             --           ( 3,786)        3,786             -- 
  Other                                       (   283)       (    83)             --            --          (   366) 
                                         ------------     ----------        ---------     ---------      ----------

     Net cash provided by (used in) 
          financing activities                  6,836          1,839          ( 3,820)      ( 2,099)          2,756         
                                         ------------     ----------        ---------     ---------      ----------

NET INCREASE (DECREASE) IN CASH AND 
    CASH EQUIVALENTS                            2,493         (  913)             200                         1,780
   
Cash and cash equivalents, 
    beginning of period                           --           2,805              107                         2,912   
                                         ------------     ----------        ---------                    ----------


Cash and cash equivalents, 
    end of period                         $     2,493     $    1,892        $     307                     $   4,692   
                                          ===========     ==========        =========                     =========
</TABLE>
                                      A-37