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_______________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_____________________________

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the transition period from
______ to ______


Commission File Number: 0-22392


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


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



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

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

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

YES   X  NO     


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

YES   X  NO     

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


 
Title of Each Class
     Common Stock, $.01 par value 		  Number of Shares Outstanding at
April 30, 2004
20,729,877







PART I

ITEM 1 — FINANCIAL INFORMATION












2

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
  Three Months Ended
March 31,
($ in thousands, except per share data)

 2004
   2003
  
Revenue:            
     Lithotripsy   $ 16,219   $ 14,994  
     Manufacturing    23,757    25,595  
     Other    237    263  
         Total revenue    40,213    40,852  
Cost of services and general and  
     administrative expenses:  
     Lithotripsy    6,997    6,432  
     Manufacturing    21,704    23,048  
     Corporate    976    645  
     29,677    30,125  
Depreciation and amortization    1,620    1,820  
     31,297    31,945  
Operating income    8,916    8,907  
 
Other income (expenses):  
     Interest and dividends    88    106  
     Interest expense    (2,289 )  (2,096 )
     Other, net    40    (75 )
     (2,161 )  (2,065 )
Income before provision for income  
     taxes and minority interests    6,755    6,842  
Minority interest in consolidated income    4,891    4,009  
Provision for income taxes    683    1,006  
Net income   $ 1,181   $ 1,827  
Basic earnings per share:  
     Net income   $ 0.06   $ 0.11  
     Weighted average shares outstanding    18,670    17,074  
Diluted earnings per share:  
     Net income   $ 0.06   $ 0.11  
     Weighted average shares outstanding    18,873    17,223  

See accompanying notes to consolidated financial statements.

-3-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS



($ in thousands)

 March 31,
2004
(Unaudited)
 
  
 
 		 December 31,
2003
(Audited)
 
ASSETS            
 
Current assets:  
     Cash and cash equivalents   $ 13,425   $ 9,780  
     Accounts receivable, less allowance for doubtful  
         accounts of $1,127 in 2004 and $512 in 2003    20,756    27,245  
     Other receivables    1,336    795  
     Deferred income taxes    12,269    8,385  
     Prepaid expenses and other current assets    3,059    1,617  
     Inventory    26,947    21,288  
         Total current assets    77,792    69,110  
Property and equipment:  
     Equipment, furniture and fixtures    42,302    40,161  
     Building and leasehold improvements    11,943    11,235  
     54,245    51,396  
     Less accumulated depreciation and amortization    (26,158 )  (27,440 )
         Property and equipment, net    28,087    23,956  
Other investments    2,963    3,088  
Goodwill, at cost, net of accumulated amortization    184,683    177,974  
Other noncurrent assets    7,405    5,840  
    $ 300,930   $ 279,968  


See accompanying notes to consolidated financial statements.


-4-

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

($ in thousands, except share data)

 March 31,
2004
(Unaudited)
 
  
 
 		 December 31,
2003
(Audited)
 
LIABILITIES            
 
Current liabilities:  
     Current portion of long-term debt   $ 3,211   $ 3,345  
     Accounts payable    9,814    8,617  
     Accrued distributions to minority interests    5,655    6,908  
     Accrued expenses    15,119    10,137  
     Customer deposits    6,325    6,259  
         Total current liabilities    40,124    35,266  
 
Long-term debt, net of current portion    108,111    111,728  
Other long term obligations    1,833    1,397  
Deferred income taxes    18,404    17,889  
         Total liabilities    168,472    166,280  
 
Minority interest    6,991    7,077  
 
STOCKHOLDERS' EQUITY  
 
Preferred stock, $.01 par value; 1,000,000 shares authorized; none outstanding    --    --  
Common stock, $0.01 par value; 40,000,000 shares authorized; 21,045,643 issued  
     in 2004 and 17,324,585 issued in 2003; 20,729,877 outstanding in 2004 and    210    173  
     17,081,869 outstanding in 2003  
Capital in excess of par value    88,863    70,813  
Accumulated earnings    38,020    36,839  
Treasury stock, at cost, 315,766 shares in 2004 and 242,716 in 2003    (1,626 )  (1,214 )
         Total stockholders' equity    125,467    106,611  
    $ 300,930   $ 279,968  


See accompanying notes to consolidated financial statements.


-5-

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



 
  
Three Months Ended March 31,

($ in thousands)

 2004
   2003
  
CASH FLOWS FROM OPERATING ACTIVITIES:            
     Fee and other revenue collected   $ 50,222   $ 44,552  
     Cash paid to employees, suppliers of goods and others    (37,584 )  (35,333 )
     Interest received    88    105  
     Interest paid    (151 )  (367 )
     Taxes refunded (paid)    161    (48 )
         Net cash provided by operating activities    12,736    8,909  
CASH FLOWS FROM INVESTING ACTIVITIES:  
     Purchase of entities, net of cash acquired    3,843    (10,302 )
     Escrow deposits    --    (3,492 )
     Purchases of equipment and leasehold improvements    (3,381 )  (2,281 )
     Distributions from investments    143    135  
     Proceeds from sales of equipment    197    5  
     Other    3    --  
         Net cash provided by (used in) investing activities    805    (15,935 )
CASH FLOWS FROM FINANCING ACTIVITIES:  
     Borrowings on notes payable    722    9,605  
     Payments on notes payable, exclusive of interest    (3,921 )  (4,485 )
     Distributions to minority interest    (7,163 )  (8,316 )
     Contributions by minority interest, net of buyouts    343    (842 )
     Exercise of stock options    123    --  
         Net cash used in financing activities    (9,896 )  (4,038 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    3,645    (11,064 )
 
Cash and cash equivalents, beginning of period    9,780    20,174  
Cash and cash equivalents, end of period   $ 13,425   $ 9,110  


See accompanying notes to consolidated financial statements.



-6-

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



 
  
Three Months Ended March 31,

($ in thousands)

 2004
   2003
  
Reconciliation of net income to net cash provided by operating activities:            
     Net income   $ 1,181   $ 1,827  
     Adjustments to reconcile net income  
          to net cash provided by operating activities  
         Minority interest in consolidated income    4,891    4,009  
         Depreciation and amortization    1,620    1,820  
         Provision for uncollectible accounts    (34 )  92  
         Provision for deferred income taxes    9    1,614  
         Equity in (earnings) loss of affiliates    (22 )  35  
         Stock buyback agreements    (322 )  --  
         Other    (293 )  137  
 
     Changes in operating assets and liabilities,  
          net of effect of purchase transactions  
         Accounts receivable    9,152    2,659  
         Other receivables    (530 )  47  
         Other assets    (3,048 )  (731 )
         Accounts payable    (1,757 )  (157 )
         Accrued expenses    1,889    (2,443 )
     Total adjustments    11,555    7,082  
Net cash provided by operating activities   $ 12,736   $ 8,909  


See accompanying notes to consolidated financial statements.



-7-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)


1. General

The accompanying unaudited consolidated financial statements have been prepared in conformity with the accounting principles for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These consolidated financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the statement of the financial position as of March 31, 2004 and the results of operations and cash flows for the periods presented. These statements have not been audited by our independent certified public accountants. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year.


The notes to consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities Exchange Commission should be read in conjunction with this Quarterly Report on Form 10-Q. There have been no significant changes in the information reported in those notes other than from normal business activities.


2. Earnings per share

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




($ in thousands, except per share data)		 Basic
earnings
per share		 Diluted
earnings
per share
           
Three Months Ended March 31, 2004            
           
Net income   $ 1,181   $ 1,181  
Weighted average shares outstanding    18,670    18,670  
Effect of dilutive securities    --    203  
     Shares for EPS calculation    18,670    18,873  
Net income per share   $ 0.06   $ 0.06  
Three Months Ended March 31, 2003  
           
Net income   $ 1,827 $ 1,827
Weighted average shares outstanding    17,074    17,074  
Effect of dilutive securities    --    149  
     Shares for EPS calculation    17,074    17,223  
Net income per share   $ 0.11 $ 0.11


-8-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 (continued)
(Unaudited)


2. Earnings per share (continued)

Unexercised stock options and warrants to purchase 2,567,000 and 2,824,000 shares of our common stock as of March 31, 2004 and 2003, respectively, were not included in the computation of diluted EPS because the effect would be antidilutive.


3. Segment Reporting

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


We measure performance based on the pretax income or loss from our operating segments, which do not include unallocated corporate general and administrative expenses, corporate interest, revenue and expense.




($ in thousands) Lithotripsy Manufacturing
               
Three Months Ended                
    March 31, 2004  
Revenue from  
external customers   $ 16,219   $ 23,757      
Intersegment revenues    --    --      
Segment profit    3,074    1,746      
               
Three Months Ended  
    March 31, 2003  
Revenue from  
external customers   $ 14,994   $ 25,595    
Intersegment revenues    --    322      
Segment profit    3,022    2,343      


-9-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 (continued)
(Unaudited)


3. Segment Reporting (continued)


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


($ in thousands) Three Months ended March 31,
2004                           2003
       
Total segment profit     $ 4,820   $ 5,365  
Corporate revenues    237    263  
Unallocated corporate expenses:  
    General and administrative    (976 )  (645 )
    Net interest expense    (2,103 )  (1,936 )
    Other, net    (114 )  (214 )
Total unallocated corporate expenses    (3,193 )  (2,795 )
Income before income taxes   $ 1,864   $ 2,833

4. Stock-Based Compensation

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


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


2004 2003
Net income, as reported     $ 1,181   $ 1,827
Stock-based employee compensation   
   expense, net of tax      308     401  
Pro forma net income   $ 873   $ 1,426
Pro forma earning per share:  
     Basic   $ 0.05   $ 0.08
     Diluted   $ 0.05   $ 0.08


-10-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 (continued)
(Unaudited)


5. Acquisitions

Effective February 20, 2004, we acquired Medstone International, Inc. (“Medstone”). Medstone manufactures, sells, and maintains lithotripters and makes them available for use by health care providers under various fee-for-service arrangements in both fixed and mobile settings. Medstone and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient handling tables for use by pain management clinics and other users, and x-ray generators for medical imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstone’s lithotripter was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market. The aggregate purchase price was approximately $19 million for all outstanding shares of Medstone comprised entirely of our common stock. We determined the value of our common stock by using an average closing price for the two trading days prior to and after the public announcement of the merger. Approximately 3.6 million shares were issued. We recognized $6 million of goodwill related to this transaction, none of which is tax deductible. We recognized approximately $1 million of intangibles, which are being amortized over three years. Medstone had total assets with an estimated fair value of $20.5 million and total liabilities with an estimated fair value of $7.2 million as of the purchase date. For the year ended December 31, 2003, Medstone had revenue of $21 million, comprised of $15 million in service revenue and $6 million in equipment sales.


6. Condensed Financial Information Regarding Guarantor Subsidiaries

Our condensed consolidating financial information, Guarantor Subsidiaries and Non-guarantor Subsidiaries for March 31, 2004 and 2003 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Separate financial statements and other disclosures concerning each Guarantor Subsidiary have not been presented because we have determined that such information is not material to investors. The Guarantor Subsidiaries are wholly-owned subsidiaries of ours who have fully and unconditionally guaranteed the 8.75% unsecured senior subordinated notes.






-11-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2004
(Unaudited)

($ in thousands) Prime Medical
Services, Inc.
 Guarantor
Subsidiaries
 Non-Guarantor
Subsidiaries
 Eliminating
Entries
 Consolidated
Total
Revenue:                        
     Lithotripsy   $ 2,189   $ 4,775   $ 13,224   $ (3,969 ) $ 16,219  
     Manufacturing    1,746    23,757    --    (1,746 )  23,757  
     Other    --    237    --    --    237  
         Total revenue    3,935    28,769    13,224    (5,715 )  40,213  
Cost of services and general and  
     administrative expenses:  
         Lithotripsy    --    1,491    5,506    --    6,997  
         Manufacturing    --    21,704    --    --    21,704  
         Corporate    20    956    --    --    976  
     20    24,151    5,506    --    29,677  
Depreciation and amortization    --    684    936    --    1,620  
Operating income    3,915    3,934    6,782    (5,715 )  8,916  
Other income (expenses):  
     Interest and dividends    47    33    8    --    88  
     Interest expense    (2,119 )  (94 )  (76 )  --    (2,289 )
     Other, net    21    62    (43 )  --    40  
         Total other income (expenses)    (2,051 )  1    (111 )  --    (2,161 )
Income before provision for income    1,864    3,935    6,671    (5,715 )  6,755  
     taxes and minority interest  
 
Minority interest in consolidated income    --    --    --    4,891    4,891  
 
Provision for income taxes    683    --    --    --    683  
Net income   $ 1,181   $ 3,935   $ 6,671   $ (10,606 ) $ 1,181  


-12-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2003
(Unaudited)

($ in thousands) Prime Medical
Services, Inc.
 Guarantor
Subsidiaries
 Non-Guarantor
Subsidiaries
 Eliminating
Entries
 Consolidated
Total
Revenue:                        
     Lithotripsy   $ 2,240   $ 3,804   $ 12,511   $ (3,561 ) $ 14,994  
     Manufacturing    2,344    25,595    --    (2,344 )  25,595  
     Other    --    263    --    --    263  
         Total revenue    4,584    29,662    12,511    (5,905 )  40,852  
Cost of services and general and  
     administrative expenses:  
         Lithotripsy    --    467    5,965    --    6,432  
         Manufacturing    --    23,048    --    --    23,048  
         Corporate    33    612    --    --    645  
     33    24,127    5,965    --    30,125  
Depreciation and amortization    --    679    1,141    --    1,820  
Operating income    4,551    4,856    5,405    (5,905 )  8,907  
Other income (expenses):  
     Interest and dividends    53    44    9    --    106  
     Interest expense    (1,961 )  (76 )  (59 )  --    (2,096 )
     Other, net    --    (50 )  (25 )  --    (75 )
         Total other income (expenses)    (1,908 )  (82 )  (75 )  --    (2,065 )
Income before provision for income    2,643    4,774    5,330    (5,905 )  6,842  
     taxes and minority interest  
 
Minority interest in consolidated income    --    --    --    4,009    4,009  
 
Provision for income taxes    816    190    --    --    1,006  
Net income   $ 1,827   $ 4,584   $ 5,330   $ (9,914 ) $ 1,827  


-13-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
March 31, 2004
(Unaudited)

($ in thousands) Prime Medical
Services, Inc.
 Guarantor
Subsidiaries
 Non-Guarantor
Subsidiaries
 Eliminating
Entries
 Consolidated
Total
ASSETS                        
 
Current assets:  
     Cash and cash equivalents   $ 9   $ 5,493   $ 7,923   $ --   $ 13,425  
     Accounts receivable, net    --    13,184    7,572    --    20,756  
     Other receivables    414    2,245    (1,323 )  --    1,336  
     Deferred income taxes    1,193    11,076    --    --    12,269  
     Prepaid expenses and other current assets    --    3,021    38    --    3,059  
     Inventory    --    26,947    --    --    26,947  
         Total current assets    1,616    61,966    14,210    --    77,792  
Property and equipment:  
     Equipment, furniture and fixtures    --    15,308    26,994    --    42,302  
     Building and leasehold improvements    --    11,937    6    --    11,943  
     --    27,245    27,000    --    54,245  
     Less accumulated depreciation  
         and amortization    --    (10,140 )  (16,018 )  --    (26,158 )
         Property and equipment, net    --    17,105    10,982    --    28,087  
Investment in subsidiaries  
     and other investments    245,366    7,064    --    (249,467 )  2,963  
Goodwill, at cost, net of amortization    --    184,683    --    --    184,683  
Other noncurrent assets    2,164    4,647    594    --    7,405  
    $ 249,146   $ 275,465   $ 25,786   $ (249,467 ) $ 300,930  
LIABILITIES  
 
Current liabilities:  
     Current portion of long-term debt   $ 188   $ 314   $ 2,709   $ --    3,211  
     Accounts payable    --    9,599    215    --    9,814  
     Accrued expenses    5,694    8,889    536    --    15,119  
     Accrued distributions to minority interests    --    (1,790 )  7,445    --    5,655  
     Customer deposits    --    6,325    --    --    6,325  
         Total current liabilities    5,882    23,337    10,905    --    40,124  
Long-term debt, net of current portion    100,564    3,758    3,789    --    108,111  
Other long term obligations    --    1,833    --    --    1,833  
Deferred income taxes    17,233    1,171    --    --    18,404  
         Total liabilities    123,679    30,099    14,694    --    168,472  
Minority interest    --    --    --    6,991    6,991  
 
STOCKHOLDERS' EQUITY  
 
Common stock    210    --    --    --    210  
Capital in excess of par value    88,863    --    --    --    88,863  
Accumulated earnings    38,020    --    --    --    38,020  
Subsidiary net equity    --    245,366    11,092    (256,458 )  --  
Treasury stock    (1,626 )  --    --    --    (1,626 )
         Total stockholders' equity    125,467    245,366    11,092    (256,458 )  125,467  
    $ 249,146   $ 275,465   $ 25,786   $ (249,467 ) $ 300,930  



-14-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flow
Three Months Ended March 31, 2004
(Unaudited)

($ in thousands) Prime Medical
Services, Inc.
 Guarantor
Subsidiaries
 Non-Guarantor
Subsidiaries
 Eliminating
Entries
 Consolidated
Total
CASH FLOWS FROM OPERATING                        
     ACTIVITIES:  
     Net cash provided by (used in)  
       operating activities   $ (42 ) $ 1,686   $ 11,092   $ --   $ 12,736  
CASH FLOWS FROM INVESTING  
     ACTIVITIES:  
     Purchase of equity investments and entities    --    3,843    --    --    3,843  
     Purchases of property and equipment    --    (1,898 )  (1,483 )  --    (3,381 )
     Proceeds from sales of equipment    --    150    47    --    197  
     Distributions from subsidiaries    2,878    2,303    --    (5,181 )  --  
     Distributions from investments    --    143    --    --    143  
     Other    --    3    --    --    3  
         Net cash provided by (used in)  
              investing activities    2,878    4,544    (1,436 )  (5,181 )  805  
CASH FLOWS FROM FINANCING  
     ACTIVITIES:  
     Payments on notes payable exclusive of  
         interest    (3,000 )  --    (921 )  --    (3,921 )
     Borrowings on notes payable    --    --    722    --    722  
     Distributions to minority interest    --    --    --    (7,163 )  (7,163 )
     Contributions by minority interest    --    --    343    --    343  
     Excersise of stock options    123    --    --    --    123  
     Distributions to equity owners    --    (2,878 )  (9,466 )  12,344    --  
         Net cash provided by (used in)  
                financing activities    (2,877 )  (2,878 )  (9,322 )  5,181    (9,896 )
NET INCREASE (DECREASE) IN CASH  
     AND CASH EQUIVALENTS    (41 )  3,352    334    --    3,645  
 
Cash and cash equivalents, beginning of period    50    2,141    7,589    --    9,780  
Cash and cash equivalents, end of period   $ 9   $ 5,493   $ 7,923   $ --   $ 13,425  


-15-

PRIME MEDICAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2003
(Unaudited)

($ in thousands) Prime Medical
Services, Inc.
 Guarantor
Subsidiaries
 Non-Guarantor
Subsidiaries
 Eliminating
Entries
 Consolidated
Total
CASH FLOWS FROM OPERATING                        
     ACTIVITIES:  
     Net cash provided by (used in)  
       operating activities   $ 422   $ 2,236   $ 6,251   $ --   $ 8,909  
CASH FLOWS FROM INVESTING  
     ACTIVITIES:  
     Purchase of equity investments and entities    --    (10,302 )  --    --    (10,302 )
     Escrow depoits    (3,492 )  --    --    --    (3,492 )
     Purchases of property and equipment    --    (1,000 )  (1,281 )  --    (2,281 )
     Proceeds from sales of equipment    --    3    2    --    5  
     Distributions from subsidiaries    7,039    3,979    --    (11,018 )  --  
     Investments    (8,000 )  --    --    8,000    --  
     Distributions from investments    --    135    --    --    135  
         Net cash provided by (used in)  
              investing activities    (4,453 )  (7,185 )  (1,279 )  (3,018 )  (15,935 )
CASH FLOWS FROM FINANCING  
     ACTIVITIES:  
     Payments on notes payable exclusive of  
         interest    (4,000 )  --    (485 )  --    (4,485 )
     Borrowings on notes payable    8,000    --    1,605    --    9,605  
     Distributions to minority interest    --    --    --    (8,316 )  (8,316 )
     Contributions by minority interest    --    --    (842 )  --    (842 )
     Contributions from parent    --    8,000    --    (8,000 )  --  
     Distributions to equity owners    --    (7,039 )  (12,295 )  19,334    --  
         Net cash provided by (used in)  
                financing activities    4,000    961    (12,017 )  3,018    (4,038 )
NET INCREASE (DECREASE) IN CASH  
     AND CASH EQUIVALENTS    (31 )  (3,988 )  (7,045 )  --    (11,064 )
 
Cash and cash equivalents, beginning of period    66    7,897    12,211    --    20,174  
Cash and cash equivalents, end of period   $ 35   $ 3,909   $ 5,166   $ --   $ 9,110  


-16-

Item 2 — Management’s Discussion and Analysis
of Financial Condition and
Results of Operations


Forward-Looking Statements

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


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


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

General

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




-17-

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


Our services are provided principally through limited partnerships or other entities that we manage, which use lithotripsy devices. As of March 31, 2004, we owned 94 lithotripters, 74 of which are mobile and 20 of which are fixed site. We do not render any medical services. Rather, the physicians do.


We also, through our Medstone subsidiary, manufacture, sell and maintain lithotripters, and market fixed and mobile tables for urological treatments and imaging, as well as patient handling tables for use by pain management clinics. See “Recent Developments” for a description of our Medstone subsidiary.


As the general partner of the limited partnerships, we also provide services relating to operating our lithotripters, including scheduling, staffing, training, quality assurance, maintenance, regulatory compliance, and contracting with payors, hospitals and surgery centers. We do not directly bill, nor do we collect for services rendered to, Medicare or Medicaid.


Although, for the three months ended March 31, 2004 and 2003, manufacturing revenue was higher than lithotripsy revenue, the operating margins on lithotripsy revenue have been, historically, much higher than on manufacturing revenue. We recognize lithotripsy revenue primarily from the following sources:


 •

Fees for lithotripsy services. A substantial majority of our lithotripsy revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. We, through our partnerships or other entities, facilitate the use of our equipment and provide other support services in connection with these treatments at hospitals and other health care facilities. The professional fee payable to the physician performing the procedure is generally billed and collected by the physician.


 •

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


 •

Fees for equipment sales and licensing applications. We manufacture, sell and maintain lithotripters and certain medical tables. In addition to the original sales price we receive for lithotripter sales, we receive a licensing fee for each patient treated from the owner of the lithotripter. In exchange for this licensing fee, we also provide the owner of the lithotripter with certain consumables.


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


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




-18-

Recent Developments

In February 2004, we acquired Medstone International, Inc., or Medstone, for approximately $19 million. Medstone manufactures, sells, and maintains lithotripters and makes them available for use by health care providers under various fee-for-service arrangements in both fixed and mobile settings. Medstone and its subsidiaries also market fixed and mobile tables for urological treatments and imaging, patient handling tables for use by pain management clinics and other users, and x-ray generators for medical imaging. A pioneer in the manufacture of shockwave lithotripsy, Medstone’s lithotripter was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and more than 324 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market. For the year ended December 31, 2003, Medstone had revenue of $21 million, comprised of $15 million in service revenue and $6 million in equipment sales.


In April 2004, we announced our plans to reorganize our manufacturing segment in the last half of 2004. This reorganization will rationalize plant capacity accumulated through acquisitions, streamline production, and optimize synergies available through labor redundancies and, purchasing and materials management.


Critical Accounting Policies and Estimates.

Management has identified the following critical accounting policies and estimates:

Impairments of goodwill and other intangible assets are both a critical accounting policy and estimate that requires judgment and is based on assumptions of future operations. We are required to test for impairments at least annually or if circumstances change that would reduce the fair value of a reporting unit below its carrying value. The fair value of each reporting unit is calculated using estimated discounted future cash flow projections. As of March 31, 2004, we had goodwill of $185 million.


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


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




-19-

Three months ended March 31, 2004 compared to the three months ended March 31, 2003


Our total revenues for the three months ended March 31, 2004 decreased $639,000 (2%) as compared to the same period in 2003. Revenues from our lithotripter operations increased by $1,225,000 (8%) due to the acquisition of Medstone during February 2004. The actual number of procedures performed in the three months ended March 31, 2004 increased by 6% compared to the same period in 2003. Actual revenues from Medstone in the quarter totaled $1.7 million on 748 procedures and 2,547 licensing applications. We also had $500,000 in Medstone equipment sales. Our manufacturing revenues decreased $1,838,000 (7%) due to the number of units shipped decreasing from 95 during 2003 to 78 during 2004. The majority of the decrease related to our medical manufacturing facility in Chicago, which continues to be negatively impacted by the global decline in demand in this business.


Our costs of services and general and administrative expenses (excluding depreciation and amortization) for the three months ended March 31, 2004 was consistent with the same peiod in 2003 at 74% of revenues. Our costs of services associated with our lithotripsy operations increased $565,000 (9%) in absolute terms and remained consistent at 43% of our lithotripsy revenues. Costs associated with Medstone revenues discussed above totaled $1.4 million. Our cost of services associated with our manufacturing operations decreased $1,344,000 (6%) in absolute terms but increased from 90% to 91% of our manufacturing revenues due to decreased sales in medical manufacturing which historically has higher product margins. Our corporate expenses remained consistent at 2% of revenues, increasing $331,000 (51%) in absolute terms, but down $177,000 from fourth quarter 2003.


Depreciation and amortization expense decreased $200,000 for the three months ended March 31, 2004 compared to the same period in 2003.


Minority interest in consolidated income for the three months ended March 31, 2004 increased $882,000 compared to the same period in 2003, primarily as a result of an increase in income from our lithotripsy segment.


Provision for income taxes for the three months ended March 31, 2004 decreased $323,000 compared to the same period in 2003 due to a decrease in income.


Liquidity and Capital Resources

Cash Flows

Cash and cash equivalents were $13,425,000 and $9,780,000 at March 31, 2004 and December 31, 2003, respectively. Our subsidiaries generally distribute all of their available cash quarterly, after establishing reserves for estimated capital expenditures and working capital. For the three months ended March 31, 2004 and 2003, our subsidiaries distributed cash of approximately $7,163,000 and $8,316,000, respectively, to minority interest holders.


Cash provided by operations, after minority interest, was $12,736,000 for the quarter ended March 31, 2004 and $8,909,000 for the quarter ended March 31, 2003. Fee and other revenue collected increased by $5,670,000. Cash paid to employees, suppliers of goods and others increased by $2,251,000. These fluctuations are attributable to increased operations from our acquisition of Medstone as well as the timing of accounts payable and accrued expense payments. A decrease in interest payments of $216,000 was due primarily to our interest rate swap agreements, which were terminated in January 2004. Taxes refunded increased $209,000 due to refractive operations write-offs in 2002, which were carried back to prior taxable years.


Cash provided by our investing activities for the quarter ended March 31, 2004, was $805,000 primarily due to $3,843,000 in net cash received from our acquisition of Medstone. We purchased equipment and leasehold improvements totaling $3,381,000. Cash used by our investing activities for the quarter ended March 31, 2003, was $15,935,000 primarily due to $10,302,000 used in our acquisition of Winemiller Communications and Aluminum Body Corporation, or ABC. We purchased equipment and leasehold improvements totaling $2,281,000 during that quarter. We also deposited $3,492,000 in an escrow account related to certain contingent consideration for the ABC acquisition.




-20-

Cash used in our financing activities for the quarter ended March 31, 2004, was $9,896,000, primarily due to distributions to minority interests of $7,163,000 and net payments on notes payable of $3,199,000. Cash used in our financing activities for the quarter ended March 31, 2003, was $4,038,000, primarily due to distributions to minority interests of $8,316,000, partially offset by net borrowings on notes payable of $5,120,000.


Senior Credit Facility

Our senior credit facility is a revolving line of credit, and it expires on July 25, 2005. The revolving line of credit has a borrowing limit of $50 million, none of which was drawn at March 31, 2004 and April 30, 2004. Our senior credit facility contains covenants that, among other things, limit the payment of cash dividends on our common stock, limit repurchases of our common stock, restrict the amount of our consolidated debt, restrict our ability to make certain loans and investments, and provide that we must maintain certain financial ratios.


8.75% Notes

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


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


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


Other

Interest Rate Swap .. In August 2002, we entered into an interest rate swap which was designated as a fair value hedge pursuant to the provisions of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, An Amendment of FASB Statement No. 133. This swap was executed to convert $50 million of the 8.75% notes from a fixed to floating rate instrument. The floating rate was based on LIBOR plus 4.56%. In March 2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated the swaps in May 2003. In August 2003, we entered into two new interest rate swaps for $25 million each which were designated as fair value hedges. The floating rates of the two interest rate swap agreements were based on LIBOR plus 4.72% and 4.97%, respectively. In January 2004, we terminated these swaps. As of March 31, 2004, approximately $800,000 in proceeds from these swaps are capitalized and is being amortized as a reduction to future interest expense over the remaining life of the 8.75% notes.




-21-

Other long term debt. At March 31, 2004, we had approximately $4 million of debt related to our building in Austin, Texas, which bears interest at prime plus 1% and is due in monthly installments until November 2006. We also had notes totaling $6.6 million related to equipment purchased by our limited partnerships. These notes are paid from the cash flows of the related partnerships. They bear interest at LIBOR or prime plus a certain premium and are due over the next three years.


Other long term obligations. At March 31, 2004, we had an obligation totaling $1,500,000 related to payments to the previous owner of ABC for $75,000 per quarter until March 31, 2008 as consideration for a noncompetition agreement. We had an obligation totaling $829,000 related to payments to a previous employee of Medstone for $20,833 a month until February 28, 2007 and $4,167 beginning March 1, 2007 and continuing until February 28, 2009 as consideration for a noncompetition agreement. We also had an obligation for $528,000 related to the estimated fair values of “puts” on our common stock held by two previous minority interest owners of one of our subsidiaries, AK Specialty Vehicles, which may be exercised in two equal increments of approximately 121,360 shares in June 2004 and 2005 at per share purchase prices of $7.12 and $7.19, respectively.


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


General

The following table presents our contractual obligations as of March 31, 2004 (in thousands):

 Payments due by period
Contractual Obligations
Total
Less than
1 year
1-3 years
3-5 years
More than 5 years
Long Term Debt (1)     $ 111,322   $ 3,211   $ 8,096   $ 100,015     --  
Operating Leases (2)       5,437     1,520     2,989     928   $ --  
Non-compete contracts (3)       2,329     850     1,133     346     --  
Stock repurchase agreements (4)      528     269     259     --     --  
Total     $ 119,616   $ 5,850   $ 12,477   $ 101,289   $ --  
  (1) Represents long term debt as discussed above.

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

 (3) Represents an obligation of $1,500 due to the previous owner of ABC, at a rate of $75 per quarter and an obligation of $829 due to a previous employee of Medstone, at a rate of $21 per month until February 28, 2007 and $4 beginning March 1, 2007 and continuing until February 28, 2009.

  (4) Represents the estimated liability, in accordance with SFAS No. 150, of certain “put” rights on our common stock discussed above under “Other long term obligations”.


-22-

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


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


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


Inflation

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


Adoption of Accounting Pronouncements

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




-23-

Item 3 — Quantitative and Qualitative Disclosures
About Market Risk


Interest Rate Risk

As of March 31, 2004, we had long-term debt (including current portion) totaling $111,322,000, of which $100 million has a fixed rate of interest of 8.75%, $59,000 has fixed rates of 5% to 11%, $4,013,000 bears interest at a variable rate equal to a specified prime rate and $6,498,000 bears interest at a variable rate equal to LIBOR + 1 to 3.75%. The remaining $752,000 relates to our interest rate swaps, which are discussed below. We are exposed to some market risk due to floating interest rate debt totaling $10,511,000 on which we make monthly or quarterly payments of principal and interest. An increase in interest rates of 1% would result in a $105,000 annual increase in interest expense on this existing principal balance.


Additionally, in August 2002, we entered into an interest rate swap, which was designated as a fair value hedge pursuant to the provisions of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133. This swap had the effect of converting $50 million of our 8.75% notes from a fixed to floating rate instrument with a rate of LIBOR plus 4.57%. In March 2003, we amended our interest rate swap agreement to add an additional $25 million with a floating rate based on LIBOR plus 5.11%. We terminated the swaps in May 2003. In August 2003, we entered into two new interest rate swaps for $25 million each, which were designated as fair hedges. The floating rates of the two interest rate swap agreements were based on LIBOR plus 4.72% and 4.97%, respectively. In January 2004, we terminated these swaps for approximately $150,000. At March 31, 2004, approximately $800,000 in net proceeds from these swaps are capitalized and is being amortized as a reduction to future interest expense over the remaining life of the 8.75% notes.


Item 4 – Controls and Procedures


At March 31, 2004, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2004, our disclosure controls and procedures were effective.


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




-24-






PART II

OTHER INFORMATION









-25-

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

Issuer Purchases of Equity Securities.






Period


(a) Total Number of
Shares (or Units)
Purchased


(b) Average Price
Paid per Share
(or Unit)
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
 (d) Maximum Number
or (Approximate Dollar
value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
February 1, 2004(1)   84,071   $ 5.65  -      -  

                   (1) On February 1, 2004, we completed the sale of certain assets of our Winemiller subsidiary to RF Central LLC for 84,071 shares of our common stock held by a previous owner of Winemiller.

Item 4. Submission of Matters to a Vote of Security Holders.

                   On February 20, 2004 we held a special meeting of our stockholders to consider and vote on the two proposals described below.

                   (1) Approval of our merger with Medstone International, Inc. The proposal was approved and the votes “FOR” were 11,429,466, the votes “AGAINST” were 78,878, and the votes “ABSTAINING” were 14,567.

                   (2) Approval of our 2003 Stock Option Plan. The proposal was approved and the votes “FOR” were 10,917,066, the votes “AGAINST” were 571,241, and the votes “ABSTAINING” were 34,604.


Item 6. Exhibits and Reports on Form 8-K.

(a)

         
         
         
         
         

(b)

         
         

         
          		Exhibits

12.1  Computation of ratio of earnings to fixed charges.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer

Current Reports on Form 8-K

On February 2, 2004, we filed a report on Form 8-K disclosing a presentation to the investment community.

On February 20, 2004, we filed a report on Form 8-K announcing the completion of the merger with Medstone
International, Inc.

On February 24, 2004, we filed a report on Form 8-K disclosing our fourth quarter 2003 earnings release.



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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


                                                     



Date: May 5, 2004



                                                     
                                                     
                                                      		PRIME MEDICAL SERVICES, INC.







By: /s/ John Q. Barnidge                                
     John Q. Barnidge, Senior Vice President
         and Chief Financial Officer







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