<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                       __________________________________

                                   FORM 10-Q

(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996
                                       or

[  ]     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 0-12849

                       AMERICAN SHARED HOSPITAL SERVICES          
           ----------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            California                               94-2918118
--------------------------------          ----------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)

Four Embarcadero Center, Suite 3620, San Francisco, California       94111
--------------------------------------------------------------     ----------
       (Address of Principal Executive Offices)                    (Zip Code)

Registrant's telephone number, including area code: (415) 788-5300

         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 
                                                    -----     -----

         As of November 8, 1996: there are outstanding 4,769,384 shares of the
Registrant's common stock.



                                      -1-
<PAGE>   2
                       AMERICAN SHARED HOSPITAL SERVICES
    PART  I - FINANCIAL INFORMATION -  CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  
                                                                 (unaudited)        (audited)    
           ASSETS                                         September 30, 1996    Dec. 31, 1995    
--------------------------------------                    ------------------    -------------    
<S>                                                            <C>              <C>              
Current assets:
   Cash and cash equivalents                                   $    264,000         $452,000
   Restricted cash                                                  932,000          493,000
   Receivables, less allowance for
      uncollectible accounts of
      $1,202,000 ($1,448,000 in 1995):
          Trade accounts receivable                               6,432,000        6,251,000
          Other receivables                                         146,000          202,000
          Note receivable from officer                                    0           57,000
                                                               ------------     ------------
                                                                  6,578,000        6,510,000

   Inventories                                                       45,000           67,000
   Prepaid expenses and other current assets                        826,000        1,124,000
                                                               ------------     ------------

TOTAL CURRENT ASSETS                                              8,645,000        8,646,000

Note Receivable from officer, less
  current portion                                                         0          191,000

Property and equipment:
   Land, buildings and improvements                               1,474,000        1,560,000
   Medical, transportation & office equipment                    10,059,000        7,453,000
   Capitalized lease equipment                                   29,283,000       24,673,000
                                                               ------------     ------------
                                                                 40,816,000       33,686,000
   Accumulated depreciation  & amortization                     (17,518,000)     (14,015,000)
                                                               ------------     ------------
Net property and equipment                                       23,298,000       19,671,000



Intangible assets, less accumulated amortization                  1,295,000        1,462,000

Other assets                                                      1,485,000        1,375,000
                                                               ------------     ------------
TOTAL ASSETS                                                   $ 34,723,000     $ 31,345,000
                                                               ============     ============
</TABLE>



<TABLE>
<CAPTION>

LIABILITIES AND
STOCKHOLDERS' EQUITY                                            (unaudited)        (audited)
(NET CAPITAL DEFICIENCY)                                 September 30, 1996    Dec. 31, 1995 
---------------------------------------------            ------------------    -------------
<S>                                                            <C>              <C>              
Current liabilities:

   Accounts payable                                              $4,536,000       $3,524,000
   Accrued  interest                                                 98,000          170,000
   Employee compensation and benefits                             1,102,000        1,175,000
   Other accrued liabilities                                      1,122,000        1,077,000
   Current portion of long-term debt                              7,074,000        2,796,000
   Current portion of obligations
     under capital leases                                         6,234,000        5,924,000
   Senior subordinated notes                                        360,000          773,000
                                                               ------------     ------------
TOTAL CURRENT LIABILITIES                                        20,526,000       15,439,000

Long-term debt, less current portion                              5,992,000        9,278,000
Obligations under capital leases,
   less current portion                                          17,893,000       16,847,000
Deferred income taxes                                               164,000          164,000
Minority interest                                                   682,000          193,000
Stockholders' equity (net capital deficiency):
   Common stock, without par value:
      authorized shares - 10,000,000; issued
      & outstanding shares, 4,769,000
      in 1996 & 4,244,000 in 1995                                11,089,000       10,635,000
   Common stock options issued to officer                         2,414,000        2,414,000
   Additional paid-in capital                                       930,000          930,000
   Accumulated deficit                                          (24,967,000)     (24,555,000)
                                                               ------------     ------------
   Total stockholders' equity (net capital deficiency)          (10,534,000)     (10,576,000)
                                                               ------------     ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
   EQUITY (NET CAPITAL DEFICIENCY)                              $34,723,000      $31,345,000
                                                               ============     ============
</TABLE>



                             See Accompanying Notes





                                       2
<PAGE>   3
                       AMERICAN SHARED HOSPITAL SERVICES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Three months ended September 30,     Nine months ended September 30,
                                                        1996               1995              1996              1995
                                                        ----               ----              ----              ----
 <S>                                                <C>                 <C>              <C>               <C>
 REVENUES:
     Medical Services                               $9,584,000          $8,377,000       $27,725,000       $25,517,000

 COSTS AND EXPENSES:
     Costs of operations:

        Medical services payroll                     1,957,000           1,739,000         5,515,000         5,212,000

        Maintenance and supplies                     1,649,000           1,679,000         5,070,000         5,091,000

        Depreciation and amortization                1,681,000           2,032,000         5,089,000         6,655,000

        Write-down of equipment                              0                   0                 0         3,825,000

        Equipment rental                               816,000             814,000         2,654,000         2,022,000

        Other                                        1,067,000             833,000         3,002,000         2,738,000
                                                --------------      --------------    --------------    -------------- 
                                                     7,170,000           7,097,000        21,330,000        25,543,000

     Selling and administrative                      1,362,000           1,313,000         3,848,000         4,271,000

     Interest                                        1,108,000             959,000         3,180,000         4,233,000

     Write-down of intangible assets                         0                   0                 0           600,000
                                                --------------      --------------    --------------    --------------    
 Total costs and expenses                            9,640,000           9,369,000        28,358,000        34,647,000

 Equity in earnings (losses)  of partnerships          (14,000)             13,000            27,000            36,000

 Gain (loss) on sale of assets                           3,000             262,000            27,000           216,000

 Interest and other income                             105,000              33,000           162,000           141,000
                                                --------------      --------------    --------------    --------------    
 Income (loss) before income taxes &
   extraordinary item                                   38,000            (684,000)         (417,000)       (8,737,000)

 Income tax expense (benefit)                            1,000                   0            (5,000)                0
                                                --------------      --------------    --------------    -------------- 

 Income (loss) before extraordinary item                37,000            (684,000)         (412,000)       (8,737,000)
 
Extraordinary item - gain on early
   extinguishment of debt                                    0                   0                 0        20,378,000
                                                --------------      --------------    --------------    --------------    

 Net income (loss)                                     $37,000           ($684,000)        ($412,000)      $11,641,000
                                                ==============      ==============    ==============    ==============    

 Income (loss) per share:

        Income (loss) before extraordinary item         $0.01            ($0.16)            ($0.09)           ($2.43)

        Extraordinary Item                              $0.00             $0.00              $0.00             $5.68
                                                --------------      --------------    --------------    --------------    
        Net income (loss)                               $0.01            ($0.16)            ($0.09)            $3.25
                                                ==============      ==============    ==============    ==============    
 Common shares and equivalents used in
   computing per share amounts                       6,297,000           4,217,000         4,407,000         3,586,000
                                                --------------      --------------    --------------    --------------    
</TABLE>



                             See Accompanying Notes





                                       3
<PAGE>   4
                       AMERICAN SHARED HOSPITAL SERVICES
                 Condensed Consolidated Statement of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                             Nine Months Ended September 30, 
                                                                                 1996              1995
                                                                                 ----              ----
<S>                                                                            <C>               <C>
OPERATING ACTIVITIES:
                  
                                                                                 ($412,000)      $11,641,000
Net income (loss)
Adjustment to reconcile net loss to net cash
    provided by (used in)operating activities:
       Extraordinary gain after income taxes                                             0       (20,378,000)
       (Gain) loss on sale of assets                                               (27,000)         (216,000)
       Depreciation and amortization                                             5,343,000         7,060,000
       Write-down of equipment                                                           0         3,825,000
       Write-down of intangible assets                                                   0           600,000
       Equity in (earnings) of partnerships                                        (27,000)          (36,000)
       Compensation expense related to stock grants                                      0           265,000
       Changes in operating assets and liabilities:
             (Increase) decrease in restricted cash                               (439,000)                0
             (Increase) decrease in accounts receivable                           (125,000)          622,000
             Decrease in inventories                                                22,000            48,000
             Decrease in prepaid expenses and other assets                         298,000           165,000
             Increase (decrease) in accounts payable and accrued liabilities       912,000           397,000
                                                                               -----------       -----------
Net cash provided by operating activities                                        5,545,000         3,993,000
INVESTING ACTIVITIES:
Payment for purchase of property and equipment                                    (162,000)         (158,000)
Proceeds from sale and disposition of property and equipment                       701,000           108,000
Increase in minority interest                                                      489,000                 0
Distributions received from partnership                                             15,000                 0
Other                                                                             (114,000)         (128,000)
                                                                               -----------       -----------
Net cash provided by (used in) investing activities                                929,000          (178,000)
FINANCING ACTIVITIES:
Payment for repurchase of bonds                                                          0        (3,893,000)
Proceeds from loan agreement                                                             0         7,000,000
Payment for exercise of warrants                                                     1,000                 0
Principal payments on long-term debt and obligations
  under capital leases                                                          (6,663,000)       (7,667,000)
Other                                                                                    0           113,000
                                                                               -----------       -----------
Net cash used in financing activities                                           (6,662,000)       (4,447,000)
                                                                               -----------       -----------
Net decrease in cash and cash equivalents                                         (188,000)         (632,000)
Cash and cash equivalents at beginning of period                                   452,000         1,225,000
                                                                               -----------       -----------
Cash and cash equivalents at end of period                                     $   264,000       $   593,000
                                                                               ===========       ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest                                                                       $ 3,236,000       $ 3,731,000
                                                                               ===========       ===========
Income taxes                                                                       $22,000           $55,000
                                                                                   =======           =======
</TABLE>

                             See Accompanying Notes





                                       4
<PAGE>   5
                       AMERICAN SHARED HOSPITAL SERVICES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

         Basis of Presentation
         ---------------------

         In the opinion of management, the accompanying unaudited condensed
         consolidated financial statements contain all adjustments (consisting
         of only normal recurring accruals) necessary to present fairly
         American Shared Hospital Services' (the "Company") consolidated
         financial position as of September 30, 1996 and the results of its
         operations for the three and nine month periods ended September 30,
         1996 and 1995, which results are not necessarily indicative of results
         on an annual basis.  Consolidated balance sheet amounts as of December
         31, 1995 have been derived from audited financial statements.  These
         financial statements include the accounts of the Company and its
         wholly owned subsidiaries, CuraCare, Inc., MMRI, Inc., European Shared
         Medical Services Limited, American Shared Radiosurgery Services,
         African American Church Health and Economic Services, Inc., ACHES
         Insurance Services, Inc. and the Company's majority-owned subsidiary,
         GK Financing, LLC. All significant intercompany accounts and
         transactions have been eliminated.

         The Company has incurred net losses before extraordinary items of
         $12,459,000, $5,537,000 and $15,644,000 in 1995, 1994 and 1993,
         respectively.  At September 30, 1996, the Company has a working
         capital deficiency of $11,881,000 and a net capital deficiency of
         $10,534,000.  In addition the Company will not have sufficient cash
         resources to repay its debt obligations at  maturity and will be
         required to seek new financing.  There can be no assurance that such
         financing will be available or that the terms of any such financing
         will be acceptable to the Company.

         These conditions raise substantial doubt about the Company's ability
         to continue as a going concern.  These financial statements do not
         include any adjustments to reflect the possible future effects on the
         recoverability and classification of assets or the amounts and
         classification of liabilities that may result from the possible
         inability of the Company to continue as a going concern.

         Note 2.  Per Share Amounts

         Per share information has been computed based on the weighted average
         number of common shares and dilutive common share equivalents
         outstanding.





                                       5
<PAGE>   6

Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations

         Medical Services revenues increased $1,207,000 and $2,208,000 for
         the three and nine month periods ended September 30, 1996 from
         $8,377,000 and $25,517,000 for the three and nine month periods ended
         September 30, 1995.

         Revenues from Magnetic Resonance Imaging (MRI) service increased
         $870,000 and $2,461,000 for the three and nine month periods ended
         September 30, 1996 compared to the same periods in the prior year. The
         increases are primarily due to the commencement of new customer
         contracts on four additional units and increased utilization from
         contracts commenced in prior periods.  The Company had a net increase
         of 23 new MRI customer contracts as of September 30, 1996 compared to
         September 30, 1995.

         Computed Tomography (CT) revenues increased $52,000 and $4,000 for the
         three and nine month periods ended September 30, 1996 compared to the
         same periods in the prior year due to consistent revenue generation
         from mobile routes and an increase in interim rentals.  Nuclear
         Medicine and Ultrasound revenues increased $37,000 and decreased
         $111,000 for the three and nine months periods ended September 30,
         1996 compared to the same periods in the prior year. The third quarter
         1996 revenue increase was due to higher ultrasound revenues compared
         to the third quarter of 1995.

         Contract Service Revenues consisting of respiratory therapy services
         and cardiac catheterization laboratory revenues decreased $20,000 and
         $572,000 for the three and nine month periods ended September 30, 1996
         compared to the same periods in the prior year due to the termination
         of four respiratory therapy contracts.  The decrease in respiratory
         therapy services revenues was partially offset by the commencement of
         a cardiac catheterization laboratory contract in second quarter 1996.

         Gamma Knife revenues increased $263,000 and $416,000 for the three and
         nine month periods ended September 30, 1996 compared to the same
         periods in the prior year.  The revenue increase was due to the
         commencement in service of a second Gamma Knife unit, offset by
         reduced revenues from the Company's first Gamma Knife unit as a result
         of reduced pricing in connection with a contract extension.  The
         Company entered into contracts with two hospitals to place Gamma Knife
         units in service during mid to late 1997.

         Total cost of operations, exclusive of write-down of equipment and
         intangible assets, increased $73,000 and decreased $388,000 for the
         three and nine month periods ended September 30, 1996 compared to the
         same periods in the prior year.  Medical services payroll increased
         $218,000 and $303,000 for the three and nine month periods ended
         September 30, 1996 compared to the same periods in the prior year
         primarily due to the staffing increases to operate additional MRI
         units





                                       6
<PAGE>   7
         for additional customers.  Maintenance and supplies decreased $30,000
         and $21,000 for the three and nine month periods ended September 30,
         1996 compared to the same periods in the prior year principally as a
         result of cost savings associated with MRI maintenance contracts.
         Depreciation and  amortization decreased $351,000 and $1,566,000 for
         the three and nine month periods ended September 30, 1996 compared to
         the same periods in the prior year.  The decrease is primarily
         attributable to the adoption of Financial Accounting Standards No. 121
         (FAS 121) during the second quarter 1995 as explained in further
         detail below.  In addition, the majority of capital leases were
         extended as of October 1, 1995 thereby extending the depreciable life
         of the asset (leased assets are depreciated based on lease terms) and
         decreasing depreciation expense.  Equipment rental increased $2,000
         and $632,000 for the three and nine months periods ended September 30,
         1996 compared to the same periods in the prior year.  The year to date
         increase is primarily reflected in the first quarter prior to the
         company returning four rental units.  Other operating costs increased
         $234,000 and $264,000 for the three and nine month periods ended
         September 30, 1996 compared to the same period in the prior year.
         The increases are primarily due to increases in fuel costs, MRI space
         rental costs and physician reading fees.


         In connection with the early adoption of FAS 121 during the second
         quarter of 1995, management reviewed the recoverability of the
         carrying value of long-lived assets, primarily fixed assets, goodwill
         and deferred costs. Following its review, management concluded that
         there was an impairment in the recorded value of fixed assets,
         goodwill and deferred costs under FAS 121 based on management's
         estimate of future undiscounted cash flows over the estimated
         remaining useful life of certain assets.  Accordingly, an impairment
         loss of $4,425,000 was recorded in the second quarter of 1995 based on
         the differences between the fair value of such assets as determined by
         third parties and the recorded values. The impairment loss is
         comprised of a charge for the write-downs of equipment and deferred
         assets of $3,825,000 (primarily MRI, CT and nuclear medicine) and
         goodwill of $600,000.


         Selling and Administrative costs increased $49,000 and decreased
         $423,000 for the three and nine month periods ended September 30, 1996
         compared to the same periods in the prior year.  The third quarter
         increase was primarily due to an increase in salary and wages and
         travel expenses related to GK Financing and ACHES Insurance Services.
         The year to date decrease is primarily due to a second quarter 1995
         charge of $265,000 to salary and wage expense for the 184,000 shares
         of common stock issued to the Company's Chairman and CEO, Ernest A.
         Bates, M.D. for his continued services to the Company and his personal
         guarantee of $6,500,000 of indebtedness of the Company and reduced
         1996 legal costs of approximately $120,000.

         Interest expense increased $149,000 and decreased $1,053,000 for the
         three and nine month periods ended September 30, 1996 compared to the
         same periods in the prior year.  The third quarter increase reflects
         the Company's higher indebtedness levels and the year to date decrease
         is  primarily due to the Company's repurchase in May 1995 of
         $17,694,000 aggregate principal amount of its Senior Subordinated
         Notes.





                                       7
<PAGE>   8
         The Company has net income of $37,000 and a loss of $412,000 for the
         three and nine months periods ended September 30, 1996 compared to net
         loss of $684,000 and net income of $11,641,000 for the same periods in
         the prior year.  The nine month period ended September 30, 1995
         include an extraordinary gain on early extinguishment of debt of
         $20,378,000.




         LIQUIDITY AND CAPITAL RESOURCES


         The Company had cash and cash equivalents of $264,000 at September 30,
         1996 compared to $452,000 at December 31, 1995.  The Company's cash
         position decreased due to its net loss of $412,000 in the first nine
         months of 1996.

         On May 17, 1995, the Company repurchased (the "Notes Repurchase") for
         cash and securities approximately 96% of its outstanding Senior
         Subordinated Notes (the "Subordinated Notes"). The Notes Repurchase,
         together with a December 1994 lease restructuring and the availability
         of up to $8,000,000 of new debt financing, concluded a broad
         restructuring of the Company's  obligations as more fully explained in
         the Company's 1995 Form 10-K.

         On December 29, 1995 and March 1, 1996, the Company further
         restructured certain of its medical equipment leases and its
         outstanding notes (the "GE Notes") to extend the terms of the leases
         for periods of up to an additional 26 months, to defer certain monthly
         lease payments and to defer certain installment payments due at the
         beginning of 1996. This further restructuring results in payment
         reductions of approximately $1,200,000 for the Company in 1996.

         In connection with the issuance of the GE Notes, the Company issued
         warrants to GE to purchase an aggregate of 225,000 Common Shares for
         $0.01 per share. Effective March 5, 1996 and September 26, 1996,
         97,853 and 127,147  of the GE Warrants were exercised to purchase
         97,853 and 127,147 Common Shares, respectively.

         The various restructuring transactions described above cured all of
         the Company's outstanding defaults relating to its debt and lease
         obligations.  The Company nevertheless remains highly leveraged and
         has significant cash payment requirements under its equipment leases
         and credit facilities.  Scheduled cash equipment capital lease
         payments and operating lease payments during the 12 months ending
         December 31, 1996 are $8,313,000 and $834,000, respectively, with
         related maintenance commitments of approximately $1,847,000.
         Scheduled interest and principal payments under the Company's other
         debt obligations during such period are approximately $4,824,000.  In
         order to generate sufficient cash to satisfy these obligations as they
         become due, the Company's management decided to do the following: (i)
         continue to implement its program of expense reductions;  (ii) enhance
         revenues by increasing customer contracts and equipment utilization;
         (iii) negotiate favorable concessions from major creditors; and (iv)
         offer to exchange





                                       8
<PAGE>   9
         equity in the Company for interest bearing debt.  There can be no
         assurance that these measures will generate sufficient cash to enable
         the Company to meet its scheduled obligations.  Any inability of the
         Company to meet its obligations when due would result in a default
         which could permit the relevant obligor to accelerate the obligation
         and seek other remedies including seizure of the Company's medical
         imaging equipment.  In such event, the Company would be forced to seek
         a liquidation under Chapter 7 or a reorganization under Chapter 11 of
         the United States Bankruptcy Code.

         As part of its strategic efforts outlined above, the company in March
         1996 sold its Modesto buildings for $650,000 in cash, and negotiated
         an increase of $500,000 in its working capital line of credit and the
         Company completed an exchange offer (the "Exchange Offer") for
         $413,000 aggregate principal amount of Subordinated Notes.  In the
         Exchange Offer, the Company offered to exchange approximately 700
         shares of its Common Stock for each $1,000 principal amount of
         Subordinated Notes (and all accrued interest thereon).  The purpose of
         the Exchange Offer was to improve the Company's capital structure and
         relieve the Company of the requirement to pay $836,000 of principal
         and interest in October, 1996 when the Subordinated Notes mature.  In
         the exchange offer, the Company issued approximately 287,000
         additional shares of Common Stock.  The remaining $360,000 of the
         Subordinated Notes were paid at maturity on October 16, 1996.


                          PART II - OTHER INFORMATION


         Item 1. Legal Proceedings.

                 None.

         Item 2. Changes in Securities

                 None.
         Item 3. Defaults upon Senior Securities

                 None.





                                       9
<PAGE>   10




         Item 5. Other Information.
                 ------------------

                 None.

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

                 (a)       Exhibits

                           The following exhibit is filed herewith:

                           Exhibit
                            Number               Description
                           -------               -----------
                           27              Financial Data Schedule

                 (b)       Reports on Form 8-K

                           None.





                                       10
<PAGE>   11

                                   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.


                       AMERICAN SHARED HOSPITAL SERVICES
                                   Registrant


Date:          November 14, 1996          /s/ Ernest A. Bates
                                         -------------------------------------
                                         Ernest A. Bates, M.D.
                                         Chairman of the Board and
                                         Chief Executive Officer




Date:          November 14, 1996          /s/ Craig K. Tagawa
                                         -------------------------------------
                                         Craig K. Tagawa
                                         Chief Financial Officer





                                       11