UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  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, 2010 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 1-08789




American
Shared Hospital Services


(Exact
name of registrant as specified in its charter)





California
              94-2918118(State
      or other jurisdiction of
              (IRS
      EmployerIncorporation
      or organization)
              Identification
      No.)





Four
      Embarcadero Center, Suite 3700, 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  ̈  No x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer”, “accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):


Large
Accelerated Filer  ̈     Accelerated
Filer  ̈     Non-Accelerated
Filer  ̈     Smaller
reporting company x





As of
November 1, 2010, there are outstanding 4,597,070 shares of the Registrant’s
common stock.





PART
I - FINANCIAL INFORMATION


ITEM
1.    FINANCIAL STATEMENTS





AMERICAN
SHARED HOSPITAL SERVICES


CONDENSED
CONSOLIDATED BALANCE SHEETS





(unaudited)
                              
                              
                              (audited)ASSETS
                              
                              September 30, 2010
                              
                              
                              December 31, 2009Current
      assets:Cash
      and cash equivalents
                              
                              $
                              1,091,000
                              
                              
                              $
                              833,000Restricted
      cash
                              
                              
                              50,000
                              
                              
                              
                              50,000Certificate
      of deposit
                              
                              
                              9,000,000
                              
                              
                              
                              9,000,000Accounts
      receivable, net of allowance for doubtful accounts of $100,000 in 2010 and
      2009
                              
                              
                              4,085,000
                              
                              
                              
                              3,817,000Other
      receivables
                              
                              
                              119,000
                              
                              
                              
                              60,000Prepaid
      expenses and other assets
                              
                              
                              540,000
                              
                              
                              
                              495,000Current
      deferred tax assets
                              
                              
                              219,000
                              
                              
                              
                              219,000Total
      current assets
                              
                              
                              15,104,000
                              
                              
                              
                              14,474,000Property
      and equipment:Medical
      equipment and facilities
                              
                              
                              74,338,000
                              
                              
                              
                              73,643,000Office
      equipment
                              
                              
                              676,000
                              
                              
                              
                              692,000Deposits
      and construction in progress
                              
                              
                              6,041,000
                              
                              
                              
                              5,852,00081,055,000
                              
                              
                              
                              80,187,000Accumulated
      depreciation and amortization
                              
                              
                              (35,215,000
                              )
                              
                              
                              (36,898,000
                              )Net
      property and equipment
                              
                              
                              45,840,000
                              
                              
                              
                              43,289,000Investment
      in preferred stock
                              
                              
                              2,617,000
                              
                              
                              
                              2,617,000Other
      assets
                              
                              
                              201,000
                              
                              
                              
                              241,000Total
      assets
                              
                              $
                              63,762,000
                              
                              
                              $
                              60,621,000LIABILITIES AND
                              
                              (unaudited)
                              
                              
                              (audited)SHAREHOLDERS' EQUITY
                              
                              September 30, 2010
                              
                              
                              December 31, 2009Current
      liabilities:Accounts
      payable
                              
                              $
                              243,000
                              
                              
                              $
                              318,000Employee
      compensation and benefits
                              
                              
                              235,000
                              
                              
                              
                              199,000Other
      accrued liabilities
                              
                              
                              712,000
                              
                              
                              
                              755,000Current
      portion of long-term debt
                              
                              
                              3,457,000
                              
                              
                              
                              4,894,000Current
      portion of obligations under capital leases
                              
                              
                              2,969,000
                              
                              
                              
                              1,811,000Total
      current liabilities
                              
                              
                              7,616,000
                              
                              
                              
                              7,977,000Long-term
      debt, less current portion
                              
                              
                              9,696,000
                              
                              
                              
                              11,836,000Long-term
      capital leases, less current portion
                              
                              
                              12,072,000
                              
                              
                              
                              7,233,000Advances
      on line of credit
                              
                              
                              8,500,000
                              
                              
                              
                              7,900,000Deferred
      income taxes
                              
                              
                              2,920,000
                              
                              
                              
                              2,920,000Shareholders'
      equity:Common
      stock (4,597,000 shares at September 30, 2010 and 4,595,000 shares at
      December 31, 2009)
                              
                              
                              8,606,000
                              
                              
                              
                              8,606,000Additional
      paid-in capital
                              
                              
                              4,678,000
                              
                              
                              
                              4,593,000Retained
      earnings
                              
                              
                              6,222,000
                              
                              
                              
                              6,205,000Total
      equity-American Shared Hospital Services
                              
                              
                              19,506,000
                              
                              
                              
                              19,404,000Non-controlling
      interest in subsidiary
                              
                              
                              3,452,000
                              
                              
                              
                              3,351,000Total
      shareholders' equity
                              
                              
                              22,958,000
                              
                              
                              
                              22,755,000Total
      liabilities and shareholders' equity
                              
                              $
                              63,762,000
                              
                              
                              $
                              60,621,000





See
accompanying notes


1


AMERICAN
SHARED HOSPITAL SERVICES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three months ended September 30,
                    
                    
                    Nine months ended September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Medical
      services revenue
                    
                    $
                    4,280,000
                    
                    
                    $
                    3,926,000
                    
                    
                    $
                    12,523,000
                    
                    
                    $
                    12,676,000Costs
      of revenue:Maintenance
      and supplies
                    
                    
                    441,000
                    
                    
                    
                    350,000
                    
                    
                    
                    1,256,000
                    
                    
                    
                    1,143,000Depreciation
      and amortization
                    
                    
                    1,494,000
                    
                    
                    
                    1,637,000
                    
                    
                    
                    4,455,000
                    
                    
                    
                    4,888,000Other
      direct operating costs
                    
                    
                    500,000
                    
                    
                    
                    356,000
                    
                    
                    
                    1,518,000
                    
                    
                    
                    1,547,0002,435,000
                    
                    
                    
                    2,343,000
                    
                    
                    
                    7,229,000
                    
                    
                    
                    7,578,000Gross
      Margin
                    
                    
                    1,845,000
                    
                    
                    
                    1,583,000
                    
                    
                    
                    5,294,000
                    
                    
                    
                    5,098,000Selling
      and administrative expense
                    
                    
                    1,091,000
                    
                    
                    
                    875,000
                    
                    
                    
                    3,235,000
                    
                    
                    
                    2,870,000Transaction
      costs
                    
                    
                    -
                    
                    
                    
                    22,000
                    
                    
                    
                    -
                    
                    
                    
                    342,000Interest
      expense
                    
                    
                    558,000
                    
                    
                    
                    514,000
                    
                    
                    
                    1,542,000
                    
                    
                    
                    1,526,000Operating
      income
                    
                    
                    196,000
                    
                    
                    
                    172,000
                    
                    
                    
                    517,000
                    
                    
                    
                    360,000Other
      income - net
                    
                    
                    27,000
                    
                    
                    
                    -
                    
                    
                    
                    89,000
                    
                    
                    
                    16,000Income
      before income taxes
                    
                    
                    223,000
                    
                    
                    
                    172,000
                    
                    
                    
                    606,000
                    
                    
                    
                    376,000Income
      tax expense (benefit)
                    
                    
                    19,000
                    
                    
                    
                    16,000
                    
                    
                    
                    51,000
                    
                    
                    
                    (49,000
                    )Net
      income
                    
                    
                    204,000
                    
                    
                    
                    156,000
                    
                    
                    
                    555,000
                    
                    
                    
                    425,000Less:
      Net income attributable to non-controlling interest
                    
                    
                    (198,000
                    )
                    
                    
                    (139,000
                    )
                    
                    
                    (538,000
                    )
                    
                    
                    (476,000
                    )Net
      income (loss) attributable to American Shared Hospital
      Services
                    
                    $
                    6,000
                    
                    
                    $
                    17,000
                    
                    
                    $
                    17,000
                    
                    
                    $
                    (51,000
                    )Net
      income (loss) per share:Earnings
      per common share - basic
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (0.01
                    )Earnings
      per common share - assuming dilution
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (0.01
                    )





See
accompanying notes





2




AMERICAN
SHARED HOSPITAL SERVICES


CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY





PERIODS ENDED DECEMBER 31, 2008 AND 2009 AND SEPTEMBER 30, 2010Additional
                  
                  
                  
                  
                  
                  
                  
                  
                  Non-controllingCommon
                  
                  
                  Common
                  
                  
                  Paid-in
                  
                  
                  Retained
                  
                  
                  Sub-Total
                  
                  
                  Interest inShares
                  
                  
                  Stock
                  
                  
                  Capital
                  
                  
                  Earnings
                  
                  
                  ASHS
                  
                  
                  Subsidiary
                  
                  
                  TotalBalances
      at January 1, 2008 (audited)
                  
                  
                  5,026,000
                  
                  
                  $
                  9,320,000
                  
                  
                  $
                  4,304,000
                  
                  
                  $
                  5,916,000
                  
                  
                  $
                  19,540,000
                  
                  
                  $
                  3,153,000
                  
                  
                  $
                  22,693,000Repurchase
      of common stock
                  
                  
                  (316,000
                  )
                  
                  
                  (443,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (443,000
                  )
                  
                  
                  -
                  
                  
                  
                  (443,000
                  )Stock
      based compensation expense
                  
                  
                  2,000
                  
                  
                  
                  -
                  
                  
                  
                  137,000
                  
                  
                  
                  -
                  
                  
                  
                  137,000
                  
                  
                  
                  -
                  
                  
                  
                  137,000True-up
      tax benefit from share-based payment arrangements
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  17,000Cash
      distributions to non-controlling interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (798,000
                  )
                  
                  
                  (798,000
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  477,000
                  
                  
                  
                  477,000
                  
                  
                  
                  855,000
                  
                  
                  
                  1,332,000Balances
      at December 31, 2008 (audited)
                  
                  
                  4,712,000
                  
                  
                  
                  8,877,000
                  
                  
                  
                  4,458,000
                  
                  
                  
                  6,393,000
                  
                  
                  
                  19,728,000
                  
                  
                  
                  3,210,000
                  
                  
                  
                  22,938,000Repurchase
      of common stock
                  
                  
                  (119,000
                  )
                  
                  
                  (271,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (271,000
                  )
                  
                  
                  -
                  
                  
                  
                  (271,000
                  )Stock
      based compensation expense
                  
                  
                  2,000
                  
                  
                  
                  -
                  
                  
                  
                  135,000
                  
                  
                  
                  -
                  
                  
                  
                  135,000
                  
                  
                  
                  -
                  
                  
                  
                  135,000Cash
      distributions to non-controlling interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (513,000
                  )
                  
                  
                  (513,000
                  )Net
      income (loss)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (188,000
                  )
                  
                  
                  (188,000
                  )
                  
                  
                  654,000
                  
                  
                  
                  466,000Balances
      at December 31, 2009 (audited)
                  
                  
                  4,595,000
                  
                  
                  
                  8,606,000
                  
                  
                  
                  4,593,000
                  
                  
                  
                  6,205,000
                  
                  
                  
                  19,404,000
                  
                  
                  
                  3,351,000
                  
                  
                  
                  22,755,000Stock
      based compensation expense
                  
                  
                  2,000
                  
                  
                  
                  -
                  
                  
                  
                  85,000
                  
                  
                  
                  -
                  
                  
                  
                  85,000
                  
                  
                  
                  -
                  
                  
                  
                  85,000Cash
      distributions to non-controlling interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (437,000
                  )
                  
                  
                  (437,000
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  17,000
                  
                  
                  
                  538,000
                  
                  
                  
                  555,000Balances
      at September 30, 2010 (unaudited)
                  
                  
                  4,597,000
                  
                  
                  $
                  8,606,000
                  
                  
                  $
                  4,678,000
                  
                  
                  $
                  6,222,000
                  
                  
                  $
                  19,506,000
                  
                  
                  $
                  3,452,000
                  
                  
                  $
                  22,958,000





See
accompanying notes


3


AMERICAN
SHARED HOSPITAL SERVICES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Nine months ended September 30,2010
                
                
                2009Operating
      activities:Net
      income
                
                $
                555,000
                
                
                $
                425,000Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
                
                
                4,541,000
                
                
                
                4,970,000Stock
      based compensation expense
                
                
                85,000
                
                
                
                101,000Changes
      in operating assets and liabilities:Receivables
                
                
                (327,000
                )
                
                
                578,000Prepaid
      expenses and other assets
                
                
                (45,000
                )
                
                
                (71,000
                )Accounts
      payable and accrued liabilities
                
                
                (82,000
                )
                
                
                (326,000
                )Net
      cash from operating activities
                
                
                4,727,000
                
                
                
                5,677,000Investing
      activities:Payment
      for purchase of property and equipment
                
                
                (451,000
                )
                
                
                (880,000
                )Investment
      in certificate of deposit
                
                
                -
                
                
                
                (9,000,000
                )Net
      cash from investing activities
                
                
                (451,000
                )
                
                
                (9,880,000
                )Financing
      activities:Cash
      distribution to non-controlling interest
                
                
                (437,000
                )
                
                
                (417,000
                )Advances
      on line of credit
                
                
                600,000
                
                
                
                1,700,000Payments
      on line of credit
                
                
                -
                
                
                
                (700,000
                )Long
      term financing on purchase of property and equipment
                
                
                928,000
                
                
                
                811,000Capital
      lease financing on property and equipment
                
                
                1,000,000
                
                
                
                -Stock
      repurchase
                
                
                -
                
                
                
                (271,000
                )Principal
      payments on capital leases
                
                
                (1,604,000
                )
                
                
                (1,200,000
                )Principal
      payments on long-term debt
                
                
                (4,505,000
                )
                
                
                (5,537,000
                )Net
      cash from financing activities
                
                
                (4,018,000
                )
                
                
                (5,614,000
                )Net
      change in cash and cash equivalents
                
                
                258,000
                
                
                
                (9,817,000
                )Cash
      and cash equivalents at beginning of period
                
                
                833,000
                
                
                
                10,286,000Cash
      and cash equivalents at end of period
                
                $
                1,091,000
                
                
                $
                469,000Supplemental
      cash flow disclosure:Cash
      paid during the period for:Interest
                
                $
                1,838,000
                
                
                $
                1,647,000Income
      taxes
                
                $
                67,000
                
                
                $
                51,000Schedule
      of non-cash investing and financing activitiesAcquisition
      of equipment with capital lease financing
                
                $
                6,601,000
                
                
                $
                4,716,000





See
accompanying notes


4


AMERICAN
SHARED HOSPITAL SERVICES


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
1.               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’ consolidated financial position as of September 30, 2010 and the
results of its operations for the three and nine month periods ended September
30, 2010 and 2009, which results are not necessarily indicative of results on an
annualized basis.  Consolidated balance sheet amounts as of December
31, 2009 have been derived from audited financial statements.





These
unaudited consolidated financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 2009 included
in the Company’s 10-K filed with the Securities and Exchange
Commission.





These
financial statements include the accounts of American Shared Hospital Services
(the “Company”) and its wholly-owned subsidiaries:  OR21, Inc.
(“OR21”); MedLeader.com, Inc. (“MedLeader”); and American Shared Radiosurgery
Services (“ASRS”); ASRS majority-owned subsidiary, GK Financing, LLC (“GK
Financing”); GKF wholly-owned subsidiaries, GK Financing U.K. (“GKUK”), Limited
and Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”); and ASHS majority
owned subsidiary, Long Beach Equipment, LLC (“LBE”).





The
Company through its majority-owned subsidiary, GK Financing, provided Gamma
Knife units to nineteen medical centers as of September 30, 2010 in Arkansas,
California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada,
New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Pennsylvania, Texas
and Wisconsin.





The
Company also directly provides radiation therapy and related equipment,
including Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation
Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an
existing Gamma Knife site.





The
Company has formed the subsidiaries GKUK, GKPeru and LBE for the purposes of
expanding its business into the United Kingdom and Peru and to provide proton
beam therapy services in Long Beach, California.  None of these
entities are expected to generate significant operations for the remainder of
2010.





All
significant intercompany accounts and transactions have been eliminated in
consolidation.





Certain
reclassifications have been made to the 2009 balances to conform with the 2010
presentation.


5


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.  For the
three and nine months ended September 30, 2010 basic earnings per share was
computed using 4,597,000 and 4,596,000 common shares, respectively, and diluted
earnings per share was computed using 4,621,000 and 4,609,000 common shares and
equivalents, respectively.  For the three and nine months ended
September 30, 2009, basic earnings per share was computed using 4,634,000 and
4,677,000 common shares, respectively, and diluted earnings per share was
computed using 4,636,000 and 4,677,000 common shares and equivalents,
respectively.





The
computation for the three month periods ended September 30, 2010 and 2009
excluded approximately 310,000 and 599,000, respectively, of the Company’s stock
options because the exercise price of the options was higher than the average
market price during the period.  The computation for the nine month
period ended September 30, 2009 excluded all stock options issued since the
effect of including them would be anti-dilutive because of the net
loss.





Note
3.               Stock-based
Compensation





On June
2, 2010, the Company’s shareholders approved an amendment and restatement of the
2006 Stock Incentive Plan (the “2006 Plan”). Among other things, the amendment
and restatement increased the number of shares of the Company’s common stock
reserved for issuance under the 2006 Plan by an additional 880,000 shares from
750,000 shares to 1,630,000 shares.  The shares are reserved for
issuance to officers of the Company, other key employees, non-employee
directors, and advisors.  The 2006 Plan serves as successor to the
Company’s previous two stock-based employee compensation plans, the 1995 and
2001 Stock Option Plans.  The shares reserved under those two plans,
including the shares of common stock subject to currently outstanding options
under the plans, were transferred to the 2006 Plan, and no further grants or
share issuances will be made under the 1995 and 2001 Plans.  Under the
2006 Plan, there are 2,000 restricted stock units granted, consisting of annual
automatic grants to non-employee directors, and approximately 605,000 options
granted, of which approximately 385,000 options are vested, as of September 30,
2010.





Compensation
expense associated with the Company’s stock-based awards to employees is
calculated using the Black-Scholes valuation model.  The Company’s
stock-based awards have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can materially
affect the present value estimates.  The estimated fair value of the
Company’s option grants is estimated using assumptions for expected life,
volatility, dividend yield, and risk-free interest rate which are specific to
each award.  The estimated fair value of the Company’s options is
amortized over the period during which an employee is required to provide
service in exchange for the award, usually the vesting
period.  Accordingly, stock-based compensation cost before income tax
effect in the amount of approximately $29,000 and $85,000 is reflected in net
income for the three and nine month periods ended September 30, 2010,
respectively, compared to approximately $35,000 and $101,000 in the same periods
in the prior year.  There were no options issued and no options
exercised during the three month period ended September 30,
2010.  There were no excess income tax benefits to
report.


6


Note
4.               Convertible
Preferred Stock Investment





As of
September 30, 2010 the Company has a $2,617,000 investment in the convertible
preferred stock (“Preferred Stock”) of Still River Systems, Inc. (“Still
River”), representing an approximate 1.8% interest in Still
River.  The Company accounts for this investment under the cost
method.





The
Preferred Stock is convertible at any time at the option of the holder into
shares of common stock of Still River at a conversion price, initially set at
the original purchase price, but subject to certain adjustments including an
anti-dilutive multiplier.  The Preferred Stock has voting rights
equivalent to the number of common stock shares into which it is convertible,
and holders of the Preferred Stock, subject to certain exceptions, have a
pro-rata right to participate in subsequent stock offerings.  In the
event of liquidation, dissolution, or winding up of Still River, the Preferred
Stock holders have preference to the holders of common stock, and any other
class or series of stock that is junior to the Preferred Stock.The Company does
not have the right to appoint a member of the Board of Directors of Still
River.





The Company carries its investment in
Still River at cost and reviews it for impairment on a quarterly basis, or as
events or circumstances might indicate that the carrying value of the investment
may not be recoverable.  The Company evaluated this investment for
impairment at December 31, 2009 and at September 30, 2010 in light of both
current market conditions and the ongoing needs of Still River to raise cash to
continue its development of the first compact, single room PBRT
system.




During the first quarter of 2009,
Still River proposed a Series D round of financing to raise cash, which it was
able to do, but at a per share price lower than the Company’s cost basis
investment.  The Company calculated that, based on the Series D
funding, there is an unrealized loss of approximately $1.2 million compared to
the Company’s cost of its investment.  However, based on its analysis,
the Company believes that this investment is only temporarily
impaired.  The Company believes that this is a temporary situation
brought on solely due to the worldwide economic downturn, and is not a
reflection on the progress or viability of Still River or its PBRT design, and
believes that its investment in Still River is temporarily
impaired.  It is the Company’s intent to hold this investment for a
reasonable period of time sufficient for a recovery of the investment’s fair
value; therefore the Company does not consider this investment to be
other-than-temporarily impaired at September 30, 2010.




Note
5.               Line
of Credit




The Company amended its $9,000,000 line
of credit with the Bank of America (the “Bank”) effective August 1, 2010,
extending it for a two year period.  The line of credit is drawn on
from time to time as needed for equipment purchases and working
capital.  Amounts drawn against the line of credit are at an interest
rate per year equal to the Bank’s Prime Rate, or alternately the LIBOR rate plus
1.50 percentage points, and are secured by the Company’s cash invested with the
Bank.  The weighted average interest rate during the first nine months
of 2010 was 2.01%.  At September 30, 2010, $8,500,000 was borrowed
against the line of credit.


7


Note
6.               Fair
Value of Financial Instruments





The carrying value of financial
instruments including cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and other accrued liabilities approximated their
fair value as of September 30, 2010 and December 31, 2009 because of the
relatively short maturity of these instruments.  The fair value of the
Company’s various debt obligations, discounted at currently available interest
rates was approximately $27,878,000 and $25,746,000 at September 30, 2010 and
December 31, 2009, respectively.





Note
7.               Repurchase
of Common Stock





In 1999 and 2001, the Board of
Directors approved resolutions authorizing the Company to repurchase up to a
total of 1,000,000 shares of its own stock on the open market, and in 2008 the
Board reaffirmed this authorization.  The Company did not repurchase
any of its stock during the first nine months of 2010, but repurchased
approximately 119,000 shares of its stock during 2009.  There are
approximately 81,000 shares remaining under this repurchase
authorization.





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





This
quarterly report to the Securities and Exchange Commission may be deemed to
contain certain forward-looking statements with respect to the financial
condition, results of operations and future plans of American Shared Hospital
Services, which involve risks and uncertainties including, but not limited to,
the risks of the Gamma Knife and radiation therapy businesses, the risks of
developing The Operating Room for the 21st
Century® program, and the risks of investing in a development-stage company,
Still River Systems, Inc. (“Still River”), without a proven
product.  Further information on potential factors that could affect
the financial condition, results of operations and future plans of American
Shared Hospital Services is included in the filings of the Company with the
Securities and Exchange Commission, including the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009 and the definitive Proxy
Statement for the Annual Meeting of Shareholders held on June 2,
2010.





The
Company had nineteen Gamma Knife units in operation at both September 30, 2010
and September 30, 2009.  Fourteen of the Company’s nineteen current
Gamma Knife customers are under fee-per-use contracts, and five customers are
under retail arrangements.  The Company’s contract to provide
additional radiation therapy and related equipment services to an existing Gamma
Knife customer is considered a retail arrangement.  Retail
arrangements are further classified as either turn-key or revenue
sharing.  Revenue from fee per use contracts is recorded on a gross
basis as determined by each hospital’s contracted rate.  Under
turn-key arrangements, the Company receives payment from the hospital in the
amount of its reimbursement from third party payors, and is responsible for
paying all the operating costs of the equipment.  Revenue is recorded
on a gross basis and estimated based on historical experience and hospital
contracts with third party payors.  For revenue sharing arrangements,
the Company receives a contracted percentage of the reimbursement received by
the hospital.  The gross amount the Company expects to receive is
recorded as revenue and estimated based on historical
experience.


8


Medical
services revenue increased by $354,000 and decreased by $153,000 to $4,280,000
and $12,523,000 for the three and nine month periods ended September 30, 2010
from $3,926,000 and $12,676,000 for the three and nine month periods ended
September 30, 2009, respectively.  The increase for the three month
period is primarily due to an increase in Gamma Knife volume at several sites
compared to the same period in the prior year, particularly at sites where the
Company has upgraded its existing Gamma Knife units or replaced Gamma Knife
units with Perfexion units.  As a result, revenue from Gamma Knife
operations increased by $414,000 to $4,040,000 from $3,626,000 for the same
quarter in the prior year.  The increase for the quarter was partially
offset by a $60,000 decrease in revenue from $300,000 to $240,000 from the
Company’s radiation therapy contract.   The decrease for the nine
month period is primarily due to a shift in volume during the period to Gamma
Knife sites with relatively lower payment rates per procedure compared to the
same period in the prior year, partially offset by revenue generated from a 5%
increase in overall Gamma Knife procedure volume.  As a result,
revenue from Gamma Knife operations during the nine month period decreased
$10,000 to $11,703,000 from $11,713,000 compared to the same period in the prior
year.  In addition, revenue from the Company’s radiation therapy
contract for the nine month period decreased by $143,000 to $820,000 from
$963,000 for the same period in the prior year due to lower volume at that
site.





The number of Gamma Knife procedures
increased by 64 and by 68 to 497 and 1,399 for the three and nine month periods
ended September 30, 2010 from 433 and 1,331 in the same periods in the prior
year, respectively.  For both the three and nine month periods, there
were volume increases at many of the Company’s sites, particularly those where
the Company has upgraded its existing Gamma Knife units or replaced Gamma Knife
units with Perfexion units.  For both the three and nine month
periods, these increases were partially offset by decreases in the number of
procedures performed at four of the Company’s historically higher volume
sites.





Total
costs of revenue increased by $92,000 and decreased by $349,000 to $2,435,000
and $7,229,000 for the three and nine month periods ended September 30, 2010
from $2,343,000 and $7,578,000 for the three and nine month periods ended
September 30, 2009.  Maintenance and supplies increased by $91,000 and
$113,000 for the three and nine month periods ended September 30, 2010 compared
to the same periods in the prior year, primarily due to maintenance contracts
that started in fourth quarter 2009 and second quarter 2010 at two sites after
coming off warranty, and higher costs for repairs and maintenance that were not
covered by maintenance contracts.  Depreciation and amortization
decreased by $143,000 and $433,000 for the three and nine month periods ended
September 30, 2010 compared to the same periods in the prior
year.  The decrease for both the three and nine month periods is
partially due to a change in the asset life of one Gamma Knife unit because the
contract with the customer was extended.  In addition, depreciation on
three other units ended because the remaining value of the equipment had reached
salvage value.  Other direct operating costs increased by $144,000 and
decreased by $29,000 for the three and nine month periods ended September 30,
2010 compared to the same periods in the prior year.  For the three
month period, the increase is primarily due to higher insurance, marketing and
operating costs in connection with the Company’s retail sites, partially offset
by a decrease in property taxes.  For the nine month period, the
decrease is primarily due to lower insurance expense, property taxes and
operating costs in connection with the Company’s retail sites, partially offset
by higher marketing costs.


9


Selling
and administrative costs increased by $216,000 and $365,000 to $1,091,000 and
$3,235,000 for the three and nine month periods ended September 30, 2010 from
$875,000 and $2,870,000 for the same periods in the prior year,
respectively.  For both the three and nine month periods, this
increase was primarily due to higher legal and accounting fees and travel
related costs in connection with developing new business.  For the
three month period, the increase was also due to higher investor relations
costs.





There
were no transaction costs during the three and nine month periods ended
September 30, 2010 compared to $22,000 and $342,000 for the three and nine month
periods ended September 30, 2009.  The transaction costs in 2009 were
legal, accounting, investment banking and other costs related to discussions the
Company had with two parties concerning the possible sale of its 81% interest in
GKF, one of which provided indicative pricing that would have been attractive to
the Company, if it were to sell its interest in GK Financing.  In May
2009, the Company announced that the parties failed to reach an agreement and
that the negotiations had terminated.





Interest
expense increased by $44,000 and $16,000 to $558,000 and $1,542,000 for the
three and nine month periods ended September 30, 2010 from $514,000 and
$1,526,000 for the three and nine month periods ended September 30, 2009,
respectively.  For both the three and nine month periods, this was
primarily due to increased interest expense on the Company’s line of credit with
a bank, as well as increased interest expense from new financing obtained on two
Gamma Knife units in 2009, new financing on two Gamma Knife units in the second
and third quarters 2010 and financing of a 2009 Gamma Knife upgrade that
occurred in the third quarter 2010.  This was partially offset by
lower interest expense on debt relating to the more mature Gamma Knife
units.  The more mature units have lower interest expense because
interest expense decreases as the outstanding principal balance of each loan is
reduced.





Other
income - net increased by $27,000 and $73,000 to $27,000 and $89,000 for the
three and nine month periods ended September 30, 2010 from zero and $16,000 for
the same periods in the prior year, respectively.   The increase
for both the three and nine month periods was primarily due to an increase in
interest income as a result of higher interest rates available on invested cash
balances.  For both the three and nine month periods this was
partially offset by a cost of approximately $9,000 from the early extinguishment
of debt.  For the nine month period ended September 30, 2009 there was
a cost of approximately $20,000 from the early extinguishment of
debt.


10


The
Company had income tax expense of $19,000 and $51,000 for the three and nine
month periods ended September 30, 2010 compared to income tax expense of $16,000
and an income tax benefit of $49,000 for the three and nine month periods ended
September 30, 2009, respectively.  For both the three and nine month
periods ended September 30, 2009 this increase is due to an increase in income
before income taxes to $223,000 and $606,000 compared to income before income
taxes of $172,000 and $376,000 for the same period in 2009.  Also,
based on the Company’s current estimated effective income tax rate for 2010, a
75% income tax provision was applied to net income before income taxes and net
income attributable to non-controlling interest, compared to a 49% rate applied
in 2009 which resulted in an income tax benefit.  The Company’s
effective income tax rate is higher than the expected statutory federal and
state income tax rates at a consolidated level, primarily due to higher income
at the Company’s subsidiary levels in certain states where there are separate
state income tax filing requirements.





Net
income attributable to non-controlling interest increased by $59,000 and by
$62,000 to $198,000 and $538,000 for the three and nine month periods ended
September 30, 2010 from $139,000 and $476,000 for the three and nine month
periods ended September 30, 2009, due to increases in the profitability of GK
Financing.  Non-controlling interest represents the 19% interest of GK
Financing owned by a third party.





The
Company had net income of $6,000, or $0.00 per diluted share, and $17,000, or
$0.00 per diluted share, for the three and nine month periods ended September
30, 2010, compared to net income of $17,000, or $0.00 per diluted share, and a
net loss of $51,000, or ($0.01) per diluted share, in the same periods in the
prior year, respectively.  The decrease for the three month period was
primarily due to higher costs of revenue, selling and administrative costs and
net income attributable to non-controlling interest, partially offset by an
increase in medical services revenue compared to the prior year.  The
increase for the nine month period was primarily due to reduced costs of revenue
and no transaction costs compared to the prior year, partially offset by lower
medical services revenue, higher selling and administrative costs and increased
income tax expense.




Liquidity
and Capital Resources





The
Company had cash and cash equivalents of $1,091,000 at September 30, 2010
compared to $833,000 at December 31, 2009.  The Company’s cash
position increased by $258,000 due to net cash from operating activities of
$4,727,000, capital lease and long term debt financing on the purchase of
property and equipment of $1,928,000 and advances on the Company’s line of
credit with a bank of $600,000.  These increases were partially offset
by payments for the purchase of property and equipment of $451,000, principal
payments on long term debt and capital leases of $6,109,000 and distributions to
the non-controlling interest of $437,000.





As of
September 30, 2010, the Company has a $9,000,000 principal investment in a
certificate of deposit with a bank at an interest rate of 0.7% and a maturity
date in August 2012.





The
Company has a two year renewable $9,000,000 line of credit with a bank,
available as needed for equipment purchases and working
capital.  Amounts drawn against the line of credit are secured by the
Company’s cash invested with the bank.  At September 30, 2010 there
was $8,500,000 drawn against the line of credit.


11


The
Company has scheduled interest and principal payments under its debt obligations
of approximately $4,662,000 and scheduled capital lease payments of
approximately $4,293,000 during the next 12 months.  The Company
believes that its cash flow from operations and cash resources are adequate to
meet its scheduled debt and capital lease obligations during the next 12
months.





The
Company as of September 30, 2010 had shareholders’ equity of $22,958,000,
working capital of $7,488,000 and total assets of $63,762,000.





Commitments




The
Company has a $2,617,000 preferred stock investment in Still River Systems,
Inc., a development stage company, which is considered a long-term investment on
the balance sheet and is recorded at cost.As of September 30,
2010, the Company also has $2,250,000 in deposits toward the purchase of three
Monarch250 proton beam radiation therapy (PBRT) systems from Still
River.  For the first two machines, the Company has a commitment to
total deposits of $3,000,000 per machine until FDA approval is received, at
which time the remaining balance is committed.  The delivery dates for
the first two machines are anticipated to be in 2012.  For the third
machine, the Company has a commitment to total deposits of $500,000 until FDA
approval is received, at which time the remaining balance is
committed.  The Company has entered into an agreement with a radiation
oncology physician group, which has contributed $50,000 towards the deposits on
the third machine.  The Still River PBRT system is not commercially
proven and there is no assurance FDA approval will be received.




The
Company has made deposits totaling $2,345,000 towards the purchase of a Gamma
Knife Perfexion unit at a site still to be determined and an LGK Model 4 Gamma
Knife, expected to be installed in early 2011 at a new customer
site.




Including
the commitments for the three Monarch250 systems, the Perfexion unit and the LGK
Model 4 Gamma Knife, the Company has total remaining commitments to purchase
equipment in the amount of approximately $40,000,000.  It is the
Company’s intent to finance these purchase commitments as
needed.  However, since the economic and credit market downturn that
began in the latter part of 2008, it has been more difficult to obtain financing
for the Company’s projects.  The Company expects that it will not
receive financing commitments from a lender for its PBRT systems until Still
River obtains FDA approval on the Monarch250.  As such, there can be
no assurance that financing will be available for the Company’s current or
future projects, or at terms that are acceptable to the Company.





Impairment
Evaluation of Still River





The Company carries its investment in
Still River at cost and reviews it for impairment on a quarterly basis, or as
events or circumstances might indicate that the carrying value of the investment
may not be recoverable.  The Company evaluated this investment for
impairment at December 31, 2009 and reviewed it at September 30, 2010 in light
of both current market conditions and the ongoing needs of Still River to raise
cash to continue its development of the first compact, single room PBRT
system.


12


During the first quarter of 2009, Still
River proposed a Series D round of financing to raise cash, which it was able to
do, but at a per share price lower than the Company’s cost basis
investment.  The Company calculated that, based on the Series D
funding, there is an unrealized loss of approximately $1.2 million compared to
the Company’s cost of its investment.  However, based on its analysis,
the Company believes that this investment is only temporarily
impaired.  It is the Company’s intent to hold this investment for a
reasonable period of time sufficient for a recovery of the investment’s fair
value; therefore the Company does not consider this investment to be
other-than-temporarily impaired at September 30, 2010, based in part on the
following:




·
            Still
      River’s single room PBRT concept and design, although a departure from the
      large scale three and four room PBRT systems on the market, is based on
      the existing principle of generating protons from a cyclotron. Still
      River, through design innovations and advances in magnet technology, has
      made the cyclotron more compact such that it can be mounted on the
      gantry.


·
            A
      gantry mounted cyclotron, although appearing to be revolutionary, has in
      fact been done previously.  A neutron generating gantry mounted
      cyclotron has successfully treated patients for over ten years at one
      medical center in the United
States.


·
            Still
      River’s development approach for the Monarch250 has been to integrate as
      many commercially existing components as possible into the
      Monarch250.  The patient couch, CT imaging and treatment
      planning software are all commercially available and will be integrated
      into the Monarch250.


·
            Still
      River has hired engineers and staff with many years of accelerator and
      proton beam experience, including personnel with prior experience at MIT’s
      Plasma Fusion Lab and one of Still River’s proton beam
      competitors.


·
            Still
      River has built the first three units of the magnet and other cyclotron
      subsystems, has completed the manufacture/assembly of the gantry system,
      and demonstrated integrated software control of all cyclotron operations
      on the prototype unit.


·
            Still
      River completed and passed the cold mass test on the prototype unit in
      2009 and completed the beam extraction test during second quarter
      2010.  Both the cold mass test and beam extraction test are
      considered major milestones and an integral part of the process towards
      gaining FDA approval.


·
            Although
      there were some minor problems during some of the tests that were quickly
      rectified, they caused delays in the scheduled delivery of the first
      unit.  As a result, the Company’s expected delivery of its two
      units has also been delayed.  However, minor problems such as
      these are expected in a new technology, and do not affect the Company’s
      position on the viability of Still River
  technology.


·
            Installation
      of the system is performed in three phases:  Phase 1 consists of
      rigging and mounting the gantry; Phase 2 includes assembling and
      installing the clinical environment and the clinical software interfaces;
      Phase 3 consists of the installation of the accelerator
      module.  The first two installation phases have been completed
      at the first site, and Still River has begun work on the final phase, with
      installation at the site expected in May
2011.


·
            A
      respected physicist was hired by the Company as a third party consultant
      to perform a technical review of this project, and continues to make
      periodic reviews of Still River’s progress at the request of the
      Company.  His discussions with Still River’s chief technology
      officer indicated that the delays encountered have at times resulted in
      modifications being required, but the modifications were not significant,
      and he believes that development of the PBRT machine will be completed
      according to Still River’s timeline.  The consultant was not
      engaged to analyze Still River’s financial
  condition.


13


·
            In
      spite of the uncertain economic climate and a limited number of potential
      investors, with the Series D offering, Still River was still able to raise
      the cash required to continue its operations, and was able to add two new
      major investors.  Still River also raised additional funding
      under the Series D offering in second quarter 2010.  The Company
      chose not to invest in this additional
funding.


·
            Based
      on ongoing discussions with Still River management and regular review of
      their financial statements and cash flow projections, the Company believes
      that Still River will have adequate cash flow to continue development of
      the system.  Still River, as a development stage company
      manufacturing its first product, continuously analyzes its cash
      requirements.  Due to the high level of interest in more compact
      and lower cost proton beam radiation therapy devices, Still River has been
      able to attract funding from financially significant and highly
      sophisticated investors, such as Caxton Health and Life Sciences, Venrock
      Associates and CHL Medical Partners.  Still River is prepared,
      as required, to raise additional funds as its needs
    dictates.


·
            In
      recent months Still River added a new CEO, strengthening its management
      depth, and with the new investors, increased its board strength as
      well.  Independent board members consist of the
      following:  Robert Wilson, Former Vice Chairman of Johnson and
      Johnson; Peter P. D’Angelo, President, Caxton Associates; Dr. Anders Hove,
      MD, Partner, Venrock Associates; Dr. Myles D. Greenberg, MD, General
      Partner, CHL Medical Partners; Dr. Jay Rao, MD, JD, Portfolio Manager,
      Green Arrow Capital Management; and Mr. Paul Volcker, Former Chairman,
      United States Federal Reserve.


·
            Still
      River currently has deposits from 15 sites to install the Monarch250
      system.




The
estimated recovery period is anticipated to occur subsequent to the first
system’s clinical treatment of patients, which would shortly follow obtaining
FDA approval.  The treatment of patients is anticipated to begin by
late 2011.  The Company has the intent and the ability to maintain its
investment in Still River until at least these milestones are met.





Item
3.            
  Quantitative and Qualitative Disclosures About Market
Risk





The
Company does not hold or issue derivative instruments for trading purposes and
is not a party to any instruments with leverage or prepayment
features.  The Company does not have affiliation with partnerships,
trust or other entities whose purpose is to facilitate off-balance sheet
financial transactions or similar arrangements,and therefore has no
exposure to the financing, liquidity, market or credit risks associated with
such entities.  At September 30, 2010 the Company had no significant
long-term, market-sensitive investments.


14


Item
4.          
    Controls and Procedures





Under the supervision and with the
participation of our management, including our chief executive officer and our
chief financial officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934.  These
controls and procedures are designed to ensure that material information
relating to the company and its subsidiaries is communicated to the chief
executive officer and the chief financial officer.  Based on that
evaluation, our chief executive officer and our chief financial officer
concluded that, as of September 30, 2010, our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to the chief executive officer and the chief
financial officer, and recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Act is accumulated and communicated to the issuer’s management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.





There
were no changes in our internal control over financial reporting during the
three months ended September 30, 2010, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





PART
II - OTHER INFORMATION





Item
1.             Legal
Proceedings.


None.





Item
1A.          Risk
Factors


There are
no changes from those listed in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009.





Item
2.             Unregistered
Sales of Equity Securities and Use of Proceeds.


None.





Item
3.             Defaults
Upon Senior Securities.


None.





Item
4.             Removed and
Reserved.





Item
5.             Other
Information.


None.





Item
6.             Exhibits.


(a)      
      Exhibits


The
following exhibits are filed herewith:





10.18b
            Second
      Amendment to Lease Agreement for a Gamma Knife unit effective as of
      December 23, 2009 between GK Financing, LLC and Methodist Healthcare
      System of San Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital
      (Confidential material appearing in this document has been omitted and
      filed separately with the Securities and Exchange Commission in accordance
      with Rule 24b-2, promulgated under the Securities and Exchange Act of
      1934, as amended. Omitted information has been replaced with
      asterisks.)


15


31.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.





31.2
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.





32.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.


16


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
      15, 2010
              /s/ Ernest A. Bates, M.D.Ernest
      A. Bates, M.D.Chairman
      of the Board and Chief Executive OfficerDate:
              November
      15, 2010
              /s/ Craig K. TagawaCraig
      K. TagawaSenior
      Vice PresidentChief
      Operating and Financial Officer


17