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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, 2005 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 1-8789
 
 American Shared Hospital Services
(Exact name of registrant as specified in its charter)
 California
(State or other jurisdiction of
Incorporation or organization)
    
    94-2918118
(IRS Employer
Identification No.)
 Four Embarcadero Center, Suite 3700, San Francisco, California
(Address of Principal Executive Offices)
    
    94111
(Zip Code)
 Registrants telephone number, including area code: (415) 788-5300




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ITEM 1. FINANCIAL STATEMENTS
 AMERICAN SHARED HOSPITAL SERVICES
 (unaudited)
    
    
    (audited)
    
    
    LIABILITIES AND
    
    (unaudited)
    
    
    (audited)ASSETS
    
    September 30, 2005
    
    
    December 31, 2004
    
    
    SHAREHOLDERS' EQUITY
    
    September 30, 2005
    
    
    December 31, 2004Current assets:
    
    
    
    
    
    
    
    
    
    Current liabilities:Cash and cash equivalents
    
    $
    3,759,000
    
    
    $
    8,121,000
    
    
    Accounts payable
    
    $
    278,000
    
    
    $
    282,000Restricted cash
    
    
    50,000
    
    
    
    50,000
    
    
    Employee compensation          and benefits
    
    
    223,000
    
    
    
    88,000Securities
    
    
    4,525,000
    
    
    
    957,000
    
    
    Accrued dividends
    
    
    238,000
    
    
    
    215,000Accounts receivable,net of allowance for
    
    
    
    
    
    
    
    
    
    Other accrued liabilities
    
    
    987,000
    
    
    
    808,000doubtful accounts of $170,000 in
2005and $170,000 in 2004
    
    
    3,482,000
    
    
    
    2,950,000Prepaid expenses and other assets
    
    
    429,000
    
    
    
    594,000
    
    
    Current portion of
          long-term debt
    
    
    6,240,000
    
    
    
    6,562,000Current deferred tax assets
    
    
    263,000
    
    
    
    0
    
    
    Current portion of
          long-term capital leases
    
    
    355,000
    
    
    
    0Total current assets
    
    
    12,508,000
    
    
    
    12,672,000
    
    
    Total current liabilities
    
    
    8,321,000
    
    
    
    7,955,000Long-term debt, less current portion
    
    
    16,584,000
    
    
    
    18,924,000Property and equipment:
    
    
    
    
    
    
    
    
    
    Long-term capital leases, less current portion
    
    
    2,459,000
    
    
    
    0Medical equipment and facilities
    
    
    58,753,000
    
    
    
    49,282,000
    
    
    Deferred income taxes
    
    
    671,000
    
    
    
    366,000Office equipment
    
    
    538,000
    
    
    
    492,000
    
    
    Minority interest
    
    
    2,436,000
    
    
    
    2,315,000Deposits and construction in progress
    
    
    507,000
    
    
    
    4,499,000
    
    
    Shareholders' equity:59,798,000
    
    
    
    54,273,000
    
    
    Common stock, without par value:Accumulated depreciation and
    
    
    
    
    
    
    
    
    
    authorized shares - 10,000,000; issuedamortization
    
    
    (23,942,000
    )
    
    
    (20,001,000
    )
    
    & outstanding shares, 5,018,885 in 2005Net property & equipment
    
    
    35,856,000
    
    
    
    34,272,000
    
    
    and 4,776,173 in 2004
    
    
    9,306,000
    
    
    
    9,238,000Additional paid-in capital
    
    
    4,274,000
    
    
    
    4,410,000Other assets
    
    
    186,000
    
    
    
    162,000
    
    
    Retained earnings
    
    
    4,499,000
    
    
    
    3,898,000Total shareholders' equity
    
    
    18,079,000
    
    
    
    17,546,000Total assets
    
    $
    48,550,000
    
    
    $
    47,106,000
    
    
    Total liabilities and shareholders' equity
    
    $
    48,550,000
    
    
    $
    47,106,000
  2




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AMERICAN SHARED HOSPITAL SERVICES
 Three months ended Sep. 30,
    
    
    Nine months ended Sep. 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Medical services
    
    $
    4,402,000
    
    
    $
    4,136,000
    
    
    $
    13,581,000
    
    
    $
    12,479,000Costs and expenses:Costs of revenue:Maintenance and supplies
    
    
    261,000
    
    
    
    203,000
    
    
    
    778,000
    
    
    
    625,000Depreciation and amortization
    
    
    1,320,000
    
    
    
    1,199,000
    
    
    
    3,953,000
    
    
    
    3,555,000Other direct operating costs
    
    
    629,000
    
    
    
    504,000
    
    
    
    2,068,000
    
    
    
    1,756,0002,210,000
    
    
    
    1,906,000
    
    
    
    6,799,000
    
    
    
    5,936,000Gross margin
    
    
    2,192,000
    
    
    
    2,230,000
    
    
    
    6,782,000
    
    
    
    6,543,000Selling and administrative expense
    
    
    794,000
    
    
    
    817,000
    
    
    
    2,648,000
    
    
    
    2,345,000Interest expense
    
    
    531,000
    
    
    
    553,000
    
    
    
    1,577,000
    
    
    
    1,727,000Operating income
    
    
    867,000
    
    
    
    860,000
    
    
    
    2,557,000
    
    
    
    2,471,000Interest and other income
    
    
    29,000
    
    
    
    21,000
    
    
    
    129,000
    
    
    
    64,000Minority interest
    
    
    (263,000
    )
    
    
    (267,000
    )
    
    
    (824,000
    )
    
    
    (764,000
    )Income before income taxes
    
    
    633,000
    
    
    
    614,000
    
    
    
    1,862,000
    
    
    
    1,771,000Income tax expense (benefit)
    
    
    131,000
    
    
    
    (226,000
    )
    
    
    574,000
    
    
    
    172,000Net income
    
    $
    502,000
    
    
    $
    840,000
    
    
    $
    1,288,000
    
    
    $
    1,599,000Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.26
    
    
    $
    0.38Diluted
    
    $
    0.10
    
    
    $
    0.16
    
    
    $
    0.26
    
    
    $
    0.31
  3




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AMERICAN SHARED HOSPITAL SERVICES
 Nine months ended Sep. 30,2005
    
    
    2004Operating activities:Net income
    
    $
    1,288,000
    
    
    $
    1,599,000Adjustments to reconcile net cash provided by operating activities:Depreciation and amortization
    
    
    4,032,000
    
    
    
    3,621,000Deferred income taxes
    
    
    487,000
    
    
    
    58,000Minority interest in consolidated subsidiaries
    
    
    824,000
    
    
    
    764,000Changes in operating assets and liabilities:Receivables
    
    
    (532,000
    )
    
    
    (614,000
    )Prepaid expenses and other assets
    
    
    119,000
    
    
    
    (6,000
    )Accounts payable and accrued liabilities
    
    
    310,000
    
    
    
    91,000Net cash from operating activities
    
    
    6,528,000
    
    
    
    5,513,000Investing activities:Purchase of property and equipment (net of financing)
    
    
    171,000
    
    
    
    135,000Investment in securities
    
    
    (3,568,000
    )
    
    
    0Net cash from investing activities
    
    
    (3,397,000
    )
    
    
    135,000Financing activities:Principal payments on long-term debt and capitalized leases
    
    
    (5,613,000
    )
    
    
    (5,634,000
    )Distribution to minority owners
    
    
    (703,000
    )
    
    
    (304,000
    )Payment for stock/option repurchase
    
    
    (670,000
    )
    
    
    (45,000
    )Payment received for exercise of stock options
    
    
    157,000
    
    
    
    20,000Payment of dividends
    
    
    (664,000
    )
    
    
    (485,000
    )Net cash from financing activities
    
    
    (7,493,000
    )
    
    
    (6,448,000
    )Net change in cash and cash equivalents
    
    
    (4,362,000
    )
    
    
    (800,000
    )Cash and cash equivalents at beginning of period
    
    
    8,121,000
    
    
    
    10,312,000Cash and cash equivalents at end of period
    
    $
    3,759,000
    
    
    $
    9,512,000Supplemental cash flow disclosure:Cash paid during the period for:Interest paid
    
    $
    1,577,000
    
    
    $
    1,868,000Income taxes paid
    
    $
    162,000
    
    
    $
    120,000Schedule of noncash investing and financial activities:Acquisition of equipment with lease/debt financing
    
    $
    5,765,000
    
    
    $
    3,790,000Accrued dividends
    
    $
    238,000
    
    
    $
    214,000Income tax benefit from exercise of stock options and warrants
    
    $
    445,000
    
    
    $
    965,000
  4




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Note 1.      Basis of Presentation
       Note 2.      Per Share Amounts
  5




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Note 3.      Stock-based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
 Three months ended Sept. 30
    
    
    Nine Months Ended Sept. 302005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    502,000
    
    
    $
    840,000
    
    
    $
    1,288,000
    
    
    $
    1,599,000Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    ($6,000
    )
    
    $
    0
    
    
    
    ($14,000
    )
    
    $
    0Pro forma net income
    
    $
    496,000
    
    
    $
    840,000
    
    
    $
    1,274,000
    
    
    $
    1,599,000Earnings per share:Basic-as reported
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.26
    
    
    $
    0.38Basic-pro forma
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.26
    
    
    $
    0.38Diluted-as reported
    
    $
    0.10
    
    
    $
    0.16
    
    
    $
    0.26
    
    
    $
    0.31Diluted-pro forma
    
    $
    0.10
    
    
    $
    0.16
    
    
    $
    0.26
    
    
    $
    0.31
 Item 2.      Managements Discussion and Analysis of Financial Condition and Results of Operations
   6




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7




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8




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Liquidity and Capital Resources
      held-to-maturity
 9




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Item 4.      Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal control over financial reporting
 PART II  OTHER INFORMATION
 Item 1.              Legal Proceedings.
 Item 2.              Changes in Securities and Use of Proceeds.
 Item 3.              Defaults Upon Senior Securities.
 Item 4.              Submission of Matters to a Vote of Securities Holders.
 Item 5.              Other Information.
 Item 6.              Exhibits and Reports on Form 8-K.
   Exhibit Number
    
    Description10.22a
    
    Addendum to Lease Agreement for a Gamma Knife unit effective April 1,
2005 between GK Financing, LLC and New England Medical Center
Hospitals, Inc. (Confidential material appearing in this document has
been omitted and filed separately with the Securities and Exchange
Commission in
 10




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accordance with Rule 24b-2, promulgated under the
Securities and Exchange Act of 1934, as amended.
Omitted information has been replaced with
asterisks.)10.49
    
    Lease Agreement for a Gamma Knife unit dated
as of May 28, 2004 between GK Financing, LLC and Mercy Health Center.
(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.)
 Exhibit Number
    
    Description31.1
    
    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.
  The following report on Form 8-K was filed during the three months ended
September 30, 2005:
 Form 8-K dated and filed July 26, 2005 relating to a press release
announcing the Companys preliminary financial results for its second
quarter of fiscal year 2005.
 The following reports on Form 8-K were filed after September 30, 2005:
 Form 8-K dated and filed October 27, 2005 relating to a press release
announcing the Companys preliminary financial results for its second
quarter of fiscal year 2005.
 11




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Date:           November 14, 2005
    /s/ Ernest A. Bates, M.D.Ernest A. Bates, M.D.Chairman of the Board and Chief Executive Officer Date:           November 14, 2005
    /s/ Craig K. TagawaCraig K. TagawaSenior Vice President
Chief Operating and Financial Officer 12