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 March 31, 2010 or





o
            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 x  No o





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 o  No o





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





As of
April 1, 2010, there are outstanding 4,595,070 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
                        
                        March 31, 2010
                        
                        
                        December 31, 2009Current
      assets:Cash
      and cash equivalents
                        
                        $
                        552,000
                        
                        
                        $
                        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 2010and
      $100,000 in 2009
                        
                        
                        3,984,000
                        
                        
                        
                        3,817,000Other
      receivables
                        
                        
                        89,000
                        
                        
                        
                        60,000Prepaid
      expenses and other current assets
                        
                        
                        548,000
                        
                        
                        
                        495,000Current
      deferred tax assets
                        
                        
                        219,000
                        
                        
                        
                        219,000Total
      current assets
                        
                        
                        14,442,000
                        
                        
                        
                        14,474,000Property
      and equipment:Medical
      equipment and facilities
                        
                        
                        73,643,000
                        
                        
                        
                        73,643,000Office
      equipment
                        
                        
                        692,000
                        
                        
                        
                        692,000Deposits
      and construction in progress
                        
                        
                        9,006,000
                        
                        
                        
                        5,852,00083,341,000
                        
                        
                        
                        80,187,000Accumulated
      depreciation and amortization
                        
                        
                        (38,398,000
                        )
                        
                        
                        (36,898,000
                        )Net
      property and equipment
                        
                        
                        44,943,000
                        
                        
                        
                        43,289,000Investment
      in preferred stock
                        
                        
                        2,617,000
                        
                        
                        
                        2,617,000Other
      assets
                        
                        
                        225,000
                        
                        
                        
                        241,000Total
      assets
                        
                        $
                        62,227,000
                        
                        
                        $
                        60,621,000
 
 LIABILITIES AND
                            
                            (unaudited)
                            
                            
                            (audited)SHAREHOLDERS' EQUITY
                            
                            March 31, 2010
                            
                            
                            December 31, 2009Current
      liabilities:Accounts
      payable
                            
                            $
                            238,000
                            
                            
                            $
                            318,000Employee
      compensation and benefits
                            
                            
                            131,000
                            
                            
                            
                            199,000Other
      accrued liabilities
                            
                            
                            667,000
                            
                            
                            
                            755,000Current
      portion of long-term debt
                            
                            
                            4,419,000
                            
                            
                            
                            4,894,000Current
      portion of obligations under capital leases
                            
                            
                            1,846,000
                            
                            
                            
                            1,811,000Total
      current liabilities
                            
                            
                            7,301,000
                            
                            
                            
                            7,977,000Long-term
      debt, less current portion
                            
                            
                            11,039,000
                            
                            
                            
                            11,836,000Long-term
      capital leases, less current portion
                            
                            
                            9,802,000
                            
                            
                            
                            7,233,000Advances
      on line of credit
                            
                            
                            8,300,000
                            
                            
                            
                            7,900,000Deferred
      income taxes
                            
                            
                            2,920,000
                            
                            
                            
                            2,920,000Shareholders'
      equity:Common
      stock (4,595,000 shares at March 31, 2010 and 4,595,000 shares at December
      31, 2009)
                            
                            
                            8,606,000
                            
                            
                            
                            8,606,000Additional
      paid-in capital
                            
                            
                            4,621,000
                            
                            
                            
                            4,593,000Retained
      earnings
                            
                            
                            6,213,000
                            
                            
                            
                            6,205,000Total
      equity-American Shared Hospital Services
                            
                            
                            19,440,000
                            
                            
                            
                            19,404,000Non-controlling
      interest in subsidiary
                            
                            
                            3,425,000
                            
                            
                            
                            3,351,000Total
      shareholders' equity
                            
                            
                            22,865,000
                            
                            
                            
                            22,755,000Total
      liabilities and shareholders' equity
                            
                            $
                            62,227,000
                            
                            
                            $
                            60,621,000
 
 See
accompanying notes
  2
 
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three
      Months ended March 31,2010
                    
                    
                    2009Medical
      services revenue
                    
                    $
                    4,088,000
                    
                    
                    $
                    4,167,000Costs
      of revenue:Maintenance
      and supplies
                    
                    
                    369,000
                    
                    
                    
                    395,000Depreciation
      and amortization
                    
                    
                    1,484,000
                    
                    
                    
                    1,624,000Other
      direct operating costs
                    
                    
                    536,000
                    
                    
                    
                    551,0002,389,000
                    
                    
                    
                    2,570,000Gross
      Margin
                    
                    
                    1,699,000
                    
                    
                    
                    1,597,000Selling
      and administrative expense
                    
                    
                    1,061,000
                    
                    
                    
                    993,000Transaction
      costs
                    
                    
                    -
                    
                    
                    
                    197,000Interest
      expense
                    
                    
                    481,000
                    
                    
                    
                    483,000Operating
      income (loss)
                    
                    
                    157,000
                    
                    
                    
                    (76,000
                    )Interest
      and other income
                    
                    
                    31,000
                    
                    
                    
                    34,000Income
      (loss) before income taxes
                    
                    
                    188,000
                    
                    
                    
                    (42,000
                    )Income
      tax expense (benefit)
                    
                    
                    11,000
                    
                    
                    
                    (93,000
                    )Net
      income
                    
                    
                    177,000
                    
                    
                    
                    51,000Less:
      Net income attributable to non-controlling interest
                    
                    
                    (169,000
                    )
                    
                    
                    (145,000
                    )Net
      income (loss) attributable to American Shared Hospital
      Services
                    
                    $
                    8,000
                    
                    
                    $
                    (94,000
                    )Net
      income (loss) per share:Earnings
      per common share - basic
                    
                    $
                    -
                    
                    
                    $
                    (0.02
                    )Earnings
      per common share - assuming dilution
                    
                    $
                    -
                    
                    
                    $
                    (0.02
                    )
 
 See
accompanying notes
  3
  
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
 PERIODS
      ENDED DECEMBER 31, 2008 AND 2009 AND MARCH 31,
      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
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          28,000
                          
                          
                          
                          -
                          
                          
                          
                          28,000
                          
                          
                          
                          -
                          
                          
                          
                          28,000Cash
      distributions to non-controlling interest
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (95,000
                          )
                          
                          
                          (95,000
                          )Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,000
                          
                          
                          
                          8,000
                          
                          
                          
                          169,000
                          
                          
                          
                          177,000Balances
      at March 31, 2010 (unaudited)
                          
                          
                          4,595,000
                          
                          
                          $
                          8,606,000
                          
                          
                          $
                          4,621,000
                          
                          
                          $
                          6,213,000
                          
                          
                          $
                          19,440,000
                          
                          
                          $
                          3,425,000
                          
                          
                          $
                          22,865,000
 
 See
accompanying notes
  4
  AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Three
      Months ended March 31,2010
                      
                      
                      2009Operating
      activities:Net
      income
                      
                      $
                      177,000
                      
                      
                      $
                      51,000Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
                      
                      
                      1,516,000
                      
                      
                      
                      1,647,000Stock
      based compensation expense
                      
                      
                      28,000
                      
                      
                      
                      33,000Changes
      in operating assets and liabilities:Receivables
                      
                      
                      (196,000
                      )
                      
                      
                      (53,000
                      )Prepaid
      expenses and other assets
                      
                      
                      (53,000
                      )
                      
                      
                      (154,000
                      )Accounts
      payable and accrued liabilities
                      
                      
                      (236,000
                      )
                      
                      
                      (62,000
                      )Net
      cash from operating activities
                      
                      
                      1,236,000
                      
                      
                      
                      1,462,000Investing
      activities:Payment
      for purchase of property and equipment
                      
                      
                      (110,000
                      )
                      
                      
                      (539,000
                      )Net
      cash from investing activities
                      
                      
                      (110,000
                      )
                      
                      
                      (539,000
                      )Financing
      activities:Cash
      distribution to non-controlling interest
                      
                      
                      (95,000
                      )
                      
                      
                      (114,000
                      )Advances
      on line of credit
                      
                      
                      400,000
                      
                      
                      
                      400,000Stock
      repurchase
                      
                      
                      -
                      
                      
                      
                      (46,000
                      )Principal
      payments on capital leases
                      
                      
                      (440,000
                      )
                      
                      
                      (395,000
                      )Principal
      payments on long-term debt
                      
                      
                      (1,272,000
                      )
                      
                      
                      (1,508,000
                      )Net
      cash from financing activities
                      
                      
                      (1,407,000
                      )
                      
                      
                      (1,663,000
                      )Net
      change in cash and cash equivalents
                      
                      
                      (281,000
                      )
                      
                      
                      (740,000
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      833,000
                      
                      
                      
                      10,286,000Cash
      and cash equivalents at end of period
                      
                      $
                      552,000
                      
                      
                      $
                      9,546,000Supplemental
      cash flow disclosure:Cash
      paid during the period for:Interest
                      
                      $
                      572,000
                      
                      
                      $
                      579,000Income
      taxes
                      
                      $
                      29,000
                      
                      
                      $
                      38,000Schedule
      of non-cash investing and financing activitiesAcquisition
      of equipment with capital lease financing
                      
                      $
                      3,044,000
                      
                      
                      $
                      -
 
 See
accompanying notes
  5




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 March 31, 2010 and the results
of its operations for the three month periods ended March 31, 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”); American Shared Radiosurgery
Services (“ASRS”); and ASRS majority-owned subsidiary, GK Financing, LLC (“GK
Financing”).





The
Company through its majority-owned subsidiary, GK Financing, provided Gamma
Knife units to nineteen medical centers as of March 31, 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.





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





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 months ended March 31, 2010 basic earnings per share was computed using
4,595,000 common shares and diluted earnings per share was computed using
4,600,000 common shares and equivalents.  For the three months ended
March 31, 2009 basic earnings per share and diluted earnings per share were both
computed using 4,710,000 common shares.  The computation for 2010
excluded approximately 587,000 of the Company’s stock options because the strike
price of the options was higher than the average market price during the
quarter.  The computation for 2009 excluded all stock options issued
because the effect of including them would be anti-dilutive because of the net
loss for the quarter.


6





Note
      3.
              Stock-based
      Compensation


On
September 28, 2006, the Company’s shareholders approved the 2006 Stock Incentive
Plan (the “2006 Plan”) under which 750,000 shares of the Company’s common stock
are reserved for issuance of shares 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 Plan or 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 599,000 options granted, of which approximately 339,000 options
are vested, as of March 31, 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 are 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 $28,000 is reflected in first quarter 2010
net income, compared to approximately $33,000 in the same period in the prior
year.  There were no options issued and no options exercised during
the three month period ended March 31, 2010.  There were no excess tax
benefits to report.





Note
      4.
            Convertible
      Preferred Stock Investment





As of
March 31, 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 3.7% 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, subject to certain
adjustments, but initially set at the original purchase price.  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.


7





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 March 31, 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 recent downturn of the economy, 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 that this investment to be
other-than-temporarily impaired at March 31, 2010.




Note
      5.
            Line
      of Credit




The Company amended its line of credit
with the Bank of America (the “Bank”), which was increased from $8,000,000 to
$9,000,000 and extended for a two year period on August 1, 2009.  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 quarter 2010 was 1.93%.  At March 31, 2010, $8,300,000 was
borrowed against the line of credit.





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 March 31, 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 $27,084,000 and $25,746,000 at March 31, 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 first quarter 2010, but
repurchased approximately 119,000 shares of its stock during
2009.  There are approximately 81,000 shares remaining under this
repurchase authorization.


8





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 to be held on June 2,
2010.





Medical
services revenue decreased by $79,000 to $4,088,000 for the three month period
ended March 31, 2010 from $4,167,000 for the three month period ended March 31,
2009.  The decrease is primarily due to one Gamma Knife unit that
performed zero procedures due to physician turnover at the site, and a slight
shift in volume during the quarter to Gamma Knife sites with relatively lower
payment rates per procedure compared to the same quarter in 2009, since total
procedures increased compared to the same period in 2009.  As a
result, revenue from Gamma Knife operations decreased by $36,000 to $3,788,000
for the three month period ended March 31, 2010 compared to $3,824,000 for the
three month period ended March 31, 2009.  Revenue from the Company’s
radiation therapy contract decreased by $43,000 to $300,000 in the first quarter
2010 from $343,000 in the first quarter 2009.





The
Company had nineteen Gamma Knife units in operation at both March 31, 2010 and
March 31, 2009.  Fourteen of the Company’s nineteen current Gamma
Knife customers are under fee-per-use contracts, and five customers are under
retail arrangements.  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 Gamma
Knife.  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.





The
equipment provided under the Company’s contract to provide additional radiation
therapy and related equipment services to an existing Gamma Knife customer began
operation in September 2007.  This contract is considered a retail
arrangement and revenue is recorded on a revenue sharing basis.


9





The number of Gamma Knife procedures
increased by 7 to 438 in first quarter 2010 from 431 in the same quarter in the
prior year.  This increase was primarily due to generally higher
patient volumes at most sites, partially offset by no procedures performed at
one of the Company’s retail sites due to physician turnover.





Total
costs of revenue decreased by $181,000 to $2,389,000 for the three month period
ended March 31, 2010 from $2,570,000 for the three month period ended March 31,
2009.  Maintenance and supplies decreased by $26,000 for the three
month period ended March 31, 2010 compared to the same period in the prior year,
primarily due lower costs for repairs and maintenance that were not covered by
maintenance contracts.  Contract maintenance cost was approximately
the same in both periods.  Depreciation and amortization decreased by
$140,000 for the three month period ended March 31, 2010 compared to the same
period in the prior year primarily 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 another Gamma Knife unit was
stopped because its remaining value was less than the trade-in allowance towards
a new Perfexion unit that is scheduled to be installed at that site in third
quarter 2010.  Other direct operating costs decreased by $15,000 for
the three month period ended March 31, 2010 compared to the same period in the
prior year primarily due to lower insurance expense and operating costs in
connection with the Company’s retail sites, partially offset by higher site
specific marketing related costs.





Selling
and administrative costs increased by $68,000 to $1,061,000 for the three month
period ended March 31, 2010 from $993,000 for the three month period ended March
31, 2009.  This increase was primarily due to increased legal fees in
connection with developing new business.





There
were no transaction costs during the three month period ended March 31, 2010
compared to $197,000 for the three month period ended March 31,
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 for the interest 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 decreased by $2,000 to $481,000 for the three month period ended March
31, 2010 from $483,000 for the three month period ended March 31,
2009.  Lower interest expense on debt relating to the more mature
Gamma Knife units was partially offset by increased interest expense from new
financing obtained in 2009 on two Gamma Knife units.  The mature units
have lower interest expense because interest expense decreases as the
outstanding principal balance of each loan is reduced.  The reduced
interest expense on debt financing was also partially offset by increased
interest expense on the Company’s line of credit with a bank and other
interest.


10





Interest
and other income decreased by $3,000 to $31,000 for the three month period ended
March 31, 2010 from $34,000 for the three month period ended March 31, 2009
primarily due to a slight reduction in interest income.





The
Company had income tax expense of $11,000 in the first quarter 2010 compared to
an income tax benefit of $93,000 in the first quarter 2009.  This is
due to income before income taxes of $188,000 in the first quarter 2010 compared
to a loss before income taxes of $42,000 in the first quarter
2009.  Based on the Company’s current estimated effective income tax
rate for 2010, a 59% income tax rate was applied to the first quarter 2010
compared to a 50% income tax benefit in first quarter 2009.





Net
income attributable to non-controlling interest increased by $24,000 to $169,000
for the three month period ended March 31, 2010 from $145,000 for the three
month period ended March 31, 2009 due to increased 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 $8,000, or $0.00 per diluted share, for the three
month period ended March 31, 2010 compared to a net loss of $94,000, or ($0.02)
per diluted share, in the same period in the prior year.  The increase
was primarily due to reduced costs of revenue and no transaction costs compared
to the prior year.  This was 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 $552,000 at March 31, 2010 compared to
$833,000 at December 31, 2009.  The Company’s cash position decreased
by $281,000 due to payments for the purchase of property and equipment of
$110,000, principal payments on long term debt and capital leases of $1,712,000
and distributions to minority owners of $95,000.  These decreases were
partially offset by net cash from operating activities of $1,236,000 and
advances on the Company’s line of credit with a bank of $400,000.





The
Company as of March 31, 2009 had shareholders’ equity of $22,865,000, working
capital of $7,141,000 and total assets of approximately
$62,227,000.




The
Company has scheduled interest and principal payments under its debt obligations
of approximately $5,466,000 and scheduled capital lease payments of
approximately $2,450,000 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 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 March 31, 2010 there was
$8,300,000 drawn against the line of credit.


11





As of
March 31, 2010, the Company has a $9,000,000 principal investment in a
certificate of deposit with a bank with an interest rate of 1.39% and a maturity
date in August 2010.





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 March 31, 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 2011 and 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 $5,390,000 towards the purchase of a Gamma
Knife Perfexion unit at a site still to be determined, two additional Gamma
Knife Perfexion units to be installed at existing Gamma Knife sites in second
and third quarter 2010, and an LGK Model 4 Gamma Knife, expected to be installed
in fourth quarter 2010 at a new customer site.




Including
the commitments for the three Monarch250 systems, the three Perfexion units and
the LGK Model 4 Gamma Knife, the Company has total remaining commitments to
purchase equipment in the amount of approximately $43,000,000.  It is
the Company’s intent to finance these purchase commitments as needed, and has
obtained financing for the Gamma Knife Perfexion unit projected to be installed
in second quarter 2010.  However, due to the current economic and
credit market conditions, in recent months 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 March 31, 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 that this investment to be
other-than-temporarily impaired at March 31, 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, with installation of the prototype unit projected
      to be finalized in early 2011.


·
            Still
      River completed and passed the cold mass test on the prototype unit, which
      is considered a major milestone and an integral part of the process
      towards gaining FDA approval.


·
            Still
      River is currently in the beam extraction test phase, and projects that
      the beam extraction test will be completed in second quarter
      2010.


·
            A
      respected physicist was hired by the Company as a third party consultant
      to perform a technical review of this project.  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 in 2010.  The consultant
      was not engaged to analyze Still River’s financial
    condition.


·
            There
      were some minor problems during some of the tests that were quickly
      rectified, but have 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.


·
            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 were able to add two new
      major investors.


13


·
            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.


·
            Still
      River recently 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 15 sites under contract 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 in
the first half of 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 March 31, 2010 the Company had no
significant long-term, market-sensitive investments.





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 March 31, 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.


14





There
were no changes in our internal control over financial reporting during the
three months ended March 31, 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.
            Submission
      of Matters to a Vote of Securities
Holders.


None.





Item
      5.
            Other
      Information.


None.





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


(a)
            Exhibits


The
following exhibits are filed herewith:





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.


15




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:                  
      May 17, 2010
                              
                              /s/ Ernest A. Bates, M.D.Ernest
      A. Bates, M.D.Chairman
      of the Board and Chief Executive OfficerDate:                  
      May 17, 2010
                              
                              /s/ Craig K. TagawaCraig
      K. TagawaSenior
      Vice PresidentChief
      Operating and Financial Officer


16