##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended September 30, 2009
 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
(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
 þ o
 o o
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o(Do not check if a smaller reporting company)
Smaller reporting company þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4T. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal Proceedings.Item 1A. Risk FactorsItem 2. Unregistered Sales of Equity 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.SIGNATURESEX-10.26.AEX-31.1EX-31.2EX-32.1    Table of Contents  
  
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN SHARED HOSPITAL SERVICES
 (unaudited)
    
    
    (audited)September 30, 2009
    
    
    December 31, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,469,000
    
    
    $
    10,286,000Restricted cash
    
    
    50,000
    
    
    
    50,000Accounts receivable, net of allowance for
doubtful accounts of $100,000 in 2009
and $100,000 in 2008
    
    
    3,811,000
    
    
    
    4,229,000Other receivables
    
    
    61,000
    
    
    
    221,000Prepaid expenses and other assets
    
    
    449,000
    
    
    
    430,000Current deferred tax assets
    
    
    246,000
    
    
    
    246,000Total current assets
    
    
    14,086,000
    
    
    
    15,462,000Property and equipment:Medical equipment and facilities
    
    
    73,583,000
    
    
    
    71,854,000Office equipment
    
    
    780,000
    
    
    
    703,000Deposits and construction in progress
    
    
    5,721,000
    
    
    
    5,203,00080,084,000
    
    
    
    77,760,000Accumulated depreciation and
amortization
    
    
    (35,553,000
    )
    
    
    (33,897,000
    )Net property and equipment
    
    
    44,531,000
    
    
    
    43,863,000Investment in preferred stock
    
    
    2,617,000
    
    
    
    2,617,000Other assets
    
    
    264,000
    
    
    
    254,000Total assets
    
    $
    61,498,000
    
    
    $
    62,196,000LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    234,000
    
    
    $
    262,000Employee compensation and benefits
    
    
    262,000
    
    
    
    322,000Other accrued liabilities
    
    
    712,000
    
    
    
    950,000Current portion of long-term debt
    
    
    5,311,000
    
    
    
    6,341,000Current portion of obligations under capital leases
    
    
    1,777,000
    
    
    
    1,292,000Line of credit advances
    
    
    
    
    
    
    6,500,000Total current liabilities
    
    
    8,296,000
    
    
    
    15,667,000Long-term debt, less current portion
    
    
    12,690,000
    
    
    
    16,386,000Long-term capital leases, less current portion
    
    
    7,698,000
    
    
    
    4,667,000Line of credit advances
    
    
    7,500,000
    
    
    
    Deferred income taxes
    
    
    2,538,000
    
    
    
    2,538,000Shareholders equity:Common stock, without par value: 
authorized shares - 10,000,000; issued and
outstanding shares - 4,595,000 at September
30, 2009
and 4,712,000 at December 31, 2008
    
    
    8,606,000
    
    
    
    8,877,000Additional paid-in capital
    
    
    4,559,000
    
    
    
    4,458,000Retained earnings
    
    
    6,342,000
    
    
    
    6,393,000Total equity- American Shared Hospital Services
    
    
    19,507,000
    
    
    
    19,728,000Non-controlling interest in subsidiary
    
    
    3,269,000
    
    
    
    3,210,000Total shareholders equity
    
    
    22,776,000
    
    
    
    22,938,000Total liabilities and shareholders equity
    
    $
    61,498,000
    
    
    $
    62,196,000
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AMERICAN SHARED HOSPITAL SERVICES
 Three Months ended September 30,
    
    
    Nine Months ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Medical services revenue
    
    $
    3,926,000
    
    
    $
    4,532,000
    
    
    $
    12,676,000
    
    
    $
    14,359,000Costs of revenue:Maintenance and supplies
    
    
    350,000
    
    
    
    275,000
    
    
    
    1,143,000
    
    
    
    843,000Depreciation and amortization
    
    
    1,637,000
    
    
    
    1,647,000
    
    
    
    4,888,000
    
    
    
    4,869,000Other direct operating costs
    
    
    356,000
    
    
    
    726,000
    
    
    
    1,547,000
    
    
    
    2,351,0002,343,000
    
    
    
    2,648,000
    
    
    
    7,578,000
    
    
    
    8,063,000Gross Margin
    
    
    1,583,000
    
    
    
    1,884,000
    
    
    
    5,098,000
    
    
    
    6,296,000Selling and administrative expense
    
    
    875,000
    
    
    
    1,116,000
    
    
    
    2,870,000
    
    
    
    3,352,000Transaction costs
    
    
    22,000
    
    
    
    
    
    
    
    342,000
    
    
    
    Interest expense
    
    
    514,000
    
    
    
    638,000
    
    
    
    1,526,000
    
    
    
    1,833,000Operating income
    
    
    172,000
    
    
    
    130,000
    
    
    
    360,000
    
    
    
    1,111,000Other income
    
    
    
    
    
    
    90,000
    
    
    
    16,000
    
    
    
    323,000Income before income taxes
    
    
    172,000
    
    
    
    220,000
    
    
    
    376,000
    
    
    
    1,434,000Income tax expense (benefit)
    
    
    16,000
    
    
    
    24,000
    
    
    
    (49,000
    )
    
    
    378,000Net income
    
    
    156,000
    
    
    
    196,000
    
    
    
    425,000
    
    
    
    1,056,000Less: Net income attributable to non-controlling interest
    
    
    (139,000
    )
    
    
    (171,000
    )
    
    
    (476,000
    )
    
    
    (662,000
    )Net income (loss) attributable
to American Shared Hospital Services
    
    $
    17,000
    
    
    $
    25,000
    
    
    $
    (51,000
    )
    
    $
    394,000Net income (loss) per share attributable
to American Shared Hospital Services:Earnings per common share  basic
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.08Earnings per common share  assuming dilution
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.08
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AMERICAN SHARED HOSPITAL SERVICES
 PERIODS ENDED DECEMBER 31, 2007 AND 2008 AND SEPTEMBER 30, 2009AdditionalCommon
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Sub-Total
    
    
    Non-controllingShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    ASHS
    
    
    Interest in Sub.
    
    
    TotalBalances at January 1, 2007 (audited)
    
    
    5,023,000
    
    
    $
    9,317,000
    
    
    $
    4,251,000
    
    
    $
    5,441,000
    
    
    $
    19,009,000
    
    
    $
    3,045,000
    
    
    $
    22,054,000Options exercised
    
    
    2,000
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000Common stock withheld on option exercises
    
    
    (1,000
    )
    
    
    
    
    
    
    (3,000
    )
    
    
    
    
    
    
    (3,000
    )
    
    
    
    
    
    
    (3,000
    )Stock based compensation expense
    
    
    2,000
    
    
    
    
    
    
    
    69,000
    
    
    
    
    
    
    
    69,000
    
    
    
    
    
    
    
    69,000Excess tax benefit from share-based payment arrangements
    
    
    
    
    
    
    
    
    
    
    (13,000
    )
    
    
    
    
    
    
    (13,000
    )
    
    
    
    
    
    
    (13,000
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (476,000
    )
    
    
    (476,000
    )
    
    
    
    
    
    
    (476,000
    )Cash distributions to non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,026,000
    )
    
    
    (1,026,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951,000
    
    
    
    951,000
    
    
    
    1,134,000
    
    
    
    2,085,000Balances at December 31, 2007 (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
    
    
    
    
    
    
    
    101,000
    
    
    
    
    
    
    
    101,000
    
    
    
    
    
    
    
    101,000Cash distributions to non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (417,000
    )
    
    
    (417,000
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,000
    )
    
    
    (51,000
    )
    
    
    476,000
    
    
    
    425,000Balances at September 30, 2009 (unaudited)
    
    
    4,595,000
    
    
    $
    8,606,000
    
    
    $
    4,559,000
    
    
    $
    6,342,000
    
    
    $
    19,507,000
    
    
    $
    3,269,000
    
    
    $
    22,776,000
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AMERICAN SHARED HOSPITAL SERVICES
 Nine Months ended September 30,2009
    
    
    2008Operating activities:Net income
    
    $
    425,000
    
    
    $
    1,056,000Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    4,970,000
    
    
    
    4,967,000Gain on sale of assets
    
    
    
    
    
    
    (56,000
    )Deferred income tax
    
    
    
    
    
    
    145,000Stock based compensation expense
    
    
    101,000
    
    
    
    106,000Changes in operating assets and liabilities:Receivables
    
    
    578,000
    
    
    
    755,000Prepaid expenses and other assets
    
    
    (71,000
    )
    
    
    121,000Accounts payable and accrued liabilities
    
    
    (326,000
    )
    
    
    (210,000
    )Net cash from operating activities
    
    
    5,677,000
    
    
    
    6,884,000Investing activities:Payment for purchase of property and equipment
    
    
    (880,000
    )
    
    
    (3,962,000
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,605,000Proceeds from sales and maturities of marketable securities
    
    
    
    
    
    
    1,473,000Net cash from investing activities
    
    
    (880,000
    )
    
    
    116,000Financing activities:Cash distribution to non-controlling interest
    
    
    (417,000
    )
    
    
    (798,000
    )Long term debt financing on purchase of property and equipment
    
    
    811,000
    
    
    
    2,376,000Advances on line of credit
    
    
    1,700,000
    
    
    
    Payments on line of credit
    
    
    (700,000
    )
    
    
    (600,000
    )Stock repurchase
    
    
    (271,000
    )
    
    
    Principal payments on capital leases
    
    
    (1,200,000
    )
    
    
    (894,000
    )Principal payments on long-term debt
    
    
    (5,537,000
    )
    
    
    (4,636,000
    )Net cash from financing activities
    
    
    (5,614,000
    )
    
    
    (4,552,000
    )Net change in cash and cash equivalents
    
    
    (817,000
    )
    
    
    2,448,000Cash and cash equivalents at beginning of period
    
    
    10,286,000
    
    
    
    6,340,000Cash and cash equivalents at end of period
    
    $
    9,469,000
    
    
    $
    8,788,000Supplemental cash flow disclosure:Cash paid during the period for:Interest
    
    $
    1,647,000
    
    
    $
    2,248,000Income taxes
    
    $
    51,000
    
    
    $
    233,000Schedule of non-cash investing and financing activitiesAcquisition of equipment with capital lease financing
    
    $
    4,716,000
    
    
    $
    3,420,000
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Note 1. Basis of Presentation
        Note 2. Per Share Amounts
  6




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Note 3. Stock-based Compensation
   Note 4. Convertible Preferred Stock Investment
  7




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.
   
    
    Still River recently completed and passed the cold mass test on the prototype unit, a
major milestone in the development of the PBRT. The beam extraction test, which is the
next major milestone, is expected to be successfully completed prior to the end of 2009.
Other manufacturing processes and software development have been completed to the extent
that the protype unit is projected for installation in spring 2010.
    
    A review of the Still River project by a third party expert hired by the Company
revealed no known impediments to completion of the prototype unit. Construction delays
encountered were generally the result of minor problems that occurred during the testing processes, which were quickly rectified, at times resulting in
minor modifications to the design.
 
    
    Still River was able to raise the money it needed in spite of an uncertain economic
climate, which included two new major investors. Ongoing discussions with Still River and
regular review of their financial statements indicate that cash flow is adequate to
continue development of the PBRT system.
    
    There have been no adverse events or changes in circumstances during the third quarter
to indicate that our investment is other than temporarily impaired.
  Note 5. Line of Credit
  8




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Note 6. Fair Value of Financial Instruments
  Note 7. Repurchase of Common Stock
  Note 8. Accounting and Reporting for Noncontrolling Interests
  Note 9. Recent Accounting Standards Updates
  9




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10




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Note 10. Subsequent Events
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 st ®
  11




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12




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13




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Liquidity and Capital Resources
   14




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held-to-maturity
    15




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 ,
 
 Item 4T. Controls and Procedures
   16




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number of
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    of Shares thatNumber of
    
    
    Average
    
    
    as Part of Publicly
    
    
    May Yet beShares
    
    
    Price Paid
    
    
    Announced
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    Per Share
    
    
    Programs
    
    
    the ProgramsJuly 1 - July 31, 2009
    
    
    4,863
    
    
    $
    2.05
    
    
    
    4,863
    
    
    
    151,133August 1 - August 31, 2009
    
    
    70,000
    
    
    
    2.39
    
    
    
    70,000
    
    
    
    81,133September 1 - September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,133Total Third Quarter
    
    
    74,863
    
    
    $
    2.37
    
    
    
    74,863
    
    
    
    81,133
 
 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.
   10.26a
    
    First Amendment to Lease Agreement for a Gamma Knife unit dated as of
December 29, 2008 between GK Financing, LLC and Froedtert Memorial
Lutheran 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
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of
1934, as amended. Omitted information has been
replaced with asterisks.)
 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.
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AMERICAN SHARED HOSPITAL SERVICES
RegistrantDate:      November 13, 2009
    /s/ Ernest A. Bates, M.D.Ernest A. Bates, M.D.Chairman of the Board and Chief Executive OfficerDate:      November 13, 2009
    /s/ Craig K. TagawaCraig K. TagawaSenior Vice President
Chief Operating and Financial Officer 19