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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 June 30, 2006
 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 þ
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ITEM 1. FINANCIAL STATEMENTS
 AMERICAN SHARED HOSPITAL SERVICES
 (unaudited)
    
    
    (audited)June 30, 2006
    
    
    December 31, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,143,000
    
    
    $
    1,298,000Restricted cash
    
    
    50,000
    
    
    
    50,000Securities-current
    
    
    5,175,000
    
    
    
    4,537,000Accounts receivable, net of allowance for doubtful accounts of $170,000 in
2006 and $170,000 in 2005
    
    
    4,714,000
    
    
    
    3,832,000Other receivables
    
    
    292,000
    
    
    
    187,000Prepaid expenses and other current assets
    
    
    467,000
    
    
    
    464,000Current deferred tax assets
    
    
    341,000
    
    
    
    341,000Total current assets
    
    
    13,182,000
    
    
    
    10,709,000Property and equipment:Medical equipment and facilities
    
    
    61,681,000
    
    
    
    59,147,000Office equipment
    
    
    511,000
    
    
    
    549,000Deposits and construction in progress
    
    
    1,064,000
    
    
    
    703,00063,256,000
    
    
    
    60,399,000Accumulated depreciation and
amortization
    
    
    (28,327,000
    )
    
    
    (25,409,000
    )Net property & equipment
    
    
    34,929,000
    
    
    
    34,990,000Securities-long term
    
    
    925,000
    
    
    
    2,797,000Investment in convertible preferred stock
    
    
    2,000,000
    
    
    
    0Other assets
    
    
    245,000
    
    
    
    172,000Total assets
    
    $
    51,281,000
    
    
    $
    48,668,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    205,000
    
    
    $
    555,000Employee compensation and benefits
    
    
    356,000
    
    
    
    120,000Accrued dividends
    
    
    239,000
    
    
    
    238,000Other accrued liabilities
    
    
    990,000
    
    
    
    996,000Advances on line of credit
    
    
    3,250,000
    
    
    
    0Current
portion of long-term debt
    
    
    5,188,000
    
    
    
    5,631,000Current
portion of long-term capital leases
    
    
    970,000
    
    
    
    746,000Total current liabilities
    
    
    11,198,000
    
    
    
    8,286,000Long-term debt, less current portion
    
    
    12,922,000
    
    
    
    15,253,000Long-term capital leases, less current portion
    
    
    4,241,000
    
    
    
    3,452,000Deferred income taxes
    
    
    1,397,000
    
    
    
    828,000Minority interest
    
    
    2,776,000
    
    
    
    2,529,000Shareholders equity:Common
stock, without par value: authorized shares  10,000,000; issued
& outstanding shares, 5,023,418 in 2006
and 4,853,840 in 2005
    
    
    9,317,000
    
    
    
    9,306,000Additional
paid-in capital
    
    
    4,283,000
    
    
    
    4,274,000Retained earnings
    
    
    5,147,000
    
    
    
    4,740,000Total shareholders equity
    
    
    18,747,000
    
    
    
    18,320,000Total liabilities and shareholders equity
    
    $
    51,281,000
    
    
    $
    48,668,000
  2




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AMERICAN SHARED HOSPITAL SERVICES
 Three Months ended June 30,
    
    
    Six Months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:Medical services
    
    $
    5,309,000
    
    
    $
    4,730,000
    
    
    $
    10,354,000
    
    
    $
    9,179,000Costs and expenses:Costs of revenue:Maintenance and supplies
    
    
    308,000
    
    
    
    262,000
    
    
    
    644,000
    
    
    
    517,000Depreciation and amortization
    
    
    1,454,000
    
    
    
    1,341,000
    
    
    
    2,916,000
    
    
    
    2,633,000Other direct operating costs
    
    
    913,000
    
    
    
    829,000
    
    
    
    1,737,000
    
    
    
    1,439,0002,675,000
    
    
    
    2,432,000
    
    
    
    5,297,000
    
    
    
    4,589,000Gross margin
    
    
    2,634,000
    
    
    
    2,298,000
    
    
    
    5,057,000
    
    
    
    4,590,000Selling and administrative expense
    
    
    1,078,000
    
    
    
    933,000
    
    
    
    1,992,000
    
    
    
    1,854,000Interest expense
    
    
    560,000
    
    
    
    511,000
    
    
    
    1,123,000
    
    
    
    1,046,000Operating income
    
    
    996,000
    
    
    
    854,000
    
    
    
    1,942,000
    
    
    
    1,690,000Interest and other income
    
    
    87,000
    
    
    
    57,000
    
    
    
    177,000
    
    
    
    100,000Minority interest expense
    
    
    (349,000
    )
    
    
    (287,000
    )
    
    
    (665,000
    )
    
    
    (561,000
    )Income before income taxes
    
    
    734,000
    
    
    
    624,000
    
    
    
    1,454,000
    
    
    
    1,229,000Income tax expense
    
    
    286,000
    
    
    
    233,000
    
    
    
    570,000
    
    
    
    443,000Net income
    
    $
    448,000
    
    
    $
    391,000
    
    
    $
    884,000
    
    
    $
    786,000Earnings per share:Basic
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.16Diluted
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.15Basic shares
    
    
    5,023,000
    
    
    
    4,854,000
    
    
    
    5,021,000
    
    
    
    4,841,000Diluted shares
    
    
    5,054,000
    
    
    
    5,135,000
    
    
    
    5,051,000
    
    
    
    5,133,000
  3




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AMERICAN SHARED HOSPITAL SERVICES
 Six Months ended June 30,2006
    
    
    2005Operating activities:Net income
    
    $
    884,000
    
    
    $
    786,000Adjustments to reconcile net cash provided by operating activities:Depreciation and amortization
    
    
    2,967,000
    
    
    
    2,680,000Deferred income taxes
    
    
    569,000
    
    
    
    418,000Loss on sale of assets
    
    
    3,000
    
    
    
    0Stock options expensed
    
    
    16,000
    
    
    
    0Minority interest in consolidated subsidiaries
    
    
    665,000
    
    
    
    561,000Changes in operating assets and liabilities:Receivables
    
    
    (987,000
    )
    
    
    (6,000
    )Prepaid expenses and other assets
    
    
    (45,000
    )
    
    
    36,000Accounts payable and accrued liabilities
    
    
    (120,000
    )
    
    
    483,000Net cash from operating activities
    
    
    3,952,000
    
    
    
    4,958,000Investing activities:Purchase of property and equipment
    
    
    (2,923,000
    )
    
    
    (3,967,000
    )Proceeds from sale and maturity of marketable securities
    
    
    2,916,000
    
    
    
    0Proceeds from sale of assets
    
    
    20,000
    
    
    
    0Purchase of securities and convertible preferred stock
    
    
    (3,719,000
    )
    
    
    (301,000
    )Net cash from investing activities
    
    
    (3,706,000
    )
    
    
    (4,268,000
    )Financing activities:Principal payments on long-term debt
    
    
    (2,859,000
    )
    
    
    (3,559,000
    )Principal payments on capitalized leases
    
    
    (442,000
    )
    
    
    (109,000
    )Advances on line of credit
    
    
    3,250,000
    
    
    
    0Distribution to minority owners
    
    
    (418,000
    )
    
    
    (399,000
    )Long-term debt financing on purchase of property and equipment
    
    
    0
    
    
    
    2,949,000Capital lease financing on purchase of property and equipment
    
    
    1,540,000
    
    
    
    240,000Payment for stock/option repurchase
    
    
    (1,000
    )
    
    
    0Payment received for exercise of stock options
    
    
    5,000
    
    
    
    9,000Payment of dividends
    
    
    (476,000
    )
    
    
    (433,000
    )Net cash from financing activities
    
    
    599,000
    
    
    
    (1,302,000
    )Net change in cash and cash equivalents
    
    
    845,000
    
    
    
    (612,000
    )Cash and cash equivalents at beginning of period
    
    
    1,298,000
    
    
    
    8,121,000Cash and cash equivalents at end of period
    
    $
    2,143,000
    
    
    $
    7,509,000Supplemental cash flow disclosure:Cash paid during the period for:Interest paid
    
    $
    1,123,000
    
    
    $
    1,046,000Income taxes paid
    
    $
    255,000
    
    
    $
    101,000Schedule of noncash investing and financial activities:Accrued dividends
    
    $
    239,000
    
    
    $
    231,000Income tax benefit from exercise of stock options and warrants
    
    $
    0
    
    
    $
    124,000
  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-Based
Compensation
   6




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Three months ended June 30
    
    Six Months Ended June 302006
    
    2005
    
    2006
    
    2005Net income, as reported
    
    $
    448,000
    
    
    $
    391,000
    
    
    $
    884,000
    
    
    $
    786,000Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    $
    0
    
    
    ($
    6,000
    )
    
    $
    0
    
    
    ($
    8,000
    )Pro forma net income
    
    $
    448,000
    
    
    $
    385,000
    
    
    $
    884,000
    
    
    $
    778,000Earnings per share:Basic-as reported
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.16Basic-pro forma
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.16Diluted-as reported
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.15Diluted-pro forma
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.18
    
    
    $
    0.15
 Note 4. Convertible Preferred Stock Investment
   Note 5. Line of Credit
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 7




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st
    8




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9




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Liquidity and Capital Resources
     10




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held-to-maturity
 held-to-maturity
 Subsequent Events
  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.
 11




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Item 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.
  1)
    
    Voted on the Election of Directors as follows:
 Nominee
    
    
    
    
    
    For
    
    
    
    
    
    AbstainedErnest A. Bates, M.D.
    
    
    
    
    
    
    4,278,964
    
    
    
    
    
    
    
    92,666Ernest R. Bates
    
    
    
    
    
    
    4,267,814
    
    
    
    
    
    
    
    103,816Olin C. Robison
    
    
    
    
    
    
    4,279,894
    
    
    
    
    
    
    
    91,736John F. Ruffle
    
    
    
    
    
    
    4,279,494
    
    
    
    
    
    
    
    92,136Stanley S. Trotman, Jr.
    
    
    
    
    
    
    4,273,444
    
    
    
    
    
    
    
    98,186
  2)
    
    Voted on the approval of the Companys 2006 Stock Incentive
Plan. There were 2,569,045 votes for, 180,382 votes against, 27,013 votes
abstained and 1,595,190 broker non-votes for a 51.2% vote in favor of total
available votes.
  3)
    
    Voted on the approval of the Companys Long Term Incentive
Compensation Plan. There were 2,578,310 votes for, 172,867 votes against,
25,264 votes abstained and 1,595,189 broker non-votes for a 51.4% vote in favor
of total available votes.
  4)
    
    Voted on the ratification of Moss Adams, LLP as the Companys
independent accountants for the year ending December 31, 2006. There were
4,280,280 votes for, 77,896 votes against and 13,454 votes abstained.
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Item 5.
    
    Other Information.
  Item 6.
    
    Exhibits and Reports on Form 8-K.
   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.
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Date: August 14, 2006
    
    /s/ Ernest A. Bates, M.D.

Ernest A. Bates, M.D.Chairman of the Board and Chief Executive OfficerDate: August 14, 2006
    
    /s/ Craig K. Tagawa

Craig K. TagawaSenior Vice PresidentChief Operating and Financial Officer
 14