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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 September 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
    
    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
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ITEM 1. FINANCIAL STATEMENTS
 AMERICAN SHARED HOSPITAL SERVICES
 (unaudited)
    
    
    (audited)September 30, 2006
    
    
    December 31, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,641,000
    
    
    $
    1,298,000Restricted cash
    
    
    50,000
    
    
    
    50,000Securities
    
    
    5,465,000
    
    
    
    4,537,000Accounts receivable, net of allowance for
doubtful accounts of $170,000 in
2006and $170,000 in 2005
    
    
    4,421,000
    
    
    
    3,832,000Other receivables
    
    
    281,000
    
    
    
    187,000Prepaid expenses and other assets
    
    
    414,000
    
    
    
    464,000Current deffered tax assets
    
    
    341,000
    
    
    
    341,000Total current assets
    
    
    13,613,000
    
    
    
    10,709,000Property and equipment:Medical equipment and facilities
    
    
    61,794,000
    
    
    
    59,147,000Office equipment
    
    
    511,000
    
    
    
    549,000Deposits and construction in progress
    
    
    1,098,000
    
    
    
    703,00063,403,000
    
    
    
    60,399,000Accumulated depreciation and
amortization
    
    
    (29,812,000
    )
    
    
    (25,409,000
    )Net property & equipment
    
    
    33,591,000
    
    
    
    34,990,000Securities-long term
    
    
    925,000
    
    
    
    2,797,000Investment in preferred stock
    
    
    2,000,000
    
    
    
    0Other assets
    
    
    223,000
    
    
    
    172,000Total assets
    
    $
    50,352,000
    
    
    $
    48,668,000
 (unaudited)
    
    
    (audited)September 30, 2006
    
    
    December 31, 2005LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    398,000
    
    
    $
    555,000Employee compensation and benefits
    
    
    279,000
    
    
    
    120,000Accrued dividends
    
    
    239,000
    
    
    
    238,000Other accrued liabilities
    
    
    869,000
    
    
    
    996,000Current portion of long-term debt
    
    
    4,975,000
    
    
    
    5,631,000Current portion of long-term capital leases
    
    
    989,000
    
    
    
    746,000Advances on line of credit
    
    
    3,450,000
    
    
    
    0Total current liabilities
    
    
    11,199,000
    
    
    
    8,286,000Long-term debt, less current portion
    
    
    11,607,000
    
    
    
    15,253,000Long-term capital leases, less current portion
    
    
    4,071,000
    
    
    
    3,452,000Deferred income taxes
    
    
    1,681,000
    
    
    
    828,000Minority interest
    
    
    2,851,000
    
    
    
    2,529,000Shareholders equity:Common stock, without par value:authorized
shares  10,000,000; issued
& outstanding shares, 5,023,418 in
2006and 5,018,885 in 2005
    
    
    9,317,000
    
    
    
    9,306,000Additional paid-in capital
    
    
    4,293,000
    
    
    
    4,274,000Retained earnings
    
    
    5,333,000
    
    
    
    4,740,000Total shareholders equity
    
    
    18,943,000
    
    
    
    18,320,000Total liabilities and shareholders equity
    
    $
    50,352,000
    
    
    $
    48,668,000
  2




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AMERICAN SHARED HOSPITAL SERVICES
 Three months ended Sep. 30,
    
    
    Nine months ended Sep. 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:Medical services revenue
    
    $
    5,238,000
    
    
    $
    4,402,000
    
    
    $
    15,592,000
    
    
    $
    13,581,000Costs and expenses:Costs of revenue:Maintenance and supplies
    
    
    320,000
    
    
    
    261,000
    
    
    
    964,000
    
    
    
    778,000Depreciation and amortization
    
    
    1,466,000
    
    
    
    1,320,000
    
    
    
    4,382,000
    
    
    
    3,953,000Other direct operating costs
    
    
    803,000
    
    
    
    629,000
    
    
    
    2,540,000
    
    
    
    2,068,0002,589,000
    
    
    
    2,210,000
    
    
    
    7,886,000
    
    
    
    6,799,000Gross margin
    
    
    2,649,000
    
    
    
    2,192,000
    
    
    
    7,706,000
    
    
    
    6,782,000Selling and administrative expense
    
    
    1,109,000
    
    
    
    794,000
    
    
    
    3,101,000
    
    
    
    2,648,000Interest expense
    
    
    540,000
    
    
    
    531,000
    
    
    
    1,663,000
    
    
    
    1,577,000Operating income
    
    
    1,000,000
    
    
    
    867,000
    
    
    
    2,942,000
    
    
    
    2,557,000Interest and other income
    
    
    68,000
    
    
    
    29,000
    
    
    
    245,000
    
    
    
    129,000Minority interest expense
    
    
    (360,000
    )
    
    
    (263,000
    )
    
    
    (1,025,000
    )
    
    
    (824,000
    )Income before income taxes
    
    
    708,000
    
    
    
    633,000
    
    
    
    2,162,000
    
    
    
    1,862,000Income tax expense
    
    
    283,000
    
    
    
    131,000
    
    
    
    853,000
    
    
    
    574,000Net income
    
    $
    425,000
    
    
    $
    502,000
    
    
    $
    1,309,000
    
    
    $
    1,288,000Earnings per share:Basic
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26Diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26Basic shares
    
    
    5,023,000
    
    
    
    5,018,000
    
    
    
    5,022,000
    
    
    
    4,901,000Diluted shares
    
    
    5,047,000
    
    
    
    5,048,000
    
    
    
    5,051,000
    
    
    
    4,971,000
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AMERICAN SHARED HOSPITAL SERVICES
 Nine months ended Sep. 30,2006
    
    
    2005Operating activities:Net income
    
    $
    1,309,000
    
    
    $
    1,288,000Adjustments to reconcile net cash provided by operating activities:Depreciation and amortization
    
    
    4,458,000
    
    
    
    4,032,000Deferred income taxes
    
    
    853,000
    
    
    
    487,000Loss on sale of assets
    
    
    3,000
    
    
    
    0Stock options expensed
    
    
    25,000
    
    
    
    0Minority interest in consolidated subsidiaries
    
    
    1,025,000
    
    
    
    824,000Changes in operating assets and liabilities:Receivables
    
    
    (683,000
    )
    
    
    (532,000
    )Prepaid expenses and other assets
    
    
    (13,000
    )
    
    
    119,000Accounts payable and accrued liabilities
    
    
    (125,000
    )
    
    
    310,000Net cash from operating activities
    
    
    6,852,000
    
    
    
    6,528,000Investing activities:Purchase of property and equipment
    
    
    (3,070,000
    )
    
    
    (5,594,000
    )Proceeds from sale and maturity of marketable securities
    
    
    3,983,000
    
    
    
    0Proceeds from sale of assets
    
    
    20,000
    
    
    
    0Purchase of securities and convertible preferred stock
    
    
    (5,039,000
    )
    
    
    (3,568,000
    )Net cash from investing activities
    
    
    (4,106,000
    )
    
    
    (9,162,000
    )Financing activities:Principal payments on long-term debt
    
    
    (4,302,000
    )
    
    
    (5,181,000
    )Principal payments on capitalized leases
    
    
    (678,000
    )
    
    
    (182,000
    )Advances on line of credit
    
    
    3,450,000
    
    
    
    0Distribution to minority owners
    
    
    (703,000
    )
    
    
    (703,000
    )Long-term debt financing on purchase of property and equipment
    
    
    0
    
    
    
    5,275,000Capital lease financing on purchase of property and equipment
    
    
    1,540,000
    
    
    
    240,000Payment for stock/option repurchase
    
    
    0
    
    
    
    (670,000
    )Payment received for exercise of stock options
    
    
    5,000
    
    
    
    157,000Payment of dividends
    
    
    (715,000
    )
    
    
    (664,000
    )Net cash from financing activities
    
    
    (1,403,000
    )
    
    
    (1,728,000
    )Net change in cash and cash equivalents
    
    
    1,343,000
    
    
    
    (4,362,000
    )Cash and cash equivalents at beginning of period
    
    
    1,298,000
    
    
    
    8,121,000Cash and cash equivalents at end of period
    
    $
    2,641,000
    
    
    $
    3,759,000Supplemental cash flow disclosure:Cash paid during the period for:Interest
    
    $
    1,663,000
    
    
    $
    1,577,000Income taxes
    
    $
    309,000
    
    
    $
    162,000Schedule of noncash investing and financial activities:Accrued dividends
    
    $
    239,000
    
    
    $
    238,000Income tax benefit from exercise of stock options and warrants
    
    $
    0
    
    
    $
    445,000
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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
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2006
    
    2005
    
    2006
    
    2005Net income, as reported
    
    $
    425,000
    
    
    $
    502,000
    
    
    $
    1,309,000
    
    
    $
    1,288,000Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    $
    0
    
    
    ($
    6,000
    )
    
    $
    0
    
    
    
    ($14,000
    )Pro forma net income
    
    $
    425,000
    
    
    $
    496,000
    
    
    $
    1,309,000
    
    
    $
    1,274,000Earnings per share:Basic-as reported
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26Basic-pro forma
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26Diluted-as reported
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26Diluted-pro forma
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.26
 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
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st ®
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Liquidity and Capital Resources
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held-to-maturity
 held-to-maturity
 Subsequent Events
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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal control over financial reporting
 PART II  OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 2. 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.
   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.
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Exhibit Number
    
    Description31.2
    
    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:      November 14, 2006
    /s/ Ernest A. Bates, M.D.Ernest A. Bates, M.D.Chairman of the Board and Chief Executive Officer Date:      November 14, 2006
    /s/ Craig K. TagawaCraig K. TagawaSenior Vice President

Chief Operating and Financial Officer 14