##### Table of Contents



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 June 30, 2002 or

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number 1-8789



---

American Shared Hospital Services
(Exact name of registrant as specified in its charter)

|                                                                                                        |  |                                             
|------------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|California
(State or other jurisdiction of
Incorporation or organization)                               |  | 94-2918118
(IRS Employer
Identification No.)
|Four Embarcadero Center, Suite 3700, San Francisco, California
(Address of Principal Executive Offices) |  | 94111
(Zip Code)                            

Registrants telephone number, including area code: (415) 788-5300

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 [    ]

As of July 31, 2002, there are outstanding 3,768,203 shares of the Registrants
common stock.





---

TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                               |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings.                                                                   
|                               | Item 2. Changes in Securities.                                                               
|                               | 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                                                     
|SIGNATURES                    
|10-Q                          
|Exhibit 10.39                 



---



##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |            |           | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---------- | ------------- | --------- | --------- | ---------- | ---------- | --------- | 
|                                           |                                                                                                    |                                                                                                        |            | (unaudited)   |           | (audited)
|ASSETS                                     |                                                                                                    | June 30, 2002                                                                                          |            | Dec. 31, 2001
|                                           |                                                                                                    |                                                                                                        |            |              
|Current assets:                            |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|                                           | Cash and cash equivalents                                                                          |                                                                                                        | $          | 10,018,000    |           |           | $          | 11,580,000 |          
|                                           | Restricted cash                                                                                    |                                                                                                        |            | 50,000        |           |           |            | 50,000     |          
|                                           | Accounts receivable, net of allowance for
doubtful accounts of $70,000 in 2002
and $70,000 in 2001 |                                                                                                        |            | 2,714,000     |           |           |            | 2,369,000  |          
|                                           | Prepaid expenses and other assets                                                                  |                                                                                                        |            | 678,000       |           |           |            | 789,000    |          
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Total current assets                       |                                                                                                    |                                                                                                        | 13,460,000 |               |           |           | 14,788,000 |           
|Property and equipment:                    |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|                                           | Medical equipment and facilities                                                                   |                                                                                                        |            | 34,777,000    |           |           |            | 31,278,000 |          
|                                           | Office equipment                                                                                   |                                                                                                        |            | 381,000       |           |           |            | 234,000    |          
|                                           | Deposits and construction in progress                                                              |                                                                                                        |            | 3,867,000     |           |           |            | 3,202,000  |          
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|                                           |                                                                                                    |                                                                                                        | 39,025,000 |               |           |           | 34,714,000 |           
|                                           | Accumulated depreciation and
amortization                                                          |                                                                                                        |            | (9,016,000    | )         |           |            | (7,360,000 | )        
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Net property and equipment                 |                                                                                                    |                                                                                                        | 30,009,000 |               |           |           | 27,354,000 |           
|Other assets                               |                                                                                                    |                                                                                                        | 553,000    |               |           |           | 243,000    |           
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Total assets                               |                                                                                                    | $                                                                                                      | 44,022,000 |               |           | $         | 42,385,000 |           
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|LIABILITIES AND
SHAREHOLDERS EQUITY       |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Current liabilities:                       |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|                                           | Accounts payable                                                                                   |                                                                                                        | $          | 184,000       |           |           | $          | 412,000    |          
|                                           | Accrued interest                                                                                   |                                                                                                        |            | 182,000       |           |           |            | 176,000    |          
|                                           | Employee compensation and benefits                                                                 |                                                                                                        |            | 94,000        |           |           |            | 215,000    |          
|                                           | Other accrued liabilities                                                                          |                                                                                                        |            | 147,000       |           |           |            | 329,000    |          
|                                           | Current portion of long-term debt                                                                  |                                                                                                        |            | 4,865,000     |           |           |            | 4,305,000  |          
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Total current liabilities                  |                                                                                                    |                                                                                                        | 5,472,000  |               |           |           | 5,437,000  |           
|Long-term debt, less current portion       |                                                                                                    |                                                                                                        | 22,693,000 |               |           |           | 21,615,000 |           
|Deferred income taxes                      |                                                                                                    |                                                                                                        | 691,000    |               |           |           | 383,000    |           
|Minority interest                          |                                                                                                    |                                                                                                        | 1,122,000  |               |           |           | 1,165,000  |           
|Shareholders equity:                      |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|                                           | Common stock, without par value:                                                                   |                                                                                                        |            |               |           |           |            |            |          
|                                           |                                                                                                    | authorized shares - 10,000,000;
issued and outstanding shares,
3,768,000 in 2002 and 3,525,000
in 2001 |            |               | 9,148,000 |           |            |            | 9,240,000 | 
|                                           | Additional paid-in capital                                                                         |                                                                                                        |            | 3,312,000     |           |           |            | 3,154,000  |          
|                                           | Retained earnings                                                                                  |                                                                                                        |            | 1,584,000     |           |           |            | 1,391,000  |          
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Total shareholders equity                 |                                                                                                    |                                                                                                        | 14,044,000 |               |           |           | 13,785,000 |           
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           
|Total liabilities and shareholders equity |                                                                                                    | $                                                                                                      | 44,022,000 |               |           | $         | 42,385,000 |           
|                                           |                                                                                                    |                                                                                                        |            |               |           |           |            |           

See accompanying notes

2



---



##### Table of Contents






AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |           |           | 
|-------------------------- | --------------------------------------------- | ----------------------------- | --------- | --------------------------- | ------- | ------------------------- | --------- | --------- | ------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                           |                                               |                               |           | Three Months ended June 30, |         | Six Months ended June 30,
|                           |                                               |                               |           |                             |         |                          
|                           |                                               |                               |           | 2002                        |         | 2001                      |           | 2002      |         | 2001
|                           |                                               |                               |           |                             |         |                           |           |           |         |     
|Revenue:                   |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           | Medical services                              |                               | $         | 3,216,000                   |         |                           | $         | 2,819,000 |         |      | $         | 6,461,000 |           |   | $         | 5,679,000 |          
|Costs and expenses:        |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           | Costs of operations:                          |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |           |          
|                           |                                               | Maintenance and supplies      |           |                             | 104,000 |                           |           |           | 87,000  |      |           |           | 183,000   |   |           |           | 167,000   | 
|                           |                                               | Depreciation and amortization |           |                             | 826,000 |                           |           |           | 728,000 |      |           |           | 1,628,000 |   |           |           | 1,372,000 | 
|                           |                                               | Other                         |           |                             | 367,000 |                           |           |           | 244,000 |      |           |           | 721,000   |   |           |           | 539,000   | 
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           |                                               |                               | 1,297,000 |                             |         |                           | 1,059,000 |           |         |      | 2,532,000 |           |           |   | 2,078,000 |          
|                           | Selling and administrative                    |                               |           | 863,000                     |         |                           |           | 772,000   |         |      |           | 1,661,000 |           |   |           | 1,581,000 |          
|                           | Interest                                      |                               |           | 575,000                     |         |                           |           | 637,000   |         |      |           | 1,199,000 |           |   |           | 1,223,000 |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|Total costs and expenses   |                                               |                               | 2,735,000 |                             |         |                           | 2,468,000 |           |         |      | 5,392,000 |           |           |   | 4,882,000 |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           |                                               |                               | 481,000   |                             |         |                           | 351,000   |           |         |      | 1,069,000 |           |           |   | 797,000   |          
|Interest and other income  |                                               |                               | 43,000    |                             |         |                           | 122,000   |           |         |      | 97,000    |           |           |   | 288,000   |          
|Minority interest          |                                               |                               | (178,000  | )                           |         |                           | (163,000  | )         |         |      | (395,000  | )         |           |   | (358,000  | )        
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|Income before income taxes |                                               |                               | 346,000   |                             |         |                           | 310,000   |           |         |      | 771,000   |           |           |   | 727,000   |          
|Income tax expense         |                                               |                               | 35,000    |                             |         |                           | 124,000   |           |         |      | 140,000   |           |           |   | 124,000   |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|Net income                 |                                               | $                             | 311,000   |                             |         | $                         | 186,000   |           |         | $    | 631,000   |           |           | $ | 603,000   |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|Net income per share:      |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           | Earnings per common share  basic             |                               | $         | 0.08                        |         |                           | $         | 0.05      |         |      | $         | 0.17      |           |   | $         | 0.17      |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          
|                           | Earnings per common share  assuming
dilution |                               | $         | 0.06                        |         |                           | $         | 0.04      |         |      | $         | 0.13      |           |   | $         | 0.12      |          
|                           |                                               |                               |           |                             |         |                           |           |           |         |      |           |           |           |   |           |          

See accompanying notes

3



---



##### Table of Contents






AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |            |           |          |  
|------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------- | ---------- | ------------------------- | -------- | --------- | ---------- | --------- | -------- | -
|                                                                    |                                                             |                                              |                                                                 |            | Six Months ended June 30,
|                                                                    |                                                             |                                              |                                                                 |            |                          
|                                                                    |                                                             |                                              |                                                                 |            | 2002                      |          | 2001     
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |          
|Operating activities:                                               |                                                             |                                              |                                                                 |            |                           |          |           |           
|Net income                                                          |                                                             | $                                            | 631,000                                                         |            |                           | $        | 603,000   |           
|Adjustments to reconcile net cash provided by operating activities: |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    |                                                             | Depreciation and amortization                |                                                                 |            | 1,674,000                 |          |           |            | 1,407,000 |         
|                                                                    |                                                             | Deferred income taxes                        |                                                                 |            | 140,000                   |          |           |            | 124,000   |         
|                                                                    |                                                             | Changes in operating assets and liabilities: |                                                                 |            |                           |          |           |            |           |         
|                                                                    |                                                             |                                              | (Increase) in accounts receivable                               |            |                           | (345,000 | )         |            |           | (128,000 | )
|                                                                    |                                                             |                                              | Decrease in prepaid expenses and other assets                   |            |                           | 109,000  |           |            |           | 104,000  |  
|                                                                    |                                                             |                                              | (Decrease) increase in accounts payable and accrued liabilities |            |                           | (525,000 | )         |            |           | 185,000  |  
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|Net cash from operating activities                                  |                                                             |                                              | 1,684,000                                                       |            |                           |          | 2,295,000 |           
|Investing activities:                                               |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Purchase of property and equipment (net of financing)       |                                              |                                                                 | (567,000   | )                         |          |           | (548,000   | )        
|                                                                    | (Decrease) in minority interest                             |                                              |                                                                 | (43,000    | )                         |          |           | (98,000    | )        
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Net cash from investing activities                          |                                              |                                                                 | (610,000   | )                         |          |           | (646,000   | )        
|Financing activities:                                               |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Payment of dividends                                        |                                              |                                                                 | (438,000   | )                         |          |           | (361,000   | )        
|                                                                    | Payment received for exercise of stock options              |                                              |                                                                 | 44,000     |                           |          |           | 15,000     |          
|                                                                    | Repurchase of options/warrants                              |                                              |                                                                 | (135,000   | )                         |          |           | (74,000    | )        
|                                                                    | Repurchase of common stock                                  |                                              |                                                                 | 0          |                           |          |           | (416,000   | )        
|                                                                    | Principal payments on long-term debt and capitalized leases |                                              |                                                                 | (2,107,000 | )                         |          |           | (1,453,000 | )        
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Net cash from financing activities                          |                                              |                                                                 | (2,636,000 | )                         |          |           | (2,289,000 | )        
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Net (decrease) in cash and cash equivalents                 |                                              |                                                                 | (1,562,000 | )                         |          |           | (640,000   | )        
|                                                                    | Cash and cash equivalents at beginning of period            |                                              |                                                                 | 11,580,000 |                           |          |           | 12,421,000 |          
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Cash and cash equivalents at end of period                  |                                              | $                                                               | 10,018,000 |                           |          | $         | 11,781,000 |          
|                                                                    |                                                             |                                              |                                                                 |            |                           |          |           |           
|Supplemental cash flow disclosure:                                  |                                                             |                                              |                                                                 |            |                           |          |           |           
|                                                                    | Cash paid during the period for:                            |                                              |                                                                 |            |                           |          |           |            |          
|                                                                    |                                                             | Interest paid                                |                                                                 | $          | 1,193,000                 |          |           | $          | 1,164,000 |         
|                                                                    |                                                             | Income taxes paid                            |                                                                 | $          | 73,000                    |          |           | $          | 21,000    |         

See accompanying notes

4



---



##### Table of Contents






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 June 30, 2002 and the results
of its operations for the three and six month periods ended June 30, 2002 and
2001, which results are not necessarily indicative of results on an annualized
basis. Consolidated balance sheet amounts as of December 31, 2001 have been
derived from audited financial statements.

These financial statements include the accounts of American Shared
Hospital Services (the Company) and its wholly-owned subsidiaries: American
Shared Radiosurgery Services; OR21, Inc. (OR21); MMRI, Inc.; MedLeader.com,
Inc. (MedLeader); and the Companys majority-owned subsidiary, GK Financing,
LLC (GK Financing).

The Company through its majority-owned subsidiary, GK Financing, provided
Gamma Knife units to thirteen medical centers as of June 30, 2002 in Arkansas,
California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada,
New Jersey, Ohio, Texas and Wisconsin.

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 and six months ended June 30, 2002 basic earnings per share was
computed using 3,717,000 and 3,635,000 common shares, and diluted earnings per
share was computed using 5,082,000 and 5,047,000 common shares and equivalents,
respectively. For the three and six months ended June 30, 2001 basic earnings
per share was computed using 3,584,000 and 3,598,000 common shares and diluted
earnings per share was computed using 5,145,000 and 5,160,000 common shares and
equivalents, respectively.

Note 3. Recent Accounting Pronouncements

In June 2001, the Financial Standards Accounting Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, Business Combinations and SFAS No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises. SFAS
No. 141 is effective for transactions initiated after June 30, 2001. SFAS No.
142 addresses financial accounting and reporting for acquired goodwill and
other intangible

5



---



##### Table of Contents



assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how
intangible assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. SFAS No. 142 also
addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements. The
Company does not expect the adoption of these statements to have a material
effect on its consolidated results of operations or financial position.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and (or) the normal operation
of a long-lived asset, except for certain obligations of lessees. The Company
is required to adopt the provisions of SFAS No. 143 no later than the beginning
of fiscal year 2003, with early adoption permitted. The Company does not
expect the adoption of this statement to have a material effect on its
consolidated results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement. SFAS No. 144
becomes effective for fiscal years beginning after December 15, 2001, with
early applications encouraged. The Company does not expect the adoption of
this statement to have a material effect on its consolidated results of
operations or financial position.




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Medical services revenue increased $397,000 and $782,000 for the three and
six month periods ended June 30, 2002 from $2,819,000 and $5,679,000 for the
three and six month periods ended June 30, 2001. The increase in second
quarter 2002 compared to second quarter 2001 reflects increased revenue at
Gamma Knife centers in operation for longer than one year and the addition of
one new Gamma Knife unit. The Company had thirteen Gamma Knife units in
operation at June 30, 2002 compared to twelve at June 30, 2001. For the six
months ended June 30, 2002, the revenue increase is due to one new gamma knife
unit in second quarter 2002 and the full six month inclusion of two gamma knife
units that started in second quarter 2001. In addition there was an increase
in revenue at Gamma Knife centers in operation more than one year. Eleven of
the Companys customers are under fee-per-use contracts, and two customers are
under revenue sharing agreements (retail). For retail units, the Company
receives all or a percentage of the reimbursement (exclusive of physician fees)
received by the customer, and is responsible for all or a percentage of the
operating expenses of the Gamma Knife.

The number of Gamma Knife procedures increased by 10% and 14% to 394 and
804 for the three and six month periods ended June 30, 2002 from 358 and 703
for the three and six

6



---



##### Table of Contents



month periods ended June 30, 2001. These increases were due to the
addition of two new Gamma Knife units during second quarter 2001 and one new
Gamma Knife unit during second quarter 2002, as well as an increase in
procedures performed at units in operation for more than one year of 5% and 3%
for the three and six month periods respectively.

Total costs of operations increased $238,000 and $454,000 for the three
and six month periods ended June 30, 2002 from $1,059,000 and $2,078,000 for
the three and six month periods ended June 30, 2001. Maintenance and supplies
increased $17,000 and $16,000 for the three and six month periods ended June
30, 2002 compared to the same period in the prior year due to additional Gamma
Knife units that started contract maintenance after the expiration of each
units warranty period. There were eleven Gamma Knife units covered under
contract maintenance as of June 30, 2002 compared to nine as of June 30, 2001.
Depreciation and amortization increased $98,000 and $256,000 for the three and
six month periods ended June 30, 2002 compared to the same period in the prior
year due to the addition of one new Gamma Knife unit in second quarter 2002,
the upgrade of one unit to a Model C, and the full six month inclusion of two
new Gamma Knife units that started in second quarter 2001. Other operating
costs increased $123,000 and $182,000 for the three and six month periods ended
June 30, 2002 compared to the same period in the prior year due to an increase
in insurance and marketing costs.

Selling and administrative costs increased $91,000 and $80,000 for the
three and six month periods ended June 30, 2002 from $772,000 and $1,581,000
for the three and six month periods ended June 30, 2001. For the three month
period this increase is primarily due to increased building rent, legal and
accounting fees, and increased sales and business development costs. For the
six month period the increase is primarily due to increased rent, legal and
accounting fees which were offset by a reduction in costs associated with the
development of the Companys new subsidiaries, OR21 and MedLeader. For the six
month period ended June 30, 2002 there was $44,000 of development costs for
these two startup businesses compared to $154,000 in the prior year.

Interest expense decreased $62,000 and $24,000 for the three and six month
periods ended June 30, 2002 from $637,000 and $1,223,000 for the three and six
month periods ended June 30, 2001. This was due in part to capitalized
interest on deposits made by the Company on future Gamma Knife units, and also
in part to lower interest expense on the debt relating to the more mature
units. The mature units have lower interest expense because interest expense
decreases as the outstanding balance of each loan is reduced. This reduction
offset the additional interest expense on the financing of the new Gamma Knife
unit during second quarter 2002.

Interest and other income decreased $79,000 and $191,000 for the three and
six month periods ended June 30, 2002 from $122,000 and $288,000 for the three
and six month periods ended June 30, 2001 primarily due to lower interest rates
on invested cash balances.

Minority interest increased $15,000 and $37,000 for the three and six
month periods ended June 30, 2002 from $163,000 and $358,000 for the three and
six month periods ended June 30, 2001 due to increased profitability of GK
Financing. Minority interest represents the 19% interest of GK Financing owned
by a third party.

7



---



##### Table of Contents



The Company recorded $35,000 and $140,000 of income tax expense for the
three and six month periods ended June 30, 2002 compared to $124,000 for the
three and six month periods ended June 30, 2001. During second quarter 2002,
the Companys 40% income tax provision was reduced by $103,000 due to an income
tax benefit that was recorded for the exercise of options to purchase 160,000
common shares. The Company recorded a 40% income tax provision in second
quarter 2001. For the six months ended June 30, 2002, there was an additional
income tax benefit of $65,000 which resulted from the exercise of options to
purchase 100,000 common shares in the first quarter. The income tax benefits
are the result of compensation expense that was recognized when these options
for common shares were granted in 1995. The Company did not begin recording an
income tax provision until second quarter 2001 due to net operating loss
carryforwards available for tax purposes.

The Company had net income of $311,000 ($0.08 per basic share) and
$631,000 ($0.17 per basic share) for the three and six month periods ended June
30, 2002 compared to net income of $186,000 ($0.05 per basic share) and
$603,000 ($0.17 per basic share) in the same period in the prior year. The
increase for both the three and six month periods ended June 30, 2002 is
primarily the result of a 14% increase in revenue and an income tax benefit due
to the exercise of options to purchase common shares in both first and second
quarter 2002. For the six month period there was also a decrease in costs
associated with MedLeader and OR21. These increases to net income were
partially offset by a reduction in interest and other income of $79,000 and
$191,000 for the three and six month periods.

Liquidity and Capital Resources

The Company had cash and cash equivalents of $10,018,000 at June 30, 2002
compared to $11,580,000 at December 31, 2001. The Companys cash position
decreased by $1,562,000 because of an increase in accounts receivable of
$345,000 primarily due to increased revenue, a reduction in accounts payable of
$525,000, deposits of $475,000 on future Gamma Knife purchases, and payment of
annual dividends of $0.12 per share ($438,000) to shareholders of record on
March 15, 2002.

The Company as of June 30, 2002 had shareholders equity of $14,044,000,
working capital of $7,988,000 and total assets of approximately $44,022,000.

The Company has scheduled interest and principal payments under its debt
obligations of approximately $7,273,000 during the next 12 months. The Company
believes that its cash flow from operations and cash resources is adequate to
meet its scheduled debt obligations during the next 12 months.

The Company is investing its cash in an institutionally priced money
market fund pending use in the Companys operations. The investment objective
of the money market fund is to maintain a stable net asset value, in order to
maximize yield while preserving principal value.

8



---



##### Table of Contents






PART II  OTHER INFORMATION













|        |  |                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|        |  | None.                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|Item 2. |  | Changes in Securities                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|        |  | None.                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|Item 3. |  | Defaults upon Senior Securities                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|        |  | None.                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|Item 4. |  | Submission of Matters to a Vote of Securities Holders                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                 
|        |  | The Companys Annual Meeting of Shareholders (Meeting) was held
on June 6, 2002. There were present in person or by proxy at said
Meeting shareholders holding 3,454,206 shares which represented
95.7% of the 3,608,203 shares outstanding and entitled to vote at
the Meeting, which represented a quorum. At the Meeting, the
shareholders:



| | 1) |  | Voted on the Election of Directors as follows:
| | -- |  | ----------------------------------------------

|                        |  |     |           |          |  |  |       | 
|----------------------- |  | --- | --------- | -------- |  |  | ----- | 
|Nominee                 |  | For |           | Withhold
|                        |  |     |           |         
|Ernest A. Bates, M.D.   |  |     | 3,445,606 |          |  |  | 8,600 | 
|Willie R. Barnes        |  |     | 3,445,606 |          |  |  | 8,600 | 
|John F. Ruffle          |  |     | 3,445,606 |          |  |  | 8,600 | 
|Stanley S. Trotman, Jr. |  |     | 3,445,206 |          |  |  | 9,000 | 
|Charles B. Wilson, M.D. |  |     | 3,445,606 |          |  |  | 8,600 | 



| |    |  | Dr. Bates, Mr. Barnes, Mr. Ruffle, Mr. Trotman and Dr. Wilson
were elected to the Board of Directors.                                                                                                      
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | Voted on the ratification of Moss Adams, LLP as
the Companys independent accountants for the year ended
December 31, 2002. There were 3,426,771 votes for, 18,945
votes against and 8,490 votes abstained.
|
| |    |  | Moss Adams, LLP was ratified as the Companys independent
accountants for the year ended December 31, 2002.                                                                                                







|        |  |                                 
|------- |  | --------------------------------
|Item 5. |  | Other Information               
|        |  |                                 
|        |  | None.                           
|        |  |                                 
|Item 6. |  | Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits                                
| | --- |  | ----------------------------------------
|
| |     |  | The following exhibit is filed herewith:

9



---



##### Table of Contents



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.39          |  | Lease Agreement for a Gamma Knife Unit dated as of July 18, 2001 between GK Financing,
LLC and Bayfront Medical Center, Inc.. (Confidential
material appearing in this document has been omitted and
filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated
under the Securities and Exchange Act of 1934, as
amended. Omitted information has been replaced with
asterisks.)

10



---



##### Table of Contents






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: August 12, 2002 |  | /s/ Ernest A. Bates                                                        
|                      |  |                                                                            
|                      |  | Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer    
|Date: August 12, 2002 |  | /s/ Craig K. Tagawa                                                        
|                      |  |                                                                            
|                      |  | Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer

11