UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549








FORM
10-Q





(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended June 30, 2010 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 1-08789


________________________





American
Shared Hospital Services


(Exact
name of registrant as specified in its charter)





California
              
              94-2918118(State
      or other jurisdiction of
              
              (IRS
      EmployerIncorporation
      or organization)
              
              Identification
      No.)





Four
      Embarcadero Center, Suite 3700, San Francisco, California
              
              94111(Address
      of Principal Executive Offices)
              
              (Zip
      Code)





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





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  ̈  No x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer”, “accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):


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





As of
August 1, 2010, there are outstanding 4,597,070 shares of the Registrant’s
common stock.







PART I -
FINANCIAL INFORMATION
 ITEM
1.      FINANCIAL STATEMENTS
 
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 (unaudited)
                  
                  
                  (audited)ASSETS
                  
                  June 30, 2010
                  
                  
                  December 31, 2009Current
      assets:Cash
      and cash equivalents
                  
                  $
                  527,000
                  
                  
                  $
                  833,000Restricted
      cash
                  
                  
                  50,000
                  
                  
                  
                  50,000Certificate
      of deposit
                  
                  
                  9,000,000
                  
                  
                  
                  9,000,000Accounts
      receivable, net of allowance for doubtful accounts of $100,000 in 2010 and
      $100,000 in 2009
                  
                  
                  4,067,000
                  
                  
                  
                  3,817,000Other
      receivables
                  
                  
                  190,000
                  
                  
                  
                  60,000Prepaid
      expenses and other assets
                  
                  
                  512,000
                  
                  
                  
                  495,000Current
      deferred tax assets
                  
                  
                  219,000
                  
                  
                  
                  219,000Total
      current assets
                  
                  
                  14,565,000
                  
                  
                  
                  14,474,000Property
      and equipment:Medical
      equipment and facilities
                  
                  
                  74,741,000
                  
                  
                  
                  73,643,000Office
      equipment
                  
                  
                  692,000
                  
                  
                  
                  692,000Deposits
      and construction in progress
                  
                  
                  5,994,000
                  
                  
                  
                  5,852,00081,427,000
                  
                  
                  
                  80,187,000Accumulated
      depreciation and amortization
                  
                  
                  (37,304,000
                  )
                  
                  
                  (36,898,000
                  )Net
      property and equipment
                  
                  
                  44,123,000
                  
                  
                  
                  43,289,000Investment
      in preferred stock
                  
                  
                  2,617,000
                  
                  
                  
                  2,617,000Other
      assets
                  
                  
                  213,000
                  
                  
                  
                  241,000Total
      assets
                  
                  $
                  61,518,000
                  
                  
                  $
                  60,621,000
 
 LIABILITIES AND
                  
                  (unaudited)
                  
                  
                  (audited)SHAREHOLDERS' EQUITY
                  
                  June 30, 2010
                  
                  
                  December 31, 2009Current
      liabilities:Accounts
      payable
                  
                  $
                  248,000
                  
                  
                  $
                  318,000Employee
      compensation and benefits
                  
                  
                  187,000
                  
                  
                  
                  199,000Other
      accrued liabilities
                  
                  
                  587,000
                  
                  
                  
                  755,000Current
      portion of long-term debt
                  
                  
                  4,279,000
                  
                  
                  
                  4,894,000Current
      portion of obligations under capital leases
                  
                  
                  2,278,000
                  
                  
                  
                  1,811,000Total
      current liabilities
                  
                  
                  7,579,000
                  
                  
                  
                  7,977,000Long-term
      debt, less current portion
                  
                  
                  10,210,000
                  
                  
                  
                  11,836,000Long-term
      capital leases, less current portion
                  
                  
                  9,394,000
                  
                  
                  
                  7,233,000Advances
      on line of credit
                  
                  
                  8,500,000
                  
                  
                  
                  7,900,000Deferred
      income taxes
                  
                  
                  2,920,000
                  
                  
                  
                  2,920,000Shareholders'
      equity:Common
      stock (4,597,000 shares at June 30, 2010 and 4,595,000 shares at December
      31, 2009)
                  
                  
                  8,606,000
                  
                  
                  
                  8,606,000Additional
      paid-in capital
                  
                  
                  4,649,000
                  
                  
                  
                  4,593,000Retained
      earnings
                  
                  
                  6,216,000
                  
                  
                  
                  6,205,000Total
      equity-American Shared Hospital Services
                  
                  
                  19,471,000
                  
                  
                  
                  19,404,000Non-controlling
      interest in subsidiary
                  
                  
                  3,444,000
                  
                  
                  
                  3,351,000Total
      shareholders' equity
                  
                  
                  22,915,000
                  
                  
                  
                  22,755,000Total
      liabilities and shareholders' equity
                  
                  $
                  61,518,000
                  
                  
                  $
                  60,621,000
 
 See
accompanying notes
  2
 
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three Months ended June 30,
                      
                      
                      Six Months ended June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Medical
      services revenue
                      
                      $
                      4,155,000
                      
                      
                      $
                      4,583,000
                      
                      
                      $
                      8,243,000
                      
                      
                      $
                      8,750,000Costs
      of revenue:Maintenance
      and supplies
                      
                      
                      446,000
                      
                      
                      
                      398,000
                      
                      
                      
                      815,000
                      
                      
                      
                      793,000Depreciation
      and amortization
                      
                      
                      1,477,000
                      
                      
                      
                      1,627,000
                      
                      
                      
                      2,961,000
                      
                      
                      
                      3,251,000Other
      direct operating costs
                      
                      
                      482,000
                      
                      
                      
                      640,000
                      
                      
                      
                      1,018,000
                      
                      
                      
                      1,191,0002,405,000
                      
                      
                      
                      2,665,000
                      
                      
                      
                      4,794,000
                      
                      
                      
                      5,235,000Gross
      Margin
                      
                      
                      1,750,000
                      
                      
                      
                      1,918,000
                      
                      
                      
                      3,449,000
                      
                      
                      
                      3,515,000Selling
      and administrative expense
                      
                      
                      1,083,000
                      
                      
                      
                      1,002,000
                      
                      
                      
                      2,144,000
                      
                      
                      
                      1,995,000Transaction
      costs
                      
                      
                      0
                      
                      
                      
                      123,000
                      
                      
                      
                      0
                      
                      
                      
                      320,000Interest
      expense
                      
                      
                      503,000
                      
                      
                      
                      529,000
                      
                      
                      
                      984,000
                      
                      
                      
                      1,012,000Operating
      income
                      
                      
                      164,000
                      
                      
                      
                      264,000
                      
                      
                      
                      321,000
                      
                      
                      
                      188,000Other
      income (expense)
                      
                      
                      31,000
                      
                      
                      
                      (18,000
                      )
                      
                      
                      62,000
                      
                      
                      
                      16,000Income
      before income taxes
                      
                      
                      195,000
                      
                      
                      
                      246,000
                      
                      
                      
                      383,000
                      
                      
                      
                      204,000Income
      tax expense (benefit)
                      
                      
                      21,000
                      
                      
                      
                      28,000
                      
                      
                      
                      32,000
                      
                      
                      
                      (65,000
                      )Net
      income
                      
                      
                      174,000
                      
                      
                      
                      218,000
                      
                      
                      
                      351,000
                      
                      
                      
                      269,000Less:
      Net income attributable to non-controlling interest
                      
                      
                      (171,000
                      )
                      
                      
                      (192,000
                      )
                      
                      
                      (340,000
                      )
                      
                      
                      (337,000
                      )Net
      income (loss) attributable to American Shared Hospital
      Services
                      
                      $
                      3,000
                      
                      
                      $
                      26,000
                      
                      
                      $
                      11,000
                      
                      
                      $
                      (68,000
                      )Net
      income (loss) per share:Earnings
      per common share - basic
                      
                      $
                      -
                      
                      
                      $
                      0.01
                      
                      
                      $
                      -
                      
                      
                      $
                      (0.01
                      )Earnings
      per common share - assuming dilution
                      
                      $
                      -
                      
                      
                      $
                      0.01
                      
                      
                      $
                      -
                      
                      
                      $
                      (0.01
                      )
 
 See
accompanying notes
  3
 
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
  PERIODS ENDED DECEMBER 31, 2008 AND 2009 AND JUNE 30, 2010Additional
                      
                      
                      
                      
                      
                      
                      
                      
                      Non-controllingCommon
                      
                      
                      Common
                      
                      
                      Paid-in
                      
                      
                      Retained
                      
                      
                      Sub-Total
                      
                      
                      Interest inShares
                      
                      
                      Stock
                      
                      
                      Capital
                      
                      
                      Earnings
                      
                      
                      ASHS
                      
                      
                      Subsidiary
                      
                      
                      TotalBalances
      at January 1, 2008 (audited)
                      
                      
                      5,026,000
                      
                      
                      $
                      9,320,000
                      
                      
                      $
                      4,304,000
                      
                      
                      $
                      5,916,000
                      
                      
                      $
                      19,540,000
                      
                      
                      $
                      3,153,000
                      
                      
                      $
                      22,693,000Repurchase
      of common stock
                      
                      
                      (316,000
                      )
                      
                      
                      (443,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (443,000
                      )
                      
                      
                      -
                      
                      
                      
                      (443,000
                      )Stock
      based compensation expense
                      
                      
                      2,000
                      
                      
                      
                      -
                      
                      
                      
                      137,000
                      
                      
                      
                      -
                      
                      
                      
                      137,000
                      
                      
                      
                      -
                      
                      
                      
                      137,000True-up
      tax benefit from share-based payment arrangements
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      17,000
                      
                      
                      
                      -
                      
                      
                      
                      17,000
                      
                      
                      
                      -
                      
                      
                      
                      17,000Cash
      distributions to non-controlling interest
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (798,000
                      )
                      
                      
                      (798,000
                      )Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      477,000
                      
                      
                      
                      477,000
                      
                      
                      
                      855,000
                      
                      
                      
                      1,332,000Balances
      at December 31, 2008 (audited)
                      
                      
                      4,712,000
                      
                      
                      
                      8,877,000
                      
                      
                      
                      4,458,000
                      
                      
                      
                      6,393,000
                      
                      
                      
                      19,728,000
                      
                      
                      
                      3,210,000
                      
                      
                      
                      22,938,000Repurchase
      of common stock
                      
                      
                      (119,000
                      )
                      
                      
                      (271,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (271,000
                      )
                      
                      
                      -
                      
                      
                      
                      (271,000
                      )Stock
      based compensation expense
                      
                      
                      2,000
                      
                      
                      
                      -
                      
                      
                      
                      135,000
                      
                      
                      
                      -
                      
                      
                      
                      135,000
                      
                      
                      
                      -
                      
                      
                      
                      135,000Cash
      distributions to non-controlling interest
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (513,000
                      )
                      
                      
                      (513,000
                      )Net
      income (loss)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (188,000
                      )
                      
                      
                      (188,000
                      )
                      
                      
                      654,000
                      
                      
                      
                      466,000Balances
      at December 31, 2009 (audited)
                      
                      
                      4,595,000
                      
                      
                      
                      8,606,000
                      
                      
                      
                      4,593,000
                      
                      
                      
                      6,205,000
                      
                      
                      
                      19,404,000
                      
                      
                      
                      3,351,000
                      
                      
                      
                      22,755,000Stock
      based compensation expense
                      
                      
                      2,000
                      
                      
                      
                      -
                      
                      
                      
                      56,000
                      
                      
                      
                      -
                      
                      
                      
                      56,000
                      
                      
                      
                      -
                      
                      
                      
                      56,000Cash
      distributions to non-controlling interest
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (247,000
                      )
                      
                      
                      (247,000
                      )Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,000
                      
                      
                      
                      11,000
                      
                      
                      
                      340,000
                      
                      
                      
                      351,000Balances
      at June 30, 2010 (unaudited)
                      
                      
                      4,597,000
                      
                      
                      $
                      8,606,000
                      
                      
                      $
                      4,649,000
                      
                      
                      $
                      6,216,000
                      
                      
                      $
                      19,471,000
                      
                      
                      $
                      3,444,000
                      
                      
                      $
                      22,915,000
 
 See
accompanying notes
  4
 
 AMERICAN
SHARED HOSPITAL SERVICES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Six Months ended June 30,2010
                  
                  
                  2009Operating
      activities:Net
      income
                  
                  $
                  351,000
                  
                  
                  $
                  269,000Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization
                  
                  
                  3,021,000
                  
                  
                  
                  3,298,000Stock
      based compensation expense
                  
                  
                  56,000
                  
                  
                  
                  68,000Changes
      in operating assets and liabilities:Receivables
                  
                  
                  (380,000
                  )
                  
                  
                  304,000Prepaid
      expenses and other assets
                  
                  
                  (17,000
                  )
                  
                  
                  (128,000
                  )Accounts
      payable and accrued liabilities
                  
                  
                  (250,000
                  )
                  
                  
                  13,000Net
      cash from operating activities
                  
                  
                  2,781,000
                  
                  
                  
                  3,824,000Investing
      activities:Payment
      for purchase of property and equipment
                  
                  
                  (249,000
                  )
                  
                  
                  (614,000
                  )Net
      cash from investing activities
                  
                  
                  (249,000
                  )
                  
                  
                  (614,000
                  )Financing
      activities:Cash
      distribution to non-controlling interest
                  
                  
                  (247,000
                  )
                  
                  
                  (209,000
                  )Advances
      on line of credit
                  
                  
                  600,000
                  
                  
                  
                  1,000,000Stock
      repurchase
                  
                  
                  -
                  
                  
                  
                  (94,000
                  )Principal
      payments on capital leases
                  
                  
                  (950,000
                  )
                  
                  
                  (798,000
                  )Principal
      payments on long-term debt
                  
                  
                  (2,241,000
                  )
                  
                  
                  (3,534,000
                  )Net
      cash from financing activities
                  
                  
                  (2,838,000
                  )
                  
                  
                  (3,635,000
                  )Net
      change in cash and cash equivalents
                  
                  
                  (306,000
                  )
                  
                  
                  (425,000
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  833,000
                  
                  
                  
                  10,286,000Cash
      and cash equivalents at end of period
                  
                  $
                  527,000
                  
                  
                  $
                  9,861,000Supplemental
      cash flow disclosure:Cash
      paid during the period for:Interest
                  
                  $
                  1,188,000
                  
                  
                  $
                  1,074,000Income
      taxes
                  
                  $
                  53,000
                  
                  
                  $
                  51,000Schedule
      of non-cash investing and financing activitiesAcquisition
      of equipment with capital lease financing
                  
                  $
                  3,578,000
                  
                  
                  $
                  4,715,000
 
 See
accompanying notes
  5




AMERICAN
SHARED HOSPITAL SERVICES


NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




Note
1.             Basis
of Presentation





In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly American Shared Hospital
Services’ consolidated financial position as of June 30, 2010 and the results of
its operations for the three and six month periods ended June 30, 2010 and 2009,
which results are not necessarily indicative of results on an annualized
basis.  Consolidated balance sheet amounts as of December 31, 2009
have been derived from audited financial statements.





These
unaudited consolidated financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 2009 included
in the Company’s 10-K filed with the Securities and Exchange
Commission.





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





The
Company through its majority-owned subsidiary, GK Financing, provided Gamma
Knife units to nineteen medical centers as of June 30, 2010 in Arkansas,
California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada,
New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Pennsylvania, Texas
and Wisconsin.





The
Company also directly provides radiation therapy and related equipment,
including Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation
Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an
existing Gamma Knife site.





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





Note
2.             Per
Share Amounts





Per share
information has been computed based on the weighted average number of common
shares and dilutive common share equivalents outstanding.  For the
three and six months ended June 30, 2010 basic earnings per share was computed
using 4,597,000 and 4,595,000 common shares, respectively, and diluted earnings
per share was computed using 4,607,000 and 4,603,000 common shares and
equivalents, respectively.  For the three and six months ended June
30, 2009 basic earnings per share was computed using 4,688,000 and 4,699,000
common shares, respectively, and diluted earnings per share was computed using
4,690,000 and 4,699,000 common shares and equivalents,
respectively.


6





The
computation for the three and six month periods ended June 30, 2010 excluded
approximately 360,000 of the Company’s stock options because the exercise price
of the options was higher than the average market price during the
quarter.  The computation for the three month period ended June 30,
2009 excluded approximately 591,000 of the Company’s stock options because the
exercise price of the options was higher than the average market price during
the quarter.  The computation for the six month period ended June 30,
2009 excluded all stock options issued since the effect of including them would
be anti-dilutive because of the net loss.





Note
3.             Stock-based
Compensation





On June
2, 2010, the Company’s shareholders approved an amendment and restatement of the
2006 Stock Incentive Plan (the “2006 Plan”). Among other things, the amendment
and restatement increased the number of shares of the Company’s common stock
reserved for issuance under the 2006 Plan by an additional 880,000 shares from
750,000 shares to 1,630,000 shares.  The shares are reserved for
issuance to officers of the Company, other key employees, non-employee
directors, and advisors.  The 2006 Plan serves as successor to the
Company’s previous two stock-based employee compensation plans, the 1995 and
2001 Stock Option Plans.  The shares reserved under those two plans,
including the shares of common stock subject to currently outstanding options
under the plans, were transferred to the 2006 Plan, and no further grants or
share issuances will be made under the 1995 and 2001 Plans.  Under the
2006 Plan, there are 2,000 restricted stock units granted, consisting of annual
automatic grants to non-employee directors, and approximately 600,000 options
granted, of which approximately 359,000 options are vested, as of June 30,
2010.





Compensation
expense associated with the Company’s stock-based awards to employees is
calculated using the Black-Scholes valuation model.  The Company’s
stock-based awards have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can materially
affect the present value estimates.  The estimated fair value of the
Company’s option grants is estimated using assumptions for expected life,
volatility, dividend yield, and risk-free interest rate which are specific to
each award.  The estimated fair value of the Company’s options is
amortized over the period during which an employee is required to provide
service in exchange for the award, usually the vesting
period.  Accordingly, stock-based compensation cost before income tax
effect in the amount of approximately $28,000 and $56,000 is reflected in net
income for the three and six month periods ended June 30, 2010, respectively,
compared to approximately $35,000 and $68,000 in the same periods in the prior
year.  There were approximately 11,000 options issued and no options
exercised during the three month period ended June 30, 2010.  There
were no excess tax benefits to report.





Note
4.             Convertible
Preferred Stock Investment





As of
June 30, 2010 the Company has a $2,617,000 investment in the convertible
preferred stock (“Preferred Stock”) of Still River Systems, Inc. (“Still
River”), representing an approximate 1.8% interest in Still
River.  The Company accounts for this investment under the cost
method.


7





The
Preferred Stock is convertible at any time at the option of the holder into
shares of common stock of Still River at a conversion price, initially set at
the original purchase price, but subject to certain adjustments including an
anti-dilutive multiplier.  The Preferred Stock has voting rights
equivalent to the number of common stock shares into which it is convertible,
and holders of the Preferred Stock, subject to certain exceptions, have a
pro-rata right to participate in subsequent stock offerings.  In the
event of liquidation, dissolution, or winding up of Still River, the Preferred
Stock holders have preference to the holders of common stock, and any other
class or series of stock that is junior to the Preferred Stock.The Company does
not have the right to appoint a member of the Board of Directors of Still
River.





The Company carries its investment in
Still River at cost and reviews it for impairment on a quarterly basis, or as
events or circumstances might indicate that the carrying value of the investment
may not be recoverable.  The Company evaluated this investment for
impairment at December 31, 2009 and reviewed it at June 30, 2010 in light of
both current market conditions and the ongoing needs of Still River to raise
cash to continue its development of the first compact, single room PBRT
system.




During the first quarter of 2009, Still
River proposed a Series D round of financing to raise cash, which it was able to
do, but at a per share price lower than the Company’s cost basis
investment.  The Company calculated that, based on the Series D
funding, there is an unrealized loss of approximately $1.2 million compared to
the Company’s cost of its investment.  However, based on its analysis,
the Company believes that this investment is only temporarily
impaired.  The Company believes that this is a temporary situation
brought on solely due to the worldwide economic downturn, and is not a
reflection on the progress or viability of Still River or its PBRT design, and
believes that its investment in Still River is temporarily
impaired.  It is the Company’s intent to hold this investment for a
reasonable period of time sufficient for a recovery of the investment’s fair
value; therefore the Company does not consider this investment to be
other-than-temporarily impaired at June 30, 2010.




Note
5.             Line
of Credit




The Company amended its line of credit
with the Bank of America (the “Bank”), which was increased from $8,000,000 to
$9,000,000 and extended for a two year period on August 1, 2009.  The
line of credit is drawn on from time to time as needed for equipment purchases
and working capital.  Amounts drawn against the line of credit are at
an interest rate per year equal to the Bank’s Prime Rate, or alternately the
LIBOR rate plus 1.50 percentage points, and are secured by the Company’s cash
invested with the Bank.  The weighted average interest rate during the
first six months of 2010 was 1.98%.  At June 30, 2010, $8,500,000 was
borrowed against the line of credit.





Note
6.             Fair
Value of Financial Instruments





The carrying value of financial
instruments including cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and other accrued liabilities approximated their
fair value as of June 30, 2010 and December 31, 2009 because of the relatively
short maturity of these instruments.  The fair value of the Company’s
various debt obligations, discounted at currently available interest rates was
approximately $26,117,000 and $25,746,000 at June 30, 2010 and December 31,
2009, respectively.


8





Note
7.             Repurchase
of Common Stock





In 1999 and 2001, the Board of
Directors approved resolutions authorizing the Company to repurchase up to a
total of 1,000,000 shares of its own stock on the open market, and in 2008 the
Board reaffirmed this authorization.  The Company did not repurchase
any of its stock during the first six months of 2010, but repurchased
approximately 119,000 shares of its stock during 2009.  There are
approximately 81,000 shares remaining under this repurchase
authorization.





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





This
quarterly report to the Securities and Exchange Commission may be deemed to
contain certain forward-looking statements with respect to the financial
condition, results of operations and future plans of American Shared Hospital
Services, which involve risks and uncertainties including, but not limited to,
the risks of the Gamma Knife and radiation therapy businesses, the risks of
developing The Operating Room for the 21st
Century® program, and the risks of investing in a development-stage company,
Still River Systems, Inc. (“Still River”), without a proven
product.  Further information on potential factors that could affect
the financial condition, results of operations and future plans of American
Shared Hospital Services is included in the filings of the Company with the
Securities and Exchange Commission, including the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009 and the definitive Proxy
Statement for the Annual Meeting of Shareholders held on June 2,
2010.





The
Company had nineteen Gamma Knife units in operation at both June 30, 2010 and
June 30, 2009.  Fourteen of the Company’s nineteen current Gamma Knife
customers are under fee-per-use contracts, and five customers are under retail
arrangements.  The Company’s contract to provide additional radiation
therapy and related equipment services to an existing Gamma Knife customer is
considered a retail arrangement.  Retail arrangements are further
classified as either turn-key or revenue sharing.  Revenue from fee
per use contracts is recorded on a gross basis as determined by each hospital’s
contracted rate.  Under turn-key arrangements, the Company receives
payment from the hospital in the amount of its reimbursement from third party
payors, and is responsible for paying all the operating costs of the
equipment.  Revenue is recorded on a gross basis and estimated based
on historical experience and hospital contracts with third party
payors.  For revenue sharing arrangements the Company receives a
contracted percentage of the reimbursement received by the
hospital.  The gross amount the Company expects to receive is recorded
as revenue and estimated based on historical experience.


9





Medical
services revenue decreased by $428,000 and $507,000 to $4,155,000 and $8,243,000
for the three and six month periods ended June 30, 2010 from $4,583,000 and
$8,750,000 for the three and six month periods ended June 30, 2009,
respectively.  The decreases for both the three and six month periods
are primarily due to a shift in Gamma Knife volume to sites with relatively
lower payment rates per procedure compared to the same periods in the prior
year.  As a result, revenue from Gamma Knife operations decreased by
$388,000 and $424,000 to $3,875,000 and $7,663,000 for the three and six month
periods ended June 30, 2010 from $4,263,000 and $8,087,000 in the prior periods
respectively.  In addition, revenue from the Company’s radiation
therapy contract decreased by $40,000 and $83,000 to $280,000 and $580,000 for
the three and six month periods ended June 30, 2010 from $320,000 and $663,000
due to lower volume at that site.





The number of Gamma Knife procedures
decreased by 3 and increased by 4 to 464 and 902 for the three and six month
periods ended June 30, 2010 from 467 and 898 in the same periods in the prior
year, respectively.  For both the three and six month periods,
decreases in the number of procedures performed at four of the Company’s
historically higher volume sites were offset by volume increases at most of the
remaining sites.





Total
costs of revenue decreased by $260,000 and $441,000 to $2,405,000 and $4,794,000
for the three and six month periods ended June 30, 2010 from $2,665,000 and
$5,235,000 for the three and six month periods ended June 30,
2009.  Maintenance and supplies increased by $48,000 and $22,000 for
the three and six month periods ended June 30, 2010 compared to the same periods
in the prior year, primarily due to higher costs for repairs and maintenance
that were not covered by maintenance contracts.  Depreciation and
amortization decreased by $150,000 and $290,000 for the three and six month
periods ended June 30, 2010 compared to the same periods in the prior
year.  The decrease for both the three and six month periods is
primarily due to a change in the asset life of one Gamma Knife unit because the
contract with the customer was extended.  In addition, depreciation on
three other units ended because the remaining value of the equipment had reached
salvage value.  Other direct operating costs decreased by $158,000 and
$173,000 for the three and six month periods ended June 30, 2010 compared to the
same periods in the prior year.  For both the three and six month
periods, the decrease is primarily due to lower marketing costs, insurance
expense and operating costs in connection with the Company’s retail sites,
partially offset by higher property taxes and other taxes.





Selling
and administrative costs increased by $81,000 and $149,000 to $1,083,000 and
$2,144,000 for the three and six month periods ended June 30, 2010 from
$1,002,000 and $1,995,000 for the same periods in the prior year,
respectively.  For both the three and six month periods, this increase
was primarily due to higher legal fees in connection with developing new
business, partially offset by lower payroll costs.





There
were no transaction costs during the three and six month periods ended June 30,
2010 compared to $123,000 and $320,000 for the three and six month periods ended
June 30, 2009.  The transaction costs in 2009 were legal, accounting,
investment banking and other costs related to discussions the Company had with
two parties concerning the possible sale of its 81% interest in GKF, one of
which provided indicative pricing that would have been attractive to the Company
if it were to sell its interest in GK Financing.  In May 2009, the
Company announced that the parties failed to reach an agreement and that the
negotiations had terminated.


10





Interest
expense decreased by $26,000 and $28,000 to $503,000 and $984,000 for the three
and six month periods ended June 30, 2010 from $529,000 and $1,012,000 for the
three and six month periods ended June 30, 2009, respectively.  For
both the three and six month periods, this was primarily due to lower interest
expense on debt relating to the more mature Gamma Knife units, partially offset
by increased interest expense from new financing obtained on two Gamma Knife
units in 2009 and financing on another new Gamma Knife unit in second quarter
2010.  The more mature units have lower interest expense because
interest expense decreases as the outstanding principal balance of each loan is
reduced.  For the six month period the decrease was partially offset
by increased interest expense on the Company’s line of credit with a bank and
other interest.





Other
income (expense) increased by $49,000 to income of $31,000 for the three month
period ended June 30, 2010 from expense of $18,000 for the same period in the
prior year, and increased $46,000 to income of $62,000 for the six month period
from income of $16,000 for the same period in the prior
year.   The increase for both the three and six month periods was
primarily due to an increase in interest income as a result of higher interest
rates available on invested cash balances.  In addition, for the three
and six month periods ended June 30, 2009 there was also a cost of approximately
$20,000 from the early extinguishment of debt.





The
Company had income tax expense of $21,000 and $32,000 for the three and six
month periods ended June 30, 2010 compared to income tax expense of $28,000 and
an income tax benefit of $65,000 for the three and six month periods ended June
30, 2009, respectively.  For the three month period ended June 30,
2010, this decrease is due to a decrease in income before income taxes to
$195,000 compared to income before income taxes of $246,000 in the same period
in 2009.  For the six month period, this increase is due to an
increase in income before income taxes to $383,000 compared to income before
income taxes of $204,000 for the same period in 2009.  Based on the
Company’s current estimated effective income tax rate for 2010, a 76% income tax
provision was applied to net income before income taxes and net income
attributable to non-controlling interest, compared to a 49% rate applied in 2009
which resulted in an income tax benefit.  The Company’s effective
income tax rate is higher than the expected statutory federal and state income
tax rates at a consolidated level, primarily due to higher income at the
Company’s subsidiary levels in certain states where there are separate state
income tax filing requirements.





Net
income attributable to non-controlling interest decreased by $21,000 and
increased by $3,000 to $171,000 and $340,000 for the three and six month periods
ended June 30, 2010 from $192,000 and $337,000 for the three and six month
periods ended June 30, 2009, due to changes in the profitability of GK
Financing.  Non-controlling interest represents the 19% interest of GK
Financing owned by a third party.





The
Company had net income of $3,000, or $0.00 per diluted share, and $11,000, or
$0.00 per diluted share, for the three and six month periods ended June 30,
2010, compared to net income of $26,000, or $0.01 per diluted share, and a net
loss of $68,000, or ($0.01) per diluted share, in the same periods in the prior
year, respectively.  The decrease for the three month period was
primarily due to reduced medical services revenue, partially offset by lower
costs of revenue and no transaction costs compared to the prior
year.  The increase for the six month period was primarily due to
reduced costs of revenue and no transaction costs compared to the prior year,
partially offset by lower medical services revenue, higher selling and
administrative costs and increased income tax expense.


11


Liquidity
and Capital Resources





The
Company had cash and cash equivalents of $527,000 at June 30, 2010 compared to
$833,000 at December 31, 2009.  The Company’s cash position decreased
by $306,000 due to payments for the purchase of property and equipment of
$249,000, principal payments on long term debt and capital leases of $3,191,000
and distributions to minority owners of $247,000.  These decreases
were partially offset by net cash from operating activities of $2,781,000 and
advances on the Company’s line of credit with a bank of $600,000.





As of
June 30, 2010, the Company has a $9,000,000 principal investment in a
certificate of deposit with a bank with an interest rate of 1.39% and a maturity
date in August 2010.





The
Company has a two year renewable $9,000,000 line of credit with a bank,
available as needed for equipment purchases and working
capital.  Amounts drawn against the line of credit are secured by the
Company’s cash invested with the bank.  At June 30, 2010 there was
$8,500,000 drawn against the line of credit.





The
Company has scheduled interest and principal payments under its debt obligations
of approximately $4,963,000 and scheduled capital lease payments of
approximately $3,720,000 during the next 12 months.  The Company
believes that its cash flow from operations and cash resources are adequate to
meet its scheduled debt and capital lease obligations during the next 12
months.





The
Company as of June 30, 2010 had shareholders’ equity of $22,915,000, working
capital of $6,986,000 and total assets of approximately
$61,518,000.





Commitments




The
Company has a $2,617,000 preferred stock investment in Still River Systems,
Inc., a development stage company, which is considered a long-term investment on
the balance sheet and is recorded at cost.As of June 30, 2010, the
Company also has $2,250,000 in deposits toward the purchase of three Monarch250
proton beam radiation therapy (PBRT) systems from Still River.  For
the first two machines, the Company has a commitment to total deposits of
$3,000,000 per machine until FDA approval is received, at which time the
remaining balance is committed.  The delivery dates for the first two
machines are anticipated to be in 2012.  For the third machine, the
Company has a commitment to total deposits of $500,000 until FDA approval is
received, at which time the remaining balance is committed.  The
Company has entered into an agreement with a radiation oncology physician group,
which has contributed $50,000 towards the deposits on the third
machine.  The Still River PBRT system is not commercially proven and
there is no assurance FDA approval will be received.




The
Company has made deposits totaling $2,345,000 towards the purchase of a Gamma
Knife Perfexion unit at a site still to be determined, a Perfexion unit to be
installed at an existing Gamma Knife site in third quarter 2010, and an LGK
Model 4 Gamma Knife, expected to be installed in late 2010 or early 2011 at a
new customer site.


12




Including
the commitments for the three Monarch250 systems, the two Perfexion units and
the LGK Model 4 Gamma Knife, the Company has total remaining commitments to
purchase equipment in the amount of approximately $43,000,000.  It is
the Company’s intent to finance these purchase commitments as needed, and has
obtained financing for the Gamma Knife Perfexion unit projected to be installed
in the third quarter 2010.  However, due to the economic and credit
market conditions in recent months, it has been more difficult to obtain
financing for the Company’s projects.  The Company expects that it
will not receive financing commitments from a lender for its PBRT systems until
Still River obtains FDA approval on the Monarch250.  As such, there
can be no assurance that financing will be available for the Company’s current
or future projects, or at terms that are acceptable to the Company.





Impairment
Evaluation of Still River





The Company carries its investment in
Still River at cost and reviews it for impairment on a quarterly basis, or as
events or circumstances might indicate that the carrying value of the investment
may not be recoverable.  The Company evaluated this investment for
impairment at December 31, 2009 and reviewed it at June 30, 2010 in light of
both current market conditions and the ongoing needs of Still River to raise
cash to continue its development of the first compact, single room PBRT
system.




During the first quarter of 2009, Still
River proposed a Series D round of financing to raise cash, which it was able to
do, but at a per share price lower than the Company’s cost basis
investment.  The Company calculated that, based on the Series D
funding, there is an unrealized loss of approximately $1.2 million compared to
the Company’s cost of its investment.  However, based on its analysis,
the Company believes that this investment is only temporarily
impaired.  It is the Company’s intent to hold this investment for a
reasonable period of time sufficient for a recovery of the investment’s fair
value; therefore the Company does not consider this investment to be
other-than-temporarily impaired at June 30, 2010, based in part on the
following:




·
            Still
      River’s single room PBRT concept and design, although a departure from the
      large scale three and four room PBRT systems on the market, is based on
      the existing principle of generating protons from a cyclotron. Still
      River, through design innovations and advances in magnet technology, has
      made the cyclotron more compact such that it can be mounted on the
      gantry.


·
            A
      gantry mounted cyclotron, although appearing to be revolutionary, has in
      fact been done previously.  A neutron generating gantry mounted
      cyclotron has successfully treated patients for over ten years at one
      medical center in the United
States.


·
            Still
      River’s development approach for the Monarch250 has been to integrate as
      many commercially existing components as possible into the
      Monarch250.  The patient couch, CT imaging and treatment
      planning software are all commercially available and will be integrated
      into the Monarch250.


·
            Still
      River has hired engineers and staff with many years of accelerator and
      proton beam experience, including personnel with prior experience at MIT’s
      Plasma Fusion Lab and one of Still River’s proton beam
      competitors.


13





·
            Still
      River has built the first three units of the magnet and other cyclotron
      subsystems, has completed the manufacture/assembly of the gantry system,
      and demonstrated integrated software control of all cyclotron operations
      on the prototype unit.


·
            The
      outer gantry system has been installed at the first site, with final
      installation of the prototype unit projected to be completed in early
      2011.


·
            Still
      River completed and passed the cold mass test on the prototype unit in
      2009 and completed the beam extraction test during second quarter
      2010.  Both the cold mass test and beam extraction test are
      considered major milestones and an integral part of the process towards
      gaining FDA approval.


·
            Although
      there were some minor problems during some of the tests that were quickly
      rectified, they caused delays in the scheduled delivery of the first
      unit.  As a result, the Company’s expected delivery of its two
      units has also been delayed.  However, minor problems such as
      these are expected in a new technology, and do not affect the Company’s
      position on the viability of Still River
  technology.


·
            A
      respected physicist was hired by the Company as a third party consultant
      to perform a technical review of this project, and continues to make
      periodic reviews of Still River’s progress at the request of the
      Company.  His discussions with Still River’s chief technology
      officer indicated that the delays encountered have at times resulted in
      modifications being required, but the modifications were not significant,
      and he believes that development of the PBRT machine will be completed
      according to Still River’s timeline.  The consultant was not
      engaged to analyze Still River’s financial
  condition.


·
            In
      spite of the uncertain economic climate and a limited number of potential
      investors, with the Series D offering, Still River was still able to raise
      the cash required to continue its operations, and was able to add two new
      major investors.  Still River also raised additional funding
      under the Series D offering in second quarter 2010.  The Company
      chose not to invest in this additional
funding.


·
            Based
      on ongoing discussions with Still River management and regular review of
      their financial statements and cash flow projections, the Company believes
      that Still River will have adequate cash flow to continue development of
      the system.  Still River, as a development stage company
      manufacturing its first product, continuously analyzes its cash
      requirements.  Due to the high level of interest in more compact
      and lower cost proton beam radiation therapy devices, Still River has been
      able to attract funding from financially significant and highly
      sophisticated investors, such as Caxton Health and Life Sciences, Venrock
      Associates and CHL Medical Partners.  Still River is prepared,
      as required, to raise additional funds as its needs
    dictates.


·
            In
      recent months Still River added a new CEO, strengthening its management
      depth, and with the new investors, increased its board strength as
      well.  Independent board members consist of the
      following:  Robert Wilson, Former Vice Chairman of Johnson and
      Johnson; Peter P. D’Angelo, President, Caxton Associates; Dr. Anders Hove,
      MD, Partner, Venrock Associates; Dr. Myles D. Greenberg, MD, General
      Partner, CHL Medical Partners; Dr. Jay Rao, MD, JD, Portfolio Manager,
      Green Arrow Capital Management; and Mr. Paul Volcker, Former Chairman,
      United States Federal Reserve.


·
            Still
      River currently has deposits from 15 sites to install the Monarch250
      system.


14




The
estimated recovery period is anticipated to occur subsequent to the first
system’s clinical treatment of patients, which would shortly follow obtaining
FDA approval.  The treatment of patients is anticipated to begin by
late 2011.  The Company has the intent and the ability to maintain its
investment in Still River until at least these milestones are met.





Item
3.             Quantitative
and Qualitative Disclosures About Market Risk





The Company does not hold or issue
derivative instruments for trading purposes and is not a party to any
instruments with leverage or prepayment features.  The Company does
not have affiliation with partnerships, trust or other entities whose purpose is
to facilitate off-balance sheet financial transactions or similar
arrangements,and
therefore has no exposure to the financing, liquidity, market or credit risks
associated with such entities.  At June 30, 2010 the Company had no
significant long-term, market-sensitive investments.





Item
4.             Controls
and Procedures





Under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of
1934.  These controls and procedures are designed to ensure that
material information relating to the company and its subsidiaries is
communicated to the chief executive officer and the chief financial
officer.  Based on that evaluation, our chief executive officer and
our chief financial officer concluded that, as of June 30, 2010, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is accumulated and communicated to the chief executive officer and
the chief financial officer, and recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Act is accumulated and communicated to the issuer’s management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.





There
were no changes in our internal control over financial reporting during the
three months ended June 30, 2010, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





PART
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.None.




15




Item
      1A.
            Risk
      FactorsThere
      are no changes from those listed in the Company’s Annual Report on Form
      10-K for the year ended December 31, 2009.Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds.None.Item
      3.
            Defaults
      Upon Senior Securities.None.Item
      4.
            Removed and
      Reserved.Item
      5.
            Other
      Information.None.Item
      6.
            Exhibits.(a)
            ExhibitsThe
      following exhibits are filed
herewith:





10.19c
            Second
      Amendment to Lease Agreement for a Gamma Knife unit effective as of May
      15, 2009 between GK Financing, LLC and Yale-New Haven Hospital, Inc.
      a/k/a Yale-New Haven Hospital (Confidential material appearing in
      this document has been omitted and filed separately with the Securities
      and Exchange Commission in accordance with Rule 24b-2, promulgated under
      the Securities and Exchange Act of 1934, as amended. Omitted information
      has been replaced with asterisks.)10.23c
            Amendment
      Three to Lease Agreement for a Gamma Knife unit effective as of June 11,
      2010 between GK Financing, LLC and the Board of Trustees of The University
      of Arkansas on behalf of the University of Arkansas for Medical
      Sciences.10.58
            Addendum
      Three to Lease Agreement for a Gamma Knife unit effective as of June 20,
      2007 between GK Financing, LLC and Sunrise Hospital and Medical
      Center, LLC (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.)




16





10.59
            Addendum
      Four to Lease Agreement for a Gamma Knife unit effective as of February 8,
      2010 between GK Financing, LLC and Sunrise Hospital and Medical
      Center, LLC (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.)31.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
            Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.


17


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
      16, 2010
            /s/ Ernest A. Bates,
M.D.Ernest
      A. Bates, M.D.Chairman
      of the Board and Chief Executive OfficerDate:  August
      16, 2010
            /s/ Craig K. TagawaCraig
      K. TagawaSenior
      Vice PresidentChief
      Operating and Financial Officer




18