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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
   FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to. Commission file number 1-8789   American Shared Hospital Services (Exact name of registrant as specified in its charter)
 California
    
    94-2918118(State or other jurisdiction of
Incorporation or organization)
    
    (IRS Employer
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 x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Securities Exchange Act Rule 12b-2). Yes o No x As of May 3, 2004, there are outstanding 3,950,173 shares of the Registrants
common stock.




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal Proceedings.Item 2. Changes in Securities and Use of Proceeds.Item 3. Defaults Upon Senior Securities.Item 4. Submission of Matters to a Vote of Securities Holders.Item 5. Other Information.Item 6. Exhibits and Reports on Form 8-K.SIGNATURESEXHIBIT INDEXEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1    Table of Contents  
 PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
    
    (audited)ASSETS
    
    Mar. 31, 2004
    
    Dec. 31, 2003Current assets:Cash and cash equivalents
    
    $
    10,062,000
    
    
    $
    10,312,000Restricted cash
    
    
    50,000
    
    
    
    50,000Accounts receivable, net of allowance for
doubtful accounts of $170,000 in 2004
and $170,000 in 2003
    
    
    2,431,000
    
    
    
    2,467,000Prepaid expenses and other assets
    
    
    620,000
    
    
    
    473,000Total current assets
    
    
    13,163,000
    
    
    
    13,302,000Property and equipment:Medical equipment and facilities
    
    
    46,839,000
    
    
    
    46,072,000Office equipment
    
    
    452,000
    
    
    
    430,000Deposits and construction in progress
    
    
    850,000
    
    
    
    1,463,00048,141,000
    
    
    
    47,965,000Accumulated depreciation and
amortization
    
    
    (16,328,000
    )
    
    
    (15,137,000
    )Net property & equipment
    
    
    31,813,000
    
    
    
    32,828,000Other assets
    
    
    167,000
    
    
    
    174,000Total assets
    
    $
    45,143,000
    
    
    $
    46,304,000
 LIABILITIES AND
    
    (unaudited)
    
    (audited)SHAREHOLDERS EQUITY
    
    Mar. 31, 2004
    
    Dec. 31, 2003Current liabilities:Accounts payable
    
    $
    224,000
    
    
    $
    371,000Accrued interest
    
    
    158,000
    
    
    
    145,000Employee compensation and benefits
    
    
    128,000
    
    
    
    126,000Other accrued liabilities
    
    
    654,000
    
    
    
    539,000Income taxes payable
    
    
    50,000
    
    
    
    50,000Current portion of long-term debt
    
    
    6,873,000
    
    
    
    6,803,000Total current liabilities
    
    
    8,087,000
    
    
    
    8,034,000Long-term debt, less current portion
    
    
    18,353,000
    
    
    
    20,114,000Deferred income taxes
    
    
    1,197,000
    
    
    
    1,096,000Minority interest
    
    
    1,944,000
    
    
    
    1,731,000Shareholders equity:Common stock, without par value:authorized shares - 10,000,000; issued
& outstanding shares, 3,950,173 in 2004
and 3,918,203 in 2003
    
    
    9,210,000
    
    
    
    9,198,000Additional paid-in capital
    
    
    3,469,000
    
    
    
    3,461,000Retained earnings
    
    
    2,883,000
    
    
    
    2,670,000Total shareholders equity
    
    
    15,562,000
    
    
    
    15,329,000Total liabilities and shareholders equity
    
    $
    45,143,000
    
    
    $
    46,304,000
 See accompanying notes 2




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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three Months ended March 31,2004
    
    2003Revenues:Medical services
    
    $
    4,229,000
    
    
    $
    3,669,000Costs and expenses:Costs of operations:Maintenance and supplies
    
    
    203,000
    
    
    
    145,000Depreciation and amortization
    
    
    1,178,000
    
    
    
    940,000Other direct operating costs
    
    
    653,000
    
    
    
    450,0002,034,000
    
    
    
    1,535,000Selling and administrative
    
    
    766,000
    
    
    
    826,000Interest
    
    
    612,000
    
    
    
    581,000Total costs and expenses
    
    
    3,412,000
    
    
    
    2,942,000Operating income
    
    
    817,000
    
    
    
    727,000Interest and other income
    
    
    23,000
    
    
    
    44,000Minority interest
    
    
    (251,000
    )
    
    
    (238,000
    )Income before income taxes
    
    
    589,000
    
    
    
    533,000Income tax expense
    
    
    219,000
    
    
    
    197,000Net income
    
    $
    370,000
    
    
    $
    336,000Net income per share:Earnings per common share  basic
    
    $
    0.09
    
    
    $
    0.09Earnings per common share  assuming dilution
    
    $
    0.07
    
    
    $
    0.07
 See accompanying notes 3




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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months ended March 31,2004
    
    2003Operating activities:Net income
    
    $
    370,000
    
    
    $
    336,000Adjustments to reconcile net cash provided by operating activities:Depreciation and amortization
    
    
    1,198,000
    
    
    
    961,000Deferred income taxes
    
    
    153,000
    
    
    
    197,000Minority interest in consolidated subsidiaries
    
    
    251,000
    
    
    
    238,000Changes in operating assets and liabilities:Receivables
    
    
    36,000
    
    
    
    313,000Prepaid expenses and other assets
    
    
    (147,000
    )
    
    
    89,000Accounts payable and accrued liabilities
    
    
    (17,000
    )
    
    
    18,000Net cash from operating activities
    
    
    1,844,000
    
    
    
    2,152,000Investing activities:Purchase of property and equipment (net of financing)
    
    
    (176,000
    )
    
    
    811,000Net cash from investing activities
    
    
    (176,000
    )
    
    
    811,000Financing activities:Payment of dividends
    
    
    (157,000
    )
    
    
    0Payment received for exercise of options
    
    
    13,000
    
    
    
    24,000Distribution to minority owners
    
    
    (38,000
    )
    
    
    (265,000
    )Payment for repurchase of stock
    
    
    (45,000
    )
    
    
    0Principal payments on long-term debt and capitalized leases
    
    
    (1,691,000
    )
    
    
    (1,305,000
    )Net cash from financing activities
    
    
    (1,918,000
    )
    
    
    (1,546,000
    )Net change in cash and cash equivalents
    
    
    (250,000
    )
    
    
    1,417,000Cash and cash equivalents at beginning of period
    
    
    10,312,000
    
    
    
    9,924,000Cash and cash equivalents at end of period
    
    $
    10,062,000
    
    
    $
    11,341,000Supplemental cash flow disclosure:Cash paid during the period for:Interest
    
    $
    599,000
    
    
    $
    576,000Income taxes
    
    $
    66,000
    
    
    $
    19,000
 See accompanying notes 4




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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 March 31, 2004 and the results
of its operations for the three month periods ended March 31, 2004 and 2003,
which results are not necessarily indicative of results on an annualized basis.
Consolidated balance sheet amounts as of December 31, 2003 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, 2003 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 seventeen medical centers as of March 31, 2004 in
Arkansas, California, Connecticut, Florida, Illinois, Maryland, Massachusetts,
Mississippi, Nevada, New Jersey, New Mexico, New York, 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 months ended March 31, 2004 basic earnings per share was computed
using 3,923,000 common shares and diluted earnings per share was computed using
5,104,000 common shares and equivalents. For the three months ended March 31,
2003 basic earnings per share was computed using 3,787,000 common shares and
diluted earnings per share was computed using 5,070,000 common shares and
equivalents. Note 3. Stock-based Compensation The Company has two stock-based employee compensation plans, the 1995 and
2001 Stock Option Plans. The Company accounts for those plans using the
intrinsic value method prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related 5




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Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price greater
than or equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation. For pro forma purposes, the estimated fair value of the
Companys options is amortized over the options vesting period. Quarter Ended March 312004
    
    2003Net income, as reported
    
    $
    370,000
    
    
    $
    336,000Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all awards,
net of related tax effects
    
    
    0
    
    
    
    0Pro forma net income
    
    $
    370,000
    
    
    $
    336,000Earnings per share:Basic-as reported
    
    $
    0.09
    
    
    $
    0.09Basic-pro forma
    
    $
    0.09
    
    
    $
    0.09Diluted-as reported
    
    $
    0.07
    
    
    $
    0.07Diluted-pro forma
    
    $
    0.07
    
    
    $
    0.07
 
 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 business and the risks of developing
its IMRT and The Operating Room for the 21st Century® programs. 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 and 10-K/A for
the year ended December 31, 2003 and the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on June 17, 2004. Medical services revenues increased $560,000 to $4,229,000 for the three
month period ended March 31, 2004 from $3,669,000 for the three month period
ended March 31, 2003. The increase is primarily due to the addition of three
new Gamma Knife units that commenced operation during 2003. This increase was
partially offset by reduced revenue at two existing units that were affected by
the death and sabbatical of key neurosurgeons at those locations. As a result,
revenue at Gamma Knife centers in operation for longer than one year decreased
by 9% in first quarter 2004 compared to first quarter 2003. The Company had
seventeen Gamma Knife units in operation at March 31, 2004 compared to fifteen
at March 31, 2003. Thirteen of the Companys customers are under fee-per-use
contracts, and four customers are under revenue sharing agreements (retail).
For retail units the Company receives all or a percentage of the 6




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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 73 to 563 in first
quarter 2004 from 490 in the same quarter in the prior year. This increase was
due to the addition of three new Gamma Knife units that commenced operation
during 2003, and, excluding the two units mentioned above, a 5% increase in
treatments for Gamma Knife units in operation more than one year compared to
first quarter 2003. Including the two units, procedures decreased by 4% at
Gamma Knife units in operation more than one year. Total costs of operations increased $499,000 to $2,034,000 for the three
month period ended March 31, 2004 from $1,535,000 for the three month period
ended March 31, 2003. Maintenance and supplies increased by $58,000 for the
three month period ended March 31, 2004 compared to the same period in the
prior year, primarily due to an increase in the number of Gamma Knife units
covered under maintenance contract. There were fourteen Gamma Knife units
covered under maintenance contract as of March 31, 2004 compared to twelve as
of March 31, 2003. Depreciation and amortization increased by $238,000 for the
three month period ended March 31, 2004 compared to the same period in the
prior year due to the addition of three new Gamma Knife units. Other direct
operating costs increased $203,000 for the three month period ended March 31,
2004 compared to the same period in the prior year primarily due to an increase
in marketing and promotion costs, operating costs related to the addition of a
new retail site in 2003, and incremental costs for insurance and property taxes
due to additional Gamma Knife units. Selling and administrative costs decreased by $60,000 to $766,000 for the
three month period ended March 31, 2004 from $826,000 for the three month
period ended March 31, 2003. This decrease was primarily due to decreased
payroll costs relating to the termination of a sales position in second quarter
and a marketing position in third quarter 2003. The sales position was filled
in late first quarter 2004. In addition, in first quarter 2003 there was a
write-off of approximately $58,000 in previously deferred costs relating to the
future placement of a Gamma Knife unit in Brazil. Interest expense increased by $31,000 to $612,000 for the three month
period ended March 31, 2004 from $581,000 for the three month period ended
March 31, 2003 primarily due to additional interest expense relating to the
financing of the three new Gamma Knife units in 2003, which offset declining
interest expense on the more mature units. The mature units have lower
interest expense because interest expense decreases as the outstanding
principal balance of each loan is reduced. Interest and other income decreased by $21,000 to $23,000 for the three
month period ended March 31, 2004 from $44,000 for the three month period ended
March 31, 2003 primarily due to interest income of approximately $17,000 in
first quarter 2003 relating to a state sales/use tax refund. Minority interest increased by $13,000 to $251,000 for the three month
period ended March 31, 2004 from $238,000 for the three month period ended
March 31, 2003 due to 7




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increased profitability of GK Financing. Minority interest represents the
19% interest of GK Financing owned by a third party. Income tax expense increased by $22,000 to $219,000 in the first quarter
2004 compared to $197,000 in the first quarter 2003. The increase was due to
increased profitability. The Company recorded a 40% income tax provision in
both first quarter 2004 and first quarter 2003, and both quarters were reduced
to an effective income tax rate of approximately 37% due to income tax benefits
of $16,000 in each quarter that were recorded for the exercise of 25,000
previously expensed options. These income tax benefits are the result of
compensation expense that was recognized when the options were granted in 1995. The Company had net income of $370,000 ($0.07 per diluted share) for the
three month period ended March 31, 2004 compared to net income of $336,000
($0.07 per diluted share) in the same period in the prior year. The increase
was primarily due to the addition of the three new Gamma Knife units during
2003 and lower selling and administrative costs. Liquidity and Capital Resources The Company had cash and cash equivalents of $10,062,000 at March 31, 2004
compared to $10,312,000 at December 31, 2003. The Companys cash position
decreased by $250,000 primarily due to capital expenditures of $176,000 and
payment of shareholder dividends of $157,000. During first quarter 2004, the Company paid quarterly dividends of
$157,000, or $0.04 per share, that had been declared in fourth quarter 2003.
On February 12, 2004 the Company declared a quarterly dividend of $0.04 per
share to shareholders of record on April 2, 2004, which resulted in a reduction
in retained earnings of $157,000 in first quarter 2004. The dividends are
payable to shareholders on April 16, 2004. The Company as of March 31, 2004 had shareholders equity of $15,562,000,
working capital of $5,076,000 and total assets of approximately $45,143,000. The Company has scheduled interest and principal payments under its debt
obligations of approximately $8,862,000 during the next 12 months. The Company
believes that its cash flow from operations and cash resources are adequate to
meet its scheduled debt obligations during the next 12 months. The Companys primary lender for its Gamma Knife projects, DVI Financial
Services Inc. (DVI) filed for Chapter 11 bankruptcy protection in August
2003. This will not materially affect the financing that has been committed to
existing projects. The Company is currently in the process of seeking other
financing options for future projects. There can be no assurance that the
Company will secure financing in amounts and/or terms as favorable as that
historically provided by DVI. 8




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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. 
 Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and our Chief Financial Officer, after evaluating the effectiveness of
the Companys disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 (Exchange Act) Exchange Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this quarterly report, have
concluded that our disclosure controls and procedures are effective based on
their evaluation of these controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15. (b) Changes in internal control over financial reporting. There were no
changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules
13a-15 or 15d-15 that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings. None. 
 Item 2. Changes in Securities and Use of Proceeds. None. 
 Item 3. Defaults Upon Senior Securities. None. 
 Item 4. Submission of Matters to a Vote of Securities Holders. None. 
 Item 5. Other Information. None. 
 Item 6. Exhibits and Reports on Form 8-K.  (a)
    
    ExhibitsThe following exhibits are filed herewith: Exhibit Number
    
    Description31.1
    
    
    Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
 9




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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.
  (b)
    
    Reports on Form 8-KNone. 10




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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   RegistrantDate: May 14, 2004
    
    /s/ Ernest A. Bates, M.D.Ernest A. Bates, M.D.
Chairman of the Board and Chief Executive Officer
Duly Authorized Officer and Principal Executive OfficerDate: May 14, 2004
    
    /s/ Craig K. TagawaCraig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
Duly Authorized Officer and Principal Executive Officer
 11




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EXHIBIT INDEX Exhibit Number
    
    Description31.1
    
    
    Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.