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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, 2005 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 þ 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 þ As of May 2, 2005, there are outstanding 4,828,840 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 ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Securities HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSIGNATURESEXHIBIT 10.18AEXHIBIT 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, 2005
    
    
    Dec. 31, 2004Current assets:Cash and cash equivalents

    $
    
    7,842,000
    

    $
    
    8,121,000Restricted cash
    
    
    50,000
    
    
    
    50,000Securities
    
    
    967,000
    
    
    
    957,000Accounts receivable, net of allowance for
doubtful accounts of $170,000 in 2005
and $170,000 in 2004
    
    
    2,735,000
    
    
    
    2,950,000Prepaid expenses and other assets
    
    
    585,000
    
    
    
    594,000Deferred tax assets
    
    
    263,000
    
    
    
    0Total current assets
    
    
    12,442,000
    
    
    
    12,672,000Property and equipment:Medical equipment and facilities
    
    
    52,346,000
    
    
    
    49,282,000Office equipment
    
    
    439,000
    
    
    
    492,000Deposits and construction in progress
    
    
    3,695,000
    
    
    
    4,499,00056,480,000
    
    
    
    54,273,000Accumulated depreciation and
amortization
    
    
    (21,240,000
    )
    
    
    (20,001,000
    )Net property & equipment
    
    
    35,240,000
    
    
    
    34,272,000Other assets
    
    
    159,000
    
    
    
    162,000Total assets

    $
    
    47,841,000
    

    $
    
    47,106,000
 LIABILITIES AND
    
    (unaudited)
    
    
    (audited)SHAREHOLDERS EQUITY
    
    Mar. 31, 2005
    
    
    Dec. 31, 2004Current liabilities:Accounts payable

    $
    
    261,000
    

    $
    
    282,000Accrued dividends
    
    
    218,000
    
    
    
    215,000Other accrued liabilities
    
    
    968,000
    
    
    
    896,000Current portion of long-term debt
    
    
    6,406,000
    
    
    
    6,562,000Current portion of obligations under
capital leases
    
    
    271,000
    
    
    
    0Total current liabilities
    
    
    8,124,000
    
    
    
    7,955,000Long-term debt, less current portion
    
    
    16,643,000
    
    
    
    18,924,000Obligations under capital leases, less current portion
    
    
    2,085,000
    
    
    
    0Deferred income taxes
    
    
    761,000
    
    
    
    366,000Minority interest
    
    
    2,418,000
    
    
    
    2,315,000Shareholders equity:Common stock, without par value:authorized shares - 10,000,000; issued& outstanding shares, 4,828,840 in 2005
and 4,776,173 in 2004
    
    
    9,247,000
    
    
    
    9,238,000Additional paid-in capital
    
    
    4,488,000
    
    
    
    4,410,000Retained earnings
    
    
    4,075,000
    
    
    
    3,898,000Total shareholders equity
    
    
    17,810,000
    
    
    
    17,546,000Total liabilities and shareholders equity

    $
    
    47,841,000
    

    $
    
    47,106,000
 See accompanying notes 2




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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three Months ended March 31,2005
    
    
    2004Medical services revenue

    $
    
    4,449,000
    

    $
    
    4,229,000Costs of revenue:Maintenance and supplies
    
    
    255,000
    
    
    
    203,000Depreciation and amortization
    
    
    1,292,000
    
    
    
    1,178,000Other direct operating costs
    
    
    610,000
    
    
    
    653,0002,157,000
    
    
    
    2,034,000Gross Margin
    
    
    2,292,000
    
    
    
    2,195,000Selling and administrative expense
    
    
    921,000
    
    
    
    766,000Interest expense
    
    
    535,000
    
    
    
    612,000Operating income
    
    
    836,000
    
    
    
    817,000Interest and other income
    
    
    43,000
    
    
    
    23,000Minority interest expense
    
    
    (274,000
    )
    
    
    (251,000
    )Income before income taxes
    
    
    605,000
    
    
    
    589,000Income tax expense
    
    
    210,000
    
    
    
    219,000Net income

    $
    
    395,000
    

    $
    
    370,000Net income per share:Earnings per common share  basic

    $
    
    0.08
    

    $
    
    0.09Earnings per common share  assuming dilution

    $
    
    0.08
    

    $
    
    0.07Basic shares
    
    
    4,829,000
    
    
    
    3,923,000Diluted shares
    
    
    5,130,000
    
    
    
    5,104,000
 See accompanying notes 3




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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months ended March 31,2005
    
    
    2004Operating activities:Net income

    $
    
    395,000
    

    $
    
    370,000Adjustments to reconcile net cash provided by operating activities:Depreciation and amortization
    
    
    1,315,000
    
    
    
    1,198,000Deferred income taxes
    
    
    210,000
    
    
    
    153,000Minority interest in consolidated subsidiaries
    
    
    274,000
    
    
    
    251,000Changes in operating assets and liabilities:Receivables
    
    
    215,000
    
    
    
    36,000Prepaid expenses and other assets
    
    
    5,000
    
    
    
    (147,000
    )Accounts payable and accrued liabilities
    
    
    51,000
    
    
    
    (17,000
    )Net cash from operating activities
    
    
    2,465,000
    
    
    
    1,844,000Investing activities:Purchase of property and equipment (net of financing)
    
    
    (503,000
    )
    
    
    (176,000
    )Investment in securities
    
    
    (10,000
    )
    
    
    0Net cash from investing activities
    
    
    (513,000
    )
    
    
    (176,000
    )Financing activities:Payment of dividends
    
    
    (215,000
    )
    
    
    (157,000
    )Payment received for exercise of options
    
    
    9,000
    
    
    
    13,000Distribution to minority owners
    
    
    (171,000
    )
    
    
    (38,000
    )Payment for repurchase of stock
    
    
    0
    
    
    
    (45,000
    )Principal payments on long-term debt and capitalized leases
    
    
    (1,854,000
    )
    
    
    (1,691,000
    )Net cash from financing activities
    
    
    (2,231,000
    )
    
    
    (1,918,000
    )Net change in cash and cash equivalents
    
    
    (279,000
    )
    
    
    (250,000
    )Cash and cash equivalents at beginning of period
    
    
    8,121,000
    
    
    
    10,312,000Cash and cash equivalents at end of period

    $
    
    7,842,000
    

    $
    
    10,062,000Supplemental cash flow disclosure:Cash paid during the period for:Interest

    $
    
    535,000
    

    $
    
    599,000Income taxes

    $
    
    77,000
    

    $
    
    66,000Schedule of non-cash investing and financing activitiesAcquisition of equipment with lease/debt financing

    $
    
    1,773,000
    

    $
    
    0Accrued dividends

    $
    
    218,000
    

    $
    
    157,000Income tax benefit from exercise of stock options

    $
    
    78,000
    

    $
    
    52,000
 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,
2005 and the results of its operations for the three month periods ended March 31, 2005 and 2004,
which results are not necessarily indicative of results on an annualized basis. Consolidated
balance sheet amounts as of December 31, 2004 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, 2004 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 March 31, 2005 in Arkansas, California, Connecticut, Florida,
Illinois, Maryland, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico, New York,
Tennessee, Ohio, Pennsylvania, Texas and Wisconsin. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the 2004 balances to conform with the 2005
presentation. 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, 2005 basic
earnings per share was computed using 4,829,000 common shares and diluted earnings per share was
computed using 5,130,000 common shares and equivalents. 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. The increase in common shares used in
the basic earnings per shared calculation in 2005 compared to 2004 is the result of stock options
exercised, primarily in third quarter 2004. This is explained in more detail in Item 2,
Managements Discussion and Analysis of Financial Condition and Results of Operations. 5




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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 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 312005
    
    
    2004Net income, as reported
    
    $
    395,000
    
    
    $
    370,000Deduct: Total stock-based employee
compensation expense
determined under fair value based
method for all awards, net of related
tax effects
    
    
    (2,000
    )
    
    
    0Pro forma net income
    
    $
    393,000
    
    
    $
    370,000Earnings per share:Basic-as reported
    
    $
    0.08
    
    
    $
    0.09Basic-pro forma
    
    $
    0.08
    
    
    $
    0.09Diluted-as reported
    
    $
    0.08
    
    
    $
    0.07Diluted-pro forma
    
    $
    0.08
    
    
    $
    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. 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, 2004 and the definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on June 16, 2005. Medical services revenue increased $220,000 to $4,449,000 for the three month period ended
March 31, 2005 from $4,229,000 for the three month period ended March 31, 2004. The increase is
primarily due to the addition of one new Gamma Knife unit that commenced operation during first
quarter 2005 and the addition of one new Gamma Knife unit that 6




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commenced operation in third quarter 2004, and was partially offset by an 8% decrease in
revenue at Gamma Knife centers in operation more than one year. The Company had nineteen Gamma Knife units in operation at March 31, 2005 compared to
seventeen at March 31, 2004. Fourteen of the Companys customers are under fee-per-use contracts,
and five customers are under retail arrangements. Retail arrangements are further classified as
either turn-key or net 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 Gamma Knife. Revenue is recorded on a
gross basis and estimated based on historical experience and hospital contacts with third party
payors. For net revenue sharing arrangements the Company receives a contracted percentage of the
reimbursement received by the hospital less the operating expenses of the Gamma Knife. Revenue is
recorded on a net basis and estimated based on historical experience. The number of Gamma Knife procedures increased by 12 to 575 in first quarter 2005 from 563 in
the same quarter in the prior year. This increase was due to the addition of one new Gamma Knife
unit that commenced operation during first quarter 2005 and one new Gamma Knife unit that commenced
operation during third quarter 2004, and was partially offset by a decrease of 7% in procedures at
Gamma Knife units in operation more than one year. Total costs of revenue increased $123,000 to $2,157,000 for the three month period ended March
31, 2005 from $2,034,000 for the three month period ended March 31, 2004. Maintenance and supplies
increased by $52,000 for the three month period ended March 31, 2005 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 seventeen Gamma Knife units covered under maintenance contract as
of March 31, 2005 compared to fourteen as of March 31, 2004. Depreciation and amortization
increased by $114,000 for the three month period ended March 31, 2005 compared to the same period
in the prior year due to the addition of one new Gamma Knife unit that started during first quarter
2005 and one new Gamma Knife unit that started during third quarter 2004. Other direct operating
costs decreased $43,000 for the three month period ended March 31, 2005 compared to the same period
in the prior year primarily due to lower site specific marketing and promotion costs which offset
increased operating costs related to the addition of a new retail Gamma Knife site in first quarter
2005. Selling and administrative costs increased by $155,000 to $921,000 for the three month period
ended March 31, 2005 from $766,000 for the three month period ended March 31, 2004. This increase
was primarily due to increased marketing and business development costs, the Companys second Gamma
Knife Users Group meeting which was held in February 2005, and an increase in contributions. Interest expense decreased by $77,000 to $535,000 for the three month period ended March 31,
2005 from $612,000 for the three month period ended March 31, 2004 primarily due to lower interest
expense on the debt relating to the more mature Gamma Knife units, partially offset by additional
interest expense relating to the financing of the two new Gamma Knife units 7




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in first quarter 2005 and third quarter 2004. The mature units have lower interest expense
because interest expense decreases as the outstanding principal balance of each loan is reduced.
In addition, the financing on the more recent Gamma Knife units is at lower interest rates than the
older loans. Interest and other income increased by $20,000 to $43,000 for the three month period ended
March 31, 2005 from $23,000 for the three month period ended March 31, 2004 primarily due to
increased interest income as a result of higher interest rates on invested cash balances. Minority interest increased by $23,000 to $274,000 for the three month period ended March 31,
2005 from $251,000 for the three month period ended March 31, 2004 due to increased profitability
of GK Financing. Minority interest represents the 19% interest of GK Financing owned by a third
party. Income tax expense decreased by $9,000 to $210,000 in the first quarter 2005 compared to
$219,000 in the first quarter 2004. The Company recorded a 40% income tax provision in both first
quarter 2005 and first quarter 2004, however income tax expense was less in 2005 because of a
larger tax benefit recognized in 2005 due to the exercise of previously expensed options to
purchase common stock. The effective income tax rate was reduced to approximately 35% in first
quarter 2005 due to an income tax benefit of $32,000 that was recorded for the exercise of 50,000
previously expensed options compared to an effective income tax rate of approximately 37% in first
quarter 2004 due to a similar exercise of 25,000 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 $395,000 ($0.08 per diluted share) for the three month period
ended March 31, 2005 compared to net income of $370,000 ($0.07 per diluted share) in the same
period in the prior year. The increase was primarily due to the addition of the two new Gamma
Knife units in first quarter 2005 and third quarter 2004 and lower interest expense, partially
offset by increased selling and administrative costs. Liquidity and Capital Resources The Company had cash and cash equivalents of $7,842,000 at March 31, 2005 compared to
$8,121,000 at December 31, 2004. The Companys cash position decreased by $279,000 primarily due
to capital expenditures of $503,000 and payment of shareholder dividends of $215,000. During first quarter 2005, the Company paid quarterly dividends of $215,000, or $0.045 per
share, that had been declared in fourth quarter 2004. On March 17, 2005 the Company declared a
quarterly dividend of $0.045 per share to shareholders of record on April 4, 2005, which resulted
in a reduction in retained earnings of $217,000 in first quarter 2005. The dividends are payable
to shareholders on April 15, 2005. 8




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The Company as of March 31, 2004 had shareholders equity of $17,810,000, working capital of
$4,318,000 and total assets of approximately $47,841,000. The Company has scheduled interest and principal payments under its debt obligations of
approximately $8,445,000 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. In the first quarter 2005,
the Company entered into a capital lease obligation collateralized by
Gamma Knife equipment and construction. This obligation has a stated
interest rate of 7.94%, is payable in 84 monthly payments of $37,335
and matures in January 2012. The Company invests its cash primarily in money market or similar funds and high quality short
to intermediate-term fixed income securities in order to maximize current income while minimizing
the potential for principal erosion. A portion of these investments are classified as securities
on the balance sheet and are considered held-to-maturityinvestments because it is the companys
ability and intent to hold these securities until maturity. 
 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. 9




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Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed herewith: Exhibit Number
    
    Description10.18a
    
    Amendment to Lease Agreement for a Gamma Knife unit effective
December 13, 2003 by and between Methodist Healthcare System of San
Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital and GK
Financing, LLC.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.
 (b) Reports on Form 8-K None. 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
Registrant Date: May 13, 2005
    
    /s/ Ernest A. Bates, M.D.Ernest A. Bates, M.D.Chairman of the Board and Chief Executive OfficerDate: May 13, 2005
    
    /s/ Craig K. TagawaCraig K. TagawaSenior Vice PresidentChief Operating and Financial Officer
 11