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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002 or

For the transition period from _______________ to _______________.

Commission file number 1-8789

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

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

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

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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes

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

See accompanying notes

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

See accompanying notes

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

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

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

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

Note 2. Per Share Amounts

     Per share information has been computed based on the weighted average number of common shares and dilutive common share equivalents outstanding. For the three and six months ended June 30, 2002 basic earnings per share was computed using 3,717,000 and 3,635,000 common shares, and diluted earnings per share was computed using 5,082,000 and 5,047,000 common shares and equivalents, respectively. For the three and six months ended June 30, 2001 basic earnings per share was computed using 3,584,000 and 3,598,000 common shares and diluted earnings per share was computed using 5,145,000 and 5,160,000 common shares and equivalents, respectively.

Note 3. Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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PART II — OTHER INFORMATION

1)

Voted on the Election of Directors as follows:

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

	(a)		Exhibits
			The following exhibit is filed herewith:

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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

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