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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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 October 31, 2002 there are outstanding 3,783,203 shares of the Registrant’s common stock.

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PART 1 — 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

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

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 September 30, 2002 and the results of its operations for the three and nine month periods ended September 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 fourteen medical centers as of September 30, 2002 in Arkansas, California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada, New Jersey, 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 and nine months ended September 30, 2002 basic earnings per share was computed using 3,769,000 and 3,681,000 common shares, and diluted earnings per share was computed using 5,082,000 and 5,059,000 common shares and equivalents, respectively. For the three and nine months ended September 30, 2001 basic earnings per share was computed using 3,549,000 and 3,581,000 common shares, and diluted earnings per share was computed using 5,126,000 and 5,148,000 common shares and equivalents, respectively.

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

     Medical services revenues increased $513,000 and $1,295,000 for the three and nine month periods ended September 30, 2002 from $3,050,000 and $8,729,000 for the three and nine month periods ended September 30, 2001. The revenue increase in third quarter 2002 compared to third quarter 2001 reflects increased revenue at Gamma Knife centers in operation for longer

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than one year and the increase in revenue from two additional Gamma Knife units. For the nine months ended September 30, 2002, the increase is due to two new Gamma Knife units that started during 2002, the full nine month inclusion of two Gamma Knife units that started in 2001, and a three percent (3%) increase in revenue at Gamma Knife centers in operation more than one year. The Company had 14 Gamma Knife units in operation at September 30, 2002 compared to 12 at September 30, 2001. Twelve (12) 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 21% and 17% to 470 and 1,274 for the three and nine month periods ended September 30, 2002 from 390 and 1,093 for the three and nine month periods ended September 30, 2001, respectively. These increases were due to the addition of two new Gamma Knife units during 2002 (one each in the second and third quarter), two new Gamma Knife units during second quarter 2001, and an increase in procedures performed at units in operation for more than one year of 10% and 6% for the three and nine month periods, respectively.

     Total costs of operations increased $276,000 and $730,000 for the three and nine month periods ended September 30, 2002 from $1,066,000 and $3,144,000 for the three and nine month periods ended September 30, 2001. Maintenance and supplies increased $51,000 and $67,000 for the three and nine month periods ended September 30, 2002 compared to the same periods 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 September 30, 2002 compared to nine as of September 30, 2001. Depreciation and amortization increased $123,000 and $379,000 for the three and nine month periods ended September 30, 2002 compared to the same periods in the prior year due to the addition of one new Gamma Knife unit in each of the second and third quarters of 2002, the upgrade of one unit to a Model C in first quarter 2002, and the full nine month inclusion of two new Gamma Knife units that started in second quarter 2001. Other operating costs increased $102,000 and $284,000 for the three and nine month periods ended September 30, 2002 compared to the same periods in the prior year, respectively. These increases were primarily due to higher marketing and insurance costs, and were partially offset by a $70,000 use tax credit recorded during third quarter 2002.

     Selling and administrative costs increased $101,000 and $181,000 for the three and nine month periods ended September 30, 2002 from $798,000 and $2,379,000 for the three and nine month periods ended September 30, 2001. For both the three and nine month periods this increase is primarily due to increased payroll related costs, rent expense and legal fees. For the nine month period, selling and administrative cost increases were partially offset by reduced costs ($102,000) in 2002 associated with the Company’s subsidiaries, OR21 and Medleader.

     Interest expense decreased $26,000 and $50,000 for the three and nine month periods ended September 30, 2002 from $652,000 and $1,875,000 for the three and nine month periods ended September 30, 2001. This is primarily due to lower interest expense on the debt relating

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to the more mature Gamma Knife units. The mature units have lower interest expense because interest expense decreases as the outstanding balance of each loan in reduced. This reduction offset the additional interest expense on the financing of the two new Gamma Knife units during 2002.

     Interest and other income decreased $59,000 and $250,000 for the three and nine month periods ended September 30, 2002 from $100,000 and $388,000 for the three and nine month periods ended September 30, 2001 primarily due to lower interest rates on invested cash balances.

     Minority interest increased $56,000 and $93,000 for the three and nine month periods ended September 30, 2002 from $208,000 and $566,000 for the three and nine month periods ended September 30, 2001 due to increased profitability of GK Financing. Minority interest represents the 19% interest of GK Financing owned by a third party.

     The Company recorded a 40% income tax provision in both third quarter 2002 ($190,000) and third quarter 2001 ($170,000). For the nine months ended September 2002, the Company recorded a 40% income tax provision that was partially offset by an income tax benefit of $168,000 which resulted from the exercise of options to purchase 260,000 common shares during the first and second quarter. The income tax benefits are the result of compensation expense that was recognized when these options for common shares were granted in 1995. For the nine months ended September 2001, the Company did not begin recording a 40% income tax provision until second quarter 2001 due to net operating loss carryforwards available for tax purposes.

     The Company had net income of $283,000 ($0.08 per basic share) and $914,000 ($0.25 per basic share) for the three and nine month periods ended September 30, 2002 compared to net income of $256,000 ($0.07 per basic share) and $859,000 ($0.24 per basic share) in the same periods in the prior year. The increase for both the three and nine month periods ended September 30, 2002 is primarily the result of a 17% and 15% increase in revenue over the same periods in the prior year respectively. The increases in net income due to revenue growth were partially offset by a reduction in interest and other income of $59,000 and $250,000 for the three and nine month periods. For the nine month period there was also a decrease in costs associated with MedLeader and OR21, primarily because the Company has delayed further activity in MedLeader at this time.

Liquidity and Capital Resources

     The Company had cash and cash equivalents of $10,457,000 at September 30, 2002 compared to $11,580,000 at December 31, 2001. The Company’s cash position decreased by $1,123,000, primarily due to purchases of property and equipment of $627,000 (including deposits of $475,000 on future Gamma Knife purchases), payment of annual dividends of $0.12 per share ($438,000) to shareholders of record on March 15, 2002, a reduction in accounts payable and other accrued liabilities of $259,000, and increased principal payments on long term debt relating to the Gamma Knife units.

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     The Company as of September 30, 2002 had shareholders’ equity of $14,352,000, working capital of $8,090,000 and total assets of approximately $44,539,000.

     The Company has scheduled interest and principal payments under its debt obligations of approximately $7,787,000 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.

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 Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date (the “Evaluation Date”) within 90 days of the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

     (b)  Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

     None.

Item 2. Changes in Securities.

     None.

Item 3. Defaults upon Senior Securities.

     None.

Item 4. Submission of Matters to a Vote of Securities Holders.

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits and Reports on Form 8-K.

(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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CERTIFICATION

I, Craig K. Tagawa, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

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6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

October 31, 2002

/s/   Craig K. Tagawa

Craig K. Tagawa

Chief Financial Officer

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CERTIFICATION

I, Ernest A. Bates, M.D., certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

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6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

October 31, 2002

/s/   Ernest A. Bates, M.D.

Ernest A. Bates, M.D.

Chief Executive Officer

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