AMERICAN SHARED HOSPITAL SERVICES - Quarter Report: 2006 June (Form 10-Q)

 

 

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 June 30, 2006

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 1-08789

American Shared Hospital Services

California (State or other jurisdiction of Incorporation or organization)		94-2918118 (IRS Employer Identification No.)
Four Embarcadero Center, Suite 3700, San Francisco, California (Address of Principal Executive Offices)		94111 (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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 31, 2006, there are outstanding 5,023,418 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)
		June 30, 2006				December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	2,143,000			$	1,298,000
Restricted cash			50,000				50,000
Securities-current			5,175,000				4,537,000
Accounts receivable, net of allowance for doubtful accounts of $170,000 in 2006 and $170,000 in 2005			4,714,000				3,832,000
Other receivables			292,000				187,000
Prepaid expenses and other current assets			467,000				464,000
Current deferred tax assets			341,000				341,000
Total current assets			13,182,000				10,709,000
Property and equipment:
Medical equipment and facilities			61,681,000				59,147,000
Office equipment			511,000				549,000
Deposits and construction in progress			1,064,000				703,000
			63,256,000				60,399,000
Accumulated depreciation and amortization			(28,327,000	)			(25,409,000	)
Net property & equipment			34,929,000				34,990,000
Securities-long term			925,000				2,797,000
Investment in convertible preferred stock			2,000,000				0
Other assets			245,000				172,000
Total assets		$	51,281,000			$	48,668,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	205,000			$	555,000
Employee compensation and benefits			356,000				120,000
Accrued dividends			239,000				238,000
Other accrued liabilities			990,000				996,000
Advances on line of credit			3,250,000				0
Current portion of long-term debt			5,188,000				5,631,000
Current portion of long-term capital leases			970,000				746,000
Total current liabilities			11,198,000				8,286,000
Long-term debt, less current portion			12,922,000				15,253,000
Long-term capital leases, less current portion			4,241,000				3,452,000
Deferred income taxes			1,397,000				828,000
Minority interest			2,776,000				2,529,000
Shareholders’ equity:
Common stock, without par value: authorized shares — 10,000,000; issued & outstanding shares, 5,023,418 in 2006 and 4,853,840 in 2005			9,317,000				9,306,000
Additional paid-in capital			4,283,000				4,274,000
Retained earnings			5,147,000				4,740,000
Total shareholders’ equity			18,747,000				18,320,000
Total liabilities and shareholders’ equity		$	51,281,000			$	48,668,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)

		Three Months ended June 30,								Six Months ended June 30,
		2006				2005				2006				2005
Revenue:
Medical services		$	5,309,000			$	4,730,000			$	10,354,000			$	9,179,000
Costs and expenses:
Costs of revenue:
Maintenance and supplies			308,000				262,000				644,000				517,000
Depreciation and amortization			1,454,000				1,341,000				2,916,000				2,633,000
Other direct operating costs			913,000				829,000				1,737,000				1,439,000
			2,675,000				2,432,000				5,297,000				4,589,000
Gross margin			2,634,000				2,298,000				5,057,000				4,590,000
Selling and administrative expense			1,078,000				933,000				1,992,000				1,854,000
Interest expense			560,000				511,000				1,123,000				1,046,000
Operating income			996,000				854,000				1,942,000				1,690,000
Interest and other income			87,000				57,000				177,000				100,000
Minority interest expense			(349,000	)			(287,000	)			(665,000	)			(561,000	)
Income before income taxes			734,000				624,000				1,454,000				1,229,000
Income tax expense			286,000				233,000				570,000				443,000
Net income		$	448,000			$	391,000			$	884,000			$	786,000
Earnings per share:
Basic		$	0.09			$	0.08			$	0.18			$	0.16
Diluted		$	0.09			$	0.08			$	0.18			$	0.15
Basic shares			5,023,000				4,854,000				5,021,000				4,841,000
Diluted shares			5,054,000				5,135,000				5,051,000				5,133,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED CASH FLOWS STATEMENT
(Unaudited)

		Six Months ended June 30,
		2006				2005
Operating activities:
Net income		$	884,000			$	786,000
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization			2,967,000				2,680,000
Deferred income taxes			569,000				418,000
Loss on sale of assets			3,000				0
Stock options expensed			16,000				0
Minority interest in consolidated subsidiaries			665,000				561,000
Changes in operating assets and liabilities:
Receivables			(987,000	)			(6,000	)
Prepaid expenses and other assets			(45,000	)			36,000
Accounts payable and accrued liabilities			(120,000	)			483,000
Net cash from operating activities			3,952,000				4,958,000
Investing activities:
Purchase of property and equipment			(2,923,000	)			(3,967,000	)
Proceeds from sale and maturity of marketable securities			2,916,000				0
Proceeds from sale of assets			20,000				0
Purchase of securities and convertible preferred stock			(3,719,000	)			(301,000	)
Net cash from investing activities			(3,706,000	)			(4,268,000	)
Financing activities:
Principal payments on long-term debt			(2,859,000	)			(3,559,000	)
Principal payments on capitalized leases			(442,000	)			(109,000	)
Advances on line of credit			3,250,000				0
Distribution to minority owners			(418,000	)			(399,000	)
Long-term debt financing on purchase of property and equipment			0				2,949,000
Capital lease financing on purchase of property and equipment			1,540,000				240,000
Payment for stock/option repurchase			(1,000	)			0
Payment received for exercise of stock options			5,000				9,000
Payment of dividends			(476,000	)			(433,000	)
Net cash from financing activities			599,000				(1,302,000	)
Net change in cash and cash equivalents			845,000				(612,000	)
Cash and cash equivalents at beginning of period			1,298,000				8,121,000
Cash and cash equivalents at end of period		$	2,143,000			$	7,509,000
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest paid		$	1,123,000			$	1,046,000
Income taxes paid		$	255,000			$	101,000
Schedule of noncash investing and financial activities:
Accrued dividends		$	239,000			$	231,000
Income tax benefit from exercise of stock options and warrants		$	0			$	124,000

See accompanying notes

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, 2006 and the results of its operations for the three and six month periods ended June 30, 2006 and 2005, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2005 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, 2005 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 twenty-one medical centers as of June 30, 2006 in Arkansas, California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Pennsylvania, Texas and Wisconsin.

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

     Certain reclassifications have been made to the 2005 balances to conform with the 2006 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 and six months ended June 30, 2006 basic earnings per share was computed using 5,023,000 and 5,021,000 common shares, respectively, and diluted earnings per share was computed using 5,054,000 and 5,051,000 common shares and equivalents, respectively. For the three and six months ended June 30, 2005 basic earnings per share was computed using 4,854,000 and 4,841,000 common shares, respectively, and diluted earnings per share was computed using 5,135,000 and 5,133,000 common shares and equivalents, respectively. The increase in common shares used in the basic earnings per share calculation in 2006 compared to 2005 is the result of stock options exercised, primarily in third quarter 2005.

Note 3. Stock-based Compensation

     On June 28, 2006, the Company’s shareholders approved the 2006 Stock Incentive Plan (the “2006 Plan”) under which 750,000 shares of the Company’s common stock are reserved for issuance of shares 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 share reserve 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 Plan or 2001 Plans. Under the 2006 Plan, there were 2,000 restricted stock units granted, consisting of annual automatic grants to non-employee directors, and approximately 144,000 options granted, of which approximately 77,000 options were vested, as of June 30, 2006.

     Through 2005, the Company accounted for these 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 was 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.

     Beginning in 2006, in accordance with FASB Statement No. 123R, Accounting for Stock-Based Compensation, the Company began expensing the fair value of its stock options issued, using the modified prospective format. The Company’s stock-based awards to employees are 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 was estimated assuming the following weighted-average assumptions: ten year expected life, 25% expected volatility, 3.1% dividend yield, and 4.3% risk-free interest rate. 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 $8,000 is reflected in second quarter 2006 net income, and $16,000 is reflected in year to date net income.

     FASB Statement No. 123R requires that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. There were approximately 8,000 options issued and 5,000 options exercised during the period ended June 30, 2006. There were no excess tax benefits to report.

     The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123 in 2005:

		Three months ended June 30								Six Months Ended June 30
		2006				2005				2006				2005
Net income, as reported		$	448,000			$	391,000			$	884,000			$	786,000
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		$	0			($	6,000	)		$	0			($	8,000	)
Pro forma net income		$	448,000			$	385,000			$	884,000			$	778,000
Earnings per share:
Basic-as reported		$	0.09			$	0.08			$	0.18			$	0.16
Basic-pro forma		$	0.09			$	0.08			$	0.18			$	0.16
Diluted-as reported		$	0.09			$	0.08			$	0.18			$	0.15
Diluted-pro forma		$	0.09			$	0.07			$	0.18			$	0.15

Note 4. Convertible Preferred Stock Investment

     On April 10, 2006 the Company invested $2,000,000 for a convertible preferred stock interest in Still River Systems, Inc. (“Still River”), a development-stage company based in Littleton, Massachusetts, which in collaboration with scientists from MIT’s Plasma Science and Fusion Center, is developing a medical device for the treatment of cancer patients using proton beam radiation therapy (PBRT). The Company also purchased for $1,000,000 an option to acquire two Clinatron-250™ PBRT systems from Still River for anticipated delivery in 2008. The PBRT systems are not currently FDA approved.

     The Company’s investment in Still River consists of approximately 2,353,000 shares of Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock is considered pari passu with previously issued Series A Convertible Preferred Stock (together “Preferred Stock”). 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, subject to certain adjustments, but initially set at the original purchase price. 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.

Note 5. Line of Credit

     The Company has a $6,000,000 line of credit with the Bank of America (the “Bank”), which is renewable annually and 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 minus one percentage point, and are secured by the Company’s cash invested with the Bank. At June 30, 2006, $3,250,000 was borrowed against the line of credit.

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, the risks of developing the Company’s IMRT and The Operating Room for the 21^st Century® programs, and the risks of investing in a development-stage company, Still River Systems, Inc., 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, 2005, the Form 10-Q for the three months ended March 31, 2006, and the definitive Proxy Statement for the Annual Meeting of Shareholders on June 28, 2006.

     Medical services revenue increased $579,000 and $1,175,000 to $5,309,000 and $10,354,000 for the three and six month periods ended June 30, 2006 from $4,730,000 and $9,179,000 for the three and six month periods ended June 30, 2005, respectively. The increase for both the three and six month periods is due to the addition of two new Gamma Knife units that commenced operation in second and third quarter 2005, and an increase in revenue at some of the Company’s turn-key retail sites, where the Company receives payment from the hospital for the full amount of the reimbursement from the third party payors. The revenue increases were partially offset by a 2% decrease in revenue, for both the three and six month periods, at Gamma Knife centers in operation more than one year.

     The Company had twenty-one Gamma Knife units in operation at June 30, 2006 compared to twenty at June 30, 2005. Fifteen of the Company’s customers are under fee-per-use contracts, and six 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 contracts 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 decreased by two to 634 for the three month period, and increased by 92, or 8%, to 1,303 for the six month period ended June 30, 2006 from 636 and 1,211 for the three and six month periods ended June 30, 2005. The decrease for the three month period was due to a 7% decline in procedures performed at Gamma Knife units in operation more than one year, offset by procedures performed at the Company’s two new Gamma Knife units that began operation during second and third quarters of 2005. The increase for the six month period was due to the addition of the two new Gamma Knife units.

     Total costs of revenue increased $243,000 and $708,000 to $2,675,000 and $5,297,000 for the three and six month periods ended June 30, 2006 from $2,432,000 and $4,589,000 for the three and six months periods ended June 30, 2005. Maintenance and supplies increased by $46,000 and $127,000 for the three and six month periods ended June 30, 2006 compared to the same periods in the prior year, primarily due to higher cost for maintenance contracts for the newer Gamma Knife models, as well as additional cost for maintenance not covered under maintenance contract. Depreciation and amortization increased by $113,000 and $283,000 for the three and six month periods ended June 30, 2006 compared to the same periods in the prior year primarily due to the addition of two new Gamma Knife units that commenced operation during second and third quarters 2005. Other direct operating costs increased $84,000 and $298,000 for the three and six month periods ended June 30, 2006 compared to the same periods in the prior year. For both the three and six month periods, this increase is primarily due to an increase in operating costs at retail turn-key sites where the Company is responsible for paying all the direct operating costs, including the company’s newest turn-key site which began operations in third quarter 2005. For both the three and six month periods these increases were partially offset by lower site specific marketing and education costs.

     Selling and administrative costs increased by $145,000 and $138,000 to $1,078,000 and $1,992,000 for the three and six month periods ended June 30, 2006 from $933,000 and $1,854,000 for the three and six month periods ended June 30, 2005. For both the three and six month periods, the increase was primarily due to increased payroll related costs including an increase in the Company’s incentive compensation accrual and an increase in legal fees. For the six month period the increase is partially offset by lower business meeting costs due to the Company’s second Gamma Knife User’s Group meeting which was held in February 2005. The third meeting has not yet been planned, so there was no corresponding meeting held during the first six months of 2006.

     Interest expense increased by $49,000 and $77,000 to $560,000 and $1,123,000 for the three and six month periods ended June 30, 2006 from $511,000 and $1,046,000 for the three and six month periods ended June 30, 2005 primarily due to additional interest expense relating to the financing of the two new Gamma Knife units that commenced operation during second and third quarters 2005, and interest on the Company’s borrowing under its line of credit, which has a balance of $3,250,000 as of June 30, 2006. This was partially offset by lower interest expense on the debt relating to the more mature Gamma Knife 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 increased by $30,000 and $77,000 to $87,000 and $177,000 for the three and six month periods ended June 30, 2006 from $57,000 and $100,000 for the three and six month periods ended June 30, 2005 primarily due to increased interest income as a result of higher interest rates on invested cash balances.

     Minority interest expense increased by $62,000 and $104,000 to $349,000 and $665,000 for the three and six month periods ended June 30, 2006 from $287,000 and $561,000 for the three and six month periods ended June 30, 2005 due to increased profitability of GK Financing. Minority interest represents the 19% interest of GK Financing owned by a third party.

     Income tax expense increased by $53,000 and $127,000 to $286,000 and $570,000 for the three and six month periods ended June 30, 2006 compared to $233,000 and $443,000 for the three and six month periods ended June 30, 2005. For the three and six month periods ended June 30, 2006, the Company recorded a 39% income tax provision, compared to a 40% income tax provision for the three and six month periods ended June 30, 2005. However, the effective income tax rate for the three and six month periods ended June 30, 2005 was reduced to approximately 37% and 36%, respectively, due to income tax benefits that were recognized on the exercise of previously expensed options to purchase common stock. For the three month period ended June 30, 2005 an income tax benefit of $16,000 was recorded for the exercise of 25,000 previously expensed options, and for the six month period ended June 30, 2005 an income tax benefit of $49,000 was recorded for the exercise of 75,000 previously expensed options. These income tax benefits were the result of compensation expense that was recognized when the options were granted in 1995.

     The Company had net income of $448,000 ($0.09 per diluted share) and $884,000 ($0.18 per diluted share) for the three and six month periods ended June 30, 2006 compared to net income of $391,000 ($0.08 per diluted share) and $786,000 ($0.15 per diluted share) for the same periods in the prior year. The increase for both the three and six month periods was primarily due to revenue from the addition of two new Gamma Knife units that commenced operation during second and third quarters 2005, and increased revenue at some of the Company’s retail turn-key sites, partially offset by increased selling and administrative costs and higher income tax expense.

Liquidity and Capital Resources

     The Company had cash and cash equivalents of $2,143,000 at June 30, 2006 compared to $1,298,000 at December 31, 2005. The Company’s cash position increased by $845,000 primarily due to the sale and maturity of marketable securities of $2,916,000 and advances on the Company’s line of credit of $3,250,000, offset by purchase of securities and convertible preferred stock of $3,719,000, and payment of shareholder dividends of $476,000. In addition the Company acquired property and equipment of $2,932,000, including its option to purchase two Clinitron-250 systems, of which $1,540,000 was acquired through capital lease equipment financing.

     During the six month period ended June 30, 2006, the Company paid quarterly dividends of $238,000, or $0.0475 per share, in both first and second quarters. On June 28, 2006 the Company declared a quarterly dividend of $0.0475 per share to shareholders of record on July 3, 2006, which resulted in a reduction in retained earnings of $239,000 in second quarter 2006. The dividends were paid to shareholders on July 14, 2006.

     The Company as of June 30, 2006 had shareholders’ equity of $18,747,000, working capital of $1,984,000 and total assets of approximately $51,281,000.

     The Company has scheduled interest and principal payments under its debt obligations of approximately $6,511,000 and scheduled capital lease payments of approximately $1,355,000

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 has a $6,000,000 line of credit, renewable annually, 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, 2006 there was $3,250,000 drawn against the line of credit.

     The Company invests its cash primarily in money market or similar funds and high quality short to long-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-maturity investments because it is the company’s ability and intent to hold these securities until maturity. Securities with maturity dates between three and twelve months in the amount of $5,175,000 are classified as current assets. Securities in the amount of $925,000 have maturities in excess of one year and are classified as long-term.

     The Company’s $2,000,000 convertible preferred stock investment in Still River Systems, Inc. is considered a long-term held-to-maturity investment on the balance sheet, and the $1,000,000 option to purchase two Clinitron-250 systems is classified under Deposits and construction in progress. The Company used its line of credit to fund the investment and purchase option.

Subsequent Events

     None.

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.		Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.		Defaults Upon Senior Securities.

None.

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

The Company’s Annual Shareholder Meeting (“Meeting”) was held on June 28, 2006. There were present in person or by proxy at said Meeting shareholders voting 4,371,630 shares that represented 87.1% of the 5,018,885 shares outstanding and entitled to vote at the Meeting, which represented a quorum. At the Meeting, the shareholders:

1)

Voted on the Election of Directors as follows:

Nominee						For								Abstained
Ernest A. Bates, M.D.							4,278,964								92,666
Ernest R. Bates							4,267,814								103,816
Olin C. Robison							4,279,894								91,736
John F. Ruffle							4,279,494								92,136
Stanley S. Trotman, Jr.							4,273,444								98,186

All 5 individuals were elected to serve on the Board of Directors for the following year.

2)

Voted on the approval of the Company’s 2006 Stock Incentive Plan. There were 2,569,045 votes for, 180,382 votes against, 27,013 votes abstained and 1,595,190 broker non-votes for a 51.2% vote in favor of total available votes.

The 2006 Stock Incentive Plan was approved.

3)

Voted on the approval of the Company’s Long Term Incentive Compensation Plan. There were 2,578,310 votes for, 172,867 votes against, 25,264 votes abstained and 1,595,189 broker non-votes for a 51.4% vote in favor of total available votes.

The Long Term Incentive Compensation Plan was approved.

4)

Voted on the ratification of Moss Adams, LLP as the Company’s independent accountants for the year ending December 31, 2006. There were 4,280,280 votes for, 77,896 votes against and 13,454 votes abstained.

Moss Adams, LLP was ratified as the Company’s independent accountants for the year ending December 31, 2006.

Item 5.		Other Information.

None.

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

(a) Exhibits

The following exhibits are filed herewith:

Exhibit Number		Description
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

The following report on Form 8-K was filed during the three months ended June 30, 2006:

Form 8-K dated and filed April 11, 2006 relating to the Company’s $2 million investment in Still River Systems.

Form 8-K dated and filed May 4, 2006 relating to a press release announcing the Company’s preliminary financial results for its first quarter of fiscal year 2006.

The following reports on Form 8-K were filed after June 30, 2006:

Form 8-K dated and filed July 6, 2006 relating to the Company’s 2006 Stock Incentive Plan and Long-Term Incentive Compensation Plan that were approved by the shareholders at the Company’s Annual Shareholder Meeting on June 28, 2006.

Form 8-K dated and filed July 27, 2006 relating to a press release announcing the Company’s preliminary financial results for its second quarter of fiscal year 2006.

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 14, 2006		/s/ Ernest A. Bates, M.D.   Ernest A. Bates, M.D.
		Chairman of the Board and Chief Executive Officer
Date: August 14, 2006		/s/ Craig K. Tagawa   Craig K. Tagawa
		Senior Vice President
		Chief Operating and Financial Officer