10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012 or

¨ 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

(Exact name of registrant as specified in its charter)

California	94-2918118
(State or other jurisdiction of	(IRS Employer
Incorporation or organization)	Identification No.)

Four Embarcadero Center, Suite 3700, San Francisco, California	94111
(Address of Principal Executive Offices)	(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨    Accelerated Filer ¨    Non-Accelerated Filer ¨    Smaller reporting company x

As of August 1, 2012, there are outstanding 4,605,870 shares of the Registrant’s common stock.

PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(unaudited)
ASSETS	June 30, 2012			December 31, 2011
Current assets:
Cash and cash equivalents	$	997,000		$	2,580,000
Restricted cash		50,000			50,000
Certificate of deposit		9,000,000			9,000,000
Accounts receivable, net of allowance for doubtful accounts of $100,000 in 2012 and $100,000 in 2011		4,385,000			4,604,000
Other receivables		156,000			158,000
Prepaid expenses and other current assets		1,314,000			733,000
Current deferred tax assets		490,000			490,000
Total current assets		16,392,000			17,615,000
Property and equipment:
Medical equipment and facilities		85,059,000			80,647,000
Office equipment		691,000			692,000
Deposits and construction in progress		6,822,000			7,264,000
		92,572,000			88,603,000
Accumulated depreciation and amortization		(38,303,000	)		(35,336,000	)
Net property and equipment		54,269,000			53,267,000
Investment in preferred stock		2,687,000			2,656,000
Other assets		1,017,000			997,000
Total assets	$	74,365,000		$	74,535,000

LIABILITIES AND	(unaudited)
SHAREHOLDERS' EQUITY	June 30, 2012		December 31, 2011
Current liabilities:
Accounts payable	$	211,000	$	278,000
Employee compensation and benefits		227,000		255,000
Customer deposits/deferred revenue		472,000		497,000
Other accrued liabilities		1,067,000		1,298,000
Current portion of long-term debt		4,485,000		3,940,000
Current portion of obligations under capital leases		3,668,000		3,676,000
Total current liabilities		10,130,000		9,944,000
Long-term debt, less current portion		12,858,000		11,428,000
Long-term capital leases, less current portion		15,146,000		16,707,000
Advances on line of credit		7,600,000		7,850,000
Deferred income taxes		3,435,000		3,435,000
Shareholders' equity:
Common stock (4,606,000 shares at June 30, 2012 and 4,611,000 shares at December 31, 2011)		8,577,000		8,606,000
Additional paid-in capital		4,887,000		4,828,000
Retained earnings		6,792,000		6,768,000
Total equity-American Shared Hospital Services		20,256,000		20,202,000
Non-controlling interest in subsidiary		4,940,000		4,969,000
Total shareholders' equity		25,196,000		25,171,000
Total liabilities and shareholders' equity	$	74,365,000	$	74,535,000

See accompanying notes

2

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Medical services revenue	$	4,284,000		$	4,206,000		$	8,687,000		$	8,573,000
Costs of revenue:
Maintenance and supplies		329,000			337,000			719,000			681,000
Depreciation and amortization		1,404,000			1,403,000			2,949,000			2,830,000
Other direct operating costs		678,000			630,000			1,309,000			1,302,000
		2,411,000			2,370,000			4,977,000			4,813,000
Gross Margin		1,873,000			1,836,000			3,710,000			3,760,000
Selling and administrative expense		1,109,000			1,041,000			2,133,000			2,163,000
Interest expense		539,000			570,000			1,113,000			1,146,000
Operating income		225,000			225,000			464,000			451,000
Interest and other income		14,000			68,000			15,000			84,000
Income before income taxes		239,000			293,000			479,000			535,000
Income tax expense		13,000			22,000			24,000			45,000
Net income		226,000			271,000			455,000			490,000
Less: Net income attributable to non-controlling interests		(211,000	)		(250,000	)		(431,000	)		(448,000	)
Net income attributable to American Shared Hospital Services	$	15,000		$	21,000		$	24,000		$	42,000
Net income per share:
Earnings per common share - basic	$	-		$	-		$	0.01		$	0.01
Earnings per common share - assuming dilution	$	-		$	-		$	0.01		$	0.01

See accompanying notes

3

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

	PERIODS ENDED DECEMBER 31, 2010 AND 2011 AND JUNE 30, 2012
							Additional							Non-controlling
	Common			Common			Paid-in		Retained		Sub-Total			Interests in
	Shares			Stock			Capital		Earnings		ASHS			Subsidiaries			Total
Balances at January 1, 2010		4,595,000		$	8,606,000		$	4,593,000	$	6,205,000	$	19,404,000		$	3,351,000		$	22,755,000
Stock based compensation expense		2,000			-			110,000		-		110,000			-			110,000
Cash distributions to non-controlling interests		-			-			-		-		-			(627,000	)		(627,000	)
Net income		-			-			-		57,000		57,000			749,000			806,000
Balances at December 31, 2010		4,597,000			8,606,000			4,703,000		6,262,000		19,571,000			3,473,000			23,044,000
Stock based compensation expense		14,000			-			125,000		-		125,000			-			125,000
Investment in subsidiaries by non-controlling interests		-			-			-		-		-			1,509,000			1,509,000
Cash distributions to non-controlling interests		-			-			-		-		-			(996,000	)		(996,000	)
Net income		-			-			-		506,000		506,000			983,000			1,489,000
Balances at December 31, 2011		4,611,000			8,606,000			4,828,000		6,768,000		20,202,000			4,969,000			25,171,000
Stock based compensation expense		4,000			-			59,000		-		59,000			-			59,000
Repurchase of common stock		(9,000	)		(29,000	)		-		-		(29,000	)		-			(29,000	)
Investment in subsidiaries by non-controlling interests		-			-			-		-		-			79,000			79,000
Cash distributions to non-controlling interests		-			-			-		-		-			(539,000	)		(539,000	)
Net income		-			-			-		24,000		24,000			431,000			455,000
Balances at June 30, 2012 (unaudited)		4,606,000		$	8,577,000		$	4,887,000	$	6,792,000	$	20,256,000		$	4,940,000		$	25,196,000

See accompanying notes

4

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months ended June 30,
	2012			2011
Operating activities:
Net income	$	455,000		$	490,000
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		2,995,000			2,880,000
Stock based compensation expense		59,000			77,000
Loss (Gain) on sale of assets		3,000			(53,000	)
Changes in operating assets and liabilities:
Receivables		174,000			(677,000	)
Prepaid expenses and other assets		(581,000	)		(297,000	)
Customer deposits/deferred revenue		(25,000	)		103,000
Accounts payable and accrued liabilities		(326,000	)		556,000
Net cash from operating activities		2,754,000			3,079,000
Investing activities:
Payment for purchase of property and equipment		(3,709,000	)		(1,770,000	)
Investment in subsidiaries by non-controlling interests		79,000			970,000
Payment for repurchase of common stock		(29,000	)		-
Investment in convertible preferred stock		(31,000	)		-
Proceeds received towards equipment held for sale		-			1,654,000
Net cash from investing activities		(3,690,000	)		854,000
Financing activities:
Principal payments on long-term debt		(1,950,000	)		(1,704,000	)
Principal payments on capital leases		(1,833,000	)		(1,422,000	)
Long term debt financing on property and equipment		3,925,000			-
Advances on line of credit		350,000			-
Payments on line of credit		(600,000	)		(800,000	)
Distributions to non-controlling interests		(539,000	)		(627,000	)
Net cash from financing activities		(647,000	)		(4,553,000	)
Net change in cash and cash equivalents		(1,583,000	)		(620,000	)
Cash and cash equivalents at beginning of period		2,580,000			1,438,000
Cash and cash equivalents at end of period	$	997,000		$	818,000
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest	$	1,204,000		$	1,237,000
Income taxes	$	86,000		$	40,000
Schedule of non-cash investing and financing activities
Acquisition of equipment with capital lease financing	$	264,000		$	3,472,000

See accompanying notes

5

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, 2012 and the results of its operations for the three and six month periods ended June 30, 2012 and 2011, which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2011 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, 2011 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”); and American Shared Radiosurgery Services (“ASRS”); ASRS’ majority-owned subsidiary, GK Financing, LLC (“GKF”); GKF’s wholly-owned subsidiaries, GK Financing U.K., Limited (“GKUK”) and Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”); ASHS’ majority owned subsidiary, Long Beach Equipment, LLC (“LBE”), GKF’s majority owned subsidiaries, Albuquerque GK Equipment, LLC (“AGKE”), Jacksonville GK Equipment, LLC (“JGKE”) and EWRS, LLC (“EWRS”), and EWRS’ wholly owned subsidiary, EWRS Tibbi Cihazlar Ticaret Ltd Sti (“EWRS Turkey”).

The Company through its majority-owned subsidiary, GKF, provided Gamma Knife units to nineteen medical centers as of June 30, 2012 in the states of Arkansas, California, Connecticut, Florida, Illinois, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Texas and Wisconsin, and in Turkey.

GKF also provides radiation therapy equipment to the radiation therapy department at the Gamma Knife site in Turkey. The Company also directly provides radiation therapy and related equipment, including Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an existing Gamma Knife site in the United States.

The Company formed the subsidiaries GKUK, GKPeru, EWRS and EWRS Turkey for the purposes of expanding its business internationally into the United Kingdom, Peru and Turkey; LBE to provide proton beam therapy services in Long Beach, California; and AGKE and JGKE to provide Gamma Knife services in Albuquerque, New Mexico and Jacksonville, Florida. AGKE and EWRS Turkey began operation in the second quarter 2011 and JGKE began operation in the fourth quarter 2011. GKPeru, GKUK and LBE are not expected to begin operations in 2012.

6

During 2011 and 2012, the Company’s partner in its Turkey operation, its partners in the Albuquerque Gamma Knife operation, and its partners in the Jacksonville Gamma Knife operations have made investments in EWRS, AGKE and JGKE, respectively. These investments are included in the line item “Non-controlling interests in subsidiaries” in the Company’s financial statements.

The Company has only one operating segment. 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, 2012 basic earnings per share was computed using 4,612,000 common shares, and diluted earnings per share was computed using 4,640,000 and 4,639,000 common shares and equivalents, respectively. For the three and six months ended June 30, 2011 basic earnings per share was computed using 4,607,000 and 4,602,000 common shares, respectively, and diluted earnings per share was computed using 4,613,000 and 4,610,000 common shares and equivalents, respectively.

The computation for the three and six month periods ended June 30, 2012 excluded approximately 310,000 of the Company’s stock options because the exercise price of the options was higher than the average market price during those periods. The computation for the three and six month periods ended June 30, 2011 excluded approximately 155,000 of the Company’s stock options because the exercise price of the options was higher than the average market price during the periods.

Note 3. Stock-based Compensation

On June 2, 2010, the Company’s shareholders approved an amendment and restatement of the 2006 Stock Incentive Plan (the “2006 Plan”). Among other things, the amendment and restatement renamed the 2006 Plan to the Incentive Compensation Plan (the “Plan”) and increased the number of shares of the Company’s common stock reserved for issuance under the Plan by an additional 880,000 shares from 750,000 shares to 1,630,000 shares. The shares are reserved for issuance to officers of the Company, other key employees, non-employee directors, and advisors. The Plan serves as successor to the Company’s previous two stock-based employee compensation plans, the 1995 and 2001 Stock Option Plans. The shares reserved under those two plans, including the shares of common stock subject to currently outstanding options under the plans, were transferred to the Plan, and no further grants or share issuances will be made under the 1995 and 2001 Plans. Under the Plan, there have been 84,000 restricted stock units granted, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, and there are 596,000 options granted, of which 528,000 options are vested as of June 30, 2012.

7

Compensation expense associated with the Company’s stock-based awards to employees is 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 fair value estimates. The estimated fair value of the Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest rate which are specific to each award. 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 $27,000 and $59,000 is reflected in net income for the three and six month periods ended June 30, 2012, compared to $39,000 and $77,000 in the same periods in the prior year, respectively. There were 21,000 options issued and no options exercised during both the three and six month periods ended June 30, 2012. There were no excess income tax benefits to report.

Note 4. Convertible Preferred Stock Investment

As of June 30, 2012 the Company has a $2,687,000 investment in the convertible preferred stock (“Preferred Stock”) of Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, Inc., representing an approximate 1.0% interest in Mevion. The Company’s investment in Mevion was $2,656,000 as of December 31, 2011. The Company accounts for this investment under the cost method.

The Preferred Stock is convertible at any time at the option of the holder into shares of common stock of Mevion 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 Mevion, 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. The Company does not have the right to appoint a member of the Board of Directors of Mevion.

The Company carries its investment in Mevion at cost and reviews it for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value of the investment may not be recoverable. The Company evaluated this investment for impairment at December 31, 2011 and reviewed it at June 30, 2012 in light of both current market conditions and the ongoing needs of Mevion to raise cash to continue its development of the first compact, single room PBRT system. Based on its analysis, the Company estimates that there is currently an unrealized loss (impairment) of approximately $1.3 million.

In assessing whether the impairment is other than temporary, we evaluated the length of time and extent to which market value has been below cost, the financial condition and near term prospects of Mevion and our ability and intent to retain our investment for a period sufficient to allow for an anticipated recovery in the market value. Although the investment is not without certain risk, and the manufacture of the first unit has taken longer than originally anticipated, the Company believes that the current market value is a temporary situation brought on solely due to the continuing downturn of the economy, and is not a reflection on the progress or viability of Mevion or its PBRT design.

8

During the second quarter of 2012, Mevion announced that it had received FDA 510(k) clearance for its MEVION S250 system, which enables users of the system to treat patients immediately upon completion of system installation. Mevion had previously announced that it had received the CE Mark certification which enables Mevion to market, sell and install these systems through the European Union and any country that recognizes the CE Mark. Based on the continuing progress being made by Mevion toward the manufacture and installation of the first single room PBRT system, the Company believes that our investment in Mevion is not other than temporarily impaired, and the fair value will increase so that the carrying value will be recovered.

Note 5. Line of Credit

The Company has a $9,000,000 renewable line of credit with the Bank of America (the “Bank”) that has been in place since June 2004 and has a maturity date of August 1, 2013. The line of credit 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 0.5 percentage point, or alternately, at the Company’s discretion, the LIBOR rate plus 1.0 percentage point, and are secured by the Company’s cash invested with the Bank. The Company is in compliance with all debt covenants required. The weighted average interest rate during the first three months of 2012 was 1.15%. At June 30, 2012, $7,600,000 was borrowed against the line of credit, compared to $7,850,000 at December 31, 2011.

Note 6. Fair Value of Financial Instruments

The Company’s disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The carrying value of financial instruments including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accrued liabilities approximated their fair value as of June 30, 2012 and December 31, 2011 because of the relatively short maturity of these instruments. The fair value of the Company’s investment in preferred stock is estimated to be $1,383,000 at both June 30, 2012 and December 31, 2011. The Company used the offering price in private placements of Mevion’s preferred stock during 2011 to estimate the fair value under Level 2 of the hierarchy. The fair value of the Company’s various debt obligations, discounted at currently available interest rates was approximately $36,196,000 and $35,743,000 at June 30, 2012 and December 31, 2011, respectively. The fair value of the Company’s debt was estimated using Level 3 inputs.

9

Note 7. Repurchase of Common Stock

In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. The Company repurchased approximately 9,000 shares of its stock during the second quarter of 2012 at an average price of $3.26 per share. The Company did not repurchase any of its stock during 2011 or the first quarter of 2012. There are approximately 72,000 shares remaining under this repurchase authorization.

Item 8. 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 and radiation therapy businesses, the risks of developing The Operating Room for the 21^st Century® program, and the risks of investing in a development-stage company, Mevion Medical Systems, Inc. (“Mevion”), 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, 2011 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 7, 2012.

The Company had nineteen Gamma Knife units in operation at June 30, 2012 compared to twenty Gamma Knife units at June 30, 2011. Three of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Twelve of the Company’s nineteen current Gamma Knife customers are under fee-per-use contracts, and seven customers are under retail arrangements. The Company’s two contracts to provide radiation therapy and related equipment services to existing Gamma Knife customers are considered retail arrangements. Retail arrangements are further classified as either turn-key or 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 equipment. Revenue is recorded on a gross basis and estimated based on historical experience of that hospital’s contracts with third party payors. For revenue sharing arrangements the Company receives a contracted percentage of the reimbursement received by the hospital. The gross amount the Company expects to receive is recorded as revenue and estimated based on historical experience.

10

Medical services revenue increased by $78,000 and $114,000 to $4,284,000 and $8,687,000 for the three and six month periods ended June 30, 2012 from $4,206,000 and $8,573,000 for the three and six month periods ended June 30, 2011, respectively. The increases for both the three and six month periods are primarily due to an increase in revenue from the Company’s radiation therapy sites, partially offset by a decrease in revenue from its Gamma Knife sites compared to the same periods in the prior year. The increase in radiation therapy revenue was due to a new contract that began operation in the fourth quarter 2011, and increased volume at its existing radiation therapy site. The decrease in Gamma Knife revenue for both the three and six month periods compared to the same periods in the prior year was primarily due to lost revenue from one unit that was sold to the customer in the third quarter 2011. For the three month period the decrease was also partially due to one site where the contract ended in the second quarter 2012 at the end of its term. For the six month period the revenue decrease was also partially due to a site that was out of service for one month for a cobalt reload during the first quarter 2012.

The number of Gamma Knife procedures increased by 77 and increased by 102 to 527 and 1,041 for the three and six month periods ended June 30, 2012 from 450 and 939 in the same periods in the prior year, respectively. For both the three and six month periods, the primary reason for the increase is the addition of a new Gamma Knife unit that began operation in Turkey in late second quarter 2011. For both the three and six month periods, volume at the Company’s sites where Perfexion units have been installed increased by 4% compared to the prior year. The increase in the second quarter was offset by the loss of volume from a Gamma Knife site where the contract ended in the second quarter 2012.

Total costs of revenue increased by $41,000 and $164,000 to $2,411,000 and $4,977,000 for the three and six month periods ended June 30, 2012 from $2,370,000 and $4,813,000 for the three and six month periods ended June 30, 2011, respectively. Maintenance and supplies decreased by $8,000 and increased by $38,000 for the three and six month periods ended June 30, 2012 compared to the same periods in the prior year. The variance for the three month period was due to lower costs for maintenance contracts, offset by higher costs for maintenance and repairs not covered under maintenance contracts. For the six month period the increase was due to higher maintenance contract expense because the warranty period ended for three Gamma Knife units and higher costs for maintenance and repairs not covered under maintenance contracts, partially offset by lower contract maintenance at several other sites. Depreciation and amortization increased by $1,000 and $119,000 for the three and six month periods ended June 30, 2012 compared to the same periods in the prior year, primarily because depreciation started on four new sites that began operation since the first quarter 2011. This was partially offset by a reduction in depreciation for three sites where depreciation was stopped because the remaining value of the equipment had reached its salvage value, and one site where the depreciable life was extended due to a customer contract extension. Other direct operating costs increased by $48,000 and $7,000 for the three and six month periods ended June 30, 2012 compared to the same periods in the prior year. For both the three and six month periods, the increase is primarily due to higher operating costs in connection with the Company’s retail sites, partially offset by lower marketing costs.

Selling and administrative costs increased by $68,000 and decreased by $30,000 to $1,109,000 and $2,133,000 for the three and six month periods ended June 30, 2012 from $1,041,000 and $2,163,000 for the same periods in the prior year, respectively. For the three month period, the increase was due to higher payroll related costs and travel expense. The decrease for the six month period was primarily due to lower payroll related costs.

11

Interest expense decreased by $31,000 and $33,000 to $539,000 and $1,113,000 for the three and six month periods ended June 30, 2012 from $570,000 and $1,146,000 for the three and six month periods ended June 30, 2011, respectively. For both the three and six month periods, this was primarily due to lower interest expense on borrowing under the Company's line of credit with a bank. Higher interest expense on financing from three new Gamma Knife units and one radiation therapy unit was offset by lower interest expense on debt relating to the more mature units. The mature units have lower interest expense because interest expense decreases as the outstanding principal balance of each loan is reduced.

Interest and other income decreased by $54,000 and $69,000 to $14,000 and $15,000 for the three and six month periods ended June 30, 2012 from $68,000 and $84,000 for the three and six month periods ended June 30, 2011, respectively. For both the three and six month periods, the decrease was primarily due to a gain on the sale of equipment of $53,000 in second quarter 2011.

The Company had income tax expense of $13,000 and $24,000 for the three and six month periods ended June 30, 2012 compared to income tax expense of $22,000 and $45,000 for the three and six month periods ended June 30, 2011, respectively. The reduction in income tax expense for both the three and six month periods is primarily due to lower taxable income attributable to American Shared Hospital Services. In addition, the Company is estimating a lower effective annual income tax rate for 2012 of 46% and 50% for the three and six month periods ended June 30, 2012, based on income attributable to American Shared Hospital Services, compared to an estimated 52% income tax rate used for the same periods in the prior year.

Net income attributable to non-controlling interest decreased by $39,000 and $17,000 to $211,000 and $431,000 for the three and six month periods ended June 30, 2012 from $250,000 and $448,000 for the three and six month periods ended June 30, 2011. Non-controlling interest primarily represents the 19% interest of GK Financing owned by a third party, as well as non-controlling interests in subsidiaries of GK Financing owned by third parties that began operations in 2011. Variances in net income attributable to non-controlling interest represents the relative increase or decrease in profitability of GKF and these ventures.

The Company had net income of $15,000, or $0.00 per diluted share, and $24,000, or $0.01 per diluted share, for the three and six month periods ended June 30, 2012, compared to net income of $21,000, or $0.00 per diluted share, and $42,000, or $0.01 per diluted share, in the same periods in the prior year, respectively. The decrease in net income for the three month period was primarily due to higher selling and administrative costs and a decrease in interest and other income, partially offset by a higher gross margin and lower interest expense. The decrease in net income for the six month period was primarily due to a decrease in interest and other income and reduced gross margin, partially offset by lower selling and administrative costs and interest expense.

12

Liquidity and Capital Resources

The Company had cash and cash equivalents of $997,000 at June 30, 2012 compared to $2,580,000 at December 31, 2011. The Company’s cash position decreased by $1,583,000 due to payments for the purchase of property and equipment of $3,709,000, principal payments on long term debt and capital leases of $3,783,000, net pay downs on the Company’s line of credit with a bank of $250,000, distributions to non-controlling interests of $539,000, investment in convertible preferred stock of $31,000 and the repurchase of the Company’s common stock of $29,000. These decreases were offset by net cash from operating activities of $2,754,000, long term debt financing on the purchase of equipment of $3,925,000, and an investment by a non-controlling interest of $79,000.

As of June 30, 2012, the Company has a $9,000,000 principal investment in a certificate of deposit with a bank at an interest rate of 0.45% and a maturity date in August 2012.

The Company has a two year renewable $9,000,000 line of credit with a bank, 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, 2012 there was $7,600,000 drawn against the line of credit, compared to $7,850,000 at December 31, 2011.

The Company has scheduled interest and principal payments under its debt obligations of approximately $5,228,000 and scheduled capital lease payments of approximately $5,149,000 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 as of June 30, 2012 had shareholders’ equity of $25,196,000, working capital of $6,262,000 and total assets of $74,365,000.

Commitments

The Company has a $2,687,000 preferred stock investment in Mevion Medical Systems, Inc., a development stage company, which is considered a long-term investment on the balance sheet and is recorded at cost. As of June 30, 2012, the Company also has $2,500,000 in non-refundable deposits toward the purchase of three MEVION S250 proton beam radiation therapy (PBRT) systems from Mevion. The Company has entered into an agreement with a radiation oncology physician group which has contributed $100,000 towards the deposit on one of these PRBT systems. The three PRBT systems have anticipated delivery dates beginning in mid-2013.

The Company has made non-refundable deposits totaling $2,924,000 towards the purchase of a LGK Model 4 Gamma Knife unit to be installed at a site in Peru, a radiation therapy unit to be installed in Brazil, a Perfexion unit scheduled to be installed at a new customer site in Florida, a Perfexion unit to be installed at an existing customer, and another Perfexion unit scheduled to be installed at a site yet to be determined.

13

Including the commitments for the three MEVION S250 systems, the three Perfexion units, the LGK Model 4 Gamma Knife unit and the radiation therapy unit, the Company has total remaining commitments to purchase equipment in the amount of approximately $46,000,000. It is the Company’s intent to finance the remaining purchase commitments as needed, and financing has been obtained for the units in Florida and Peru. However, due to the current economic and credit market conditions it has been more difficult to obtain financing for some of the Company’s projects. The Company expects that it will be able to obtain financing on the commitments for the remaining Perfexion units and the radiation therapy unit. The Company also expects that it will be able to obtain financing commitments from lenders for its PBRT systems now that Mevion has obtained FDA approval on the MEVION S250. However, there can be no assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage or prepayment features. The Company does not have affiliation with partnerships, trust or other entities whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements, and therefore has no exposure to the financing, liquidity, market or credit risks associated with such entities. At June 30, 2012 the Company had no significant long-term, market-sensitive investments.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. These controls and procedures are designed to ensure that material information relating to the company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on that evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2012, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the chief executive officer and the chief financial officer, and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There are no changes from those listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved.]

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

The following exhibits are filed herewith:

10.49a Addendum One to Lease Agreement dated effective as of December 23, 2011, between GK Financing, LLC and Mercy Health Center (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks).

10.64 Lease Agreement dated November 16, 2011 between EWRS TIBBİ CİHAZLAR LTD. TURKEY, a limited liability company and FLORENCE NIGHTINGALE HASTANESİ (Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks).

31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

15

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.

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, 2012	/s/ Ernest A. Bates, M.D.
		Ernest A. Bates, M.D.
		Chairman of the Board and Chief Executive Officer
Date:	August 14, 2012	/s/ Craig K. Tagawa
		Craig K. Tagawa
		Senior Vice President
		Chief Operating and Financial Officer

16

EX-10.49A

Exhibit 10.49a

Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.

ADDENDUM ONE

TO EQUIPMENT LEASE AGREEMENT

This ADDENDUM ONE TO EQUIPMENT LEASE AGREEMENT (this “Addendum”) is dated effective as of December 23, 2011, between Mercy Health Center, an Oklahoma not for profit corporation (“Hospital”), and GK Financing, LLC, a California limited liability company (“GKF”).

Recitals:

WHEREAS, GKF and Hospital are parties to a certain Equipment Lease Agreement dated May 28, 2004 (the “Lease”), which provides in Section 13 thereof, that the parties shall mutually discuss and decide on the necessity for reloading of the Cobalt-60 source in the Equipment; and

WHEREAS, the parties desire to set forth herein their agreement regarding the reloading of the Equipment.

NOW, THEREFORE, in consideration of the mutual covenants, conditions, and agreements set forth herein, and for the other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

Agreement:

1.         Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meanings set forth in the Lease.

2.         Cobalt Reload of the Equipment. The Equipment shall be reloaded with new cobalt-60 that meets the manufacturer’s radioactivity level specifications (the “Reload”), subject to the following terms and conditions:

a. Scheduling and Process for the Reload. The Reload shall be performed at the Site and shall include any required installation and rigging. Subject to scheduling availability, GKF shall use its commercially reasonable efforts to perform the Reload in the first quarter of 2012; provided that the Reload shall be performed only after all necessary and appropriate licenses, permits, approvals, consents and authorizations, including, without limitation, the proper handling of the cobalt-60 (collectively, the “Permits”), have been obtained by Hospital at Hospital’s sole cost and expense (other than any filing, registration or licensing fees which shall be paid * by GKF and * by Hospital). The timing and procedure for such Reload shall be as mutually agreed upon between the parties. Notwithstanding anything to the contrary contained in this Addendum, GKF makes no representation or warranty to Hospital concerning the Reload, and GKF shall have no obligation or liability to pay any damages to Hospital resulting therefrom, including, without limitation, any lost revenues or profits during the period of time that the Equipment is unavailable to perform procedures due to the Reload process.

Exhibit 10.49a

b. Hospital Personnel and Services. Upon request and as required by GKF, Hospital, at Hospital’s cost and expense, shall provide GKF with Hospital personnel (including Hospital’s physicists) and services in connection with the Reload, among other things, to oversee, supervise and assist with construction and compliance with local, state and federal regulatory requirements and with nuclear regulatory compliance issues and the calibration of the Equipment.

c. Costs of Reload. The actual costs of the Reload paid or payable to third parties (which is estimated to be between * and *) shall be shared equally between GKF and Hospital. Neither GKF nor Hospital shall be entitled to reimbursement for its own respective personnel costs, internal costs or overhead.

d. Extension of Term for Downtime. The Term of the Lease shall be extended for the period of time that the Equipment is unavailable to perform procedures due to the Reload (which is estimated to take approximately ______ (__) weeks for the Reload).

e. No Additional Responsibilities. It is understood by the parties that GKF is not responsible for any upgrades, hardware, cobalt reloading, software changes and/or other modifications to the Equipment, except as expressly set forth herein or otherwise agreed upon in writing by Hospital and GKF.

3.          Captions. The captions and paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Addendum.

4.          Full Force and Effect. Except as amended by this Addendum, all of the terms and provisions of the Lease shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Addendum One effective as of the date first written above.

GKF:		Hospital:
GK Financing, LLC		Mercy Health Center
		An Oklahoma Not for Profit Corporation
By:	/s/Ernest A. Bates, M.D.	By:	/s/ Jim R. Gebhart
	Ernest A. Bates, M.D.	Name:	Jim R. Gebhart
	Policy Committee Member	Title:	President

EX-10.64

Exhibit 10.64

Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks.

EQUIPMENT REVENUE SHARING AGREEMENT

This EQUIPMENT LEASE AGREEMENT (“Agreement”) is made and entered into on November 16, 2011, by and between EWRS TIBBİ CİHAZLAR LTD. TURKEY, a limited liability company (“EWRSEWRS”) and FLORENCE NIGHTINGALE HASTANESİ A.Ş., a Turkish corporation (“Hospital”), with reference to the following facts:

RECITALS

A.           EWRS intends to purchase a Leksell Stereotactic Gamma Knife Perfexion Unit (the “Equipment”) of which the details are stated in Exhibit 1 and which it will acquire from Elekta Instruments, A.B., a Swedish corporation (“Elekta”).

B.           Hospital wishes to use and operate the Equipment of EWRS, and EWRS is willing to place the Equipment to Hospital, upon the terms, covenants, conditions and agreements set forth in this Agreement.

Hospital and EWRS may be referred individually as “Party”, collectively as “Parties”

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements set forth herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.          Revenue Sharing Agreement. Subject to and in accordance with the covenants and conditions set forth in this Agreement, EWRS hereby agrees to the Equipment at Hospital, and Hospital hereby agrees to operate and the Equipment of EWRS,. The Equipment to be to be placed at Hospital and used used by Hospital pursuant to this Agreement shall be the Leksell Gamma Knife Perfexion, including all standard hardware and software related thereto.

2.          LGK Agreement. Simultaneously with the execution of this Agreement, Hospital and Elekta shall enter into that certain LGK Agreement (the “LGK Agreement”) a copy of which is attached hereto as Exhibit A. Hospital shall perform, satisfy and fulfill all of its obligations arising under the LGK Agreement when and as required thereunder. Hospital acknowledges that EWRS is a third party beneficiary of the LGK Agreement and, in that capacity, EWRS shall be entitled to enforce Hospital’s performance, satisfaction and fulfillment of its obligations thereunder.

Exhibit 10.64

3.           Term of the Agreement. The term of this Agreement (the “Term”) shall commence as of the date hereof and, unless earlier terminated shall continue for a period of twelve (12) years following the performance of the first clinical Gamma Knife procedure (the “First Procedure Date”) at the Site. Hospital’s obligation to make the payments to EWRS for the Equipment described in Section 8 below shall commence as of the First Procedure Date.

4.           User License; EWRS Policy Committee.

4.1           Hospital shall, at its sole cost and expense, apply for and obtain in a timely manner a User License and Site License, stating that the site is as per TAEK (Turkish Atomic Energy Council) requirements and, if necessary, from any applicable county and district councils authorizing it to take possession of and maintain the Cobalt supply required in connection with the use of the Equipment during the term of this Agreement. EWRS shall, at its sole cost and expense, be responsible for the import license for the cobalt source. Hospital shall, at its sole cost and expense, apply for and obtain in a timely manner all other licenses, permits, approvals, consents and authorizations which may be required by county or local governmental or other regulatory agencies for the development, construction and preparation of the Site, the charging of the Equipment with its Cobalt supply, the conduct of acceptance tests with respect to the Equipment, and the use of the Equipment during the Term, as more fully set forth in Article 2.1 of the LGK Agreement and shall maintain these during the Term.

5.           Delivery of Equipment; Site.

5.1           EWRS shall coordinate with Elekta and Hospital to have the Equipment delivered to Hospital at İstanbul Gayrettepe at F.O.B. loading dock (the “Site”) on or prior to the delivery date agreed upon by Hospital and EWRS, but in any case, after and on condition that the Hospital concludes all necessary agreements and arrangements with Social Security Institution and any other public patient, governmental re-imbursement program for Procedures.

Subject to the procurement of finance by EWRS stated in Article 14 below, the Equipment shall be delivered to the Hospital within 12 weeks following the Hospital obtains all necessary permits and licenses (the ones that are possible to be obtained before the delivery of the Equipment) for the placement of the Equipment , but in any case prior to the date of 01.07. 2011. In the event that the Equipment is not delivered to the Hospital prior to the date of 01.06.2012, the Party responsible for the delay (For Hospital not completing the permit, license and Site construction as stated in Article 6.4 below, for EWRS not delivering the Equipment to the Hospital) shall pay the other Party delay penalty at the amount of * for each week until the delivery is made accordingly. In the event that the delivery cannot be made until the date of 01.09.2012 (long stop date), this Agreement shall be deemed as terminated and the Party which has no negligence, may, in addition to the delay penalties, claim its costs and expenses regarding the signature and performance of this Agreement.

Exhibit 10.64

5.2           Subject to Section 6 below, Hospital, at its cost and expense, shall provide a safe, convenient Site for the Equipment. The location of the Site shall be subject to the prior approval of EWRS.

6.           Site Preparation and Installation of Equipment.

6.1           Hospital, at its cost and expense, shall prepare all plans and specifications required to prepare, construct and improve the Site for the installation, use and operation of the Equipment during the Term. The plans and specifications (i) shall be approved by EWRS, which approval shall not be unreasonably withheld or delayed; (ii) shall comply in all respects with the site planning criteria attached as Exhibit [•] to the LGK Agreement (collectively the “Site Planning Criteria”); and (iii) to the extent required by applicable law, shall be submitted to all regulatory agencies for their review and approval. Hospital, at its cost and expense, shall obtain and maintain all permits, certifications, approvals or authorizations required by applicable jurisdiction laws, rules or regulations necessary to prepare, construct and improve the Site as provided above and for use and operation of the Equipment during the term of this agreement.

6.2           Hospital, at its cost and expense, shall prepare, construct and improve the Site as necessary for the installation, use and operation of the Equipment during the Term, including, without limitation, providing all temporary or permanent shielding required for the charging of the Equipment with the Cobalt supply and for its subsequent use, selecting and constructing a proper foundation for the Equipment and the temporary or permanent shielding, aligning the Site for the Equipment, and installing all electrical systems and other wiring required for the Equipment. In connection with the construction of the Site, Hospital, at its cost and expense, shall select, purchase and install all radiation monitoring equipment, devices, safety circuits and radiation warning signs required at the Site in connection with the use and operation of the Equipment.

6.3           EWRS, at its cost and expense, shall be responsible for the rigging and installation of the Equipment at the Site, including the positioning of the Equipment on its foundation at the Site in compliance with the Site Planning Criteria.

6.4           With respect to the placement of Equipment, Hospital shall use its best efforts to satisfy its obligations under this Section 6 in a timely manner. Hospital shall keep EWRS informed on a regular basis of its progress in the design of the Site, the preparation of plans and specifications, the construction and improvement of the Site, and the satisfaction of its other obligations under this Section 6. In all events, Hospital shall complete all construction and improvement of the Site required for the installation, positioning and testing of the Equipment on or prior to the delivery date described in Section 5.1 above.

6.5           During the Term, Hospital, at its cost and expense, shall maintain the Site in a good working order, condition and repair, reasonable wear and tear excepted.

Exhibit 10.64

7.           Marketing Support.

7.1         Not less than ninety (90) days prior to the First Procedure Date and the commencement of each succeeding twelve (12) month period during the Term, EWRS and Hospital shall jointly develop an annual marketing plan, budget and timeline, which shall be implemented by EWRS, based on the approved budget and timeline. The Hospital and EWRS agree that the annual marketing plan shall not include an aggressive marketing plan that would harm the reputation of the Hospital Hospital’s approval of such plan, budget and timeline shall not be unreasonably withheld or delayed. If Hospital has not approved or disapproved the same within thirty (30) days following its receipt, Hospital shall be deemed to have approved the same. Any out-of-pocket marketing expenses paid to unrelated third parties that are included in the marketing plan budget shall be reimbursed through Gamma Knife revenues prior to distribution to either Party. It is anticipated that the annual marketing budget will be approximately *. Any marketing efforts conducted independently by Hospital shall be at Hospital’s expense, and subject to coordination with EWRS.

7.2         The Gamma Knife program at the Hospital shall be given a name mutually agreed to by EWRS and Hospital (the “Program”). All communications to the public regarding the Program may identify the Program as being associated with EWRS and Hospital, provided that all such communications are in accordance with the communications and marketing plan adopted or approved by Hospital and EWRS. Hospital shall use its best efforts to promote the Program and to encourage the use thereof by the Public and medical community.

8.           Net Revenue Sharing Arrangement.

8.1         Amount. As rent for the Hospital’s use of the Equipment pursuant to this Agreement (“Net Revenue Payment”), Hospital shall pay to EWRS an amount equal to * of “Net Revenues.” Net Revenues are defined as *.

8.2         Calculation of Net Revenue Payments and Direct Operating Expenses. The amount due to EWRS hereunder shall be determined and paid on a monthly basis throughout the Term and any extensions thereof, and thereafter to the extent any Gross Collections associated with Procedures during the Term or any extensions thereof are received subsequent to termination of this Agreement. Within thirty (30) days after the last day of each calendar month of the Term and any extensions thereof (and upon the termination or expiration of the Term or any extensions thereof with respect to a period shorter than a calendar month), each party shall submit to the other a written statement setting forth such party's respective Direct Operating Expenses.

* (also refer to Section 8.5(d). *.

Each party’s respective Direct Operating Expenses shall be determined in good faith in accordance with Generally Accepted Accounting Principles (“GAAP”) consistently applied and with the terms of this Agreement. Significant costs and expenses incurred by both parties are enumerated in Exhibit 1.

Exhibit 10.64

8.3         Payment to EWRS. The Net Revenue Payments payable to EWRS pursuant to Section 8.1 above, together with EWRS's Direct Operating Expenses for such month (or portion thereof) (collectively, the "EWRS Monthly Reimbursement"), shall be due and payable by Hospital thirty (30) days after the last day of each calendar month of the Term and any extensions thereof (and upon the termination or expiration of the Term). If EWRS shall at any time accept any portion or all of the EWRS Monthly Reimbursement after it shall become due, such acceptance shall not constitute or be construed as a waiver of any or all of EWRS's rights under this Agreement, including the rights of EWRS set forth in Section 19 hereof. Notwithstanding the foregoing, with respect to any month for which Gross Collections are equal to or less than the sum of each party's respective Direct Operating Expenses, such Gross Collections shall be used to pay the pro rata portion of Hospital's Direct Operating Expenses and EWRS's Direct Operating Expenses. Any shortfall in the reimbursement of each party's Direct Operating Expenses shall be carried over to the next month(s) and shall be paid in full from Gross Collections prior to the payment of any Net Revenue Payments to EWRS, or distribution to Hospital or any of its affiliates.

8.4         Inspection of Records. Throughout the Term and thereafter until final settlement of all amounts owed to or claimed by either party under this Agreement, each party, at its own expense, shall have the right upon request and from time-to-time, to inspect, audit and copy the other party's books and records which relate to the accounting for and calculation of Gross Collections and Direct Operating Expenses. In any event Hospital, at the end of each calendar month during the term, shall submit all invoices, records and books showing all Procedures performed in the respective month to EWRS. Furthermore, Hospital shall give EWRS a weekly report regarding the Procedures performed in all departments of the Hospital including the patient names together with their reimbursement authority.

8.5         Reimbursement for Gamma Knife Procedures. Hospital shall use its best efforts to renegotiate Hospital's existing contracts to include coverage for stereotactic radiosurgery services utilizing the Equipment to be provided through the Program and to include in new contracts provisions covering such services. "EWRS's Direct Operating Expenses” shall equal *.

(a)          "Hospital's Direct Operating Expenses" shall be equal to *.

(c)          Total EWRS and Hospital Direct Operating Expenses are not expected to exceed * of Gross Collections. See Exhibit 1. for schedule of Expenses.

(d)          "Procedure" means any treatment that involves stereotactic, external, single fraction [and/or multiple fractions up to and including 5 fractions], conformal radiation, commonly called radiosurgery, that may include one or more isocenters during the patient treatment session, delivered to any site(s) superior to the foramen magnum, which Procedure is performed by Hospital, its representatives, affiliates, joint ventures and/or partnerships, on an inpatient or outpatient basis using any of the Equipment.

9.           Use of the Equipment.

9.1         The Equipment shall be used by Hospital only at the Site and shall not be removed therefrom. Hospital shall use the Equipment only in the regular and ordinary course of Hospital’s business operations and only within the capacity of the Equipment as determined by Elekta’s specifications. Hospital shall not use nor permit the Equipment to be used in any manner nor for any purpose which the Equipment is not designed or reasonably suitable as indicated to Hospital by Elekta or EWRS.

Exhibit 10.64

9.2         This is an agreement of lease only. Nothing herein shall be construed as conveying to Hospital any right, title or interest in or to the Equipment, except for the express leasehold interest granted to Hospital for the Term. All Equipment shall remain personal property (even though said Equipment may hereafter become attached or affixed to real property) and the title thereto shall at all times remain exclusively in EWRS.

9.3         During the Term, upon the request of EWRS, Hospital shall promptly affix to the Equipment in a prominent place, or as otherwise directed by EWRS, labels, plates, insignia, lettering or other markings supplied by EWRS indicating EWRS’s ownership of the Equipment, and shall keep the same affixed for the entire Term. Hospital hereby authorizes EWRS to cause this Revenue Sharing Agreement or any statement or other instrument showing the interest of EWRS in the Equipment to be filed or recorded, or refiled or re-recorded, with all governmental agencies considered appropriate by EWRS, at EWRS’s cost and expense. Hospital also shall promptly execute and deliver, or cause to be executed and delivered, to EWRS any statement or instrument requested by EWRS for the purpose of evidencing EWRS’s interest in the Equipment, including financing statements and waivers with respect to rights in the Equipment from any owners or mortgagees of any real estate where the Equipment may be located.

9.4         At Hospital’s cost and expense, Hospital shall (a) protect and defend EWRS’s ownership of and title to the Equipment from and against all persons claiming against or through Hospital, (b) at all times keep the Equipment free from any and all liens, encumbrances, attachments, levies, executions, burdens, charges or legal processes imposed against Hospital, and (c) give EWRS immediate written notice of any matter described in clause (b).

10.         Additional Covenants of Hospital. In addition to the other covenants of Hospital contained in this Agreement, Hospital shall, at its cost and expense.

10.1       In coordination with EWRS, provide properly trained, technical and support personnel and supplies required for the proper performance of Gamma Knife procedures utilizing the Equipment. The cost of technical and support personnel (non-physician) and supplies required for the proper performance of Gamma Knife procedures utilizing the Equipment shall be reimbursed to Hospital from Gross Collections. In this regard, Hospital shall use its best efforts to maintain on staff a minimum of two (2) Gamma Knife trained teams comprised of neurosurgeons and physicists.

10.2       In coordination with EWRS, direct, supervise and administer the provision of all Hospital services relating to Gamma Knife Procedures in accordance with all applicable laws, rules and regulations.

10.3       Use best efforts to keep and maintain the Equipment and the Site fully protected, secure and free from unauthorized access or use by any person.

10.4 In respect of the Procedures, Hospital shall be the sole responsible and liable party against the patients and any other real or legal persons, authorities etc. for any and all damages, losses and claims of such persons and authorities. Nothing in this Agreement can be understood as EWRS will have any responsibility and/or liability for the performance of the Procedures and any other related medical treatment.

Exhibit 10.64

11.         Additional Covenants of EWRS. In addition to the other covenants of EWRS contained in this Agreement, EWRS, at its cost and expense, shall:

11.1       Use its best efforts to require Elekta to meet its contractual obligations to EWRS and Hospital upon delivery of the Equipment and put the Equipment, as soon as reasonably possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer’s specifications, guidelines and field modification instructions.

11.2       Ensure Hospital’s quiet enjoyment and use of the Equipment, free of the rights of any other persons except for those rights reserved by EWRS or granted to Elekta under the LGK Agreement or the Purchase Agreement.

11.3       EWRS and Hospital shall mutually select an individual to be located at the Site to provide Gamma Knife administrative and marketing support services. The individual’s duties shall include but not be limited to scheduling Gamma Knife patients and coordinating professional and technical personnel and support services to perform said Gamma Knife treatment. This individual shall also verify patient insurance. The individual shall also assist with marketing activities on an as needed basis. This individual is provided by the Hospital and the cost of the individual shall be reimbursed from Gross Collections. EWRS and Hospital shall mutually agree on individual.

12.         Maintenance of Equipment; Damage or Destruction of Equipment.

12.1       During the Term and except as otherwise provided in this Agreement, EWRS, at its cost and expense, shall (a) maintain the Equipment in good operating condition and repair, reasonable wear and tear excepted, (b) subject to Hospital’s compliance with its obligations under the LGK Agreement and under Sections 4, 5, 9, 10, 12, 13 and 16 hereunder, cause the equipment to be in compliance with all applicable regulations, and (c) maintain in full force and effect a Service Agreement with Elekta and any other service or other agreements required to fulfill EWRS’s obligation to repair and maintain the Equipment under this Section 12. Hospital shall promptly notify EWRS in the event of any damage or destruction to the Equipment or of any required maintenance or repairs to the Equipment, and EWRS shall, or shall cause its agent to, respond to any such maintenance request within a reasonable time periods soon as possible and practical. In addition, EWRS shall pursue all remedies available to it under the Service Agreement and under any warranties made by Elekta with respect to the Equipment so that the Equipment will be free from defects in design, materials and workmanship and will conform to Elekta’s technical specifications concerning the Equipment.

12.2       EWRS and Elekta shall have the right to access the Equipment for the purpose of inspection and the performance of repairs at all reasonable times, upon reasonable advance notice and with a minimum of interference or disruptions to Hospital’s regular business operations.

Exhibit 10.64

12.3       Hospital shall be liable for any damage to or destruction of the Equipment caused by the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents, and contractors. In the event the Equipment is damaged as a result of the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents and contractors (other than EWRS and Elekta), to the extent such damage is not covered by the Service Agreement or any warranties or insurance, EWRS may service or repair the Equipment as needed for a reasonable cost and the cost thereof shall be paid by Hospital to EWRS immediately upon written request; provided that, if EWRS’s charges and costs for such service or repair are not paid in full by Hospital within sixty (60) days after EWRS’s request therefore, in addition to such charges and costs, Hospital shall pay interest thereon to EWRS until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and costs incurred by EWRS in collecting such amount from Hospital (other than attorneys’ fees). Any work so performed by EWRS shall not deprive EWRS of any of its rights, remedies or actions against Hospital for such damages.

12.4       If the Equipment is rendered unusable as a result of any failure of, physical damage to or destruction of the Equipment due to the reasons other than the ones stated in 12.3, Hospital shall give EWRS written notice thereof. EWRS shall determine, within thirty (30) days after it is given written notice of such damage or destruction, whether the Equipment can be repaired. Subject to Section 12.3 above, in the event EWRS determines that the Equipment cannot be repaired, at the election of EWRS in EWRS’s sole and absolute discretion, (a) EWRS, at its cost and expense, may replace the Equipment as soon as reasonably possible taking into account the availability of replacement equipment from Elekta, Elekta’s other then existing orders for equipment, and the then existing limitations on Elekta’s manufacturing capabilities, and (b) in such event, this Agreement shall continue in full force and effect as though such damage or destruction had not occurred.

13.         Alterations, Upgrades and Cobalt-60 Reload of Equipment. Hospital shall not make any modifications, alterations or additions to the Equipment (other than normal operating accessories or controls) without the prior written consent of EWRS. Hospital shall not, and shall not permit any person other than representatives of Elekta or any other person authorized by EWRS to, effect any inspection, adjustment, preventative or remedial maintenance, or repair to the Equipment without the prior written consent of EWRS. All modifications, alterations, additions, accessories or operating controls incorporated in or affixed to the Equipment (herein collectively called “additions” and included in the definition of “Equipment”) shall become the property of the EWRS upon termination of this Agreement. The Equipment will undergo a Cobalt-60 reload at approximately the start of the seventh year of operation. The actual timing of this re-load is at the discretion of EWRS. The cost to perform a Cobalt reload will be borne by *.

14.         Financing of Equipment by EWRS. EWRS, in its sole discretion, may finance the Equipment. Financing may be in the form of an installment loan, a capitalized lease or other commercially available debt or financing instrument. If EWRS finances the Equipment through an installment loan, EWRS shall be required to provide the Equipment as collateral for the loan. If EWRS finances the Equipment through a capitalized lease, title shall vest with the lessor until such time as EWRS exercises its buy-out option under the lease, if any. If required by the lender, lessor or other financing entity (the “Lender”), EWRS may assign its interest under this Agreement as security for the financing. Hospital’s interest under this Agreement shall be subject to the interests of the Lender and Hospital shall execute such documentation as the Lender shall reasonably require in furtherance of this Section; provided, however, such assignment shall not relieve EWRS of its obligation to Hospital under this Agreement.

Exhibit 10.64

14.1       This Agreement is subject to EWRS procuring financing for equipment on terms acceptable to EWRS. Unless such financing is procured by EWRS, this Agreement will be null and void and Hospital shall have no right or claim against EWRS in any kind whatsoever.

15.         Taxes. EWRS shall pay all sales or use taxes imposed or assessed in connection with the purchase of the Equipment and all personal property taxes imposed, levied or assessed on the ownership and possession of the Equipment during the Term. All other taxes, assessments, licenses or other charges imposed, levied or assessed on the Equipment during the Term shall be paid by Hospital before the same shall become delinquent, whether such taxes are assessed or would ordinarily be assessed against EWRS or Hospital. In case of a failure by Hospital to pay any taxes, assessments, licenses or other charges when and as required under this Section, EWRS may (in EWRS’s sole and absolute discretion) pay all or any part of such taxes, in which event the amount paid by EWRS shall be immediately payable by Hospital to EWRS upon written request; provided that, if EWRS is not repaid in full by Hospital within sixty (60) days after EWRS’s request therefore, in addition to the repayment of the amounts paid by EWRS, Hospital shall pay interest thereon to EWRS until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and costs incurred by EWRS in collecting such amount from Hospital.

16.         No Warranties by EWRS. Hospital warrants that as of the First Procedure Date, it shall have (a) thoroughly inspected the Equipment, (b) determined that the Equipment is consistent with the size, design, capacity and manufacture selected by it, and (c) satisfied itself that to the best of its knowledge the Equipment is suitable for Hospital’s intended purposes and is good working order, condition and repair at the time of acceptance. EWRS SUPPLIES THE EQUIPMENT UNDER THIS AGREEMENT IN ITS “AS IS” CONDITION. EWRS, NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER’S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT’S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE. As between EWRS and Hospital, Hospital shall bear all risks with respect to the foregoing warranties. EWRS shall not be liable for any direct, indirect and consequential losses or damages suffered by Hospital or by any other person for, and Hospital expressly waives any right to hold EWRS liable hereunder for, any claims, demands and liabilities arising out of or in connection with the design or manufacture, possession or operation of the Equipment, including injury to persons or property resulting from the failure of, defective or faulty design, operation, condition, suitability or use of the Equipment. All warranty or other similar claims with respect to the Equipment shall be made by Hospital solely and exclusively against persons other than EWRS, including Elekta or any other manufacturers or suppliers. In this regard and with prior written approval of EWRS, Hospital may, in EWRS’s name, but at Hospital’s sole cost and expense, enforce all warranties, agreements or representations, if any, which may have been made by Elekta or manufacturers, suppliers or other third parties regarding the Equipment to EWRS or Hospital. EWRS shall not be responsible for the operation of the Equipment, however it shall be EWRS’s responsibility that the equipment be properly maintained. EWRS and Hospital shall mutually agree to an acceptable delivery date for the Equipment.

Exhibit 10.64

17.         Termination for Economic Justification.

17.1       Following the initial twenty-four (24) months after the First Procedure Date and following each subsequent 12 month period thereafter during the Term, EWRS shall have the option to terminate this Agreement if, within a reasonable period of time after EWRS’s written request, Hospital does not provide EWRS with a reasonable economic justification to continue this Agreement and the provision of Gamma Knife services at the Hospital. EWRS’s determination shall be based upon the utilization of the Equipment and other factors considered relevant by EWRS in the exercise of its discretion. If EWRS elects to terminate pursuant to this Section, EWRS shall give written notice thereof to Hospital not less than ninety (90) days prior to the effective date of the termination designated in EWRS’s written notice.

17.2       Notwithstanding the provisions of Section 17.1, if at any time during the Term of this Agreement, Hospital is suspended or terminated from participation in any public patient, governmental re-imbursement program for Procedures, EWRS shall have the option to terminate this Agreement immediately by giving written notice thereof to Hospital.

17.3       As a result of any termination of this Agreement pursuant to this Section, EWRS may enter upon the Site under Hospital supervision and remove the Equipment and any improvements made by EWRS to the Site without liability of any kind or nature for appropriate removal or EWRS may demand that Hospital remove and return the Equipment and such improvements to EWRS, all at EWRS’s sole cost and expense. EWRS shall restore the Site to a similar pre-deinstallation appearance and condition.

18.         At the end of the Term, Hospital shall purchase and take ownership of the Equipment for an amount of * . For the avoidance of doubt, purchasing and taking the ownership of the Equipment at the end of the term is not an option for Hospital but an obligation.

19.         Events of Default by Hospital and Remedies.

19.1       The occurrence of any one of the following shall constitute an event of default under this Agreement (an “Event of Default”):

19.1.1   Hospital fails to pay any Net Revenue Payment when due pursuant to Paragraph 8 above and such failure continues for a period of thirty (30) days after written notice thereof is given by EWRS or its assignee to Hospital; however, if Hospital cures the rent payment default within the applicable thirty (30) day period, such default shall not constitute an Event of Default.

19.1.2   Hospital attempts to remove, sell, transfer, encumber, assign, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein.

Exhibit 10.64

19.1.3   Hospital fails to observe or perform any of its covenants, duties or obligations arising under this Agreement or the LGK Agreement and such failure continues for a period of thirty (30) days after written notice thereof by EWRS to Hospital; however, if Hospital cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, Hospital commences to cure the default during the initial thirty (30) day period and Hospital diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.

19.1.4   Hospital ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation.

19.1.5   Within sixty (60) days after the commencement of any proceedings against Hospital seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Hospital’s consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.

19.2       Upon the occurrence of an Event of Default with respect to Hospital, EWRS may at its option do any or all of the following:

19.2.1   By written notice to Hospital, immediately terminate this Agreement as to the Equipment, wherever situated. As a result of the termination, EWRS may enter upon the Site and remove the Equipment and any improvements made by EWRS to the Site without liability of any kind or nature for so doing or EWRS may demand that Hospital remove and return the Equipment and such improvements to EWRS, all at Hospital’s sole cost and expense.

19.2.3   Sell, dispose of, hold, use or lease the Equipment or any improvements made by EWRS to the Site, as EWRS in its sole and absolute discretion may determine (and EWRS shall not be obligated to give preference to the sale, lease or other disposition of the Equipment or improvements over the sale, lease or other disposition of similar Equipment or improvements owned or leased by EWRS).

In addition to the foregoing remedies, Hospital shall be liable to EWRS for all reasonable costs and expenses incurred by EWRS as a result of the Event of Default or the exercise of EWRS’s remedies.

Exhibit 10.64

19.3       Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or available under applicable law following an Event of Default, Hospital shall, without further request or demand, pay to EWRS all Net Revenue Payments and other sums then owing under this Agreement. Hospital shall in any event remain fully liable for all damages as may be provided by law and for all costs and expenses incurred by EWRS on account of such default, including but not limited to, all court costs. The rights and remedies afforded EWRS under this Agreement shall be deemed cumulative and not exclusive, and shall be in addition to any other rights or remedies to EWRS provided by law or in equity.

20.         Insurance.

20.1       During the Term, EWRS shall, at its cost and expense, purchase and maintain in effect an all risk property and casualty insurance policy covering the Equipment. The all risk property and casualty insurance policy shall be for an amount not less than the replacement cost of the Equipment. The all risk property and casualty insurance policy maintained by EWRS shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by EWRS to Hospital upon request following the commencement of this Agreement and as of each annual renewal of such policy during the Term.

20.2       During the Term, Hospital shall, at its cost and expense, purchase and maintain in effect general and professional liability insurance covering the use or operation of the Equipment by Hospital’s employees and agents. The general and professional liability insurance policies shall each provide coverage in amounts not less than One Million Dollars ($1,000,000.00) per occurrence and One and Five Million Dollars ($5,000,000.00) annual aggregate. The policies to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by Hospital to EWRS no later than the First Procedure Date and as of each annual renewal of such policies during the Term.

20.3       During the construction of the Site and prior to the First Procedure Date, Hospital, at its cost and expense, shall purchase and maintain a general liability insurance policy which conforms with the coverage amounts and other requirements described in Section 20.2 above and which names EWRS as an additional insured party. The policy to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by Hospital to EWRS prior to the commencement of any construction at the Site.

20.4       During the Term, Hospital shall purchase and maintain all workers compensation insurance to the maximum extent required by applicable law: In this respect, the Parties shall create a severance payment fund with the condition to be mutually agreed on Severance Payment Fund expenses and costs shall be included in Parties Direct Operating Costs.

Exhibit 10.64

21.         Indemnification.

21.1       Hospital and EWRS each hereby covenants and agrees that it will defend, indemnify and hold the other party and the other party's officers, directors, members, employees and agents at all times harmless from and against any loss, damage and expense (including reasonable attorneys’ fees and other costs of defense) caused by or arising out of: (i) any liability or obligation related to the business of the indemnifying party prior to the date hereof; (ii) any obligation or liability arising from services provided under this Agreement by the indemnifying party to the extent any such liability or obligation directly results from the negligence or intentional misconduct of the indemnifying party, it’s employees or agents ; or (iii) any obligation or liability resulting from a breach of any provision of this Agreement by the indemnifying party, it’s employees or agents. The obligations of the parties under this Section shall survive the expiration or earlier termination of this Agreement.

21.2       Any party that intends to enforce an indemnity obligation shall give the indemnifying party notice of any claim as soon as possible, but the failure to give such notice shall not constitute a waiver or release of the indemnifying party and shall not affect the rights of the indemnified party to recover under this indemnity, except to the extent the indemnifying party is materially prejudiced thereby. In connection with any claim giving rise to indemnity under this Section resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the indemnifying party, at its sole cost and expense, may, upon written notice to the indemnified party, assume control of the defense of such claim or legal proceeding, to the extent that the indemnifying party admits in writing its indemnification liability to the indemnified party with respect to all material elements thereof. If the indemnifying party assumes the defense of any such claim or legal proceeding, the obligations of the indemnifying party hereunder as to such claim or legal proceeding shall be to take all steps necessary in the defense or settlement thereof and to hold the indemnified party harmless from and against any losses, damages, expenses or liability caused by or arising out of any settlement approved by the indemnifying party and the indemnified party or any judgment in connection with such claim or legal proceeding. Each indemnified party shall cooperate with the indemnifying party in the defense of any such action, the defense of which is assumed by the indemnifying party. Except with the consent of the indemnified party, which consent may be withheld at the indemnified party’s sole discretion, the indemnifying party shall not consent to any settlement or the entry of any judgment arising from any such claim or legal proceeding which, in each case, does not include as an unconditional term thereof the delivery by the claimant or the plaintiff to the indemnified party of a release from all liability in respect thereof. If the indemnifying party does not assume the defense of any claim or litigation, any indemnified party may defend against such claim or litigation in such manner as it may deem appropriate, including but not limited to settling such claim or litigation, after giving notice of the same to the indemnifying party, on such terms as the indemnified party may deem appropriate. The indemnifying party will, promptly after any of the same is incurred, reimburse the indemnified party in accordance with the provisions hereof for all damages, losses, liabilities, costs and expenses incurred by the indemnified party.

Exhibit 10.64

21.3       The indemnity obligations under this Section shall survive the termination of this Agreement with respect to events occurring during or relating to the Term.

22.         Miscellaneous.

22.1       EWRS’S Competing Activities: Hospital, as being aware of the fact that EWRS’s activities are operating, selling, leasing or otherwise letting third persons use Lexell Gamma Knife and alike equipments, medical devices, accept and declare that EWRS and/or its shareholders, affiliates, its shareholders’s companies may lease, sell to or otherwise let the use of Lexell Gamma Knife Equipment and/or its alikes and/or other medical devices of any kind to other hospital and/or health entities whether public or private within Turkey including Istanbul or any any where else, may execute agreement similar to this Agreement with third persons, may perform activities competing Hospital’s activities and/or the activities stated herein this Agreement, that they are free for all these issues, and that this Agreement shall not obstruct EWRS and/or its shareholders, affiliates, its shareholders’s companies to perform the same or similar transactions and activities stated in this Agreement or with the subject of this Agreement with third persons, and Hospital shall have no claim whatsoever against EWRS and/or its shareholders, affiliates, its shareholders’s companies.

22.2       Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither party shall assign this Agreement nor any of its respective rights (except assignment by EWRS of its interests as stated in Section 14) hereunder and Hospital shall not sublease the Equipment without the prior written consent of the other party, which consent shall not be unreasonably withheld. An assignment or sublease shall not relieve the assigning party or sublessor of any liability for performance of this Agreement during the remainder of the Term. Any purported assignment or sublease made without the other party’s prior written consent shall be null, void and of no force or effect.

22.3       Agreement to Perform Necessary Acts. Each party agrees to perform any further acts and execute and deliver any further documents which may be reasonably necessary or otherwise reasonably required to carry out the provisions of this Agreement.

22.4       Validity. If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other tribunal of competent jurisdiction, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect.

Exhibit 10.64

22.5       Attorney’s Fees and Costs. In the event of any action, arbitration or other proceedings between or among the parties hereto with respect to this Agreement, each party shall pay for their own attorneys’ fees and related costs and expenses, irrespective of which party is deemed to be the prevailing party.

22.6       Entire Agreement; Amendment. This Agreement together with the Exhibits attached hereto constitutes the full and complete agreement and understanding between the parties hereto concerning the subject matter hereof and shall supersede any and all prior written and oral agreements with regard to such subject matter. This Agreement may be modified or amended only by a written instrument executed by all of the parties hereto.

22.7       Number and Gender. Words in the singular shall include the plural, and words in a particular gender shall include either or both additional genders, when the context in which such words are used indicates that such is the intent.

22.8       Effect of Headings. The titles or headings of the various paragraphs hereof are intended solely for convenience or reference and are not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement.

22.9       Counterparts. This Agreement may be executed in one or more counterparts by the parties hereto. All counterparts shall be construed together and shall constitute one agreement.

22.10     Governing Law and Settlement of Disputes. This Agreement shall be interpreted and enforced in accordance with the internal laws, and not the law of conflicts, of the Republic of Turkey.

Any and all disputes, arising under or in connection with this Agreement shall be settled by arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC). The arbitral tribunal shall consist of three (3) arbitrators. The place of arbitration shall be Ankara, and the language of arbitration shall be English.

22.11     Exhibits. All exhibits attached hereto and referred to in this Agreement are hereby incorporated by reference herein as though fully set forth at length.

22.12     Ambiguities. The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to such ambiguous provision.

Exhibit 10.64

22.13     Representations. Each of the parties hereto represents (a) that no representation or promise not expressly contained in this Agreement has been made by any other party hereto or by any of its agents, employees, representatives or attorneys; (b) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation by such party or individual, expressed or implied, other than such as are set forth expressly in this Agreement; (c) that it has been represented by counsel of its own choice in this matter or has affirmatively elected not to be represented by counsel; (d) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (e) it has full power and authority to execute, deliver and perform this Agreement, and (f) the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other similar action.

22.14     Non-Waiver. No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times.

22.15     Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered to the party to whom notice is to be given either (a) by personal delivery (in which case such notice shall be deemed to have been duly given on the date of delivery), (b) by next business day air courier service (e.g., Federal Express or other similar service) (in which case such notice shall be deemed given on the business day following deposit with the air courier service), or (c) by mail, first class, postage prepaid, registered or certified, return receipt requested (in which case such notice shall be deemed given on the third (3rd) day following the date of mailing), and properly addressed as follows:

To EWRS:

To Hospital: ________________________________

________________________________

________________________________

________________________________

A party to this Agreement may change his, her or its address for purposes of this Section by giving written notice to the other parties in the manner specified herein.

22.16     Force Majeure. Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control, including, without limitation, fires, floods, earthquakes, snow, ice, disasters, acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Notwithstanding the foregoing, all parties shall make good faith efforts to perform under this Agreement in the event of any such circumstance. Further, once such an event is resolved, the parties shall again perform their respective obligations under this Agreement.

Exhibit 10.64

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.

“EWRS”
	By:	/s/ Ernest A. Bates, M.D.
		Ernest A. Bates, M.D.,
		Director
“HOSPITAL”	FLORENCE NIGHTINGALE HASTANESI A.S.
	By:	/s/ Dr. Sinan Nazif Aran
	Name:	Dr. Sinan Nazif Aran
	Title:	Genel idari Koordinator

Exhibit 10.64

Exhibit A

LGK AGREEMENT

NOT USED

Exhibit 10.64

Exhibit 1

HOSPITAL’S COST COMPONENT

Neurosurgeon	* per patient
Technician	* per year
Medical secretary	* per year
Recovery room	* per day
Hospital per diem charge	* daily per admission
(overnight stay for select patients only)
MRI Procedure	* per procedure
CT procedure	* per procedure

EWRS and HOSPITAL JOINT COST COMPONENT

Marketing and Promotion [up to *] per year

On each anniversary of the first procedure date, Hospital and/or EWRS may adjust these cost components up or down, which increases or decreases shall directly correlate to increases or decreases in Hospitals and EWRS’s direct cost (excluding administrative or overhead expenses) supported by documentation reasonably satisfactory to the other party.

Any other billable Hospital services (i.e., medical supplies, lab tests, office supplies, etc.) necessary to perform a Gamma Knife procedure not expressly set forth in this exhibit will be reimbursed to Hospital at Hospital’s costs (excluding administrative or overhead expenses).

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ernest A. Bates, M.D., as chief executive officer of American Shared Hospital Services, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.

August 14, 2012

/s/ Ernest A. Bates, M.D.

Ernest A. Bates, M.D.

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Craig K. Tagawa., as chief financial officer of American Shared Hospital Services, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (or the fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.

August 14, 2012

/s/ Craig K. Tagawa

Craig K. Tagawa

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of American Shared Hospital Services for the quarterly period ended June 30, 2012 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Ernest A. Bates, M.D., the Chief Executive Officer and Craig K. Tagawa, the Chief Financial Officer of American Shared Hospital Services, each certifies that, to the best of his knowledge:

1.        the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.        the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Shared Hospital Services.

August 14, 2012

/s/ Ernest A. Bates, M.D.

Ernest A. Bates, M.D.

Chief Executive Officer

/s/ Craig K. Tagawa

Craig K. Tagawa

Chief Financial Officer