AMERICAN SHARED HOSPITAL SERVICES, 10-K, 2000-03-29

AMERICAN SHARED HOSPITAL SERVICES
10-K, 2000-03-29
MEDICAL LABORATORIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

FORM 10-K
------------------------
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

COMMISSION FILE NUMBER 1-8789
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AMERICAN SHARED HOSPITAL SERVICES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
CALIFORNIA 94-2918118
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

TWO EMBARCADERO CENTER, SUITE 2370, SAN FRANCISCO, CALIFORNIA 94111-3823
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 788-5300

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock No Par Value American Stock Exchange
Pacific Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 27, 2000, the aggregate market value of the common stock held
by non-affiliates of the registrant was approximately $12,158,073.

Number of shares of common stock of the registrant outstanding as of March
27, 2000: 3,810,042.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Meeting of its Shareholders are incorporated by reference into Part III of this
report.
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PART I

ITEM 1. BUSINESS

GENERAL

American Shared Hospital Services ("ASHS" and, together with its
subsidiaries, the "Company") currently provides Gamma Knife stereotactic
radiosurgery services to eight medical centers in seven states. The Company
provides these services through its 81% indirect interest in GK Financing, LLC,
a California limited liability company ("GKF"). The remaining 19% of GKF is
owned by GKV Investments, Inc., a wholly owned U.S. subsidiary of Elekta AG, a
Swedish company ("Elekta"). Elekta is the manufacturer of the Leksell Gamma
Knife (the "Gamma Knife"). GKF is a non-exclusive provider of alternative
financing services for Elekta. Gamma Knife services accounted for almost 100% of
the Company's revenues in 1999.

At present, the Company is developing a business plan for "The Operating
Room for the 21st Century" (sm) ("OR21" (sm)). The Company also is exploring
Internet-related business opportunities that relate strategically and
operationally to its existing and developing lines of business. Neither OR21 nor
the Internet-related businesses are expected to generate significant revenues
within the next twelve months. The Company's former insurance services business
did not contribute significant revenues and was discontinued during second
quarter 1999.

During November 1998, the Company sold its diagnostic imaging business to
affiliates of Alliance Imaging, Inc. (the "Purchaser") for $13,552,000 in cash
and the assumption by the Purchaser of substantially all of the liabilities of
the diagnostic imaging business, including approximately $27.1 million in debt
and other liabilities. Prior to that sale, the Company provided Magnetic
Resonance Imaging ("MRI"), Computed Axial Tomography ("CT"), Ultrasound, Nuclear
Medicine and Cardiac Catheterization Laboratory services to approximately 190
customers in 22 states. The diagnostic imaging business provided approximately
88% and 94%, respectively, of the Company's revenues for the years ended
December 31, 1998 and 1997.

The Company was incorporated in the state of California in 1983 and its
predecessor, Ernest A. Bates, M.D., Ltd. (d/b/a American Shared Hospital
Services), a California limited partnership, was formed in June 1980.

GAMMA KNIFE OPERATIONS

Gamma Knife stereotactic radiosurgery, a non-invasive procedure, is an
alternative to conventional brain surgery or can be an adjunct to conventional
brain surgery. Compared to conventional surgery, Gamma Knife surgery usually
involves shorter patient hospitalization, lower risk of complications and can be
provided at a lower cost. Typically, Gamma Knife patients resume their normal
activities one or two days after treatment. The Gamma Knife treats the patient
with 201 single doses of gamma rays that are focused with great precision on
small, well circumscribed and critically located structures in the brain. The
Gamma Knife delivers the concentrated dose of gamma rays from 201 sources of
Cobalt 60 housed in the Gamma Knife.

The 201 Cobalt 60 sources converge at the target area and deliver a dose
that is high enough to destroy the diseased tissue without damaging surrounding
healthy tissue.

The Gamma Knife treats selected benign brain tumors (i.e. meningiomas,
pituitary and acoustic neuromas, craniopharyngiomas), malignant tumors (i.e.
gliomas, nasopharyngeal carcinomas, ocular meningiomas and solitary and multiple
metastatic tumors), arteriovenous malformations and trigeminal neuralgia (facial
pain). Research is being conducted in the treatment of Parkinson's Disease,
epilepsy, and other functional disorders.

There currently are 55 Gamma Knife units operating at 54 sites in the
United States and approximately 135 units worldwide. As of December 31, 1999,
approximately 135,000 procedures had been performed worldwide. An estimated
percentage breakdown of these Gamma Knife procedures performed in the U.S. by
indications treated are as follows: malignant (40%) and benign (32%) tumors,
vascular disorders (17%) and functional disorders (11%).

The Company currently has eight (8) Gamma Knife units operating at eight
(8) sites in the United States. In addition, the Company has signed agreements
with four (4) more hospitals that are currently under development or
construction, plus two (2) signed contracts that are subject to state regulatory
approval. The

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Company's first Gamma Knife commenced operation in September 1991. The Company's
Gamma Knife units had performed approximately 3,300 procedures through December
31, 1999.

Gamma Knife revenues for the Company during the five (5) years ended
December 31, 1999, and the percentage of total revenues of the Company
represented by the Gamma Knife for each of the last five years are set forth
below:

<TABLE>
<CAPTION>
YEAR ENDED TOTAL GAMMA KNIFE GAMMA KNIFE/
DECEMBER 31, REVENUES (IN THOUSANDS) TOTAL REVENUES
------------ ----------------------- --------------
<S> <C> <C>
1999.................................... $7,151 99.9%
1998.................................... $4,156 11.8%
1997.................................... $2,384 6.4%
1996.................................... $2,030 5.5%
1995.................................... $1,325 3.9%
</TABLE>

The Company conducts its Gamma Knife business through its 81% indirect
interest in GKF. The remaining 19% interest is indirectly owned by Elekta. GKF,
a limited liability company, was formed in October 1995. GKF is managed by its
policy committee. The policy committee is composed of one representative from
the Company, Ernest A. Bates, M.D., and one representative from Elekta. The
policy committee sets the operating policy for GKF. The policy committee may act
only with the unanimous approval of all of its members. The policy committee
selects a manager to handle GKF's daily operations. Craig K. Tagawa, Chief
Executive Officer of GKF and Chief Operating and Financial Officer of the
Company, serves as GKF's manager.

GKF profits and/or losses and any cash distributions are allocated based on
membership interests. GKF's Operating Agreement requires that it have a cash
reserve of at least $50,000 prior to cash distributions to its members. From
inception to December 31, 1999, GKF had distributed $1,558,000 to the Company.

RISKS OF GAMMA KNIFE BUSINESS

There are significant risks involved in the Company's Gamma Knife business,
including the following:

- Each Gamma Knife unit requires a substantial capital investment. The
Company's cost for a Gamma Knife unit historically has been approximately
$2,750,000. In some cases, the Company contributes additional funds for
capital costs and/or annual operating costs such as marketing. Due to the
structure of its contracts with medical centers, there can be no
assurance that these costs will be fully recovered or that the Company
will earn a satisfactory return on its investment.

- There is a limited market for the Gamma Knife. Due to the substantial
costs of acquiring a Gamma Knife, the Company must identify medical
centers that possess neurosurgery and oncology departments capable of
performing a large number of Gamma Knife procedures. The Company has
identified approximately 200 such medical centers in the United States as
potential future sites. There currently are 55 operating Gamma Knife
units in the United States, eight (8) of which are Company-operated
units. There can be no assurance that the Company will be successful in
placing additional units at a significant number of sites in the future.

- There currently are four companies (in addition to the Company) that
supply the Gamma Knife to potential customers. One of the four companies
purchased one Gamma Knife within the last twelve months. The Company does
not currently have an exclusive relationship with Elekta and has lost
sales in the past to customers that choose to purchase a Gamma Knife
directly from Elekta. In addition, the Company may continue to lose sales
in the future to such customers and may also lose sales to competitors of
the Company. There can be no assurance that the Company will be able to
successfully compete against others to place units in the future.

- There are several methods of radiosurgery (including the modified linear
accelerator) as well as conventional neurosurgery that compete against
the Gamma Knife. Currently, there are approximately 200 medical centers
in the United States with modified linear accelerators. Each of the
medical centers targeted by the Company could decide to acquire another
radiosurgery modality instead of a Gamma Knife. In addition,
neurosurgeons who are primarily responsible for referring patients for
Gamma Knife surgery may not be willing to make such referrals for various
reasons, instead opting for invasive

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surgery. There can be no assurance that the Company will be able to
secure a sufficient number of sites or Gamma Knife procedures to attain
profitability and growth.

- The amount reimbursed to medical centers for each Gamma Knife treatment
may decline in the future. The reimbursement decrease may come from
federally mandated programs (i.e. Medicare and Medicaid) and other third
party payor groups. A significant amount of the Company's existing
contracts are reimbursed by the medical center to the Company on a
fee-for-service basis. The primary risk to the Company under this type of
contract is that actual volumes of procedures could be less than
projected. The Company also has two contracts where it receives revenues
based directly on the amount of reimbursement received for procedures
performed. Revenues under those contracts and any future contracts with
revenue based directly on reimbursement amounts will be impacted by any
reimbursement rate change. Some of the Company's future contracts for
Gamma Knife services may have revenues based on such reimbursement rates
instead of a fee-for-service basis. There can be no assurance that future
changes in healthcare regulations and reimbursement rates will not
adversely affect the Company's Gamma Knife revenues.

- As with other highly sophisticated medical equipment, there is constant
change and innovation in the market. New and improved medical equipment
can be introduced that could make the Gamma Knife technology obsolete and
that would make its operation uneconomic. During the current year, Elekta
is introducing an upgraded Gamma Knife which is expected to cost
approximately $3.4 million plus applicable tax and duties. This upgrade
is anticipated to automate the patient positioning process and therefore
involve less health care provider intervention. Seven (7) of the
Company's existing Gamma Knife units are upgradeable. The cost to upgrade
existing units to the new model is estimated to be up to $900,000.

CUSTOMERS

The Company's current business is the outsourcing of Gamma Knife
stereotactic radiosurgery services. The Company typically provides the Gamma
Knife equipment, as well as planning, installation and marketing support
services. Customers usually pay the Company on a fee-per-use basis. The market
for these services primarily consists of major urban medical centers. The Gamma
Knife business is capital intensive. The total cost of a Gamma Knife facility
usually ranges from $3.25 million to $4 million, including equipment, site
construction and installation. The Company's typical, historical costs for
acquisition are approximately $2,750,000 with the medical center paying for site
and installation costs.

<TABLE>
<CAPTION>
CUSTOMER ORIGINAL TERM OF CONTRACT BASIS OF PAYMENT
-------- ------------------------- -----------------
<S> <C> <C>
EXISTING SITES
UCSF-Stanford Health Care ( "UCSF")
San Francisco, California...................... 10 years Fee per use
Hoag Memorial Hospital Presbyterian ("Hoag")
Newport Beach, California...................... 10 years Fee per use
Southwest Texas Methodist Hospital ("STMH") San
Antonio, Texas................................. 10 years Fee per use
Yale New Haven Ambulatory Services Corporation
("Yale") New Haven, Connecticut................ 10 years Revenue sharing
Kettering Medical Center ("Kettering")
Kettering, Ohio................................ 10 years Fee per use
New England Medical Center ("NEMC") Boston,
Massachusetts.................................. 10 years Fee per use
University of Arkansas for Medical Sciences
("UAMS") Little Rock, Arkansas................. 15 years Revenue sharing
Froedtert Memorial Lutheran Hospital ("FMLH")
Milwaukee, Wisconsin........................... 10 years Fee per use
SITES UNDER DEVELOPMENT
JFK Medical Center
Edison, New Jersey............................. 10 years Fee per use
Sunrise Hospital and Medical Center
Las Vegas, Nevada.............................. 10 years Fee per use
</TABLE>

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<TABLE>
<CAPTION>
CUSTOMER ORIGINAL TERM OF CONTRACT BASIS OF PAYMENT
-------- ------------------------- -----------------
<S> <C> <C>
Clinica San Felipe
Lima, Peru..................................... 10 years Revenue Sharing
Hospital Barra D'Or
Rio de Janeiro, Brazil......................... 10 years Fee per use
SIGNED, PENDING STATE
REGULATORY APPROVAL
</TABLE>

Two additional contracts are signed, pending state regulatory approval.

The Company's second Gamma Knife contract, with the University of Southern
California ("USC") ended in third quarter 1999. The customer exercised its
option to purchase the equipment for its net book value, approximately $1.2
million. Currently, one of the Company's sites now under development is
projected to become operational in second quarter 2000, and two additional
contracts are expected to become operational in fourth quarter 2000. The
Company's contract with Hospital Barra D'Or currently is being renegotiated with
the customer in light of the changes in the Brazilian economic environment. If
the contract cannot be successfully renegotiated, it will be terminated. The
projected operational dates for contracts pending state regulatory approval
cannot currently be estimated.

The Company's fee per use agreement is typically for a ten-year term. The
fixed fee per use reimbursement amount that the Company receives from the
customer is based on the Company's cost to provide the service and the
anticipated volumes of the customer. The contracts signed by the Company
typically call for a fee ranging from $7,500 to $9,500 per procedure. There are
no minimum volume guarantees required of the customer. Typically, GKF is
responsible for providing the Gamma Knife and related ongoing Gamma Knife
equipment expenses (i.e. personal property taxes, insurance, equipment
maintenance) and also helps fund the customer's Gamma Knife marketing.
Typically, the customer is obligated to pay site and installation costs and the
costs of operating the Gamma Knife. Generally, the customer can either renew the
agreement or terminate the agreement upon the termination date of the agreement.
If the customer chooses to terminate the agreement, then GKF removes the
equipment from the medical center.

The Company's revenue sharing agreements are typically for a period of ten
to fifteen years. Instead of receiving a fixed fee, the company receives all or
a percentage of the reimbursement (exclusive of physician fees) received by the
customer less the operating expenses of the Gamma Knife. The Company is at risk
for any reimbursement rate changes for Gamma Knife services by third party
payors. The Company is also at risk if it inefficiently operates its Gamma Knife
services. There are no minimum volume guarantees required of the customer.

Four customers each accounted for more than 10% of the Company's revenues
in 1999: USC, Hoag, STMH and Yale. No single customer accounted for 10% or more
of the Company's total revenues in 1998 or 1997, but each of the five Gamma
Knife customers in 1998 and each of the three Gamma Knife customers in 1997
accounted for more than 10% of the Company's Gamma Knife services revenues in
those years of operation.

MARKETING

At the end of 1999, the Company employed one sales executive. The Company
markets its services through its preferred provider status with Elekta and a
direct sales effort. The major advantages to a health care provider in
contracting with the Company for Gamma Knife services include:

- The medical center avoids the high cost of owning the equipment. By not
acquiring the Gamma Knife unit, the medical center is able to allocate
the funds required to purchase and/or finance the Gamma Knife to other
projects.

- The medical center avoids the risk of Gamma Knife under-utilization. The
Company does not have minimum volume requirements. The medical center
pays the Company only for each Gamma Knife procedure performed on a
patient.

- The medical center transfers the risk of technological obsolescence to
the Company. The medical center and its physicians are not under any
obligation to utilize technologically obsolete equipment.

- The Company provides planning, installation, operating and marketing
assistance and support to its Gamma Knife customers.

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FINANCING

The Company's Gamma Knife business is operated through GKF. GKF has funded
its existing Gamma Knife units with loans from a single lender for 100% of the
cost of each Gamma Knife, plus any sales tax, customs and duties. The loans are
fully amortized over an 84-month period. The loans are collateralized by the
Gamma Knife, customer contracts, and accounts receivable and are without
recourse to the Company and Elekta.

GKF currently has loan commitments and has received progress payments from
its primary lender for two (2) of its four (4) Gamma Knife projects under
development. The loan commitments require that GKF have a debt to equity plus
subordinated debt ratio of 6 to 1. GKF currently meets the ratio requirement to
be eligible for funding of the approximately $6,500,000 remaining cash
requirements for its four (4) projects under development.

COMPETITION

Conventional neurosurgery is the primary competitor of Gamma Knife
radiosurgery. Gamma Knife surgery is gaining acceptance as an alternative and/or
adjunct to conventional surgery due to its more favorable morbidity outcomes for
certain procedures as well as its non-invasiveness. Utilization of the Company's
Gamma Knife units is contingent on the acceptance of Gamma Knife radiosurgery by
the customer's neurosurgeons, radiation oncologists and referring physicians. In
addition, the utilization of the Company's Gamma Knife units is impacted by the
proximity of competing Gamma Knife centers and providers using other
radiosurgery modalities.

The Company's ability to contract with additional customers for Gamma Knife
services is dependent on its ability to compete against (i) other companies that
outsource Gamma Knife services, (ii) Elekta, the manufacturer of the Gamma
Knife, and (iii) manufacturers of competing radiosurgery devices (primarily
modified linear accelerators). The Company does not have an exclusive
relationship with Elekta and has lost sales in the past to customers that choose
to purchase a Gamma Knife directly from Elekta. The Company may continue to lose
sales in the future to such customers and may also lose sales to competitors of
the Company.

GOVERNMENT REGULATION

The Company's Gamma Knife services customers receive payments for patient
care from federal government and private insurer reimbursement programs.
Currently, Gamma Knife services are performed primarily on an in-patient basis,
although a significant number are performed on an outpatient basis.

A Prospective Payment System ("PPS") is utilized to reimburse hospitals for
care given to hospital in-patients covered by federally funded reimbursement
programs. Patients are classified into a Diagnosis Related Group ("DRG") in
accordance with the patient's diagnosis, necessary medical procedures and other
factors. Patient reimbursement is limited to a predetermined amount for each
DRG. The reimbursement payment may not necessarily cover the cost of all medical
services actually provided because the payment is predetermined. Effective
October 1, 1997, Gamma Knife services for Medicare hospital in-patients were
reclassified from DRG 1 to either DRG 7 or DRG 8. This reclassification is
estimated to have reduced medical center revenues from the Medicare DRG program
by approximately 30%. In the future, this reduction may lower reimbursement from
other third party payors.

In 1986 and again in 1990, Congress enacted legislation requiring the
Department of Health and Human Services ("DHHS") to develop proposals for a PPS
for hospital outpatient services. DHHS has proposed a new payment system,
Ambulatory Product Classifications ("APC"), which affects all outpatient
services, including those performed in a hospital based or free-standing
facility. APC implementation is anticipated in the third or fourth quarter 2000.

The APC consist of 346 clinically, homogenous classifications or groupings
of codes that are typically used in outpatient billing. Outpatient services will
be bundled with fixed rates of payment determined according to specific regional
and national factors, similar to that of the in-patient PPS. Overall, the system
is expected to reduce payments for select services and encourage the most
efficient use of resources for outpatient care.

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The current APC proposal categorizes radiosurgery under conventional
radiation therapy. Therefore, both procedures would receive the same
reimbursement amounts. This categorization makes no distinction with regard to
the types of resources utilized (e.g. technology) for each procedure
classification. Therefore, regardless of resource consumption and clinical
outcomes, all procedures within a group qualify for equal reimbursement.
Specifically, stereotactic radiosurgery would receive the same reimbursement per
session as conventional radiation therapy. This would result in a significant
reimbursement decrease for Gamma Knife patients covered by Medicare treated on
an outpatient basis. Various groups have informed DHHS of the discrepancies of
these service levels in an attempt to be compensated in line with the intent of
the APC system. It is not the intent of the APC system to compensate providers
similarly for clinically different procedures. The APC reimbursement amount is
not known at this time.

The Company has two contracts where the revenue is directly affected by
changes in payment rates by Medicare and other third party payors. Some of GKF's
future contracts for Gamma Knife services may be on a similar
reimbursement-sensitive basis instead of a fee-for-service basis. As a result of
lower reimbursement rates, profitability from future contracts will be reduced
unless the number of Gamma Knife procedures can be increased or if the costs to
provide Gamma Knife services can be lowered.

The payment of remuneration to induce the referral of health care business
has been a subject of increasing governmental and regulatory focus in recent
years. Section 1128B(b) of the Social Security Act (sometimes referred to as the
"federal anti-kickback statute") provides criminal penalties for individuals or
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce referrals for items or services for which
payment may be made under the Medicare and Medicaid programs and certain other
government funded programs. The Social Security Act provides authority to the
Office of Inspector General through civil proceedings to exclude an individual
or entity from participation in the Medicare and state health programs if it is
determined any such party has violated Section 1128B(b) of the Social Security
Act. The Company believes that it is in compliance with the federal
anti-kickback statute. Additionally, the Omnibus Budget Reconciliation Act of
1993, often referred to as "Stark II", bans physician self-referrals to
providers of designated health services with which the physician has a financial
relationship. The term "designated health services" includes, among others,
radiation therapy services and in-patient and outpatient hospital services. On
January 1, 1995, the Physician Ownership and Referral Act of 1993 became
effective in California. This legislation prohibits physician self-referrals for
covered goods and services, including radiation oncology, if the physician (or
the physician's immediate family) concurrently has a financial interest in the
entity receiving the referral. The Company believes that it is in compliance
with these rules and regulations.

A range of federal civil and criminal laws target false claims and
fraudulent billing activities. One of the most significant is the Federal False
Claims Act, which prohibits the submission of a false claim or the making of a
false record or statement in order to secure a reimbursement from a
government-sponsored program. In recent years, the federal government has
launched several initiatives aimed at uncovering practices which violate false
claims or fraudulent billing laws. Claims under these laws may be brought either
by the government or by private individuals on behalf of the government, through
a "whistleblower" or "qui tam" action. The Company believes that it is in
compliance with the Federal False Claims Act; however, because such actions are
filed under seal and may remain secret for years, there can be no assurance that
the Company or one of its affiliates is not named in a material qui tam action.

Legislation in various jurisdictions requires that health facilities obtain
a Certificate of Need ("CON") prior to making expenditures for medical
technology in excess of specified amounts. One of the Company's existing
customers was required to obtain a CON. Two more of the Company's more
recently-signed contracts are subject to CONs. The CON procedure can be
expensive and time consuming and may impact the length of time before Gamma
Knife services commence. CON requirements vary from state to state in their
application to the operations of both the Company and its customers. In some
jurisdictions the Company is required to comply with CON procedures to provide
its services and in other jurisdictions customers must comply with CON
procedures before using the Company's services.

The Company's Gamma Knife units contain Cobalt 60 radioactive sources. The
medical centers that house the Company's Gamma Knife units are responsible for
obtaining possession and user's licenses for the Cobalt 60 source.

The Company believes it is in substantial compliance with the various rules
and regulations that affect its businesses.
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INSURANCE AND INDEMNIFICATION

The Company's contracts with equipment vendors generally do not contain
indemnification provisions. The Company maintains a comprehensive insurance
program covering the value of its property and equipment, subject to
deductibles, which the Company believes are reasonable.

The Company's customer contracts generally contain mutual indemnification
provisions. The Company maintains general and professional liability insurance.
The Company is not involved in the practice of medicine and therefore believes
its present insurance coverage and indemnification agreements are adequate for
its business.

EMPLOYEES

At December 31, 1999, the Company employed eight (8) employees on a
full-time basis. None of these employees is subject to a collective bargaining
agreement and there is no union representation within the Company. The Company
maintains various employee benefit plans and believes that its employee
relations are good.

EXECUTIVE OFFICERS OF THE COMPANY

The following table provides current information concerning those persons
who serve as executive officers of the Company. The executive officers were
appointed by the Board of Directors and serve at the discretion of the Board of
Directors.

<TABLE>
<CAPTION>
NAME: AGE: POSITION:
----- ---- ---------
<S> <C> <C>
Ernest A. Bates, M.D. 63 Chairman of the Board of Directors, Chief
Executive Officer
Craig K. Tagawa 46 Senior Vice President -- Chief Operating and
Financial Officer
Richard Magary 59 Senior Vice President -- Administration,
Assistant Secretary
Gregory Pape 44 Senior Vice President -- Sales and Marketing
</TABLE>

ERNEST A. BATES, M.D., founder of the Company, has served in the positions
listed above since the incorporation of the Company, except for the periods May
1, 1991 through November 6, 1992 and February 1989 through August 1989, during
which time Dr. Bates did not serve in the capacity of President and Chief
Operating Officer. Dr. Bates is a graduate of The Johns Hopkins University and
the University of Rochester School of Medicine. He is currently an Assistant
Clinical Professor of Neurosurgery at the University of California Medical
Center at San Francisco, and a member of the Board of Trustees of The Johns
Hopkins University and the University of Rochester, a Director of the Industrial
Policy Advisory Committee of the Engineering Research Center for
Computer-Integrated Surgical Systems and Technology ("CISST") at The Johns
Hopkins University, a Member of the State of California High Speed Rail
Authority, and a Member of the Board of Directors of Salzburg Seminar.

CRAIG K. TAGAWA has served as Chief Operating Officer since February 1999
in addition to serving as Chief Financial Officer since May 1996. Mr. Tagawa
also served as Chief Financial Officer from January 1992 through October 1995.
Previously a Vice President in such capacity, Mr. Tagawa became a Senior Vice
President on February 28, 1993. He is also the Chief Executive Officer of GK
Financing, LLC. From September 1988 through January 1992, Mr. Tagawa served in
various positions with the Company. From 1982 through August 1988, Mr. Tagawa
served as Vice President of Finance and Controller of Medical Ambulatory Care,
Inc., the Dialysis division of National Medical Enterprises, Inc. (now Tenet
Healthcare Corporation), an owner and operator of hospitals and other health
care businesses. Mr. Tagawa received his Undergraduate degree from the
University of California at Berkeley and his M.B.A from Cornell University.

RICHARD MAGARY has served as Senior Vice President -- Corporate Development
or Administration since February 28, 1993 and as Assistant Secretary since 1985.
Mr. Magary will conclude his current duties in May of 2000 and become an advisor
to the Company. From April 1987 through February 1993, Mr. Magary served as a
Vice President in the same capacity as his current duties. From 1982 through
March 1987, he

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served as Chief Financial Officer of the Company and its predecessor. Mr. Magary
is a graduate of the University of San Francisco.

GREGORY PAPE has served as Senior Vice President -- Sales and Marketing
since June 1994. From January 1993 through June 1994, Mr. Pape was a Zone Vice
President -- Sales and Marketing for the Company. Mr. Pape served in the
capacity of Regional Sales Manager for the Company for the period from March
1991 through January 1993. From September 1989 through February 1991, Mr. Pape
was a Regional Sales Manager for Medical Imaging Corporation of America, Inc.
Mr. Pape earned his undergraduate degree at the University of Miami, Florida
with postgraduate work in law at the University of Dayton, Ohio.

ITEM 2. PROPERTIES

The Company's corporate offices are located at Two Embarcadero Center,
Suite 2370, San Francisco, California, where it leases approximately 2,550
square feet for $11,208 per month. This lease runs through September 2002.

For the year ended December 31, 1999 the Company's aggregate net rental
expenses for all properties and equipment were approximately $117,000.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings involving the Company or
any of its property. The Company knows of no legal or administrative proceedings
against the Company contemplated by governmental authorities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common shares, no par value (the "Common Shares"), are
currently traded on the American Stock Exchange ("AMEX") and the Pacific
Exchange ("PCX"). The table below sets forth the high and low closing sales
prices of the Common Shares of the Company on the American Stock Exchange
Consolidated Reporting System for each full quarter for the last two fiscal
years.

PRICES FOR COMMON SHARES

<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
-------------- ---- ---
<S> <C> <C>
March 31, 1998............................................. 1 15/16 1 3/8
June 30, 1998.............................................. 1 7/8 1 1/4
September 30, 1998......................................... 1 1/4 5/8
December 31, 1998.......................................... 1 1/4 5/8
March 31, 1999............................................. 1 11/16 15/16
June 30, 1999.............................................. 3 1 1/2
September 30, 1999......................................... 6 1/4 2 3/8
December 31, 1999.......................................... 5 3/8 3 7/16
</TABLE>

The Company estimates that there were approximately 1,400 beneficial
holders of its Common Shares as of December 31, 1999.

The Company's Board of Directors authorized, and the Company completed in
March 1999 the repurchase of all of its remaining securities owned by two major
holders who acquired them in the Company's 1995 financial restructuring. The
repurchases were made directly from the holders.

The repurchased securities included shares of the Company's Common Stock,
and Warrants to acquire additional shares of Common Stock. The repurchased
securities represented approximately 12.6% of the

9
<PAGE> 10

Company's then-issued and outstanding common shares and about 12.6% of its
then-fully diluted outstanding shares. The aggregate repurchase price paid by
the Company was approximately $702,000.

The Board of Directors also authorized in March 1999 the repurchase of up
to 500,000 additional shares of the Company's Common Stock in the open market
from time to time at prevailing prices. Approximately 196,000 shares were
repurchased in the open market pursuant to that authorization, through December
31, 1999, at a cost of approximately $498,000.

During 1999 holders of warrants and of options to acquire the Company's
common stock exercised their respective rights pursuant to such securities,
resulting in the Company issuing approximately 37,000 new shares of its common
stock, in exchange for payments totaling approximately $37,000.

On March 22, 1999, the Company adopted a Shareholder Rights Plan ("Plan").
Under the Plan, the Company made a dividend distribution of one Right for each
outstanding share of the Company's common stock as of the close of business on
April 1, 1999. The Rights become exercisable only if any person or group, with
certain exceptions, becomes an "acquiring person" (acquires 15 percent or more
of the Company's outstanding common stock) or announces a tender or exchange
offer to acquire 15 percent or more of the Company's outstanding common stock.
The Company's Board of Directors adopted the Plan to protect shareholders
against a coercive or inadequate takeover offer. The Board of Directors is not
aware that any person or group intends to make a takeover offer for the Company.

Following the transactions described above, as of December 31, 1999 the
Company had 5,732,964 fully diluted shares outstanding, including 3,813,042
issued and outstanding common shares, 1,370 common shares reserved for warrants,
1,912,867 common shares reserved for options, and 5,685 shares reserved pursuant
to the Company's Shareholder Rights Plan.

The Company did not pay cash dividends in 1999 and does not anticipate
paying cash dividends in 2000.

10
<PAGE> 11

ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995(1)
------- ------- ------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Medical services revenues.................... $ 7,156 $35,162 $37,172 $ 36,989 $ 34,077
======= ======= ======= ======== ========
Costs of operations.......................... 2,165 25,826 27,044 28,071 32,675
Selling and administrative expense........... 1,803 5,116 5,901 5,309 8,432
Interest expense............................. 1,309 3,186 3,671 4,199 5,310
Write-down of intangible assets.............. 0 0 0 0 600
------- ------- ------- -------- --------
Total costs and expenses..................... 5,277 34,128 36,616 37,579 47,017
------- ------- ------- -------- --------
1,879 1,034 556 (590) (12,940)
(Loss) gain on sale of assets and early
termination of capital leases.............. 10 (2) 821 3 226
Gain on disposal of product line............. 0 20,478 0 0 0
Interest and other income.................... 603 220 118 170 258
Minority interest............................ (501) (166) 37 57 0
------- ------- ------- -------- --------
Income (loss) before income taxes and
extraordinary item......................... 1,991 21,564 1,532 (360) (12,456)
Income tax benefit (expense)................. 716 (1,513) (10) 7 (3)
------- ------- ------- -------- --------
Income (loss) before extraordinary item...... 2,707 20,051 1,522 (353) (12,549)
Extraordinary item........................... 0 0 0 0 19,803
------- ------- ------- -------- --------
Net income (loss)............................ $ 2,707 $20,051 $ 1,522 $ (353) $ 7,344
======= ======= ======= ======== ========
Earnings (loss) per common share:
Income (loss) before extraordinary
item.................................. $ 0.68 $ 4.23 $ 0.32 $ (0.08) $ (2.96)
Extraordinary item...................... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 4.71
------- ------- ------- -------- --------
Net income (loss)....................... $ 0.68 $ 4.23 $ 0.32 $ (0.08) $ 1.75
======= ======= ======= ======== ========
Earnings (loss) per common share assuming
dilution:
Income (loss) before extraordinary
item.................................. $ 0.48 $ 3.15 $ 0.24 $ (0.08) $ (2.96)
Extraordinary item...................... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 4.71
------- ------- ------- -------- --------
Net income (loss)....................... $ 0.48 $ 3.15 $ 0.24 $ (0.08) $ 1.75
======= ======= ======= ======== ========
BALANCE SHEET DATA
Cash......................................... $12,903 $11,114 $ 17 $ 368 $ 452
Restricted Cash.............................. 50 2,226 651 218 493
Working capital (deficiency)................. 11,125 9,088 (8,039) (10,888) (6,793)
Total assets................................. 36,986 26,919 30,209 32,969 31,335
Current portion of long-term debt............ 2,545 1,885 10,929 13,182 8,720
Long-term debt, less current portion......... 19,887 8,823 21,569 23,935 26,125
Senior subordinated notes.................... 0 0 0 0 773
Shareholders' equity (Net capital
deficiency)................................ $12,639 $11,096 $(8,953) $(10,475) $(10,576)
</TABLE>

See accompanying note
- ---------------
(1) In June 1995, ASHS incorporated a new wholly-owned subsidiary, African
American Church Health and Economic Services, Inc. ("ACHES") and ACHES'
wholly-owned subsidiary, ACHES Insurance Services, Inc. ("AIS"), and in
October 1995, entered into an operating agreement granting to American
Shared Radiosurgery Services (a California corporation and a wholly-owned
subsidiary of the Company) an 81% ownership interest in GK Financing, LLC.
Accordingly, the financial data for the Company presented above include the
results of the establishment of ACHES, AIS, and GK Financing, LLC for 1995
through 1999.

11
<PAGE> 12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

During the years ended December 31, 1999, 1998 and 1997, approximately
100%, 12% and 6% respectively, of the Company's revenues were derived from its
Gamma Knife business. The Company in November 1998 sold its diagnostic imaging
business which accounted for 0%, 88% and 94% of the Company's total revenues
during the years ended December 31, 1999, 1998 and 1997, respectively. As a
result, the Company was relieved of substantially all of the liabilities of the
imaging division, consisting of approximately $27,100,000 of debt and other
obligations, and received approximately $13,500,000 in cash. The sale of its
imaging division resulted in a one-time gain of $20,478,000 in 1998, which
eliminated the Company's capital deficiency. Following the sale, the Company's
operations were significantly reduced and it has substantially reduced its
staff. Accordingly the discussions below related to 1998 and 1997 predominantly
reflect the Company's operations prior to the sale of its imaging division.

The Company had net income of $2,707,000 ($0.68 per share) on medical
services revenues of $7,156,000 in 1999. Net income in 1999 included an
insurance expense credit of $325,000 and an income tax benefit of $716,000. The
Company had net income of $20,051,000 ($4.23 per share) on medical services
revenues of $35,162,000 in 1998. Included in net income for 1998 is a
$20,478,000 gain on disposal of product line less Sale-related income taxes of
$1,500,000.

TOTAL REVENUES

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------ ---------- ------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Medical services................................ $7,156 (79.6%) $35,162 (5.4%) $37,172
</TABLE>

Medical services revenues decreased 79.6% in 1999 compared to 1998, and
decreased 5.4% in 1998 compared to 1997. Both decreases are primarily
attributable to the sale of the Company's imaging division, which occurred in
November 1998.

Gamma Knife revenues increased $2,995,000 and $1,772,000 in 1999 and 1998,
respectively, compared to the prior years. The 1999 increase was primarily due
to the commencement of four new Gamma Knife contracts during 1999 and full year
inclusion of the Company's fourth and fifth Gamma Knife units. The Company's
sixth Gamma Knife commenced operation in second quarter 1999, the seventh and
eighth commenced operation during third quarter 1999, and the ninth commenced
operation in late fourth quarter 1999. The Company's second Gamma Knife contract
expired during fourth quarter 1999 leaving a net of eight Gamma Knife units in
operation at December 31, 1999. The customer purchased the Gamma Knife after the
expiration of the contract for $1,200,000 in cash in November 1999. The 1998
increase vs. 1997 was primarily due to the commencement of the Company's fourth
Gamma Knife in March 1998 and the fifth Gamma Knife in July 1998, and full year
inclusion of the Company's third Gamma Knife unit.

MRI revenues decreased $26,498,000 and $1,821,000 in 1999 and 1998 compared
to prior years. The decreases were primarily attributable to the sale of the
imaging division. MRI revenues as a percentage of total medical services
revenues were 0%, 75%, and 76% in years 1999, 1998, and 1997, respectively.

The Company's non-MRI diagnostic imaging services revenues decreased
$3,345,000 and $1,763,000 in 1999 and 1998 compared to prior years. The decrease
in 1999 was due to the sale of the imaging division. The decline in 1998 was
primarily due to the continued decline of CT and Nuclear Medicine revenues and
the sale of the imaging division. Non-MRI diagnostic imaging services revenues
as a percentage of total medical services revenues were 0%, 10% and 14% for the
years ended 1999, 1998 and 1997, respectively.

Contract service revenues, consisting of Respiratory Therapy services and
Cardiac Catheterization Laboratory revenues, decreased $1,150,000 and $195,000
in 1999 and 1998 compared to prior years. These decreases were primarily
attributable to the sale of the imaging division.

12
<PAGE> 13

COSTS OF OPERATIONS

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------ ---------- ------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Costs of operations..................... $2,165 (91.6)% $25,826 (4.5)% $27,044
Percentage of revenue................... 30.3% 73.5% 72.8%
</TABLE>

The Company's costs of operations, consisting of payroll, maintenance and
supplies, depreciation and amortization, equipment rental and other operating
expenses (such as vehicle fuel, building rents, regional office costs,
insurance, property taxes, bad debt expense, fees and training expenses)
decreased $23,661,000 in 1999 as compared to 1998 and decreased $1,218,000 in
1998 compared to 1997.

Medical services payroll decreased by $7,084,000 in 1999 compared to 1998
and decreased by $446,000 in 1998 compared to 1997. This decrease is primarily
due to the sale of the imaging division and the fact that the Company does not
currently provide labor as a component of its Gamma Knife services. Medical
services payroll costs, as a percent of medical services revenues, were less
than 1% in 1999 and remained constant at 20% in years 1998 and 1997.

The Company's maintenance and supplies costs were 2%, 15% and 16% of
medical service revenues in 1999, 1998 and 1997, respectively. Maintenance and
supplies costs decreased $5,041,000 in 1999 compared to 1998 and decreased
$775,000 in 1998 vs. 1997. These decreases were primarily due to the sale of the
imaging division. Maintenance and supply costs for Gamma Knife services
increased $63,000 in 1999 compared to 1998 and decreased $30,000 in 1998
compared to 1997. The increase in 1999 was primarily due to the expiration of
the warranty period on three units. The decrease in 1998 compared to 1997 was
due to commencement of the warranty period on a replacement Gamma Knife unit at
an existing customer.

Depreciation and amortization decreased $3,940,000 in 1999 compared to 1998
and decreased $842,000 in 1998 compared to 1997. The decreases in 1999 and 1998
were both primarily attributable to the sale of the imaging division. The
decrease in 1999 was partially offset by the addition of four Gamma Knife units
during 1999. The decrease in 1998 was also due to fewer MRI units accounted for
as capitalized leases in 1998, offset by increases in equipment depreciation due
to the addition of two Gamma Knife units during 1998 and one unit in late 1997.
Depreciation and amortization for Gamma Knife services in 1999 and in 1998
increased $573,000 and $235,000, respectively, compared to prior years. The
increase in 1999 was mitigated because the Company's second Gamma Knife unit,
which was sold, was depreciated to its salvage value during third quarter 1999.

Equipment rental as a percentage of medical services revenues was 0% in
1999, 12% in 1998 and 7% in 1997. Equipment rental decreased $4,064,000 in 1999
compared to 1998 and increased $1,378,000 in 1998 compared to 1997. The decrease
in 1999 was due to the sale of the imaging division. The Company's Gamma Knife
services currently do not require the rental of equipment. The increase in 1998
is primarily due to two replacement and three new MRI units accounted for as
operating leases during 1998 and fourth quarter 1997, offset by decreases
associated with the sale of the imaging division.

Other costs of operations as a percentage of medical services revenues were
6%, 11% and 12% in 1999, 1998 and 1997, respectively. The decreases of
$3,532,000 in 1999 compared to 1998 and $533,000 in 1998 compared to 1997 were
primarily attributable to the sale of the imaging division. Other costs of
operations for Gamma Knife services increased $135,000 and $150,000,
respectively, compared to prior years. These increases were primarily due to
increased insurance costs and property taxes because of additional Gamma Knife
units, as well as increased marketing costs.

SELLING AND ADMINISTRATIVE

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------ ---------- ------ ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selling and administrative costs.......... $1,803 (64.8)% $5,116 (13.3)% $5,901
Percentage of revenue..................... 25.2% 14.6% 15.9%
</TABLE>

The Company's selling and administrative costs decreased $3,313,000 in 1999
compared to 1998 and $785,000 in 1998 compared to 1997. The decrease in 1999 was
primarily due to the sale of the imaging

13
<PAGE> 14

division. Also during 1999, the Company revised its estimate regarding the need
for and the corresponding cost of liability insurance related to divested
operations. This change in estimate resulted in a $325,000 decrease to selling
and administrative expenses during fourth quarter 1999. Selling and
administrative costs increased as a percentage of revenue because of the lower
revenue base compared to the required level of selling and administrative costs.
The decrease in 1998 was primarily due to the sale of the imaging division and
decreased salary, investor relations and legal expenses.

INTEREST EXPENSE

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------ ---------- ------ ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest expense.......................... $1,309 (58.9)% $3,186 (13.2)% $3,671
Percentage of revenue..................... 18.3% 9.1% 9.9%
</TABLE>

The Company's interest expense decreased $1,877,000 in 1999 compared to
1998 and decreased $485,000 in 1998 compared to 1997. The decrease in 1999 was
primarily attributable to the sale of the imaging division offset by increased
interest related to Gamma Knife units. The decrease in 1998 was primarily
attributable to the sale of the imaging division and decreased capitalized
lease-related interest, offset by increased interest related to additional Gamma
Knife units. Interest expense for Gamma Knife units increased $528,000 in 1999
and $470,000 in 1998 compared to prior years. Interest as a percentage of
revenue increased from 9.1% in 1998 to 18.3% in 1999 because all of the
Company's operating Gamma Knife units are financed by means of interest bearing
debt.

OTHER INCOME AND EXPENSE

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
----- ---------- ------- ---------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
(Loss) gain on sale of assets and early
termination of capital leases............ $ 10 600.0% $ (2) (100.2)% $821
Percentage of revenue...................... 0.1% 0.0% 2.2%
Gain on sale of product line............... $ 0 NM $20,478 NM $ 0
Percentage of revenue...................... 0.0% 58.2% 0.0%
Interest and other income.................. $ 603 174.1% $ 220 86.4% $118
Percentage of revenue...................... 8.4% 0.6% 0.3%
Minority interest.......................... $(501) 201.8% $ (166) 548.7% $ 37
Percentage of revenue...................... (7.0)% (0.5)% 0.1%
</TABLE>

The Company's gain on sale of product line decreased to $0 in 1999 and
increased $20,478,000 in 1998 compared to 1997. The gain on sale of product line
in 1998 represents the gain associated with the sale of the imaging division.
The gain was net of transaction costs of approximately $2,700,000. Transaction
costs include legal, investment banking and management bonuses related to the
sale of the imaging division; employee severance costs; and the costs related to
the discontinuance of the diagnostic imaging division. Gain on sale of assets
and early termination of capital leases increased $12,000 in 1999 compared to
1998 and decreased $823,000 in 1998 compared to 1997. The $821,000 gain on sale
of assets and early termination of capital leases in 1997 was primarily due to
the gain on early termination of a capital lease, an insurance settlement, and
gains on sales of assets.

Interest and other income increased $383,000 in 1999 and $102,000 in 1998
compared to prior years. The increase in both 1999 and 1998 was primarily due to
additional interest income from higher cash balances that are invested in
overnight securities.

Minority interest increased $335,000 in 1999 and $203,000 in 1998 compared
to prior years. Minority interest represents the pre-tax income earned by the
minority member's 19% interest in GKF. The increase in minority interest
reflects the increased profitability of GKF.

14
<PAGE> 15

INCOME TAXES

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
---- ---------- ------- ---------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income tax benefit (expense)................ $716 (147.3)% $(1,513) 15,030.0% $(10)
Percentage of revenue....................... 10.0% (4.3)% 0.0%
</TABLE>

The Company received an income tax benefit of $716,000 in 1999 compared to
an income tax provision of $1,513,000 in 1998, a decrease in income tax expense
of $2,229,000. The $716,000 income tax benefit is primarily a result of an
overestimate of the federal and state income tax provision in 1998 resulting
from the sale of the imaging division. The overestimate was adjusted in 1999
when tax returns were completed for filing with taxing agencies. The Company's
income tax provision increased $1,503,000 in 1998 compared to 1997 primarily due
to the gain on sale of product line. The Company had a net operating loss
carryforward for federal income tax return purposes at December 31, 1999 of
approximately $8,330,000.

NET INCOME

<TABLE>
<CAPTION>
INCREASE INCREASE
1999 (DECREASE) 1998 (DECREASE) 1997
------ ---------- ------- ---------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income............................... $2,707 (86.5)% $20,051 1,217% $1,522
Net income per share..................... $ 0.68 (83.9)% $ 4.23 1,222% $ 0.32
</TABLE>

The Company had net income of $2,707,000 in 1999 compared to net income of
$20,051,000 in 1998. Net income for 1999 included an insurance expense credit of
$325,000 and a tax benefit of $716,000. Net income for 1998 included a
$18,978,000 gain net of income taxes ($1,500,000) primarily from the Sale. Net
income for 1998, exclusive of the net gain from the sale of product line was
$1,073,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $12,903,000 at December 31,
1999 compared to $11,114,000 at December 31, 1998. The Company's cash position
increased $1,789,000 due primarily to the availability of cash that had
previously been classified as restricted until April 15, 1999 to cover potential
claims relating to the sale of the imaging division. In addition, during the
second quarter 1999 the GK Financing, LLC Operating Agreement was amended to
require a minimum cash reserve of $50,000 which resulted in an increase in cash
and equivalents of $1,176,000.

Restricted cash of $50,000 at December 31, 1999 reflects cash that may only
be used for the operations of GK Financing, LLC. At December 31, 1998 restricted
cash of $2,226,000 reflected cash that may only be used for GK Financing, LLC
and amounts previously described as restricted under terms of the agreements
relating to the sale of the imaging division.

The Company's total cash, cash equivalents and restricted cash decreased
$387,000 in 1999 compared to 1998 due to the payment of federal and state income
taxes primarily related to the sale of the imaging division ($1,059,000 net of
refunds received), the Company's repurchase of Common Stock and Warrants
($1,164,000) and payment of costs relating to the sale of the imaging division
($1,159,000). Increased cash flow from operations and cash received on the sale
of a Gamma Knife unit ($1,200,000) mitigated this decrease.

Following the Company's stock repurchases the Company had Shareholders'
Equity of $12,639,000, Working Capital of $11,125,000, and Total Assets of
$36,986,000 at December 31, 1999 compared to Shareholders' Equity of
$11,096,000, Working Capital of $9,088,000, and Total Assets of $26,919,000 as
of December 31, 1998.

The Company invests its cash in overnight repurchase agreements and
commercial paper pending use in the Company's operations. The Company believes
its cash position combined with its working capital is adequate to service the
Company's cash requirements in 2000.

15
<PAGE> 16

IMPACT OF INFLATION AND CHANGING PRICES

The Company does not believe that inflation has had a significant impact on
operations because a substantial majority of the costs that it incurs under its
customer contracts are fixed through the term of the contract.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Consolidated Financial Statements and Financial Statement
Schedules included at page A-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On December 31, 1999 the local Grant Thornton offices that provided
accounting and tax services for the Company were sold to Moss Adams LLP, an
accounting and consulting firm. The Company has elected to retain Moss Adams as
its independent auditors and tax advisors. In light of its engagement of Moss
Adams, the Company will no longer engage Grant Thornton, LLP to audit the
Company's financial statements. Grant Thornton had served as the Company's
auditor during the year ended December 31, 1998. Ernst & Young had served as the
Company's auditor from 1983 through 1997.

The Company on December 14, 1998 engaged Grant Thornton, LLP as its
independent accountant to audit the Company's financial statements for the year
ended December 31, 1998. The Company and Grant Thornton, LLP had a long
established relationship as Grant Thornton had served as the Company's tax
advisor since 1990.

The Company, during its two prior fiscal years (1998 and 1997) and any
subsequent interim period preceding its change of independent accountant, did
not have any disagreements with the former accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors is incorporated herein by reference from
the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders (the "2000 Proxy Statement"). Information regarding executive
officers of the Company, included herein under the caption "Executive Officers
of the Registrant" in Part I, Item 1 above, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference from the 2000 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference from the 2000 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference from the 2000 Proxy Statement.

16
<PAGE> 17

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS AND SCHEDULES.

The following Financial Statements and Schedules are filed with this
Report:

Report of Independent Auditors
Audited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedules
Valuation and Qualifying Accounts

(All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.)

(B) EXHIBITS.

The following Exhibits are filed with this Report.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION:
- ------- ------------
<S> <C>
2.1 Securities Purchase Agreement, dated as of March 12, 1998,
by and among Alliance Imaging, Inc.; Embarcadero Holding
Corp. I; Embarcadero Holding Corp. II; American Shared
Hospital Services; and MMRI, Inc.(1)
3.1 Articles of Incorporation of the Company, as amended.(2)
3.2 By-laws of the Company, as amended.
4.6 Form of Common Stock Purchase Warrant of American Shared
Hospital Services.(3)
4.8 Registration Rights Agreement, dated as of May 17, 1995, by
and among American Shared Hospital Services, the Holders
referred to in the Note Purchase Agreement, dated as of May
12, 1995 and General Electric Company, acting through GE
Medical Systems.(3)
10.1 The Company's 1984 Stock Option Plan, as amended.(4)
10.2 The Company's 1995 Stock Option Plan, as amended.(5)
10.3 Form of Indemnification Agreement between American Shared
Hospital Services and members of its Board of Directors.(4)
10.4 Ernest A. Bates Stock Option Agreement dated as of August
15, 1995.(6)
10.5 Operating Agreement for GK Financing, LLC, dated as of
October 17, 1995.(3)
10.6 Amendments dated as of October 26, 1995 and as of December
20, 1995 to the GK Financing, LLC Operating Agreement, dated
as of October 17, 1995.(7)
10.7 Amendment dated as of October 16, 1996 to the GK Financing,
LLC Operating Agreement, dated as of October 17, 1995.(1)
10.8 Amendment dated as of March 31, 1998 ("Fourth Amendment) to
the GK Financing, LLC Operating Agreement dated as of
October 17, 1995.(8)
10.9 Amendment dated as of March 31, 1998 ("Fifth Amendment") to
the GK Financing, LLC Operating Agreement dated as of
October 17, 1995.(8)
10.10 Amendment dated as of June 5, 1998 to the GK Financing, LLC
Operating Agreement dated as of October 17, 1995.(8)
</TABLE>

17
<PAGE> 18

<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION:
- ------- ------------
<S> <C>
10.11a Assignment and Assumption Agreement, dated as of December
31, 1995, between American Shared Radiosurgery Services
(assignor) and GK Financing, LLC (assignee).(8)
10.11b Assignment and Assumption Agreement, dated as of November 1,
1995, between American Shared Hospital Services (assignor)
and American Shared Radiosurgery Services (assignee).(4)
10.11c Amendment Number One dated as of August 1, 1995 to the Lease
Agreement for a Gamma Knife Unit between The Regents of the
University of California and American Shared Hospital
Services. (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.)(8)
10.11d Lease Agreement dated as of July 3, 1990 for a Gamma Knife
Unit between American Shared Hospital Services and The
Regents of the University of California. (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.)(8)
10.12 Amendment Number Two dated as of February 6, 1998 to the
Lease Agreement for a Gamma Knife Unit between UCSF-Stanford
Health Care and GK Financing, LLC. (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.)(8)
10.13 Assignment and Assumption Agreement, dated as of February 3,
1996, between American Shared Radiosurgery Services
(assignor) and GK Financing, LLC (assignee).(4)
10.14 Lease Agreement for a Gamma Knife Unit dated as of April 6,
1994, between Ernest A. Bates, M.D. and NME Hospitals, Inc.
dba USC University Hospital. (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.)(8)
10.15 Assignment and Assumption and Agreement dated as of February
1, 1996 between Ernest A. Bates, M.D. and GK Financing, LLC
with respect to the Lease Agreement for a Gamma Knife dated
as of April 6, 1994 between Ernest A. Bates, M.D. and NME
Hospitals, Inc. dba USC University Hospital.(8)
10.16 Lease Agreement for a Gamma Knife Unit dated as of October
31, 1996 between Hoag Memorial Hospital Presbyterian and GK
Financing, LLC. (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.)(8)
10.17 Addendum to Lease Agreement for a Gamma Knife Unit dated as
of December 1, 1998 between Hoag Memorial Hospital
Presbyterian and GK Financing, LLC. (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.)(8)
</TABLE>

18
<PAGE> 19

<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION:
- ------- ------------
<S> <C>
10.18 Lease Agreement for a Gamma Knife Unit dated as of October
29, 1996 between Methodist Healthcare Systems of San
Antonio, Ltd., dba Southwest Texas Methodist Hospital and GK
Financing, LLC. (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.)(8)
10.19 Lease agreement for a Gamma Knife Unit dated as of April 10,
1997 between Yale-New Haven Ambulatory Services Corporation
and GK Financing, LLC. (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.)(8)
10.20 Lease Agreement for a Gamma Knife Unit dated as of June 1,
1998 between GK Financing, LLC and Kettering Medical 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.)(9)
10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1,
1998 between GK Financing, LLC and Kettering Medical 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.)(9)
10.22 Lease Agreement for a Gamma Knife Unit dated as of October
5, 1998 between GK Financing, LLC and New England Medical
Center Hospitals, Inc. (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.)(9)
10.23 Equipment Lease Agreement dated as of October 29, 1998
between GK Financing, LLC and the Board of Trustees of the
University of Arkansas on behalf of The University of
Arkansas for Medical Sciences. (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.)(9)
10.24 First Amendment to Lease Agreement for a Gamma Knife Unit
effective as of August 2, 1999 between GK Financing, LLC and
TenetHealthSystems Hospitals, Inc. (formerly known as NME
Hospitals, Inc.) dba USC University Hospital. (Confidential
material appearing in this document has been omitted and
filed separately with the Securities and Exchange Rule
24b-2, promulgated under the Securities and Exchange Act of
1934, as amended. Omitted information has been replaced with
asterisks.)(9)
10.25 Addendum Two, dated as of October 1, 1999, to Lease
Agreement for a Gamma Knife Unit dated as of October 31,
1996 between Hoag Memorial Hospital Presbyterian and GK
Financing, LLC. (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.)
</TABLE>

19
<PAGE> 20

<TABLE>
<CAPTION>
EXHIBIT
NUMBER: DESCRIPTION:
- ------- ------------
<S> <C>
10.26 Lease Agreement for a Gamma Knife Unit dated as of May 28,
1999 between Froedtert Memorial Lutheran Hospital and GK
Financing, LLC. (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.)
10.27 Addendum dated June 24, 1999 to Lease Agreement for a Gamma
Knife Unit dated as of May 28, 1999 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.
10.28 Amendment dated July 12, 1999 to Lease Agreement for a Gamma
Knife Unit dated May 28, 1999 between Froedtert Memorial
Lutheran Hospital and GK Financing, LLC.
10.29 Amendment dated August 24, 1999 to Lease Agreement for a
Gamma Knife Unit dated May 28, 1999 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.
21. Subsidiaries of American Shared Hospital Services.
23.1 Consent of Moss Adams, LLP.
23.2 Consent of Grant Thornton, LLP.
23.3 Consent of Ernst & Young, LLP.
27. Financial Data Schedule for the year ended December 31,
1999.
</TABLE>

- ---------------
(1) These documents were filed as Exhibits 2.1 and 10.13b, respectively, to the
registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, which is incorporated herein by this reference.

(2) This document was filed as Exhibit 3.1 to registrant's Registration
Statement on Form S-2 (Registration No. 33-23416), which is incorporated
herein by this reference.

(3) These documents were filed as Exhibits 3.2, 4.6 and 4.8, respectively, to
registrant's Registration Statement on Form S-1 (Registration No. 33-63721)
filed on October 26, 1995, which is incorporated herein by this reference.

(4) These documents were filed as Exhibits 10.24 and 10.35 respectively, to
registrant's Registration Statement on Form S-2 (Registration No. 33-23416),
which is incorporated herein by this reference.

(5) This document was filed as Exhibit A to registrant's Proxy Statement, filed
on August 31, 1995, which is incorporated herein by this reference.

(6) This document was filed as Exhibit B to registrant's Proxy Statement, filed
on August 31, 1995, which is incorporated herein by this reference.

(7) These documents were filed as Exhibits 4.14 and 10.13, respectively, to the
registrant's Pre-Effective Amendment No. 1 to registrant's Registration
Statement on Form S-1 (Registration No. 33-63721) filed on March 29, 1996,
which is incorporated herein by this reference.

(8) These documents were filed as Exhibits 10.8, 10.9, 10.10, 10.11a, 10.11c,
10.11d, 10.12, 10.14, 10.15, 10.16, 10.17, 10.18 and 10.19, respectively, to
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, which is incorporated herein by this reference.

(9) These documents were filed as Exhibits 10.20, 10.21, 10.22, 10.23, and
10.24, respectively, to the registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1999, which is incorporated herein
by this reference.

None.

20
<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

March 29, 2000 By: /s/ ERNEST A. BATES
------------------------------------
Ernest A. Bates, M.D.
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ ERNEST A. BATES Chief Executive Officer and March 29, 2000
- -------------------------------------------------------- Chairman of the Board
Ernest A. Bates, M.D.

/s/ WILLIE R. BARNES Director and Secretary March 29, 2000
- --------------------------------------------------------
Willie R. Barnes

/s/ JOHN F. RUFFLE Director March 29, 2000
- --------------------------------------------------------
John F. Ruffle

/s/ STANLEY S. TROTMAN, JR. Director March 29, 2000
- --------------------------------------------------------
Stanley S. Trotman, Jr.

/s/ CHARLES B. WILSON Director March 29, 2000
- --------------------------------------------------------
Charles B. Wilson

/s/ CRAIG K. TAGAWA Chief Operating Officer and March 29, 2000
- -------------------------------------------------------- Chief Financial Officer
Craig K. Tagawa (Principal Accounting
Officer)
</TABLE>

21
<PAGE> 22

AMERICAN SHARED HOSPITAL SERVICES

CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 23

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......... F-2
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS............................................ F-4
STATEMENTS OF INCOME...................................... F-5
STATEMENT OF SHAREHOLDERS' EQUITY......................... F-6
STATEMENTS OF CASH FLOWS.................................. F-7
NOTES TO FINANCIAL STATEMENTS............................. F-8
</TABLE>

F-1
<PAGE> 24

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
American Shared Hospital Services

We have audited the accompanying consolidated balance sheet of American
Shared Hospital Services as of December 31, 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Shared Hospital Services at December 31, 1999, and the consolidated
results of their operations and consolidated cash flows for the year then ended
in conformity with generally accepted accounting principles.

/s/ Moss Adams LLP
--------------------------------------
MOSS ADAMS LLP

Stockton, California
February 18, 2000

F-2
<PAGE> 25

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
American Shared Hospital Services

We have audited the accompanying consolidated balance sheet of American
Shared Hospital Services as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Shared Hospital Services at December 31, 1998, and the consolidated
results of their operations and consolidated cash flows for the year then ended
in conformity with generally accepted accounting principles.

We have also audited Schedule II for the year ended December 31, 1998. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

/s/ Grant Thornton LLP
--------------------------------------
GRANT THORNTON LLP

San Francisco, California
March 12, 1999

F-3
<PAGE> 26

AMERICAN SHARED HOSPITAL SERVICES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31,

ASSETS

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $12,903,000 $11,114,000
Restricted cash........................................... 50,000 2,226,000
Trade accounts receivable................................. 982,000 1,228,000
Other receivables......................................... 244,000 104,000
Prepaid expenses and other current assets................. 516,000 285,000
----------- -----------
Total current assets.............................. 14,695,000 14,957,000
PROPERTY AND EQUIPMENT
Medical equipment and facilities.......................... 23,560,000 15,199,000
Office equipment.......................................... 617,000 578,000
Deposits and construction in progress..................... 3,276,000 1,079,000
----------- -----------
27,453,000 16,856,000
Accumulated depreciation and amortization................. (5,397,000) (5,097,000)
----------- -----------
Net property and equipment........................ 22,056,000 11,759,000
OTHER ASSETS.............................................. 235,000 203,000
----------- -----------
$36,986,000 $26,919,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 101,000 $ 338,000
Accrued interest.......................................... 229,000 54,000
Employee compensation and benefits........................ 87,000 814,000
Other accrued liabilities................................. 597,000 519,000
Income tax payable........................................ -- 1,664,000
Current portion of accrued exit costs..................... 11,000 595,000
Current portion of long-term debt......................... 2,545,000 1,885,000
----------- -----------
Total current liabilities......................... 3,570,000 5,869,000
LONG-TERM DEBT, less current portion........................ 19,887,000 8,823,000
ACCRUED EXIT COSTS, less current portion.................... -- 400,000
MINORITY INTEREST........................................... 890,000 731,000
SHAREHOLDERS' EQUITY
Common stock, $0 par value, authorized -- 10,000,000
shares, issued and outstanding shares -- 3,813,000 in
1999 and 4,544,000 in 1998............................. 10,036,000 11,087,000
Common stock options issued to officer.................... 2,414,000 2,414,000
Additional paid-in capital................................ 817,000 930,000
Accumulated deficit....................................... (628,000) (3,335,000)
----------- -----------
Total shareholders' equity........................ 12,639,000 11,096,000
----------- -----------
$36,986,000 $26,919,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.
F-4
<PAGE> 27

AMERICAN SHARED HOSPITAL SERVICES

CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Medical services................................... $7,156,000 $35,162,000 $37,172,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll........................... 3,000 7,087,000 7,533,000
Maintenance and supplies........................... 143,000 5,184,000 5,959,000
Depreciation....................................... 1,616,000 5,556,000 6,398,000
Equipment rental................................... -- 4,064,000 2,686,000
Other.............................................. 403,000 3,935,000 4,468,000
Selling and administrative......................... 1,803,000 5,116,000 5,901,000
Interest........................................... 1,309,000 3,186,000 3,671,000
---------- ----------- -----------
Total costs and expenses................... 5,277,000 34,128,000 36,616,000
---------- ----------- -----------
1,879,000 1,034,000 556,000
Gain (loss) on sale of assets and early termination
of capital leases............................... 10,000 (2,000) 821,000
Gain on sale of product line....................... -- 20,478,000 --
Interest and other income.......................... 603,000 220,000 118,000
Minority interest.................................. (501,000) (166,000) 37,000
---------- ----------- -----------
Income before income taxes......................... 1,991,000 21,564,000 1,532,000
Income tax benefit (expense)....................... 716,000 (1,513,000) (10,000)
---------- ----------- -----------
Net income......................................... $2,707,000 $20,051,000 $ 1,522,000
========== =========== ===========
Earnings per common share:
Earnings per common share -- basic................... $ .68 $ 4.23 $ .32
========== =========== ===========
Earnings per common share -- assuming dilution....... $ .48 $ 3.15 $ .24
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.
F-5
<PAGE> 28

AMERICAN SHARED HOSPITAL SERVICES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMMON
STOCK
OPTIONS ADDITIONAL
COMMON COMMON ISSUED TO PAID-IN ACCUMULATED
SHARES STOCK OFFICER CAPITAL DEFICIT TOTAL
--------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1996............ 4,769,000 $11,089,000 $2,414,000 $ 930,000 $(24,908,000) $(10,475,000)
Net income....... -- -- -- -- 1,522,000 1,522,000
--------- ----------- ---------- --------- ------------ ------------
Balances at December
31, 1997............ 4,769,000 11,089,000 2,414,000 930,000 (23,386,000) (8,953,000)
Repurchase of
Common Stock... (225,000) (2,000) -- -- -- (2,000)
Net income....... -- -- -- -- 20,051,000 20,051,000
--------- ----------- ---------- --------- ------------ ------------
Balances at December
31, 1998............ 4,544,000 11,087,000 2,414,000 930,000 (3,335,000) 11,096,000
Options exercised... 9,000 16,000 -- -- -- 16,000
Exercise of
warrants......... 28,000 21,000 -- -- -- 21,000
Repurchase of common
stock............ (768,000) (1,088,000) -- -- -- (1,088,000)
Repurchase of
warrants......... -- -- -- (113,000) -- (113,000)
Net income....... -- -- -- -- 2,707,000 2,707,000
--------- ----------- ---------- --------- ------------ ------------
Balances at December
31, 1999............ 3,813,000 $10,036,000 $2,414,000 $ 817,000 $ (628,000) $ 12,639,000
========= =========== ========== ========= ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.
F-6
<PAGE> 29

AMERICAN SHARED HOSPITAL SERVICES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 2,707,000 $ 20,051,000 $ 1,522,000
Adjustments to reconcile net income to net cash from
operating activities:
Gain on sale of product line............................ -- (20,478,000) --
(Gain) loss on sale of assets and early termination of
capital leases........................................ (10,000) 2,000 (821,000)
Depreciation and amortization........................... 1,621,000 6,095,000 6,752,000
Deferred income tax benefit............................. -- (164,000) --
Change in estimate of accrued exit costs................ (375,000) -- --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash................ 2,176,000 (1,575,000) (433,000)
Decrease (increase) in receivables.................... 106,000 (154,000) (582,000)
(Increase) decrease in prepaid expenses and other
assets............................................. (263,000) 187,000 (10,000)
(Decrease) increase in accounts payable, accrued
liabilities and income taxes payable............... (2,375,000) 3,767,000 843,000
------------ ------------ -----------
Net cash from operating activities.......................... 3,587,000 7,731,000 7,271,000
INVESTING ACTIVITIES
Proceeds from sale of product line, net of selling costs.... -- 12,240,000 --
Payment of accrued exit costs............................... (609,000) -- --
Proceeds from sale and disposition of equipment............. 1,210,000 4,000 331,000
Increase (decrease) in minority interest.................... 159,000 143,000 (37,000)
Payment for purchase of property and equipment.............. (131,000) (746,000) (349,000)
Other....................................................... -- -- (168,000)
------------ ------------ -----------
Net cash from investing activities.......................... 629,000 11,641,000 (223,000)
FINANCING ACTIVITIES
Principal payments on long-term debt and obligations under
capital leases............................................ (1,513,000) (8,291,000) (8,962,000)
Proceeds from issuance of long-term debt.................... 250,000 855,000 --
Payment for exercise of stock warrants...................... 21,000 -- --
Payment for exercise of stock options....................... 16,000 -- --
Net (payments on) proceeds from revolving line of credit.... -- (837,000) 1,563,000
Repurchase of warrants...................................... (113,000) -- --
Repurchase of common stock.................................. (1,088,000) (2,000) --
------------ ------------ -----------
Net cash from financing activities.......................... (2,427,000) (8,275,000) (7,399,000)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents........ 1,789,000 11,097,000 (351,000)
Cash and cash equivalents at beginning of year.............. 11,114,000 17,000 368,000
------------ ------------ -----------
Cash and cash equivalents at end of year.................... $ 12,903,000 $ 11,114,000 $ 17,000
============ ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid............................................... $ 1,135,000 $ 3,163,000 $ 3,689,000
============ ============ ===========
Income taxes paid........................................... $ 1,059,000 $ 36,000 $ 29,000
============ ============ ===========
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment with lease/debt financing.......... $ 13,311,000 $ 6,952,000 $ 3,999,000
Decrease in medical and capitalized lease equipment due to
lease restructuring....................................... $ -- $ -- $(1,137,000)
Decrease in capitalized lease obligations due to lease
restructuring............................................. $ -- $ -- $(2,036,000)
Accounts payable converted to notes......................... $ -- $ -- $ 817,000
Net liabilities, primarily trade accounts receivable and
payable, property and equipment, capital lease
obligations, and long-term debt, assumed by buyer in sale
of product line........................................... $ -- $ 9,808,000 $ --
</TABLE>

The accompanying notes are an integral part of these statements.
F-7
<PAGE> 30

AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997

NOTE A -- BUSINESS AND BASIS OF PRESENTATION

1. Business

American Shared Hospital Services (the "Company") provides Gamma Knife
units to eight medical centers in California, Texas, Connecticut, Ohio,
Massachusetts, Arkansas, and Wisconsin. The Company provided shared diagnostic
imaging services to health care providers located in various geographic regions
of the United States through November of 1998. The five diagnostic imaging
services provided by the Company were Magnetic Resonance Imaging, Computed Axial
Tomography Scanning, Ultrasound, Nuclear Medicine, and Cardiac Catheterization
Laboratory services. On November 13, 1998, the diagnostic imaging services
product line was sold to a third party.

In June 1995, African American Church Health and Economic Services, Inc.
(ACHES) and ACHES Insurance Services, Inc. ("AIS") were incorporated. AIS is a
wholly owned subsidiary of ACHES. AIS is an insurance agency qualified to sell
life, health, and disability insurance in the states of California and New York.
ACHES, through AIS, sells life, health and disability insurance primarily to the
African-American Community. In 1999, the operations of ACHES and AIS were
discontinued.

On October 17, 1995, the Company (through American Shared Radiosurgery
Services ("ASRS")) and Elekta AB, the manufacturer of the Gamma Knife (through
its wholly owned United States subsidiary GKV Investments, Inc. ("GKV")),
entered into an operating agreement which formed GK Financing, LLC ("GKF"). GKF
provides alternative financing of Elekta Gamma Knife units and is the preferred
provider for Elekta AB of financing arrangements, such as fee-for-service lease
arrangements with health care institutions.

In November, 1999, OR21, Inc., was incorporated. This wholly-owned
subsidiary of the Company will provide the product "The Operating Room for the
21st Century(sm)", which is currently under development.

The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, CuraCare, Inc. ("CuraCare"), MMRI, Inc., European
Shared Medical Services Ltd., OR21, Inc., ACHES and its wholly-owned subsidiary,
AIS, and ASRS and its majority-owned subsidiary, GK Financing, LLC. The stock of
CuraCare was sold on November 13, 1998 in conjunction with the sale of the
diagnostic imaging services product line.

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

NOTE B -- ACCOUNTING POLICIES

1. Use of Estimates in the Preparation of Financial Statements

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

2. Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of
three months or less at the date of purchase to be cash equivalents. Restricted
cash is not considered a cash equivalent for purposes of the consolidated
statements of cash flows.

3. Restricted Cash

Restricted cash represents cash limited as to use by contractual
arrangement.

F-8
<PAGE> 31
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

4. Accounts Receivable

Substantially all of the Company's revenue is provided by eight customers.
These customers constitute accounts receivable at December 31, 1999. The Company
performs credit evaluations of its customers and generally does not require
collateral. At December 31, 1999, the Company did not maintain an allowance for
doubtful accounts because management believes that accounts receivable are fully
collectible.

5. Accounting for Majority-Owned Subsidiary

The Company accounts for GK Financing, LLC (GKF), as a consolidated entity
due to its 81% majority-equity interest.

6. Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets which for medical and office equipment is
generally 3 - 10 years.

7. Operating Leases

The Company leases Gamma Knife equipment to its customers under
arrangements accounted for as operating leases. Revenue is provided for and
recognized on a fee-for-service or contingent rental basis when the service is
delivered. The lease agreements are generally over ten to fifteen year terms. At
December 31, 1999, the Company held equipment under operating lease contracts
with customers with an original cost of $22,862,000 and accumulated depreciation
of $4,796,000.

8. Income Taxes

The liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

9. Earnings Per Share

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.

Basic earnings per share has been computed based on the weighted-average
number of common shares outstanding.

F-9
<PAGE> 32
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share................................... $2,707,000 $20,051,000 $1,522,000
Denominator:
Denominator for basic earnings per share --
weighted-average shares.................. 3,967,000 4,735,000 4,769,000
Effect of dilutive securities employee stock
options/warrants......................... 1,679,000 1,631,000 1,574,000
---------- ----------- ----------
Denominator for diluted earnings per share--
adjusted weighted-average shares......... 5,646,000 6,366,000 6,343,000
========== =========== ==========
Earning per share -- basic.................... $ .68 $ 4.23 $ .32
========== =========== ==========
Earning per share -- assuming dilution........ $ .48 $ 3.15 $ .24
========== =========== ==========
</TABLE>

10. Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options granted to employees is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock. Disclosure
requirements in accordance with SFAS No. 123 are included in Note E.

11. Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, and other
accrued liabilities approximated their fair value as of December 31, 1999 and
1998, because of the relatively short maturity of these instruments. The
carrying amounts of the Company's various debt obligations approximated fair
value as of December 31, 1999 and 1998, based upon interest rates that are
currently available for the Company for issuance of instruments with similar
terms and remaining maturities.

12. Reclassifications

Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation.

NOTE C -- LONG-TERM DEBT

Long-term debt consists primarily of 8 notes with a financing company,
related to Gamma Knife construction and installation, totaling $19,290,000.
These notes accrue interest at fixed annual rates between 10.5% and 10.7%, are
payable in 84 monthly installments, mature between September, 2004, and
November, 2006, and are collateralized by the respective Gamma Knives.
Additionally, the Company has $3,142,000 in borrowings outstanding for deposits
for two Gamma Knives under construction at December 31, 1999 (note H). These
borrowings accrue interest at prime plus 2% (10.5 % at December 31, 1999), are
payable when the

F-10
<PAGE> 33
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

Gamma Knife units commence operation, and are collateralized by the equipment.
The following are contractual maturities of long-term debt by year at December
31, 1999:

<TABLE>
<S> <C>
Year ending December 31, 2000........... $ 2,545,000
2001............................... 4,126,000
2002............................... 3,283,000
2003............................... 3,645,000
2004............................... 3,929,000
Thereafter......................... 4,904,000
-----------
$22,432,000
===========
</TABLE>

NOTE D -- INCOME TAXES

Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets......................................... $(2,389,000) $(1,000,000)
----------- -----------
Total deferred tax liabilities.................. (2,389,000) (1,000,000)
Deferred tax assets:
Net operating loss carryforwards..................... 2,941,000 275,000
State income taxes................................... -- 450,000
Accrued reserves..................................... 5,000 710,000
Other -- net......................................... 300,000 360,000
----------- -----------
Total deferred tax assets....................... 3,246,000 1,795,000
Valuation allowance for deferred tax assets............. (857,000) (795,000)
----------- -----------
Net deferred tax assets................................. 2,389,000 1,000,000
----------- -----------
Net deferred tax liabilities............................ $ -- $ --
=========== ===========
</TABLE>

The components of the provision (benefit) for income taxes consist of the
following:

<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ 360,000 $ --
State............................................ (716,000) 1,317,000 10,000
--------- ---------- -------
Deferred:
Federal.......................................... -- -- --
State............................................ -- (164,000) --
--------- ---------- -------
$(716,000) $1,513,000 $10,000
========= ========== =======
</TABLE>

F-11
<PAGE> 34
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. federal statutory tax rate (34% in 1999, 1998 and 1997) to
income (loss) before taxes as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax..................... $ 677,000 $ 7,500,000 $ 536,000
Change in valuation allowance........... 62,000 (7,205,000) (1,600,000)
State income taxes, net of federal
benefit.............................. 116,000 1,400,000 10,000
Change in carryovers and tax
attributes........................... (1,571,000) -- 984,000
Other................................... -- (182,000) 80,000
----------- ----------- -----------
$ (716,000) $ 1,513,000 $ 10,000
=========== =========== ===========
</TABLE>

At December 31, 1999, the Company had a net operating loss carryforward for
federal income tax return purposes of approximately $8,330,000 which expires
between 1999 and 2019. A substantial part of this carryforward is subject to
separate return limitations. The Company's ability to utilize its net operating
loss carryforwards and other deferred tax assets may be limited in the event of
a 50% or more ownership change within any three-year period.

The Company's estimated income tax liability for the year ended December
31, 1998 was overstated by approximately $700,000. This change in estimate is
the result of finalization of unresolved details associated with the 1998 sale
of the diagnostic imaging services product line. The effect of the resolution of
these details was estimated in the 1998 financial statements. The effect of the
final resolution was a reduction of the Company's income tax liability resulting
in an income tax benefit for the year ended December 31, 1999 as well as an
increase in the net operating loss carryforwards available to the Company. The
tax effected amount of the increase in net operating losses is approximately
$1,571,000 and is reflected as a change in carryovers and tax attributes in the
reconciliation from expected to actual income tax expense above.

NOTE E -- SHAREHOLDERS' EQUITY

1984 Stock Option Plan

Under the Company's 1984 Stock Option Plan (the "Plan"), as amended, a
total of 475,000 stock options were authorized for grant. The Plan terminated
according to its terms on March 1, 1994. Options granted pursuant to the Plan
generally had lives of 10 years from the date of grant, subject to earlier
expiration in certain cases, such as termination of the grantee's employment.

1995 Stock Option Plan

The Company's 1995 Stock Option Plan, providing for nonqualified stock
options and "incentive stock options," was approved by the Company's Board of
Directors on August 15, 1995, subject to shareholder approval, which was given
on October 6, 1995. Under the 1995 Plan, 330,000 common shares are reserved for
awards to officers and other key employees, non-employee directors, and
advisors. Provisions of the 1995 Stock Option Plan include an automatic grant to
each non-employee director of options to purchase up to 4,000 shares annually on
the date of the Company's Annual Shareholder Meeting, at an exercise price equal
to the market price of the Company's common shares on that date, until the
non-employee director has options for a total of 12,000 shares of the Company's
common stock in all Company plans. Directors who are appointed or elected to the
Company's Board of Directors on a date other than that of the Annual Shareholder
Meeting receive a pro-rata grant of such options, at an exercise price equal to
the market price of the Company's common shares on the date of grant.

F-12
<PAGE> 35
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

Changes in options outstanding under the 1984 and 1995 Stock Option Plans
from January 1, 1997 to December 31, 1999 are as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
<S> <C> <C>
Balance at January 1, 1997.................................. 417,000 $1.625
Granted................................................... 14,000 $1.688
Exercised................................................. -- --
Forfeited................................................. (2,000) $1.596
------- ------
Balance at December 31, 1997................................ 429,000 $1.627
Granted................................................... -- $ --
Exercised................................................. -- $ --
Forfeited................................................. (40,000) $1.625
------- ------
Balance at December 31, 1998................................ 389,000 $1.628
Granted................................................... 53,000 $3.000
Exercised................................................. (9,000) $1.660
Forfeited................................................. (58,000) $1.625
------- ------
Balance at December 31, 1999................................ 375,000 $1.820
======= ======
</TABLE>

At December 31, 1999, 43,000 options were available for grant under the
1995 Plan.

Shares and Options Issued to Officer

On August 15, 1995, the Company's Chairman and Chief Executive Officer was
granted a ten-year, immediately exercisable option to purchase 1,495,000 common
shares for an exercise price of $.01 per share for which the Company recorded
compensation expense of $2,414,000. These options were granted to the officer as
final consideration for personal guarantees of credit facilities and for
continued employment with the Company.

The following table summarizes information about all options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01 1,495,000 5.83 $ 0.01 1,495,000 $ 0.01
1.625 - 3.000 375,000 5.37 1.820 361,000 1.772
--------- ---- ------ --------- ------
$ .01 - 3.000 1,870,000 5.74 $ .373 1,856,000 $ .352
========= ==== ====== ========= ======
</TABLE>

At December 31, 1999 and 1998, 1,856,000 and 1,884,000 options,
respectively, were vested and exercisable.

At December 31, 1999, there were 1,370 warrants outstanding at an exercise
price of $.75 per warrant. These warrants are exercisable through May 2002.

Pro Forma Information related to Option Grants

Pro forma information regarding net income and earnings per share is
required by SFAS 123 for awards granted after December 31, 1995, as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes options valuation model was

F-13
<PAGE> 36
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, the Black-Scholes
model requires the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock-based awards to employees
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's option grants
under the 1984 and 1995 Plans was estimated assuming no expected dividends and
the following weighted-average assumptions:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (years)....................................... 9.5 9.5 9.5
Expected volatility......................................... 82.0% 93.8% 93.8%
Risk-free interest rate..................................... 5.9% 6.3% 6.3%
</TABLE>

No options were granted during 1998. The weighted-average fair value of
options granted during 1999 was $2.54. For pro forma purposes, the estimated
fair value of the Company's options is amortized over the options' vesting
period. The Company's pro forma information follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income
As reported................................. $2,707,000 $20,051,000 $1,522,000
Pro forma................................... $2,595,000 $20,040,000 $1,458,000
Earnings per share -- basic
As reported................................. $ .68 $ 4.23 $ .32
Pro forma................................... $ .65 $ 4.23 $ .31
Earnings per share -- assuming dilution
As reported................................. $ .48 $ 3.15 $ .24
Pro forma................................... $ .46 $ 3.15 $ .23
</TABLE>

NOTE F -- RETIREMENT PLAN

The Company has a defined contribution retirement plan for which
substantially all full-time employees are eligible. The plan does not currently
provide for a Company matching distribution.

NOTE G -- OPERATING LEASES

The Company leases office space and equipment under operating leases
expiring at various dates through 2002.

Future minimum payments under noncancelable operating leases having initial
terms of more than one year consisted of the following at December 31, 1999:

Payments for repair and maintenance agreements are included in the future
minimum operating lease payments shown above.

Rent expense was $117,000, $4,696,000, and $3,285,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, and includes the above operating
leases as well as month-to-month rental and certain capital lease executory
costs.

F-14
<PAGE> 37
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

NOTE H -- COMMITMENTS AND CONTINGENCIES

Under the terms of 2 Gamma Knife quotation agreements, the Company is
committed to purchase Gamma Knife equipment for $6,136,000 effective when the
equipment is placed in service at each customer location. At December 31, 1999,
the Company had $3,142,000 in deposits related to these purchase commitments
which are classified as construction in progress.

NOTE I -- REPORTABLE SEGMENTS

American Shared Hospital Services (ASHS) has one reportable segment: Gamma
Knife. The Gamma Knife segment treats certain vascular malformations and
intracranial tumors without surgery. Prior to November 1998 the Company also had
a Diagnostic Imaging Services segment which used medical diagnostic imaging
systems to facilitate treatment and the diagnosis of diseases and disorders.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. ASHS evaluates performance based
on profit or loss from operations before income taxes not including nonrecurring
gains and losses. Applicable general and administrative expenses are allocated
to segments based on relative percentage of revenues. Certain corporate expenses
are not allocated to the segments.

ASHS does not have significant intersegment sales transactions. The
segments share common expenses and provide management activities to one another
for which they charge management fees. These management fees are not considered
significant.

ASHS's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.

Reportable Segment Information

<TABLE>
<CAPTION>
DIAGNOSTIC IMAGING SERVICES
-----------------------------
1999 1998 1997
----- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Revenues................................................. $-- $30,993 $34,772
Interest expense......................................... $-- $ 1,770 $ 2,571
Depreciation and amortization............................ $-- $ 4,514 $ 5,590
Segment profit........................................... $-- $ 156 $ 1,208
Segment assets........................................... $-- $ -- $20,905
Other significant noncash items:
Acquisition of equipment with lease/debt financing..... $-- $ 820 $ 1,767
Capitalized lease restructuring........................ $-- $ -- $(3,173)
Accounts payable converted to notes payable............ $-- $ -- $ 817
</TABLE>

<TABLE>
<CAPTION>
GAMMA KNIFE
----------------------------
1999 1998 1997
------- ------- ------
(THOUSANDS)
<S> <C> <C> <C>
Revenues............................................... $ 7,151 $ 4,156 $2,384
Interest expense....................................... $ 1,305 $ 773 $ 303
Depreciation and amortization.......................... $ 2,135 $ 1,042 $ 808
Segment profit......................................... $ 2,637 $ 1,115 $ 392
Segment assets......................................... $28,920 $15,125 $7,859
Other significant noncash items:
Acquisition of equipment with lease/debt financing... $13,311 $ 6,132 $2,232
</TABLE>

F-15
<PAGE> 38
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

Reconciliation to Consolidated Amounts

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments................ $ 7,151 $35,149 $37,156
Other revenues........................................ 5 13 16
------- ------- -------
Total consolidated revenues...................... 7,156 35,162 37,172
PROFIT OR LOSS
Total profit for reportable segments.................. 2,637 1,271 1,600
Gain on sale of product line.......................... -- 20,478 --
Other................................................. (646) (185) (68)
------- ------- -------
Income before income taxes....................... 1,991 21,564 $ 1,532
ASSETS
Total assets for reportable segments.................. 28,920 15,025 28,764
Other assets.......................................... 8,066 12,042 1,907
Elimination of receivables from corporate
headquarters........................................ -- (148) (462)
------- ------- -------
Consolidated total.......................... $36,986 $26,919 $30,209
======= ======= =======
</TABLE>

Other Significant Items

<TABLE>
<CAPTION>
1999
------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------- ----------- ------------
(THOUSANDS)
<S> <C> <C> <C>
Interest expense...................................... $1,305 $ 4 $1,309
Expenditures for assets............................... $ -- $ 131 $ 131
Depreciation and amortization......................... $2,135 $(514) $1,621
</TABLE>

<TABLE>
<CAPTION>
1998
------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------- ----------- ------------
<S> <C> <C> <C>
Interest expense...................................... $2,543 $ 643 $3,186
Expenditures for assets............................... $ 50 $ 5 $ 55
Depreciation and amortization......................... $5,556 $ -- $5,556
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------- ----------- ------------
<S> <C> <C> <C>
Interest expense...................................... $2,874 $ 797 $3,671
Expenditures for assets............................... $ 320 $ 26 $ 346
Depreciation and amortization......................... $6,398 $ -- $6,398
</TABLE>

Adjustments to reconcile reportable segment totals to consolidated totals
include unallocated amounts and amounts from non-reportable segments.

Major Customers

Revenues from the Company's Gamma Knife segment were provided by eight
customers in 1999, five customers in 1998, and three customers in 1997.

F-16
<PAGE> 39
AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997

NOTE J -- SALE OF PRODUCT LINE

On November 13, 1998, the Company consummated a sale of its diagnostic
imaging services product line to a third party. The diagnostic imaging services
line included Magnetic Resonance Imaging (MRI), Computed Axial Tomography
Scanning (CT), Ultrasound, Nuclear Medicine and Cardiac Catheterization
Laboratory services. The Company sold the assets of this product line for $13.5
million in cash and the assumption by the third party of approximately $27.1
million in liabilities of the Company. The Company recognized a gain on disposal
of product line of approximately $20 million in conjunction with this
transaction.

In conjunction with the product line sale, one of the Company's facilities
which provided certain administrative and scheduling functions was closed during
1999. At December 31, 1998, in accordance with the Emerging Issues Task Force
(EITF) Abstract 94-3, the Company accrued certain future exit costs related to
the sale of the product line and corresponding facility closure which totaled
$995,000 at December 31, 1998. The accrued costs include employee compensation
of $215,000, liability tail insurance coverage costs of $500,000, legal and
professional fees of $105,000, administrative costs of $115,000 and other costs
totaling $60,000. Insurance costs of approximately $400,000 were classified as
long-term as they were intended to be incurred subsequent to 1999. During 1999,
management revised its estimate regarding the use and corresponding cost of
liability tail insurance coverage. This change in estimate resulted in a
$325,000 decrease to selling and administrative expenses in the corresponding
Statement of Income for the year ended December 31, 1999.

The revenue and net operating income or losses from the disposed diagnostic
imaging services line for fiscal years ended 1998 and 1997 are presented at Note
I.

F-17
<PAGE> 40

AMERICAN SHARED HOSPITAL SERVICES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT ADDITIONS
JANUARY 1, CHARGED TO AMOUNTS DECEMBER 31, CHARGED TO AMOUNTS
1997 COSTS AND EXPENSES WRITTEN OFF 1997 COST EXPENSES WRITTEN OFF
----------- ------------------ ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts............... $(1,240,000) $(1,296,000) $1,234,000 $(1,302,000) $(1,095,000) $1,031,000

<CAPTION>
ASSUMED BY BALANCE AT
BUYER IN DECEMBER 31,
PRODUCT LINE SALE 1998
----------------- ------------
<S> <C> <C>
Allowance for
uncollectible
accounts............... $1,366,000 $--
</TABLE>

F-18
<PAGE> 41

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
2.1 Securities Purchase Agreement, dated as of March 12, 1998, *
by and among Alliance Imaging, Inc.; Embarcadero Holding
Corp. I; Embarcadero Holding Corp. II; American Shared
Hospital Services; and MMRI, Inc.(1)........................
3.1 Articles of Incorporation of the Company, as amended.(2) *
3.2 By-laws of the Company, as amended..........................
4.6 Form of Common Stock Purchase Warrant of American Shared *
Hospital Services.(3).......................................
4.8 Registration Rights Agreement, dated as of May 17, 1995, by *
and among American Shared Hospital Services, the Holders
referred to in the Note Purchase Agreement, dated as of May
12, 1995 and General Electric Company, acting through GE
Medical Systems.(3).........................................
10.1 The Company's 1984 Stock Option Plan, as amended.(4)........ *
10.2 The Company's 1995 Stock Option Plan, as amended.(5)........ *
10.3 Form of Indemnification Agreement between American Shared *
Hospital Services and members of its Board of
Directors.(4)...............................................
10.4 Ernest A. Bates Stock Option Agreement dated as of August *
15, 1995.(6)................................................
10.5 Operating Agreement for GK Financing, LLC, dated as of *
October 17,
1995.(3)....................................................
10.6 Amendments dated as of October 26, 1995 and as of December *
20, 1995 to the GK Financing, LLC Operating Agreement, dated
as of October 17,
1995.(7)....................................................
10.7 Amendment dated as of October 16, 1996 to the GK Financing, *
LLC Operating Agreement, dated as of October 17, 1995.(1)...
10.8 Amendment dated as of March 31, 1998 ("Fourth Amendment") to *
the GK Financing, LLC Operating Agreement dated as of
October 17, 1995.(8)........................................
10.9 Amendment dated as of March 31, 1998 ("Fifth Amendment") to *
the GK Financing, LLC Operating Agreement dated as of
October 17, 1995.(8)........................................
10.10 Amendment dated as of June 5, 1998 to the GK Financing, LLC *
Operating Agreement dated as of October 17, 1995.(8)........
10.11a Assignment and Assumption Agreement, dated as of December *
31, 1995, between American Shared Radiosurgery Services
(assignor) and GK Financing, LLC (assignee).(8).............
10.11b Assignment and Assumption Agreement, dated as of November 1, *
1995, between American Shared Hospital Services (assignor)
and American Shared Radiosurgery Services (assignee).(4)....
10.11c Amendment Number One dated as of August 1, 1995 to the Lease *
Agreement for a Gamma Knife Unit between The Regents of the
University of California and American Shared Hospital
Services. (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.)(8)..............................................
10.11d Lease Agreement dated as of July 3, 1990 for a Gamma Knife *
Unit between American Shared Hospital Services and The
Regents of the University of California. (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.)(8)...........
</TABLE>
<PAGE> 42

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
10.12 Amendment Number Two dated as of February 6, 1998 to the *
Lease Agreement for a Gamma Knife Unit between UCSF-Stanford
Health Care and GK Financing, LLC. (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.)(8).......................
10.13 Assignment and Assumption Agreement, dated as of February 3, *
1996, between American Shared Radiosurgery Services
(assignor) and GK Financing, LLC (assignee).(4).............
10.14 Lease Agreement for a Gamma Knife Unit dated as of April 6, *
1994, between Ernest A. Bates, M.D. and NME Hospitals, Inc.
dba USC University Hospital. (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.)(8).......................
10.15 Assignment and Assumption Agreement dated as of February 1, *
1996 between Ernest A. Bates, M.D. and GK Financing, LLC
with respect to the Lease Agreement for a Gamma Knife dated
as of April 6, 1994 between Ernest A. Bates, M.D. and NME
Hospitals, Inc. dba USC University Hospital.(8).............
10.16 Lease Agreement for a Gamma Knife Unit dated as of October *
31, 1996 between Hoag Memorial Hospital Presbyterian and GK
Financing, LLC. (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.)(8)..............................................
10.17 Addendum to Lease Agreement for a Gamma Knife Unit dated as *
of December 1, 1998 between Hoag Memorial Hospital
Presbyterian and GK Financing, LLC. (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.)(8).......................
10.18 Lease Agreement for a Gamma Knife Unit dated as of October *
29, 1996 between Methodist Healthcare Systems of San
Antonio, Ltd., dba Southwest Texas Methodist Hospital and GK
Financing, LLC. (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.)(8)..............................................
10.19 Lease Agreement for a Gamma Knife Unit dated as of April 10, *
1997 between Yale-New Haven Ambulatory Services Corporation
and GK Financing, LLC. (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.)(8)..............................................
10.20 Lease Agreement for a Gamma Knife Unit dated as of June 1, *
1998 between GK Financing, LLC and Kettering Medical 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.)(9)..............................................
</TABLE>
<PAGE> 43

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
10.21 Addendum to Contract with GKF and KMC/WKNI, dated June 1, *
1998 between GK Financing, LLC and Kettering Medical 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.)(9)..............................................
10.22 Lease Agreement for a Gamma Knife Unit dated as of October *
5, 1998 between GK Financing, LLC and New England Medical
Center Hospitals, Inc. (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.)(9)..............................................
10.23 Equipment Lease Agreement dated as of October 29, 1998 *
between GK Financing, LLC and the Board of Trustees of the
University of Arkansas on behalf of The University of
Arkansas for Medical Sciences. (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.)(9).......................
10.24 First Amendment to Lease Agreement for a Gamma Knife Unit *
effective as of August 2, 1999 between GK Financing, LLC and
Tenet HealthSystems Hospitals, Inc. (formerly known as NME
Hospitals, Inc.) dba USC University Hospital. (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.)(9)...........
10.25 Addendum Two, dated as of October 1, 1999, to Lease
Agreement for a Gamma Knife Unit dated as of October 31,
1996 between Hoag Memorial Hospital Presbyterian and GK
Financing, LLC. (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.).................................................
10.26 Lease Agreement for a Gamma Knife Unit dated as of May 28,
1999 between Froedtert Memorial Lutheran Hospital and GK
Financing, LLC. (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.).................................................
10.27 Addendum dated June 24, 1999 to Lease Agreement for a Gamma
Knife Unit dated as of May 28, 1999 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC............
10.28 Addendum dated July 12, 1999 to Lease Agreement for a Gamma
Knife Unit dated as of May 28, 1999 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.
10.29 Addendum dated August 24, 1999 to Lease Agreement for a
Gamma Knife Unit dated as of May 28, 1999 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC............
</TABLE>
<PAGE> 44

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
21. Subsidiaries of American Shared Hospital Services...........
23.1 Consent of Moss Adams, LLP..................................
23.2 Consent of Grant Thornton, LLP..............................
23.3 Consent of Ernst & Young, LLP...............................
27. Financial Data Schedule for the year ended December 31,
1999........................................................
</TABLE>

(2) This document was filed as Exhibit 3.1 to registrant's Registration
Statement on Form S-2 (Registration No. 33-23416), which is incorporated
herein by this reference.

(5) This document was filed as Exhibit A to registrant's Proxy Statement, filed
on August 31, 1995, which is incorporated herein by this reference.

(6) This document was filed as Exhibit B to registrant's Proxy Statement, filed
on August 31, 1995, which is incorporated herein by this reference.

<PAGE> 1
Exhibit 3.2

BYLAWS

AMERICAN SHARED HOSPITAL SERVICES
(a California corporation)

Amended and Restated
as of May 21, 1999

1
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - Applicability 1

Section 1. Applicability of By-laws. 1

ARTICLE II - Offices

Section 1. Principal Offices. 1

Section 2. Change in Location or Number of Offices. 1

ARTICLE III - Meetings of Shareholders 1

Section 1. Place of Meetings. 1

Section 2. Annual Meetings. 1

Section 3. Special Meetings. 3

Section 4. Notice of Annual, Special or Adjourned 3
Meetings.

Section 5. Record Date. 6

Section 6. Quorum. 7

Section 7. Adjournment. 7

Section 8. Validation of Action Taken at Defectively 7
Called, Noticed or Held Meetings.

Section 9. Voting for Election of Directors. 7

Section 10. Proxies. 8

Section 11. Inspectors of Election. 9

Section 12. Action by Written Consent. 9

ARTICLE IV - Directors 10

Section 1. Number of Directors. 10

Section 2. Election of Directors. 11
</TABLE>

2
<PAGE> 3

<TABLE>
<S> <C>
Section 3. Term of Office. 11

Section 4. Vacancies. 11

Section 5. Removal. 12

Section 6. Resignation. 12

Section 7. Fees and Compensation. 12

ARTICLE V - Committees of the Board of Directors. 13

Section 1. Designation of Committees. 13

Section 2. Powers of Committees. 13

ARTICLE VI - Meetings of the Board of Directors and 13
Committees Thereof.

Section 1. Place of Meetings. 13

Section 2. Organization Meeting. 14

Section 3. Other Regular Meetings. 14

Section 4. Special Meetings. 14

Section 5. Notice of Special Meetings. 14

Section 6. Waivers, Consents and Approvals. 14

Section 7. Quorum; Action at Meetings; Telephone 15
Meetings

Section 8. Adjournment. 15

Section 9. Action Without a Meeting. 15

Section 10. Meetings of and Action by Committees. 15

ARTICLE VII - Officers 15

Section 1. Officers. 15

Section 2. Election of Officers. 16
</TABLE>

3
<PAGE> 4

<TABLE>
<S> <C>
Section 3. Subordinate Officers, Etc. 16

Section 4. Removal and Resignation. 16

Section 5. Vacancies. 16

Section 6. Chairman of the Board. 16

Section 7. President. 17

Section 8. Vice President. 17

Section 9. Secretary. 17

Section 10. Chief Financial Officer. 17

ARTICLE VIII - Records and Reports 18

Section 1. Minute Book. 18

Section 2. Share Register. 18

Section 3. Books and Records of Account. 18

Section 4. By-laws. 18

Section 5. Inspection of Records. 19

Section 6. Annual Report to Shareholders. 19

ARTICLE IX - Miscellaneous 19

Section 1. Checks, Drafts, Etc. 19

Section 2. Contracts, Etc. - How Executed. 19

Section 3. Certificates of Stock. 19

Section 4. Lost Certificates. 20

Section 5. Representation of Shares of Other 20
Corporations.

Section 6. Construction and Definitions. 20

Section 7. Mandatory Indemnification of Directors 20
</TABLE>

4
<PAGE> 5

<TABLE>
<S> <C>
Section 8. Permissive Indemnification. 21

Section 9. Payment of Expenses in Advance. 21

Section 10. Indemnity Not Exclusive. 21

Section 11. Insurance Indemnification. 22

Section 12. Conflicts. 22

ARTICLE X - Amendments 22

Section 1. Amendments. 22
</TABLE>

5
<PAGE> 6

BYLAWS

AMERICAN SHARED HOSPITAL SERVICES
(a California corporation)

ARTICLE I

Applicability

Section 1. Applicability of By-laws. These By-laws govern, except as
otherwise provided by statute or its Articles of Incorporation, the management
of the business and the conduct of the affairs of the Corporation.

ARTICLE II

Offices

Section 1. Principal Offices. The Board of Directors shall fix the
location of the principal executive office of the Corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the Corporation has one or more business offices
in this state, the Board of Directors shall designate a principal business
office in the State of California.

Section 2. Change in Location or Number of Offices. The Board of
Directors may change any office from one location to another or eliminate any
office or offices.

ARTICLE III

Meetings of Shareholders

Section 1. Place of Meetings. Meetings of the shareholders shall be held
at any place within or without the State of California designated by the Board
of Directors, or, in the absence of such designation, at the principal executive
office of the Corporation.

Section 2. Annual Meetings. (a) An annual meeting of the shareholders
shall be held within 180 days following the end of the fiscal year of the
Corporation at a date and time designated by the Board of Directors. Directors
shall be elected at each

6
<PAGE> 7

annual meeting and any other proper business may be transacted thereat.

(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (b) shall be eligible for election as directors of the
Corporation. Nominations of persons for election to the Board of Directors may
be made at a meeting of shareholders by the Board of Directors or by any
stockholder of the Corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this paragraph
(b). Any nomination by a stockholder must be made by written notice to the
Secretary delivered or mailed to and received at the principal executive offices
of the Corporation (i) not less than 60 days nor more than 90 days prior to the
meeting, or (ii) if less than 70 days' notice of the meeting or prior public
disclosure of the date of the meeting is given or made to shareholders, not
later than the close of business on the tenth day following the day on which the
notice of the meeting was mailed, or, if earlier, the day on which such public
disclosure was made. A shareholders' notice to the Secretary shall set forth (x)
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (a) the name, age, business address and residence
address of such person, (2) the principal occupation or employment of such
person, (3) the class and number of shares of stock of the Corporation which are
beneficially owned by such person (for the purposes of the regulations under
Sections 13 and 14 of the Securities Exchange Act of 1934, as amended), and (4)
any other information relating to such person that would be required to be
disclosed in solicitations of proxies for the election of such person as a
director of the Corporation pursuant to Regulation 14A under the Securities and
Exchange Act of 1934, as amended, and such person's written consent to being
named in any proxy statement as a nominee and to serving as a director if
elected; and (y) as to the stockholder giving notice (5) the name and address,
as they appear on the Corporation's records, of such stockholder and (6) the
class and number of shares of stock of the Corporation which are beneficially
owned by such stockholder (determined as provided in clause (x) (3) above). At
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. The chairman of the meeting at which a
stockholder nomination is presented shall, if the facts warrant, determine and
declare to the meeting that such nomination was not made in accordance with the
procedures prescribed by this

7
<PAGE> 8

paragraph (b), and, in such event, the defective nomination shall be
disregarded.

Section 3. Special Meetings. (a) Special meetings of the shareholders
may be called by the Board of Directors, the Chairman of the Board and the
President, or by the shareholders upon the request of the holders of shares
entitled to cast not less than 10 percent of the votes at such meeting.

(b) Any request for the calling of a special meeting of the shareholders
shall (1) be in writing, (2) specify the date and time thereof, which date shall
be not less than 35 nor more than 60 days after receipt of the request, (3)
specify the general nature of the business to be transacted thereat in
accordance with Section 4(f) below and (4) be given either personally or by
first class mail, postage prepaid, or other means of written communication to
the Chairman of the Board, President, any Vice President or Secretary of the
Corporation. The officer receiving a proper request to call a special meeting of
the shareholders shall cause notice to be given, pursuant to the provisions of
Section 4 of this article, to the shareholders entitled to vote thereat, that a
meeting will be held at the date and time specified by the person or persons
calling the meeting. If notice is not given within 20 days of the receipt of the
request, the shareholders making the request may give notice of such meeting so
long as the notice given complies with the other provisions of this subsection.

(c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.

Section 4. Notice of Annual, Special or Adjourned Meetings. (a) Whenever
any meeting of the shareholders is to be held, a written notice of such meeting
shall be given in the manner described in subdivision (d) of this section not
less than 10 nor more than 60 days before the date thereof, to each shareholder
entitled to vote thereat. The notice shall state the place, date and hour of the
meeting and (1) in the case of a special meeting, the general nature of the
business to be transacted or (2) in the case of the annual meeting, those
matters which the Board of Directors, at the time of the giving of the notice,
intends to present for action by the shareholders, in each case in accordance
with Section 4(f) below. The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who,

8
<PAGE> 9

at the time of the notice, management intends to present for election.

(b) Any proper matter may be presented at an annual meeting for action.
However, any action to approve (1) a contract or transaction in which a director
has a direct or indirect financial interest under Section 310 of the
Corporations Code of California, (2) an amendment of the articles of
incorporation under Section 902 of that code, (3) a reorganization of the
corporation, under Section 1201 of that code, (4) a voluntary dissolution of the
corporation under Section 1900 of that code, or (5) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares under Section 2007 of that code may be taken only if the notice of the
meeting states the general nature of the matter to be approved.

(c) Notice need not be given of an adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken,
except that if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at that meeting.

(d) Notice of any meeting of the shareholders shall be given personally,
by first class mail, or by telegraph or other written communication, addressed
to the shareholder at his address appearing on the books of the Corporation or
given by him to the Corporation for the purpose of notice; or if no such address
appears or is given, at the place where the principal executive office of the
Corporation is located or by publication at least once in a newspaper of general
circulation in the county in which the principal executive office is located.
Notice shall be deemed to have been given at the time when delivered personally
to the recipient, deposited in the mail, delivered to a common carrier for
transmission to the recipient or sent by other means of written communication.
An affidavit of the mailing or other means of giving notice may be executed by
the Secretary, assistant secretary or any transfer agent of the Corporation
giving the notice and shall be prima facie evidence of the giving of the notice.
Such affidavits shall be filed and maintained in the minute books of the
Corporation.

(e) If any notice or report addressed to the shareholder at his address
appearing on the books of the Corporation is returned to the Corporation by the
United States Postal Service

9
<PAGE> 10

marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon his written demand at the
principal executive office of the Corporation for a period of one year from the
date of the giving of the notice or report to all other shareholders.

(f) Only such business shall be conducted at an annual or special
meeting of shareholders as shall have been properly brought before the meeting.
For business to be properly brought before the meeting, it must be: (i)
authorized by the Board of Directors and specified in the notice, or a
supplemental notice, of the meeting, (ii) otherwise brought before the meeting
by or at the direction of the Board of Directors or the chairman of the meeting,
or (iii) otherwise properly brought before the meeting by a shareholder. For
business to be properly brought before an annual or special meeting by a
shareholder, the shareholder must have given written notice thereof to the
Secretary, delivered or mailed to and received at the principal executive
offices of the Corporation (A) in the case of an annual meeting (x) not less
than 60 days nor more than 90 days prior to the meeting, or (y) if less than 70
days' notice of the meeting or prior public disclosure of the date of the
meeting is given or made to shareholders, not later than the close of business
on the tenth day following the day on which the notice of the meeting was mailed
or, if earlier, the day on which such public disclosure was made and (B) in the
case of a special meeting, as required by Section 3(b) above. A shareholder's
notice to the Secretary shall set forth as to each item of business the
shareholder proposes to bring before the meeting (1) a brief description of such
item and the reasons for conducting such business at the meeting, (2) the name
and address, as they appear on the Corporation's records, of shareholder
proposing such business, (3) the class and number of shares of stock of the
Corporation which are beneficially owned by the shareholder (for purposes of the
regulations under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended), and (4) any material interest of the shareholder in such business. No
business shall be conducted at any annual or special meeting, except in
accordance with the procedures set forth in this paragraph (f). The Chairman of
the meeting at which any business proposed by a shareholder shall, if the facts
warrant, determine and declare to the meeting that such business was not
properly brought before the meeting and shall not be transacted.

10
<PAGE> 11

Section 5. Record Date. (a) The Board of Directors may fix a time in the
future as a record date for determination of the shareholders (1) entitled to
notice of any meeting or to vote thereat, (2) entitled to give written consent
to any corporate action without a meeting, (3) entitled to receive payment of
any dividend or other distribution or allotment of any rights or (4) entitled to
exercise any rights in respect of any other lawful action. The record date so
fixed shall be not more than 60 nor less than 10 days prior to the date of any
meeting of the shareholders nor more than 60 days prior to any other action.

(b) In the event no record date is fixed:

(1) The record date for determining the shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.

(2) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given.

(3) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the 60th day prior to the
date of such other action, whichever is later.

(c) Only shareholders of record on the close of business on the record
date are entitled to notice and to vote, to give written consent or to receive a
dividend, distribution or allotment of rights or to exercise the rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date.

(d) A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.

11
<PAGE> 12

Section 6. Quorum. (a) A majority of the shares entitled to vote at a
meeting of the shareholders, represented in person or by proxy, shall constitute
a quorum for the transaction of business thereat.

(b) The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.

Section 7. Adjournment. Any meeting of the shareholders may be adjourned
from time to time whether or not a quorum is present by the vote of a majority
of the shares represented thereat either in person or by proxy. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.

Section 8. Validation of Actions Taken at Defectively Called, Noticed or
Held Meetings. (a) The transactions of any meeting of the shareholders, however
called and noticed, and wherever held, are as valid as though had at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the persons
entitled to vote thereat, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of the meeting or an approval of
the minutes thereof. Any written waiver of notice shall comply with subdivision
(f) of Section 601 of the Corporations Code of the State of California. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.

(b) Attendance of a person at a meeting shall constitute a waiver of
notice of and presence at such meeting, except (1) when the person objects, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and (2) that attendance at a meeting
is not a waiver of any right to object to the consideration of any matter
required by the General Corporation Law of the State of California to be
included in the notice but not so included, if such objection is expressly made
at the meeting.

Section 9. Voting for Election of Directors. (a) Except as provided in
subdivision (c) of this section, the affirmative

12
<PAGE> 13

vote of the majority of the shares represented and voting at a duly held meeting
at which a quorum is present (which shares voting affirmatively also constitute
at least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number is required by law or the
Articles of Incorporation.

(b) Every shareholder complying with subdivision (c) of this section and
entitled to vote at any election of directors may cumulate his votes and give
one candidate a number of votes equal to the number of directors to be elected,
multiplied by the number of votes to which his shares are normally entitled, or
distribute his votes on the same principle among as many candidates as he thinks
fit.

(c) No shareholder shall be entitled to cumulate his votes (i.e., cast
for any candidate a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) unless the candidate's or candidates'
names for which he desires to cumulate his votes have been placed in nomination
prior to the voting and the shareholder has given notice at the meeting prior to
the voting of his intention to cumulate his votes. If any one shareholder has
given such notice, all shareholders may cumulate their votes for candidates in
nomination.

(d) Elections for directors may be by voice vote or by ballot unless any
shareholder entitled to vote demands election by ballot at the meeting prior to
the voting, in which case the vote shall be by ballot.

(e) In any election of directors, the candidates receiving the highest
number of affirmative votes of the shares entitled to be voted for them, up to
the number of directors to be elected by such shares, are elected as directors.

Section 10. Proxies. (a) Every person entitled to vote shares may
authorize another person or persons to act with respect to such shares by a
written proxy signed by him or his attorney-in-fact and filed with the Secretary
of the Corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by him or his attorney-in-fact.

(b) Any validly executed proxy, except a proxy which is irrevocable
pursuant to subdivision (c) of this section, shall

13
<PAGE> 14

continue in full force and effect until the expiration of the term specified
therein or upon its earlier revocation by the person executing it prior to the
vote pursuant thereto (1) by a writing delivered to the Corporation stating that
it is revoked, (2) by written notice of death of the person executing the proxy,
delivered to the Corporation, (3) by a subsequent proxy executed by the person
executing the prior proxy and presented to the meeting or (4) as to any meeting
by attendance at such meeting and voting in person by the person executing the
proxy. No proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. The date contained on the form
of proxy shall be deemed to be the date of its execution.

(c) A proxy which states that it is irrevocable is irrevocable for the
period specified therein subject to the provisions of subdivisions (e) and (f)
of Section 705 of the Corporations Code of the State of California.

Section 11. Inspectors of Election. (a) In advance of any meeting of the
shareholders, the Board of Directors may appoint either one or three persons
(other than nominees for the office of director) as inspectors of election to
act at such meeting or any adjournments thereof. If inspectors of election are
not so appointed, or if any person so appointed fails to appear or refuses to
act, the chairman of any such meeting may, and on the request of any shareholder
or his proxy shall, appoint inspectors of election (or persons to replace those
who so fail or refuse to act) at the meeting. If appointed at a meeting on the
request of one or more shareholders or the proxies thereof, the majority of
shares represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.

(b) The duties of inspectors of election and the manner of performance
thereof shall be as prescribed in subdivisions (b) and (c) of Section 707 of the
Corporations Code of the State of California.

Section 12. Action by Written Consent. (a) Subject to subdivisions (b)
and (c) of this section, any action which may be taken at any annual or special
meeting of the shareholders may be taken without a meeting, without a vote and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. All

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<PAGE> 15

such consents shall be filed with the Secretary of the Corporation and
maintained with the corporate records.

(b) Except for the election of a director by written consent to fill a
vacancy (other than a vacancy created by removal), directors may be elected by
written consent only by the unanimous written consent of all shares entitled to
vote for the election of directors. In the case of an election of a director by
written consent to fill a vacancy (other than a vacancy created by removal), any
such election requires the consent of a majority of the outstanding shares
entitled to vote for the election of directors.

(c) Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of the corporate
action approved by the shareholders without a meeting. This notice shall be
given in the manner specified in subdivision (d) of Section 4 of this Article
III. In the case of approval of (1) contracts or transactions in which a
director has a direct or indirect financial interest under Section 310 of the
Corporations Code of California, (2) indemnification of agents of the
corporation, under Section 317 of that code, (3) a reorganization of the
corporation, under Section 1201 of that code, or (4) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, under Section 2007 of that code, notice of such approval shall be given
at least ten (10) days before the consummation of any action authorized by that
approval.

(d) Any shareholder giving a written consent, or his proxyholders, or a
transferee of the shares or a personal representative of the shareholder or
their respective proxyholders, may revoke the consent by a writing received by
the Corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the Corporation.

ARTICLE IV

Directors

Section 1. Number of Directors. (a) The authorized number of directors
shall depend upon the number of shareholders. If there is only one shareholder,
then there will only be one

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<PAGE> 16

director. Whenever there is more than one shareholder, then there will be no
less than five nor more than nine directors. The exact number of directors shall
be fixed from time to time, within the limits specified in this subdivision, by
an amendment of subdivision (b) of this section adopted by the Board of
Directors.

(b) The exact number of directors shall be one (1) until changed as
provided in subdivision (a) of this section. Notwithstanding the preceding
sentence, at all times while there is one (1) shareholder of the corporation,
said shareholder may, without amending these By-laws, determine that there shall
be five (5) directors. Said shareholder may elect the aforementioned five (5)
directors by noticing a meeting of the shareholders of the corporation.

(c) The maximum or minimum authorized number of directors may only be
changed by an amendment of this section approved by the vote or written consent
of a majority of the shareholders; provided, however, that an amendment reducing
the minimum number to a number less than 5 shall not be adopted if the votes
cast against its adoption at a meeting (or the shares not consenting in the case
of action by written consent) exceed 16-2/3% of such outstanding shares; and
provided, further, that in no case shall the stated maximum authorized number of
directors exceed two times the stated minimum number of authorized directors
minus one.

Section 2. Election of Directors. Directors shall be elected at each
annual meeting of the shareholders.

Section 3. Term of Office. Each director, including a director elected
to fill a vacancy, shall hold office until the expiration of the term for which
he is elected and until a successor has been elected, and qualified.

Section 4. Vacancies. (a) A vacancy in the Board of Directors exists
whenever any authorized position of director is not then filled by a duly
elected director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.

(b) Except for a vacancy created by the removal of a director, vacancies
on the Board of Directors may be filled by a majority of the directors then in
office, whether or not less than a quorum, or by a sole remaining director. A
vacancy created by the removal of a director shall be filled only by a

16
<PAGE> 17

person elected by a majority of the shareholders entitled to vote at a duly held
meeting at which there is a quorum present or by the unanimous written consent
of the holders of the outstanding shares entitled to vote at such a meeting.

(c) The shareholders may elect a director at anytime to fill any vacancy
not filled by the directors. Any such nomination shall comply with the
requirements of Article III, Section 2(b) of these By-laws.

Section 5. Removal. (a) The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.

(b) Any or all of the directors may be removed without cause if such
removal is approved by a majority of the outstanding shares entitled to vote;
provided, however that no director may be removed (unless the entire Board of
Directors is removed) if whenever the votes cast against his removal, or not
consenting in writing to such removal, would be sufficient to elect such
director if voted cumulatively at an election at which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors authorized at
the time of his most recent election were then being elected.

(c) Any reduction of the authorized number of directors does not remove
any director prior to the expiration of his term of office.

Section 6. Resignation. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the Corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.

Section 7. Fees and Compensation. Directors may be paid for their
services in such capacity a sum in such amounts, at such times and upon such
conditions as may be determined from time to time by resolution of the Board of
Directors and may be reimbursed for their expenses, if any, for attendance at
each meeting of the Board. No such payments shall preclude any director from
serving the Corporation in any other capacity and receiving compensation in any
manner therefor.

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<PAGE> 18

ARTICLE V

Committees of the Board of Directors

Section 1. Designation of Committees. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate (1) one or more committees, each consisting of two or more directors
and (2) one or more directors as alternate members of any committee, who may
replace any absent member at any meeting thereof. Any member or alternate member
of a committee shall serve at the pleasure of the Board.

Section 2. Powers of Committees. Any committee, to the extent provided
in the resolution of the Board of Directors designating such committee, shall
have all the authority of the Board, except with respect to:

(a) The approval of any action for which the General Corporation Law of
the State of California also requires any action by the shareholders;

(b) The filling of vacancies on the Board or in any committee thereof;

(d) The amendment or repeal of these By-laws or the adoption of new
By-laws;

(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;

(f) A distribution to the shareholders of the Corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; or

(g) The designation of other committees of the Board or the appointment
of members or alternate members thereof.

ARTICLE VI

Meetings of the Board of Directors and Committees Thereof

Section 1. Place and Meetings. Regular meetings of the Board of
Directors shall be held at any place within or without the State of California
which has been designated from time to time by the Board or, in the absence of
such designation, at the

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<PAGE> 19

principal executive office of the Corporation. Special meetings of the Board
shall be held either at any place within or without the State of California
which has been designated in the notice of meeting or, if not stated in the
notice or if there is no notice, at the principal executive office of the
Corporation.

Section 2. Organization Meeting. Immediately following each annual
meeting of the shareholders the Board of Directors shall hold a regular meeting
for the purpose of organization and the transaction of other business. Notice of
any such meeting is not required.

Section 3. Other Regular Meetings. Other regular meetings of the Board
of Directors shall be held without call at such time as shall be designated from
time to time by the Board. Notice of any such meeting is not required.

Section 4. Special Meetings. Special meetings of the Board of Directors
may be called at any time for any purpose or purposes by the Chairman of the
Board or the President or any vice president or the Secretary or any two
directors. Notice shall be given of any special meeting of the Board.

Section 5. Notice of Special Meetings. Notice of the time and place of
special meetings of the Board of Directors shall be delivered personally or by
telephone to each director or sent to each director by first-class mail or
telegraph, charges prepaid, addressed to each director at that director's
address as shown on the records of the Corporation. Such notice shall be given
four days prior to the holding of the special meeting if sent by mail or 48
hours prior to the holding thereof if delivered personally or given by telephone
or telegraph. The notice or report shall be deemed to have been given at the
time when delivered personally to the recipient or deposited in the mail or sent
by other means of written communication. Notice of any special meeting of the
Board or Directors need not specify the purpose thereof.

Section 6. Waivers, Consents and Approvals. Notice of any meeting of the
Board of Directors need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.

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<PAGE> 20

Section 7. Quorum; Action at Meetings; Telephone Meetings. (a) A
majority of the authorized number of directors shall constitute a quorum for the
transaction of business. Every act or decision done or made by a majority of the
directors present is the act of the Board of Directors, unless action by a
greater proportion of the directors is required by law or the Articles of
Incorporation.

(b) A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.

(c) Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment so long
as all members participating in such meeting can hear one another.

Section 8. Adjournment. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another time and place. If
the meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.

Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.

Section 10. Meetings of and Action by Committees. The provisions of this
Article apply to committees of the Board of Directors and action by such
committees with such changes in the language of those provisions as are
necessary to substitute the committee and its members for the Board and its
members.

ARTICLE VII

Officers

Section 1. Officers. The Corporation shall have as officers, a
President, a Secretary and a Chief Financial Officer. The Treasurer is the chief
financial officer of the

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<PAGE> 21

Corporation unless the Board of Directors has by resolution designated a vice
president or other officer to be the chief financial officer. The Corporation
may also have, at the discretion of the Board, a Chairman of the Board, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article. One person may hold two or more
offices.

Section 2. Election of Officers. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen by the Board of Directors.

Section 3. Subordinate Officers, Etc. The Board of Directors may appoint
by resolution, and may empower the Chairman of the Board, if there be such an
officer, or the President, to appoint such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are determined from time to time by
resolution of the Board or, in the absence of any such determination, as are
provided in these By-laws. Any appointment of an officer shall be evidenced by a
written instrument filed with the Secretary of the Corporation and maintained
with the corporate records.

Section 4. Removal and Resignation. (a) Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors or, except in case of
any officer chosen by the Board, by any officer upon whom such power of removal
may be conferred by resolution of the Board.

(b) Subject to the rights, if any, of the Corporation under any contract
of employment, any officer may resign at any time effective upon giving written
notice to the Chairman of the Board, President, any vice president or Secretary
of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation.

Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these By-laws for regular appointments to such office.

Section 6. Chairman of the Board. If there is a Chairman of the Board,
he shall, if present, preside at all meetings of the Board of Directors,
exercise and perform such other powers

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<PAGE> 22

and duties as may be from time to time assigned to him by resolution of the
Board or prescribed by these By-laws and, if there is no President, the Chairman
of the Board shall be the chief executive officer of the Corporation and have
the power and duties set forth in Section 7 of this Article.

Section 7. President. Subject to such supervisory powers, if any, as may
be given by these By-laws or the Board of Directors to the Chairman of the
Board, if there be such an officer, the President shall be the chief executive
officer and general manager of the Corporation and shall, subject to the control
of the Board, have general supervision, direction and control of the business
and affairs of the Corporation. He shall preside at all meetings of the
shareholders and, in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board. He shall have the general powers and duties
of management usually vested in the office of president of a corporation, and
shall have such other powers and duties as may be prescribed from time to time
by resolution of the Board.

Section 8. Vice President. In the absence or disability of the
President, the vice presidents in order of their rank as fixed by the Board of
Directors, or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board or as the
President may from time to time delegate.

Section 9. Secretary. (a) The Secretary shall keep or cause to be kept
(1) the minute book, (2) the share register and (3) the seal, if any, of the
Corporation.

(b) The Secretary, an assistant secretary, or, if they are absent or
unable to act, any other officer shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
By-laws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board of Directors or
any committee of the Board of Directors.

Section 10. Chief Financial Officer. (a) The Chief Financial Officer
shall keep, or cause to be kept, the books and records of account of the
Corporation.

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<PAGE> 23

(b) The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated from time to time by resolution of the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the President and the Board, whenever
they request it, an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed from time to
time by the Board or as the President may from time to time delegate.

ARTICLE VIII

Records and Reports

Section 1. Minute Book. The Corporation shall keep or cause to be kept
in written form at its principal executive office or such other place as the
Board of Directors may order, a minute book which shall contain a record of all
actions by its shareholders, Board or committees of the Board including the
time, date and place of each meeting; whether a meeting is regular or special
and, if special, how called; the manner of giving notice of each meeting and a
copy thereof; the names of those present at each meeting of the Board or
committees thereof; the number of shares present or represented at each meeting
of the shareholders; the proceedings of all meetings; any written waivers of
notice, consents to the holding of a meeting or approvals of the minutes
thereof; and written consents for action without a meeting.

Section 2. Share Register. The Corporation shall keep or cause to be
kept at its principal executive office or, if so provided by resolution of the
Board of Directors, at the Corporation's transfer agent or registrar, a share
register, or a duplicate share register, which shall contain the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.

Section 3. Books and Records of Account. The Corporation shall keep or
cause to be kept at its principal executive office or such other place as the
Board of Directors may order, adequate and correct books and records of account.

Section 4. By-laws. The Corporation shall keep at its principal
executive office or, in the absence of such office in

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<PAGE> 24

the State of California, at its principal business office in the state, the
original or a copy of the By-laws as amended to date.

Section 5. Inspection of Records. The shareholders and directors of the
Corporation shall have all of the rights to inspect the books and records of the
Corporation that are specified in Section 213 and 1600 through 1602 of the
Corporations Code of the State of California.

Section 6. Annual Report to Shareholders. The Board of Directors shall
cause an annual report to be sent to the shareholders not later than 120 days
after the close of the fiscal year of the Corporation. Such report shall comply
with the provisions of Section 1501 of the Corporations Code of the State of
California and shall be sent in the manner specified in Section 4 (d) of Article
III at least 15 days prior to the annual meeting of shareholders to be held
during the next fiscal year.

ARITCLE IX

Miscellaneous

Section 1. Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, and any assignment
or endorsement thereof, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.

Section 2. Contracts, Etc. - How Executed. The Board of Directors,
except as otherwise provided in these By-laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and, unless so authorized or ratified
by the Board, no officer, employee or other agent shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.

Section 3. Certificates of Stock. A certificate or certificates for
shares of the capital stock of the Corporation shall be issued to each
shareholder when the shares are fully paid or the Board of Directors may
authorize the issuance of certificates for shares as partly paid provided that
these certificates shall conspicuously state the amount of the

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<PAGE> 25

consideration to be paid for them and the amount already paid. All certificates
shall be signed in the name of the Corporation by the Chairman of the Board or
the President or a vice president and by the Chief Financial Officer or an
assistant treasurer or the Secretary or an assistant secretary, certifying the
number of shares and the class or series thereof owned by the shareholder. Any
or all of the signatures on a certificate may be by facsimile signature. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.

Section 4. Lost Certificates. Except as provided in this section, no new
certificate for shares shall be issued in lieu of an old certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Board of Directors may in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions as the Board may
require, including provision for indemnification of the Corporation secured by a
bond or other adequate security sufficient to protect the Corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.

Section 5. Representation of Shares of Other Corporations. Any person
designated by resolution of the Board of Directors or, in the absence of such
designation, the Chairman of the Board, the President or any vice president or
the Secretary, or any other person authorized by any of the foregoing, is
authorized to vote on behalf of the Corporation any and all shares of any other
corporation or corporations, foreign or domestic, owned by the Corporation.

Section 6. Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the Corporations Code of the State of California shall govern the
construction of these By-laws.

Section 7. Mandatory Indemnification of Directors. The Corporation
shall, to the maximum extent and in the manner permitted by the California
Corporations Code ("Code"), indemnify each of its directors against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in

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<PAGE> 26

Section 317 (a) of the Code), arising by reason of the fact that such person is
or was an agent of the Corporation. For purposes of this Article IX, a
"director" of the Corporation includes any person (i) who is or was a director
of the Corporation, (ii) who is or was serving at the request of the Corporation
as a director of another Corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director of a corporation which was a predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor corporation.

Section 8. Permissive Indemnification. The Corporation shall have the
power, to the extent and in the manner permitted by the Code, to indemnify each
of its officers, employees and agents against expenses (as defined in Section
317(a) of the Code), judgments, fines, settlements, and other amounts actually
and reasonable incurred in connection with any proceeding (as defined in Section
317(a) of the Code), arising by reason of the fact that such person is or was an
agent of the Corporation. For purposes of this Article IX, an "employee" or
"agent" of the Corporation (other than a director, includes any person (i) who
is or was an employee or agent of the Corporation, (ii) who is or was serving at
the request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of the Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.

Section 9. Payment of Expenses in Advance. Expenses incurred in
defending any civil or criminal action or proceeding for which indemnification
is required pursuant to Section 7 or for which indemnification is permitted
pursuant to Section 8 following authorization thereof by the Board of Directors,
in the case of directors shall and in the case of other agents of the
corporation entitled to indemnification may, be paid by the corporation in
advance of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article IX.

Section 10. Indemnity Not Exclusive. The indemnification provided by
this Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
shareholders or

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<PAGE> 27

disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office, to the extent
that such additional rights to indemnification are authorized in the Articles of
Incorporation.

Section 11. Insurance Indemnification. The Corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was
an agent of the Corporation against any liability asserted against or incurred
by such person in such capacity or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX.

Section 12. Conflicts. No indemnification or advance shall be made under
this Article IX, except where such indemnification or advance is mandated by law
or the order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:

(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these By-laws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or

(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.

ARTICLE X

Amendments

Section 1. Amendments. New By-laws may be adopted or these By-laws may
be amended or repealed by the affirmative vote or written consent of a majority
of the outstanding shares entitled to vote. Subject to the next preceding
sentence, By-laws (other than a bylaw or amendment thereof specifying or
changing a fixed number of directors or the maximum or minimum number, or
changing from fixed to a variable board or vice versa) may be adopted, amended
or repealed by the Board of Directors.

<PAGE> 1

Exhibit 10.25

ADDENDUM TWO

TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT

This ADDENDUM TWO TO LEASE AGREEMENT FOR A GAMMA KNIFE UNIT (this
"Addendum") is effective October 1, 1999 between Hoag Memorial Hospital
Presbyterian, a California Corporation ("Hospital"), and GK Financing, LLC, a
California limited liability company ("GKF").

RECITALS

WHEREAS, on October 31, 1996, GKF and Hospital executed a Lease
Agreement for a Gamma Knife Unit (the "Original Lease");

WHEREAS, the parties desire to amend the terms and provisions of the
Original Lease as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for 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 meaning set forth in the Original Lease.

2. ADDENDUM EXTENSION. The Addendum to Lease Agreement for a Gamma Knife
unit effective December 1, 1998 shall be extended for a one (1) year period from
December 1, 1999 through November 30, 2000.

3. MODIFICATION TO THE PER PROCEDURE PAYMENTS. Hospital has requested
GKF to discount the fee per procedure payments for Gamma Knife procedures set
forth in Paragraph 6 of the Original Lease to allow Hospital to perform charity
care for uninsured persons who meet state-adopted standards of indigency, and
with respect to certain Medi-Cal and Medi-Cal/Cal Optima beneficiaries (the
"Discounted Procedures"). GKF agrees to discount the per procedure payments
described in Paragraph 6 of the Original Lease for Discounted Procedures by
waiving the applicable payment for such Discounted Procedure (the "Discount"),
provided that (i) * ; (ii) the Discount may only be claimed for Gamma Knife
procedures performed by Hospital between October 1, 1999 and September 30, 2000;
and (iii) Hospital must fully and accurately report the Discount in its
applicable cost report or other claims for payment to the Medicare or Medi-Cal
program in the same fiscal year in which the Discount is earned. Hospital shall
be solely responsible (and GKF shall not in any manner be or become responsible)
to determine (a)

<PAGE> 2

whether any person is entitled to a Discounted Procedure, and (b) if more than
one (1) person is entitled to a Discounted Procedure, who shall receive the
Discounted Procedure. At or prior to the time payment for the Discounted
Procedure is required, Hospital shall provide GKF with reasonable written
documentation that the requirements for a Discounted Procedure have been met and
evidencing Hospital's compliance with the requirements herein. If the Discount
is entitled to be claimed by Hospital as determined by GKF in its reasonable
discretion, GKF shall report such discount on its invoice or statement submitted
to Hospital.

4. TERM OF AMENDMENT. Section 3 of this addendum shall be in effect for
a one year period, October 1, 1999, though September 30, 2000.

5. FULL FORCE AND EFFECT. Except as otherwise amended hereby or provided
herein, all of the terms and provisions of the Original Lease shall remain in
full force and effect.

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

"HOSPITAL" Hoag Memorial Hospital Presbyterian

BY: /s/ Robert Braithwaite
------------------------------------------
Robert Braithwaite, Vice President

"GKF" GK Financing, LLC

BY: /s/ Craig K. Tagawa
------------------------------------------
Craig K. Tagawa, Chief Executive Officer

<PAGE> 1

Exhibit 10.26

LEASE AGREEMENT FOR A GAMMA KNIFE UNIT

THIS AGREEMENT FOR A GAMMA KNIFE UNIT on May 28, 1999, (hereinafter,
referred to as the "Agreement") is entered into between GK Financing, LLC, a
California Limited Liability Company, (hereinafter referred to as "GKF"), and
Froedtert Memorial Lutheran Hospital, a non-profit Wisconsin corporation,
(hereinafter referred to as "Medical Center").

R E C I T A L S

WHEREAS, Medical Center wants to lease a Leksell Stereotactic Gamma Unit
Manufactured by Elekta Instruments, Inc., (hereinafter referred to as the
"Equipment"); and

WHEREAS, GKF is willing to lease the Equipment which GKF has acquired
from Elekta Instruments, Inc., a Georgia corporation (hereinafter referred to as
"Elekta"), to Medical Center, pursuant to the terms and conditions of this
Agreement.

NOW, therefore, in consideration of the foregoing premises and the
promises contained herein, the parties hereto hereby agree as follows:

1. Execution of LGK Agreement by and between Medical Center and Elekta.
Medical Center agrees that simultaneously with the execution of this Agreement
it shall execute that certain LGK Agreement with Elekta, (hereinafter referred
to as the "LGK Agreement"), a copy of which is attached hereto as Exhibit A and
incorporated herein by this reference. Medical Center agrees to fulfill all of
its obligations under the LGK Agreement and acknowledges that GKF is a third
party beneficiary of the LGK Agreement. Medical Center shall indemnify and hold
harmless GKF in the event that GKF suffers any loss, damage, claim or expense
(including reasonable attorneys' fees) solely as a result of Medical Center's
breach or alleged breach of the LGK Agreement.

2. Delivery of the Equipment and Site preparation. GKF shall arrange to
have the Equipment delivered to Medical Center, at Froedtert Memorial Lutheran
Hospital, 9200 W. Wisconsin Avenue, Milwaukee, Wisconsin, 53226 (the "Site") in
coordination with Elekta.

Medical Center shall provide a Site, at its own expense, in accordance
with all of the Equipment manufacturer's (Elekta's) guidelines, specifications,
technical instruments and Site Planning Criteria (which Site Planning Criteria
are attached hereto as Exhibit B and incorporated herein by this reference),
which criteria shall include Elekta's estimated delivery schedule when and as
received by GKF, on Medical Center controlled property (The "Site") for the
proper performance of Gamma Knife procedures. Site location shall

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be reasonably acceptable to GKF. Medical Center shall prepare at its sole cost
and expense the requisite site plans and specifications and shall submit them to
Elekta and GKF for approval. Medical Center shall obtain, in a timely manner, a
User License from the Nuclear Regulatory Commission and/or appropriate state
agency authorizing it to take possession of the Cobalt Supply and shall obtain
such other licenses, permits, approvals, consents and authorizations, which may
be required by local governmental or other regulatory agencies for the Site, its
preparation, the charging of the Equipment with its Cobalt Supply, the conduct
of Acceptance Tests, and the use of the Equipment all as more fully set forth in
the LGK Agreement.

3. Commencement of Term. The Term (hereinafter defined) of this
Agreement shall commence upon successful completion of the Acceptance Tests and
the performance of the first clinical Gamma Knife procedure at the Site (the
"Commencement Date"). Medical Center shall become liable to GKF for the payments
referred to in Paragraph 6 hereinbelow upon the Commencement Date.

4. Costs of Site Preparation; Costs of Installation. Medical Center's
obligations shall include preparation of plans and specifications for the
construction and preparation of the Site in such form as will result in the
Site, when constructed in accordance with such plans and specifications, being
in full compliance with Elekta's Site Planning Criteria. Medical Center shall at
its own expense and risk, prepare, construct and make ready the Site as
necessary, for the installation of the Equipment, including, but not limited to,
providing any temporary and/or permanent shielding for the charging of the
equipment and its use, selecting and preparing a proper foundation for the
Equipment and for such shielding and walls, as well as proper alignment of the
Site and wiring. Medical Center shall be financially responsible for the
positioning of the Equipment on its foundation at the Site.

Medical Center shall also at its own expense select, purchase and
install all radiation monitoring equipment and devices, safety circuits and
radiation warning signs needed for the Equipment at the Site, required by all
applicable federal, state and local laws and regulations.

Upon completion of the Site, Medical Center shall warrant that the Site
will be safe and suitable for its use of the Equipment. Medical Center shall
fully indemnify and hold harmless GKF from any and all loss, liability, damage,
expense or claim (including attorneys' fees) which GKF may suffer and incur and
which relate to the Site and the Equipment's positioning thereon.

Medical Center shall be responsible for any damage to the Equipment
caused by (a) defects in construction of the Site or defects in the positioning
of the Equipment at the Site by Medical Center; (b) defects arising out of
materials or parts provided, modified or designed by Medical Center with respect
to the Site; or (c) negligent or intentional acts of

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omission or commission by Medical Center or any of its officers, agents,
physicians, and employees in connection with the Site preparation or operation
of the Equipment at the Site.

Medical Center warrants that it shall utilize its best efforts to
fulfill on an expeditious basis its obligations under this Paragraph 4. Medical
Center further warrants that it shall on a regular basis keep GKF informed of
Medical Center's progress in fulfilling its obligations pursuant to this
Paragraph 4. GKF shall deliver the Equipment to the Medical Center's designated
loading dock on July 1, 1999. Should GKF fail to deliver the Equipment no later
than thirty (30) days after July 1, 1999 GKF shall pay Medical Center $100,000.
Should Medical Center not have all site preparations completed by the delivery
date specified by a separate agreement plus a sixty (60) day grace period such
that the site is acceptable for positioning and installation of the equipment,
Medical Center shall reimburse GKF at an interest rate of Bank of America's
prime rate plus 2% on GKF's equipment cost until the Site is prepared to allow
positioning and installation of the equipment.

5. Term of the Equipment. GKF agrees to provide to Medical Center the
Equipment pursuant to the terms of this Agreement, for a term of ten (10) years
from the Commencement Date as described in Paragraph 3 hereinabove (the "Term"),
unless terminated earlier as provided herein.

6. Per Procedure Payments. Medical Center shall pay to GKF a per
procedure payment of for the use of the Equipment pursuant to Exhibit I. A
procedure shall be defined as a single patient treatment session that may
include one or more isocenters during that session. Medical Center shall be
billed on the fifteenth (15th) and the last day of each month for the actual
number of procedures performed during the first and second half of the month,
respectively. Medical Center shall pay the procedures invoiced within thirty
(30) days after receipt of the invoice. Interest shall begin to accrue at the
rate of 1-1/2% per month on all invoices remaining unpaid after 45 days. After
twenty four (24) months of service, and every twelve (12) months thereafter, the
parties agree to review and renegotiate the payment provisions of this
paragraph, including consideration of payment as a percentage of the Medical
Center's reimbursement (although GKF shall be under no obligation to change such
payment provisions).

7. Use of the Equipment. The Equipment may be used by Medical Center
only at the location stated above and shall not be removed therefrom. Medical
Center shall not assign or sublease the Equipment or its rights hereunder
without the prior written consent of GKF which consent shall not be unreasonably
withheld. Medical Center may, however, permit the equipment to be used by
trained personnel that are not employees of Medical Center. No permitted
assignment or sublease shall relieve Medical Center of any of its obligations
hereunder. Medical Center shall not use nor permit the Equipment to be used in
any manner nor for any purpose for which, in the opinion of Elekta, the
Equipment is not

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designed or reasonably suitable. Medical Center shall not permit any liens,
whether voluntary or involuntary, to attach to the Equipment, without the prior
written consent of GKF. Medical Center shall have no interest in the Equipment
other than the rights acquired as a lessee hereunder and the Equipment shall
remain the property of GKF regardless of the manner in which it may be installed
or attached at the Site. Medical Center shall, at GKF's reasonable request,
affix to the Equipment tags, decals, or plates furnished by GKF, indicating
GKF's ownership of the Equipment.

8. Additional Covenants of Medical Center. In addition to the other
covenants made by Medical Center, Medical Center shall at its own cost and
expense:

(a) Provide properly trained professional, technical and support
personnel and supplies required for the proper performance of medical procedures
utilizing the Equipment (subject to Elekta's obligation to provide training of
Medical Center personnel, as provided in the LGK Agreement).

(b) Assume all medical and financial responsibility for the overseers'
monitoring of all patients' medical condition and treatment.

(d) Indemnify GKF as herein provided: (i) Medical Center hereby agrees
to fully indemnify and/or reimburse (including reasonable attorneys' fees) GKF
on a prompt basis for any and all damage to the Equipment (including any
violations by Medical Center, its agents, officers, physicians, employees,
successors and assigns of the Service Agreement described in Paragraph 15
hereof) to the extent such damages are caused by the negligent or wrongful acts
or omissions of Medical Center, its agents, officers, physicians and employees
and are in excess of insurance proceeds recovered by GKF. In the event the
Equipment is destroyed or rendered unusable, this indemnification shall extend
up to (but not exceed) the full replacement value of the Equipment at the time
of its destruction less salvage value, if any. (ii) Medical Center hereby
further agrees to indemnify and hold GKF, its agents, officers, employees,
successors and assigns, harmless from and against any and all claims,
liabilities, obligations, losses, damages, injuries, penalties, actions, costs
and expenses (including reasonable attorneys' fees) for all events and/or
occurrences described in Article 7.3 of the LGK Agreement to the same extent
that Medical Center agrees to indemnify Elekta thereunder. Medical Center
further agrees to fully indemnify and hold harmless GKF for any loss, damage,
claim, or expense (including reasonable attorneys' fees) GKF may suffer or incur
as a result of Medical Center's breach or breach alleged in litigation with
regard to the LGK Agreement. GKF shall give prompt notice to Medical Center of
any claim and Medical Center at its option and expense may assume the primary
defense of the claim. Any compromise or settlement shall require the prior
written consent of GKF which consent shall not be unreasonable withheld.

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(e) Provide reasonable and customary marketing materials (i.e.
brochures, announcements, etc.), marketing support, and an administrative and
physician (i.e. seminars by neurosurgeons and radiation oncologists to referring
physicians, etc.) commitment to this clinical service. Medical Center and GKF
personnel shall jointly develop and agree upon a marketing plan and budget. Not
less than ninety (90) days prior to the First Procedure Date and the
commencement of each succeeding twelve (12) month period of the Term. As funds
are expended by Medical Center shall submit invoices (together with documentary
evidence supporting the invoices) for its expenditures and, promptly following
the receipt of such invoices, GKF shall reimburse Medical Center * of the
expenditures up to the limit of * , unless said limit is waived by GKF.

9. Additional Covenants, Representations and Warranties of GKF. In
addition to the other covenants, representations and warranties, made by GKF in
this Agreement:

(a) GKF represents and warrants that GKF has full power and authority to
enter into this Agreement, and that this Agreement does not and will not violate
any agreement, contract or instrument binding upon GKF.

(b) GKF represents and warrants to Medical Center that, upon delivery of
the Equipment to Medical Center, GKF shall use its best faith efforts to require
that Elekta meets its contractual obligations to GKF and in putting the
Equipment, as soon as 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.

(c) GKF represents and warrants that throughout the term of this
Agreement, subject to the second paragraph of section 10 below it has good
marketable title to the equipment, and Medical Center shall enjoy the use of the
Equipment, free of the rights of any other persons except for those rights
reserved by GKF or granted to Elekta under the LGK Agreement.

(d) During the entire term of this agreement and subsequent extension
thereof, GKF shall maintain in full force and effect: (i) the Service Agreement
referenced in Paragraph 15 hereof; and (ii) any other service or other
agreements required to fulfill GKF's obligations to Medical Center under this
Agreement. GKF represents and warrants that during the entire term of this
agreement and any subsequent extensions thereof, that it will fully pursue any
and all remedies it may have against Elekta under the Service Agreement to
insure that Elekta fully performs its obligations under the Service Agreement
and that the Equipment will be in conformity with Elekta's warranties so that it
is free from defects in design, materials, and workmanship which result in
noncompliance with the specifications and/or Elekta's warranties to GKF. In no
event, however, shall the warranty obligations of GKF to Medical Center with
respect to the Equipment be greater or more extensive than Elekta's warranty
obligations to GKF with respect to the Equipment.

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10. Ownership/Title. It is expressly understood that Medical Center
shall acquire no right, title or interest in or to the Equipment, other than the
right to the possession and use of the same in accordance with the terms of this
Agreement.

GKF may at its sole discretion finance the Equipment. Financing may be
in the form of an installment loan or a capitalized lease or other commercially
available debt instrument. Should GKF finance the Equipment through an
installment loan, GKF shall be required to provide the Equipment as collateral
against the loan. Should GKF finance the Equipment through a capitalized lease
title shall vest with the lessor until GKF exercises its buy-out option. In
addition, should GKF finance the Equipment, said agreement may be used as
collateral against the loan. In all of the foregoing situations, GKF shall use
its best efforts to cause the entity financing the equipment to agree not to
disturb the rights of the Medical Center under this Agreement so long as the
Medical Center does not default on its obligations hereunder. In the event the
financial entity forecloses on GKF's interest in the equipment of this Agreement
and said foreclosure is not cured within 45 days and the financing entity elects
not to assume GKF's obligations, Medical Center may elect to purchase the
equipment for its fair market value or principal balance, whichever is higher.

11. Cost of Use of the Equipment. Except as is otherwise provided
herein, Medical Center shall bear the entire cost of using the Equipment during
the Term of this Agreement. This shall include, but not be limited to, providing
trained professionals, technical and support personnel and supplies to properly
operate the Equipment. Medical Center shall be fully responsible and liable for
all acts and/or omissions of such professional, technical and support personnel.

12. Taxes. GKF shall pay any personal property taxes levied against the
Equipment and any other taxes or governmental fees or assessments, however
denoted, whether of the federal government, any state government or any local
government, levied or based on this Agreement or the use of the Equipment except
for those taxes, if any, pertaining to the gross income or gross receipts of
Medical Center.

13. Maintenance and Inspections. GKF agrees to exercise due and proper
care in the maintenance of the Equipment and to keep the Equipment in a good
state of repair, reasonable wear and tear excepted. Medical Center shall be
responsible for all damage to the Equipment caused by the misuse, negligence,
improper use or other intentional or negligent acts or omissions of Medical
Center's employees, officers, agents, and physicians.

GKF (and Elekta) shall have the right of access to the Equipment for the
purpose of inspecting and repairing the same at all reasonable times and upon
reasonable prior written notice and shall use all reasonable efforts not to
interfere with Medical Center's use of the Equipment. In the event the Equipment
is improperly used by Medical Center or its employees, agents, officers, and
physicians, GKF may service or repair the same as

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needed and such expense shall be paid by Medical Center, unless the repair is
covered by the Service Agreement described in Paragraph 15 hereof.

Any work so performed by or in the service or maintenance of the
Equipment as a result of Medical Center's failure or neglect to do so shall not
deprive GKF of any of its rights, remedies or actions against Medical Center for
damages caused by such failure or neglect. If, thirty (30) days after giving of
written notice by Medical Center, GKF fails to make the repairs it is required
to make under this Agreement, Medical Center may make the repairs. GKF shall
reimburse Medical Center for the cost of the repairs within thirty (30) days,
following receipt of Medical Center's invoice.

14. Equipment Modifications/Additions/Upgrades. The parties agree that
the necessity and financial responsibility for modifications/additions/upgrades
to the Equipment, including the reloading of the Cobalt-60 source, shall be
discussed and mutually decided by GKF and Medical Center. If GKF and Medical
Center agree to reload the Cobalt-60 source (in approximately year 8 of the
initial term), GKF shall be responsible for the expenses relate to the Cobalt-60
reloading and Medical Center shall be responsible for any site costs associated
with the Cobalt-60 reload. If the reloading of the Equipment occurs, the
original term shall be extended for 8 years less the number of years remaining
in the original term. GKF shall reimburse Medical Center for the cost of the
repairs within thirty (30) days, following receipt of Medical Center's invoice.

15. Service Agreement. GKF warrants that it shall simultaneously with
the execution of this Agreement enter into a Service Agreement with Elekta in
the form of Exhibit C attached to this Agreement.

16. Termination If, after the initial twenty-four (24) month period of
service, and subsequent 12 month periods of service, Medical Center does not
provide GKF with a reasonable economic justification to continue providing Gamma
Knife services hereunder, then and in that event, GKF shall have the option of
terminating this Agreement upon the giving of written notice to Medical Center
of said termination not less than ninety (90) days prior to GKF's designated
termination date.

17. Options to Extend Agreement.

(a) Medical Center shall have the option at the end of the ten (10) year
initial Term to:

(i) Renegotiate this Agreement for a five (5) year renewal term.

(ii) Terminate this Agreement. If Medical Center terminates this
Agreement at the end of the initial term, GKF shall remove the Gamma Knife
within an

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agreed upon period of time after the expiration of the ten (10) year initial
Term not in excess of 90 days.

Medical Center shall exercise one (1) of the two (2) options
referred to above, by mailing an irrevocable written notice thereof to GKF at
Four Embarcadero Center, Suite 3620, San Francisco, California, 94111, by
registered mail, postmarked on or before the end of the ninth (9th) year of the
ten (10) year initial Term of this Agreement. Any such notice shall be
sufficient if it states in substance that Medical Center elects to exercise its
option and states which of the two (2) options referred to above Medical Center
is exercising.

18. No Warranties by GKF. Medical Center warrants that as of the
Commencement Date, it shall have (a) thoroughly inspected the Equipment; (b)
determined for itself that all items of the Equipment are of a size, design,
capacity and manufacture selected by it; and (c) satisfied itself that to the
best of its knowledge the Equipment is suitable for Medical Center's stated
purposes. GKF SUPPLIES THE EQUIPMENT "AS IS" AND 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, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR
WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that all
such risks as between GKF and Medical Center, shall be borne by Medical Center.
Medical Center agrees to look solely to the manufacturer (Elekta) or to
suppliers of the Equipment (and its software) for any and all warranty claims.
Any and all warranties made by Elekta will be in its good faith best efforts
enforced by GKF on behalf of Medical Center during the ten (10) year initial
Term hereof. Medical Center agrees that GKF shall not be responsible for the
delivery, installation, or operation of the Equipment or for any delay or
inadequacy of any or all of the foregoing. GKF shall not be responsible for any
direct or indirect consequential loss or damage resulting from the installation,
operation or use of the Equipment or otherwise. Medical Center expressly waives
any right to hold GKF liable hereunder for any claims, demands and liabilities
arising out of or in connection with the design, manufacture, possession or
operation of the Equipment.

19. Events of Default and Remedies. The occurrence of any one of the
following shall constitute an Event of Default hereunder:

(a) Medical Center fails to pay any installment of semi-monthly
procedure payments when due when such default continues for a period of thirty
(30) days after notice thereof from GKF or its assignee is given to Medical
Center.

(b) Medical Center attempts to remove, sell, transfer, encumber, sublet
or part with possession of the Equipment or any items thereof, except as
expressly permitted herein;

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(c) Medical Center shall fail to observe or perform any of the other
obligations required to be observed or performed by Medical Center hereunder and
such failure shall continue uncured for thirty (30) days after written notice
thereof to Medical Center by GKF provided, however, that if the nature of the
default is such that it cannot reasonably be cured within the thirty (30) day
period, the Medical Center shall not be deemed to be in default if it shall
commence to cure the default within the thirty (30) day period and diligently
effect the cure within a period not exceeding an additional thirty (30) days;

(d) Medical Center 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.

(e) Within sixty (60) days after the commencement of any proceedings
against Medical Center 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 Medical Center'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.

Upon the occurrence of an Event of Default, GKF may at its option do any
or all of the following: (i) by notice to Medical Center, terminate this
Agreement as to the Equipment in default, wherever situated, and for such
purposes, enter upon the Site without liability for so doing or GKF may cause
Medical Center and Medical Center hereby agrees to return the Equipment to GKF
at Medical Center's sole cost and expense; (ii) recover from, as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to the
present value of the unpaid estimated future lease payments by Medical Center to
GKF through the end of the Agreement term discounted at the rate of nine percent
(9%), which payment shall become immediately due and payable. Unpaid estimated
future lease payments shall be based on the prior 12 months lease payments with
a five percent (5%) increase; (iii) sell, dispose of, hold, use or lease the
Equipment in default, as GKF in its sole discretion may determine (and GKF shall
not be obligated to give preference to the sale, lease or other disposition of
the Equipment over the sale, lease or other disposition of similar Equipment
owned or leased by GKF). In any event, Medical Center shall, without further
demand, pay to GKF an amount equal to all sums due and

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payable for all periods up to and including the date on which GKF had declared
this Agreement to be in default.

In the event, that Medical Center shall have paid to GKF the liquidated
damages referred to in (iii) above, GKF hereby agrees to pay to Medical Center
promptly after receipt thereof, all rentals or proceeds received from the
reletting or sale of the Equipment during the balance of the ten (10) year
initial Term (after deduction of all expenses incurred by GKF; said amount never
to exceed the amount of the liquidated damages paid by Medical Center). Medical
Center agrees that GKF shall have no obligation to sell the Equipment. Medical
Center shall in any event remain fully liable for reasonable damages as provided
by law for all costs and expenses incurred by GKF on account of such default,
including but not limited to, all court costs and reasonable attorneys' fees.
Medical Center hereby agrees that, in any event, it shall be liable for any
deficiency after any sale, lease or other disposition of the Equipment by GKF.
The rights afforded GKF hereunder shall not be deemed to be exclusive, but shall
be in addition to any other rights or remedies provided by law.

20. Insurance.

(a) During the ten (10) year initial Term of this Agreement (and any
successive terms) GKF shall, at its own cost and expense, keep in effect an all
risk and hazard insurance policy covering the Equipment. The all risk and hazard
insurance policy shall be for an amount not less than the replacement cost of
the Equipment. During the ten (10) year initial Term of this Agreement, Medical
Center shall, at its own cost and expense keep in effect public liability and
professional liability insurance policies concerning the operation of the
Equipment by Medical Center. Said policies shall be in the amounts of not less
than $1,000,000 per occurrence and $5,000,000 in aggregate per year. Medical
Center and GKF, their successors and assigns, shall be named as additional
insureds and/or loss payees on the insurance policies maintained hereunder by
the other party. Evidence of such insurance coverages shall be furnished by both
parties to the other party upon written request, by no later than the
Commencement Date.

(b) If the Equipment is rendered unusable as a result of any physical
damage to, or destruction of, the Equipment, Medical Center shall give to GKF
prompt notice. GKF shall determine, within thirty (30) days after the date of
occurrence of such damage or destruction, whether the Equipment can be repaired.
In the event GKF determines that the Equipment cannot be repaired, subject to
section 8(d), GKF at its sole cost and expense shall promptly replace the
Equipment. This Agreement shall continue in full force and effect as though such
damage or destruction had not occurred except that the term of the Agreement
shall be extended by the time the Equipment was rendered unusable. In the event
GKF determines that the Equipment can be repaired, GKF shall cause the Equipment
to be promptly repaired, subject to section 8(d).

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21. Notices. Any notices required under this Agreement shall be sent in
writing and shall be deemed to have been duly given if delivered by hand or
mailed by certified or registered mail to the following addresses:

To GKF: Chief Executive Officer
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111

To Medical Center: Chief Executive Officer
Froedtert Memorial Lutheran Hospital
9200 W. Wisconsin Avenue
Milwaukee, WI 53226

Or to such other addresses as either party may specify for the reception of
notice from time to time in writing to the other party. Any such notice shall be
effective only when actually received by the party to whom addressed.

22. Integration/Supersedure. This Agreement contains the full and entire
Agreement between the parties hereto, and no oral or written understanding is of
any force or effect whatsoever unless expressly contained in a writing executed
subsequent to the date of this Agreement.

23. Waivers. To the extent that either party fails or chooses not to
pursue any of its remedies under this Agreement or pursuant to applicable law,
such shall not prejudice that party's rights to pursue any of those remedies at
any future time and shall not constitute a waiver of rights.

24. Assignments. This Agreement is binding upon and shall inure to the
benefit of the permitted successors or assigns of the respective parties hereto,
except that neither party may assign its rights or obligations under this
Agreement without the express written consent of the other (which consent shall
not be unreasonably withheld).

25. Amendments. This Agreement shall not be amended or altered in any
manner unless such amendment or alteration is in a writing signed by both
parties.

26. Record-Keeping Requirements. To the extent required by the
regulations promulgated by the Health Care Financing Administration pursuant to
Section 952 of the Omnibus Reconciliation Act of 1980, GKF shall:

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(a) Until the expiration of four (4) years following the furnishing of
services pursuant to this Agreement, GKF agrees to make available upon written
request of the Secretary of Health and Human Services or the U.S. Comptroller
General or any of their duly authorized representatives, this Agreement, any
books, documents and records necessary to verify the nature and extent of costs
incurred by Medical Center by reason of the activities of GKF under this
Agreement; and

(b) If GKF elects to delegate any of its duties under this Agreement
(which have a cost or value of Ten Thousand Dollars ($10,000.00) or more over a
twelve (12) month period) to a related organization, GKF may do so only through
a subcontractor which is consented to by Medical Center, it being understood
that, inasmuch as Medical Center is entering into this Agreement in reliance on
GKF's reputation and expertise, that Medical Center shall be the sole judge of
the reputation and expertise of the proposed delegee, and only through a
subcontractor which provides that, until the expiration of four (4) years
following the furnishing of services under such subcontract, the related
organization shall make available, on request of the Secretary of Health and
Human Services or the U.S. Comptroller General or any of their authorized
representatives, the subcontract, and books, documents and records of the nature
and extent of costs incurred by Medical Center by reason of activities of such
related organization under such subcontract. No delegation by GKF of its duties
hereunder shall relieve GKF from liability hereunder.

27. Miscellaneous Provisions.

(a) The invalidity or unenforceability of any portion or provision of
this Agreement shall not effect the validity or enforceability of any other
portion, nor shall either party's implied or express consent to the breach or
waiver of any provision of this Agreement constitute a waiver of such provision
as to any subsequent breach.

(b) In the event of any claim or controversy arising hereunder, the
prevailing party in such claim or controversy shall be entitled to a reasonable
attorneys' fee in addition to whatever other relief said party would be
otherwise entitled.

(c) 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.

- 12 -
<PAGE> 13

IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.

Medical Center GK Financing, LLC

By: /s/ William B. Petasnick By: /s/ Craig K. Tagawa
-------------------------------- ---------------------------------
President & CEO Chief Executive Officer
Froedtert Memorial Lutheran Hospital

- 13 -
<PAGE> 14

Exhibit 1

PER PROCEDURE PAYMENTS

<TABLE>
<CAPTION>
Annual Procedures Performed Fee Per Procedure
- --------------------------- -----------------
<S> <C>
* *
* *
* *
* *
</TABLE>

Note: Procedure counts will revert to zero on each anniversary of the
Commencement Date.

- 14 -

<PAGE> 1

Exhibit 10.27

FROEDTERT
Memorial Lutheran Hospital

June 24, 1999

Craig K. Tagawa
Chief Executive Officer
GK Financing, LLC
Four Embarcadero Center
Suite 3620
San Francisco, CA 94111-4155

Dear Craig:

This letter serves as an addendum to our May 28, 1999 Lease Agreement for a
Gamma Knife Unit between GK Financing and Froedtert Memorial Lutheran Hospital.
It is my understanding that Charlie Runge and you agreed to the following term,
to be added at the end of section 16:

Prior to the designated termination date, Medical Center, upon notice to
GKF, may elect to purchase the equipment for its fair market value or
loan/lease payoff amount, whichever is higher.

If you are in agreement with this language, please so indicate by signing both
copies of this addendum and returning one to my office.

Thank you.

Very truly yours,

FROEDTERT MEMORIAL LUTHERAN HOSPITAL

/s/ Blaine J. O'Connell
- ------------------------
Blaine J. O'Connell
Sr. Vice President & CFO

GK FINANCING, LLC

By: /s/ Craig K. Tagawa
----------------------------------------
Craig C. Tagawa, Chief Executive Officer

9200 W Wisconsin Avenue P.O. Box 26099 Milwaukee, WI 53226-3596 414/259-3000
www.froedtert.com
Primary affiliate of the Medical College of Wisconsin Member,
Horizon Healthcare Inc.

<PAGE> 1

Exhibit 10.28

FROEDTERT
Memorial Lutheran Hospital

July 12, 1999

Craig K. Tagawa
Chief Executive Officer
GK Financing, LLC
Four Embarcadero Center
Suite 3620
San Francisco, CA 94111-4155

Dear Craig:

This letter serves to amend our May 28, 1999 Lease Agreement for a Gamma Knife
Unit between GK Financing (GKF) and Froedtert Memorial Lutheran Hospital (FMLH).
GKF and FMLH agree to change the delivery date identified in Section 4, from
July 1, 1999 to October 15, 1999. All other provisions of the lease continue to
apply, including the penalty provision for delivery more than 30 days after the
amended delivery date.

Please confirm this amendment by signing the enclosed copy of this letter and
returning it to me.

Very truly yours,

FROEDTERT MEMORIAL LUTHERAN HOSPITAL

/s/ Blaine J. O'Connell
- ------------------------
Blaine J. O'Connell
Sr. Vice President & CFO

GK FINANCING, LLC

/s/ Craig K. Tagawa
- ----------------------------------------
Craig K. Tagawa, Chief Executive Officer

cc: Charles W. Runge

9200 West Wisconsin Avenue P.O. Box 26099 Milwaukee, WI 53226-3596 Telephone:
414-259-3000
Staffed by physicians of the Medical College of Wisconsin. Member,
Horizon Healthcare Inc.

<PAGE> 1

Exhibit 10.29

FROEDTERT
Memorial Lutheran Hospital

August 24, 1999

Craig K. Tagawa
Chief Executive Officer
GK Financing, LLC
Four Embarcadero Center, Suite 3620
San Francisco, CA 94111-4155

Dear Craig:

This letter serves to amend our May 28, 1999 Lease Agreement for a Gamma Knife
Unit between GK Financing, LLC (GKF) and Froedtert Memorial Lutheran Hospital
(FMLH). GKF and FMLH agree to change the delivery date identified in Section 4,
from July 1, 1999 to December 8, 1999. All other provisions of the lease
continue to apply, including the penalty provision for delivery more than 30
days after the amended delivery date.

This agreement supercedes our July 12, 1999 amendment letter, in which we agreed
to change the delivery date from July 1, 1999 to October 15, 1999.

Please confirm this amendment by signing the enclosed copy of this letter and
returning it to me.

Very truly yours,

FROEDTERT MEMORIAL LUTHERAN HOSPITAL

/s/ Blaine J. O'Connell
- ------------------------
Blaine J. O'Connell
Sr. Vice President & CFO

GK FINANCING, LLC

/s/ Craig K. Tagawa
- -----------------------
Craig K. Tagawa
Chief Executive Officer

cc: Charles W. Runge

9200 W. Wisconsin Avenue P.O. Box 26099 Milwaukee, WI 53226-3596 414/259-3000
www.froedtert.com
Primary affiliate of the Medical College of Wisconsin Member,
Horizon Healthcare Inc.

<PAGE> 1

Exhibit 21.0

The subsidiaries of American Shared Hospital Services are:

American Shared Radiosurgery Services
A California corporation

GK Financing, LLC
A California limited liability company

OR21, Inc.
A California corporation

MMRI, Inc.
A California corporation

Embarcadero Transition Corp. III
A California corporation

European Shared Medical Services Limited
An English registered company

African American Church Health and Economic Services, Inc.
A California corporation

ACHES Insurance Services, Inc.
A California corporation

<PAGE> 1
MOSS ADAMS LLP
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement, as
amended, (Forms S-8, No. 2-90646; No. 33-21509; No. 33-48980) pertaining to the
1984 Stock Option Plan of American Shared Hospital Services; the Registration
Statement (Form S-8, No. 33-45999) pertaining to the American Shared Hospital
Services 1991 Employee Stock Bonus Plan; the Registration Statement (Form S-8,
No. 333-08009) pertaining to the 1995 Stock Option Plan of American Shared
Hospital Services; the Registration Statement, as amended, (Form S-3, No.
333-12879) pertaining to the registration of 2,679,047 Common Shares of American
Shared Hospital Services; and the Registration Statement, as amended, (Form S-3,
No. 33-63721) pertaining to the registration of 1,290,853 Common Shares of
American Shared Hospital Services and 441,147 Warrants to purchase Common Shares
of American Shared Hospital Services and in the related Prospectuses of our
report dated February 18, 2000, with respect to the consolidated financial
statements and schedule of American Shared Hospital Services included in this
Annual Report (Form 10-K) for the year ended December 31, 1999.

/s/ Moss Adams LLP

March 29, 2000
Stockton, California

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated March 12, 1999, accompanying the 1998
consolidated financial statements and schedule included in the Annual Report of
American Shared Hospital Services on Form 10-K for the year ended December 31,
1999. We hereby consent to the incorporation by reference of said report in the
Registration Statements of American Shared Hospital Services on Forms S-3 (File
No. 333-12879 and File No. 333-63721) and on Forms S-8 (File Nos. 2-90646;
33-21509; 33-48980, 33-45999, and 333-08009).

/s/ GRANT THORNTON LLP

San Jose, California
March 27, 2000

<PAGE> 1
EXHIBIT 23.3

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
Forms S-3 (File No. 33-12879 and File No. 333-63721) and on Forms S-8 (File
Nos. 2-90646, 33-21509, 33-48980, 33-45999, and 333-08009) of American Shared
Hospital Services and in the related Prospectus of our report dated February
27, 1998, with respect to the consolidated financial statements and schedules
of American Shared Hospital Services included in this Annual Report (Form 10-K)
for the year ended December 31, 1999.

/s/ ERNST & YOUNG LLP

March 27, 2000
Walnut Creek, California

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF AMERICAN SHARED HOSPITAL SERVICES FOR THE PERIOD ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,953
<SECURITIES> 0
<RECEIVABLES> 1,226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,695
<PP&E> 27,453
<DEPRECIATION> (5,397)
<TOTAL-ASSETS> 36,986
<CURRENT-LIABILITIES> 3,570
<BONDS> 19,887
0
0
<COMMON> 10,036
<OTHER-SE> 3,231
<TOTAL-LIABILITY-AND-EQUITY> 36,986
<SALES> 7,156
<TOTAL-REVENUES> 7,156
<CGS> 0
<TOTAL-COSTS> 2,165
<OTHER-EXPENSES> 1,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,309
<INCOME-PRETAX> 1,991
<INCOME-TAX> (716)
<INCOME-CONTINUING> 2,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,707
<EPS-BASIC> .68
<EPS-DILUTED> .48

</TABLE>