<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>f70922e10-k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>

<PAGE>   1

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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, 2000

                                       OR

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                         COMMISSION FILE NUMBER 1-8789
                            ------------------------

                       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 15, 2001, the aggregate market value of the common stock held
by non-affiliates of the registrant was approximately $7,110,000.

     Number of shares of common stock of the registrant outstanding as of March
15, 2001: 3,607,225.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement for the 2001 Annual
Meeting of its Shareholders are incorporated by reference into Part III of this
report.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                     PART I
ITEM 1. BUSINESS

GENERAL

     American Shared Hospital Services ("ASHS" and, together with its
subsidiaries, the "Company") provides Gamma Knife stereotactic radiosurgery
services to ten medical centers in nine 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 100% of the Company's
revenues in 2000.

     At present, the Company is developing its business model for "The Operating
Room for the 21st Century(SM)" ("OR21(SM)"). The Company also is exploring
Internet-related business opportunities, through its MedLeader.com subsidiary
("MedLeader"), that relate strategically and operationally to its existing and
developing lines of business. The Company has decided to delay continued
development of MedLeader as a stand alone business. Neither OR21 nor MedLeader
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 1999.

     In 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.
Prior to that sale, the Company provided Magnetic Resonance Imaging ("MRI"),
Computed Axial Tomography, Ultrasound, Nuclear Medicine and Cardiac
Catheterization Laboratory services to approximately 190 customers in 22 states.
The diagnostic imaging business provided approximately 88% of the Company's
revenues for the year ended December 31, 1998.

     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 and medium, 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.
solitary and multiple metastatic tumors, gliomas, nasopharyngeal carcinomas and
ocular meningiomas), arteriovenous malformations and trigeminal neuralgia
(facial pain). Research is being conducted to determine whether the Gamma Knife
can be effective in the treatment of epilepsy, Parkinson's Disease and other
functional disorders.

     There are currently 64 Gamma Knife units operating at 62 sites in the
United States and approximately 155 units in operation worldwide. As of December
31, 2000, approximately 150,000 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 (41%) and benign (32%)
brain tumors, vascular disorders (17%) and functional disorders (10%).

                                        1
<PAGE>   3

     The Company, as of March 9, 2001, has ten (10) Gamma Knife units operating
at ten (10) sites in the United States. In addition, the Company has four (4)
more hospitals that are currently under development. The Company's first Gamma
Knife commenced operation in September 1991. The Company's Gamma Knife units had
performed approximately 1,200 procedures in 2000 for a cumulative total of 4,200
procedures through December 31, 2000.

     Gamma Knife revenues for the Company during the five (5) years ended
December 31, 2000 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>
                              TOTAL GAMMA KNIFE        GAMMA KNIFE/
 YEAR ENDED DECEMBER 31,   REVENUES (IN THOUSANDS)    TOTAL REVENUES
 -----------------------   -----------------------    --------------
<S>                        <C>                        <C>
2000.....................          $9,336                 100.0%
1999.....................          $7,151                  99.9%
1998.....................          $4,156                  11.8%
1997.....................          $2,384                   6.4%
1996.....................          $2,030                   5.5%
</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,
formed in October 1995, is managed by its policy committee. The policy committee
is composed of one representative from the Company, Ernest A. Bates, M.D., the
Company's Chairman and CEO, 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 before cash distributions are made to its members.
From inception to December 31, 2000, GKF distributed $3,178,000 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
       $2,775,000. 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 64 operating Gamma Knife
       units in the United States, ten (10) of which are Company owned 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. There are no competitor
       companies that currently have more than four (4) Gamma Knife units in
       operation. 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.

                                        2
<PAGE>   4

     - 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 surgery. There can be no assurance
       that the Company will be able to secure a sufficient number of sites or
       Gamma Knife procedures to sustain its 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) or other third
       party payor groups. Eight (8) 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. However,
       a significant reimbursement rate reduction may result in the Company
       restructuring certain of its existing contracts. 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 revenues 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 directly or indirectly
       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 past year, Elekta
       introduced an upgraded Gamma Knife which costs approximately $3.4 million
       plus applicable tax and duties. This upgrade includes an Automated
       Patient Positioning system ("APS") and therefore involves less health
       care provider intervention. Nine (9) of the Company's existing Gamma
       Knife units are upgradeable. The cost to upgrade existing units to the
       new model C Gamma Knife with APS is estimated to be approximately
       $900,000.

                                        3
<PAGE>   5

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 $2,775,000 with the medical center paying for site
and installation costs. The following is a listing of the Company's current
sites and sites under development as of March 9, 2001:

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

SITES UNDER DEVELOPMENT
Central Mississippi Medical Center                           10 years              Fee per use
  Jackson, Mississippi
OSF Saint Francis Medical Center                             10 years              Fee per use
  Peoria, Illinois
Hospital Barra D'Or                                          10 years            Revenue Sharing
  Rio de Janeiro, Brazil
Lima, Peru                                                   10 years            Revenue Sharing
</TABLE>

     The Company's second Gamma Knife contract, with the University of Southern
California ended in the third quarter of 1999. The customer exercised its option
to purchase the equipment for its net book value, approximately $1.2 million.
Currently, two of the Company's sites now under development are projected to
become operational in the second quarter of 2001 and two additional contracts
are expected to become operational in the fourth quarter of 2001 or in early
2002. 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 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

                                        4
<PAGE>   6

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. The customer generally is obligated to pay site and
installation costs and the costs of operating the Gamma Knife. The customer can
either renew the agreement or terminate the agreement at the end of the
contractual term. If the customer chooses to terminate the agreement, then GKF
removes the equipment from the medical center for possible placement at a future
site.

     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 the government or
other third party payors. The Company is also at risk if it inefficiently
operates the Gamma Knife. There are no minimum volume guarantees required of the
customer.

     Four customers each accounted for more than 10% of the Company's revenues
in 2000 and 1999: Hoag, STMH, Yale and UAMS. No single customer accounted for
10% or more of the Company's total revenues in 1998, but each of the five Gamma
Knife customers in 1998 accounted for more than 10% of the Company's Gamma Knife
services revenues that year.

MARKETING

     At the end of 2000, the Company employed no sales executive. The Company's
new Vice President of Sales will join the Company starting April 2, 2001. 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.

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 $6,100,000 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
                                        5
<PAGE>   7

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) Elekta, the
manufacturer of the Gamma Knife, (ii) manufacturers of competing radiosurgery
devices (primarily modified linear accelerators), and (iii) other companies that
outsource Gamma Knife services. 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 in the United States, the majority of Gamma Knife services are
performed on an in-patient basis, although a significant number are performed on
an out-patient 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 1986 and again in 1990, Congress enacted legislation requiring the
Department of Health and Human Services ("DHHS") to develop proposals for a PPS
for Medicare out-patient services. DHHS has proposed a new payment system,
Ambulatory Product Classifications ("APC"), which affects all out-patient
services, performed in a hospital based facility. APC implementation took place
in the third quarter of 2000.

     The APC consists of 346 clinically, homogenous classifications or groupings
of codes that are typically used in out-patient billing. Out-patient services
are bundled with fixed rates of payment determined according to specific
regional and national factors, similar to that of the in-patient PPS.

     Gamma Knife patients, with Medicare as their primary insurer and treated on
either an in-patient or out-patient basis, comprise an estimated 20% to 30% of
the total Gamma Knife patients treated. The reimbursement for Medicare patients
receiving Gamma Knife services on an out-patient basis is estimated to have
decreased approximately 40% under the APC system. The Company has two contracts
from which revenues are directly affected by changes in payment rates under the
APC system. Currently, these two contracted hospitals are primarily treating
Medicare Gamma Knife patients on an in-patient basis and therefore the Company
believes that adoption of APC's has not had a significant impact on the revenues
of the Company. However, some of the Company's fee-per-use customers treat
patients on an out-patient basis and may have experienced a reduction in
Medicare payment. There can be no assurance that the adoption of APC's will not
have a negative impact directly or indirectly on the Company's revenues in the
future.

     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

                                        6
<PAGE>   8

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. Two of the Company's existing
customers were required to obtain a CON or its equivalent. Two more of the
Company's more recently signed contracts were 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.

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, 2000, 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.

                                        7
<PAGE>   9

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. ...............   64    Chairman of the Board of Directors,
                                              Chief Executive Officer
Craig K. Tagawa......................   47    Senior Vice President -- Chief Operating
                                              and Financial Officer
</TABLE>

     Ernest A. Bates, M.D., founder of the Company, has served in the positions
listed above since the incorporation of the Company. He is currently a member of
the Board of Trustees of The Johns Hopkins University and the University of
Rochester, a Chairman of the Industrial Policy Advisory Committee of the
Engineering Research Center for Computer-Integrated Surgical Systems and
Technology at The Johns Hopkins University, a member of the Board of Overseers
of the University of California at San Francisco School of Nursing, a member of
the State of California High Speed Rail Authority, and a member of the Board of
Directors of Salzburg Seminar. Dr. Bates is a graduate of The Johns Hopkins
University and the University of Rochester School of Medicine.

     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. Mr. Tagawa received his Undergraduate degree
from the University of California at Berkeley and his M.B.A from Cornell
University.

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 $11,497 per month. This lease runs through September 2002.

     For the year ended December 31, 2000 the Company's aggregate net rental
expenses for all properties and equipment were approximately $188,000.

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.

                                        8
<PAGE>   10

                                    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. The table below sets forth the high and low closing sale 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, 1999.......................................  $1.69    $0.94
June 30, 1999........................................  $3.00    $1.50
September 30, 1999...................................  $6.25    $2.38
December 31, 1999....................................  $5.38    $3.44
March 31, 2000.......................................  $4.75    $3.38
June 30, 2000........................................  $4.25    $2.81
September 30, 2000...................................  $2.88    $2.00
December 31, 2000....................................  $2.44    $1.75
</TABLE>

     The Company estimates that there were approximately 1,200 beneficial
holders of its Common Shares at December 31, 2000.

     The Board of Directors also authorized in March 1999 the repurchase of up
to 500,000 shares of the Company's Common Stock in the open market from time to
time at prevailing prices. Approximately 330,000 shares were repurchased in the
open market pursuant to that authorization, through December 31, 2000, at a cost
of approximately $806,000. The Board of Directors on February 2, 2001 authorized
the repurchase of up to another 500,000 shares of the Company's common stock in
the open market from time to time at prevailing prices.

     During 2000 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 92,000 new shares of common stock
for approximately $150,000.

     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.

     At December 31, 2000 the Company had 5,537,663 fully diluted shares
outstanding, including 3,711,292 issued and outstanding common shares, 1,820,000
common shares reserved for options, and 5,504 shares reserved pursuant to the
Company's Shareholder Rights Plan.

     Shareholders of record on March 15, 2001 will be paid a dividend of $0.10
per common share on April 2, 2001. The Board of Directors anticipates declaring
and paying annual cash dividends in similar amounts in the future subject to
evaluation of the Company's level of earnings, balance sheet position and
availability of cash. The Company did not pay cash dividends in 2000.

                                        9
<PAGE>   11

ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------
                                                      2000     1999     1998      1997      1996
                                                     ------   ------   -------   -------   -------
                                                     (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                  <C>      <C>      <C>       <C>       <C>
Medical services revenues..........................  $9,336   $7,156   $35,162   $37,172   $36,989
                                                     ======   ======   =======   =======   =======
Costs of operations................................   3,435    2,165    25,826    27,044    28,071
Selling and administrative expense.................   2,655    1,803     5,116     5,901     5,309
Interest expense...................................   2,118    1,309     3,186     3,671     4,199
                                                     ------   ------   -------   -------   -------
Total costs and expenses...........................   8,208    5,277    34,128    36,616    37,579
                                                     ------   ------   -------   -------   -------
                                                      1,128    1,879     1,034       556      (590)
Gain (loss) on sale of assets and early termination
  of capital leases................................      25       10        (2)      821         3
Gain on disposal of product line...................       0        0    20,478         0         0
Interest and other income..........................     804      603       220       118       170
Minority interest..................................    (645)    (501)     (166)       37        57
                                                     ------   ------   -------   -------   -------
Income (loss) before income taxes..................   1,312    1,991    21,564     1,532      (360)
Income tax benefit (expense).......................       0      716    (1,513)      (10)        7
                                                     ------   ------   -------   -------   -------
Net income (loss)..................................  $1,312   $2,707   $20,051   $ 1,522   $  (353)
                                                     ======   ======   =======   =======   =======
Earnings (loss) per common share basic:
  Net income (loss)................................  $ 0.34   $ 0.68   $  4.23   $  0.32   $ (0.08)
                                                     ======   ======   =======   =======   =======
Earnings (loss) per common share assuming dilution:
  Net income (loss)................................  $ 0.24   $ 0.48   $  3.15   $  0.24   $ (0.08)
                                                     ======   ======   =======   =======   =======
</TABLE>

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   2000      1999      1998      1997       1996
                                                  -------   -------   -------   -------   --------
                                                    (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
                                                  ------------------------------------------------
<S>                                               <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA
Cash............................................  $12,421   $12,903   $11,114   $    17   $    368
Restricted cash.................................       50        50     2,226       651        218
Working capital (deficiency)....................   10,155    11,125     9,088    (8,039)   (10,888)
Total assets....................................   40,209    36,986    26,919    30,209     32,969
Current portion of long-term debt...............    4,126     2,545     1,885    10,929     13,182
Long-term debt, less current portion............   20,300    19,887     8,823    21,569     23,935
Shareholders' equity (Net capital deficiency)...  $13,658   $12,639   $11,096   $(8,953)  $(10,475)
</TABLE>

See accompanying note

(1) In October 1995, the Company 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. ASHS incorporated a new wholly-owned subsidiary, OR21, Inc.
    ("OR21") in November 1999, and a new wholly-owned subsidiary, MedLeader.com,
    Inc. ("MedLeader") in April 2000. Accordingly, the financial data for the
    Company presented above include the results of GKF for 1996 through 2000,
    OR21 for 1999 and 2000, and MedLeader for 2000.

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

GENERAL

     During the years ended December 31, 2000, 1999 and 1998, approximately
100%, 100% and 12% 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%, 0% and 88% of the Company's total revenues
during the years ended December 31, 2000, 1999 and 1998, respectively. As a
result, the

                                        10
<PAGE>   12

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 predominantly reflect the Company's
operations prior to the sale of its imaging division.

     The Company had net income of $1,312,000 ($0.34 per share) on medical
services revenues of $9,336,000 in 2000. Net income in 2000 included
restructuring expenses of $120,000 and startup costs of $228,000 for its OR21
and MedLeader subsidiaries. The Company had net income of $2,707,000 ($0.68 per
share) on medical services revenues of $7,156,000 in 1999. Included in net
income for 1999 is 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 related income taxes
of $1,500,000.

TOTAL REVENUES

<TABLE>
<CAPTION>
                                                      INCREASE                INCREASE
                                            2000     (DECREASE)     1999     (DECREASE)     1998
                                           ------    ----------    ------    ----------    -------
                                                               (IN THOUSANDS)
<S>                                        <C>       <C>           <C>       <C>           <C>
Medical services.........................  $9,336       30.5%      $7,156      (79.6)%     $35,162
</TABLE>

     Medical services revenues increased 30.5% in 2000 compared to 1999, and
decreased 79.6% in 1999 compared to 1998. The increase in 2000 compared to 1999
is primarily attributable to an increase in the number of Gamma Knife units in
operation and increased revenues at Gamma Knife locations in operation for more
than one year. The decrease in 1999 compared to 1998 is primarily attributable
to the sale of the Company's imaging division, which occurred in November 1998.

     Gamma Knife revenues increased $2,185,000 and $2,995,000 in 2000 and 1999,
respectively, compared to the prior years. The 2000 increase was due to the full
year inclusion of four new Gamma Knife units which started at various times
during 1999, the commencement of its newest Gamma Knife unit in April 2000, and
a 20% increase in revenues for Gamma Knife units in operation more than one
year. The increase was partially offset by the expiration of the Company's
second Gamma Knife contract in the fourth quarter of 1999. The customer
purchased the Gamma Knife after the expiration of the contract for $1,200,000 in
cash. The 1999 increase was primarily due to the commencement of four new Gamma
Knife contracts during 1999 (one in second quarter, two in third quarter, and
one in fourth quarter), full year inclusion of two Gamma Knife units that began
operation during 1998 (first and third quarters), and a 24% increase in revenues
for Gamma Knife units in operation more than one year. The Company had nine,
eight and five Gamma Knife units in operation at December 31, 2000, 1999 and
1998, respectively.

     The Company did not have MRI, non-MRI diagnostic imaging services, or
contract service (Respiratory Therapy services and Cardiac Catheterization
Laboratory) revenues in 2000 and 1999. In 1998, MRI revenues were $26,498,000,
non-MRI diagnostic imaging services revenues were $3,345,000, and contract
services revenues were $1,150,000. The revenue decrease in 1999 compared to 1998
was attributable to the sale of the imaging division, which was comprised of
MRI, non-MRI diagnostic imaging services and contract services. In 1998, MRI
revenues were 75%, non-MRI diagnostic imaging services were 10%, and contract
services revenues were 3% of total medical services revenues.

COSTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      INCREASE                INCREASE
                                            2000     (DECREASE)     1999     (DECREASE)     1998
                                           ------    ----------    ------    ----------    -------
                                                               (IN THOUSANDS)
<S>                                        <C>       <C>           <C>       <C>           <C>
Costs of operations......................  $3,435       58.7%      $2,165      (91.6)%     $25,826
Percentage of revenue....................    36.8%                   30.3%                    73.4%
</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

                                        11
<PAGE>   13

office costs, insurance, property taxes, bad debt expense, fees and training
expenses) increased $1,270,000 in 2000 as compared to 1999 and decreased
$23,661,000 in 1999 as compared to 1998.

     Medical services payroll decreased by $3,000 in 2000 compared to 1999 and
by $7,084,000 in 1999 compared to 1998. This decrease is 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 0% in 2000, less than 1% in 1999 and
20% in 1998.

     The Company's maintenance and supplies costs were 2%, 2% and 15% of medical
service revenues in 2000, 1999 and 1998, respectively. Maintenance and supplies
costs increased $44,000 in 2000 compared to 1999 and decreased $5,041,000 in
1999 compared to 1998. The increase in 2000 was primarily due to the expiration
of the warranty period on three Gamma Knife units. The decrease in 1999 was
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 primarily
due to the expiration of the warranty period on three units.

     Depreciation and amortization increased $652,000 in 2000 compared to 1999
and decreased $3,940,000 in 1999 compared to 1998. The increase in 2000 was due
to the addition of a new Gamma Knife unit in second quarter 2000 and a full
year's depreciation on four new Gamma Knife units that started operation during
1999. The decrease in 1999 was primarily attributable to the sale of the imaging
division. The decrease was partially offset by the addition of four Gamma Knife
units during 1999. Depreciation and amortization for Gamma Knife services in
2000 and in 1999 increased $652,000 and $573,000, 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
2000 and 1999 and 12% in 1998. The Company's Gamma Knife services currently do
not require the rental of equipment. Equipment rental decreased $4,064,000 in
1999 compared to 1998. The decrease in 1999 was due to the sale of the imaging
division.

     Other costs of operations as a percentage of medical services revenues were
10%, 6% and 11% in 2000, 1999 and 1998, respectively. The increase of $577,000
in 2000 compared to 1999 is due to operating expenses at the Company's retail
site that started in September 1999, increased property taxes and insurance due
to additional Gamma Knife units, and increased marketing costs. The decrease of
$3,532,000 in 1999 compared to 1998 was primarily attributable to the sale of
the imaging division. Other costs of operations for Gamma Knife services
increased $135,000 in 1999 compared to 1998. This increase was 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
                                             2000     (DECREASE)     1999     (DECREASE)     1998
                                            ------    ----------    ------    ----------    ------
                                                                (IN THOUSANDS)
<S>                                         <C>       <C>           <C>       <C>           <C>
Selling and administrative costs..........  $2,655       47.3%      $1,803      (64.8)%     $5,116
Percentage of revenue.....................    28.4%                   25.2%                   14.5%
</TABLE>

     The Company's selling and administrative costs increased $852,000 in 2000
compared to 1999 and decreased $3,313,000 in 1999 compared to 1998. The increase
in 2000 was primarily due to startup costs of approximately $228,000 on the
Company's two newest ventures, OR21 and MedLeader, management and employee
bonuses of approximately $125,000, and restructuring costs of approximately
$120,000 resulting in the elimination of two senior management positions. The
increase in 2000 was also caused by inclusion in 1999 of a $325,000 credit due
to a change in estimate regarding the need for and the corresponding cost of
liability insurance related to divested operations. The decrease in 1999 was
primarily due to the sale of the imaging division, as well as the previously
mentioned insurance expense credit.

                                        12
<PAGE>   14

INTEREST EXPENSE

<TABLE>
<CAPTION>
                                                       INCREASE                INCREASE
                                             2000     (DECREASE)     1999     (DECREASE)     1998
                                            ------    ----------    ------    ----------    ------
                                                                (IN THOUSANDS)
<S>                                         <C>       <C>           <C>       <C>           <C>
Interest expense..........................  $2,118       61.8%      $1,309      (58.9)%     $3,186
Percentage of revenue.....................    22.7%                   18.3%                    9.1%
</TABLE>

     The Company's interest expense increased $809,000 in 2000 compared to 1999
and decreased $1,877,000 in 1999 compared to 1998. The increase in 2000 was
primarily due to the addition of five new Gamma Knife units during 1999 and
2000, all of which were financed. The decrease in 1999 was primarily
attributable to the sale of the imaging division offset by increased interest
related to Gamma Knife units. Interest expense for Gamma Knife units increased
$811,000 and $528,000 in 2000 and 1999 compared to prior years. Interest as a
percentage of revenue increased from 18.3% in 1999 to 22.7% in 2000 because all
of the Company's operating Gamma Knife units are financed by means of interest
bearing debt. Five of the Company's nine Gamma Knife units have been in
operation for less than two years, and have higher interest expense than units
with more mature loans because interest expense decreases with each subsequent
loan payment.

OTHER INCOME AND EXPENSE

<TABLE>
<CAPTION>
                                                      INCREASE               INCREASE
                                            2000     (DECREASE)    1999     (DECREASE)     1998
                                            -----    ----------    -----    ----------    -------
                                                               (IN THOUSANDS)
<S>                                         <C>      <C>           <C>      <C>           <C>
Gain (loss) on sale of assets and early
  termination of capital leases...........  $  25      150.0%      $  10      600.0%      $    (2)
Percentage of revenue.....................    0.3%                   0.1%                     0.0%
Gain on sale of product line..............  $   0         NM       $   0      100.0%      $20,478
Percentage of revenue.....................    0.0%                   0.0%                    58.2%
Interest and other income.................  $ 804       33.3%      $ 603      174.1%      $   220
Percentage of revenue.....................    8.6%                   8.4%                     0.6%
Minority interest.........................  $(645)      28.7%      $(501)     201.8%      $  (166)
Percentage of revenue.....................   (6.9)%                 (7.0)%                   (0.5)%
</TABLE>

     The Company's gain on sale of product line decreased to $0 in 2000 and 1999
from $20,478,000 in 1998. 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 $15,000 in 2000 and increased $12,000 in 1999
compared to prior years.

     Interest and other income increased $201,000 in 2000 and $383,000 in 1999
compared to prior years. The increase in both 2000 and 1999 was primarily due to
additional interest income from higher cash balances that are invested in
overnight securities.

     Minority interest increased $144,000 in 2000 and $335,000 in 1999 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.

INCOME TAXES

<TABLE>
<CAPTION>
                                                       INCREASE               INCREASE
                                              2000    (DECREASE)    1999     (DECREASE)     1998
                                              ----    ----------    -----    ----------    -------
                                                                 (IN THOUSANDS)
<S>                                           <C>     <C>           <C>      <C>           <C>
Income tax benefit (expense)................  $  0      (100.0)%    $ 716      147.3%      $(1,513)
Percentage of revenue.......................   0.0%                  10.0%                    (4.3)%
</TABLE>

     The Company recorded no income tax expense or benefit in 2000 because a
valuation allowance was provided for its entire deferred tax asset in excess of
its deferred tax liability. Future profits of the Company

                                        13
<PAGE>   15

are expected to generate tax expense, as the Company anticipates that future
deferred tax liability will exceed future deferred tax assets and thus the
valuation allowance will be eliminated. 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 had a net operating loss carryforward for
federal income tax return purposes at December 31, 2000 of approximately
$8,411,000.

NET INCOME

<TABLE>
<CAPTION>
                                                      INCREASE                INCREASE
                                            2000     (DECREASE)     1999     (DECREASE)     1998
                                           ------    ----------    ------    ----------    -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>       <C>           <C>       <C>           <C>
Net income...............................  $1,312      (51.5)%     $2,707      (86.5)%     $20,051
Net income per share.....................  $ 0.34      (50.0)%     $ 0.68      (83.9)%     $  4.23
</TABLE>

     The Company had net income of $1,312,000 in 2000 compared to $2,707,000 in
1999 and $20,051,000 in 1998. Net income for 2000 included restructuring costs
of $120,000 and startup costs for OR21 and MedLeader of $228,000. 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 of the imaging division. 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 $12,421,000 at December 31,
2000 compared to $12,903,000 at December 31, 1999. The Company's cash position
decreased $482,000 due primarily to deposits of $375,000 on a future Gamma
Knife, payments of approximately $440,000 to repurchase 193,750 shares of the
Company's stock, and an increase in accounts receivable of $1,173,000.

     Restricted cash of $50,000 at December 31, 2000 reflects cash that may only
be used for the operations of GK Financing, LLC.

     The Company's trade accounts receivable increased to $2,155,000 at December
31, 2000 from $982,000 at December 31, 1999. This increase was due to higher
revenue volume and a longer collection period for the two Gamma Knife retail
contracts compared to the fee per use contracts.

     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 2001.

     Working capital decreased $970,000 primarily due to the inclusion in
current liabilities of approximately $1,000,000 in debt which had previously
been classified in long-term debt. This debt can be either paid off or
refinanced for a longer period when it comes due in July 2001.

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.

                                        14
<PAGE>   16

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 elected to retain Moss Adams as its independent auditors and
tax advisors. The Company on December 14, 1998 had 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 had a long
established relationship as Grant Thornton had served as the Company's tax
advisor since 1990. Ernst & Young had served as the Company's auditor from 1983
through 1997.

     The Company, during its two prior fiscal years (1999 and 1998) 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.

                                        15
<PAGE>   17

                                    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 2001 Annual Meeting of
Shareholders (the "2001 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 2001 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference from the 2001 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated herein by reference from the 2001 Proxy Statement.

                                        16
<PAGE>   18

                                    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
-------                           -----------
<C>       <S>
  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.(3)
  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>   19

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 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)
 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)
</TABLE>

                                        18
<PAGE>   20

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 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
          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 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)
 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)
 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)
 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)
</TABLE>

                                        19
<PAGE>   21

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 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.(10)
 10.30    Lease Agreement for a Gamma Knife Unit dated as of December
          11, 1996 between The Community Hospital Group, Inc. dba JFK
          Medical Center 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.)
 21.      Subsidiaries of American Shared Hospital Services.
</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.

(10) These documents were filed as Exhibits 10.25, 10.26, 10.27, 10.28 and
     10.29, respectively, to the registrant's Quarterly Report on Form 10-Q for
     the quarterly period ended December 31, 1999, which is incorporated herein
     by this reference.

(c) REPORTS ON FORM 8-K:

     None.

                                        20
<PAGE>   22

                                   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)

April 2, 2001                             By:      /s/ ERNEST A. BATES
                                            ------------------------------------
                                                      Ernest A. Bates
                                                 Chairman of the Board 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                     Chairman of the Board and Chief    April 2, 2001
---------------------------------------------------            Executive Officer
                  Ernest A. Bates

               /s/ WILLIE R. BARNES                          Director and Secretary        April 2, 2001
---------------------------------------------------
                 Willie R. Barnes

                /s/ JOHN F. RUFFLE                                  Director               April 2, 2001
---------------------------------------------------
                  John F. Ruffle

            /s/ STANLEY S. TROTMAN, JR.                             Director               April 2, 2001
---------------------------------------------------
              Stanley S. Trotman, Jr.

               /s/ CHARLES B. WILSON                                Director               April 2, 2001
---------------------------------------------------
                 Charles B. Wilson

                /s/ CRAIG K. TAGAWA                    Chief Operating Officer and Chief   April 2, 2001
---------------------------------------------------       Financial Officer (Principal
                  Craig K. Tagawa                             Accounting Officer)
</TABLE>

                                        21
<PAGE>   23

                       CONSOLIDATED FINANCIAL STATEMENTS
                        AND INDEPENDENT AUDITOR'S REPORT

                       AMERICAN SHARED HOSPITAL SERVICES

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<PAGE>   24

                                    CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
INDEPENDENT AUDITOR'S REPORT................................  F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..........  F-3
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>   25

                          INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Shareholders
American Shared Hospital Services

     We have audited the accompanying consolidated balance sheets of American
Shared Hospital Services as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
two years 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 audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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, 2000 and 1999, and the
consolidated results of their operations and consolidated cash flows for the two
years then ended in conformity with generally accepted accounting principles.

                                          /s/ MOSS ADAMS LLP

Stockton, California
January 12, 2001

                                       F-2
<PAGE>   26

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
American Shared Hospital Services

     We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of American Shared Hospital Services for
the year ended December 31, 1998. 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 auditing standards generally
accepted in the United States of America. 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 results of operations
and consolidated cash flows of American Shared Hospital Services for the year
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.

                                          /s/ GRANT THORNTON LLP
                                          --------------------------------------
                                          GRANT THORNTON LLP

San Francisco, California
March 12, 1999

                                       F-3
<PAGE>   27

                       AMERICAN SHARED HOSPITAL SERVICES

                          CONSOLIDATED BALANCE SHEETS
                                  DECEMBER 31,

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
CURRENT ASSETS
  Cash and cash equivalents.................................  $12,421,000    $12,903,000
  Restricted cash...........................................       50,000         50,000
  Trade accounts receivable.................................    2,155,000        982,000
  Other receivables.........................................       52,000        244,000
  Prepaid expenses and other current assets.................      573,000        516,000
                                                              -----------    -----------
          Total current assets..............................   15,251,000     14,695,000
PROPERTY AND EQUIPMENT
  Medical equipment and facilities..........................   29,942,000     23,560,000
  Office equipment..........................................      225,000        617,000
  Deposits and construction in progress.....................    1,819,000      3,276,000
                                                              -----------    -----------
                                                               31,986,000     27,453,000
  Accumulated depreciation and amortization.................   (7,237,000)    (5,397,000)
                                                              -----------    -----------
          Net property and equipment........................   24,749,000     22,056,000
OTHER ASSETS................................................      209,000        235,000
                                                              -----------    -----------
                                                              $40,209,000    $36,986,000
                                                              ===========    ===========

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable..........................................  $    81,000    $   101,000
  Accrued interest..........................................      153,000        229,000
  Employee compensation and benefits........................      190,000         87,000
  Other accrued liabilities.................................      546,000        608,000
  Current portion of long-term debt.........................    4,126,000      2,545,000
                                                              -----------    -----------
          Total current liabilities.........................    5,096,000      3,570,000
LONG-TERM DEBT, less current portion........................   20,300,000     19,887,000
MINORITY INTEREST...........................................    1,155,000        890,000
SHAREHOLDERS' EQUITY
  Common stock, no par value; Authorized -- 10,000,000
     shares; Issued and outstanding shares -- 3,711,000 in
     2000 and 3,813,000 in 1999.............................    9,746,000     10,036,000
  Common stock options issued to officer....................    2,414,000      2,414,000
  Additional paid-in capital................................      814,000        817,000
  Retained earnings (accumulated deficit)...................      684,000       (628,000)
                                                              -----------    -----------
          Total shareholders' equity........................   13,658,000     12,639,000
                                                              -----------    -----------
                                                              $40,209,000    $36,986,000
                                                              ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements
                                       F-4
<PAGE>   28

                       AMERICAN SHARED HOSPITAL SERVICES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           2000          1999          1998
                                                        ----------    ----------    -----------
<S>                                                     <C>           <C>           <C>
REVENUES:
  Medical services....................................  $9,336,000    $7,156,000    $35,162,000
COSTS AND EXPENSES:
  Costs of operations:
     Medical services payroll.........................           -         3,000      7,087,000
     Maintenance and supplies.........................     187,000       143,000      5,184,000
     Depreciation.....................................   2,268,000     1,616,000      5,556,000
     Equipment rental.................................           -             -      4,064,000
     Other............................................     980,000       403,000      3,935,000
     Selling and administrative.......................   2,655,000     1,803,000      5,116,000
     Interest.........................................   2,118,000     1,309,000      3,186,000
                                                        ----------    ----------    -----------
          Total costs and expenses....................   8,208,000     5,277,000     34,128,000
                                                        ----------    ----------    -----------
                                                         1,128,000     1,879,000      1,034,000
  Gain (loss) on sale of assets, early termination of
     capital leases, and other........................      25,000        10,000         (2,000)
  Gain on sale of product line........................           -             -     20,478,000
  Interest and other income...........................     804,000       603,000        220,000
  Minority interest...................................    (645,000)     (501,000)      (166,000)
                                                        ----------    ----------    -----------
  Income before income taxes..........................   1,312,000     1,991,000     21,564,000
  Income tax benefit (expense)........................           -       716,000     (1,513,000)
                                                        ----------    ----------    -----------
  Net income..........................................  $1,312,000    $2,707,000    $20,051,000
                                                        ==========    ==========    ===========
Earnings per common share:
  Earnings per common share -- basic..................  $      .34    $      .68    $      4.23
                                                        ==========    ==========    ===========
  Earnings per common share -- assuming dilution......  $      .24    $      .48    $      3.15
                                                        ==========    ==========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.
                                       F-5
<PAGE>   29

                       AMERICAN SHARED HOSPITAL SERVICES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      THREE YEARS ENDED DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                               COMMON
                                                               STOCK                     RETAINED
                                                              OPTIONS     ADDITIONAL     EARNINGS
                                    COMMON       COMMON      ISSUED TO     PAID-IN     (ACCUMULATED
                                    SHARES        STOCK       OFFICER      CAPITAL       DEFICIT)        TOTAL
                                   ---------   -----------   ----------   ----------   ------------   -----------
<S>                                <C>         <C>           <C>          <C>          <C>            <C>
Balances at January 1, 1998......  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
  Options exercised..............     92,000       150,000           --          --              --       150,000
  Repurchase of common stock.....   (194,000)     (440,000)          --          --              --      (440,000)
  Repurchase of warrants.........         --            --           --      (3,000)             --        (3,000)
     Net income..................         --            --           --          --       1,312,000     1,312,000
                                   ---------   -----------   ----------   ---------    ------------   -----------
Balances at December 31, 2000....  3,711,000   $ 9,746,000   $2,414,000   $ 814,000    $    684,000   $13,658,000
                                   =========   ===========   ==========   =========    ============   ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-6
<PAGE>   30

                       AMERICAN SHARED HOSPITAL SERVICES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------
                                                                 2000          1999           1998
                                                              -----------   -----------   ------------
<S>                                                           <C>           <C>           <C>
OPERATING ACTIVITIES
  Net income................................................  $ 1,312,000   $ 2,707,000   $ 20,051,000
  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, early termination of
    capital leases and other non-cash transactions..........      (25,000)      (10,000)         2,000
  Depreciation and amortization.............................    2,357,000     1,621,000      6,095,000
  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)
    (Increase) decrease in receivables......................     (981,000)      106,000       (154,000)
    (Increase) decrease in prepaid expenses and other
      assets................................................      (94,000)     (263,000)       187,000
    (Decrease) increase in accounts payable, accrued
      liabilities and income taxes payable..................      (54,000)   (2,375,000)     3,767,000
                                                              -----------   -----------   ------------
Net cash from operating activities..........................    2,515,000     3,587,000      7,731,000
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
Increase in minority interest...............................      265,000       159,000        143,000
Payment for purchase of property and equipment..............     (542,000)     (131,000)      (746,000)
                                                              -----------   -----------   ------------
Net cash from investing activities..........................     (277,000)      629,000     11,641,000
FINANCING ACTIVITIES
Principal payments on long-term debt and obligations under
  capital leases............................................   (2,427,000)   (1,513,000)    (8,291,000)
Proceeds from issuance of long-term debt....................           --       250,000        855,000
Proceeds from exercise of stock warrants and options........      150,000        37,000             --
Net payments on revolving line of credit....................           --            --       (837,000)
Repurchase of stock warrants................................       (3,000)     (113,000)            --
Repurchase of common stock..................................     (440,000)   (1,088,000)        (2,000)
                                                              -----------   -----------   ------------
Net cash from financing activities..........................   (2,720,000)   (2,427,000)    (8,275,000)
                                                              -----------   -----------   ------------
Net (decrease) increase in cash and cash equivalents........     (482,000)    1,789,000     11,097,000
Cash and cash equivalents at beginning of year..............   12,903,000    11,114,000         17,000
                                                              -----------   -----------   ------------
Cash and cash equivalents at end of year....................  $12,421,000   $12,903,000   $ 11,114,000
                                                              ===========   ===========   ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid...............................................  $ 2,194,000   $ 1,135,000   $  3,163,000
                                                              ===========   ===========   ============
Income taxes paid...........................................  $    14,000   $ 1,059,000   $     36,000
                                                              ===========   ===========   ============
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment with lease/debt financing..........  $ 4,444,000   $13,311,000   $  6,952,000
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>   31

                       AMERICAN SHARED HOSPITAL SERVICES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE A -- BUSINESS AND BASIS OF PRESENTATION

  1. Business

     American Shared Hospital Services (the "Company") provides Gamma Knife
units to nine medical centers in California, Texas, Connecticut, Ohio,
Massachusetts, Arkansas, Wisconsin and New Jersey. 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 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.

     In April, 2000, MedLeader.com, Inc., was incorporated. This wholly-owned
subsidiary of the Company will provide continuing medical education online and
through videos for doctors, nurses and other healthcare workers.

     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., MedLeader.com, 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. On
April 28, 2000, European Shared Medical Services, Ltd. was dissolved.

     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.

                                       F-8
<PAGE>   32
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

  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 the minimum cash that, by agreement, must be
maintained in GK Financing LLC (GKF) to fund operations.

  4. Accounts Receivable

     Substantially all of the Company's revenue is provided by nine customers.
These customers constitute accounts receivable at December 31, 2000. The Company
performs credit evaluations of its customers and generally does not require
collateral. At December 31, 2000, 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 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 - 15 years. The Company capitalized interest of $168,000 and $79,000
in 2000 and 1999, respectively, as costs of medical equipment.

  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, 2000, the Company held equipment under operating lease contracts
with customers with an original cost of $29,246,000 and accumulated depreciation
of $7,007,000.

  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

     Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the year. Diluted earnings per share reflect the
potential dilution that could occur if common shares were issued pursuant to the
exercise of

                                       F-9
<PAGE>   33
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

options or warrants. The following table illustrates the computations of basic
and diluted earnings per share for the years ended December 31, 2000, 1999 and
1998.

<TABLE>
<CAPTION>
                                                           2000          1999          1998
                                                        ----------    ----------    -----------
<S>                                                     <C>           <C>           <C>
Numerator for basic and diluted earnings per share....  $1,312,000    $2,707,000    $20,051,000
Denominator:
  Denominator for basic earnings per
     share -- weighted-average shares.................   3,810,000     3,967,000      4,735,000
  Effect of dilutive securities
     Employee stock options/warrants..................   1,593,000     1,679,000      1,631,000
                                                        ----------    ----------    -----------
  Denominator for diluted earnings per
     share -- adjusted weighted-average shares........   5,403,000     5,646,000      6,366,000
                                                        ==========    ==========    ===========
Earning per share -- basic............................  $      .34    $      .68    $      4.23
                                                        ==========    ==========    ===========
Earning per share -- assuming dilution................  $      .24    $      .48    $      3.15
                                                        ==========    ==========    ===========
</TABLE>

     Options to purchase 52,667 and 15,000 shares of common stock at $3.00 and
$3.06 per share, respectively, were outstanding during 2000. They were not
included in the computation of earnings per share assuming dilution because the
exercise price of the options were greater than the average market price of the
common shares.

  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, 2000 and
1999, 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, 2000 and 1999, based upon interest rates that are
currently available for the Company for issuance of instruments with similar
terms and remaining maturities.

  12. Recent Accounting Pronouncements

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101, as amended, summarizes certain aspects of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The company was required to adopt SAB 101 in the fourth
quarter of 2000. The adoption of SAB 101 did not have a material effect on the
Company's operations or financial position.

     In September 1999, the FASB issued Emerging Issues Task Force Topic No.
D-83, "Accounting for Payroll Taxes Associated with Stock Option Exercises"
(EITF D-83). EITF D-83 requires that payroll taxes

                                       F-10
<PAGE>   34
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

paid on the difference between the exercise price and the fair value of acquired
stock in association with an employee's exercise of stock options be recorded as
operating expenses. The Company was required to adopt EITF D-83 in the fourth
quarter of 1999. There was no material effect on the Company's operations or
financial position as a result of adoption.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. Management does not expect adoption of SFAS No. 133 to have a material
effect on the Company's operations or financial position. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.

NOTE C -- LONG-TERM DEBT

     Long-term debt consists primarily of 9 notes with a financing company,
related to Gamma Knife construction and installation, totaling $23,075,000.
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
December, 2007, and are collateralized by the respective Gamma Knives.
Additionally, the Company has $1,351,000 in borrowings outstanding for deposits
for two Gamma Knives under construction at December 31, 2000 (Note H). These
borrowings accrue interest at prime plus 2% (11% at December 31, 2000), are
payable when the 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, 2000:

<TABLE>
<CAPTION>
                  YEAR ENDING DECEMBER 31,
                  ------------------------
<S>                                                           <C>
2001........................................................  $ 4,126,000
2002........................................................    5,019,000
2003........................................................    4,068,000
2004........................................................    4,437,000
2005........................................................    3,753,000
Thereafter..................................................    3,023,000
                                                              -----------
                                                              $24,426,000
                                                              ===========
</TABLE>

                                       F-11
<PAGE>   35
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE D -- INCOME TAXES

     Significant components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                 2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Deferred tax liabilities:
  Fixed assets..............................................  $(3,141,000)   $(2,389,000)
                                                              -----------    -----------
Total deferred tax liabilities..............................   (3,141,000)    (2,389,000)
Deferred tax assets:
  Net operating loss carryforwards..........................    2,976,000      2,941,000
  State income taxes........................................        4,000             --
  Accrued reserves..........................................       41,000          5,000
  Other -- net..............................................      253,000        300,000
                                                              -----------    -----------
Total deferred tax assets...................................    3,274,000      3,246,000
Valuation allowance for deferred tax assets.................     (133,000)      (857,000)
                                                              -----------    -----------
Net deferred tax assets.....................................    3,141,000      2,389,000
                                                              -----------    -----------
Net deferred tax liabilities................................  $        --    $        --
                                                              ===========    ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                            2000         1999          1998
                                                          ---------    ---------    ----------
<S>                                                       <C>          <C>          <C>
Current:
  Federal...............................................  $      --    $      --    $  360,000
  State.................................................         --     (716,000)    1,317,000
                                                          ---------    ---------    ----------
Deferred:
  Federal...............................................         --           --            --
  State.................................................         --           --      (164,000)
                                                          ---------    ---------    ----------
                                                          $      --    $(716,000)   $1,513,000
                                                          =========    =========    ==========
</TABLE>

     The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. federal statutory tax rate (34% in 2000, 1999 and 1998) to
income before taxes as follows:

<TABLE>
<CAPTION>
                                                         2000          1999           1998
                                                       ---------    -----------    -----------
<S>                                                    <C>          <C>            <C>
Computed expected tax................................  $ 450,000    $   677,000    $ 7,500,000
Change in valuation allowance........................   (724,000)        62,000     (7,205,000)
State income taxes, net of federal benefit...........     77,000        116,000      1,400,000
Change in carryovers and tax attributes..............    197,000     (1,571,000)            --
Other................................................         --             --       (182,000)
                                                       ---------    -----------    -----------
                                                       $      --    $  (716,000)   $ 1,513,000
                                                       =========    ===========    ===========
</TABLE>

     At December 31, 2000, the Company had a net operating loss carryforward for
federal income tax return purposes of approximately $8,411,000 which expires
between 2002 and 2020. 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 recorded no income tax expense or benefit in 2000 because a
valuation allowance was provided for its entire deferred tax asset in excess of
its deferred tax liability.

                                       F-12
<PAGE>   36
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

     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.

     Changes in options outstanding under the 1984 and 1995 Stock Option Plans
from January 1, 1998 to December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                         NUMBER         AVERAGE
                                                       OF OPTIONS    EXERCISE PRICE
                                                       ----------    --------------
<S>                                                    <C>           <C>
Balance at January 1, 1998...........................   429,000          $1.627
  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
  Granted............................................    15,000           3.063
  Exercised..........................................   (92,000)          1.625
                                                        -------
Balance at December 31, 2000.........................   298,000          $1.943
                                                        =======
</TABLE>

     At December 31, 2000, 28,000 options were available for grant under the
1995 Plan.

                                       F-13
<PAGE>   37
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

  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, 2000:

<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        4.83        $ 0.01     1,495,000     $ 0.01
 1.625 - 3.063       298,000        5.23         1.943       286,000      1.893
--------------     ---------        ----        ------     ---------     ------
$  .01 - 3.063     1,793,000        4.90        $ .331     1,781,000     $ .312
                   =========        ====        ======     =========     ======
</TABLE>

     At December 31, 2000 and 1999, 1,781,000 and 1,856,000 options,
respectively, were vested and exercisable.

  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 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>
                                                         2000    1999    1998
                                                         ----    ----    ----
<S>                                                      <C>     <C>     <C>
Expected life (years)..................................   9.5     9.5     9.5
Expected volatility....................................  74.0%   82.0%   93.8%
Risk-free interest rate................................   6.4%    5.9%    6.3%
</TABLE>

     No options were granted during 1998. The weighted-average fair values of
options granted during 2000 and 1999 were $2.49 and $2.54, respectively. For pro
forma purposes, the estimated fair value of the

                                       F-14
<PAGE>   38
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

Company's options is amortized over the options' vesting period. The Company's
pro forma information follows:

<TABLE>
<CAPTION>
                                                   2000          1999          1998
                                                ----------    ----------    -----------
<S>                                             <C>           <C>           <C>
Net income
  As reported.................................  $1,312,000    $2,707,000    $20,051,000
  Pro forma...................................   1,272,000     2,595,000     20,040,000
Earnings per share -- basic
  As reported.................................         .34           .68           4.23
  Pro forma...................................         .33           .65           4.23
Earnings per share -- assuming dilution
  As reported.................................         .24           .48           3.15
  Pro forma...................................         .24           .46           3.15
</TABLE>

  Repurchase of Common Stock and Common Stock Warrants

     On March 8, 1999, the Board of Directors authorized the repurchase of
572,000 shares from two shareholders who were previous bondholders of the
Company. These shares were originally issued in conjunction with a debt
restructuring. On March 22, 1999, the Board of Directors approved a resolution
authorizing the Company to repurchase up to 500,000 shares of its own stock on
the open market. Correspondingly, the Company repurchased 194,000 and 196,000
shares of its own stock on the open market during the years ending December 31,
2000 and 1999, respectively. As the Company's stock has no par value, the entire
repurchase price of the stock is recorded as a reduction to common stock.

     In previous years, the Company had issued 314,000 common stock warrants
with an exercise price of $.75 per share in conjunction with the restructuring
of certain debt and lease obligations of the Company. During 2000 and 1999, the
Company repurchased all of the common stock warrants. The original issue of the
warrants was recorded as an addition to additional paid-in capital and the
repurchase has correspondingly been recorded as a decrease to additional paid-in
capital.

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 2005.

     Future minimum payments under noncancelable operating leases having initial
terms of more than one year consisted of the following at December 31, 2000:

<TABLE>
<S>                                                 <C>
YEAR ENDING DECEMBER 31,
     2001.........................................  $167,000
     2002.........................................   123,000
     2003.........................................    16,000
     2004.........................................     8,000
     2005.........................................     7,000
                                                    --------
                                                    $321,000
                                                    ========
</TABLE>

                                       F-15
<PAGE>   39
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

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

     Rent expense was $188,000, $117,000, and $4,696,000 for the years ended
December 31, 2000, 1999 and 1998, respectively, and includes the above operating
leases as well as month-to-month rental and certain executory costs.

NOTE H -- COMMITMENTS AND CONTINGENCIES

     Under the terms of three Gamma Knife quotation agreements, the Company is
committed to purchase Gamma Knife equipment for $5,720,000 when the equipment is
placed in service at each customer location. At December 31, 2000, the Company
had $1,726,000 in deposits related to these purchase commitments which are
classified as construction in progress.

NOTE I -- REPORTABLE SEGMENTS

     The Company has one reportable segment: The Gamma Knife segment engages in
the business of leasing equipment to healthcare providers that 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. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses. Applicable general and administrative
expenses were allocated to segments based on relative percentage of revenues.
Certain corporate expenses were not allocated to the segments.

     The Company did not have significant intersegment sales transactions. The
segments shared common expenses and provided management activities to one
another for which they charged management fees. These management fees were not
significant.

     The Company's reportable segments were strategic business units that
offered different products and services. They were managed separately because
each business required different technology and marketing strategies.

REPORTABLE SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                                       GAMMA KNIFE
                                                                       (THOUSANDS)
                                                              -----------------------------
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenues....................................................  $ 9,336    $ 7,151    $ 4,156
Interest expense............................................    2,116      1,305        773
Depreciation and amortization...............................    2,276      2,135      1,042
Segment profit..............................................    3,394      2,637      1,115
Segment assets..............................................   31,192     28,920     15,125
Other significant noncash items:
  Acquisition of equipment with lease/debt financing........    4,444     13,311      6,132
</TABLE>

                                       F-16
<PAGE>   40
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                               DIAGNOSTIC IMAGING SERVICES
                                                                       (THOUSANDS)
                                                              -----------------------------
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenues....................................................  $    --    $    --    $30,993
Interest expense............................................       --         --      1,770
Depreciation and amortization...............................       --         --      4,514
Segment profit..............................................       --         --        156
Segment assets..............................................       --         --         --
Other significant noncash items:
  Acquisition of equipment with lease/debt financing........       --         --        820
  Capitalized lease restructuring...........................       --         --         --
  Accounts payable converted to notes payable...............       --         --         --
</TABLE>

RECONCILIATION TO CONSOLIDATED AMOUNTS

<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                              -------    -------    -------
                                                                       (THOUSANDS)
<S>                                                           <C>        <C>        <C>
REVENUES
Total revenues for reportable segments......................  $ 9,336    $ 7,151    $35,149
Other revenues..............................................       --          5         13
                                                              -------    -------    -------
  Total consolidated revenues...............................  $ 9,336    $ 7,156    $35,162

PROFIT OR LOSS
Total profit for reportable segments........................  $ 3,394    $ 2,637    $ 1,271
Gain on sale of product line................................       --         --     20,478
Other.......................................................   (2,082)      (646)      (185)
                                                              -------    -------    -------
Income before income taxes..................................  $ 1,312    $ 1,991    $21,564

ASSETS
Total assets for reportable segments........................  $31,192    $28,920    $15,025
Other assets................................................    9,017      8,066     12,042
Elimination of receivables from corporate headquarters......       --         --       (148)
                                                              -------    -------    -------
  Consolidated total........................................  $40,209    $36,986    $26,919
</TABLE>

OTHER SIGNIFICANT ITEMS

<TABLE>
<CAPTION>
                                                            SEGMENT                   CONSOLIDATED
                                                            TOTALS     ADJUSTMENTS       TOTALS
                                                            -------    -----------    ------------
                                                                             2000
                                                            --------------------------------------
                                                                         (THOUSANDS)
<S>                                                         <C>        <C>            <C>
Interest expense..........................................  $2,116        $   2          $2,118
Expenditures for assets...................................     479           63             542
Depreciation and amortization.............................   2,276           (8)          2,268
</TABLE>

<TABLE>
<CAPTION>
                                                                             1999
                                                            --------------------------------------
                                                                         (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>

                                       F-17
<PAGE>   41
                       AMERICAN SHARED HOSPITAL SERVICES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                             1998
                                                            --------------------------------------
                                                                         (THOUSANDS)
<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>

     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 nine
customers in 2000, nine customers in 1999, and five customers in 1998.

     In 2000, revenues from four customers of $2,192,000, $1,454,000,
$1,254,000, and $1,114,000, respectively, exceeded 10% of the Company's total
revenue. In 1999, revenues from four customers of $1,590,000, $1,543,000,
$1,437,000, and $884,000, respectively, exceeded 10% of the Company's total
revenue. In 1998, no individual customers accounted for 10% of the Company's
total revenue.

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 year ended 1998 is presented at Note I.

                                       F-18
<PAGE>   42

                               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.(3)......................       *
 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)..............................................       *
</TABLE>
<PAGE>   43

<TABLE>
<CAPTION>
EXHIBIT                                                                 SEQUENTIAL
NUMBER                            DESCRIPTION                           PAGE NUMBER
-------                           -----------                           -----------
<S>       <C>                                                           <C>
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 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)..............................................       *
</TABLE>
<PAGE>   44

<TABLE>
<CAPTION>
EXHIBIT                                                                 SEQUENTIAL
NUMBER                            DESCRIPTION                           PAGE NUMBER
-------                           -----------                           -----------
<S>       <C>                                                           <C>
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
          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).............................................       *
</TABLE>
<PAGE>   45

<TABLE>
<CAPTION>
EXHIBIT                                                                 SEQUENTIAL
NUMBER                            DESCRIPTION                           PAGE NUMBER
-------                           -----------                           -----------
<S>       <C>                                                           <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).............................................       *
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).......       *
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)......       *
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.(10).......       *
10.30     Lease Agreement for a Gamma Knife Unit dated as of December
          11, 1996 between The Community Hospital Group, Inc. dba JFK
          Medical Center 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.)
21.       Subsidiaries of American Shared Hospital Services.                --
</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.
<PAGE>   46

(10) These documents were filed as Exhibits 10.25, 10.26, 10.27, 10.28 and
     10.29, respectively, to the registrant's Quarterly Report on Form 10-Q for
     the quarterly period ended December 31, 1999, which is incorporated herein
     by this reference.
</TEXT>
</DOCUMENT>
