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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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

For Quarter Ended: March 31, 2002

Commission File Number: 1-16609

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ALLIANCE IMAGING, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization) |  | 33-0239910(IRS Employer Identification Number)
|---------------------------------------------------------------------- |  | ----------------------------------------------

1065 PacifiCenter Drive
Suite 200
Anaheim, California 92806(Address of principal executive office)

(714) 688-7100Registrant's telephone number, including area code

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
the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2002:

Common
Stock, $.01 par value, 47,577,530 shares

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ALLIANCE IMAGING, INC.        FORM 10-Q        March 31, 2002

Index

|                             |                                                                                              | Page                                                                                             
|---------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION |                                                                                              |                                                                                                  
|                             | Item 1Financial Statements:                                                                 |                                                                                                  
|                             |                                                                                              | Condensed Consolidated Balance Sheets
December 31, 2001 and March 31, 2002 (Unaudited)           
|                             |                                                                                              | Condensed Consolidated Statements of Income
Quarter ended March 31, 2001 and 2002 (Unaudited)    
|                             |                                                                                              | Condensed Consolidated Statements of Cash Flows
Quarter ended March 31, 2001 and 2002 (Unaudited)
|                             |                                                                                              | Notes to Condensed Consolidated Financial Statements (Unaudited)                                 
|                             | Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                  
|                             | Item 3Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                  
|PART IIOTHER INFORMATION    |                                                                                              |                                                                                                  
|                             | Item 1Legal Proceedings                                                                     |                                                                                                  
|                             | Item 2Changes in Securities and Use of Proceeds                                             |                                                                                                  
|                             | Item 3Defaults Upon Senior Securities                                                       |                                                                                                  
|                             | Item 4Submission of Matters to a Vote of Security Holders                                   |                                                                                                  
|                             | Item 5Other Information                                                                     |                                                                                                  
|                             | Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                  
|SIGNATURES                   |                                                                                              | 18                                                                                               

1

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLIANCE IMAGING, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands)

|                                            |                                                             | December 31,
2001 |          | March 31,
2002 |  
|------------------------------------------- | ----------------------------------------------------------- | ----------------- | -------- | -------------- | -
|
|ASSETS                                      |                                                             |                   |          |                |  
|Current assets:                             |                                                             |                   |          |                |  
|                                            | Cash and cash equivalents                                   |                   | $        | 22,051         |  
|                                            | Accounts receivable, net of allowance for doubtful accounts |                   |          | 53,294         |  
|                                            | Deferred income taxes                                       |                   |          | 4,030          |  
|                                            | Prepaid expenses                                            |                   |          | 2,549          |  
|                                            | Other receivables                                           |                   |          | 1,797          |  
|                                            |                                                             |                   |          |                |  
|Total current assets                        |                                                             |                   | 83,721   |                |  
|Equipment, at cost                          |                                                             |                   | 579,219  |                |  
|Less accumulated depreciation               |                                                             |                   | (226,686 | )              |  
|                                            |                                                             |                   |          |                |  
|Equipment, net                              |                                                             |                   | 352,533  |                |  
|Goodwill, net                               |                                                             |                   | 162,831  |                |  
|Other intangible assets, net                |                                                             |                   | 31,908   |                |  
|Deferred financing costs, net               |                                                             |                   | 17,493   |                |  
|Deposits and other assets                   |                                                             |                   | 9,746    |                |  
|                                            |                                                             |                   |          |                |  
|Total assets                                |                                                             | $                 | 658,232  |                | $
|                                            |                                                             |                   |          |                |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT       |                                                             |                   |          |                |  
|Current liabilities:                        |                                                             |                   |          |                |  
|                                            | Accounts payable                                            |                   | $        | 12,689         |  
|                                            | Accrued compensation and related expenses                   |                   |          | 11,255         |  
|                                            | Accrued interest payable                                    |                   |          | 7,401          |  
|                                            | Other accrued liabilities                                   |                   |          | 20,513         |  
|                                            | Current portion of long-term debt                           |                   |          | 7,036          |  
|                                            |                                                             |                   |          |                |  
|Total current liabilities                   |                                                             |                   | 58,894   |                |  
|Long-term debt, net of current portion      |                                                             |                   | 388,925  |                |  
|Senior subordinated notes                   |                                                             |                   | 260,000  |                |  
|Minority interests                          |                                                             |                   | 1,784    |                |  
|Deferred income taxes                       |                                                             |                   | 29,486   |                |  
|                                            |                                                             |                   |          |                |  
|Total liabilities                           |                                                             |                   | 739,089  |                |  
|Contingencies (Note 8)                      |                                                             |                   |          |                |  
|Stockholders' deficit:                      |                                                             |                   |          |                |  
|                                            | Common stock                                                |                   |          | 475            |  
|                                            | Additional paid-in deficit                                  |                   |          | (25,547        | )
|                                            | Accumulated deficit                                         |                   |          | (55,785        | )
|                                            |                                                             |                   |          |                |  
|Total stockholders' deficit                 |                                                             |                   | (80,857  | )              |  
|                                            |                                                             |                   |          |                |  
|Total liabilities and stockholders' deficit |                                                             | $                 | 658,232  |                | $
|                                            |                                                             |                   |          |                |  

See accompanying notes.

2

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ALLIANCE IMAGING, INC.        CONDENSED CONSOLIDATED STATEMENTS OF INCOME        (Unaudited)        (in thousands, except per share amounts)

|                                                                                |         | Quarter Ended
March 31,
|------------------------------------------------------------------------------- | ------- | -----------------------
|
|Revenues                                                                        |         | $                      
|Costs and expenses:                                                             |         |                        
|Operating expenses, excluding depreciation                                      |         |                        
|Selling, general and administrative expenses                                    |         |                        
|Non-cash stock-based compensation                                               |         |                        
|Depreciation expense                                                            |         |                        
|Amortization expense                                                            |         |                        
|Interest expense, net of interest income                                        |         |                        
|                                                                                |         |                        
|Total costs and expenses                                                        |         |                        
|                                                                                |         |                        
|Income before income taxes                                                      |         |                        
|Provision for income taxes                                                      |         |                        
|                                                                                |         |                        
|Net income                                                                      |         | $                      
|                                                                                |         |                        
|Earnings per common share:                                                      |         |                        
|                                                                                | Basic   |                        
|                                                                                |         |                        
|                                                                                | Diluted |                        
|                                                                                |         |                        
|Weighted average number of shares of common stock and common stock equivalents: |         |                        
|                                                                                | Basic   |                        
|                                                                                | Diluted |                        

See accompanying notes.

3

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ALLIANCE IMAGING, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)        (in thousands)

|                                                                                  |                                                                       | Quarter Ended
March 31, |        
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------- | -------
|
|Operating activities:                                                             |                                                                       |                         |        
|Net income                                                                        |                                                                       | $                       | 1,237  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                       |                         |        
|                                                                                  | Provision for doubtful accounts                                       |                         |        
|                                                                                  | Non-cash stock-based compensation                                     |                         |        
|                                                                                  | Depreciation and amortization                                         |                         |        
|                                                                                  | Amortization of deferred financing costs                              |                         |        
|                                                                                  | Distributions in excess of equity in undistributed income of investee |                         |        
|                                                                                  | Increase in deferred income taxes                                     |                         |        
|                                                                                  | Gain on sale of equipment                                             |                         |        
|Changes in operating assets and liabilities:                                      |                                                                       |                         |        
|                                                                                  | Accounts receivable                                                   |                         |        
|                                                                                  | Prepaid expenses                                                      |                         |        
|                                                                                  | Other receivables                                                     |                         |        
|                                                                                  | Other assets                                                          |                         |        
|                                                                                  | Accounts payable                                                      |                         |        
|                                                                                  | Accrued compensation and related expenses                             |                         |        
|                                                                                  | Accrued interest payable                                              |                         |        
|                                                                                  | Other accrued liabilities                                             |                         |        
|                                                                                  | Minority interests                                                    |                         |        
|                                                                                  |                                                                       |                         |        
|Net cash provided by operating activities                                         |                                                                       |                         | 8,284  
|                                                                                  |                                                                       |                         |        
|Investing activities:                                                             |                                                                       |                         |        
|Equipment purchases                                                               |                                                                       |                         | (21,152
|Decrease (increase) in deposits on equipment                                      |                                                                       |                         | 2,212  
|Acquisitions, net of cash received                                                |                                                                       |                         |       
|Proceeds from sale of equipment                                                   |                                                                       |                         | 104    
|                                                                                  |                                                                       |                         |        
|Net cash used in investing activities                                             |                                                                       |                         | (18,836
|                                                                                  |                                                                       |                         |        
|Financing activities:                                                             |                                                                       |                         |        
|Principal payments on equipment debt                                              |                                                                       |                         | (2,735 
|Proceeds from revolving loan facility                                             |                                                                       |                         | 10,000 
|Payments of debt issuance costs                                                   |                                                                       |                         | (50    
|Proceeds from exercise of employee stock options                                  |                                                                       |                         |       
|                                                                                  |                                                                       |                         |        
|Net cash provided by (used in) financing activities                               |                                                                       |                         | 7,215  
|                                                                                  |                                                                       |                         |        
|Net (decrease) increase in cash and cash equivalents                              |                                                                       |                         | (3,337 
|Cash and cash equivalents, beginning of period                                    |                                                                       |                         | 12,971 
|                                                                                  |                                                                       |                         |        
|Cash and cash equivalents, end of period                                          |                                                                       | $                       | 9,634  
|                                                                                  |                                                                       |                         |        
|Supplemental disclosure of cash flow information:                                 |                                                                       |                         |        
|Interest paid                                                                     |                                                                       | $                       | 24,675 
|Income taxes paid, net of refunds                                                 |                                                                       |                         | (115   
|Supplemental disclosure of non-cash investing and financing activities:           |                                                                       |                         |        
|Net book value of assets exchanged                                                |                                                                       | $                       | 105    
|Capital lease obligations assumed for the purchase of equipment                   |                                                                       |                         | 5,165  

See accompanying notes.

4

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ALLIANCE IMAGING, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        March 31, 2002        (Unaudited)        (dollars in thousands, except per
share amounts)

1. Basis of Presentation, Principles of Consolidation, and Use of Estimates

Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been
prepared by Alliance Imaging, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes to the consolidated financial statements for the year ended December 31, 2001. Certain reclassifications have been made in the 2001 consolidated financial statements to
conform to the 2002 presentation.

Principles of ConsolidationThe accompanying unaudited condensed consolidated financial statements of the Company include the
assets, liabilities, revenues and expenses of all majority owned subsidiaries over which the Company exercises control, and for which control is other than temporary.
Intercompany transactions have been eliminated. Investments in non-consolidated affiliates (20-50 percent-owned companies and majority owned entities over which the
Company does not possess control) are accounted for under the equity method.

Use of EstimatesThe preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

2. Recent Accounting Pronouncements

Business CombinationsIn July 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations". SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The adoption of SFAS 141 did not have a material impact on the Company's consolidated financial position and results of operations.

Goodwill and Other IntangiblesEffective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill and certain intangible assets to remain on the balance sheet and not be
amortized. On an annual basis, or when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The
Company has discontinued amortization of goodwill as of January 1, 2002 for financial reporting purposes, and will comply with periodic impairment test procedures. Management does not expect
any goodwill impairment charges due to the adoption of SFAS 142.

5

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The
effect of the adoption of SFAS 142 on net income and earnings per share is as follows:

Quarter Ended March 31,2001

2002Reported net income

$
1,237

$
7,862Goodwill amortization, net of income taxes


1,263


Adjusted net income

$
2,500

$
7,862Adjusted earnings per share  basic

$
0.07

$
0.17Adjusted earnings per share  diluted

$
0.06

$
0.16


Accounting for Asset Retirement ObligationsIn August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived
assets and related asset retirement costs. SFAS 143 is effective for financial statements with fiscal years beginning after June 15, 2002. This Statement is not expected to have a
material impact on the Company's consolidated financial position and results of operations.

Accounting for the Impairment or Disposal of Long-Lived AssetsEffective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived assets and for reporting of discontinued operations. The effect of the adoption of SFAS 144 did not
have a material impact on the Company's consolidated financial position and results of operations.

3. Other Intangible Assets

Other intangible assets consisted of the following:

|                             |                               | December 31, 2001 |   | March 31, 2002 | 
|---------------------------- | ----------------------------- | ----------------- | - | -------------- | 
|
|Amortized intangible assets: |                               |                   |   |                | 
|                             | Customer contracts            |                   | $ | 38,913         | 
|                             | Other                         |                   |   | 5,200          | 
|                             |                               |                   |   |                | 
|                             | Total other intangible assets |                   | $ | 44,113         | 
|                             |                               |                   |   |                | 

6

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4. Other Accrued Liabilities

Other accrued liabilities consisted of the following:

December 31,
2001

March 31,
2002Accrued systems rental and maintenance costs

$
4,331

$
3,783Accrued site rental fees


1,376


1,388Accrued taxes payable


7,464


7,609Accrued regulatory costs


560


455Accrued severance and related costs


656


410Other accrued expenses


6,126


4,808Total other accrued liabilities

$
20,513

$
18,453


5. Long-Term Debt

Long-term debt consisted of the following:

December 31,
2001

March 31,
2002Term loan facility

$
379,000

$
379,000Senior subordinated notes


260,000


260,000Equipment debt


16,961


19,570Long-term debt, including current portion


655,961


658,570Less current portion


7,036


6,795Long-term debt

$
648,925

$
651,775


6. Non-Cash Stock-Based Compensation

In November 2000, the Company granted 865,000 options to certain employees at exercise prices below the fair value of the Company's common stock. The
exercise price of these options and the fair value of the Company's common stock on the grant date was $5.60 and $9.52 per share, respectively. The compensation expense of $3,395 is being recognized
on a straight-line basis over the vesting period of the options. For the quarter ended March 31, 2001 and 2002, the Company recorded non-cash stock-based compensation of
$129 and $132, respectively, with an offset to additional paid-in deficit.

On
June 20, 2001, the Company's compensation committee authorized the Company to amend the option agreements under its 1999 Equity Plan to reduce the performance targets for the
performance options. One-half of the options granted under the 1999 Equity Plan are "performance options." These options vest on the eighth anniversary of the grant date if the option
holder is still an employee, but the vesting accelerates if the Company meets the operating performance targets specified in the option agreements. As a result of the amendment, if the Company
achieves the reduced performance targets but does not achieve the original performance targets, and an option holder terminates employment

7

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and exercises their options prior to the eighth anniversary of the option grant date, the Company would be required to record a non-cash stock-based compensation charge equal to the
amount by which the actual value of the shares subject to the performance option on the date of the amendment exceeded the option's exercise price. Management estimates that the Company could incur an
additional $3,000 to $6,000 in the aggregate of these non-cash stock-based compensation charges over the next three and a half years. These charges, however, may not be evenly distributed
over each of those three and a half years or over the four quarters in any one year, depending upon the timing of employee turnover and the number of shares subject to the options held by departing
employees. For the quarter ended March 31, 2002, the Company recorded $400 in non-cash stock-based compensation as a result of the amendment.

7. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands, except per share amounts):

Quarter Ended March 31,2001

2002Numerator:Net income

$
1,237

$
7,862Denominator:Denominator for basic earnings per share
 weighted-average shares


38,070


47,523Effect of dilutive securities:Employee stock options


2,330


2,420Denominator for diluted earnings per share
 adjusted weighted-average shares


40,400


49,943Earnings per common share:Basic

$
0.03

$
0.17Diluted

$
0.03

$
0.16


8. Contingencies

The Company from time to time is involved in routine litigation and regulatory matters incidental to the conduct of its business. The Company believes that
resolution of such matters will not have a material adverse effect on its consolidated results of operations or financial position.

8

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9. Related-Party Transactions

The Company paid KKR $163 in management fees for the quarter ended March 31, 2001 and 2002 and will continue to receive financial advisory services from
KKR on an ongoing basis.

On
September 1, 1999, the Company acquired Acclaim Medical LLC, a California limited liability company ("Acclaim") from four individuals (the "Sellers") who each held a 25% equity
interest in Acclaim. Two of the Sellers were members of the immediate family of two executive officers of the Company at the time of the transaction. The purchase price consisted of $500 in cash ($125
per Seller) plus warrants to purchase 20% (5% per Seller) of the equity interests in Acclaim as of August 31, 2001. On March 12, 2002, the Company repurchased all of the outstanding
warrants in Acclaim for an aggregate purchase price of $938 ($234 per Seller).

9

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading national provider of outsourced diagnostic imaging services, with 86% of our revenues for the first quarter of 2002 derived from magnetic
resonance imaging, or MRI. We provide imaging and therapeutic services primarily to hospitals and other healthcare providers on a mobile, shared-service basis. Our services normally include the use of
our imaging or therapeutic systems, technologists to operate the systems, equipment maintenance and upgrades and management of day-to-day operations. We had 436 diagnostic
imaging and therapeutic systems, including 348 MRI systems, and 1,318 clients in 42 states at March 31, 2002.

Approximately
90% of our revenues for the quarter ended March 31, 2002 were generated by providing services to hospitals and other healthcare providers, which we refer to as
wholesale revenues. Our wholesale revenues are typically generated from contracts that require our clients to pay us based on the number of scans we perform, although some pay us a flat fee for a
period of time regardless of the number of scans we perform. These payments are due to us independent of our clients' receipt of reimbursement from third-party payors. We typically deliver our
services for a set number of days per week through exclusive, long-term contracts with hospitals and other healthcare providers. These contracts, which are usually three to five years in
length, are typically non-cancelable by our clients and often contain automatic renewal provisions. We price our contracts based on the type of system used, the scan volume, and the number
of ancillary services provided.

Approximately
10% of our revenues for the quarter ended March 31, 2002 were generated by providing services directly to patients from our sites located at or near hospital or other
healthcare provider facilities, which we refer to as retail revenues. Our revenue from these sites is generated from direct billings to patients or their third?party payors, which are recorded net of
contractual discounts and other arrangements for providing services at discounted prices. We typically charge a higher price per scan under retail billing than we do under wholesale billing.

The
principal components of our operating costs, excluding depreciation, are compensation paid to technologists and drivers, annual system maintenance costs, transportation and travel
costs, and system rental costs. Because a majority of these expenses are fixed, increased revenue as a result of higher scan volumes per system significantly improves our margins while lower scan
volumes result in lower margins.

The
principal components of selling, general and administrative expenses are sales force compensation, marketing costs, business development expenses, corporate overhead costs and our
provision for doubtful accounts.

For
the quarter ended March 31, 2002, we recorded $0.5 million in non-cash stock-based compensation primarily as a result of amending certain stock option
agreements in June 2001 to reduce performance targets and granting options in November 2000 to purchase our common stock at an exercise price below its fair value. One-half
of the options granted under our 1999 Equity Plan are "performance options." These options vest on the eighth anniversary of the grant date if the option holder is still our employee, but the vesting
accelerates if we meet the operating performance targets specified in the option agreements. On June 20, 2001, our compensation committee authorized us to enter into amended option agreements
to reduce the performance targets for the performance options. As a result, if we achieve the reduced performance targets but do not achieve the original performance targets, and an option holder
terminates employment prior to the eighth anniversary of the option grant date, we would be required to record a non-cash stock-based compensation charge equal to the amount by which the
actual value of the shares subject to the performance option on the date of the amendment exceeded the option's exercise price. We estimate that we will incur an additional

10

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$3 million to $6 million in the aggregate of non-cash stock-based compensation charges over the next three and a half years as a result of amending option agreements to
reduce performance targets. These charges, however, may not be evenly distributed over each of those three and a half years or over the four quarters in any one year, depending upon the timing of
employee turnover and the number of shares subject to the options held by departing employees. We estimate that we will record an additional $2.5 million in charges over the next seven years as
a result of granting options to purchase our common stock at an exercise price below its fair value.

Seasonality

We experience seasonality in the revenues and margins generated for our services. First and fourth quarter revenues are typically lower than those from the second
and third quarters. First quarter revenue is affected primarily by fewer calendar days and inclement weather, the results of which are fewer patient scans during the period. Fourth quarter revenue is
affected primarily by holiday and client and patient vacation schedules and inclement weather, the results of which are fewer patient scans during the period. The variability in margins is higher than
the variability in revenues due to the fixed nature of our costs.

Results of Operations

Quarter Ended March 31, 2002 Compared to Quarter Ended March 31, 2001

Revenue increased $7.5 million, or 8.2%, to $98.7 million in the first quarter of 2002 compared to the first quarter of 2001 primarily due to higher
scan-based MRI revenue and higher positron emission tomography, or PET, revenue. Overall, scan-based MRI revenue in the first quarter of 2002 increased $2.9 million, or
3.8%, compared to the first quarter of 2001 primarily as a result of a 6.0% increase in our MRI scan volume. We attribute this increase to the increase in the number of scans for existing clients
primarily as a result of additional scan-based systems in operation and an increase in average daily scan volume per MRI system. The average daily scan volume per MRI system increased to
9.7 in the first quarter of 2002 from 9.5 in the first quarter of 2001. The increase in scan-based revenue was partially offset by a 2.1% decrease in average price per MRI scan. The
decrease in average price realized per scan is primarily the result of clients achieving discounted price levels on incremental scan volume and our granting price reductions to certain clients. Other
revenue increased $4.6 million, or 31.0%, primarily due to an increase in PET revenue and management contract revenue.

We
had 348 MRI systems at March 31, 2002 compared to 325 MRI systems at March 31, 2001. The increase was primarily a result of planned system additions to satisfy client
demand.

Operating
expenses, excluding depreciation, increased $4.2 million, or 10.5%, to $44.1 million in the first quarter of 2002 compared to $39.9 million in the first
quarter of 2001. Compensation and related employee expenses increased $2.3 million, or 11.4%, primarily as a result of an increase in the number of employees necessary to support new systems in
operation and an increase in technologists' wages. Medical supplies increased $0.9 million, or 58.9%, primarily as a result of an increase in radiopharmaceutical expenses associated with PET.
Outside medical services increased $0.5 million, or 66.7%, primarily as a result of an increase in outside radiologists services associated with PET. System maintenance expense increased
$0.4 million, or 4.8%, primarily due to an increase in the number of systems in service and systems coming off warranty. Expenses incurred under management agreements increased
$0.3 million, or 24.9%. Equipment rental expense decreased $0.4 million, or 12.9%, resulting from a lower number of leased MRI systems and transportation units in operation. All other
operating expenses, excluding depreciation, increased $0.2 million. Operating expenses, excluding depreciation, as a percentage of revenue, increased to 44.7% in the first quarter of 2002 from
43.7% in the first quarter of 2001 as a result of the factors described above. We expect that a higher percentage of 2002 revenues will be contributed by the PET modality, which has a slightly lower
EBITDA margin percentage than

11

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the MRI modality primarily due to the very modest EBITDA margin generated from the radiopharmaceutical used in the PET diagnostic study.

Selling,
general and administrative expenses increased $0.2 million, or 1.8%, to $11.1 million in the first quarter of 2002 compared to $10.9 million in the first
quarter of 2001. The provision for doubtful accounts was 1.5% of revenue in the first quarter of 2002 compared to 1.6% in the first quarter of 2001. Selling, general and administrative expenses as a
percentage of revenue decreased to 11.2% in the first quarter of 2002 from 12.0% in the first quarter of 2001 primarily as a result of spreading these relatively fixed costs over increased revenue in
the first quarter of 2002.

In
the first quarter of 2002, we recorded $0.5 million in non-cash stock-based compensation as a result of amending certain stock option agreements in June 2001
to reduce performance targets and granting options in November 2000 to purchase our common stock at an exercise price below its fair value. In the first quarter of 2001, we recorded
$0.1 million in non-cash stock-based compensation as a result of granting options in November 2000 to purchase our common stock at an exercise price below its fair value.

Depreciation
expense increased $1.4 million, or 9.1%, to $16.8 million in the first quarter of 2002 compared to $15.4 million in the first quarter of 2001,
principally due to a higher amount of depreciable assets associated with MRI system additions and upgrades, as well as an increase in the number of PET systems which have a shorter depreciable life
than MRIs.

Amortization
expense decreased $3.0 million, or 83.3%, to $0.6 million in the first quarter of 2002 compared to $3.6 million in the first quarter of 2001. This
decrease is due to our adoption of Statement of Financial Accounting Standards No. 142, which no longer requires the amortization of goodwill.

Interest
expense, net, decreased $6.5 million, or 34.6%, to $12.3 million in the first quarter of 2002 compared to $18.8 million in the first quarter of 2001,
primarily as a result of lower average outstanding debt balances as a result of using the proceeds of our initial public offering to pay down debt and lower average interest rates in the first quarter
of 2002 compared to the first quarter of 2001.

Provision
for income taxes in the first quarter of 2002 was $5.6 million, resulting in an effective tax rate of 41.5%. Our effective tax rate was higher than statutory rates in
the first quarter of 2002 primarily as a result of state income taxes. Provision for income taxes in the first quarter of 2001 was $1.2 million, resulting in an effective tax rate of 50.0%. Our
effective tax rate was higher than statutory rates in the first quarter of 2001 primarily as a result of non-deductible goodwill and state income taxes.

Our
net income was $7.9 million, or $0.16 per share on a diluted basis, in the first quarter of 2002 compared to $1.2 million, or $0.03 per share on a diluted basis, in the
first quarter of 2001. Our net income, adjusted for the adoption of Statement of Financial Accounting Standards No. 142 (as described above), would have been $2.5 million, or $0.06 per
share on a diluted basis, in the first quarter of 2001.

Liquidity and Capital Resources

Our primary source of liquidity is cash from operating activities. We generated cash of $31.8 million and $8.3 million from operating activities in
the first quarter of 2002 and 2001, respectively. Our ability to generate cash flow is affected by numerous factors, including demand for MRI scans, the price we can charge our customers for providing
MRI services and the costs to us of providing those services. In addition, as of March 31, 2002, we had $150.0 million of available borrowings under our revolving line of credit.

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Our
primary use of capital resources is to fund capital expenditures. We used cash of $25.6 million and $18.8 million for investing activities in the first quarter of 2002
and 2001, respectively. We incur capital expenditures for the purposes of:



Capital
expenditures totaled $23.0 million in the first quarter of 2002 compared to $21.2 million in the first quarter of 2001. During the first quarter of 2002, we
purchased 13 MRI systems, including replacement systems. Our decision to purchase a new system is typically predicated on obtaining new or extending existing client contracts, which serve as the basis
of demand for the new system. We expect to purchase additional systems in 2002 and finance substantially all of these purchases with our available cash, cash from operating activities and our
revolving line of credit. We expect capital expenditures to total approximately $75 to $80 million in 2002.

We
believe that, based on current levels of operations and anticipated growth, our cash from operations, together with other available sources of liquidity, including borrowings
available under our revolving loan facility, will be sufficient over the next year to fund anticipated capital expenditures and
make required payments of principal and interest on our debt, including payments due under our credit agreement.

Recent Accounting Pronouncements

In July 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". SFAS 141 requires
the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. The adoption of SFAS 141
did not have a material impact on the Company's consolidated financial position and results of operations.

Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 142 requires goodwill and certain intangible assets to remain on the balance sheet and not be amortized. On an annual basis, or when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company has discontinued amortization of goodwill as of January 1, 2002 for financial
reporting purposes, and will comply with periodic impairment test procedures. Management does not expect any goodwill impairment charges due to the adoption of SFAS 142.

In
August 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and related asset retirement costs. SFAS 143 is effective for financial statements with fiscal
years beginning after June 15, 2002. This Statement is not expected to have a material impact on the Company's consolidated financial position and results of operations.

Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and for reporting of discontinued operations.
The effect of the adoption of SFAS 144 did not have a material impact on the Company's consolidated financial position and results of operations.

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Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995

Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, particularly in the section entitled
"Liquidity and Capital Resources", and
elsewhere in this quarterly report on Form 10-Q, are "forward-looking statements," within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Statements which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as results of operations and
financial condition, capital expenditures, the consummation of acquisitions and financing transactions and the effect of such transactions on the Company's business and the Company's plans and
objectives for future operations and expansion are examples of forward-looking statements. In some cases you can identify these statements by forward-looking words like "may", "will", "should",
"expect", "anticipate", "believe", "estimate", "predict", "continue" or similar words. These forward-looking statements are subject to risks and uncertainties which could cause actual outcomes and
results to differ materially from our expectations, forecasts and assumptions. These risks and uncertainties include factors affecting our leverage, including fluctuations in interest rates, our
ability to incur financing, the effect of operating and financial restrictions in our debt instruments, the accuracy of our estimates regarding our capital requirements, the effect of intense levels
of competition in our industry, changes in the healthcare regulatory environment, our ability to keep pace with technological developments within our industry, and other risks and uncertainties,
including those enumerated and described under "Risk Factors" in Amendment No. 2 to our Registration Statement on Form S-1, as filed with the Securities and Exchange
Commission, on July 20, 2001. The foregoing should not be construed as an exhaustive list of all factors which could cause actual results to differ materially from those expressed in
forward-looking statements made by the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We sell our services exclusively in the United States and receive payment for our services exclusively in United States dollars. As a result, our financial
results are unlikely to be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.

Our
interest expense is sensitive to changes in the general level of interest rates in the United States, particularly because the majority of our indebtedness has interest rates which
are variable. The recorded carrying amount of our long-term debt under our Credit Agreement approximates fair value as these borrowings have variable rates that reflect currently available
terms and conditions for similar debt.

Our
interest income is sensitive to changes in the general level of interest rates in the United States, particularly because the majority of our investments are in cash equivalents. The
recorded carrying amounts of cash and cash equivalents approximate fair value due to their short-term maturities.

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in routine litigation incidental to the conduct of our business. We believe that none of this litigation pending against us
will have a material adverse effect on our business.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

During March 2002 a petition was filed with the National Labor Relations Board for certification of the Teamsters union as representative for our
Mid-Atlantic Region drivers. On April 26, 2002 the Teamsters union was certified as representative for this unit of drivers. We intend to fulfill our obligations and negotiate in
good faith with the union regarding the terms and conditions of the employment of these drivers.

Similar
petitions for certification of the Teamsters union as representative have been filed covering our drivers in our New England and Eastern Regions. The campaign process is
currently under way for each of these regions and we will know the outcome of the elections later this month. We do not believe that the vote in the Mid-Atlantic Region or these current
petitions will have a material adverse effect on our consolidated results of operations or financial position.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit No. |  | Description                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of Alliance.(7)                                                                                                                                   
|3.2         |  | Amended and Restated By-laws of Alliance.(7)                                                                                                                                                        
|4.1         |  | Indenture dated as of April 10, 2001 by and between the Registrant and the Bank of New York with respect to $260 million aggregate principal amount of 103/8% Senior Subordinated Notes due 2011.(5)
|4.2         |  | Credit Agreement dated as of November 2, 1999, as amended.(5)                                                                                                                                       
|4.3         |  | Specimen certificate for shares of common stock, $.01 par value, of Alliance.(7)                                                                                                                    
|10.1        |  | The 1999 Equity Plan for Employees of Alliance and Subsidiaries including the forms of option agreements used thereunder, as amended.(5)                                                            
|10.2        |  | The Alliance 1997 Stock Option Plan, including form of option agreement used thereunder, as amended.(5)                                                                                             
|            |  |                                                                                                                                                                                                     

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|10.3  |  | The Three Rivers Holding Corp. 1997 Stock Option Plan, as amended.(5)                                                    
|----- |  | -------------------------------------------------------------------------------------------------------------------------
|10.4  |  | 2001 Incentive Plan.(5)                                                                                                  
|10.5  |  | Alliance Directors' Deferred Compensation Plan, as amended.(6)                                                           
|10.6  |  | Employment Agreement dated as of July 23, 1997 between Alliance and Richard N. Zehner.(1)                                
|10.7  |  | Agreement Not to Compete dated as of July 23, 1999 between Alliance and Richard N. Zehner.(1)                            
|10.8  |  | Amendment to Employment Agreement dated as of July 23, 1997 between Alliance and Richard N. Zehner.(2)                   
|10.9  |  | Amendment to Employment Agreement dated as of December 31, 1997 between Alliance and Richard N. Zehner.(3)               
|10.10 |  | Second Amendment to Employment Agreement dated as of February 5, 1998 between Alliance and Richard N. Zehner.(3)         
|10.11 |  | Employment Agreement dated as of January 19, 1998 between Alliance and Kenneth S. Ord.(4)                                
|10.12 |  | Agreement Not to Compete dated as of January 19, 1998 between Alliance and Kenneth S. Ord.(4)                            
|10.13 |  | Amended and Restated Employment Agreement dated June 6, 1994 between Alliance and Terry A. Andrues.(5)                   
|10.14 |  | Amended and Restated Employment Agreement dated as of June 6, 1994 between Alliance and Cheryl A. Ford.(5)               
|10.15 |  | Employment Agreement dated as of November 27, 2000 between Alliance and Jamie E. Hopping.(5)                             
|10.16 |  | Agreement Not to Compete dated as of November 27, 2000 between Alliance and Jamie E. Hopping.(5)                         
|10.17 |  | Repayment and Stock Pledge Agreement dated as of November 27, 2000 between Alliance and Jamie E. Hopping.(5)             
|10.18 |  | Secured Promissory Note of Jamie E. Hopping dated as of November 27, 2000.(5)                                            
|10.19 |  | Employment Agreement dated as of April 29, 1998 between Alliance and Russell D. Phillips, Jr.(3)                         
|10.20 |  | Agreement Not to Compete dated as of April 29, 1998 between Alliance and Russell D. Phillips, Jr.(3)                     
|10.21 |  | Form of Stockholder's Agreement.(5)                                                                                      
|10.22 |  | Agreement and Plan of Merger dated as of April 14, 1999 among Alliance and Three Rivers Holding Corp.(8)                 
|10.23 |  | Agreement and Plan of Merger dated September 13, 1999 between Alliance and Viewer Acquisition Corporation, as amended.(5)
|10.24 |  | Registration Rights Agreement dated as of November 2, 1999.(5)                                                           
|      |  |                                                                                                                          

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|10.25 |  | Management Agreement, dated as of November 2, 1999, between Alliance and Kohlberg Kravis Roberts & Co., LLP.(5)                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------
|10.26 |  | Amendment No. 1 to Management Agreement, effective as of January 1, 2000, between Alliance and Kohlberg Kravis Roberts & Co., LLP.(5)
|10.27 |  | Form of Indemnification Agreement.(6)                                                                                                



None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|            |  | ALLIANCE, IMAGING, INC.
|----------- |  | -----------------------
|May 7, 2002 |  | By:                    
|May 7, 2002 |  | By:                    
|May 7, 2002 |  | By:                    

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