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, 2008

Commission File Number: 1-16609

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)
|---------------------------------------------------------------------- | ----------------------------------------------

1900 South State College Boulevard
Suite 600
Anaheim, California 92806(Address of principal executive office)

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

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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 ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
"large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2008:

Common
Stock, $.01 par value, 51,032,021 shares



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ALLIANCE IMAGING, INC.    FORM 10-Q    March 31, 2008

Index

|                             |                                                                                              |                                                                                                                             |    | Page
|---------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -- | ----
|PART IFINANCIAL INFORMATION |                                                                                              |                                                                                                                            
|                             | Item 1Financial Statements:                                                                 |                                                                                                                             |   
|                             |                                                                                              | Condensed Consolidated Balance Sheets
December 31, 2007 and March 31, 2008 (Unaudited)                                      |    | 3   
|                             |                                                                                              | Condensed Consolidated Statements of Operations and Comprehensive Income
Quarters ended March 31, 2007 and 2008 (Unaudited) |    | 4   
|                             |                                                                                              | Condensed Consolidated Statements of Cash Flows
Quarters ended March 31, 2007 and 2008 (Unaudited)                          |    | 5   
|                             |                                                                                              | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                            |    | 6   
|                             | Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                             | 21
|                             | Item 3Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                             | 29
|                             | Item 4Controls and Procedures                                                               |                                                                                                                             | 30
|PART IIOTHER INFORMATION    |                                                                                              |                                                                                                                            
|                             | Item 1Legal Proceedings                                                                     |                                                                                                                             | 31
|                             | Item 1ARisk Factors                                                                         |                                                                                                                             | 31
|                             | Item 2Unregistered Sales of Equity Securities and Use of Proceeds                           |                                                                                                                             | 31
|                             | Item 3Defaults Upon Senior Securities                                                       |                                                                                                                             | 31
|                             | Item 4Submission of Matters to a Vote of Security Holders                                   |                                                                                                                             | 31
|                             | Item 5Other Information                                                                     |                                                                                                                             | 31
|                             | Item 6Exhibits                                                                              |                                                                                                                             | 31
|SIGNATURES                   |                                                                                              | 35                                                                                                                         

2

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PART IFINANCIAL INFORMATION        ITEM 1. FINANCIAL STATEMENTS        ALLIANCE IMAGING, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (Unaudited)    (in thousands)

|                                           |                                                             | December 31,
2007 |          | March 31,
2008 |  
|------------------------------------------ | ----------------------------------------------------------- | ----------------- | -------- | -------------- | -
|ASSETS                                     |                                                             |                   |          |                |  
|Current assets:                            |                                                             |                   |          |                |  
|                                           | Cash and cash equivalents                                   |                   | $        | 120,892        |  
|                                           | Accounts receivable, net of allowance for doubtful accounts |                   |          | 58,439         |  
|                                           | Deferred income taxes                                       |                   |          | 16,091         |  
|                                           | Prepaid expenses and other current assets                   |                   |          | 5,637          |  
|                                           | Other receivables                                           |                   |          | 7,304          |  
|                                           |                                                             |                   |          |                |  
|Total current assets                       |                                                             |                   | 208,363  |                |  
|Equipment, at cost                         |                                                             |                   | 777,212  |                |  
|Less accumulated depreciation              |                                                             |                   | (434,364 | )              |  
|                                           |                                                             |                   |          |                |  
|Equipment, net                             |                                                             |                   | 342,848  |                |  
|Goodwill                                   |                                                             |                   | 175,804  |                |  
|Other intangible assets, net               |                                                             |                   | 93,221   |                |  
|Deferred financing costs, net              |                                                             |                   | 8,460    |                |  
|Other assets                               |                                                             |                   | 21,111   |                |  
|                                           |                                                             |                   |          |                |  
|Total assets                               |                                                             | $                 | 849,807  |                | $
|                                           |                                                             |                   |          |                |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT      |                                                             |                   |          |                |  
|Current liabilities:                       |                                                             |                   |          |                |  
|                                           | Accounts payable                                            |                   | $        | 20,622         |  
|                                           | Accrued compensation and related expenses                   |                   |          | 17,976         |  
|                                           | Accrued interest payable                                    |                   |          | 4,912          |  
|                                           | Other accrued liabilities                                   |                   |          | 33,512         |  
|                                           | Current portion of long-term debt                           |                   |          | 3,627          |  
|                                           |                                                             |                   |          |                |  
|Total current liabilities                  |                                                             |                   | 80,649   |                |  
|Long-term debt, net of current portion     |                                                             |                   | 376,184  |                |  
|Senior subordinated notes                  |                                                             |                   | 290,985  |                |  
|Minority interests and other liabilities   |                                                             |                   | 6,271    |                |  
|Deferred income taxes                      |                                                             |                   | 92,062   |                |  
|                                           |                                                             |                   |          |                |  
|Total liabilities                          |                                                             |                   | 846,151  |                |  
|Commitments and contingencies (Note 12)    |                                                             |                   |          |                |  
|Stockholders' equity:                      |                                                             |                   |          |                |  
|                                           | Common stock                                                |                   |          | 509            |  
|                                           | Treasury stock                                              |                   |          | (61            | )
|                                           | Additional paid-in (deficit) capital                        |                   |          | (1,470         | )
|                                           | Accumulated comprehensive income (loss)                     |                   |          | 205            |  
|                                           | Retained earnings                                           |                   |          | 4,473          |  
|                                           |                                                             |                   |          |                |  
|Total stockholders' equity                 |                                                             |                   | 3,656    |                |  
|                                           |                                                             |                   |          |                |  
|Total liabilities and stockholders' equity |                                                             | $                 | 849,807  |                | $
|                                           |                                                             |                   |          |                |  

See accompanying notes.

3

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

|                                                                                                 |         | Quarter Ended
March 31, |        
|------------------------------------------------------------------------------------------------ | ------- | ----------------------- | -------
|
|Revenues                                                                                         |         | $                       | 109,406
|Costs and expenses:                                                                              |         |                         |        
|Cost of revenues, excluding depreciation and amortization                                        |         |                         | 56,177 
|Selling, general and administrative expenses                                                     |         |                         | 14,728 
|Severance and related costs                                                                      |         |                         | 76     
|Depreciation expense                                                                             |         |                         | 20,801 
|Amortization expense                                                                             |         |                         | 1,210  
|Interest expense, net of interest income                                                         |         |                         | 10,074 
|Other (income) and expense, net                                                                  |         |                         | (320   
|                                                                                                 |         |                         |        
|Total costs and expenses                                                                         |         |                         | 102,746
|                                                                                                 |         |                         |        
|Income before income taxes, minority interest expense and earnings from unconsolidated investees |         |                         | 6,660  
|Income tax expense                                                                               |         |                         | 3,952  
|Minority interest expense                                                                        |         |                         | 521    
|Earnings from unconsolidated investees                                                           |         |                         | (3,484 
|                                                                                                 |         |                         |        
|Net income                                                                                       |         | $                       | 5,671  
|                                                                                                 |         |                         |        
|Comprehensive income, net of taxes:                                                              |         |                         |        
|Net income                                                                                       |         | $                       | 5,671  
|Unrealized loss on hedging transactions, net of taxes                                            |         |                         | (269   
|                                                                                                 |         |                         |        
|Comprehensive income                                                                             |         | $                       | 5,402  
|                                                                                                 |         |                         |        
|Earnings per common share:                                                                       |         |                         |        
|                                                                                                 | Basic   |                         | $      
|                                                                                                 |         |                         |        
|                                                                                                 | Diluted |                         | $      
|                                                                                                 |         |                         |        
|Weighted average number of shares of common stock and common stock equivalents:                  |         |                         |        
|                                                                                                 | Basic   |                         |        
|                                                                                                 | Diluted |                         |        

See accompanying notes.

4

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

|                                                                                  |                                                                                    | Quarter Ended
March 31, |        
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------- | -------
|
|Operating activities:                                                             |                                                                                    |                         |        
|Net income                                                                        |                                                                                    | $                       | 5,671  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                    |                         |        
|                                                                                  | Provision for doubtful accounts                                                    |                         |        
|                                                                                  | Share-based payment                                                                |                         |        
|                                                                                  | Depreciation and amortization                                                      |                         |        
|                                                                                  | Amortization of deferred financing costs                                           |                         |        
|                                                                                  | Accretion of discount on senior subordinated notes                                 |                         |        
|                                                                                  | Adjustment of derivatives to fair value                                            |                         |        
|                                                                                  | Distributions (less than) greater than equity in undistributed income of investees |                         |        
|                                                                                  | Deferred income taxes                                                              |                         |        
|                                                                                  | Excess tax benefit from share-based payment arrangements                           |                         |        
|                                                                                  | Gain on sale of assets                                                             |                         |        
|Changes in operating assets and liabilities:                                      |                                                                                    |                         |        
|                                                                                  | Accounts receivable                                                                |                         |        
|                                                                                  | Prepaid expenses and other current assets                                          |                         |        
|                                                                                  | Other receivables                                                                  |                         |        
|                                                                                  | Other assets                                                                       |                         |        
|                                                                                  | Accounts payable                                                                   |                         |        
|                                                                                  | Accrued compensation and related expenses                                          |                         |        
|                                                                                  | Accrued interest payable                                                           |                         |        
|                                                                                  | Income taxes payable                                                               |                         |        
|                                                                                  | Other accrued liabilities                                                          |                         |        
|                                                                                  | Minority interests and other liabilities                                           |                         |        
|                                                                                  |                                                                                    |                         |        
|Net cash provided by operating activities                                         |                                                                                    |                         | 24,692 
|                                                                                  |                                                                                    |                         |        
|Investing activities:                                                             |                                                                                    |                         |        
|Equipment purchases                                                               |                                                                                    |                         | (24,764
|Decrease in deposits on equipment                                                 |                                                                                    |                         | 13,455 
|Acquisitions, net of cash received                                                |                                                                                    |                         |       
|Proceeds from sale of assets                                                      |                                                                                    |                         | 1,392  
|                                                                                  |                                                                                    |                         |        
|Net cash used in investing activities                                             |                                                                                    |                         | (9,917 
|                                                                                  |                                                                                    |                         |        
|Financing activities:                                                             |                                                                                    |                         |        
|Principal payments on equipment debt                                              |                                                                                    |                         | (855   
|Proceeds from equipment debt                                                      |                                                                                    |                         | 138    
|Principal payments on term loan facility                                          |                                                                                    |                         | (600   
|Principal payments on revolving loan facility                                     |                                                                                    |                         | (7,000 
|Proceeds from revolving loan facility                                             |                                                                                    |                         | 7,000  
|Payments of debt issuance costs                                                   |                                                                                    |                         | (127   
|Proceeds from exercise of employee stock options                                  |                                                                                    |                         | 556    
|Excess tax benefit from share-based payment arrangements                          |                                                                                    |                         | 254    
|                                                                                  |                                                                                    |                         |        
|Net cash used in financing activities                                             |                                                                                    |                         | (634   
|                                                                                  |                                                                                    |                         |        
|Net increase (decrease) in cash and cash equivalents                              |                                                                                    |                         | 14,141 
|Cash and cash equivalents, beginning of period                                    |                                                                                    |                         | 16,440 
|                                                                                  |                                                                                    |                         |        
|Cash and cash equivalents, end of period                                          |                                                                                    | $                       | 30,581 
|                                                                                  |                                                                                    |                         |        
|Supplemental disclosure of cash flow information:                                 |                                                                                    |                         |        
|Interest paid                                                                     |                                                                                    | $                       | 6,587  
|Income taxes paid, net of refunds                                                 |                                                                                    |                         | 937    
|Supplemental disclosure of non-cash investing and financing activities:           |                                                                                    |                         |        
|Net book value of assets exchanged                                                |                                                                                    | $                       | 938    
|Capital lease obligations assumed for the purchase of equipment debt              |                                                                                    |                         |       
|Comprehensive loss from hedging transactions, net of taxes                        |                                                                                    |                         | (269   
|Deposits on equipment in accounts payable                                         |                                                                                    |                         | 3,877  

See accompanying notes.

5

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ALLIANCE IMAGING, INC.    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    March 31, 2008  (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 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 (including normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the quarter ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2008. 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, 2007.

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. Intercompany transactions have been eliminated. We record minority interest
expense related to our consolidated subsidiaries which are not wholly owned. Investments in non-consolidated investees are accounted for under the equity method.

Use of EstimatesThe preparation of condensed 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 condensed consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

2. Transactions

Effective October 1, 2007, the Company purchased the assets of Diagnostic Radiology Systems, Inc., a mobile provider of MRI and PET/CT, with
operations in a certificate of need state. The purchase price consisted of $8,620 in cash and transaction costs. The acquisition was financed using internally generated funds. As a result of this
acquisition, the Company recorded goodwill of $2,148 and acquired intangible assets of $2,240, of which $1,520 was assigned to customer contracts, which is amortized over eight years, $510 was
assigned to the non-compete agreement, which is amortized over one year, and $210 was assigned to certificates of needs, which have indefinite useful lives and are not subject to
amortization. The intangible assets were recorded at fair value at the acquisition date. All recorded goodwill and intangible assets are capitalized for tax purposes and amortized over
15 years. The preliminary values above are subject to adjustment for up to one year after the close of the transaction as additional information is obtained, and those adjustments could be
significant. The year ended December 31, 2007 included three months of operations from this acquisition. During the quarter ended March 31, 2008, the Company increased goodwill by $7 as
a result of changes in the original valuation of assets and liabilities acquired. The Company has not included pro forma information as this acquisition did not have a material impact on its
consolidated financial position or results of operations.

Effective
November 2, 2007, Alliance Oncology ("AO") purchased the assets of eight radiation therapy centers in Alabama, Arkansas, Mississippi, and Missouri from Bethesda
Resources, Inc., a

6

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wholly-owned
subsidiary of Sonix, Inc. Many of these centers are sole community providers and are located on or near hospital campuses. Several of these radiation therapy centers operate under
certificates of need. The purchase price consisted of $36,500 in cash and $800 in assumed liabilities and transaction costs. The acquisition was financed using internally generated funds and capital
leases. As a result of this acquisition, the Company recorded goodwill of $4,246 and acquired intangible assets of $31,230, of which $2,230 was assigned to the physician network, which is amortized
over seven years and $29,000 was assigned to certificates of needs, which have indefinite useful lives and are not subject to amortization. The intangible assets were recorded at fair value at the
acquisition date. All recorded goodwill and intangible assets are capitalized for tax purposes and amortized over 15 years. The preliminary values above are subject to adjustment for up to one
year after the close of the transaction as additional information is obtained, and those adjustments could be significant. During the quarter ended March 31, 2008, the company decreased
goodwill by $81 as a result of changes in the original valuation of assets and liabilities acquired. The year ended December 31, 2007 included approximately two months of operations from this
acquisition. The Company has not included pro forma information as this acquisition did not have a material impact on its consolidated financial position or results of operations.

Effective
November 5, 2007, the Company purchased all of the outstanding shares of the New England Health Enterprises Business Trust and all of the outstanding membership
interests of New England Imaging Management, LLC, a fixed-site provider of MRI and CT, collectively referred to as New England Health Enterprises, or NEHE. NEHE operates seven
fixed-site imaging centers and one mobile MRI system in Maine and Massachusetts. The total purchase price was $46,905, which consisted of $44,635 in cash, $2,270 in cash which is being
held in an escrow account, and $4,592 in assumed liabilities and transaction costs. The acquisition was financed using internally generated funds, borrowings under an Acquisition Credit Facility and
capital leases. The Company recorded total goodwill of $19,341, which includes $10,947 of goodwill related to deferred tax liabilities recorded for basis differences in intangible assets as a result
of the acquisition. None of the goodwill recorded is deductible for tax purposes. The Company acquired intangible assets of $29,000, of which $15,700 was assigned to the physician network, which is
amortized over 15 years, $3,800 was assigned to the non-compete agreement, which is amortized over five years, and $9,500 was assigned to certificates of need held by NEHE, which
have indefinite useful lives and are not subject to amortization. These assets were recorded at fair value at the acquisition date. The acquisition also included $2,270 for a contingent payment which
is being held in an escrow account, pending the resolution of claims for indemnification and contingent consideration based on certain performance target requirements, which will be resolved over the
next one to three years. When the contingencies are resolved and consideration is distributable from the escrow account, the Company will record the fair value of the consideration as additional
purchase price to goodwill. The preliminary values above are subject to adjustment for up to one year after the close of the transaction as additional information is obtained, and those adjustments
could be significant. During the quarter ended March 31, 2008, the Company decreased goodwill by $110 as a result of changes in the original valuation of assets and liabilities acquired. The
year ended December 31, 2007 included approximately two months of operations from this acquisition. The Company has not included pro forma information as this acquisition did not have a
material impact on its consolidated financial position or results of operations.

In
the first quarter of 2008, the Company purchased six CyberKnife® robotic radiosurgery systems from Accuray, Inc. The radiosurgery systems are currently providing
radiosurgery services at hospitals located in California, Maryland, New Jersey and Tennessee. The total purchase price was $11,937 in cash, of which $1,098 will be paid during the second quarter of
2008 and $672 in transaction costs. The acquisition was financed using proceeds from the Company's issuance of additional 7.25% senior subordinated notes in December 2007. As a result of this
acquisition, the Company recorded acquired intangible assets of $1,675, which was assigned to customer contracts and will be amortized over seven years. The intangible assets were recorded at fair
value at the acquisition date. All recorded intangible

7

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assets
are capitalized for tax purposes and amortized over 15 years. The preliminary values above are subject to adjustment for up to one year after the close of the transaction as additional
information is obtained, and those adjustments could be significant. The quarter ended March 31, 2008 included an immaterial amount from operations from this acquisition. The Company has not
included pro forma information as this acquisition did not have a material impact on its consolidated financial position or results of operations.

3. Share-Based Compensation

The Company adopted Statement of Financial Accounting Standards No. 123(R) (Revised December 2004), "Share-Based Payment" ("SFAS 123(R)"), in the
fiscal year beginning January 1, 2006, using the modified prospective application transition method. Under SFAS 123(R), the Company records in its consolidated statements of operations
(i) compensation costs for options granted, modified, repurchased or cancelled on or after January 1, 2006 under the provisions of SFAS 123(R) and (ii) compensation costs
for the unvested portion of options granted prior to January 1, 2006 over their remaining vesting periods using the amounts previously measured under SFAS 123 for pro forma disclosure
purposes.

In
November 2005, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") FAS 123R-3, "Transition Election to Accounting for the Tax
Effects of Share-Based Payment Awards" ("FSP FAS 123R-3"). The Company has elected to follow the alternative transition method as described in FSP FAS 123R-3 for
computing its additional paid-in capital pool. In addition, the Company treats the tax deductions from stock options as being realized when they reduce taxes payable in accordance with the
principles and timing under the relevant tax law.

Stock Option Plans and Awards

In November 1999, the Company adopted an employee stock option plan (the "1999 Equity Plan") pursuant to which options and awards with respect to a total of
6,325,000 shares of the Company's common stock became available for grant. On May 30, 2007, the Company adopted an amendment to the 1999 Equity Plan which increased the number of shares
available to be awarded to 8,025,000 shares. As of March 31, 2008, a total of 1,249,748 shares are available for grant under the 1999 Equity Plan. Options are granted with exercise prices equal
to fair value of the Company's common stock at the date of grant, except as noted below. All options have 10-year terms. Options granted after January 1, 2008 are time options which
vest 25% each year, over four years. For options granted prior to January 1, 2008, initial stock option grants were comprised 50% of "time options" and 50% of "performance options." The time
options have a five-year vesting schedule, vesting 20% per year. The performance options cliff vest after eight years, however, in the event certain operating performance targets are met,
up to 20% of the performance options may vest each year, accelerating the vesting period up to five years. Subsequent stock options granted under the 1999 Equity Plan to employees are always time
options which vest 5% in the first year, 20% in the second year and 25% in years three through five.

In
November 2000, the Company granted stock options to certain employees at exercise prices below the fair value of the Company's common stock, of which 35,000 options were outstanding
at March 31, 2008. The exercise prices of these options and the fair value of the Company's common stock on the grant date were $5.60 and $9.52 per share, respectively.

The
Company is using the Black-Scholes option pricing model to value the compensation expense associated with stock-based awards. The fair value of each option award is estimated on the
date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the table below. In addition, forfeitures are estimated when recognizing compensation expense, and the
estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ,

8

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or
are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact
the amount of compensation expense to be recognized in future periods. The Company records non-cash share-based compensation for stock options granted with exercise prices below the fair
value of the Company's common stock at the date of grant and for certain stock options subject to amended performance targets under the 1999 Equity Plan, as discussed below.

The
following weighted average assumptions were used in the estimated grant date fair value calculations for stock option awards:

Quarter Ended March 31,2007

2008Risk free interest rate

4.74
%
3.44
%Expected dividend yield

0.00
%
0.00
%Expected stock price volatility

60.4
%
53.2
%Average expected life (in years)

6.61

6.25


The
expected stock price volatility rates are based on a blend of the historical volatility of the Company's common stock and peer implied volatility. The risk free interest rates are
based on the U.S.
Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option or award. The average expected life represents the weighted average period of time
that options or awards granted are expected to be outstanding, as calculated using the simplified method described in the Securities and Exchange Commission's Staff Accounting Bulletin No. 107.

The
following table summarizes the Company's stock option activity:

|                                                            |           | Number of
Shares |         | Weighted-Average
Exercise Price |      | Weighted-Average
Remaining Contractual Term |      | Aggregate
Intrinsic Value
|----------------------------------------------------------- | --------- | ---------------- | ------- | ------------------------------- | ---- | ------------------------------------------- | ---- | -------------------------
|Outstanding at December 31, 2007                            |           | 3,805,920        |         | $                               | 6.36 |                                             |      |                          
|                                                            | Granted   |                  | 448,000 |                                 |      | 9.26                                        |      |                          
|                                                            | Exercised |                  | (14,770 | )                               |      | 4.92                                        |      |                          
|                                                            | Canceled  |                  | (20,450 | )                               |      | 7.68                                        |      |                          
|                                                            |           |                  |         |                                 |      |                                             |      |                          
|Outstanding at March 31, 2008                               |           | 4,218,700        |         | $                               | 6.67 |                                             | 7.01 |                          
|                                                            |           |                  |         |                                 |      |                                             |      |                          
|Vested and expected to vest in the future at March 31, 2008 |           | 4,056,975        |         | $                               | 6.64 |                                             | 6.94 |                          
|Exercisable at March 31, 2008                               |           | 2,040,070        |         | $                               | 6.02 |                                             | 5.49 |                          

The
weighted average grant-date fair value of options granted during the quarters ended March 31, 2007 and 2008 was $4.57 per share and $5.07 per share, respectively.
The total intrinsic value of options exercised during the quarters ended March 31, 2007 and 2008 was $668 and $78, respectively. The total cash received from employees as a result of stock
option exercises was $556 and $73 for the quarters ended March 31, 2007 and 2008, respectively.

9

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The
following table summarizes the Company's unvested stock option activity:

Shares

Weighted Average
Grant Date
Fair ValueUnvested at December 31, 2007

2,182,855

$
3.88Granted

448,000


5.07Vested

(436,975
)

3.59Canceled

(15,250
)

4.16Unvested at March 31, 2008

2,178,630

$
4.18


At
March 31, 2008, the total unrecognized fair value compensation cost related to unvested stock options granted to both employees and non-employees was $5,732, which
is expected to be recognized over a remaining weighted-average period of 3.10 years. The valuation model applied in
this calculation utilizes highly subjective assumptions that could potentially change over time, including the expected forfeiture rate and performance targets. Therefore the amount of unrecognized
compensation expense noted above does not necessarily represent the value that will ultimately be realized by the Company in the statements of operations. The total fair value of shares vested during
the quarters ended March 31, 2007 and 2008 was $1,941, and $1,570, respectively.



The 1999 Equity Plan, as amended and restated, permits the award of restricted stock, restricted stock units, stock bonus awards and performance-based awards.
During 2007 and the first quarter of 2008, the Company granted 625,000 and 90,000 restricted stock awards ("awards"), respectively, to certain employees of the Company. These awards cliff vest after
three years, provided that the employee remains continuously employed through the issuance date. For the quarters ended March 31, 2007 and 2008, the Company recorded non-cash
share-based compensation expense related to these grants of $246 and $461, respectively.

The
weighted average grant-date fair value of restricted stock awards granted during the quarters ended March 31, 2007 and 2008 was $6.65 and $9.26 per share,
respectively.

The
following table summarizes the Company's unvested restricted stock activity:

Shares

Weighted Average
Grant Date
Fair ValueUnvested at December 31, 2007

625,000

$
6.65Granted

90,000

$
9.26Vested

Canceled

Unvested at March 31, 2008

715,000

$
6.98


At
March 31, 2008, the total unrecognized fair value compensation cost related to restricted stock awards granted to employees was $3,193, which is expected to be recognized over
a remaining weighted-average period of 1.88 years. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time, including the
expected forfeiture rate. Therefore the amount of unrecognized compensation expense noted above does not necessarily represent the value that will ultimately be realized by the Company in the
statements of operations.

10

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On December 31, 2007, the Company granted restricted stock units to three non-employee directors of the Company who are unaffiliated with
Oaktree Capital Management, LLP ("Oaktree") or MTS Health Investors, LLC ("MTS") ("unaffiliated directors") equal to 8,421 shares of common stock each. This number of shares represents
the number of shares of our common stock having a value equal to $80, rounded down to the nearest whole share, and calculated using the average share price of our stock over the
fifteen-day period preceding December 31, 2007. Subject to shareholder approval at our 2008 Annual Meeting to amend our 1999 Equity Plan to allow for stock awards to our
non-employee directors, such restricted stock units will fully vest on December 31, 2008 based on the unaffiliated directors' continued service with us through that date. Also
subject to shareholder approval at our 2008 Annual Meeting, the unaffiliated directors will each receive a restricted stock award on December 31, 2008 and each December 31 thereafter
(the "Grant Date") of the number of shares of common stock having a value equal to $80, rounded down to the nearest whole share, and calculated using the average share price of our stock over the
fifteen-day period preceding the Grant Date. Such restricted stock awards will fully vest one year after the Grant Date based on the continued service of the non-employee
director through the vesting date.



During 2006 and 2007, the Company granted stock bonus awards ("award") to certain employees of the Company. On the issuance date, the Company shall issue a number
of shares of the Company's common stock ("shares"), equal to the bonus award divided by the fair market value of the shares at that time, provided that the employee remains continuously employed
through the issuance date. For the quarters ended March 31, 2007 and 2008 the Company recorded non-cash share based compensation expense related to these grants of $167 and $125,
respectively.

At
March 31, 2008, the total unrecognized fair value compensation cost related to the stock bonus awards granted to employees was $667, which is expected to be recognized over a
remaining weighted-average period of 1.25 years. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time, including the
expected forfeiture rate. Therefore
the amount of unrecognized compensation expense noted above does not necessarily represent the value that will ultimately be realized by the Company in the statements of operations.

4. Recent Accounting Pronouncements

Fair Value Option for Financial Assets and LiabilitiesIn February 2007, the FASB issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115" ("SFAS 159"), which permits entities to choose to
measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. SFAS 159 was effective and adopted by the Company on
January 1, 2008. The provisions of SFAS 159 are being applied prospectively. The adoption of SFAS 159 did not have a material impact on the Company's results of operations, cash
flows or financial position.

Business CombinationsIn December 2007, the FASB issued SFAS No. 141(R) (Revised 2007), "Business Combinations"
("SFAS 141(R)"). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the

11

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assets
acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain
specific items, including:



SFAS 141(R)
also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, since the Company is a calendar
year-end company it will continue to record and disclose business combinations following existing generally accepted accounting principles until January 1, 2009. The Company expects
SFAS 141(R) will have an impact on accounting for business combinations once adopted but the effect is generally dependent upon acquisitions at that time.

Noncontrolling Interests in Consolidated Financial StatementsIn December 2007, the FASB issued SFAS No. 160,
"Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of Accounting Research Bulletin No. 51" ("SFAS 160"). SFAS 160 establishes new accounting
and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated.
Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding
the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. The Company has not completed its evaluation of the potential impact of the adoption of SFAS 160 on consolidated results of operations, cash flows or
financial position.

Derivative Instruments and Hedging ActivitiesIn March 2008, the FASB issued SFAS No. 161, "Disclosure about Derivative
Instruments and Hedging ActivitiesAn Amendment of FASB Statement No. 133" ("SFAS 161"), which enhances the current guidance on disclosure requirements for derivative
instruments and hedging activities. This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. Specifically,
SFAS 161 requires disclosure about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement
133 and its related

12

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interpretations,
and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flow. This statement requires qualitative
disclosure about the objectives and strategies for using derivatives in terms of the risks that the entity is intending to manage, quantitative disclosures about fair value amounts of gains and losses
on derivative instruments in a tabular format, and disclosures about credit-risk-related contingent features in derivative agreements to provide information on potential effect
on an entity's liquidity from using derivatives. The derivative instruments shall be distinguished between those used for risk management purposes and those used for other purposes. SFAS 161 is
effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008, with early application encouraged. As SFAS 161 provides only disclosure
requirements, the adoption of this standard will not have a material impact on the Company's results of operations, cash flows or financial position.

5. Fair Value of Financial Instruments

The Company used the following methods and assumptions in estimating fair value disclosure for financial instruments:

Cash and cash equivalentsThe carrying amounts reported in the balance sheet approximate fair value due to the
short-term maturity or variable rates of these instruments.

DebtThe fair value of our publicly traded notes was based on the prices of those notes at December 31, 2007 and
March 31, 2008. The carrying amount of variable-rate borrowings at March 31, 2008 approximates fair value due to the variable rates of those instruments.

Interest rate swapsFair value was determined based on forward market prices and approximates the net gains and losses that
would have been realized if the contracts had been settled at each period-end.

The
estimated fair values of the Company's financial instruments are as follows:

December 31, 2007

March 31, 2008Carrying Value

Fair
Value

Carrying Value

Fair
ValueCash and cash equivalents

$
120,892

$
120,892

$
107,199

$
107,199Fixed-rate debt


290,985


280,036


291,446


292,786Variable-rate debt


366,600


366,600


351,600


351,600Interest rate swapsasset position


340


340





Interest rate swapsliability position








2,555


2,555


The
Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157") on January 1, 2008. There was no material impact to its first quarter financial statements.
SFAS 157 applies to all assets and liabilities that are being measured and reported on a fair value basis. SFAS 157 requires new disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value measurements. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1Quoted market prices in active markets for identical assets or liabilities.

Level 2Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3Unobservable inputs that are not corroborated by market data.

13

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The
following table summarizes the valuation of the Company's financial instruments by the above SFAS 157 pricing levels as of March 31, 2008:

Total

Quoted market prices in active markets (Level 1)

Significant Other Observable Inputs (Level 2)Cash and cash equivalents

$
107,199

$
107,199

Fixed-rate debt


292,786


292,786

Variable-rate debt


351,600


351,600

Derivative instrumentsliability position


2,555




2,555


The
Company's derivative instruments are pay-fixed, receive-variable interest rate swaps based on London Interbank Offered Rate ("LIBOR") swap rate. The LIBOR swap rate is
observable at commonly quoted intervals for the full term of the swaps and therefore is considered a level 2 item. SFAS 157 states that the fair value measurement of a liability must
reflect the nonperformance risk of the entity. Therefore, the impact of the Company's creditworthiness has also been factored into the fair value measurement of the derivative instruments in a
liability position.

6. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill are as follows:

Balance at December 31, 2007

$
175,804Adjustments to goodwill during the period


(184
)Balance at March 31, 2008

$
175,620


Intangible
assets consisted of the following:

|                                              |                                    | December 31, 2007 |   | March 31, 2008
|--------------------------------------------- | ---------------------------------- | ----------------- | - | --------------
|
|Amortizing intangible assets:                 |                                    |                   |   |               
|                                              | Customer contracts                 |                   | $ | 70,513        
|                                              | Other                              |                   |   | 9,129         
|                                              |                                    |                   |   |               
|                                              | Total amortizing intangible assets |                   | $ | 79,642        
|                                              |                                    |                   |   |               
|Intangible assets not subject to amortization |                                    |                   |   |               
|                                              |                                    |                   |   |               
|                                              | Total other intangible assets      |                   |   |               
|                                              |                                    |                   |   |               

The
Company reviews the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to indicate an impairment of
these assets has possibly occurred. Goodwill is allocated to the Company's various reporting units which represent the Company's geographical regions. The Company compares the fair value of the
reporting unit to its carrying amount to determine if there is potential impairment.

The
Company uses a weighted average useful life of 16 years to amortize customer contracts. Other intangible assets subject to amortization are estimated to have a weighted
average useful life of three years. Amortization expense for intangible assets subject to amortization was $1,210 and $1,857 for the quarters ended March 31, 2007 and 2008, respectively. The
intangible assets not subject to

14

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amortization
represent certificate of needs and regulatory authority rights which have indefinite useful lives.

Estimated
annual amortization expense for each of the fiscal years ending December 31, is presented below:

2008

$
7,3302009


6,7032010


6,6342011


6,4862012


6,057


7. Other Accrued Liabilities

Other accrued liabilities consisted of the following:

December 31,
2007

March 31,
2008Accrued systems rental and maintenance costs

$
1,957

$
1,827Accrued site rental fees


1,593


1,557Accrued property and sales taxes payable


13,486


14,076Accrued self-insurance expense


6,865


7,031Other accrued expenses


9,611


13,153Total

$
33,512

$
37,644


8. Long-Term Debt and Senior Subordinated Credit Facility

Long-term debt consisted of the following:

December 31,
2007

March 31,
2008Term loan facility

$
366,600

$
351,600Senior subordinated notes


303,541


303,541Discount on senior subordinated notes of 8.5%


(12,556
)

(12,095
)Equipment debt


13,211


13,915Long-term debt, including current portion


670,796


656,961Less current portion


3,627


3,599Long-term debt

$
667,169

$
653,362


9. Derivatives

In the second quarter of 2004, the Company entered into interest rate swap agreements, with notional amounts of $56,813, $46,813 and $48,438 to hedge the future
cash interest payments associated with a portion of the Company's variable rate bank debt. These agreements were three years in length. Two of these agreements matured in the second quarter of 2007
and the last agreement matured in the fourth quarter of 2007. As of March 31, 2007 the fair value of the Company's interest rate swap agreements was an accumulated income of $1,055. Under these
arrangements, the Company received three-month LIBOR and paid a fixed rate of 3.15%, 3.89% and 3.69%, respectively. The net effect of the hedges was to record interest expense at fixed rates of 5.65%,
6.39% and 6.19%, respectively, as the debt incurred interest based on three-month LIBOR plus 2.50%. For the quarter ended March 31, 2007, the Company received a net settlement amount of $704.
Changes in the fair value of the swap

15

---



agreements
were recorded in interest expense each period, as these transactions did not qualify for hedge accounting treatment. For the quarter ended March 31, 2007, the Company recognized a
reduction to interest expense of $442 based on the change in fair value of these instruments.

In
the first quarter of 2005, the Company entered into multiple interest rate collar agreements for its variable rate bank debt. The total underlying notional amount of the debt was
$178,000. Under these arrangements the Company purchased a cap on the interest rate of 4.00% and sold a floor of 2.25%. The Company paid a net purchase price of $1,462 for these collars. These
agreements were two and three years in length and matured at various dates between January 2007 and January 2008. As of
March 31, 2007 the fair value of the Company's interest rate collar agreements was an accumulated income of $1,810. For the quarters ended March 31, 2007 and 2008, the Company received a
net settlement amount of $629 and $341, respectively. The Company has designated these collars as cash flow hedges of variable future cash flows associated with its long-term debt. For the
quarters ended March 31, 2007 and 2008 the Company recognized a comprehensive loss, net of tax, of $269 and $205, respectively, based on the change in fair value of these instruments.

In
the first quarter of 2008, the Company entered into two interest rate swap agreements, with a total notional amount of $185,438, to hedge future cash interest payments associated with
a portion of the Company's variable rate bank debt (the "2008 swaps"). These agreements are three years in length and mature in 2011. Under the terms of these agreements, the Company receives
three-month LIBOR and pays a fixed rate of 3.15%. The net effect of the hedges is to record interest expense at a fixed rate of 5.65%, as the debt incurs interest based on three-month LIBOR plus
2.50%. For the quarter ended March 31, 2008, the Company did not receive any net settlement. The Company has designated these swaps as cash flow hedges of future cash flows associated with its
variable rate long-term debt. The Company will record changes in the fair value of the swaps through comprehensive income (loss) during the period these instruments are designated as
hedges. For the quarter ended March 31, 2008, the Company recognized comprehensive loss, net of tax, of $1,533 based on the change in fair value of these instruments.

The
Company accounts for derivative instruments and hedging activities in accordance with the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") and SFAS 138, "Accounting for Certain Derivative Instruments and Hedging Activities" ("SFAS 138"), an amendment of SFAS 133. On the date the
Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company does not enter into derivative instruments that do not qualify as
cash flow hedges as described in SFAS 133 and SFAS 138. The Company formally documents all relationships between hedging instruments and hedged items, as well as the
risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the firm commitment or forecasted transaction
that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging
relationships, both at the hedge inception and on an ongoing basis, in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if it is
determined that the derivative is no longer effective in offsetting change in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated or exercised,
(iii) because it is probable that the forecasted transaction will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if
management determines that designation of the derivative as a hedge instrument is no longer appropriate. The Company's derivatives are recorded on the balance sheet at their fair value. For
derivatives accounted for as cash flow hedges any unrealized gains or losses on fair value are included in comprehensive income, net of tax.

16

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10. Income Taxes

For the quarter ended March 31, 2007 and 2008, the Company recorded a provision for income taxes of $3,952 and $2,677, or 41.1% and 44.0% of the Company's
pretax income, respectively. The Company's effective tax rates were higher than the federal statutory rates primarily as a result of state income taxes and various permanent non-deductible tax items,
including share-based compensation, unrecognized tax benefits and other permanent differences.

FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") clarifies the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes" ("FASB 109"). This Interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative
effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The impact of the Company's reassessment of its tax
positions in accordance with FIN 48 did not have a material effect on the results of operations, financial condition or liquidity.

As
of March 31, 2008, the Company has provided a liability for $2,392 for unrecognized tax benefits related to various federal and state income tax matters. This entire amount
would reduce the Company's effective income tax rate if recognized.

The
Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2008, the Company had approximately $337 in
accrued interest and penalties which is included as a component of the $2,392 unrecognized tax benefit noted above.

Alliance
Imaging, Inc. and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state tax jurisdictions. The Company is currently open to
audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2004 through 2007. The Company and its subsidiaries state income tax returns are open to
audit under the statute of limitations for the years ending December 31, 2003 through 2007. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits
within the next 12 months.

17

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11. 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 31,2007

2008Numerator:Net income

$
5,671

$
3,412Denominator:Denominator for basic earnings per shareweighted-average shares


49,955


50,312Effect of dilutive securities:Employee stock awards


1,133


1,674Denominator for diluted earnings per shareadjusted weighted-average shares


51,088


51,986Earnings per common share:Basic

$
0.11

$
0.07Diluted

$
0.11

$
0.07Stock options excluded from the computation of diluted per share amounts:Weighted-average shares for which the exercise price exceeds average market price of common stock


1,030


397Average exercise price per share that exceeds average market price of common stock

$
9.91

$
12.35


12. Commitments and Contingencies

The Company has applied the disclosure provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," to its agreements that contain guarantee or indemnification clauses. These disclosure provisions expand those required by FASB Statement
No. 5, "Accounting for Contingencies," by requiring a guarantor to disclose certain type of guarantees, even if the likelihood of requiring the guarantor's performance is remote. The following
is a description of arrangements in which the Company is the guarantor or indemnifies a party.

In
the normal course of business, the Company has made certain guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party, in
relation to certain transactions. The Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company
has agreed to hold the other party harmless against losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims arising from a
breach of representations or covenants. In addition, the Company has entered into indemnification agreements with its executive officers and directors and the Company's bylaws contain similar
indemnification obligations. Under these arrangements, we are obligated to indemnify, to the fullest extent permitted under applicable law, our current or former officers and directors for various
amounts incurred with respect to actions, suits or proceedings in which they were made, or threatened to be made, a party as a result of acting as an officer or director.

18

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It
is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and
circumstances involved in each particular agreement. Historically, payments made related to these indemnifications
have been immaterial. At March 31, 2008 the Company has determined that no liability is necessary related to these guarantees and indemnities.

On
May 5, 2005, Alliance Imaging, Inc. was served with a complaint filed in Alameda County Superior Court alleging wage and hour claims on behalf of a putative class of
approximately 400 former and current California employees of the Company. On August 19, 2005, the plaintiffs filed an amended complaint, which the Company answered on September 23, 2005.
In this suit, captioned Linda S. Jones, et al. v. Alliance Imaging, Inc., et al., the plaintiffs allege violations of California's wage, meal period, and break time laws and regulations.
Plaintiffs sought recovery of unspecified economic damages, statutory penalties, attorneys' fees, and costs of suit. On or about March 10, 2006, plaintiffs filed a second amended complaint
adding a cause of action for conversion and a plea for punitive damages. The Company filed a demurrer seeking to strike the new claim and plea. On July 19, 2006, the Company and the Plaintiffs
entered into a tentative settlement of the Class Action Complaint pursuant to which the Company agreed to pay $2,500 in exchange for dismissal with prejudice of all claims brought on behalf of the
putative class under the Class Action Complaint. On September 8, 2006, the settlement was preliminarily approved by the court and a conditional class was certified for purposes of seeking class
approval of the settlement. On October 2, 2006, notice was mailed to the conditional class members outlining the terms of the settlement and providing all class members with an opportunity to
opt out of the settlement prior to the final approval hearing scheduled for November 27, 2006. Two putative class members opted out of the class, and there were no objections submitted. The
final approval hearing was held on November 27, 2006 as scheduled, and the Court granted final approval of the settlement. The settlement amount was distributed by the class settlement
administrator on February 16, 2007. On July 24, 2007, the Court ordered the case dismissed with prejudice pursuant to the Class Settlement Agreement.

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.

13. Related-Party Transactions

The Company recorded management fees payable to Kohlberg Kravis Roberts & Co ("KKR") of $163 through the period ended March 31, 2007 and $193
through April 16, 2007. As of April 16, 2007, KKR was no longer an affiliate of the Company and no longer provided financial advisory services.

On
April 16, 2007, funds managed by Oaktree and MTS purchased approximately 24,501,505 shares of the Company's common stock from a fund managed by an affiliate of KKR. Upon
completion of the transaction, Oaktree and MTS owned in the aggregate approximately 49.7% of the outstanding shares of common stock of the Company. The Company does not pay management fees to Oaktree
and MTS for their financial advisory services to the Company.

Revenue
from management agreements with unconsolidated equity investees was $3,955 and $4,025 for the quarters ended March 31, 2007 and 2008, respectively.

14. Investments in Unconsolidated Investees

The Company has direct ownership in six unconsolidated investees at March 31, 2008. The Company owns between 33.3 percent and 50 percent of
these investees, and provides management services under agreements with five of these investees, expiring at various dates through 2023. At March 31, 2008 the Company also has ownership in an
unconsolidated investee of AO. AO owns 50% of this investee and provides management services under an agreement which expires in 2025. All of

19

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these
investees are accounted for under the equity method since the Company does not exercise control over the operations of these investees.

Set
forth below is certain unaudited financial data for Alliance-HNI, LLC and Subsidiaries, one of the Company's unconsolidated investees (amounts in thousands):

December 31,
2007

March 31,
2008Balance Sheet Data:Current assets

$
6,955

$
6,832Noncurrent assets


14,720


16,315Current liabilities


4,693


4,372Noncurrent liabilities


4,627


6,484


|
|

Quarters Ended March 31,2007

2008Operating Results:Revenues

$
6,977

$
6,905Expenses


4,333


4,541Net income


2,644


2,364Equity in earnings of unconsolidated investees


1,322


1,182


Set
forth below is certain unaudited financial data for the aggregate of the Company's unconsolidated investees, including Alliance-HNI, LLC and Subsidiaries (amounts in
thousands):

December 31,
2007

March 31,
2008Combined Balance Sheet Data:Current assets

$
10,904

$
10,929Noncurrent assets


23,147


24,161Current liabilities


7,760


7,427Noncurrent liabilities


9,624


10,984


|
|

Quarters Ended March 31,2007

2008Combined Operating Results:Revenues

$
9,157

$
9,503Expenses


6,178


7,070Net income


2,979


2,433Equity in earnings of unconsolidated investees


3,484


1,224


20

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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 outpatient diagnostic imaging services, based upon annual revenue and number of diagnostic imaging systems deployed, and is
a provider of radiation therapy services. Our principal sources of revenue are derived from magnetic resonance imaging (MRI) and positron emission tomography and positron emission tomography/computed
tomography (PET and PET/CT). We provide imaging and therapeutic services primarily to hospitals and other healthcare providers on a shared-service and full-time service basis. We also
provide services through a growing number of fixed-site imaging centers, primarily to hospitals or health systems. Our services normally include the use of our imaging systems,
technologists to operate the systems, equipment maintenance and upgrades and management of day-to-day shared-service and fixed-site diagnostic imaging operations.
We also provide non scan-based services, which includes only the use of our imaging systems under a short-term contract. We have also leveraged our leadership in MRI, PET and
PET/CT to expand into radiation oncology. Our radiation oncology business is operated through our affiliate, Alliance Oncology, LLC and includes a wide range of services for cancer patients
covering initial consultation, preparation for treatment, simulation of treatment, actual radiation therapy delivery, therapy management and follow-up care. Our services include the use of
our linear accelerators, therapists to operate such systems, administrative staff, equipment maintenance and upgrades, and management of day-to-day operations. We also provide
stereotactic radiation therapy services through our wholly-owned subsidiary Alliance Radiosurgery, LLC. For the quarter ended March 31, 2008, MRI services and PET and PET/CT services
generated 57% and 31% of our revenue, respectively. The remaining revenue was comprised of other modality diagnostic imaging services revenue, primarily computed tomography (CT), radiation oncology
revenue, and management contract revenue. We had 500 diagnostic imaging and radiation therapy systems, including 314 MRI systems and 81 PET or PET/CT systems and served over 1,000 clients in 45 states
at March 31, 2008. We operated 88 fixed-site imaging centers (five in unconsolidated joint ventures), which constitutes systems installed in hospitals or other medical buildings on
or near hospital campuses, including modular buildings, systems installed inside medical groups' offices, and free-standing fixed-site imaging centers, which
includes systems installed in a medical office building, ambulatory surgical center, or other retail space at March 31, 2008. Of the 88 fixed-site imaging centers, 71 were MRI
fixed-site imaging centers, four were PET or PET/CT fixed-site imaging centers, eight were other modality fixed-site imaging centers, and five were in
unconsolidated joint ventures. We also operated 18 radiation therapy centers and stereotactic radiosurgery facilities (including two radiation therapy centers in unconsolidated joint ventures) at
March 31, 2008.

Approximately
80% of our revenues for the quarter ended March 31, 2008 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 on patients on our clients' behalf,
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. The initial terms of these
contracts average approximately three years in length for mobile services and approximately five to 10 years in length for fixed-site arrangements. These contracts often contain
automatic renewal provisions and certain contracts have cancellation clauses if the hospital or other healthcare provider purchases their own system. We price our contracts based on the type of system
used, the scan volume, and the number of ancillary services provided. Pricing is also affected by competitive pressures.

21

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Approximately
20% of our revenues for the quarter ended March 31, 2008 were generated by providing services directly to patients from our sites located at or near hospitals or
other healthcare provider facilities, which we refer to as retail revenue. Our revenue from these sites is generated from direct billings to patients or their third-party payors, including Medicare,
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.

Fixed-site
imaging centers and radiation therapy centers can be structured as either wholesale or retail arrangements. Revenues from these centers are included in both our wholesale or
retail revenues, respectively.

On
February 8, 2006, the Deficit Reduction Act of 2005 ("DRA") was signed into law. The DRA imposes caps on Medicare payment rates for certain imaging services, including MRI and
PET, furnished in physician's offices and other non-hospital based settings. Under the cap, payments for specified imaging services cannot exceed the hospital outpatient payment rates for
those services. This change applied to services furnished on or after January 1, 2007. The limitation is applicable to the technical components of the services only, which is the payment we
receive for the services for which we bill directly under the Medicare Physician Fee Schedule. The technical
reimbursement under the Physician Fee Schedule generally allows for higher reimbursement than under the hospital outpatient prospective payment system, or HOPPS. The implementation of this
reimbursement reduction contained in the DRA had a significant effect on our financial condition and results of operations in 2007 and 2008.

On
November 1, 2006, the Centers for Medicare and Medicaid Services, or CMS, issued a final determination of Medicare Part B HOPPS reimbursement rates for PET and PET/CT
imaging procedures, effective January 1, 2007. In 2007, the national rate for PET scans was reduced from the rate of $1,150 per scan in 2006 to $855 per scan. In addition, for 2007, the
national rate for PET/CT scans was reduced from the rate of $1,250 per scan in 2006 to $950 per scan.

On
November 1, 2007, CMS issued a final determination related to Medicare Part B HOPPS reimbursement rates for imaging procedures. In this final ruling, CMS bundled the PET
and PET/CT payment for the radiopharmaceutical with the payment for the PET and PET/CT scan. As a result, the 2008 national Medicare payment rate for PET and PET/CT scans was reduced by approximately
13% and 20%, respectively. In addition, CMS reduced the 2008 national Medicare HOPPS rate for MRI scans by approximately 3%.

The
rate reductions have had and will continue to have a direct negative effect on revenue and earnings. As a result of the reductions in Medicare reimbursement rates resulting from the
implementation of the DRA and revised PET and PET/CT reimbursements under HOPPS, the Company may face increased PET and PET/CT wholesale pricing pressure.

Furthermore,
with respect to our retail revenue, the Medicare Physician Fee Schedule payments, the Medicare, Medicaid and SCHIP Extension Act of 2007, which was signed into law on
December 29, 2007, eliminated a scheduled 10.1% reduction for 2008 payment rates and increased the rates by 0.5%. This increase to the annual Medicare Physician Fee Schedule payment update is
effective only for Medicare claims with dates of service between January 1, 2008 and June 30, 2008. The original 10.1% reduction in payment rates will go into effect for claims with
dates of service beginning July 1, 2008 unless Congress passes and the President signs intervening legislation. In past years, intervening legislation has been passed to prevent such
reductions, but there are no assurances of a continuation in the payment rates for the second half of 2008.

The
principal components of our cost of revenues are compensation paid to technologists and drivers, system maintenance costs, medical supplies, system transportation and technologists'
travel costs. Because a majority of these expenses are fixed, increased revenues as a result of higher scan

22

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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 and marketing costs, corporate overhead costs, provision for doubtful accounts, and
non-cash share-based compensation.

We
record minority interest expense and earnings from unconsolidated investees related to our consolidated and unconsolidated subsidiaries, respectively. These subsidiaries primarily
provide shared-service and fixed-site diagnostic imaging and therapeutic services.

In
2007 and 2008, the growth rate of MRI industry wide scan volumes has slowed in part due to weak hospital volumes as reported by several investor-owned hospital companies, a growing
number of medical groups adding imaging capacity within their practice setting, the increasing trend of third-party payors intensifying their utilization management efforts to control MRI scan volume
growth rate and additional patient-related cost-sharing programs. We expect that this trend will continue throughout 2008.

We
have experienced and continue to experience an increase in the competitive climate in the MRI industry, resulting in an increase in activity by original equipment manufacturers, or
OEMs, selling systems directly to certain of our clients. Typically, OEMs target our higher scan volume clients. This increase in activity by OEMs has resulted in overcapacity of systems
in the marketplace, especially related to medical groups adding imaging capacity within their practice setting. This has caused an increase in the number of our higher scan volume clients deciding not
to renew their contracts. We replace these higher volume scan clients typically with lower volume clients. In the first quarter of 2008, our MRI revenues increased compared to 2007 levels due to the
acquisitions completed in the fourth quarter of 2007, which was partially offset by the modest decrease in scan volume, and we believe that MRI revenues will modestly decline in future years.

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, typically resulting in fewer patients being scanned during the period. Fourth quarter
revenue is affected primarily by holiday and client and patient vacation schedules and inclement weather, also resulting in fewer scans during the period. The variability in margins is higher than the
variability in revenues due to the fixed nature of our costs.

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Results of Operations

The following table shows our consolidated statements of income as a percentage of revenues for each of the quarters ended March 31:

2007

2008Revenues

100.0
%
100.0
%Costs and expenses:Cost of revenues, excluding depreciation and amortization

51.3

52.7Selling, general and administrative expenses

13.5

13.2Severance and related costs

0.1

0.1Depreciation expense

19.0

18.0Amortization expense

1.1

1.6Interest expense, net of interest income

9.2

9.9Other (income) and expense, net

(0.3
)
(0.1
)Total costs and expenses

93.9

95.4Income before income taxes, minority interest expense and earnings from unconsolidated investees

6.1

4.6Income tax expense

3.6

2.2Minority interest expense

0.5

0.5Earnings from unconsolidated investees

(3.2
)
(1.0
)Net income

5.2
%
2.9
%


The
table below provides MRI statistical information for each of the quarters ended March 31:

2007

2008MRI statisticsAverage number of total systems


310.6


307.0Average number of scan-based systems


256.6


249.9Scans per system per day (scan-based systems)


9.12


9.06Total number of scan-based MRI scans


162,800


158,708Price per scan

$
360.69

$
382.55


The
table below provides PET and PET/CT statistical information for each of the quarters ended March 31:

2007

2008PET and PET/CT statisticsAverage number of systems


69.9


76.9Scans per system per day


6.29


6.12Total number of PET and PET/CT scans


27,713


31,000Price per scan

$
1,221

$
1,199


Following
are the components of revenue (in millions):

2007

2008Total MRI revenue

$
65.5

$
68.2PET and PET/CT revenue


34.2


37.3Other modalities and other revenue


9.7


13.6Total

$
109.4

$
119.1


|
|

2007

2008Total fixed-site imaging center revenue (in millions) for each of the quarters ended March 31:

$
18.1

$
24.3


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Quarter Ended March 31, 2008 Compared to Quarter Ended March 31, 2007

Revenue increased $9.7 million, or 8.9%, to $119.1 million in the first quarter of 2008 compared to $109.4 million in the first quarter of
2007 due to an increase in other modalities and other revenue, PET and PET/CT revenues, and MRI revenues. Other modalities and other revenue increased $3.9 million, or 39.5%, to
$13.6 million in the first quarter of 2008 compared to $9.7 million in the first quarter of 2007 primarily due to an increase in radiation therapy revenue and an increase in management
contract revenue. PET and PET/CT revenue in the first quarter of 2008 increased $3.1 million, or 9.4%, compared to the first quarter of 2007. Total PET and PET/CT scan volumes increased 11.9%
to 31,000 scans in the first quarter of 2008 from 27,713 scans in the first quarter of 2007, primarily as a result of growth in our core PET business. The average number of PET and PET/CT systems in
service increased to 76.9 systems in the first quarter of 2008 from 69.9 systems in the first quarter of 2007. These PET and PET/CT increases were partially offset by a 1.8% decline in the average
price per PET and PET/CT scan, to $1,199 per scan in the first quarter of 2008 compared
to $1,221 per scan in the first quarter of 2007. Scans per system per day also decreased 2.7%, to 6.12 scans per system per day in the first quarter of 2008 from 6.29 scans per system per day in the
first quarter of 2007. MRI revenue increased $2.7 million in the first quarter of 2008, or 4.1%. Scan-based MRI revenue increased $2.0 million in the first quarter of 2008,
or 3.4%, compared to the first quarter of 2007, to $60.7 million in the first quarter of 2008 from $58.7 million in the first quarter of 2007. This increase is primarily a result of an
increase in the average price per MRI scan of $382.55 per scan in the first quarter of 2008 compared to $360.69 per scan in the first quarter of 2007 primarily due to retail revenue associated with
New England Health Enterprises ("NEHE") acquisition. Non-scan based MRI revenue increased $0.7 million in the first quarter of 2008 over the same period in 2007. These increases
were partially offset by a 2.5% decrease in our scan-based MRI scan volume. Scan-based MRI scan volume decreased to 158,708 scans in the first quarter of 2008 from 162,800
scans in the first quarter of 2007, primarily due to a decrease in the average number of scan-based systems in service due to lower client demand. Scan-based systems in service
decreased to 249.9 systems in the first quarter of 2008 from 256.6 systems in the first quarter of 2007. Average scans per system per day also decreased by 0.7% to 9.06 in first quarter of 2008 from
9.12 in first quarter of 2007. Included in the revenue totals above is fixed-site imaging center revenues, which increased $6.2 million, or 34.3%, to $24.3 million in the
first quarter of 2008 from $18.1 million in the first quarter of 2007.

We
had 314 MRI systems at March 31, 2008 compared to 326 MRI systems at March 31, 2007. We had 81 PET and PET/CT systems at March 31, 2008 compared to 77 PET and
PET/CT systems at March 31, 2007. We operated 88 fixed-site imaging centers (including five in unconsolidated joint ventures) at March 31, 2008, compared to 72
fixed-site imaging centers (including three in unconsolidated joint ventures) at March 31, 2007. We operated 18 radiation therapy centers and stereotactic radiosurgery facilities
(including two radiation therapy centers in unconsolidated joint ventures) at March 31, 2008.

Cost
of revenues, excluding depreciation and amortization, increased $6.6 million, or 11.8%, to $62.8 million in the first quarter of 2008 compared to $56.2 million
in the first quarter of 2007. Compensation and related employee expenses increased $3.6 million, or 13.3%, primarily as a result of an increase in average headcount related to acquisitions
completed in the fourth quarter of 2007. Management contract expenses increased $0.7 million, or 21.6%, primarily as a result of an increase in expenses incurred on behalf of unconsolidated
investees. Outside medical services increased $0.7 million, or 36.9%, primarily as a result of an increase in radiologist service costs associated with the NEHE acquisition and an increase in
temporary labor. Medical supplies increased $0.6 million, or 11.7%, primarily as a result of an increase in FDG costs, which are used as a component of a PET scan due to an increase in the
number of PET scans. Fuel expenses increased $0.5 million, or 35.9%, primarily due to an increase in the average price per gallon of diesel fuel costs. All other cost of revenues, excluding
depreciation and amortization, increased $0.5 million, or 3.4%. Cost of revenues, as

25

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a
percentage of revenue, increased to 52.7% in the first quarter of 2008 from 51.3% in the first quarter of 2007 as a result of the factors described above.

Selling,
general and administrative expenses increased $1.0 million, or 6.7%, to $15.7 million in the first quarter of 2008 compared to $14.7 million in the first
quarter of 2007. The provision for doubtful
accounts increased $0.7 million, or 81.5%, primarily due to the increase in retail revenue associated with fourth quarter 2007 acquisitions. The provision for doubtful accounts as a percentage
of revenue was 1.3% in the first quarter of 2008 compared to 0.8% of revenue in the first quarter of 2007. Non-cash share-based compensation increased $0.6 million in the first
quarter of 2008 from the first quarter of 2007 due to new equity awards granted in the first quarter of 2008. Professional services decreased $0.7 million, or 31.7%, due to a decrease in legal
costs and consulting services. All other selling, general and administrative expenses increased $0.4 million, or 3.7%. Selling, general and administrative expenses as a percentage of revenue
were 13.2% and 13.5% in the first quarter of 2008 and 2007, respectively.

We
recorded severance and related costs of $0.1 million in both the first quarters of 2008 and 2007.

Depreciation
expense increased $0.6 million, or 2.9%, to $21.4 million in the first quarter of 2008 compared to $20.8 million in the first quarter of 2007.

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Amortization expense increased by $0.7 million, or 53.4%, to $1.9 million in the first quarter of 2008 compared to $1.2 million in the first quarter of 2007,
primarily due to the incremental amortization expense for intangible assets acquired in conjunction with our acquisitions in the fourth quarter of 2007.

Interest
expense, net, increased $1.7 million, or 17.3%, to $11.8 million in the first quarter of 2008 compared to $10.1 million in the first quarter of 2007. This
increase was primarily related to incremental interest expense associated with the $150.0 million 71/4% senior subordinated note offering completed in the fourth quarter of 2007.

Income
tax expense was $2.7 million and $4.0 million in the first quarter of 2008 and 2007, respectively, resulting in effective tax rates of 44.0% and 41.1% in the first
quarter of 2008 and 2007, respectively. Our effective tax rates were higher than the federal statutory rates principally as a result of state income taxes.

Minority
interest expense increased $0.1 million, or 13.9%, to $0.6 million in the first quarter of 2008 compared to $0.5 million in the first quarter of 2007.

Earnings
from unconsolidated investees decreased by $2.3 million, or 64.9%, to $1.2 million in the first quarter of 2008 compared to $3.5 million in the first
quarter of 2007, primarily due to a $2.0 million gain on sale from a sale/leaseback transaction in one of the Company's unconsolidated investees as well as a decrease in earnings of
unconsolidated investees.

Our
net income was $3.4 million, or $0.07 per share on a diluted basis, in the first quarter of 2008 compared to $5.7 million, or $0.11 per share on a diluted basis, in the
first quarter of 2007.

Liquidity and Capital Resources

Our primary source of liquidity is cash provided by operating activities. We generated $28.3 million and $24.7 million of cash flow from operating
activities in the first quarters of 2008 and 2007, respectively. Our ability to generate cash flow is affected by numerous factors, including demand for MRI, PET and other diagnostic imaging services.
Our ability to generate cash flow from operating activities is also dependent upon the collections of our accounts receivable. The provision for doubtful accounts increased by $0.7 million in
the first quarter of 2008 compared to the first quarter of 2007. Our number of days of revenue outstanding for our accounts receivable was 49 days as of March 31, 2008 and 2007, which we
believe is among the more favorable in the healthcare service industry. In addition, as of March 31, 2008, we had $64.4 million of available borrowings under our revolving line of
credit.

We
used cash of $25.5 million and $9.9 million for investing activities in the quarters ended March 31, 2008 and 2007, respectively. Investing activities in the
first quarter of 2008 includes $10.8 million used for acquisitions. We expect to continue to use cash for acquisitions in the future. Other than acquisitions, our primary use of capital
resources is to fund capital expenditures. We incur capital expenditures for the purposes of:



Capital
expenditures totaled $17.0 million and $24.8 million in the quarters ended March 31, 2008 and 2007, respectively. During the first quarter of 2008, we
purchased eight MRI systems and three PET/CT systems. We traded-in or sold a total of five total systems for the quarter ended March 31, 2008. Our decision to purchase a new system
is typically predicated on obtaining new or extending

26

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existing
client contracts, which serve as the basis of demand for the new system. We expect to purchase additional systems in 2008 and finance substantially all of these purchases with our available
cash, cash from operating activities, our revolving line of credit, and equipment leases. Based upon the client demand described above, which dictates the type of equipment purchased, we expect
capital expenditures to total approximately $55 to $65 million in 2008.

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

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement No. 115" ("SFAS 159"), which permits entities to choose to measure many financial instruments and certain other items at fair value.
The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. SFAS 159 was effective and adopted by us on January 1, 2008. The provisions of SFAS 159 are being applied
prospectively. The adoption of SFAS 159 did not have a material impact on our results of operations, cash flows or financial position.

In
December 2007, the FASB issued SFAS No. 141(R) (Revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) will significantly change the accounting for
business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific items, including:



SFAS 141(R)
also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, since we are a calendar year-end
company we will continue to record and disclose business combinations following existing generally accepted accounting principles until January 1, 2009. We expect SFAS 141(R) will have
an impact on accounting for business combinations once adopted but the effect is generally dependent upon acquisitions at that time.

27

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In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of Accounting Research Bulletin
No. 51" ("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes
expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. We have not completed our evaluation of the potential impact of the adoption of SFAS 160 on our consolidated
results of operations, cash flows or financial position.

In
March 2008, the FASB issued SFAS No. 161, "Disclosure about Derivative Instruments and Hedging ActivitiesAn Amendment of FASB Statement No. 133"
("SFAS 161"), which enhances the current guidance on disclosure requirements for derivative instruments and hedging activities. This statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting designation. Specifically, SFAS 161 requires disclosure about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flow. This statement requires qualitative disclosure about the objectives and strategies for using derivatives in terms of the
risks that the entity is intending to manage, quantitative disclosures about fair value amounts of gains and losses on derivative instruments in a tabular format, and disclosures about
credit-risk-related contingent features in derivative agreements to provide information on potential effect on an entity's liquidity from using derivatives. The derivative
instruments shall be distinguished between those used for risk management purposes and those used for other purposes. SFAS 161 is effective for fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008, with early application encouraged. As SFAS 161 provides only disclosure requirements, the adoption of this standard will not have a
material impact on our results of operations, cash flows or financial position.

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 we expect or anticipate 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 our business and our 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", "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, the risk that the
counter-parties to our interest rate swap agreements fail to satisfy their obligations under these

28

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agreements,
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 rates or methods of third party reimbursements for diagnostic imaging services, changes in the healthcare regulatory environment, our
ability to keep pace with technological developments within our industry, our ability to integrate acquisitions, and other risks and uncertainties, including those enumerated and described under "Risk
Factors" in our Form 10-K, as filed with the Securities and Exchange Commission, for the fiscal year ended December 31, 2007. 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 us.

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 existing credit agreement approximates fair value as these borrowings have variable rates that reflect currently
available terms
and conditions for similar debt. To decrease the risk associated with interest rate increases, we entered into multiple interest rate swap and collar agreements for a portion of our variable rate
debt. These swaps and collars are designated as cash flow hedges of variable future cash flows associated with our long-term debt.

During
2004 we entered into swap agreements which had notional amounts of $56.8 million, $46.8 million and $48.4 million. Under the terms of these agreements, we
received three-month London Interbank Offered Rate ("LIBOR") and paid a fixed rate of 3.15%, 3.89%, and 3.69%, respectively. The net effect of the hedges was to record interest expense at fixed rates
of 5.65%, 6.39% and 6.19% respectively, as the debt incurred interest based on three-month LIBOR plus 2.50%. For the quarter ended March 31, 2007, we received a net settlement amount of
$0.7 million. The swap agreements matured during the second and fourth quarters of 2007.

During
2005 we entered into multiple interest rate collar agreements which had a notional amount of $178.0 million. Under the terms of these agreements, we purchased a cap on the
interest rate of 4.00% and sold a floor of 2.25%. For the quarters ended March 31, 2008 and 2007 we received a net settlement amount of $0.3 million and $0.6 million,
respectively, on these collar agreements. The collar agreements matured at various dates between January 2007 and January 2008.

During
the first quarter of 2008 we entered into two interest rate swap agreements with notional amounts of $92.7 million each, to hedge future cash interest payments associated
with a portion of the Company's variable rate bank debt (the "2008 swaps"). Under the terms of these agreements, we receive three-month LIBOR and pay a fixed rate of 3.15%. The net effect of the
hedges is to record interest expense at a fixed rate of 5.65%, as the debt incurs interest based on three-month LIBOR plus 2.50%. For the quarter ended March 31, 2008 we did not receive a net
settlement amount on these swap agreements. The 2008 swaps are three years in length and mature in 2011.

The
collar agreements and the 2008 swaps have been designated as cash flow hedges of variable future cash flows associated with our long term debt. In accordance with SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," the collars and the 2008 swaps are, and will be, recorded at fair value. On a quarterly basis, the fair value of the collars and 2008
swaps will be determined based on quoted market prices and, assuming perfect effectiveness, the difference between

29

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the
fair value and the book value of the collars will be recognized in comprehensive income, a component of shareholders' equity. Any ineffectiveness of the collars and 2008 swaps is required to be
recognized in earnings.

The
2008 swaps expose us to credit risk in the event that the counterparties to the agreements do not or cannot meet their obligations. The notional amount is used to measure interest to
be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the 2008
swaps. The
counterparties to the 2008 swaps are major financial institutions and we expect the counterparties to be able to perform their obligations. The collars outstanding at December 31, 2007 matured
during January 2008, and all counterparty obligations were met.

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
Company maintains its cash equivalents in financial instruments with original maturities of 90 days or less. The Company also held investments in marketable securities during 2007, which
consisted primarily of investment grade auction rate securities and debt securities, all classified as available-for-sale with original maturities greater than 90 days.
The recorded carrying amounts of cash and cash equivalents and marketable securities approximate fair value due to their short-term maturities.

ITEM 4.    CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not
control or manage these entities, our disclosure controls and procedures with respect to such entities are more limited than those we maintain with respect to our consolidated subsidiaries. These
unconsolidated entities are not considered material to our consolidated financial position or results of operations.

As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There
has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.

30

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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 1A.    RISK FACTORS

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2007, a
description of certain risks and uncertainties that could affect the Company's business, future performance or financial condition (the "Risk Factors"). The Risk Factors are hereby incorporated in
Part II, Item 1A of this Form 10-Q. Investors should consider the Risk Factors prior to making an investment decision with respect to the Company's stock.

ITEM 2.    UNREGISTERED SALES OF EQUITY 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

Not applicable.

ITEM 6.    EXHIBITS



|3.1 |  | Amended and Restated Certificate of Incorporation of Alliance.(3)                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2 |  | Amended and Restated By-laws of Alliance.(3)                                                                                                                                                                                                                
|3.3 |  | Amendment to Amended and Restated By-laws of Alliance.(19)                                                                                                                                                                                                  
|4.1 |  | Credit Agreement dated as of November 2, 1999, as amended.(1)                                                                                                                                                                                               
|4.2 |  | Specimen certificate for shares of common stock, $.01 par value, of Alliance.(3)                                                                                                                                                                            
|4.3 |  | Second Amendment dated as of June 10, 2002 to Credit Agreement.(4)                                                                                                                                                                                          
|4.4 |  | Indenture dated as of December 29, 2004 by and between the Registrant and the Bank of New York with respect to $150 million aggregate principal amount of 71/4% Senior
Subordinated Notes due 2012 and 71/4% Series B Senior Subordinated Notes due 2012.(6)
|4.5 |  | Third Amendment dated as of December 29, 2004 to Credit Agreement.(6)                                                                                                                                                                                       
|4.6 |  | Fourth Amendment dated as of December 19, 2005 to Credit Agreement.(8)                                                                                                                                                                                      
|4.7 |  | Fifth Amendment dated as of April 16, 2007 to Credit Agreement.(16)                                                                                                                                                                                         
|4.8 |  | Indenture, including the form of Note, dated as of December 4, 2007, between Alliance Imaging, Inc., as issuer, and The Bank of New York Trust Company, N.A., as trustee.(18)                                                                               

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|10.1  |  | The 1999 Equity Plan for Employees of Alliance and Subsidiaries, as amended and restated.(19)                                                                                                                                                                                         
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2  |  | Two forms of option agreement under the 1999 Equity Plan for Employees of Alliance and Subsidiaries, as amended and restated.(1)                                                                                                                                                      
|10.3  |  | Alliance Directors' Deferred Compensation Plan, as amended and restated.(19)                                                                                                                                                                                                          
|10.4  |  | Employment Agreement dated as of January 1, 2003 between Alliance and Paul S. Viviano.(5)                                                                                                                                                                                             
|10.5  |  | Agreement Not to Compete dated as of January 1, 2003 between Alliance and Paul S. Viviano.(5)                                                                                                                                                                                         
|10.6  |  | Stock Subscription Agreement dated as of January 2, 2003 between Alliance and Paul S. Viviano.(5)                                                                                                                                                                                     
|10.7  |  | Stock Subscription Agreement dated as of February 3, 2003 between Alliance and Paul S. Viviano.(5)                                                                                                                                                                                    
|10.8  |  | Form of Stockholder's Agreement.(1)                                                                                                                                                                                                                                                   
|10.9  |  | Registration Rights Agreement dated as of November 2, 1999.(1)                                                                                                                                                                                                                        
|10.10 |  | Management Agreement, dated as of November 2, 1999, between Alliance and Kohlberg Kravis Roberts & Co., LLP.(1)                                                                                                                                                                       
|10.11 |  | Amendment No. 1 to Management Agreement, effective as of January 1, 2000, between Alliance and Kohlberg Kravis Roberts & Co., LLP.(1)                                                                                                                                                 
|10.12 |  | Form of Indemnification Agreement.(2)                                                                                                                                                                                                                                                 
|10.13 |  | Amended and Restated Employment Agreement dated as of May 9, 2005 between Alliance and Paul S. Viviano.(7)                                                                                                                                                                            
|10.14 |  | Agreement Not to Compete dated as of May 9, 2005 between Alliance and Paul S. Viviano.(7)                                                                                                                                                                                             
|10.15 |  | Employment Agreement dated as of December 1, 2005 between Alliance and Howard K. Aihara.(9)                                                                                                                                                                                           
|10.16 |  | Agreement Not to Compete dated as of December 1, 2005 between Alliance and Howard K. Aihara.(9)                                                                                                                                                                                       
|10.17 |  | 2006 Executive Incentive Plan(10)                                                                                                                                                                                                                                                    
|10.18 |  | Summary of compensation award to Nicholas A. Poan(11)                                                                                                                                                                                                                                 
|10.19 |  | Forms of Restricted Stock Award Agreement under the 1999 Equity Plan for Employees of Alliance and Subsidiaries, as amended and Restated(14)                                                                                                                                          
|10.20 |  | Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement (Directors)(19)                                                                                                                                                                            
|10.21 |  | Form of Stock Bonus Award Agreement under the 1999 Equity Plan for Employees of Alliance and Subsidiaries, as amended and Restated(14)                                                                                                                                                
|10.22 |  | Summary of compensation award to Michael F. Frisch(12)                                                                                                                                                                                                                                
|10.23 |  | Summary of compensation award to Eli Glovinsky(14)                                                                                                                                                                                                                                    
|10.24 |  | Schedule of Executive Officer Compensation(20)                                                                                                                                                                                                                                        
|10.25 |  | Schedule of Non-Employee Director Compensation(20)                                                                                                                                                                                                                                    
|10.26 |  | Underwriting Agreement, dated November 20, 2006, by and among Alliance Imaging, Inc., the selling stockholder named therein and Citigroup Global Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as representatives of the several underwriters named therein(13)

32

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|10.27 |  | Governance and Standstill Agreement, dated as of March 16, 2007, among Alliance Imaging, Inc., OCM Principal Opportunities Fund IV, LP., and MTS Health Investors II, L.P.(15)              
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28 |  | Form of Executive Severance Agreement(15)                                                                                                                                                   
|10.29 |  | Assignment, dated as of April 16, 2007, to Registration Rights Agreement, dated as of November 2, 1999.(16)                                                                                 
|10.30 |  | Amendment No. 2 to Management Agreement, dated as of April 16, 2007, between Alliance and Kohlberg, Kravis Roberts & Co., LLP.(16)                                                          
|10.31 |  | Amendment of Employment Agreement, dated as of April 16, 2007, between Paul S. Viviano and Alliance Imaging, Inc.(16)                                                                       
|10.32 |  | Amendment of Employment Agreement, dated as of April 16, 2007, between Howard K. Aihara and Alliance Imaging, Inc.(16)                                                                      
|10.33 |  | Underwriting Agreement, dated May 10, 2007, by and among Alliance Imaging, Inc., the selling stockholder named therein and Citigroup Global Markets Inc., the underwriter named
therein.(17)
|10.34 |  | Registration Rights Agreement, dated as of December 4, 2007, by and between Alliance Imaging, Inc. and Deutsche Bank Securities Inc. and Piper Jaffray & Co.(18)                            
|10.35 |  | New form of option agreement under the 1999 Equity Plan for Employees of Alliance and subsidiaries, as amended and restated.(20)                                                            
|21.1  |  | List of subsidiaries.(15)                                                                                                                                                                   
|31    |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(21)                                                        
|32    |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(21)                                                        

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34

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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 9, 2008 |  | By:                    
|            |  |                        
|May 9, 2008 |  | By:                    
|            |  |                        
|May 9, 2008 |  | By:                    
|            |  |                        

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