**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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FORM 10-Q

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

**ForQuarter Ended: March 31, 2005**

**CommissionFile Number: 1-16609**

**ALLIANCE IMAGING, INC.**

(Exact name of registrantas specified in its charter)

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

 

**1900 South State CollegeBoulevardSuite 600Anaheim, California 92806**

(Address of principalexecutive office)

**(714) 688-7100**

(Registrant’s telephonenumber, including area code)

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

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).  Yes  x    No  o

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of April 30,2005:

Common Stock, $.01 parvalue, 49,239,396 shares

 

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**ALLIANCEIMAGING,  INC.FORM 10-QMarch 31, 2005Index**
|                                                                                                                                   | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I—FINANCIAL  INFORMATION                                                                                           |       |     |   |   |
| Item 1—Financial Statements:                                                                                                 |       |     |   |   |
| Condensed  Consolidated Balance Sheets  December 31, 2004 and March 31, 2005 (Unaudited)                                |       |     | 2 |   |
| Condensed  Consolidated Statements of Operations and Comprehensive Income  Quarter ended March 31, 2004 and 2005 (Unaudited) |       |     | 3 |   |
| Condensed  Consolidated Statements of Cash Flows  Quarter ended March 31, 2004 and 2005 (Unaudited)                |       |     | 4 |   |
| Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                                 |       |     | 5 |   |
| Item  2—Management’s Discussion and Analysis of Financial Condition and Results of  Operations                          |       |     | 13 |   |
| Item  3—Quantitative and Qualitative Disclosures about Market Risk                                                           |       |     | 19 |   |
| Item  4—Controls and Procedures                                                                                              |       |     | 20 |   |
| PART II—OTHER  INFORMATION                                                                                              |       |     |   |   |
| Item  1—Legal Proceedings                                                                                                    |       |     | 21 |   |
| Item  2—Unregistered Sales of Equity Securities and Use of Proceeds                                                          |       |     | 21 |   |
| Item  3—Defaults Upon Senior Securities                                                                                      |       |     | 21 |   |
| Item  4—Submission of Matters to a Vote of Security Holders                                                                  |       |     | 21 |   |
| Item  5—Other Information                                                                                                    |       |     | 21 |   |
| Item  6—Exhibits                                                                                                             |       |     | 22 |   |
| SIGNATURES                                                                                                                        |       |     | 25 |   |

 

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**PART I—FINANCIAL INFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

**ALLIANCE IMAGING, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(in thousands)**
| ** **                                                   | ** ** | **December 31,  2004** | ** ** | **March 31,  2005** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| **ASSETS**                                                   |       |                        |       |                     |       |   |   |
| Current assets:                                              |       |                        |       |                     |       |   |   |
| Cash and cash  equivalents                                   |       |                        | $          | 20,721                   |       |   | $ | 9,100 |   |
| Accounts receivable, net  of allowance for doubtful accounts |       |                        | 50,146     |                     |       | 49,110 |   |
| Deferred income taxes                                        |       |                        | 12,782     |                     |       | 13,579 |   |
| Prepaid expenses and  other current assets                   |       |                        | 3,082      |                     |       | 3,214 |   |
| Other receivables                                            |       |                        | 3,323      |                     |       | 4,747 |   |
| Total current assets                                         |       |                        | 90,054     |                     |       | 79,750 |   |
| Equipment, at cost                                           |       |                        | 727,232    |                     |       | 722,533 |   |
| Less accumulated  depreciation                               |       |                        | (373,721   | )                        |       | (376,441 | ) |
| Equipment, net                                               |       |                        | 353,511    |                     |       | 346,092 |   |
| Goodwill                                                     |       |                        | 122,992    |                     |       | 122,992 |   |
| Other intangible assets,  net                                |       |                        | 28,249     |                     |       | 27,452 |   |
| Deferred financing  costs, net                               |       |                        | 9,264      |                     |       | 8,822 |   |
| Other assets                                                 |       |                        | 18,128     |                     |       | 22,896 |   |
| Total assets                                                 |       |                        | $          | 622,198                  |       |   | $ | 608,004 |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**               |       |                        |       |                     |       |   |   |
| Current liabilities:                                         |       |                        |       |                     |       |   |   |
| Accounts payable                                             |       |                        | $          | 20,518                   |       |   | $ | 13,320 |   |
| Accrued compensation and  related expenses                   |       |                        | 15,661     |                     |       | 13,714 |   |
| Accrued interest payable                                     |       |                        | 717        |                     |       | 5,751 |   |
| Income taxes payable                                         |       |                        | 865        |                     |       | 831 |   |
| Other accrued  liabilities                                   |       |                        | 22,177     |                     |       | 23,097 |   |
| Current portion of  long-term debt                           |       |                        | 9,390      |                     |       | 9,433 |   |
| Total current  liabilities                                   |       |                        | 69,328     |                     |       | 66,146 |   |
| Long-term debt, net of  current portion                      |       |                        | 412,733    |                     |       | 386,405 |   |
| Senior subordinated  notes                                   |       |                        | 153,541    |                     |       | 153,541 |   |
| Minority interests and  other liabilities                    |       |                        | 4,164      |                     |       | 3,382 |   |
| Deferred income taxes                                        |       |                        | 49,960     |                     |       | 55,918 |   |
| Total liabilities                                            |       |                        | 689,726    |                     |       | 665,392 |   |
| Commitments and contingencies (Note 11)                      |       |                        |       |                     |       |   |   |
| Stockholders’ deficit:                                  |       |                        |       |                     |       |   |   |
| Common stock                                                 |       |                        | 490        |                     |       | 492 |   |
| Additional paid-in  deficit                                  |       |                        | (15,798    | )                        |       | (14,540 | ) |
| Accumulated  comprehensive (loss) income                     |       |                        | (278       | )                        |       | 2,467 |   |
| Accumulated deficit                                          |       |                        | (51,942    | )                        |       | (45,807 | ) |
| Total stockholders’  deficit                            |       |                        | (67,528    | )                        |       | (57,388 | ) |
| Total liabilities and  stockholders’ deficit            |       |                        | $          | 622,198                  |       |   | $ | 608,004 |   |

 

See accompanying notes.

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**ALLIANCE IMAGING, INC.CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME(Unaudited)(in thousands, except per share amounts)**
| ** **                                                                                        | ** ** | **Quarter Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                        | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Revenues                                                                                          |       | $                                      | 105,646    |   | $ | 105,964 |   |
| Costs and  expenses:                                                                              |       |                                   |       |   |   |
| Cost of revenues,  excluding depreciation and amortization                                        |       | 53,272                                 |       | 53,936 |   |
| Selling, general  and administrative expenses                                                     |       | 12,168                                 |       | 11,686 |   |
| Employment  agreement costs                                                                       |       | 305                                    |       | 274 |   |
| Depreciation  expense                                                                             |       | 20,845                                 |       | 20,463 |   |
| Amortization  expense                                                                             |       | 876                                    |       | 881 |   |
| Interest expense,  net of interest income                                                         |       | 10,608                                 |       | 9,061 |   |
| Other expense and  (income), net                                                                  |       | 34                                     |       | (332 | ) |
| Total costs and  expenses                                                                         |       | 98,108                                 |       | 95,969 |   |
| Income before income taxes, minority interest  expense amd earnings from unconsolidated investees |       | 7,538                                  |       | 9,995 |   |
| Income tax expense                                                                                |       | 3,106                                  |       | 4,132 |   |
| Minority interest expense                                                                         |       | 785                                    |       | 412 |   |
| Earnings from unconsolidated investees                                                            |       | (893                                   | )          | (684 | ) |
| Net income                                                                                        |       | $                                      | 4,540      |   | $ | 6,135 |   |
| Comprehensive  income, net of taxes:                                                              |       |                                   |       |   |   |
| Net income                                                                                        |       | $                                      | 4,540      |   | $ | 6,135 |   |
| Unrealized gain on hedging transactions, net of  taxes                                            |       | —                                 |       | 2,745 |   |
| Comprehensive  income                                                                             |       | $                                      | 4,540      |   | $ | 8,880 |   |
| Earnings per  common share:                                                                       |       |                                   |       |   |   |
| Basic                                                                                             |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Diluted                                                                                           |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Weighted average  number of shares of common stock and common stock equivalents:                  |       |                                   |       |   |   |
| Basic                                                                                             |       | 47,968                                 |       | 49,132 |   |
| Diluted                                                                                           |       | 48,311                                 |       | 50,312 |   |

 

See accompanying notes.

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**ALLIANCE IMAGING, INC.CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS(Unaudited)(in thousands)**
| ** **                                                                          | ** ** | **Quarter Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                          | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| **Operating activities:**                                                           |       |                                   |       |   |   |
| Net income                                                                          |       | $                                      | 4,540      |   | $ | 6,135 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:  |       |                                   |       |   |   |
| Provision for doubtful  accounts                                                    |       | 444                                    |       | 403 |   |
| Non-cash stock-based  compensation                                                  |       | 98                                     |       | 63 |   |
| Depreciation and  amortization                                                      |       | 21,721                                 |       | 21,344 |   |
| Amortization of deferred  financing costs                                           |       | 759                                    |       | 514 |   |
| Distributions (less  than) greater than equity in undistributed income of investees |       | (502                                   | )          | 175 |   |
| Deferred income taxes                                                               |       | 5,215                                  |       | 3,922 |   |
| Loss (gain) on sale of  assets                                                      |       | 35                                     |       | (332 | ) |
| Changes in operating assets and liabilities:                                        |       |                                   |       |   |   |
| Accounts receivable                                                                 |       | (5,744                                 | )          | 633 |   |
| Prepaid expenses and  other current assets                                          |       | 365                                    |       | (132 | ) |
| Other receivables                                                                   |       | (14                                    | )          | (1,424 | ) |
| Other assets                                                                        |       | (627                                   | )          | (913 | ) |
| Accounts payable                                                                    |       | (43                                    | )          | (7,198 | ) |
| Accrued compensation and  related expenses                                          |       | 2,064                                  |       | (1,947 | ) |
| Accrued interest payable                                                            |       | 6,705                                  |       | 5,034 |   |
| Income taxes payable                                                                |       | (2,618                                 | )          | (34 | ) |
| Other accrued  liabilities                                                          |       | 3,016                                  |       | 920 |   |
| Minority interests and  other liabilities                                           |       | 492                                    |       | (65 | ) |
| Net cash provided by  operating activities                                          |       | 35,906                                 |       | 27,098 |   |
| **Investing activities:**                                                           |       |                                   |       |   |   |
| Equipment purchases                                                                 |       | (27,495                                | )          | (13,500 | ) |
| Decrease (increase) in  deposits on equipment                                       |       | 2,025                                  |       | (255 | ) |
| Proceeds from sale of  assets                                                       |       | 50                                     |       | 788 |   |
| Net cash used in  investing activities                                              |       | (25,420                                | )          | (12,967 | ) |
| **Financing activities:**                                                           |       |                                   |       |   |   |
| Principal payments on  equipment debt                                               |       | (1,267                                 | )          | (1,285 | ) |
| Principal payments on  term loan facility                                           |       | —                                 |       | (25,000 | ) |
| Payments of debt  issuance costs                                                    |       | (50                                    | )          | (72 | ) |
| Proceeds from exercise  of employee stock options                                   |       | 56                                     |       | 605 |   |
| Net cash used in  financing activities                                              |       | (1,261                                 | )          | (25,752 | ) |
| Net increase (decrease)  in cash and cash equivalents                               |       | 9,225                                  |       | (11,621 | ) |
| Cash and cash  equivalents, beginning of period                                     |       | 20,931                                 |       | 20,721 |   |
| Cash and cash  equivalents, end of period                                           |       | $                                      | 30,156     |   | $ | 9,100 |   |
| **Supplemental  disclosure of cash flow information:**                              |       |                                   |       |   |   |
| Interest paid                                                                       |       | $                                      | 3,167      |   | $ | 3,601 |   |
| Income taxes paid, net  of refunds                                                  |       | 509                                    |       | 244 |   |
| **Supplemental disclosure of non-cash investing  and financing activities:**        |       |                                   |       |   |   |
| Net book value of assets  exchanged                                                 |       | $                                      | 223        |   | $ | 1,824 |   |
| Comprehensive income  from hedging transactions, net of taxes                       |       | —                                 |       | 2,745 |   |

 

See accompanying notes.

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**ALLIANCE IMAGING, INC.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2005(Unaudited)(Dollars in thousands, except per share amounts)**

**1.   Basisof Presentation, Principles of Consolidation, and Use of Estimates**

**Basis of****Presentation—**Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Alliance Imaging, Inc. (the “Company”) in accordance withaccounting principles generally accepted in the United States of America andwith the instructions to Form 10-Q and Article 10 of Regulation S-Xof the Securities and Exchange Commission. Accordingly, they do not include allof the information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, alladjustments (including normal recurring accruals) considered necessary for afair presentation have been included. Operating results for the quarter ended March 31,2005 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2005. The accompanying unaudited condensedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and notes to the consolidatedfinancial statements for the year ended December 31, 2004.

**Principles of Consolidation—**Theaccompanying unaudited condensed consolidated financial statements of theCompany include the assets, liabilities, revenues and expenses of all majorityowned subsidiaries over which the Company exercises control. Intercompanytransactions have been eliminated. Investments in non-consolidated affiliatesare accounted for under the equity method.

**Use ofEstimates—**The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements andaccompanying notes. Actual results could differ from those estimates.

**2.   Stock-Based Compensation**

The Company accounts for stock-based compensationawards using the intrinsic value method prescribed under Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”),and its related interpretations. Other than the awards discussed in Note 7, allother employee stock-based awards were granted with an exercise price equal tothe market value of the underlying common stock on the date of grant and nocompensation cost is reflected in net income from operations for those awards.

Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”) as amended by SFAS148, “Accounting for Stock-Based Compensation—Transition and Disclosure,”requires presentation of pro forma information regarding net income andearnings per share determined as if the Company has accounted for its employeestock options granted subsequent to December 31, 1994 under the fair valuemethod of that Statement. The fair value for these options was estimated as ofthe date of grant using the Black-Scholes option pricing model with thefollowing weighted-average assumptions for the first quarter of 2004 and firstquarter of 2005, respectively: risk-free interest rates of 3.02% and 3.78%; nodividend yield; volatility factors of the expected market price of the Company’scommon stock of 60.7% and 52.6%; and a weighted-average expected life of theoptions of 5.19 years and 5.45 years. The weighted-average fair value ofoptions granted during the first quarter of 2004 and 2005 is $2.01 and $6.11,respectively.

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The Black-Scholes option valuation model wasdeveloped for use in estimating the fair value of traded options, which have novesting restrictions and are fully transferable. In addition, option valuationmodels require the input of highly subjective assumptions including theexpected stock price volatility. Because the Company’s employee stock optionshave characteristics significantly different from those of traded options, and becausechanges in the subjective input assumptions can materially affect the fairvalue estimate, in management’s opinion, the existing models do not necessarilyprovide a reliable single measure of the fair value of its employee stockoptions.

Forpurposes of pro forma disclosures, the estimated fair value of the options isamortized to expense over the options’ expected vesting period. Hadcompensation cost for the Company’s stock option plan been determined based onthe estimated fair value at the grant dates for awards under the planconsistent with the fair value method of SFAS 123 utilizing the Black-Scholesoption-pricing model, the Company’s net income and basic and diluted earningsper share for the quarters ended March 31, would have approximated the proforma amounts indicated below:
| ** **                                                                                                      | ** ** | **Quarter Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                      | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Net income:                                                                                                     |       |                                   |       |   |   |
| As reported                                                                                                     |       | $                                      | 4,540      |   | $ | 6,135 |   |
| Add: Stock-based  compensation expense included in reported net income, net of related tax  effects             |       | 58                                     |       | 38 |   |
| Deduct: Stock-based  compensation expense determined under fair value based method, net of related  tax effects |       | (318                                   | )          | (371 | ) |
| Pro forma net  income                                                                                           |       | $                                      | 4,280      |   | $ | 5,802 |   |
| Basic earnings  per share:                                                                                      |       |                                   |       |   |   |
| As reported                                                                                                     |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Pro forma                                                                                                       |       | 0.09                                   |       | 0.12 |   |
| Diluted earnings  per share:                                                                                    |       |                                   |       |   |   |
| As reported                                                                                                     |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Pro forma                                                                                                       |       | 0.09                                   |       | 0.12 |   |

 

**3.   RecentAccounting Pronouncements**

**Other-Than-Temporary Impairment—**InJanuary 2003, the Financial Accounting Standards Board (“FASB”) issuedEmerging Issues Task Force 03-01, “The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments” (“EITF 03-01”). Thisguidance clarifies when an investment accounted for in accordance with APBOpinion No. 18, “The Equity Method of Accounting for Investments in CommonStock,” and SFAS 115, “Accounting for Certain Investments in Debt and EquitySecurities,” is considered impaired, whether that impairment isother-than-temporary, and the measurement of an impairment loss. This guidancealso includes accounting considerations subsequent to the recognition of another-than-temporary impairment and requires certain disclosures aboutunrealized losses that have not been recognized as other-than-temporaryimpairments. We adopted the disclosure requirements of EITF 03-01, however therecognition and measurement provisions of the standard have been deferred.

**Exchanges of Nonmonetary Assets—**InDecember 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets”(“SFAS 153”), which is an amendment of APB Opinion No. 29, “Accounting forNonmonetary Transactions,” (“APB 29”). This statement addresses the measurementof exchanges of nonmonetary assets, and eliminates the exception from fairvalue measurement for nonmonetary exchanges of similar productive assets asdefined in paragraph 21(b) of APB 29, and replaces it with an 

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exception for exchangesthat do not have commercial substance. This statement specifies that anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. SFAS153 is effective for nonmonetary asset exchanges occurring in fiscal periodsbeginning after June 15, 2005. The Company believes the adoption of SFAS153 will not have a material impact on its consolidated financial position orresults of operations.

**ShareBased Payment—**In December 2004, the FASB issued SFAS 123(R) (revisedDecember 2004), “Share-Based Payment”, which is a revision of SFAS 123 andsupersedes APB No. 25. This statement requires that the fair value at thegrant date resulting from all share-based payment transactions be recognized inthe financial statements. Further, SFAS 123(R) requires entities to applya fair-value based measurement method in accounting for these transactions.This value is recorded over the vesting period. This statement is effective forthe first fiscal year beginning after June 15, 2005. The Company iscurrently evaluating the provisions of SFAS 123(R) and the impact on itsconsolidated financial position and results of operations.

**4.   Goodwill and Intangible Assets**

Changesin the carrying amount of goodwill are as follows:
| Balance at  December 31, 2004       |   | $      | 122,992 |   |
|------------------------------------------|--------|--------|---------|--------|
| Additions to  goodwill during the period |   | — |    |
| Balance at  March 31, 2005          |   | $      | 122,992 |   |

 

Intangibleassets consisted of the following:
| ** **                                          | ** ** | **December 31, 2004** | ** ** | **March 31, 2005**  | ** ** |
|-----------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                          | ** ** | **Gross  Carrying  Amount**     | ** ** | **Accumulated  Amortization** | ** ** | **Intangible  Assets, net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Intangible  Assets, net** | ** ** |
| Amortizing intangible  assets:                      |       |                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Customer contracts                                  |       | $                               | 40,426     |                          |       | $ | (15,528 | ) |   |   | $ | 24,898 |   |   | $ | 40,363 |   |   | $ | (16,226 | ) |   |   | $ | 24,137 |   |   |
| Other                                               |       | 3,272                           |       |                          | (2,010     | ) |   |   | 1,262 |   |   | 2,623 |   |   | (1,403 | ) |   |   | 1,220 |   |   |
| Total amortizing intangible assets                  |       | $                               | 43,698     |                          |       | $ | (17,538 | ) |   |   | $ | 26,160 |   |   | $ | 42,986 |   |   | $ | (17,629 | ) |   |   | $ | 25,357 |   |   |
| Intangible assets  not subject to amortization |       |                            |       |                          |       |   |   |   | $ | 2,089 |   |   |   |   |   |   |   |   |   | $ | 2,095 |   |   |
| Total other intangible  assets                      |       |                            |       |                          |       |   |   |   | $ | 28,249 |   |   |   |   |   |   |   |   |   | $ | 27,452 |   |   |

 

The Company reviews the recoverability of the carryingvalue of goodwill on an annual basis or more frequently when an event occurs orcircumstances change to indicate an impairment of these assets has possiblyoccurred. Goodwill is allocated to the Company’s various reporting units whichrepresent the Company’s geographical regions. The Company compares the fairvalue of the reporting unit to its carrying amount to determine if there ispotential impairment. The implied fair value for goodwill is determined basedon the fair value of assets and liabilities of the respective reporting units,in accordance with Statementof Financial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets,” based on discounted cash flows, market multiples, or appraisedvalues as appropriate.

Amortization expense for intangible assets subject toamortization was $876 and $881 for the quarters ended March 31, 2004 and2005, respectively. The intangible assets not subject to amortization representcertificate of needs and regulatory authority rights which have indefiniteuseful lives.

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Estimatedannual amortization expense for each of the fiscal years ending December 31,is presented below:
| 2005 |   | $     | 3,520  |   |
|------|--------|-------|--------|--------|
| 2006 |   | 3,461 |   |
| 2007 |   | 3,245 |   |
| 2008 |   | 3,034 |   |
| 2009 |   | 2,715 |   |

 

**5.   Other Accrued Liabilities**

Otheraccrued liabilities consisted of the following:
| ** **                                    | ** ** | **December 31,  2004** | ** ** | **March 31,  2005** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Accrued systems  rental and maintenance costs |       |                        | $          | 3,058                    |       |   |   | $ | 3,883 |   |   |
| Accrued site  rental fees                     |       |                        | 1,796      |                     |       |   | 1,532 |   |   |
| Accrued property  and sales taxes payable     |       |                        | 8,061      |                     |       |   | 7,977 |   |   |
| Accrued  self-insurance expense               |       |                        | 4,789      |                     |       |   | 5,123 |   |   |
| Other accrued  expenses                       |       |                        | 4,473      |                     |       |   | 4,582 |   |   |
| Total                                         |       |                        | $          | 22,177                   |       |   |   | $ | 23,097 |   |   |

 

**6.   Long-TermDebt and Senior Subordinated Credit Facility**

Long-termdebt consisted of the following:
| ** **                                 | ** ** | **December 31,  2004** | ** ** | **March 31,  2005** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Term loan  facility                        |       |                        | $          | 409,875                  |       |   |   | $ | 384,875 |   |   |
| Senior  subordinated notes                 |       |                        | 153,541    |                     |       |   | 153,541 |   |   |
| Equipment debt                             |       |                        | 12,248     |                     |       |   | 10,963 |   |   |
| Long-term debt,  including current portion |       |                        | 575,664    |                     |       |   | 549,379 |   |   |
| Less current  portion                      |       |                        | 9,390      |                     |       |   | 9,433 |   |   |
| Long-term debt                             |       |                        | $          | 566,274                  |       |   |   | $ | 539,946 |   |   |

 

**7.   Non-CashStock-Based Compensation**

In November 2000, the Company granted stockoptions to certain employees at exercise prices below the fair value of theCompany’s common stock, of which 35,000 options were outstanding at March 31,2005. The exercise prices of these options and the fair value of the Company’scommon stock on the grant date were $5.60 and $9.52 per share, respectively. Compensationexpense of $39 will be recognized on a straight-line basis over the remainingvesting period of the options. The Company recorded non-cash stock-basedcompensation of $18 and $6, respectively, for the quarters ended March 31,2004 and 2005, with an offset to paid-in-capital deficit.

8

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On June 20, 2001, theCompany’s compensation committee authorized the Company to amend the optionagreements under its 1999 Equity Plan to reduce the performance targets for1,899,600 performance options out of the 2,284,000 performance options outstanding.On May 18, 2004, the Company’s compensation committee authorized theCompany to make a second amendment to the option agreements under its 1999Equity Plan to further reduce the performance targets for all of the 1,914,500performance options outstanding. These options vest on the eighth anniversaryof the grant date if the option holder is still an employee, but the vestingaccelerates if the Company meets the operating performance targets specified inthe option agreements. As a result of the amendments, if the Company achievesthe reduced performance targets but does not achieve the previous performancetargets, and an option holder terminates employment prior to the eighthanniversary of the option grant date, the Company would be required to record anon-cash stock-based compensation charge equal to the amount by which theactual value of the shares subject to the performance option on the date of therespective amendment exceeded the option’s exercise price. Under the firstamendment, management estimates that the Company could incur an additional $100to $400 in the aggregate of these non-cash stock-based compensation chargesover the next 9 months. Under the second amendment, management estimates thatthe Company could incur an additional $100 to $200 in the aggregate of thesenon-cash stock-based compensation charges over the next 4 1¤4years. These charges, however, may not be evenly distributed over each of theserespective periods or over the four quarters in any one year, depending uponthe timing of employee turnover and the number of shares subject to the optionsheld by departing employees. For the quarters ended March 31, 2004 and2005, the Company recorded $80 and $57, respectively, in non-cash stock-basedcompensation as a result of these amendments. Non-cash stock-based compensationis included as a component of selling, general and administrative expenses.

**8.   Derivatives**

In the second quarter of 2004, the Company enteredinto interest rate swap agreements, with notional amounts of $56,813, $46,813and $48,438 to hedge the future cash interest payments associated with aportion of the Company’s variable rate bank debt. These agreements are threeyears in length and mature in 2007. As of March 31, 2005, the fair valueof the Company’s interest rate swap agreements was an accumulated income of$1,970. Under these arrangements, the Company receives three-month LondonInterbank Offered Rate (“LIBOR”) and pays a fixed rate of 3.15%, 3.89% and3.69%, respectively. The net effect of the hedges is to record interest expenseat fixed rates of 5.40%, 6.14% and 5.94%, respectively, as the debt incursinterest based on three-month LIBOR plus 2.25%. For the quarter ended March 31,2005, the Company recorded a net settlement amount of $478. The Company hasdesignated these swaps as cash flow hedges of variable future cash flowsassociated with its long-term debt. The Company recognized a gain, net of tax,of $1,460 based on the change in fair value of these instruments for thequarter ended March 31, 2005. The Company will continue to recordsubsequent changes in the fair value of the swaps through comprehensive incomeduring the period these instruments are designated as hedges.

In the first quarter of 2005, the Company entered intomultiple interest rate collar agreements for its variable rate bank debt. Thetotal underlying notional amount of the debt was $178,000. Under thesearrangements the Company has purchased a cap on the interest rate of 4.00% andhas sold a floor of 2.25%. The Company paid a net purchase price of $1,462 forthese collars. These agreements are two and three years in length and mature atvarious dates between January 2007 and January 2008. For thequarter ended March 31, 2005, the Company did not record any netsettlement amount. The Company has designated these collars as cashflow hedges of variable future cash flows associated with its long-term debt.For the quarter ended March 31, 2005 the Company recognized a gain, net oftax, of $1,285 based on the change in fair value of these instruments. TheCompany will record subsequent changes in the fair value of the collars throughcomprehensive income during the period these instruments are designated ashedges.

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The Company accounts forderivative instruments and hedging activities in accordance with the provisionsof Statement of Financial Accounting Standards No. 133, “Accounting forDerivative Instruments and Hedging Actvities” (“SFAS 133”) and Statement ofFinancial Accounting Standards No. 138, “Accounting for Certain DerivativeInstruments and Hedging Actvities” (SFAS 138”), an amendment of SFAS 133. Onthe date the Company enters into a derivative contract, management designatesthe derivative as a hedge of the identified exposure. The Company does notenter into derivative instruments that do not qualify as cash flow hedges asdescribed in SFAS 133 and SFAS 138. The Company formally documents allrelationships between hedging instruments and hedged items, as well as therisk-management objective and strategy for undertaking various hedgetransactions. In this documentation, the Company specifically identifies thefirm commitment or forecasted transaction that has been designated as a hedgeditem and states how the hedging instrument is expected to hedge the risksrelated to the hedged item. The Company formally measures effectiveness of itshedging relationships, both at the hedge inception and on an ongoing basis, inaccordance with its risk management policy. The Company would discontinue hedgeaccounting prospectively (i) if it is determined that the derivative is nolonger effective in offsetting change in the cash flows of a hedged item, (ii) whenthe derivative expires or is sold, terminated or exercised, (iii) when thederivative is designated as a hedge instrument, because it is probable that theforecasted transaction will not occur, (iv) because a hedged firmcommitment no longer meets the definition of a firm commitment, or (v) ifmanagement determines that designation of the derivative as a hedge instrumentis no longer appropriate. The Company’s derivatives are recorded on the balancesheet at their fair value. For derivatives accounted for as cash flow hedgesany unrealized gains or losses on fair value are included in comprehensiveincome (loss), net of tax.

**9.   Income Taxes**

For the quarter ended March 31,2004 and 2005, the Company recorded a provision for income taxes of $3,106 and$4,132, or 40.6% and 40.2% of the Company’s pretax income, respectively. TheCompany’s effective tax rate was higher than statutory rates primarily as aresult of state income taxes.

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**10.   Earnings Per Common Share**

Thefollowing table sets forth the computation of basic and diluted earnings pershare (amounts in thousands, except per share amounts):
| ** **                                                                                          | ** ** | **Quarter Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                          | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Numerator:                                                                                          |       |                                   |       |   |   |
| Net income                                                                                          |       | $                                      | 4,540      |   | $ | 6,135 |   |
| Denominator:                                                                                        |       |                                   |       |   |   |
| Denominator for basic earnings per  share-weighted-average shares                                   |       | 47,968                                 |       | 49,132 |   |
| Effect of  dilutive securities:                                                                     |       |                                   |       |   |   |
| Employee stock options                                                                              |       | 343                                    |       | 1,180 |   |
| Denominator for diluted earnings per share-adjusted  weighted-average shares                        |       | 48,311                                 |       | 50,312 |   |
| Earnings per  common share:                                                                         |       |                                   |       |   |   |
| Basic                                                                                               |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Diluted                                                                                             |       | $                                      | 0.09       |   | $ | 0.12 |   |
| Stock 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 |       | 3,516                                  |       | 769 |   |
| Average exercise price  per share that exceeds average market price of common stock                 |       | $                                      | 6.36       |   | $ | 12.40 |   |

 

**11.   Commitments and Contingencies**

The Company has applied the disclosure provisions ofFASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others,” to its agreements that contain guarantee orindemnification clauses. These disclosure provisions expand those required byFASB Statement No. 5, “Accounting for Contingencies,” by requiring aguarantor to disclose certain type of guarantees, even if the likelihood ofrequiring the guarantor’s performance is remote. The following is a descriptionof arrangements in which the Company is the guarantor or indemnifies a party.

In the normal course of business, the Company has madecertain guarantees and indemnities, under which it may be required to makepayments to a guaranteed or indemnified party, in relation to certaintransactions. The Company indemnifies other parties, including customers,lessors, and parties to other transactions with the Company, with respect tocertain matters. The Company has agreed to hold the other party harmlessagainst losses arising from certain events as defined within the particularcontract, which may include, for example, litigation or claims arising from abreach of representations or covenants. In addition, the Company has enteredinto indemnification agreements with its executive officers and directors andthe Company’s bylaws contain similar indemnification obligations. Under thesearrangements, we are obligated to indemnify, to the fullest extent permittedunder applicable law, our current or former officers and directors for variousamounts incurred with respect to actions, suits or proceedings in which theywere made, or threatened to be made, a party as a result of acting as anofficer or director.

It is not possible to determine the maximum potentialamount under these indemnification agreements due to the limited history ofprior indemnification claims and the unique facts and circumstances involved ineach particular agreement. Historically, payments made related to these 

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indemnifications have beenimmaterial. At March 31, 2005 the Company has determined that no liabilityis necessary related to these guarantees and indemnities.

The Company guarantees a portion of a loan on behalfof an unconsolidated investee under an agreement executed prior to 2002. Themaximum potential future payment under this financial guarantee is $280 at March 31,2005. The Company has not recorded an obligation for this guarantee.

On May 5, 2005, the Company was served with acomplaint filed in Alameda County Superior Court alleging wage claims on behalfof a putative class of an estimated 350 former and current California employeesof Alliance Imaging.  In Linda S. Jones,et al. v. Alliance Imaging, Inc., et al., the plaintiffs allege violations ofCalifornia's wage, meal period, and break time laws and regulations. Plaintiffsseek recovery of unspecified economic damages, statutory penalties, punitivedamages, attorneys' fees and costs of suit. The Company is currently evaluating the allegations of the complaint andis unable to predict the likely timing or outcome of this lawsuit.

The Company from time totime is also involved in other litigation and regulatory matters incidental tothe conduct of its business. The Company believes that resolution of suchmatters will not have a material adverse effect on its consolidated results ofoperations or financial position.

**12.   Investmentsin Unconsolidated Investees**

TheCompany has direct ownership in six investees at March 31, 2005. TheCompany owns between 30 percent and 50 percent of these investees, and providesmanagement services under agreements with four of these investees, expiring atvarious dates through 2024. These investees are accounted for under the equitymethod since the Company does not exercise control over the operations of theseinvestees.

Setforth below is certain financial data of these investees (amounts inthousands):
| ** **                    | ** ** | **March 31,** | ** ** |
|-------------------------------|------------|--------------------|------------|
| ** **                    | ** ** | **2004**           | ** ** | **2005** | ** ** |
| Combined Balance Sheet  Data: |       |               |       |   |   |
| Current assets                |       | $                  | 7,512      |   | $ | 14,518 |   |
| Noncurrent assets             |       | 19,028             |       | 24,361 |   |
| Current  liabilites           |       | 6,053              |       | 3,192 |   |
| Noncurrent  liabilites        |       | 9,931              |       | 16,848 |   |
|                               |            |                    |            |  |  |  |  |

                                                                                                                                                                                                
| ** **                                      | ** ** | **Quarters Ended  March 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                      | ** ** | **2004**                                | ** ** | **2005** | ** ** |
| Combined Operating  Results:                    |       |                                    |       |   |   |
| Revenues                                        |       | $                                       | 6,830      |   | $ | 7,828 |   |
| Expenses                                        |       | 4,911                                   |       | 6,164 |   |
| Net income                                      |       | 1,919                                   |       | 1,664 |   |
| Equity in  earnings of unconsolidated investees |       | 893                                     |       | 684 |   |
|                                                 |            |                                         |            |  |  |  |  |

 

**13.   Related-Party Transactions**

The Company recorded management fees payable toKohlberg Kravis Roberts & Co (“KKR”) of $163 for each of the quarters ended March 31, 2004 and 2005, andwill continue to receive financial advisory services from KKR on an ongoingbasis. At March 31, 2004 and 2005, the Company has accrued $163 related tothese services.

Revenue from management agreements with unconsolidatedequity investees was $2,755 and $3,706 for the quarters ended March 31,2004 and 2005, respectively.

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**ITEM 2.**                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

**Overview**

We are a leading nationalprovider of shared-service and fixed-site diagnostic imaging services, basedupon annual revenue and number of diagnostic imaging systems deployed. Ourprincipal sources of revenue are derived from magnetic resonance imaging (MRI)and positron emission tomography and positron emission tomography/computedtomography (PET and PET/CT) services on a shared-service and full-time basis,primarily in partnership with hospitals or health systems. We also provideservices through a growing number of fixed sites. In the first quarter of 2005,MRI services and PET and PET/CT services generated 70% and 21% of our revenues,respectively. The remaining revenue was comprised of other diagnostic imagingservices revenue, primarily computed tomography (CT), and management contractrevenue. We provide imaging services primarily to hospitals and otherhealthcare providers. Our services normally include the use of our imagingsystems, technologists to operate the systems, equipment maintenance andupgrades and management of day-to-day operations. We had 466 diagnostic imagingsystems, including 354 MRI systems and 56 PET or PET/CT systems and served over1,000 clients in 43 states at March 31, 2005. Of these 466 diagnosticimaging systems, 62 were located in fixed-sites, which constitutes systemsinstalled in hospitals or other buildings on hospital campuses, medical groups’offices, or medical buildings and retail sites. Of these fixed-sites, 54 wereincluded in our MRI systems count.

Approximately 87% of ourrevenues for the quarter ended March 31, 2005 were generated by providingservices to hospitals and other healthcare providers, which we refer to aswholesale revenues. Our wholesale revenues are typically generated fromcontracts that require our clients to pay us based on the number of scans weperform, although some pay us a flat fee for a period of time regardless of thenumber of scans we perform. These payments are due to us independent of ourclients’ receipt of reimbursement from third-party payors. We typically deliverour services for a set number of days per week through exclusive, long-termcontracts with hospitals and other healthcare providers. The contracts initialterms average approximately three years in length for mobile services andapproximately seven to ten years in length for fixed-site arrangements. Thesecontracts often contain automatic renewal provisions and certain contracts havecancellation clauses if the hospital or other healthcare provider purchasestheir own system. We price our contracts based on the type of system used, thescan volume, and the number of ancillary services provided. Pricing is alsoaffected by competitive pressures.

In November 2004, theCenters for Medicare and Medicaid Services announced a 21% reduction in PEThospital reimbursement rates effective January 1, 2005. Although theeffect of this rate reduction to date has not had a material adverse effect onour PET or PET/CT revenues, this could have a significant negative impact onour PET and PET/CT revenues in the future. Our healthcare provider clients onwhom we depend for the majority of our PET and PET/CT revenues generally relyon reimbursement from Medicare and other third-party payors. Becauseunfavorable reimbursement policies may constrict the profit margins of thehospitals and other healthcare providers we bill directly, we may need to lowerour fees to retain existing PET and PET/CT clients and attract new ones.

Approximately 13% of ourrevenues for the year ended March 31, 2005 were generated by providingservices directly to patients from our sites located at or near hospitals orother healthcare provider facilities, which we refer to as retail revenues. Ourrevenue from these sites is generated from direct billings to patients or theirthird-party payors, which are recorded net of contractual discounts and otherarrangements for providing services at discounted prices. We typically charge ahigher price per scan under retail billing than we do under wholesale billing.

Revenues from our fixed-sitesare included in both our wholesale and retail revenues.

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The principal components of ourcost of revenues are compensation paid to technologists and drivers, systemmaintenance costs, medical supplies, system transportation and technologists’travel costs. Because a majority of these expenses are fixed, increasedrevenues as a result of higher scan volumes per system significantly improvesour margins while lower scan volumes result in lower margins.

The principal components ofselling, general and administrative expenses are sales and marketing costs,corporate overhead costs, provision for doubtful accounts, and non-cash stockbased compensation expense.

We record minority interestexpense and earnings from unconsolidated investees related to our consolidatedand unconsolidated subsidiaries, respectively. These subsidiaries primarilyprovide shared service and fixed-site diagnostic imaging services.

Prior to 2004, MRI industry-widescan volumes were adversely affected by relatively flat hospital growth ratesof outpatient procedures and inpatient admissions. In addition, the increase inpatient co-payments, higher patient deductibles, and the uncertain U.S.employment climate contributed to lower MRI industry wide scan volumes. In2004, MRI industry-wide scan volumes returned to a more normal growth rateprimarily due to improved hospital growth rates of outpatient procedures andinpatient admissions.

Prior to 2004, we began to seean increase in the competitive climate in the MRI industry, resulting in anincrease in activity by original equipment manufacturers, or OEM’s, sellingsystems directly to certain of our clients. Typically, OEM’s target our higherscan volume clients. This has caused an increase in the number of our higherscan volume clients deciding not to renew their contracts. We replace thesehigher volume scan clients typically with lower volume clients. During 2005,our MRI revenues modestly declined compared to 2004 levels and we believe thatMRI revenues will continue to modestly decline in future years.

Forthe quarter ended March 31, 2005, we recorded $0.1 million in non-cashstock-based compensation primarily as a result of amending certain stock optionagreements in June 2001 and May 2004 to reduce performance targetsand granting options in November 2000 to purchase our common stock at anexercise price below its fair value. A portion of the options granted to dateunder our 1999 Equity Plan are “performance options.” These options vest on theeighth anniversary of the grant date if the option holder is still ouremployee, but the vesting accelerates if we meet the operating performancetargets specified in the option agreements. On June 20, 2001, ourcompensation committee authorized us to amend the option agreements under its1999 Equity Plan to reduce the performance targets for 1,899,600 performanceoptions out of the 2,284,000 performance options outstanding. On May 18,2004, our compensation committee authorized us to make a second amendment tothe option agreements under its 1999 Equity Plan to further reduce theperformance targets for all of the 1,914,500 performance options outstanding.As a result of the amendments, if we achieve the reduced performance targetsbut do not achieve the previous performance targets, and an option holderterminates employment prior to the eighth anniversary of the option grant date,we would be required to record a non-cash stock-based compensation charge equalto the amount by which the actual value of the shares subject to theperformance option on the date of the respective amendment exceeded the option’sexercise price. Under the first amendment, we estimate that we could incur anadditional $0.1 million to $0.4 million in the aggregate of these non-cashstock-based compensation charges over the next 9 months. Under the secondamendment, we estimate that we could incur an additional $0.1 million to $0.2million in the aggregate of these non-cash stock-based compensation chargesover the next 41¤4 years. These charges, however, may not be evenlydistributed over each of these respective periods or over the four quarters inany one year, depending upon thetiming of employee turnover and the number of shares subject to the optionsheld by departing employees.

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**Seasonality**

We experience seasonalityin the revenues and margins generated for our services. First and fourthquarter revenues are typically lower than those from the second and third quarters.First quarter revenue is affected primarily by fewer calendar days andinclement weather, typically resulting in fewer patients being scanned duringthe period. Fourth quarter revenue is affected primarily by holiday and clientand patient vacation schedules and inclement weather, also resulting in fewerscans during the period. The variability in margins is higher than thevariability in revenues due to the fixed nature of our costs.

**Results of Operations**

Thefollowing table shows our consolidated statements of income as a percentage ofrevenues for each of the quarters ended March 31:
| ** **                                                                                        | ** ** | **2004** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Revenues                                                                                          |       | 100.0    | %          | 100.0    | %          |
| Costs and  expenses:                                                                              |       |     |       |     |       |
| Cost of revenues,  excluding depreciation and amortization                                        |       | 50.4     |       | 50.9     |       |
| Selling, general  and administrative expenses                                                     |       | 11.5     |       | 11.0     |       |
| Employment  agreement costs                                                                       |       | 0.3      |       | 0.3      |       |
| Depreciation  expense                                                                             |       | 19.8     |       | 19.3     |       |
| Amortization  expense                                                                             |       | 0.8      |       | 0.8      |       |
| Interest expense,  net of interest income                                                         |       | 10.1     |       | 8.6      |       |
| Other (income)  and expense, net                                                                  |       | —   |       | (0.3     | )          |
| Total costs and expenses                                                                          |       | 92.9     |       | 90.6     |       |
| Income before income taxes, minority interest  expense and earnings from unconsolidated investees |       | 7.1      |       | 9.4      |       |
| Income tax  expense                                                                               |       | 2.9      |       | 3.9      |       |
| Minority interest  expense                                                                        |       | 0.7      |       | 0.4      |       |
| Earnings from  unconsolidated investees                                                           |       | (0.8     | )          | (0.7     | )          |
| Net income                                                                                        |       | 4.3      | %          | 5.8      | %          |

 

Thetable below provides scan-based MRI statistical information for each of thequarters ended March 31:
| ** **                               | ** ** | **2004** | ** ** | **2005** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Scan-based MRI  statistics               |       |     |       |     |       |
| Average number of scan-based MRI systems |       | 296.1    |       | 281.9    |       |
| Scans per system per day                 |       | 9.50     |       | 9.45     |       |
| Total number of MRI scans                |       | 202,050  |       | 191,042  |       |
| Price per scan                           |       | $        | 354.33     |     | $          | 355.86 |   |
|                                          |            |          |            |          |            |  |  |

 

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Thetable below provides PET and PET/CT statistical information for each of thequarters ended March 31:
| ** **                               | ** ** | **2004** | ** ** | **2005** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| PET and PET/CT statistics                |       |     |       |     |       |
| Average number of PET and PET/CT systems |       | 44.9     |       | 50.3     |       |
| Scans per system per day                 |       | 5.03     |       | 5.18     |       |
| Total number of PET and PET/CT scans     |       | 13,308   |       | 15,784   |       |
| Price per scan                           |       | $        | 1,324.66   |     | $          | 1,370.94 |   |
|                                          |            |          |            |          |            |  |  |

 

Followingare the components of revenue for each of the quarters ended March 31 (inmillions):
| ** **                          | ** ** | **2004** | ** ** | **2005** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Total MRI revenue                   |       | $        | 77.9       |     | $          | 74.7 |   |
| PET and PET/CT  revenue             |       | 17.7     |       | 21.8     |       |
| Other modalities  and other revenue |       | 10.0     |       | 9.5      |       |
| Total                               |       | $        | 105.6      |     | $          | 106.0 |   |

 

***Quarter Ended March 31, 2005 Compared to QuarterEnded March 31, 2004***

Revenue increased $0.4 million, or 0.3%, to $106.0million in the first quarter of 2005 compared to $105.6 million in the firstquarter of 2004 primarily due to higher PET and PET/CT revenue, offset by lowerMRI revenue and other modalities and other revenue. PET and PET/CT revenue inthe first quarter of 2005 increased $4.1 million, or 23.2%, compared to thefirst quarter of 2004. Total PET and PET/CT scan volumes increased 18.6% to15,784 scans in the first quarter of 2005 from 13,308 scans in the firstquarter of 2004, primarily as a result of an increase in the average number ofPET and PET/CT systems in operation. The average number of PET and PET/CTsystems in service increased to 50.3 systems in the first quarter of 2005 from44.9 systems in the first quarter of 2004. Scans per system per day alsoincreased 3.0%, to 5.18 scans per system per day in the first quarter of 2005,from 5.03 in the first quarter of 2004. Further, the average price per PET andPET/CT scan increased 3.5% to $1,371 per scan in the first quarter of 2005compared to $1,325 per scan in the first quarter of 2004. MRI revenue in thefirst quarter of 2005 decreased $3.2 million, or 4.1%, compared to the firstquarter of 2004 primarily as a result of a 5.5% decrease in our MRI scanvolume. MRI scan volume decreased to 191,042 scans in the first quarter of 2005from 202,050 scans in the first quarter of 2004, primarily due to a decrease inthe average number of scan-based systems in service, to 281.9 systems inthe first quarter of 2005 from 296.1 systems in the first quarter of 2004.Average scans per system per day also decreased by 0.5% to 9.45 in firstquarter of 2005 from 9.50 in first quarter of 2004. These decreases werepartially offset by a 0.4% increase in average price per MRI scan to $355.86per scan in first quarter of 2005 compared to $354.33 per scan in first quarterof 2004 and a $0.4 million increase in non-scan based MRI revenue. Othermodalities and other revenue decreased $0.5 million, or 5.7%, to $9.5 millionin the first quarter of 2005 compared to $10.0 million in the first quarter of2004 primarily due to a decrease in CT revenue offset by an increase inmanagement contract revenue for our managed contracts and reimbursement ofout-of-pocket expenses for unconsolidated investees.

We had 354 MRI systems at March 31, 2005 comparedto 363 MRI systems at March 31, 2004. We had 56 PET and PET/CT systems at March 31,2005 compared to 48 PET and PET/CT systems at March 31, 2004.

Cost of revenues, excluding depreciation andamortization, increased $0.6 million, or 1.2%, to $53.9 million inthe first quarter of 2005 compared to $53.3 million in the first quarterof 2004. Management contract expenses increased $0.7 million, or 32.1%,primarily as a result of an increase in expenses incurred on behalf ofunconsolidated investees. Equipment rental expense increased $0.6 million, 

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or 125%, primarily due toa higher number of MRI rental systems in use. Systems maintenance costsincreased $0.3 million, or 3.3%, primarily due to an increase in the number ofPET and PET/CT systems which have higher contracted maintenance costs persystem. Compensation and related employee expenses decreased $0.2 million,or 0.9%, primarily as a result of a decrease in field management, employeeexpenses and travel and entertainment. The decrease was partially offset by anincrease in employee benefits and an increase in technologists’ wages,including an increase in payroll and related costs necessary to support new PETand PET/CT systems in operation. PET and PET/CT technologists have a higherhourly rate than MRI technologists. Medical supplies decreased $0.2 million, or5.2%, primarily as a result of a decrease in film expense related to purchasingagreement rebates. Outside medical services decreased $0.4 million, or 14.2%,primarily as a result of a decrease in staffing of temporary technologists. Allother cost of revenues, excluding depreciation and amortization, decreased $0.2million, or 3.2%. Cost of revenues, as a percentage of revenue, increased to50.9% in the first quarter of 2005 from 50.4% in the first quarter of 2004 as aresult of the factors described above.

Selling, general and administrative expenses decreased$0.5 million, or 4.0%, to $11.7 million in the first quarter of 2005 comparedto $12.2 million in the first quarter of 2004. Compensation and relatedemployee expenses decreased $0.3 million, or 3.5%, primarily due to decreasedcosts associated with the consolidation of our regions from ten regions to fiveregions and a decrease in management incentive compensation and travel andentertainment. The provision for doubtful accounts decreased $0.1 million, or9.2%. The provision for doubtful accounts as a percentage of revenue was 0.4%for both the first quarter of 2005 and 2004. All other selling, general andadministrative expenses decreased $0.1 million, or 4.3%. Selling, general andadministrative expenses as a percentage of revenue were 11.0% and 11.5% in thefirst quarter of 2005 and 2004, respectively.

We recorded employment agreement expenses of $0.3million in both the first quarter of 2005 and 2004 related to payments under anamendment to an employment agreement with our former chairman of the board. Weexpect to incur approximately $0.2 million of costs over the remaining 2-monthterm of the amended employment agreement with our former chairman of the board.

Depreciation expense decreased $0.3 million, or 1.8%,to $20.5 million in the first quarter of 2005 compared to $20.8 million in thefirst quarter of 2004.

Amortization expense for both the first quarter of2005 and 2004 totaled $0.9 million.

Interest expense, net, decreased $1.5 million, or14.6%, to $9.1 million in the first quarter of 2005 compared to $10.6 millionin the first quarter of 2004. This decrease was primarily a result of loweraverage interest rates on our senior subordinated notes which were refinancedin December 2004 and lower average interest rates on our variable rateterm loans primarily resulting from execution of various interest rate swapagreements in 2004 to hedge against future interest rate increases on a portionof our variable rate term loans.

Income tax expense was $4.1 million and$3.1 million in the first quarter of 2005 and 2004, respectively,resulting in effective tax rates of 40.2% and 40.6%. Our effective tax rateswere higher than statutory rates principally as a result of state income taxes.

Minority interest expense decreased $0.4 million,or 47.6%, to $0.4 million in the first quarter of 2005 compared to$0.8 million in the first quarter of 2004.

Earnings from unconsolidated investees decreased by$0.2 million, or 23.4%, to $0.7 million in the first quarter of 2005 comparedto $0.9 million in the first quarter of 2004, primarily due to net losses in2005 from newly formed unconsolidated investees.

Our net income was $6.1 million, or $0.12 pershare on a diluted basis, in the first quarter of 2005 compared to$4.5 million, or $0.09 per share on a diluted basis, in the first quarterof 2004.

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**Liquidity andCapital Resources**

Our primary source ofliquidity is cash provided by operating activities. We generated $27.1 millionand $35.9 million of cash flow from operating activities in the first quartersof 2005 and 2004, respectively. Our ability to generate cash flow is affectedby numerous factors, including demand for MRI and PET and PET/CT scans, theprice we can charge our clients for providing our services and the costs to usof providing those services. Our ability to generate cash flow from operatingactivities is also dependent upon the collections of our accounts receivable.Provision for doubtful accounts decreased by $0.1 million in the first quarterof 2005 compared to the first quarter of 2004. The number of days of revenueoutstanding for our accounts receivable was 46 days as of March 31, 2005and 2004, respectively. In addition, as of March 31, 2005, we had $64.8million available borrowings under our revolving line of credit.

Ourprimary use of capital resources is to fund capital expenditures. We used cashof $13.0 million and $25.4 million for investing activities in the firstquarter of 2005 and 2004, respectively. We incur capital expenditures for thepurposes of:

·       purchasingnew systems;

·       replacingless advanced systems with new systems;

·       providingupgrades of our MRI and PET systems and upgrading our corporate infrastructurefor future growth; and

Capital expenditurestotaled $13.5 million and $27.5 million in the first quarter of 2005 and 2004,respectively. During the first quarter of 2005, we purchased 3 MRI systems, 4PET or PET/CT systems, one CT system and three other systems, includingreplacement systems. Our decision to purchase a new system is typicallypredicated on obtaining new or extending existing client contracts, which serveas the basis of demand for the new system. We expect to purchase additionalsystems in 2005 and finance substantially all of these purchases with ouravailable cash, cash from operating activities, our revolving line of credit,and equipment leases. Based upon the client demand described above, whichdictates the type of equipment purchased, we expect capital expenditures tototal approximately $85 to $90 million in 2005.

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

**RecentAccounting Pronouncements**

In January 2003, theFinancial Accounting Standards Board (“FASB”) issued Emerging Issues Task Force03-01, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments” (“EITF 03-01”). This guidanceclarifies when an investment accounted for in accordance with APB Opinion No. 18,“The Equity Method of Accounting for Investments in Common Stock,” and SFAS115, “Accounting for Certain Investments in Debt and Equity Securities,” isconsidered impaired, whether that impairment is other-than-temporary, and themeasurement of an impairment loss. This guidance also includes accountingconsiderations subsequent to the recognition of an other-than-temporary impairmentand requires certain disclosures about unrealized losses that have not beenrecognized as other-than-temporary impairments. We adopted the disclosurerequirements of EITF 03-01, however the recognition and measurementprovisions of the standard have been deferred.

In December 2004, theFASB issued SFAS 153, “Exchanges of Nonmonetary Assets” (“SFAS 153”), which isan amendment of APB Opinion No. 29, “Accounting for NonmonetaryTransactions,” (“APB 29”). This statement addresses the measurement of exchangesof nonmonetary assets, and eliminates the exception from fair value measurementfor nonmonetary exchanges of similar productive assets as defined in paragraph21(b) of APB 29, and replaces it with an exception for exchanges that donot have commercial substance. This statement specifies that a nonmonetaryexchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the 

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exchange.SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscalperiods beginning after June 15, 2005. The Company believes the adoptionof SFAS 153 will not have a material impact on its consolidated financialposition or results of operations.

In December 2004, theFASB issued SFAS 123(R) (revised December 2004), “Share-Based Payment”,which is a revision of SFAS 123 and supersedes APB No. 25. This statementrequires that the fair value at the grant date resulting from all share-basedpayment transactions be recognized in the financial statements. Further, SFAS123(R) requires entities to apply a fair-value based measurement method inaccounting for these transactions. This value is recorded over the vestingperiod. This statement is effective for the first fiscal year beginning after June 15,2005. The Company is currently evaluating the provisions of SFAS 123(R) andthe impact on its consolidated financial position and results of operations.

**CautionaryStatement Pursuant to the Private Securities Litigation Reform Act of 1995**

Certain statements containedin Management’s Discussion and Analysis of Financial Condition and Results ofOperations, particularly in the section entitled “Liquidity and CapitalResources”, and elsewhere in this quarterly report on Form 10-Q, are“forward-looking statements,” within the meaning of the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995. Statements whichaddress activities, events or developments that we expect or anticipate will ormay occur in the future, including such things as results of operations andfinancial condition, capital expenditures, the consummation of acquisitions andfinancing transactions and the effect of such transactions on our business andour plans and objectives for future operations and expansion are examples of forward-lookingstatements. In some cases you can identify these statements by forward-lookingwords like “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “estimate”“predict”, “continue” or similar words. These forward-looking statements are subjectto risks and uncertainties which could cause actual outcomes and results todiffer materially from our expectations, forecasts and assumptions. These risksand uncertainties include factors affecting our leverage, includingfluctuations in interest rates, the risk that the counter-parties to ourinterest rate swap agreements fail to satisfy their obligations under theseagreements, our ability to incur financing, the effect of operating andfinancial restrictions in our debt instruments, the accuracy of our estimatesregarding our capital requirements, the effect of intense levels of competitionin our industry, changes in the healthcare regulatory environment, our abilityto keep pace with technological developments within our industry, and other risksand uncertainties, including those enumerated and described under “Risk Factors”in our Form 10-K/A, as filed with the Securities and ExchangeCommission, for the fiscal year ended December 31, 2004. The foregoingshould not be construed as an exhaustive list of all factors which could causeactual results to differ materially from those expressed in forward-lookingstatements made by us.

**ITEM3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We sell our servicesexclusively in the United States and receive payment for our servicesexclusively in United States dollars. As a result, our financial results areunlikely to be affected by factors such as changes in foreign currency exchangerates or weak economic conditions in foreign markets.

Our interest expense issensitive to changes in the general level of interest rates in the UnitedStates, particularly because the majority of our indebtedness has interestrates which are variable. The recorded carrying amount of our long-term debtunder our existing credit agreement approximates fair value as these borrowingshave variable rates that reflect currently available terms and conditions forsimilar debt. To decrease the risk associated with interest rate increases, weentered into multiple interest rate swap and collar agreements for a portion ofour variable rate debt. These swaps and collars are designated as cash flowhedges of variable future cash flows associated with our long-term debt.

The swap agreements havenotional amounts of $56.8 million, $46.8 million and $48.4 million at March 31,2005. Under the terms of these agreements, we receive three-month LIBOR and paya fixed rate of 3.15%, 3.89%, and 3.69%, respectively. The net effect of thehedges is to record interest expense at fixed rates of 5.40%, 6.14% and 5.94%respectively, as the debt incurs interest based on three-month 

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LIBORplus 2.25%. For the quarter ended March 31, 2005, we recorded net interestexpense on the swap agreements of $0.5 million. The swap agreements matureduring 2007.

We have also entered intomultiple interest rate collar agreements which have a total notional amount of$178.0 million. Under the terms of these agreements, we have purchased a cap onthe interest rate of 4.00% and have sold a floor of 2.25%. For the quarterended March 31, 2005, we did not record any net settlement on these collaragreements. The collar agreements mature at various dates between January 2007and January 2008.

The swap and collaragreements have been designated as cash flow hedges of variable future cashflows associated with our long term debt. In accordance with SFAS 133, theswaps and collars are recorded at fair value. On a quarterly basis, the fairvalue of the swaps and collars will be determined based on quoted market pricesand, assuming perfect effectiveness, the difference between the fair value andthe book value of the swaps and collars will be recognized in comprehensiveincome, a component of shareholders’ equity. Any ineffectiveness of the swapsand collars is required to be recognized in earnings.

The outstanding interestrate swaps and collars expose us to credit risk in the event that thecounterparties to the agreements do not or cannot meet their obligations. Thenotional amount is used to measure interest to be paid or received and does notrepresent the amount of exposure to credit loss. The loss would be limited tothe amount that would have been received, if any, over the remaining life ofthe swap and collar agreements. The counterparties to the swaps and collars aremajor financial institutions and we expect the counterparties to be able toperform their obligations under the swaps and collars. We use derivativefinancial instruments for hedging purposes only and not for trading orspeculative purposes.

Our interest income issensitive to changes in the general level of interest rates in the UnitedStates, particularly because the majority of our investments are in cashequivalents. The recorded carrying amounts of cash and cash equivalentsapproximate fair value due to their short-term maturities.

**ITEM 4.**                CONTROLSAND PROCEDURES

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management necessarily was required to apply itsjudgment in evaluating the cost benefit relationship of possible controls andprocedures. Also, we have investments in certain unconsolidated entities. As wedo not control or manage these entities, our disclosure controls and procedureswith respect to such entities are more limited than those we maintain withrespect to our consolidated subsidiaries. These unconsolidated entities are notconsidered material to our consolidated financial position or results ofoperations.

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

There were no changes inthe Company’s internal control over financial reporting occurring during thefiscal quarter covered by this report which have materially affected or arereasonably likely to materially affect the Company’s internal control overfinancial reporting.

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**PART II—OTHER INFORMATION**

**ITEM 1.**                LEGAL PROCEEDINGS

On May 5, 2005, Alliance Imaging, Inc. was served witha complaint filed in Alameda County Superior Court alleging wage claims onbehalf of a putative class of an estimated 350 former and current Californiaemployees of Alliance Imaging.  In LindaS. Jones, et al. v. Alliance Imaging, Inc., et al., the plaintiffs allegeviolations of California's wage, meal period, and break time laws andregulations. Plaintiffs seek recovery of unspecified economic damages,statutory penalties, punitive damages, attorneys' fees and costs of suit.  We are currently evaluating the allegationsof the complaint and are unable to predict the likely timing or outcome of thislawsuit.

From time to time, we are alsoinvolved in other litigation incidental to the conduct of our business. Webelieve that none of this litigation pending against us will have a materialadverse effect on our business.

**ITEM 2.**                UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

**ITEM 3.**                DEFAULTS UPONSENIOR SECURITIES

Not applicable.

**ITEM 4.**                SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

**ITEM 5.**                OTHER INFORMATION

On May 9, 2005 our Compensation Committee approvedan Amended and Restated Employment Agreement for our Chairman and ChiefExecutive Officer, Paul S. Viviano. The base compensation of $460,000 under Mr. Viviano’sAmended and Restated Employment Agreement is subject to adjustment by the Boardof Directors each year. In addition, Mr. Viviano will be entitled toreceive an annual cash bonus based upon our achievement of certain operatingand financial goals, with an annual target bonus equal to 80% in 2005 of histhen-current base salary. This bonus plan is administered by the CompensationCommittee of our Board of Directors.

Mr. Viviano’sAmended and Restated Employment Agreement has a term of two years. The term ofthe Amended and Restated Employment Agreement automatically extends for threemonths on the last day of each quarterly period and will continue to be soextended unless either we or Mr. Viviano gives notice of a desire tomodify or terminate the Amended and Restated Employment Agreement at leastthirty days prior to the quarterly extension date. We may terminate Mr. Viviano’semployment at any time and for any reason and Mr. Viviano may resign atany time for any reason. If we terminate the employment of Mr. Vivianowithout cause, or he resigns with good reason, the Amended and Restated EmploymentAgreement obligates us to:

·  payany earned but unpaid salary, benefits or bonuses;

·  continueto provide for a period of two years’ benefits at least equal to those receivedprior to severance; and

·  provideMr. Viviano with outplacement services the scope and provider of whichshall be mutually agreed upon by us and Mr. Viviano.

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Additionally, Mr. Viviano would receive, overtime, an amount equal to at least two times his combined then-current basesalary and bonus for the prior year in exchange for a covenant not to competeagainst us.

On May 9, 2005 our Compensation Committee alsoapproved an Employment Agreement for our President and Chief Operating Officer,Andrew P. Hayek. The base compensation of $300,000 under Mr. Hayek’sEmployment Agreement is subject to adjustment by the Board of Directors eachyear. In addition, Mr. Hayek will be entitled to receive an annual cashbonus based upon our achievement of certain operating and financial goals, withan annual target bonus equal to 75% in 2005 of his then-current base salary. Thisbonus plan is administered by the Compensation Committee of our Board ofDirectors.

Mr. Hayek’sEmployment Agreement has a term of two years. The term of the EmploymentAgreement automatically extends for three months on the last day of eachquarterly period and will continue to be so extended unless either we or Mr. Hayekgives notice of a desire to modify or terminate the Employment Agreement atleast thirty days prior to the quarterly extension date. We may terminate Mr. Hayek’semployment at any time and for any reason and Mr. Hayek may resign at anytime for any reason. If we terminate the employment of Mr. Hayek withoutcause, or he resigns with good reason, the Employment Agreement obligates usto:

·  pay any earned but unpaid salary, benefits orbonuses;

·  continue to provide for a period of two years’benefits at least equal to those received prior to severance; and

·  provide Mr. Hayek with outplacementservices the scope and provider of which shall be mutually agreed upon by usand Mr. Hayek.

Additionally, Mr. Hayekwould receive, over time, an amount equal to at least two times his combinedthen-current base salary and bonus for the prior year in exchange for acovenant not to compete against us.

**ITEM 6.**                EXHIBITS

(a)   Exhibits
| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                            | ** ** | **Description** |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1              |       | Amended and Restated Certificate of Incorporation of  Alliance.(7)                                                                                                                                                                                                                    |
| 3.2              |       | Amended and Restated By-laws of Alliance.(7)                                                                                                                                                                                                                                          |
| 4.1              |       | Indenture dated as of April 10, 2001 by and  between the Registrant and the Bank of New York with respect to $260 million  aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2011.(5)                                                                          |
| 4.2              |       | Credit Agreement dated as of November 2, 1999,  as amended.(5)                                                                                                                                                                                                                   |
| 4.3              |       | Specimen certificate for shares of common stock,  $.01 par value, of Alliance.(7)                                                                                                                                                                                                     |
| 4.4              |       | Second Amendment dated as of June 10, 2002 to  Credit Agreement.(8)                                                                                                                                                                                                              |
| 4.5              |       | 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.(13) |
| 4.6              |       | Supplemental Indenture dated as of December 14,  2004 by and between Registrant and the Bank of New York with respect to 103¤8%  Senior Subordinated Notes due 2011.(13)                                                                                                    |
| 4.7              |       | Third Amendment dated as of December 29, 2004  to Credit Agreement.(13)                                                                                                                                                                                                          |
| 10.1             |       | The 1999 Equity Plan for Employees of Alliance and  Subsidiaries including the forms of option agreements used thereunder, as  amended.(5)                                                                                                                                            |

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| 10.2  |   | The Alliance 1997 Stock Option Plan, including form  of option agreement used thereunder, as amended.(5)                                                                        |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.3  |   | The Three Rivers Holding Corp. 1997 Stock Option  Plan, as amended.(5)                                                                                                          |
| 10.4  |   | Alliance Directors’ Deferred Compensation Plan, as  amended.(6)                                                                                                            |
| 10.5  |   | 2003 Incentive Plan(9)                                                                                                                                                          |
| 10.6  |   | Employment Agreement dated as of July 23, 1997  between Alliance and Richard N. Zehner.(1)                                                                                 |
| 10.7  |   | Agreement Not to Compete dated as of July 23,  1999 between Alliance and Richard N. Zehner.(1)                                                                             |
| 10.8  |   | Amendment to Employment Agreement dated as of  July 23, 1997 between Alliance and Richard N. Zehner.(2)                                                                    |
| 10.9  |   | Amendment to Employment Agreement dated as of  December 31, 1997 between Alliance and Richard N. Zehner.(3)                                                           |
| 10.10 |   | Second Amendment to Employment Agreement dated as of  February 5, 1998 between Alliance and Richard N. Zehner.(3)                                                          |
| 10.11 |   | Employment Agreement dated as of January 19,  1998 between Alliance and Kenneth S. Ord.(4)                                                                                 |
| 10.12 |   | Agreement Not to Compete dated as of  January 19, 1998 between Alliance and Kenneth S. Ord.(4)                                                                             |
| 10.15 |   | Employment Agreement dated as of April 29, 1998  between Alliance and Russell D. Phillips, Jr.(3)                                                                |
| 10.16 |   | Agreement Not to Compete dated as of April 29,  1998 between Alliance and Russell D. Phillips, Jr.(3)                                                                 |
| 10.17 |   | Employment Agreement dated as of January 1,  2003 between Alliance and Paul S. Viviano.(9)                                                                            |
| 10.18 |   | Agreement Not to Compete dated as of January 1,  2003 between Alliance and Paul S. Viviano.(9)                                                                             |
| 10.19 |   | Stock Subscription Agreement dated as of  January 2, 2003 between Alliance and Paul S. Viviano.(9)                                                                         |
| 10.20 |   | Stock Subscription Agreement dated as of  February 3, 2003 between Alliance and Paul S. Viviano.(9)                                                                        |
| 10.21 |   | Form of Stockholder’s Agreement.(5)                                                                                                                                   |
| 10.23 |   | Registration Rights Agreement dated as of  November 2, 1999.(5)                                                                                                            |
| 10.24 |   | Management Agreement, dated as of November 2,  1999, between Alliance and Kohlberg Kravis Roberts & Co., LLP.(5)                                                  |
| 10.25 |   | Amendment No. 1 to Management Agreement,  effective as of January 1, 2000, between Alliance and Kohlberg Kravis  Roberts & Co., LLP.(5)                      |
| 10.26 |   | Form of Indemnification Agreement.(6)                                                                                                                                      |
| 10.27 |   | Amendment to Employment Agreement, Non-Qualified  Stock Option Agreement and Non-Compete Agreement, dated as of May 21,  2003, between Alliance and Richard N. Zehner.(10) |
| 10.29 |   | Amendment to Employment Agreement and Stockholders’  Agreement, dated March 29, 2004 by and between Alliance, Viewer  Holdings, LLC and Kenneth S. Ord.(12)      |
| 10.30 |   | Amended and Restated Employment Agreement dated as  of May 9, 2005 between Alliance and Paul S. Viviano.(15)                                                                    |
| 10.31 |   | Agreement Not to  Compete dated as of May 9, 2005 between Alliance and Paul S. Viviano.  (15)                                                                              |

 

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| Exhibit No. | ** ** | ** **                                                                                                                                  | ** ** | ** ** | **Description** |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-----------------|
| 10.32            |       | Employment Agreement dated as of May 9, 2005 between  Alliance and Andrew P. Hayek.(15)                                                |
| 10.33            |       | Agreement Not to Compete dated as of May 9, 2005  between Alliance and Andrew P. Hayek.(15)                                                 |
| 21.1             |       | List of subsidiaries.(14)                                                                                                                   |
| 31               |       | Certifications of Chief Executive Officer and Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.(15) |
| 32               |       | Certifications of Chief Executive Officer and Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.(15) |

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  (1) Incorporated by referenceto exhibits filed with the Company’s Registration Statement on Form S-2,No. 333-33817.

  (2)    Incorporatedby reference herein to the indicated Exhibit in response to Item 14(a)(3),“Exhibits” of the Company’s Annual Report on Form 10-K for the yearended December 31, 1997 (File No. 000-16334).

  (3)    Incorporatedby reference herein to the indicated Exhibit in response to Item 14(a)(3),“Exhibits” of the Company’s Annual Report on Form 10-K for the yearended December 31, 1998 (File No. 000-16334).

  (4)    Incorporatedby reference to exhibits filed in response to Item 6, “Exhibits” of the Company’sQuarterly Report on Form 10-Q for the quarter ended March 31,1998 (File No. 000-16334).

  (5)    Incorporatedby reference to exhibits filed with the Company’s Registration Statement on Form S-4,No. 333-60682, as amended.

  (6)    Incorporatedby reference to exhibits filed with the Company’s Registration Statement on Form S-1,No. 333-64322, as amended.

  (7)    Incorporatedby reference to exhibits filed in response to Item 6, “Exhibits” of the Company’sQuarterly Report on Form 10-Q for the quarter ended June 30,2001 (File No. 001-16609).

  (8)    Incorporatedby reference to exhibits filed in response to Item 6, “Exhibits” of the Company’sQuarterly Report on Form 10-Q for the quarter ended June 30,2002 (File No. 001-16609).

  (9)    Incorporatedby reference herein to the indicated Exhibit response in Item 15(a)(3), “Exhibits”of the Company’s Annual Report on Form 10-K for the year ended December 31,2002 (File No. 001-16609).

(10)   Incorporatedby reference to exhibits filed in response to Item 6, “Exhibits” of the Company’sQuarterly Report on Form 10-Q for the quarter ended June 30,2003 (File No. 001-16609).

(11)   Incorporatedby reference herein to the indicated Exhibit response in Item 15(a)(3), “Exhibits”of the Company’s Annual Report on Form 10-K for the year ended December 31,2003 (File No. 001-16609).

(12)   Incorporatedby reference to exhibits filed in response to Item 6, “Exhibits” of the Company’sQuarterly Report on Form 10-Q for the quarter ended March 31,2004 (File No. 001-16609).

(13)   Incorporatedby reference to exhibits filed in response to Item 9.01(c), “Exhibits” of theCompany’s Current Report on Form 8-K, dated December 29, 2004(File No. 001-16609).

(14)   Incorporatedby reference herein to the indicated Exhibit response in Item 15(a)(1), “Exhibits”of the Company’s Annual Report on Form 10-K for the year ended December 31,2004 (File No. 001-16609).

(15)   Filed herewith

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                   | **ALLIANCE,  IMAGING, INC.** |
|-------------------|------------------------------|
| May 10, 2005 | By:                          |   | /s/ PAUL S. VIVIANO |
|              |                         | Paul S. Viviano |
|              | * *                     | *Chairman of the Board and Chief Executive Officer* |
|              | * *                     | *(Principal Executive Officer)* |
| May 10, 2005 | By:                          |   | /s/ R. BRIAN HANSON |
|              |                         | R. Brian Hanson |
|              | * *                     | *Executive Vice President and Chief Financial  Officer* |
|              | * *                     | *(Principal Financial Officer)* |
| May 10, 2005 | By:                          |   | /s/ HOWARD K. AIHARA |
|              |                         | Howard K. Aihara |
|              | * *                     | *Vice President and Corporate Controller* |
|              | * *                     | *(Principal Accounting Officer)* |

 

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