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

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FORM 10-Q

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

For Quarter Ended: March 31, 2004

Commission File Number: 1-16609

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2004:

Common
Stock, $.01 par value, 47,978,987 shares



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ALLIANCE IMAGING, INC.
FORM 10-Q
March 31, 2004

Index

|                             |                                                                                              | Page                                                                                             
|---------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION |                                                                                              |                                                                                                  
|                             | Item 1Financial Statements:                                                                 |                                                                                                  
|                             |                                                                                              | Condensed Consolidated Balance Sheets
December 31, 2003 and March 31, 2004 (Unaudited)           
|                             |                                                                                              | Condensed Consolidated Statements of Income
Quarter ended March 31, 2003 and 2004 (Unaudited)    
|                             |                                                                                              | Condensed Consolidated Statements of Cash Flows
Quarter ended March 31, 2003 and 2004 (Unaudited)
|                             |                                                                                              | Notes to Condensed Consolidated Financial Statements (Unaudited)                                 
|                             | Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                  
|                             | Item 3Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                  
|                             | Item 4Controls and Procedures                                                               |                                                                                                  
|PART IIOTHER INFORMATION    |                                                                                              |                                                                                                  
|                             | Item 1Legal Proceedings                                                                     |                                                                                                  
|                             | Item 2Changes in Securities and Use of Proceeds                                             |                                                                                                  
|                             | Item 3Defaults Upon Senior Securities                                                       |                                                                                                  
|                             | Item 4Submission of Matters to a Vote of Security Holders                                   |                                                                                                  
|                             | Item 5Other Information                                                                     |                                                                                                  
|                             | Item 6Exhibits and Reports on Form 8-K                                                      |                                                                                                  
|SIGNATURES                   |                                                                                              | 19                                                                                               

1

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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

|                                            |                                                             | December 31,
2003 |          | March 31,
2004 |  
|------------------------------------------- | ----------------------------------------------------------- | ----------------- | -------- | -------------- | -
|ASSETS                                      |                                                             |                   |          |                |  
|Current assets:                             |                                                             |                   |          |                |  
|                                            | Cash and cash equivalents                                   |                   | $        | 20,931         |  
|                                            | Accounts receivable, net of allowance for doubtful accounts |                   |          | 45,276         |  
|                                            | Deferred income taxes                                       |                   |          | 15,783         |  
|                                            | Prepaid expenses                                            |                   |          | 2,718          |  
|                                            | Other receivables                                           |                   |          | 2,975          |  
|                                            |                                                             |                   |          |                |  
|Total current assets                        |                                                             |                   | 87,683   |                |  
|Equipment, at cost                          |                                                             |                   | 677,089  |                |  
|Less accumulated depreciation               |                                                             |                   | (324,458 | )              |  
|                                            |                                                             |                   |          |                |  
|Equipment, net                              |                                                             |                   | 352,631  |                |  
|Goodwill                                    |                                                             |                   | 122,992  |                |  
|Other intangible assets, net                |                                                             |                   | 30,953   |                |  
|Deferred financing costs, net               |                                                             |                   | 12,313   |                |  
|Deposits and other assets                   |                                                             |                   | 21,604   |                |  
|                                            |                                                             |                   |          |                |  
|Total assets                                |                                                             | $                 | 628,176  |                | $
|                                            |                                                             |                   |          |                |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT       |                                                             |                   |          |                |  
|Current liabilities:                        |                                                             |                   |          |                |  
|                                            | Accounts payable                                            |                   | $        | 15,993         |  
|                                            | Accrued compensation and related expenses                   |                   |          | 9,832          |  
|                                            | Accrued interest payable                                    |                   |          | 7,076          |  
|                                            | Income taxes payable                                        |                   |          | 10,137         |  
|                                            | Other accrued liabilities                                   |                   |          | 19,660         |  
|                                            | Current portion of long-term debt                           |                   |          | 4,927          |  
|                                            |                                                             |                   |          |                |  
|Total current liabilities                   |                                                             |                   | 67,625   |                |  
|Long-term debt, net of current portion      |                                                             |                   | 316,320  |                |  
|Senior subordinated notes                   |                                                             |                   | 260,000  |                |  
|Minority interests                          |                                                             |                   | 3,292    |                |  
|Deferred income taxes                       |                                                             |                   | 51,737   |                |  
|                                            |                                                             |                   |          |                |  
|Total liabilities                           |                                                             |                   | 698,974  |                |  
|Commitments and contingencies(Note 10)      |                                                             |                   |          |                |  
|Stockholders' deficit:                      |                                                             |                   |          |                |  
|                                            | Common stock                                                |                   |          | 480            |  
|                                            | Paid-in-capital deficit                                     |                   |          | (19,822        | )
|                                            | Accumulated deficit                                         |                   |          | (51,456        | )
|                                            |                                                             |                   |          |                |  
|Total stockholders' deficit                 |                                                             |                   | (70,798  | )              |  
|                                            |                                                             |                   |          |                |  
|Total liabilities and stockholders' deficit |                                                             | $                 | 628,176  |                | $
|                                            |                                                             |                   |          |                |  

See accompanying notes.

2

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

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

See
accompanying notes.

3

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

|                                                                                  |                                                                                   | Quarter Ended
March 31, |        
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------- | -------
|
|Operating activities:                                                             |                                                                                   |                         |        
|Net income                                                                        |                                                                                   | $                       | 6,880  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                   |                         |        
|                                                                                  | Provision for doubtful accounts                                                   |                         |        
|                                                                                  | Non-cash stock-based compensation                                                 |                         |        
|                                                                                  | Depreciation and amortization                                                     |                         |        
|                                                                                  | Amortization of deferred financing costs                                          |                         |        
|                                                                                  | Distributions greater than (less than) equity in undistributed income of investee |                         |        
|                                                                                  | Deferred income taxes                                                             |                         |        
|                                                                                  | (Gain) loss on sale of equipment                                                  |                         |        
|Changes in operating assets and liabilities, net of acquisitions:                 |                                                                                   |                         |        
|                                                                                  | Accounts receivable                                                               |                         |        
|                                                                                  | Prepaid expenses                                                                  |                         |        
|                                                                                  | Other receivables                                                                 |                         |        
|                                                                                  | Other assets                                                                      |                         |        
|                                                                                  | Accounts payable                                                                  |                         |        
|                                                                                  | Accrued compensation and related expenses                                         |                         |        
|                                                                                  | Accrued interest payable                                                          |                         |        
|                                                                                  | Income taxes payable                                                              |                         |        
|                                                                                  | Other accrued liabilities                                                         |                         |        
|                                                                                  | Minority interests                                                                |                         |        
|                                                                                  |                                                                                   |                         |        
|Net cash provided by operating activities                                         |                                                                                   |                         | 30,677 
|                                                                                  |                                                                                   |                         |        
|Investing activities:                                                             |                                                                                   |                         |        
|Equipment purchases                                                               |                                                                                   |                         | (25,852
|(Increase) decrease in deposits on equipment                                      |                                                                                   |                         | (5,287 
|Acquisitions, net of cash received                                                |                                                                                   |                         | (2,285 
|Proceeds from sale of assets                                                      |                                                                                   |                         | 969    
|                                                                                  |                                                                                   |                         |        
|Net cash used in investing activities                                             |                                                                                   |                         | (32,455
|                                                                                  |                                                                                   |                         |        
|Financing activities:                                                             |                                                                                   |                         |        
|Principal payments on equipment debt                                              |                                                                                   |                         | (2,468 
|Principal payments on term loan facility                                          |                                                                                   |                         | (10,000
|Payments of debt issuance costs                                                   |                                                                                   |                         | (70    
|Proceeds from issuance of common stock                                            |                                                                                   |                         | 280    
|Proceeds from exercise of employee stock options                                  |                                                                                   |                         |       
|                                                                                  |                                                                                   |                         |        
|Net cash used in financing activities                                             |                                                                                   |                         | (12,258
|                                                                                  |                                                                                   |                         |        
|Net (decrease) increase in cash and cash equivalents                              |                                                                                   |                         | (14,036
|Cash and cash equivalents, beginning of period                                    |                                                                                   |                         | 31,413 
|                                                                                  |                                                                                   |                         |        
|Cash and cash equivalents, end of period                                          |                                                                                   | $                       | 17,377 
|                                                                                  |                                                                                   |                         |        
|Supplemental disclosure of cash flow information:                                 |                                                                                   |                         |        
|Interest paid                                                                     |                                                                                   | $                       | 3,888  
|Income taxes paid, net of refunds                                                 |                                                                                   |                         | 1,061  
|Supplemental disclosure of non-cash investing and financing activities:           |                                                                                   |                         |        
|Net book value of assets exchanged                                                |                                                                                   | $                       | 702    
|Capital lease obligations assumed for the purchase of equipment                   |                                                                                   |                         | 4,129  
|Capital lease obligations transferred for the sale of equipment                   |                                                                                   |                         | (1,139 

See accompanying notes.

4

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ALLIANCE IMAGING, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        March 31, 2004        (Unaudited)        (Dollars in thousands, except per
share amounts)

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

Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared by Alliance
Imaging, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements
for the year ended December 31, 2003.

Principles of ConsolidationThe accompanying unaudited condensed consolidated financial statements of the Company include the
assets, liabilities, revenues and expenses of all majority owned subsidiaries over which the Company exercises control, and for which control is other than temporary. Intercompany transactions have
been eliminated. Investments in non-consolidated affiliates are accounted for under the equity method.

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

2.     Stock-Based Compensation

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

SFAS 123,
as amended by SFAS 148, requires presentation of pro forma information regarding net income and earnings per share determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted-average assumptions for the first quarter of 2003 and first quarter of 2004, respectively: risk-free interest rates of 3.36%
and 3.02%; no dividend yield; volatility factors of the expected market price of the Company's common stock of 72.1% and 60.7%; and a weighted-average expected life of the options of 6.50 years
and 5.19 years. The weighted-average fair value of options granted during the first quarter of 2003 and 2004 is $3.52 and $2.01, respectively.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially

5

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affect
the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For
purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' expected vesting period. Had compensation cost for the Company's
stock option plan been determined based on the estimated fair value at the grant dates for awards under the plan consistent with the fair value method of SFAS 123 utilizing the Black-Scholes
option-pricing model, the Company's net income and basic and diluted earnings per share for the quarters ended March 31, would have approximated the pro forma amounts indicated below:

Quarter Ended
March 31,2003

2004Net income:As reported

$
6,880

$
4,540Add: Stock-based compensation expense included in reported net income, net of related tax effects


245


58Deduct: Stock-based compensation expense determined under fair value based method, net of related tax effects


(307
)

(318
)Pro forma net income

$
6,818

$
4,280Basic earnings per share:As reported

$
0.14

$
0.09Pro forma


0.14


0.09Diluted earnings per share:As reported

$
0.14

$
0.09Pro forma


0.14


0.09


3.     Recent Accounting Pronouncements

Accounting for Certain Instruments with Characteristics of Both Liabilities and EquityIn May 2003, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires
that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is
effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. In
October 2003, the FASB deferred implementation of paragraphs 9 and 10 of SFAS 150 regarding parent company treatment of minority interest for certain limited life entities and certain
other mandatorily redeemable financial instruments. This deferral is for an indefinite period. The adoption of SFAS 150 did not have a material impact on the Company's financial position or
results of operations.

Revenue RecognitionIn December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition", which supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104 clarifies existing guidance regarding revenues for contracts which contain
multiple deliverables to make it consistent with Emerging Issues Task Force ("EITF") No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The adoption of SAB
104 did not have a material impact on the Company's revenue recognition policies, nor its financial position or results of operations.

6

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4.     Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill are as follows:

Balance at December 31, 2003

$
122,992Additions to goodwill during the period


Balance at March 31, 2004

$
122,992


Intangible
assets consisted of the following:

|                                              |                                    | December 31, 2003 |   | March 31, 2004
|--------------------------------------------- | ---------------------------------- | ----------------- | - | --------------
|
|Amortizing intangible assets:                 |                                    |                   |   |               
|                                              | Customer contracts                 |                   | $ | 40,426        
|                                              | Other                              |                   |   | 2,890         
|                                              |                                    |                   |   |               
|                                              | Total amortizing intangible assets |                   | $ | 43,316        
|                                              |                                    |                   |   |               
|Intangible assets not subject to amortization |                                    |                   |   |               
|                                              |                                    |                   |   |               
|                                              | Total other intangible assets      |                   |   |               
|                                              |                                    |                   |   |               

The
Company reviews the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to indicate an impairment of
these assets has possibly occurred. Goodwill is allocated to the Company's various reporting units which represent the Company's ten geographical regions. The Company compares the fair value of the
reporting unit to its carrying amount to determine if there is potential impairment. The implied fair value for goodwill is determined based on the fair value of assets and liabilities of the
respective reporting units based on discounted cash flows, market multiples, or appraised values as appropriate.

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

2004

3,4982005

3,4702006

3,4172007

3,2012008

2,990


5.     Other Accrued Liabilities

Other accrued liabilities consisted of the following:

December 31,
2003

March 31,
2004Accrued systems rental and maintenance costs

$
2,472

$
2,490Accrued site rental fees


1,795


2,077Accrued property and sales taxes payable


7,125


7,535Accrued equipment payments


1,274


2,767Accrued self-insurance expense


3,072


3,657Other accrued expenses


3,922


4,150Total other accrued liabilities

$
19,660

$
22,676


7

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6.     Long-Term Debt

Long-term debt consisted of the following:

December 31,
2003

March 31,
2004Term loan facility

$
307,125

$
307,125Senior subordinated notes


260,000


260,000Equipment debt


14,122


12,855Long-term debt, including current portion


581,247


579,980Less current portion


4,927


4,869Long-term debt

$
576,320

$
575,111


7.     Non-Cash Stock-Based Compensation

In November 2000, the Company granted stock options to certain employees at exercise prices below the fair value of the Company's common stock, of which
60,000 options are outstanding at March 31, 2004. The exercise prices of these options and the fair value of the Company's common stock on the grant date were $5.60 and $9.52 per share,
respectively. Compensation expense of $1,097 is being recognized on a straight-line basis over the vesting period of the options. The Company recorded non-cash stock-based
compensation of $18 in each of the quarters ended March 31, 2003 and 2004, with an offset to paid-in-capital deficit.

On
June 20, 2001, the Company's compensation committee authorized the Company to amend the option agreements granted under its 1999 Equity Plan on November 2, 1999 to
reduce the performance targets for the performance options. One-half of these options granted under the 1999 Equity Plan are "performance options." These options vest on the eighth
anniversary of the grant date if the option holder is still an employee, but the vesting accelerates if the Company meets the operating performance targets specified in the option agreements. As a
result of the amendment, if the Company achieves the reduced performance targets but does not achieve the original performance targets, and an option holder terminates employment prior to the eighth
anniversary of the option grant date, the Company would be required to record a non-cash stock-based compensation charge equal to the amount by which the actual value of the shares subject
to the performance option on the date of the amendment exceeded the option's exercise price. Management estimates that the Company could incur an additional $200 to $600 in the aggregate of these
non-cash stock-based compensation charges over the next 13/4 years. These charges, however, may not be evenly distributed over each of those 13/4 years or
over the four quarters in any one year, depending upon the timing of employee turnover and the number of shares subject to the options held by departing employees. For the quarters ended
March 31, 2003 and 2004, the Company recorded $400 and $80, respectively, in non-cash stock-based compensation as a result of the amendment.

8.     Income Taxes

For the quarter ended March 31, 2003 and 2004, the Company recorded a provision for income taxes of $4,881 and $3,106, or 41.5% and 40.6% of the Company's
pretax income, respectively. The Company's effective tax rate was higher than statutory rates primarily as a result of state income taxes.

8

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9.     Earnings Per Common Share

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

Quarter Ended
March 31,2003

2004Numerator:Net income

$
6,880

$
4,540Denominator:Denominator for basic earnings per shareweighted-average shares


47,732


47,968Effect of dilutive securities:Employee stock options


838


343Denominator for diluted earnings per shareadjusted weighted-average shares


48,570


48,311Earnings per common share:Basic

$
0.14

$
0.09Diluted

$
0.14

$
0.09


10.   Commitments and Contingencies

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

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

The
Company guarantees a portion of a loan on behalf of an unconsolidated investee under an agreement executed prior to 2002. The maximum potential future payment under this financial
guarantee is $381 at March 31, 2004. The Company has not recorded an obligation for this guarantee.

11.   Related-Party Transactions

The Company paid to Kohlberg Kravis Roberts & Co. ("KKR") management fees of $163 for each of the quarters ended March 31, 2003 and 2004,
respectively, and will continue to receive financial advisory services from KKR on an ongoing basis.

9

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

Overview

We are a leading national provider of diagnostic imaging services. We provide imaging services primarily to hospitals and other healthcare providers on a shared
and full-time service basis, in addition to operating a growing number of free-standing imaging centers. Our principal sources of revenue are derived from magnetic resonance
imaging (MRI) and positron emission tomography (PET) services. In the first quarter of 2004, MRI services and PET services generated 74% and 17% of our revenues, respectively. Our services normally
include the use of our imaging systems, technologists to operate the systems, equipment maintenance and upgrades and management of day-to-day operations. We had 477 diagnostic
imaging systems, including 363 MRI systems, and 1,348 clients in 44 states at March 31, 2004.

Approximately
88% of our revenues for the quarter ended March 31, 2004 were generated by providing services to hospitals and other healthcare providers, which we refer to as
wholesale revenues. Our wholesale revenues are typically generated from contracts that require our clients to pay us based on the number of scans we perform, although some pay us a flat fee for a
period of time regardless of the number of scans we perform. These payments are due to us independent of our clients' receipt of reimbursement from third-party payors. We typically deliver our
services for a set number of days per week through exclusive, long-term contracts with hospitals and other healthcare providers. These contracts average approximately three years in length
and often contain automatic renewal provisions. We price our contracts based on the type of system used, the scan volume, and the number of ancillary services provided. Our pricing is also influenced
by competitive market pressures.

Approximately
12% of our revenues for the quarter ended March 31, 2004 were generated by providing services directly to patients from our sites located at or near hospitals or
other healthcare provider facilities, which we refer to as retail revenues. Our revenues from these sites are generated from direct billings to patients or their third-party payors, which are recorded
net of contractual discounts and other arrangements for providing services at discounted prices. We typically charge a higher price per scan under retail billing than we do under wholesale billing.

We
have recently seen an increase in the competitive climate in the MRI industry, resulting in an increase in activity by original equipment manufacturers, or OEM's, selling systems
directly to certain of our clients. Typically, OEM's target our higher scan volume clients. This has caused an increase in the number of our higher scan volume clients deciding not to renew their
contracts. We replace these higher volume scan clients typically with lower volume clients. As a result, we expect our 2004 MRI revenues to decline compared to 2003 levels and we believe that MRI
revenues from our shared service operations will continue to decline in future years.

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

The
principal components of our selling, general and administrative expenses are sales force compensation, marketing costs, corporate overhead costs, provision for doubtful accounts, and
equity interest earnings in unconsolidated partnerships.

For
the quarter ended March 31, 2004, we recorded $0.1 million in non-cash stock-based compensation primarily as a result of amending certain stock option
agreements in June 2001 to reduce performance targets and granting options in November 2000 to purchase our common stock at an exercise price below its fair value. One-half
of the options granted under our 1999 Equity Plan are "performance options." These options vest on the eighth anniversary of the grant date if the option holder is still our employee, but the vesting
accelerates if we meet the operating performance targets

10

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specified
in the option agreements. On June 20, 2001, our compensation committee authorized us to enter into amended option agreements to reduce the performance targets for the performance
options. As a result, if we achieve the reduced performance targets but do not achieve the original performance targets, and an option holder terminates employment prior to the eighth anniversary of
the option grant date, we would be required to record a non-cash stock-based compensation charge equal to the amount by which the actual value of the shares subject to the performance
option on the date of the amendment exceeded the option's exercise price. We estimate that we will incur an additional $0.2 million to $0.6 million in the aggregate of
non-cash stock-based compensation charges over the next 13/4 years as a result of amending option agreements to reduce performance targets. These charges, however, may not
be evenly distributed over each of those 13/4 years or over the four quarters in any one year, depending upon the timing of employee turnover and the number of shares subject to the
options held by departing employees.

Seasonality

We experience seasonality in the revenues and margins generated for our services. First and fourth quarter revenues are typically lower than those from the second
and third quarters. First quarter revenue is affected primarily by fewer calendar days and inclement weather, the results of which are fewer patient scans during the period. The first quarter of 2004
benefited from one extra calendar day due to the leap year. This had the effect of increasing revenue and income in the first quarter of 2004. Fourth quarter revenue is affected primarily by holiday
and client and patient vacation schedules and inclement weather, the results of which are fewer patient scans during the period. The variability in margins is higher than the variability in revenues
due to the fixed nature of our costs.

Results of Operations

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

2003

2004Revenues

100.0
%
100.0
%Costs and expenses:Operating expenses, excluding depreciation

48.0

50.4Selling, general and administrative expenses

10.7

10.6Employment agreement costs



0.3Minority interest expense

0.5

0.7Severance and related costs

0.2

Non-cash stock-based compensation

0.4

0.1Depreciation expense

17.4

19.8Amortization expense

0.7

0.8Interest expense, net of interest income

10.7

10.1Other income and expense, net

(0.1
)
Total costs and expenses

88.5

92.8Income before income taxes

11.5

7.2Provision for income taxes

4.8

2.9Net income

6.7
%
4.3
%


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

2003

2004MRI scan-basedAverage number of scan-based MRI systems


309.0


296.1Scans per system per day


9.46


9.50Total number of MRI scans


207,600


202,100Price per scan

$
365.7

$
354.3


Following
are the components of revenue for each of the quarters ended March 31 (in millions):

2003

2004Scan-based MRI

$
75.9

$
71.6PET


11.9


17.7Non-scan based MRI and other


14.9


16.3Total

$
102.7

$
105.6


Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003

Revenue increased $2.9 million, or 2.8%, to $105.6 million in the first quarter of 2004 compared to $102.7 million in the first quarter of
2003 primarily due to higher PET revenue and higher non scan-based MRI revenue and other revenue, offset by lower scan-based MRI revenue. PET revenue in the first quarter of
2004 increased $5.8 million, or 48.5%, compared to the first quarter of 2003 primarily due to an increase in the number of PET systems in service. Non scan-based MRI revenue and
other revenue in the first quarter of 2004 increased $1.4 million, or 9.7%, primarily due to higher short-term MRI rental revenue and higher
management contract revenue due to growth in unconsolidated joint ventures. Scan-based MRI revenue in the first quarter of 2004 decreased $4.3 million, or 5.7%, compared to the
first quarter of 2003 primarily as a result of a 2.7% decrease in our MRI scan volume. We attribute this decrease to a decrease in the average price per MRI scan and a decrease in the average number
of scan-based systems in operation. The average number of scan-based MRI systems decreased to 296.1 in the first quarter of 2004 from 309.0 in the first quarter of 2003. The
average price per MRI scan decreased 3.1% to $354.3 per scan in the first quarter of 2004 compared to $365.7 per scan in the first quarter of 2003.

We
had 363 MRI systems at March 31, 2004 compared to 358 MRI systems at March 31, 2003. We had 48 PET and PET/CT systems at March 31, 2004 compared to 32 PET systems
at March 31, 2003. These increases were primarily a result of planned system additions to satisfy client demand.

Operating
expenses, excluding depreciation, increased $4.0 million, or 8.1%, to $53.3 million in the first quarter of 2004 compared to $49.3 million in the first
quarter of 2003. Compensation and related employee expenses increased $1.4 million, or 5.8%, primarily as a result of an increase in technologists' wage rates, the number of employees necessary
to support new PET systems in operation, and an increase in workers' compensation expense. Equipment rental expense decreased $1.1 million, or 69.7%, resulting from a lower number of MRI rental
systems and power units in operation. Maintenance related costs increased $1.0 million, or 10.4%, primarily due to an increase in the average repair cost per system and an increase in the
number of total systems in service. Medical supplies increased $0.9 million, or 25.6%, primarily as a result of an increase in the number of PET systems in operation, which use a
radiopharmaceutical as a component of the scan. Management contract expenses increased $0.8 million, or 51.9%, primarily as a result of an increase in expenses related to growth in
unconsolidated joint ventures. Outside medical services increased $0.8 million, or 44.2%, primarily as a result of an increase in outside radiologists services associated with PET. All other
operating expenses, excluding depreciation, increased $0.2 million, or 3.4%, primarily due to the increase in the number of systems in service. Operating expenses, excluding depreciation, as a

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percentage
of revenue, increased to 50.4% in the first quarter of 2004 from 48.0% in the first quarter of 2003 as a result of the factors described above.

Selling,
general and administrative expenses increased $0.2 million, or 1.5%, to $11.2 million in the first quarter of 2004 compared to $11.0 million in the first
quarter of 2003. Compensation and related employee costs increased $0.5 million, or 6.4%, primarily due to increases in sales and marketing costs. Professional services expenses increased
$0.4 million, or 48.0%, in the first quarter of 2004 compared to the first quarter of 2003 primarily due to management consulting fees and legal costs associated with business development and
sales incentive plans and management fees associated with compliance with the Sarbanes-Oxley Act of 2002. All other selling, general and administrative expenses decreased $0.7 million, or
29.5%. The provision for doubtful accounts increased as a percentage of revenue to 0.4% in the first quarter of 2004 compared to 0.2% in the first quarter of 2003. Selling, general and administrative
expenses as a percentage of revenue were 10.6% and 10.7% in the first quarter of 2004 and 2003, respectively.

Minority
interest expense increased $0.3 million, or 58.9%, to $0.8 million in the first quarter of 2004 compared to $0.5 million in the first quarter of 2003.

We
recorded employment agreement expenses of $0.3 million in the first quarter of 2004 related to payments under an amendment to an employment agreement with our former chairman
of the board. We expect to incur approximately $1.3 million of costs over the remaining 14-month term of the amended employment agreement.

We
recorded severance and related costs of zero and $0.2 million in the first quarter of 2004 and 2003, respectively, primarily related to severance and settlement payments made
as a result of a reduction in force.

We
recorded non-cash stock-based compensation of $0.1 million and $0.4 million in the first quarter of 2004 and 2003, respectively, primarily as a result of
amending certain stock option agreements in June 2001 to reduce performance targets.

Depreciation
expense increased $3.0 million, or 16.6%, to $20.8 million in the first quarter of 2004 compared to $17.9 million in the first quarter of 2003,
principally due to a higher amount of depreciable assets associated with MRI system additions and upgrades, an increase in the number of PET systems, which have a shorter depreciable life than MRIs,
and a reduction of estimated useful lives of 1.5 Tesla MRI systems from eight years to seven years and a reduction in residual values on all of our MRI equipment from 20% to 10% during the third
quarter of 2003.

Amortization
expense increased $0.2 million, or 29.6%, to $0.9 million in the first quarter of 2004 compared to $0.7 million in the first quarter of 2003.

Interest
expense, net, decreased $0.5 million, or 4.4%, to $10.6 million in the first quarter of 2004 compared to $11.1 million in the first quarter of 2003,
primarily due to lower average debt balances and lower average interest rates.

Provision
for income taxes was $3.1 million and $4.9 million in the first quarter of 2004 and 2003, respectively, resulting in effective tax rates of 40.6% and 41.5%. Our
effective tax rates were higher than statutory rates primarily as a result of state income taxes.

Our
net income was $4.5 million, or $0.09 per share on a diluted basis, in the first quarter of 2004 compared to $6.9 million, or $0.14 per share on a diluted basis, in the
first quarter of 2003.

Liquidity and Capital Resources

Our primary source of liquidity is cash provided by operating activities. Cash provided from operating activities totaled $35.9 million and
$30.7 million in the first quarter of 2004 and 2003, respectively. Our ability to generate cash flow is affected by numerous factors, including demand for MRI and PET scans, the price we can
charge our clients for providing our services and the costs to us

13

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of
providing those services. In addition, as of March 31, 2004, we had $147.0 million of available borrowings under our revolving line of credit.

Our
primary use of capital resources is to fund capital expenditures. We incur capital expenditures for the purposes of:



Capital
expenditures totaled $27.5 million and $25.9 million in the first quarter of 2004 and 2003, respectively. During the first quarter of 2004, we purchased eight MRI
systems and four PET/CT systems, including replacement systems. Our decision to purchase a new system is typically predicated on obtaining new or extending existing client contracts, which serve as
the basis of demand for the new system. We expect to purchase additional systems in 2004 and to finance substantially all of these purchases with our available cash, cash from operating activities,
our revolving line of credit and equipment leases. We expect capital expenditures to total approximately $80 million in 2004.

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

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"), which establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a
liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred implementation of paragraphs 9 and 10 of SFAS 150 regarding parent company treatment of
minority interest for certain limited life entities and certain other mandatorily redeemable financial instruments. This deferral is for an indefinite period. The adoption of SFAS 150 did not have a
material impact on our financial position or results of operations.

In
December 2003, the Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition", which supersedes SAB 101, "Revenue
Recognition in Financial Statements." SAB 104 clarifies existing guidance regarding revenues for contracts which contain multiple deliverables to make it consistent with Emerging Issues Task Force
("EITF") No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." The adoption of SAB 104 did not have a material impact on our revenue recognition
policies, nor our financial position or results of operations.

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

Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, particularly in the section entitled
"Liquidity and Capital Resources," and elsewhere in this quarterly report on Form 10-Q, are "forward-looking statements," within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Statements which address activities, events or developments that we expect or anticipate will or may occur in the future,

14

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including
such things as results of operations and financial condition, capital expenditures, the consummation of acquisitions and financing transactions and the effect of such transactions on our
business and our plans and objectives for future operations and expansion are examples of forward-looking statements. In some cases you can identify these statements by forward-looking words like
"may," "will," "should," "expect," "anticipate," "believe," "estimate," "predict," "continue" or similar words. These forward-looking statements are subject to risks and uncertainties which could
cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions. These risks and uncertainties include factors affecting our leverage, including fluctuations in
interest rates, our ability to incur financing, the effect of operating and financial restrictions in our debt instruments, the accuracy of our estimates regarding our capital requirements, the effect
of intense levels of competition in our industry, changes in the healthcare regulatory environment, our ability to keep pace with technological developments within our industry, and other risks and
uncertainties, including those enumerated and described under "Risk Factors" in our Form 10-K, as filed with the Securities and Exchange Commission, for the fiscal year ended
December 31, 2003. The foregoing should not be construed as an exhaustive list of all factors which could cause actual results to differ materially from those expressed in forward-looking
statements made by us.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

ITEM 4.    CONTROLS AND PROCEDURES

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

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

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

15

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PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

ITEM 2.    CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.    OTHER INFORMATION

On March 3, 2004, we announced that Kenneth S. Ord, our Executive Vice President and Chief Financial Officer, would be retiring from his position
with Alliance effective July 1, 2004.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

Exhibit No.

Description3.1

Amended and Restated Certificate of Incorporation of Alliance.(7)3.2

Amended and Restated By-laws of Alliance.(7)4.1

Indenture dated as of April 10, 2001 by and between the Registrant and the Bank of New York with respect to $260 million aggregate principal amount of 103/8% Senior Subordinated Notes due 2011.(5)4.2

Credit Agreement dated as of November 2, 1999, as amended.(5)4.3

Specimen certificate for shares of common stock, $.01 par value, of Alliance.(7)4.4

Second Amendment dated as of June 10, 2002 to Credit Agreement.(8)10.1

The 1999 Equity Plan for Employees of Alliance and Subsidiaries including the forms of option agreements used thereunder, as amended.(5)10.2

The Alliance 1997 Stock Option Plan, including form of option agreement used thereunder, as amended.(5)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)


16

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10.7

Agreement Not to Compete dated as of July 23, 1999 between Alliance and Richard N. Zehner.(1)10.8

Amendment to Employment Agreement dated as of July 23, 1997 between Alliance and Richard N. Zehner.(2)10.9

Amendment to Employment Agreement dated as of December 31, 1997 between Alliance and Richard N. Zehner.(3)10.10

Second Amendment to Employment Agreement dated as of February 5, 1998 between Alliance and Richard N. Zehner.(3)10.11

Employment Agreement dated as of January 19, 1998 between Alliance and Kenneth S. Ord.(4)10.12

Agreement Not to Compete dated as of January 19, 1998 between Alliance and Kenneth S. Ord.(4)10.13

Amended and Restated Employment Agreement dated June 6, 1994 between Alliance and Terry A. Andrues.(5)10.14

Amended and Restated Employment Agreement dated as of June 6, 1994 between Alliance and Cheryl A. Ford.(5)10.15

Employment Agreement dated as of 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)10.22

Agreement and Plan of Merger dated as of September 13, 1999 between Alliance and View Acquisition Corporation, as amended.(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)


17

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10.28

Amendment to Amended and Restated Employment Agreement, dated as of May 9, 2003, between Alliance and Cheryl A. Ford.(10)10.29

Amendment to Employment Agreement and Stockholder's Agreement, dated March 29, 2004 by and between Alliance, Viewer Holdings, LLC and Kenneth S. Ord.(12)21.1

List of subsidiaries.(11)31

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(12)32

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(12)


---

On
March 3, 2004, we filed a Form 8-K containing a press release issued on March 2, 2004, which sets forth our results of operations for the quarter and
year ended December 31, 2003.

On
March 31, 2004, we filed a Form 8-K containing a press release issued on March 30, 2004 announcing the retirement of Kenneth S. Ord, Chief
Financial Officer.

18

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SIGNATURES

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

|             |  | ALLIANCE IMAGING, INC.
|------------ |  | ----------------------
|May 10, 2004 |  | By:                   
|May 10, 2004 |  | By:                   
|May 10, 2004 |  | By:                   

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