Overview

We are a leading national provider of outpatient diagnostic imaging services, based upon annual revenue and number of diagnostic imaging systems deployed, and are a provider of radiation oncology services. Our principal sources of revenue are derived from magnetic resonance imaging ("MRI") and positron emission tomography/computed tomography ("PET/CT"). We provide imaging and therapeutic services primarily to hospitals and other healthcare providers on a shared-service and full-time service basis. We also provide services through a growing number of fixed-site imaging centers, primarily to hospitals or health systems. Our services normally include the use of our imaging systems, technologists to operate the systems, equipment maintenance and upgrades and management of day-to-day shared-service and fixed-site diagnostic imaging operations. We also provide non scan-based services, which includes only the use of our imaging systems under a short-term contract. We have also leveraged our leadership in MRI and PET/CT to expand into radiation oncology. Our radiation oncology business is operated through our affiliate, Alliance Oncology, LLC, and includes a wide range of services for cancer patients covering initial consultation, preparation for treatment, simulation of treatment, actual radiation oncology delivery, therapy management and follow-up care. Our services include the use of our linear accelerators, therapists to operate such systems, administrative staff, equipment maintenance and upgrades, and management of day-to-day operations. We also provide stereotactic radiation oncology services through our wholly-owned subsidiary, Alliance Radiosurgery, LLC. For the nine months ended September 30, 2008, MRI and PET/CT services generated 55% and 33% of our revenue, respectively. The remaining revenue was comprised of radiation oncology revenue and other modality diagnostic imaging services revenue, primarily computed tomography ("CT") and management contract revenue. We had 488 diagnostic imaging and radiation oncology systems, including 303 MRI systems and 88 PET or PET/CT systems and served over 1,000 clients in 46 states at September 30, 2008. We operated 92 fixed-site imaging centers (four in unconsolidated joint ventures), which constitutes systems installed in hospitals or other medical buildings on or near hospital campuses, including modular buildings, systems installed inside medical groups' offices, and free-standing fixed-site imaging centers, which includes systems installed in a medical office building, ambulatory surgical center, or other retail space at September 30, 2008. Of the 92 fixed-site imaging centers, 75 were MRI fixed-site imaging centers, six were PET or PET/CT fixed-site imaging centers, seven were other modality fixed-site imaging centers, and four were in unconsolidated joint ventures. We also operated 18 radiation oncology centers and stereotactic radiosurgery facilities (including two radiation oncology centers in unconsolidated joint ventures) at September 30, 2008.

Approximately 79% of our revenues for the nine months ended September 30, 2008 were generated by providing services to hospitals and other healthcare providers, which we refer to as wholesale revenues. Our wholesale revenues are typically generated from contracts that require our clients to pay us based on the number of scans we perform on patients on our clients' behalf, although some pay us a flat fee for a period of time regardless of the number of scans we perform. Wholesale payments are due to us independent of our clients' receipt of retail reimbursement from third-party payors. We typically deliver our services for a set number of days per week through exclusive, long-term contracts with hospitals and other healthcare providers. The initial terms of these contracts average approximately three years in length for mobile services and approximately five to 10 years in length for fixed-site arrangements. These contracts often contain automatic renewal provisions and certain contracts have cancellation clauses if the hospital or other healthcare provider purchases their own system. We price our contracts based on the type of system used, the scan volume, and the number of ancillary services provided. Pricing is also affected by competitive pressures.

Approximately 21% of our revenues for the nine months ended September 30, 2008 were generated by providing services directly to patients from our sites located at or near hospitals or other

healthcare provider facilities, which we refer to as retail revenue. Our revenue from these sites is generated from direct billings to patients or their third-party payors, including Medicare, which are recorded net of contractual discounts and other arrangements for providing services at discounted prices. We typically charge a higher price per scan under retail billing than we do under wholesale billing.

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

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

On November 1, 2006, the Centers for Medicare and Medicaid Services, or CMS, issued a final determination of Medicare Part B HOPPS reimbursement rates for PET and PET/CT imaging procedures, effective January 1, 2007. For 2007, the national rate for nonmyocardial PET scans was reduced from the rate of $1,150 per scan in 2006 to $855 per scan. The 2007 national rate for myocardial PET scans was reduced from the rate of $800 per single-study myocardial PET and $2,485 per multiple-study myocardial PET in 2006, to $731 per scan (whether it be a single or multiple-study PET). In addition, for 2007, the national rate for nonmyocardial PET/CT scans was reduced from the rate of $1,250 per scan in 2006 to $950 per scan.

On November 1, 2007, CMS released its final determination of Medicare Part B HOPPS reimbursement rates for PET and PET/CT imaging procedures, effective January 1, 2008. For 2008, the national payment rate for nonmyocardial PET and PET/CT scans is $1,057 per scan and the national payment rate for myocardial PET scans is $1,400 per scan. In its final 2008 HOPPS reimbursement rates, CMS also bundled the PET and PET/CT payment for radiopharmaceuticals with the payment for the PET and PET/CT scan. In addition, CMS reduced the 2008 national Medicare HOPPS rate for MRI scans by approximately 3%. On October 30, 2008, CMS released its 2009 national Medicare HOPPS payment rates, effective January 1, 2009. For nonmyocardial PET and PET/CT, the 2009 payment rate is $1,037 per scan. For myocardial PET procedures, the 2009 payment rate is $1,157 per scan.

For full year 2006, we estimate that approximately 5.6% of our revenue was billed directly to the Medicare program. If the DRA had been in effect for full year 2006, we estimate the reduction in Medicare revenue due to the DRA reimbursement rate decrease would have reduced revenue by approximately $9.7 million and the PET and PET/CT Medicare HOPPS reduction would have reduced revenue by approximately $2.8 million. Combined, the DRA and PET and PET/CT Medicare HOPPS rate reductions would have negatively impacted our 2006 revenue and did impact our 2007 revenue by a total of approximately $12.5 million and $14 million, respectively. For 2008, however, the DRA and the net Medicare rate reductions in HOPPS have not had a material negative effect on revenue and earnings. Also to date, in 2008, the Company has not faced an increase in pressure in wholesale pricing for PET and PET/CT as a result of the reductions in Medicare reimbursement rates from the implementation of the DRA and revised PET and PET/CT reimbursements under HOPPS. At this

time, however, we cannot predict the impact the rate reductions will have on our future revenues or business.

In addition, with respect to our retail revenue, the Medicare, Medicaid and SCHIP Extension Act of 2007, which was signed into law on December 29, 2007, eliminated a scheduled 10.1% reduction for 2008 payment rates under the 2008 Medicare Physician Fee Schedule payment rule, and increased the rates by 0.5%. This increase to the annual Medicare Physician Fee Schedule payment update is effective only for Medicare claims with dates of service between January 1, 2008 and June 30, 2008. Beginning July 1, 2008, under a new law, the Medicare Improvement for Patients and Providers Act of 2008 (H.R. 6331), which was enacted on July 15, 2008, not only is the 10.1% reduction continued for the rest of 2008, a 1.1% increase to the July 1, 2008 is scheduled for 2009. Also with respect to H.R. 6331, the new legislation requires all suppliers that provide the technical component of diagnostic MRI, CT, PET and nuclear medicine to be accredited by a CMS-designated accreditation organization by January 1, 2012. Though CMS has not yet designated the accreditation organizations, all our facilities are accredited by The Joint Commission.

Furthermore, on October 30, 2008, CMS released its final Medicare Physician Fee Schedule Rule for calendar year 2009, which includes some additional performance standards for suppliers of mobile diagnostic services. The final rule requires suppliers of mobile diagnostic services under certain circumstances to enroll in Medicare and bill directly for these services, regardless of where they are performed. An exception was made for services provided to hospital patients under arrangement with that hospital. In those circumstances, the mobile diagnostic facility would be required to enroll in Medicare, but the hospital would bill for the services. At this time, we do not expect that this requirement under CMS's final rule will significantly impact our business.

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

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

In the United States, recent market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth through the third quarter of 2008. For the nine months ended September 30, 2008, continued concerns about the systemic impact of inflation, energy costs, geopolitical issues, the availability and cost of credit, the United States mortgage market and a declining real estate market in the United States have contributed to increased market volatility and diminished expectations for the United States economy. In the third quarter of 2008, added concerns fueled by the federal government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of Lehman Brothers Holdings Inc., the United States government provided loan to American International Group Inc. and other federal government interventions in the United States credit markets lead to

increased market uncertainty and instability in both United States and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have in recent weeks subsequent to the end of the quarter contributed to volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has lead many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Continued turbulence in the United States and international markets and economies may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers. If these market conditions continue, they may limit our ability, and the ability of our customers, to timely replace maturing liabilities, and access the capital markets to meet liquidity needs, resulting in adverse effects on our financial condition and results of operations.

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

The principal components of selling, general and administrative expenses are sales and marketing costs, corporate overhead costs, provision for doubtful accounts, and share-based payment.

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

Seasonality

We experience seasonality in the revenues and margins generated for our services. In 2007 and 2008, the first and second quarters had more scanning days than the third and fourth quarters. Third and fourth quarter revenues are affected by holiday and client and patient vacation schedules, resulting in fewer scans during the period. The first quarter of 2008 benefited from one extra calendar day due to leap year. The second half of 2008 has 3.6 less scanning days than the first half of 2008. 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 consolidated statements of operations as a
percentage of revenues for each of the quarters and nine months ended
September 30:

                                               Quarter Ended       Nine Months Ended
                                               September 30,         September 30,
                                              2007      2008        2007        2008
    Revenues                                   100.0 %   100.0 %      100.0 %    100.0 %
    Costs and expenses:
    Cost of revenues, excluding
    depreciation and amortization               53.4      52.3         52.3       52.2
    Selling, general and administrative
    expenses                                    12.2      12.4         12.9       12.7
    Severance and related costs                  0.3       0.1          0.1        0.1
    Depreciation expense                        18.6      17.1         18.7       17.5
    Amortization expense                         1.0       1.9          1.1        1.7
    Interest expense, net of interest
    income                                       9.0       8.4          9.2        9.1
    Loss on extinguishment of debt                 -         -            -        0.1
    Other (income) and expense, net                -      (0.1 )       (0.2 )     (0.1 )

    Total costs and expenses                    94.5      92.1         94.1       93.3

    Income before income taxes, minority
    interest expense and earnings from
    unconsolidated investees                     5.5       7.9          5.9        6.7
    Income tax expense                           2.7       3.3          3.1        3.0
    Minority interest expense                    0.3       0.7          0.4        0.7
    Earnings from unconsolidated investees      (1.1 )    (1.0 )       (1.9 )     (1.0 )

    Net income                                   3.6 %     4.9 %        4.3 %      4.0 %

The table below provides MRI statistical information for each of the quarters and nine months ended September 30:

                                             Quarter Ended         Nine Months Ended
                                             September 30,           September 30,
                                           2007        2008        2007        2008
     MRI statistics
       Average number of total systems       302.8       305.4       307.5       305.8
       Average number of scan-based          250.4       255.7       253.8       253.9
       systems
       Scans per system per day               9.42        9.23        9.29        9.21
       (scan-based systems)
       Total number of scan-based MRI      160,098     157,737     486,877     479,680
       scans
       Price per scan                    $  363.05   $  379.44   $  362.00   $  380.20

The table below provides PET and PET/CT statistical information for each of the quarters and nine months ended September 30:

                                                                       Nine Months
                                                Quarter Ended             Ended
                                                September 30,         September 30,
                                               2007       2008       2007       2008
    PET and PET/CT statistics
      Average number of systems                  74.7       92.0       72.3        82.7
      Scans per system per day                   6.33       6.17       6.32        6.18
      Total number of PET and PET/CT scans     28,888     37,756     85,751     102,004
      Price per scan                         $  1,186   $  1,196   $  1,202   $   1,187

                                               Quarter Ended       Nine Months Ended
                                               September 30,         September 30,
                                              2007      2008        2007        2008
     Total MRI revenue                       $  65.7   $  67.6    $   198.2    $ 204.6
     PET/CT revenue                             34.5      45.4        103.9      121.8
     Radiation oncology, other modalities       10.0      15.1         29.2       43.6
     and other revenue

     Total                                   $ 110.2   $ 128.1    $   331.3    $ 370.0

                                                                       Nine Months
                                                  Quarter Ended           Ended
                                                  September 30,       September 30,
                                                  2007      2008      2007      2008
      Total fixed-site imaging center revenue    $  19.2   $ 26.1    $  55.9   $ 75.3
      (in millions)

Quarter Ended September 30, 2008 Compared to Quarter Ended September 30, 2007

Revenue increased $17.9 million, or 16.3%, to $128.1 million in the third quarter of 2008 compared to $110.2 million in the third quarter of 2007 primarily due to an increase in PET/CT revenues, radiation oncology, other modalities and other revenue, and MRI revenues. PET/CT revenue in the third quarter of 2008 increased $10.9 million, or 31.4%, compared to the third quarter of 2007. Total PET/CT scan volumes increased 30.7% to 37,756 scans in the third quarter of 2008 from 28,888 scans in the third quarter of 2007, primarily as a result of growth in our core PET business and the acquisition of Medical Outsourcing Services, LLC ("MOS") in the third quarter of 2008. The average number of PET and PET/CT systems in service increased to 92.0 systems in the third quarter of 2008 from 74.7 systems in the third quarter of 2007. The average price per PET/CT scan increased 0.8% to $1,196 per scan in the third quarter of 2008 compared to $1,186 per scan in the third quarter of 2007. Scans per system per day decreased 2.5% to 6.17 scans per system per day in the third quarter of 2008 from 6.33 scans per system per day in the third quarter of 2007. Radiation oncology, other modalities and other revenue increased $5.1 million, or 53.2%, to $15.1 million in the third quarter of 2008 compared to $10.0 million in the third quarter of 2007 primarily due to an increase in radiation oncology revenue generated by the purchase of eight radiation oncology centers from Bethesda Resources, Inc. ("Bethesda Transaction"). MRI revenue increased $1.9 million in the third quarter of 2008, or 2.8%. Scan-based MRI revenue increased $1.8 million in the third quarter of 2008, or 3.0%, compared to the third quarter of 2007, to $59.9 million in the third quarter of 2008 from $58.1 million in the third quarter of 2007. This increase is primarily a result of an increase in the average price per MRI scan of $379.44 per scan in the third quarter of 2008 compared to $363.05 per scan in the third quarter of 2007 primarily due to retail revenue associated with the acquisition of New England Health Enterprises ("NEHE"). Scan-based systems in service increased to 255.7 systems in the third quarter of 2008 from 250.4 systems in the third quarter of 2007. Non-scan based MRI revenue increased $0.1 million in the third quarter of 2008 over the same period in 2007. These increases were partially offset by a 1.5% decrease in our scan-based MRI scan volume. Scan-based MRI scan volume decreased to 157,737 scans in the third quarter of 2008 from 160,098 scans in the third quarter of 2007, primarily due to a decrease in client demand. Average scans per system per day also decreased by 2.0% to 9.23 in the third quarter of 2008 from 9.42 in the third quarter of 2007. Included in the revenue totals above is fixed-site imaging center revenues, which increased $6.9 million, or 35.9%, to $26.1 million in the third quarter of 2008 from $19.2 million in the third quarter of 2007.

We had 303 MRI systems at September 30, 2008, compared to 310 MRI systems at September 30, 2007. We had 88 PET and PET/CT systems at September 30, 2008, compared to 76 PET and PET/CT

systems at September 30, 2007. We operated 92 fixed-site imaging centers (including four in unconsolidated joint ventures) at September 30, 2008, compared to 77 fixed-site imaging centers (including three in unconsolidated joint ventures) at September 30, 2007. We operated 18 radiation oncology centers and stereotactic radiosurgery facilities (including two radiation oncology centers in unconsolidated joint ventures) at September 30, 2008.

Cost of revenues, excluding depreciation and amortization, increased $8.2 million, or 14.0%, to $67.0 million in the third quarter of 2008 compared to $58.8 million in the third quarter of 2007. Compensation and related employee expenses increased $2.6 million, or 9.4%, primarily as a result of an increase in average headcount related to acquisitions completed in the fourth quarter of 2007 and the third quarter of 2008. Medical supplies increased $1.6 million, or 36.0%, primarily as a result of an increase in the number of PET and PET/CT scans, which use a radiopharmaceutical as a component of the PET and PET/CT scan. Maintenance and related costs increased $1.2 million, or 9.6%, due to an increase in service costs related to the addition of radiation oncology systems and an increase in the number of PET/CT systems in operation. Fuel expenses increased $0.9 million, or 61.6%, primarily due to an increase in the average price per gallon of diesel fuel costs. Site fees increased $0.6 million, or 67.3%, primarily as a result of an increase in the average number of retail fixed-site imaging centers in operation. Equipment rental costs increased $0.5 million, or 42.5%, due to an increase in the number of rental PET/CT systems in use related to the MOS acquisition. License, taxes and other fees increased $0.4 million, or 31.3%, primarily due to an increase in property taxes related to an increase in PET/CT and radiation oncology systems in use. All other cost of revenues, excluding depreciation and amortization, increased $0.4 million, or 3.8%. Cost of revenues, as a percentage of revenue, decreased to 52.3% in the third quarter of 2008 from 53.4% in the third quarter of 2007 as a result of the factors described above, offset by a decrease in total fixed costs as a percentage of revenue, due to an increase in revenue.

Selling, general and administrative expenses increased $2.5 million, or 18.1%, to $15.9 million in the third quarter of 2008 compared to $13.4 million in the third quarter of 2007. The provision for doubtful accounts increased $1.4 million in the third quarter of 2008 due to the collection of higher than normal amounts of aged accounts receivable in the third quarter of 2007, as well as an incremental increase in the provision for doubtful accounts related to acquisitions completed in the fourth quarter of 2007 and third quarter of 2008, which generated incremental retail revenue. The provision for doubtful accounts, as a percentage of revenue, was 1.2% in the third quarter of 2008 compared to 0.1% of revenue in the third quarter of 2007. Compensation and related employee expenses increased $0.2 million, or 2.1%, primarily as a result of an increase in average headcount related to acquisitions completed in the fourth quarter of 2007 and third quarter of 2008. Share-based payment increased $0.1 million, or 2.1%, in the third quarter of 2008 from the third quarter of 2007 due to new equity awards granted in the first quarter of 2008. All other selling, general and administrative expenses increased $0.8 million, or 37.0%. Selling, general and administrative expenses as a percentage of revenue were 12.4% and 12.2% in the third quarter of 2008 and 2007, respectively.

We recorded severance and related costs of $0.1 million in the third quarter of 2008 and $0.3 million in the third quarter of 2007. . . .