UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


FORM
      10-Q




(Mark
        One)
 (X)
              
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                  EXCHANGE ACT OF 1934
 *For
        the quarterly period ended September 30, 2006*
 
 (
                  )
              
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                  EXCHANGE ACT OF 1934
  *For
        the transition period from _________________________*


**Commission
      File Number:** **000-20086**





**UNIVERSAL
      HOSPITAL SERVICES, INC.** ****




*(Exact
      name of registrant as specified in its charter)*




**Delaware**
            ******41-0760940***(State
                or other jurisdiction of*
            *(I.R.S.
                Employer**incorporation
                or organization)*
            *Identification
                No.)*




**7700
      France Avenue South, Suite 275**


**** **Edina,
      Minnesota 55435-5228**


*(Address
      of principal executive offices, including zip code)*




**** **(952)
      893-3200** ****


*(Registrant’s
      telephone number, including area code)*




Not
      Applicable


*(Former
      name, former address and former fiscal year, if changed since last
      report)*





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
      (
      )       No (X)





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Larger
              accelerated filer ( )
            Accelerated
              filer ( )
            Non-accelerated
              filer (X)





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes
      (
      )       No (X)





Number
      of
      shares of common stock outstanding as of November 8, 2006: 123,463,475.21




1




**PART
      I - FINANCIAL INFORMATION**


**Item
      1. Financial Statements - Unaudited**





Universal
                Hospital Services, Inc.Statements
                of Operations(dollars
                in thousands)(unaudited)Three
                Months Ended
            Nine
                Months EndedSeptember
                30,
            September
                30,Revenue
            2006
            2005
            2006
            2005Medical
                equipment outsourcing
            $42,361
            $40,742
            $131,079
            $125,642Technical
                and professional services
            7,459
            7,546
            23,128
            22,401Medical
                equipment sales and remarketing
            4,749
            5,075
            13,472
            13,990Total
                revenues
            54,569
            53,363
            167,679
            162,033Cost
                of SalesCost
                of medical equipment outsourcing
            14,822
            13,407
            42,762
            39,879Cost
                of technical and professional services
            5,235
            5,677
            15,942
            16,825Cost
                of medical equipment sales and remarketing
            3,704
            4,003
            10,140
            11,117Movable
                medical equipment depreciation
            9,459
            9,631
            27,659
            28,051Total
                costs of medical equipment outsourcing, technical and professional
                services and medical equipment sales and remarketing
            33,220
            32,718
            96,503
            95,872Gross
                margin
            21,349
            20,645
            71,176
            66,161Selling,
                general and administrative
            15,633
            13,771
            45,977
            43,986Operating
                income
            5,716
            6,874
            25,199
            22,175Interest
                expense
            7,819
            7,721
            23,523
            23,142Income
                (loss) before income taxes
            (2,103)
            (847)
            1,676
            (967)Provision
                for income taxes
            114
            210
            522
            630Net
                income (loss)
            ($2,217)
            ($1,057)
            $1,154
            ($1,597)The
                accompanying notes are an integral part of the unaudited financial
                statements.




2




Universal
                Hospital Services, Inc.Balance
                Sheets(dollars
                in thousands, except share and per share information)(unaudited)September
                30,
            
            December
                31,2006
            
            2005AssetsCurrent
                assets:Accounts
                receivable, less allowance for doubtful accounts of$1,350
                at September 30, 2006 and December 31, 2005
            $39,685
            
            $41,865Inventories
            4,947
            
            5,117Deferred
                income taxes
            4,294
            
            4,111Other
                current assets
            2,820
            
            2,375Total
                current assets
            51,746
            
            53,468Property
                and equipment, net:Movable
                medical equipment, net
            129,333
            
            126,775Property
                and office equipment, net
            12,604
            
            12,695Total
                property and equipment, net
            141,937
            
            139,470Intangible
                assets:Goodwill
            37,062
            
            37,062Other,
                primarily deferred financing costs, net
            8,055
            
            9,434Other
                intangibles, net
            8,399
            
            9,751Total
                assets
            $247,199
            
            $249,185Liabilities
                and Shareholders' DeficiencyCurrent
                liabilities:Current
                portion of long-term debt
            $1,284
            
            $1,084Book
                overdrafts
            1,643
            
            2,480Accounts
                payable
            12,299
            
            14,393Accrued
                compensation
            7,102
            
            8,895Accrued
                interest
            11,185
            
            4,481Other
                accrued expenses
            3,538
            
            3,840Total
                current liabilities
            37,051
            
            35,173Long-term
                debt, less current portion
            290,086
            
            299,396Pension
                and other long-term liabilities
            7,754
            
            5,249Deferred
                income taxes
            6,682
            
            6,166Commitments
                and contingenciesShareholders'
                deficiency:Common
                stock, $0.01 par value; 500,000,000 shares authorized,123,463,475.21
                and 123,438,105.21 shares issued andoutstanding
                at September 30, 2006 and December 31, 2005, respectively
            1,235
            
            1,234Additional
                paid in capital
            1,996
            
            820Accumulated
                deficit
            (92,425)
            
            (93,579)Deferred
                compensation
            
            
            (94)Accumulated
                other comprehensive loss
            (5,180)
            
            (5,180)Total
                shareholders' deficiency
            (94,374)
            
            (96,799)Total
                liabilities and shareholders' deficiency
            $247,199
            
            $249,185The
                accompanying notes are an integral part of the unaudited financial
                statements.




3





Universal
                Hospital Services, Inc.Statements
                of Cash Flows(dollars
                in thousands)(unaudited)Nine
                Months Ended September 30,2006
            
            2005Cash
                flows from operating activities:Net
                income (loss)
            $1,154
            
            ($1,597)Adjustments
                to reconcile net income (loss) to net cash provided byoperating
                activities:Depreciation
            32,329
            
            30,990Amortization
                of intangibles and deferred financing costs
            2,639
            
            2,644Provision
                for doubtful accounts
            855
            
            830Provision
                for inventory obsolescence
            350
            
            210Non-cash
                stock-based compensation expense
            1,180
            
            12Gain
                on sales and disposals of equipment
            (1,003)
            
            (822)Deferred
                income taxes
            333
            
            415Changes
                in operating assets and liabilitiesAccounts
                receivable
            1,418
            
            (768)Inventories
                and other operating assets
            (626)
            
            942Accounts
                payable, accrued expenses and otherlong-term
                liabilities
            4,981
            
            1,776Net
                cash provided by operating activities
            43,610
            
            34,632Cash
                flows from investing activities:Movable
                medical equipment purchases
            (31,217)
            
            (26,920)Property
                and office equipment purchases
            (2,977)
            
            (3,007)Proceeds
                from disposition of movable medical equipment
            2,221
            
            2,101Net
                cash used in investing activities
            (31,973)
            
            (27,826)Cash
                flows from financing activities:Proceeds
                under revolving credit facility agreements
            64,912
            
            71,289Payments
                under revolving credit facility agreements
            (74,868)
            
            (74,921)Payments
                under capital lease obligations
            (873)
            
            -Payment
                of deferred financing cost
            -
            
            (856)Proceeds
                from issuance of common stock, net of issuance costs
            28
            
            7Change
                in book overdrafts
            (836)
            
            (2,325)Net
                cash used in financing activities
            (11,637)
            
            (6,806)Net
                change in cash and cash equivalents
            $
                -
            
            $
                -Cash
                and cash equivalents at the beginning of period
            $
                -
            
            $
                -Cash
                and cash equivalents at the end of period
            $
                -
            
            $
                -Supplemental
                cash flow information:Interest
                paid
            $15,510
            
            $15,394Movable
                medical equipment purchases included in accounts payable
            $5,881
            
            $4,368Income
                taxes paid
            $288
            
            $111The
                accompanying notes are an integral part of the unaudited financial
                statements.




4


**Universal
      Hospital Services, Inc.**





**NOTES
      TO UNAUDITED QUARTERLY FINANCIAL STATEMENTS**





**1.** **Basis
      of Presentation**





The
      interim financial statements included in this Form 10-Q have been prepared
      by
      Universal Hospital Services, Inc. (“we,” “our” or the “Company”) without audit,
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America have been condensed, or omitted, pursuant to
      such rules and regulations. These condensed financial statements should be
      read
      in conjunction with the financial statements and related notes included in
      the
      Company’s 2005 Annual Report on Form 10-K filed with the Securities and Exchange
      Commission.





The
      interim financial statements presented herein as of September 30, 2006 and
      for
      the three and nine months ended September 30, 2006 and 2005, reflect, in the
      opinion of management, all adjustments necessary for a fair presentation of
      the
      financial position and the results of operations and cash flows for the periods
      presented. These adjustments are all of a normal, recurring nature. The results
      of operations for any interim period are not necessarily indicative of results
      for the full year.





The
      December 31, 2005 balance sheet amounts were derived from audited financial
      statements but do not include all disclosures required by accounting principles
      generally accepted in the United States of America.





**2.** **Recent
      Accounting Pronouncements**




In
      September 2006, the Financial Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 158, *Employers
      Accounting for Defined Benefit Pension and Other Postretirement Plans an
      Amendment of FASB Statements No. 87, 88, 106 and 123(R).* SFAS
      No.
      158 requires employers to recognize the under funded or over funded status
      of a
      defined benefit post retirement plan as an asset or liability in its statements
      of financial position and to recognize changes in the funded status in the
      year
      in which the changes occur through accumulated other comprehensive income.
      Additionally, SFAS No. 158 requires employers to measure the funded status
      of a
      plan as of the date of its year-end statement of financial position. The
      provisions of SFAS No. 158 are effective for fiscal years ending after June
      15,
      2007. We believe the adoption of SFAS No. 158 will not have a material impact
      on
      our financial position or results of operations.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements.* SFAS
      No.
      157 clarifies the principle that fair value should be based on the assumptions
      that market participants would use when pricing an asset or liability.
      Additionally, it establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. The provisions of SFAS No. 157
      are effective for fiscal years beginning after November 15, 2007. We believe
      the
      adoption of SFAS No. 157 will not have a material impact on our financial
      position or results of operations.




5




In
      September 2006, the U.S. Securities and Exchange Commission staff issued Staff
      Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ("SAB
      108"). This SAB addresses diversity in practice of quantifying financial
      statement misstatements. It establishes an approach that requires quantification
      of financial statement misstatements based on the effects of the misstatements
      on each of the company's financial statements and the related financial
      statement disclosures. The SAB is effective for financial statements issued
      for
      fiscal years ending after November 15, 2006. We believe the adoption of SAB
      108
      will not have an impact on our financial position or results of
      operations.




In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an enterprise’s financial statements in accordance with FASB Statement No.
      109, *Accounting
      for Income Taxes.* FIN 48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The new FASB standard also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure and transition. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. We believe the
      adoption of FIN 48 will not have a material impact on our financial position
      or
      results of operations.




In
      December 2004, the FASB issued SFAS No. 123(R) (revised 2004), *Share-Based
      Payments* ,
      which is
      a revision of SFAS No. 123 and supersedes Accounting Principals Board (“APB”)
      Opinion No. 25. SFAS No. 123(R) requires that all share-based payments to
      employees, including grants of employee stock options, be valued at the fair
      value on the date of grant and be expensed over the applicable vesting period.
      We adopted SFAS No. 123(R) on January 1, 2006 (see note 3).





**3.** **Stock-Based
      Compensation**





Prior
      to
      January 1, 2006, we applied the provisions of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      in
      accounting for stock-based compensation. As a result, no compensation expense
      was recognized for stock options granted with exercise prices equivalent to
      the
      fair market value of stock on date of grant. Effective January 1, 2006, we
      adopted SFAS No. 123(R) using the modified prospective application method.
      Under this method, as of January 1, 2006, we have applied the provisions of
      this statement to new and modified awards, as well as to the nonvested portion
      of awards granted before the required effective date and outstanding at such
      time.





The
      adoption of this pronouncement had no effect on compensation cost recorded
      in
      2005 related to stock options, which will continue to be disclosed on a pro
      forma basis only. As a result of adopting SFAS No. 123(R) on
      January 1, 2006, our net income for the quarter and nine months ended
      September 30, 2006 was $0.4 million and $1.2 million lower, respectively,
      than if we had continued to account for stock-based compensation under APB
      Opinion No. 25.




An
      additional requirement of SFAS No. 123(R) is that estimated forfeitures be
      considered in determining compensation expense. As previously permitted, we
      recorded forfeitures when they occurred. We have estimated our forfeiture rate
      at 2.5% per annum. As of September 30, 2006, the total compensation cost for
      nonvested awards not yet recognized in our statements of operations was $5.1
      million, net of the effect of estimated forfeitures. This amount is expected
      to
      be recognized over a weighted-average period of 4.2 years.




6




All
      options allow for the purchase of shares of common stock at prices equal to
      the
      stock’s market value at the date of grant. A portion of our options vest over
      four years. The remaining portion vests at the end of eight years, with
      potential for earlier vesting subject to certain performance or other
      thresholds. An employee’s unvested options are forfeited when employment is
      terminated, vested options must be exercised at termination to avoid forfeiture.
      We determine the fair value of options using the Black-Scholes option pricing
      model. The estimated fair value of options, including the effect of estimated
      forfeitures, is recognized as expense on a straight-line basis over the options’
vesting periods. The following assumptions were used in determining the fair
      value of stock options granted during the nine months ended September 30, 2006
      under the Black-Scholes model:




Risk-free
                interest rate
            4.7%Expected
                volatility
            43.7%Dividend
                Yield
            NoneExpected
                option life (years)
            8.0





The
      risk-free interest rate for periods within the ten year contractual life of
      the
      option is based on the U.S. Treasury yield curve in effect at the grant date
      and
      the expected option life of eight years. Expected volatility is based on the
      historical volatility of the stock of companies within our peer group. The
      eight
      year expected life of stock options granted to employees represents the weighted
      average of the result of the “simplified” method applied to “plain vanilla”
      options granted during the period, as provided within Staff Accounting Bulletin
      No. 107.





Information
      regarding our outstanding stock options for the nine months ended September
      30,
      2006 is as follows:


**(in
                thousands, except exercise price and years)**
            **Number
                of**
              **Options**
            **Weighted**
              **average**
              **exercise**
              **price**
            **Aggregate**
              **intrinsic**
              **value**
            **Weighted**
              **average**
              **remaining**
              **contractual**
              **term**
              **(years)**Outstanding
                at December 31, 2005
            15,066
            $1.04Granted
            210
            1.41Exercised
            (25)
            1.11Forfeited
                or expired
            (440)
            1.15Outstanding
                at September 30, 2006
            14,811
            $1.04
            $14,806
            7.7Exercisable
                at September 30, 2006
            2,159
            $1.00
            $2,237
            7.6Remaining
                authorized options not yet issued
            2,310





The
      weighted-average grant-date fair value of options granted during the nine
      months ended September 30, 2006 was $0.79 per share. The intrinsic value of
      a
      stock award is the amount by which the market value of the underlying stock
      exceeds the exercise price of the award. The total intrinsic value of options
      exercised during the nine months ended September 30, 2006 was negligible. The
      exercise price reflects management’s estimate of fair market value of the
      underlying stock at the time of option issuance. Shares supporting option
      exercises are sourced from new share issuances.


7




Prior
      to
      January 1, 2006, we measured compensation expense for our stock-based
      compensation plan using the intrinsic value method in accordance with APB 25
      as
      allowed under SFAS 123. Under the intrinsic value method, no stock-based
      compensation expense had been recognized in our consolidated financial
      statements. Accordingly, compensation cost for stock options granted to
      employees was measured as the excess, if any, of the value of our stock at
      the
      date of the grant over the amount an employee must pay to acquire the stock.
      Had
      compensation cost for our stock option plans been determined based on the fair
      value at the grant date for awards, our net income would have changed to the
      pro
      forma amounts indicated below for 2005:




(dollars
                  in thousands)
              
              Three
                  Months
                Ended
                September
                  30, 2005
              
              Nine
                  Months
                Ended
                September
                  30, 2005Net
                  loss, as reported
              
              
              ($1,057
              )
              
              ($1,597
              )Add:
                  Stock-based employee compensation includedin
                  reported net loss
              
              
              $3
              
              
              $12Less:
                  Total stock-based employee compensationexpense
                  under fair value-based method
              
              
              ($120
              )
              
              ($366
              )Pro
                  forma net loss
              
              
              ($1,174
              )
              
              ($1,951
              )
  **4.** **Long-Term
        Debt**





Long-term
      debt consists of the following :


(dollars
                  in thousands)
              
              September
                  30,
              
              December
                  31,2006
              
              200510.125%
                  senior notes
              
              $
              260,000
              
              $
              260,000Amended
                  credit agreement
              
              
              28,150
              
              
              38,106Capital
                  lease obligations
              
              
              3,220
              
              
              2,374291,370
              
              
              300,480Less:
                  Current portion of long-term debt
              
              
              (1,284
              )
              
              (1,084
              )Total
                  long-term debt
              
              $
              290,086
              
              $
              299,396


The
      10.125% Senior Notes (“Senior Notes”) mature on November 1, 2011. Interest
      on the Senior Notes accrues at the rate of 10.125% per annum and is payable
      semiannually on each May 1 and November 1. The Senior Notes are
      redeemable, at the Company’s option, in whole or in part, on or after
      November 1, 2007, at specified redemption prices plus accrued interest to
      the date of redemption. In addition, the Senior Notes have a change of control
      provision which gives each holder the right to require the Company to purchase
      all or a portion of such holders’ Senior Notes upon a change in control, as
      defined in the agreement, at a purchase price equal to 101% of the principal
      amount plus accrued interest to the date of purchase. The Senior Notes have
      covenants that restrict the incurrence of additional debt, the payment of
      dividends and the issuance of preferred stock. The Senior Notes are
      uncollateralized.




8




In
      May
      2005, the Company entered into an Amended and Restated Credit Agreement
      (“Amended Credit Agreement”) with a consortium of banks. The Amended Credit
      Agreement allows for borrowing up to $125 million, as defined in the agreement,
      and terminates in May 2010. Availability under the Amended Credit Agreement
      as
      of September 30, 2006, was approximately $83 million, representing our borrowing
      base of approximately $113 million less borrowings of $28 million and
      outstanding letters of credit of $2 million at that date. Borrowings under
      the
      Amended Credit Agreement are collateralized by substantially all of our
      assets.





Amounts
      borrowed under the Amended Credit Agreement generally bear interest on
      LIBOR-based and Index Rate formulas. The interest rate on September 30, 2006
      was
      2.00 percentage points over LIBOR and 0.75 percentage points over the Index
      Rate, with the interest rate margin subject to change based upon quarterly
      leverage ratios. Prior to May 1, 2006 the rates were 2.25 percentage points
      over
      LIBOR and 1.00 percentage points over the Index Rate. At September 30, 2006,
      our
      LIBOR-based rate was 7.33% and our Index Rate was 9.00%, both of which include
      the credit spreads noted above.





The
      Amended Credit Agreement contains certain covenants including restrictions
      and
      limitations on dividends, liens, leases, incurrence or guarantees of debt,
      transactions with affiliates, investments or loans, and mergers, acquisitions,
      consolidations and asset sales. Furthermore, the Company is required to maintain
      compliance with certain financial covenants, including a maximum senior debt
      leverage ratio and a minimum interest coverage ratio.





**5.** **Segment
      Information**





Our
      operating segments consist of Medical Equipment Outsourcing, Technical and
      Professional Services, and Medical Equipment Sales and Remarketing. Certain
      operating information for our segments is as follows:





**Three
                Months Ended September 30,****(dollars
                in thousands)****Medical
                Equipment**
              **Outsourcing**
            **Technical
                and**
              **Professional**
              **Services**
            **Medical**
              **Equipment
                Sales**
              **and
                Remarketing**
            **Total****2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**Revenues
            $42,361
            $40,742
            $7,459
            $7,546
            $4,749
            $5,075
            $54,569
            $53,363Cost
                of revenue
            14,822
            13,407
            5,235
            5,677
            3,704
            4,003
            23,761
            23,087Movable
                medical equipment depreciation
            9,459
            9,631
            -
            -
            -
            -
            9,459
            9,631Gross
                margin
            $18,080
            $17,704
            $2,224
            $1,869
            $1,045
            $1,072
            $21,349
            $20,645




9




**Nine
                  Months Ended September 30,****(dollars
                  in thousands)****Medical
                  Equipment**
                **Outsourcing**
              **Technical
                  and**
                **Professional**
                **Services**
              **Medical**
                **Equipment
                  Sales**
                **and
                  Remarketing**
              **Total****2006**
              **2005**
              **2006**
              **2005**
              **2006**
              **2005**
              **2006**
              **2005**Revenues
              $131,079
              $125,642
              $23,128
              $22,401
              $13,472
              $13,990
              $167,679
              $162,033Cost
                  of revenue
              42,762
              39,879
              15,942
              16,825
              10,140
              11,117
              68,844
              67,821Movable
                  medical equipment depreciation
              27,659
              28,051
              -
              -
              -
              -
              27,659
              28,051Gross
                  margin
              $60,658
              $57,712
              $7,186
              $5,576
              $3,332
              $2,873
              $71,176
              $66,161


**6.** **Pension
      Plan**





The
      components of net periodic pension costs are as follows:


(dollars
                in thousands)
            **Three
                Months Ended**
              **September
                30,**
            **Nine
                Months Ended**
              **September
                30,****2006**
            **2005**
            **2006**
            **2005**Interest
                cost
            $244
            $238
            $730
            $713Expected
                return on plan assets
            (253)
            (246)
            (757)
            (739)Recognized
                net actuarial loss
            67
            58
            201
            175Service
                cost
            -
            -
            -
            -Total
                cost
            $58
            $50
            $174
            $149





Future
      benefit accruals for all participants were frozen as of December 31, 2002.





**Item
      2.   Management's Discussion and Analysis of Financial Condition
      and Results of Operations**





The
      following should be read in conjunction with the accompanying financial
      statements and notes.




**BUSINESS
      OVERVIEW**





**Our
      Company**





Universal
      Hospital Services, Inc. (“we,” “our,” “UHS” or “the Company”) is a leading,
      nationwide provider of medical equipment outsourcing and services to the health
      care industry. Our customers include national, regional and local acute care
      hospitals, alternate site providers (such as nursing homes and home care
      providers) and medical equipment manufacturers. Our diverse customer base
      includes more than 3,450 acute care hospitals and approximately 3,050 alternate
      site providers. We also have extensive and long-standing relationships with
      over
      200 major medical equipment manufacturers and many of the nation’s largest group
      purchasing organizations (“GPOs”) and integrated delivery networks. All of our
      services leverage our nationwide network of offices and our more than 65 years
      of experience managing and servicing all aspects of movable medical equipment.
      These services are paid for by our customers and not directly through
      reimbursement from governmental or other third-party
      payors.


10


Technical
                    and Professional
                  Services
                    Segment
                
                Medical
                    Equipment
                  Outsourcing
                    SegmentMedical
                      Equipment Sales and
                    Remarketing
                      Segment
                
                Technical
                    and Professional
                  Services
                    Segment


Our
      operating segments consist of Medical Equipment Outsourcing, Technical and
      Professional Services, and Medical Equipment Sales and Remarketing. We evaluate
      the performance of our operating segments based on gross margin. The accounting
      policies of the individual operating segments are the same as those of the
      entire company.





**Medical
      Equipment Outsourcing Segment - Manage & Utilize**





Our
      flagship business is our Medical Equipment Outsourcing segment, which accounted
      for $42.4 million, or approximately 77.6%, of our revenues for the third quarter
      of 2006 and $131.1 million, or approximately 78.2%, of our revenues for the
      first nine months of 2006. We own approximately 168,000 pieces of movable
      medical equipment, primarily in the categories of respiratory therapy, newborn
      care, critical care, patient monitors, and bariatric and pressure area
      management. In our outsourcing programs we provide our customers with the use
      of
      movable medical equipment, and we maintain the equipment for our customers
      by
      performing preventative maintenance, repairs, cleaning and testing, and
      maintaining certain reporting records. We also provide prompt replacement of
      any
      defective equipment and the flexibility to upgrade equipment as technology
      changes. We have three primary outsourcing programs: Supplemental (Peak Needs)
      Outsourcing; Long Term Outsourcing; and the Asset Management Partnership Program
      (“AMPP”).





We
      have
      contracts in place with many of the leading national GPOs for both the acute
      care and alternate site markets. We also have agreements directly with national
      acute care and alternate site providers. We expect much of our future growth
      in
      this segment to be driven by our customers outsourcing more of their movable
      medical equipment needs and taking full advantage of our expanded offering
      of
      Long Term Outsourcing agreements and AMPPs.





**Technical
      and Professional Services Segment - Plan & Acquire; Maintain &
Repair**





Our
      Technical and Professional Services segment accounted for $7.5 million, or
      approximately 13.7%, of our revenues for the third quarter of 2006 and $23.1
      million, or approximately 13.8%, of our revenues for the first nine months
      of
      2006. We leverage our 65 plus years of experience and our extensive equipment
      database in repairing and maintaining medical equipment. We offer a broad range
      of inspection, preventative maintenance, repair, logistic and consulting
      services through our team of over 250 technicians and professionals located
      in
      our nationwide network of district offices and service centers. Our technical
      and professional service offerings are less capital intensive than our Medical
      Equipment Outsourcing segment, and provide a complementary alternative for
      customers that wish to own their medical equipment, but lack the expertise,
      funding or scale to perform maintenance, repair and analytical
      functions.


11




**Medical
      Equipment Sales and Remarketing Segment - Redeploy &
Remarket**




Our
      Medical Equipment Sales and Remarketing segment accounted for $4.7 million,
      or
      approximately 8.7%, of our revenues for the third quarter of 2006 and $13.5
      million, or approximately 8.0%, of our revenues for the first nine months of
      2006. This segment includes three business activities:





***Medical
      Equipment Remarketing and Disposal.*** ****** We
      are one
      of the nation’s largest buyers and sellers of pre-owned movable medical
      equipment. We also remarket used medical equipment to hospitals, alternate
      care
      providers, veterinarians and equipment brokers. We offer a wide range of
      equipment from our standard movable medical equipment to diagnostic, ultrasound
      and x-ray equipment.





***Specialty
      Medical Equipment Sales and Distribution.*** ****** We
      use our
      national infrastructure to provide sales and distribution for manufacturers
      of
      specialty medical equipment. We currently sell equipment in many product lines
      including, but not limited to, percussion vests, continuous passive motion
      machines, patient monitors, patient transfer systems and infant security
      systems.





***Disposables
      Sales*** ***.*** We
      offer
      our customers single use disposable items. Most of these items are used in
      connection with our outsourced equipment. Although we do not view this as a
      core
      growth business, we offer these products as a convenience to customers and
      to
      complement our full medical equipment lifecycle offerings.





**RESULTS
      OF OPERATIONS**





The
      following discussion addresses our financial condition as of September 30,
      2006,
      and the results of operations for the three and nine months ended September
      30,
      2006 and 2005, and the cash flows for the nine months ended September 30, 2006
      and 2005. This discussion should be read in conjunction with the financial
      statements included elsewhere in this report and the Management's Discussion
      and
      Analysis and Financial section included in our 2005 Annual Report on Form 10-K
      filed with the Securities and Exchange Commission.


12


The
      following table provides a summary of selected financial data as a percentage
      of
      total revenues and also indicates the percentage increase or decrease of this
      data over the prior comparable period:





Percent
                of Total Revenues
            Percent
                Increase (Decrease)Three
                Months Ended
            Nine
                Months Ended
            Qtr
                3 2006
            Nine
                MonthsSeptember
                30,
            September
                30,
            Over
            2006
                OverQtr
                3
            Nine
                MonthsRevenue
            2006
            2005
            2006
            2005
            2005
            2005Medical
                equipment outsourcing
            77.6
            %
            76.4
            %
            78.2
            %
            77.6
            %
            4.0
            %
            4.3
            %Technical
                and professional services
            13.7
            
            14.1
            
            13.8
            
            13.8
            
            (1.2)
            
            3.2Medical
                equipment sales and remarketing
            8.7
            
            9.5
            
            8.0
            
            8.6
            
            (6.4)
            
            (3.7)Total
                revenues
            100.0
            %
            100.0
            %
            100.0
            %
            100.0
            %
            2.3
            
            3.5Cost
                of SalesCost
                of medical equipment outsourcing
            27.2
            
            25.2
            
            25.5
            
            24.6
            
            10.6
            
            7.2Cost
                of technical and professional services
            9.6
            
            10.6
            
            9.5
            
            10.4
            
            (7.8)
            
            (5.2)Cost
                of medical equipment sales and remarketing
            6.8
            
            7.5
            
            6.0
            
            6.9
            
            (7.5)
            
            (8.8)Movable
                medical equipment depreciation
            17.3
            
            18.0
            
            16.5
            
            17.3
            
            (1.8)
            
            (1.4)Total
                costs of medical equipment outsourcing, technical and professional
                services and medical equipment sales and remarketing
            60.9
            
            61.3
            
            57.5
            
            59.2
            
            1.5
            
            0.7Gross
                margin
            39.1
            
            38.7
            
            42.5
            
            40.8
            
            3.4
            
            7.6Selling,
                general and administrative
            28.6
            
            25.8
            
            27.4
            
            27.1
            
            13.5
            
            4.5Operating
                income
            10.5
            
            12.9
            
            15.1
            
            13.7
            
            (16.8)
            
            13.6Interest
                expense
            14.3
            
            14.5
            
            14.0
            
            14.3
            
            1.3
            
            1.6Income
                (loss) before income taxes
            (3.8)
            
            (1.6)
            
            1.1
            
            (0.6)
            
            *
            
            *Provision
                for income taxes
            0.3
            
            0.4
            
            0.4
            
            0.4
            
            (45.7)
            %
            (17.1)
            %Net
                income (loss)
            (4.1)
            %
            (2.0)
            %
            0.7
            %
            (1.0)
            %
            *
            
            **
                Not Meaningful







**Comparison
                of Third Quarter 2006 to Third Quarter
                2005****Medical
                  Equipment Outsourcing Segment - Manage &
                  Utilize**(dollars
                  in thousands)
              **Three
                  Months Ended****September
                  30,****2006**
              **2005**
              **Change**
              **%
                  Change**Total
                  revenue
              $42,361
              $40,742
              $1,619
              4.0
              %Cost
                  of revenue
              14,822
              13,407
              1,415
              10.6Movable
                  medical equipment depreciation
              9,459
              9,631
              (172)
              (1.8)Gross
                  margin
              $18,080
              $17,704
              $376
              2.1
              %Gross
                  margin %
              42.7%
              43.5%






13




Total
      revenue in the Medical Equipment Outsourcing segment rose $1.6 million, or
      4.0%,
      to $42.4 million in the third quarter of 2006. This increase was driven by
      organic and competitive takeaway growth in our acute care customer base,
      increased activity in our AMPP customers, and incremental business from new
      and
      existing technology in our fleet which more than offset generally weak hospital
      admissions and increased hospital equipment purchases.





Total
      cost
      of revenue in the segment rose $1.4 million, or 10.6%, to $14.8 million in
      the
      third quarter of 2006. This increase is primarily attributable to higher
      maintenance expense related to our movable medical equipment, increased labor
      expense and other costs associated with increased revenues.





Movable
      medical equipment depreciation declined modestly in the third quarter of 2006
      as
      compared to the same period of 2005.





Gross
      margin percentage for the Medical Equipment Outsourcing segment decreased
      slightly from 43.5% in the third quarter of 2005 to 42.7% in the third quarter
      of 2006. This decrease is primarily due to the increased cost of maintenance
      on
      our moveable medical equipment fleet and higher labor costs partially offset
      by
      increased revenues.




**Technical
                  and Professional Services Segment - Plan & Acquire; Maintain &
                  Repair**(dollars
                  in thousands)
              
              **Three
                  Months Ended****September
                  30,****2006**
              
              **2005**
              
              **Change**
              
              **%
                  Change**Total
                  revenue
              
              $
              7,459
              
              $
              7,546
              
              
              ($87
              )
              
              (1.2
              )%Cost
                  of revenue
              
              
              5,235
              
              
              5,677
              
              
              (442
              )
              
              (7.8
              )Gross
                  margin
              
              $
              2,224
              
              $
              1,869
              
              $
              355
              
              
              19.0
              %Gross
                  margin %
              
              
              29.8
              %
              
              24.8
              %




Total
        revenue in the Technical and Professional Services segment remained relatively
        flat at $7.5 million in the third quarter of 2006 as compared to the same
        period
        of 2005. During the third quarter of 2006, decreased supplemental, or
        response-based, revenue was offset by increased revenues under our Total
        Equipment Asset Management program (“TEAM”). Increased sales force attention on
        converting new outsourcing customers, as well as weak census, have moderated
        revenues in the third quarter of 2006.
 
 Total
        cost
        of revenue in the segment decreased $0.4 million, or 7.8% to $5.2 million
        in the
        third quarter of 2006. This decrease is primarily attributable to lower repair
        and related expenses.
  Gross
        margin percentage for the Technical and Professional Services segment increased
        from 24.8% in the third quarter of 2005 to 29.8% in the third quarter of
        2006.
        Margins benefited primarily from the reduction of repair and related expenses.
        We believe that margin levels experienced during the quarter are not sustainable
        due to competitive settings.
  14




**Medical
                  Equipment Sales and Remarketing Segment - Redeploy &
                  Remarket**(dollars
                  in thousands)
              
              **Three
                  Months Ended****September
                  30,****2006**
              
              **2005**
              
              **Change**
              
              **%
                  Change**Total
                  revenue
              
              $
              4,749
              
              $
              5,075
              
              
              ($326
              )
              
              (6.4
              )%Cost
                  of revenue
              
              
              3,704
              
              
              4,003
              
              
              (299
              )
              
              (7.5
              )Gross
                  margin
              
              $
              1,045
              
              $
              1,072
              
              
              ($27
              )
              
              (2.5
              )%Gross
                  margin %
              
              
              22.0
              %
              
              21.1
              %




Total
        revenue in the Medical Equipment Sales and Remarketing segment declined by
        6.4%
        to $4.7 million in the third quarter of 2006. This decrease was attributable
        to
        lower new equipment and disposable sales of $0.4 and $0.2 million, respectively,
        partially offset by increased used equipment sales of $0.3 million.
 
 Total
        cost
        of revenue in the segment decreased $0.3 million, or 7.5%, to $3.7 million
        in
        the third quarter of 2006. This decrease is attributable to lower cost of
        new
        equipment sales and cost of disposable sales of $0.3 and $0.2 million,
        respectively, partially offset by higher cost of used equipment sales of
        $0.2
        million.
 
 Gross
        margin percentage for the Medical Equipment Sales and Remarketing segment
        increased from 21.1% in the third quarter of 2005 to 22.0% in the third quarter
        of 2006. Margins in this segment will fluctuate based on used equipment
        availability and the transactional nature of the business.
 
 **Selling,
        General and Administrative Expenses**
 
 Selling,
        general and administrative expenses increased $1.9 million, or 13.5%, to
        $15.6
        million for the third quarter of 2006. The increase was primarily due to
        the
        write-off of software development costs previously capitalized of $0.8 million,
        higher Board of Directors related expenses of $0.5 million and stock option
        expenses related to the adoption of SFAS No. 123(R) of $0.4 million. Selling,
        general and administrative expenses as a percentage of total revenue for
        the
        third quarter of 2006 increased to 28.6% from 25.8% for the same period of
        2005.
 
 **Interest
        Expense**
 
 Interest
        expense increased $0.1 million, or 1.3%, to $7.8 million for the third quarter
        of 2006 as compared to the same period of 2005. The increase was driven
        primarily by higher interest rates and was partially offset by lower average
        borrowings. Our average effective interest rate on variable rate debt increased
        to 7.6% during the third quarter of 2006 from 6.0% in the third quarter of
        2005.
        Average total borrowings decreased for the third quarter of 2006 to $295.4
        million as compared to $296.2 million for the same period of 2005.
  15




**Income
        Taxes**
 
 Income
        tax
        expense declined to $0.1 million for the third quarter of 2006 as compared
        to
        $0.2 million for the same period of 2005. Income tax expense relates primarily
        to valuation allowances established for net operating losses not recognized
        as
        well as minimum state taxes.
 
 **Net
        Loss**
 
 For
        the
        third quarter of 2006 net loss increased $1.2 million to a loss of $2.2 million.
        The increase is primarily attributable to an increase in selling, general
        and
        administrative expenses of $1.9 million partially offset by increased gross
        margin of $0.7 million.
 
 **Comparison
        of the First Nine Months of 2006 to the First Nine Months of
        2005**
 **Medical
                    Equipment Outsourcing Segment - Manage &
                    Utilize**(dollars
                    in thousands)
                
                **Nine
                    Months Ended****September
                    30,****2006**
                
                **2005**
                
                **Change**
                
                **%
                    Change**Total
                    revenue
                
                $
                131,079
                
                $
                125,642
                
                $
                5,437
                
                
                4.3
                %Cost
                    of revenue
                
                
                42,762
                
                
                39,879
                
                
                2,883
                
                
                7.2Movable
                    medical equipment depreciation
                
                
                27,659
                
                
                28,051
                
                
                (392
                )
                
                (1.4
                )Gross
                    margin
                
                $
                60,658
                
                $
                57,712
                
                $
                2,946
                
                
                5.1
                %Gross
                    margin %
                
                
                46.3
                %
                
                45.9
                %




Total
        revenue in the Medical Equipment Outsourcing segment rose $5.4 million, or
        4.3%,
        to $131.1 million in the first nine months of 2006. This increase was driven
        by
        organic and competitive takeaway growth in our acute care customer base,
        increased activity in our AMPP customers, and incremental business from new
        and
        existing technology in our fleet which more than offset generally weak hospital
        admissions and increased hospital equipment purchases.
 
 Total
        cost
        of revenue in the segment rose $2.9 million, or 7.2%, to $42.8 million in
        the
        first nine months of 2006. This increase is primarily attributable to higher
        maintenance expense related to our moveable medical equipment fleet of $1.5
        million, higher employee related costs of $0.9 million and other costs
        associated with increased revenues.
 
 Movable
        medical equipment depreciation decreased modestly for the first nine months
        of
        2006.
 
 Gross
        margin percentage for the Medical Equipment Outsourcing segment increased
        from
        45.9% in the first nine months of 2005 to 46.3% for the same period of 2006.
        This increase is primarily attributable to increased revenues in the Medical
        Equipment Outsourcing segment partially offset by higher maintenance and
        employee related expenses.
  16




**Technical
                  and Professional Services Segment - Plan & Acquire; Maintain &
                  Repair**(dollars
                  in thousands)
              
              **Nine
                  Months Ended****September
                  30,****2006**
              
              **2005**
              
              **Change**
              
              **%
                  Change**Total
                  revenue
              
              $
              23,128
              
              $
              22,401
              
              $
              727
              
              
              3.2
              %Cost
                  of revenue
              
              
              15,942
              
              
              16,825
              
              
              (883
              )
              
              (5.2
              )Gross
                  margin
              
              $
              7,186
              
              $
              5,576
              
              $
              1,610
              
              
              28.9
              %Gross
                  margin %
              
              
              31.1
              %
              
              24.9
              %




Total
        revenue in the Technical and Professional Services segment rose $0.7 million,
        or
        3.2%, to $23.1 million in the first nine months of 2006. This revenue increase
        was primarily driven by growth in activity with customers under our Community
        Hospital Asset Management Program (“CHAMP”) and TEAM programs as well as growth
        in our manufacturer services businesses. These increases were partially offset
        by a decrease in our supplemental, or response-based, revenue. Increased
        sales
        force attention on converting new outsourcing customers, as well as weak
        census,
        have moderated revenues in the first nine months of 2006.
 
 Total
        cost
        of revenue in the segment decreased $0.9 million, or 5.2% to $15.9 million
        in
        the first nine months of 2006. This decrease is primarily attributable to
        a
        decrease in our repair and related expenses.
  Gross
        margin percentage for the technical and professional services segment increased
        from 24.9% in the first nine months of 2005 to 31.1% for the same period
        of
        2006. Margins benefited primarily from increased revenues and a reduction
        of our
        repair and related expenses. We believe that margin levels experienced during
        the first nine months of 2006 are not sustainable due to competitive
        settings.
  **Medical
                    Equipment Sales and Remarketing Segment - Redeploy &
                    Remarket**(dollars
                    in thousands)
                
                **Nine
                    Months Ended****September
                    30,****2006**
                
                **2005**
                
                **Change**
                
                **%
                    Change**Total
                    revenue
                
                $
                13,472
                
                $
                13,990
                
                
                ($518
                )
                
                (3.7
                )%Cost
                    of revenue
                
                
                10,140
                
                
                11,117
                
                
                (977
                )
                
                (8.8
                )Gross
                    margin
                
                $
                3,332
                
                $
                2,873
                
                $
                459
                
                
                16.0
                %Gross
                    margin %
                
                
                24.7
                %
                
                20.5
                %




Total
        revenue in the Medical Equipment Sales and Remarketing segment declined $0.5
        million, or 3.7%, to $13.5 million in the first nine months of 2006. This
        decrease was primarily attributable to lower new equipment and disposable
        sales
        of $0.7 and $0.6 million, respectively, partially offset by increased used
        equipment and infant security system sales of $0.4 and $.5 million,
        respectively.
  17




Total
        cost
        of revenue in the segment decreased $1.0 million, or 8.8%, to $10.1 million
        in
        the first nine months of 2006. This decrease is attributable to lower cost
        of
        new equipment sales, cost of disposable sales and cost of used equipment
        sales
        of $0.4, $0.6 and $0.4 million, respectively, partially offset by an increased
        cost of infant security system sales of $0.4 million.
 
 Gross
        margin percentage for the Medical Equipment Sales and Remarketing segment
        increased from 20.5% in the first nine months of 2005 to 24.7% for the same
        period of 2006. Margins in this segment will fluctuate based on used equipment
        availability and the transactional nature of the business.
 
 **Selling,
        General and Administrative Expenses**
 
 Selling,
        general and administrative expenses increased $2.0 million, or 4.5%, to $46.0
        million in the first nine months of 2006 as compared to the same period of
        2005.
        The increase is primarily due to stock option expenses related to the adoption
        of SFAS No. 123(R) of $1.2 million, the write-off of software development
        costs
        previously capitalized of $0.8 million and higher Board of Directors related
        expenses of $0.5 million. These increases were partially offset by a reduction
        in Sarbanes-Oxley related consulting expenses of $0.6 million. Selling, general
        and administrative expenses as a percentage of total revenue for the first
        nine
        months of 2006 increased to 27.4% from 27.1% for the same period of 2005.
 
 **Interest
        Expense**
 
 Interest
        expense increased $0.4 million, or 1.6%, to $23.5 million in the first nine
        months of 2006. The increase was driven primarily by higher interest rates
        and
        was partially offset by lower average borrowings. Our average effective interest
        rate on variable rate debt increased to 7.3% during the first nine months
        of
        2006 from 5.9% in the first nine months of 2005. Average total borrowings
        decreased to $296.3 million as compared to $298.1 for the same period of
        2005.
 
 **Income
        Taxes**
 
 Income
        tax
        expense declined to $0.5 million in the first nine months of 2006 as compared
        to
        $0.6 million for the same period of 2005. Income tax expense relates primarily
        to valuation allowances established for net operating losses not recognized
        as
        well as minimum state taxes.
 
 **Net
        Income**
 
 Net
        income
        rose $2.8 million to $1.2 million in the first nine months of 2006. The increase
        is primarily due to an increase in gross margin of $5.0 million offset by
        increased selling general and administrative expenses of $2.0 million and
        an
        increase in interest expense of $0.4 million.
  **EBITDA**
 
 Earnings
        Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for the nine
        months ended September 30, 2006, was $58.9 million, representing a $4.4 million,
        or 8.0%, increase from $54.5 million for the same period of 2005. This increase
        is primarily driven by revenue growth and the continued benefits of operating
        efficiency programs put in place during 2005 generating increased gross margin
        of $5.0 million.
  18




EBITDA
        is
        not intended to represent an alternative to operating income or cash flows
        from
        operating, financing or investing activities (as determined in accordance
        with
        generally accepted accounting principles (“GAAP”)) as a measure of performance,
        and is not representative of funds available for discretionary use due to
        our
        financing obligations. EBITDA, as defined by us, may not be calculated
        consistently among other companies applying similar reporting measures. EBITDA
        is included because it is a widely accepted financial indicator used by certain
        investors and financial analysts to assess and compare companies, and a version
        of EBITDA is an integral part of our debt covenant calculations. Management
        believes that EBITDA provides an important perspective on our ability to
        service
        our long-term obligations, our ability to fund continuing growth, and our
        ability to continue as a going concern. A reconciliation of operating cash
        flows
        to EBITDA is included below:
  (dollars
                    in thousands)
                
                Nine
                    Months EndedSeptember
                    30,2006
                
                2005Net
                    cash provided by operating activities
                
                $
                43,610
                
                $
                34,632Changes
                    in operating assets and liabilities
                
                
                (5,773
                )
                
                (1,950
                )Other
                    non-cash expenses
                
                
                (3,002
                )
                
                (1,955
                )Income
                    tax expense
                
                
                522
                
                
                631Interest
                    expense
                
                
                23,523
                
                
                23,142EBITDA
                
                $
                58,880
                
                $
                54,500




Supplemental
                  Information:
              
              Nine
                  Months EndedSeptember
                  30,(dollars
                  in thousands)
              
              2006
              
              2005EBITDA
              
              $
              58,880
              
              $
              54,500Net
                  cash provided by operating activities
              
              $
              43,610
              
              $
              34,632Net
                  cash used in investing activities
              
              $
              (31,973
              )
              $
              (27,826
              )Net
                  cash used in financing activities
              
              $
              (11,637
              )
              $
              (6,806
              )Movable
                  medical equipment depreciation
              
              $
              27,659
              
              $
              28,051Non-movable
                  medical equipment depreciation
              
              $
              4,670
              
              $
              $2,939Other
                  operating data:Movable
                  medical equipment owned (approximate units at end of
                  period)
              
              
              168,000
              
              
              160,000Offices
                  (at end of period)
              
              
              79
              
              
              77Number
                  of outsourcing hospital customers (approximate number at end of
                  period)
              
              
              3,450
              
              
              3,200Number
                  of total outsourcing customers (approximate number at end of
                  period)
              
              
              6,500
              
              
              6,350




19




**SEASONALITY**
 
 Quarterly
        operating results are typically affected by seasonal factors. Historically,
        our
        first and fourth quarters are the strongest, reflecting increased hospital
        utilization during the fall and winter months.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 Our
        principal sources of liquidity are expected to be cash flows from operating
        activities and borrowings under our Amended Credit Agreement that we entered
        into in May 2005 which matures in May 2010. It is anticipated that our principal
        uses of liquidity will be to fund capital expenditures related to purchases
        of
        movable medical equipment, provide working capital, meet debt service
        requirements and finance our strategic plans.
 
 We
        require
        substantial cash to operate our Medical Equipment Outsourcing programs and
        service our debt. Our outsourcing programs require us to invest a significant
        amount of cash in movable medical equipment purchases. To the extent that
        such
        expenditures cannot be funded from our operating cash flow, borrowing under
        our
        Amended Credit Agreement or other financing sources, we may not be able to
        conduct our business or grow as currently planned.
 
 If
        we are
        unable to generate sufficient cash flow from operations in order to service
        our
        debt, we will be forced to take actions such as reducing or delaying capital
        expenditures, selling assets, restructuring or refinancing our debt or seeking
        additional equity capital. This, to a certain extent, is subject to general
        economic, financial, competitive, legislative, regulatory and other factors
        that
        are beyond our control. If we are unable to repay our debt at maturity, we
        may
        have to obtain alternative financing, which may not be available to
        us.
 
 Net
        cash
        provided by operating activities during the nine months ended September 30,
        2006, was $43.6 million, compared to $34.6 million in the same period of
        2005.
        This increase is primarily attributable to an increase in net income of $2.8
        million and an increase of accounts payable, accrued expenses and other
        long-term liabilities of $3.2 million. Net cash used in investing activities
        during the nine months ended September 30, 2006, was $32.0 million, compared
        to
        $27.8 million in the same period of 2005. This increase was primarily
        attributable to higher purchases of rental equipment to meet customer demand.
        Net cash used in financing activities during the nine months ended September
        30,
        2006, was $11.6 million, compared to $6.8 million in 2005, the primary
        difference relating to higher net pay down of debt in 2006.
 
 Based
        on
        the level of operating performance expected in 2006, we believe our cash
        from
        operations, together with additional borrowings under our Amended Credit
        Agreement, will meet our liquidity needs for the foreseeable future, exclusive
        of any borrowings that we may make to finance potential acquisitions. However,
        if during that period or thereafter we are not successful in generating
        sufficient cash flows from operations or in raising additional capital when
        required in sufficient amounts and on terms acceptable to us, our business
        could
        be adversely affected.  Availability
        under our Amended Credit Agreement as of September 30, 2006 was approximately
        $83 million, representing our borrowing base of $113 million, net of outstanding
        letters of credit of $2 million and borrowings of $28 million. Our levels
        of
        borrowing are further restricted by the financial covenants set forth in
        our
        Amended Credit Agreement and the indenture governing our 10.125% Senior Notes,
        which covenants are described in our Annual Report on Form 10-K for the year
        ended December 31, 2005, filed with the Securities and Exchange Commission.
        As
        of September 30, 2006 the Company was in compliance with all covenants under
        the
        Amended Credit Agreement.
  20




**RECENT
        ACCOUNTING PRONOUNCEMENTS**
  In
        September 2006, the Financial Standards Board (“FASB”) issued Statement of
        Financial Accounting Standards (“SFAS”) No. 158, *Employers
        Accounting for Defined Benefit Pension and Other Postretirement Plans an
        Amendment of FASB Statements No. 87, 88, 106 and 123(R).* SFAS
        No.
        158 requires employers to recognize the under funded or over funded status
        of a
        defined benefit post retirement plan as an asset or liability in its statements
        of financial position and to recognize changes in the funded status in the
        year
        in which the changes occur through accumulated other comprehensive income.
        Additionally, SFAS No. 158 requires employers to measure the funded status
        of a
        plan as of the date of its year-end statement of financial position. The
        provisions of SFAS No. 158 are effective for fiscal years ending after June
        15,
        2007. We believe the adoption of SFAS No. 158 will not have a material impact
        on
        our financial position or results of operations.
  In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements.* SFAS
        No.
        157 clarifies the principle that fair value should be based on the assumptions
        that market participants would use when pricing an asset or liability.
        Additionally, it establishes a fair value hierarchy that prioritizes the
        information used to develop those assumptions. The provisions of SFAS No.
        157
        are effective for fiscal years beginning after November 15, 2007. We believe
        the
        adoption of SFAS No. 157 will not have a material impact on our financial
        position or results of operations.
  In
        September 2006, the U.S. Securities and Exchange Commission staff issued
        Staff
        Accounting Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* ("SAB
        108"). This SAB addresses diversity in practice of quantifying financial
        statement misstatements. It establishes an approach that requires quantification
        of financial statement misstatements based on the effects of the misstatements
        on each of the company's financial statements and the related financial
        statement disclosures. The SAB is effective for financial statements issued
        for
        fiscal years ending after November 15, 2006. We believe the adoption of SAB
        108
        will not have an impact on our financial position or results of
        operations.
  In
        July
        2006, the FASB issued FASB Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
        109* (“FIN
        48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
        in an enterprise’s financial statements in accordance with FASB Statement No.
        109, *Accounting
        for Income Taxes.* FIN 48
        also prescribes a recognition threshold and measurement attribute for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken in a tax return. The new FASB standard also provides
        guidance on derecognition, classification, interest and penalties, accounting
        in
        interim periods, disclosure and transition. The provisions of FIN 48 are
        effective for fiscal years beginning after December 15, 2006. We believe
        the
        adoption of FIN 48 will not have a material impact on our financial position
        or
        results of operations.
  Prior
        to
        January 1, 2006, we applied the provisions of Accounting Principles Board
        (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        in
        accounting for stock-based compensation. As a result, no compensation expense
        was recognized for stock options granted with exercise prices equivalent
        to the
        fair market value of stock on date of grant. Effective January 1, 2006, we
        adopted SFAS No. 123(R), *Share-Based
        Payment* ,
        using
        the modified prospective application method. Under this method, as of
        January 1, 2006, we have applied the provisions of this statement to new
        and modified awards, as well as to the nonvested portion of awards granted
        before the required effective date and outstanding at such time.
  21




The
        adoption of this pronouncement had no effect on compensation cost recorded
        in
        2005 related to stock options, which will continue to be disclosed on a pro
        forma basis only. As a result of adopting SFAS No. 123(R) on
        January 1, 2006, our net income for the quarter and nine months ended
        September 30, 2006 was $0.4 million and $1.2 million lower, respectively,
        than if we had continued to account for stock-based compensation under APB
        Opinion No. 25.
  An
        additional requirement of SFAS No. 123(R) is that estimated forfeitures be
        considered in determining compensation expense. As previously permitted,
        we
        recorded forfeitures when they occurred. We have estimated our forfeiture
        rate
        at 2.5% per annum. As of September 30, 2006, the total compensation cost
        for
        nonvested awards not yet recognized in our statements of income was $5.1
        million, net of the effect of estimated forfeitures. This amount is expected
        to
        be recognized over a weighted-average period of 4.2 years.
  **Safe
        Harbor Statement under the Private Securities Litigation Reform Act of
        1995:** We
        believe statements in this quarterly report looking forward in time involve
        risks and uncertainties. The following factors, among others, could adversely
        affect our business, operations and financial condition causing our actual
        results to differ materially from those expressed in any forward-looking
        statements: our history of net losses and substantial interest expense; our
        need
        for substantial cash to operate and expand our business as planned; our
        substantial outstanding debt and debt service obligations; restrictions imposed
        by the terms of our debt; a decrease in the number of patients our customers
        are
        serving; our ability to effect change in the manner in which healthcare
        providers traditionally procure medical equipment; the absence of long-term
        commitments with customers; our ability to renew contracts with group purchasing
        organizations and integrated delivery networks; changes in reimbursement
        rates
        and policies by third-party payors; the impact of health care reform
        initiatives; the impact of significant regulation of the health care industry
        and the need to comply with those regulations; difficulties or delays in
        our
        continued expansion into certain of our businesses/geographic markets and
        developments of new businesses/geographic markets; additional credit risks
        in
        increasing business with home care providers and nursing homes; impacts of
        equipment product recalls or obsolescence; and increases in vendor costs
        that
        cannot be passed through to our customers. See the risk factors discussed
        under
        Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
        31, 2005, filed with the Securities and Exchange Commission.
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 Our
        primary exposure to market risk is interest rate risk associated with our
        debt
        instruments. We use both fixed and variable rate debt as sources of financing.
        At September 30, 2006, we had approximately $291.4 million of total debt
        outstanding, of which $28.2 million was bearing interest at variable rates
        approximating 7.6%. A one percentage point change in interest rates on variable
        rate debt would have resulted in interest expense fluctuating approximately
        $0.2
        and $0.3 million for the first nine months ended September 30, 2006 and 2005,
        respectively. We have not entered into, and do not plan to enter into, any
        derivative financial instruments for trading or speculative purposes.
        Historically, we have not engaged in hedging activities. As of September
        30,
        2006, we had no other material exposure to market risk.
  22




**Item
        4. Controls and Procedures**
 
 (a). Evaluation
        of disclosure controls and procedures.
 
 Under
        the
        supervision and with the participation of our management, including our Chief
        Executive Officer and Chief Financial Officer, we evaluated the effectiveness
        of
        the design and operation of our disclosure controls and procedures (as defined
        in Rule 15d-15(e) under the Securities Exchange Act of 1934 as amended (the
        “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and
        Chief Financial Officer concluded that, as of the end of the period covered
        by
        this report, our disclosure controls and procedures were effective.
 
 (b). Changes
        in internal control over financial reporting.
 
 During
        the
        third quarter of 2006, there has been no change in our internal control over
        financial reporting (as defined in Rule 15d-15(f) under the Exchange Act)
        that
        has materially affected, or is reasonably likely to materially affect, our
        internal control over financial reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **Item
        1.** **Legal Proceedings**
 
 From
        time
        to time, we may become involved in litigation arising out of operations in
        the
        normal course of business. As of September 30, 2006, we were not a party
        to any
        pending legal proceedings the adverse outcome of which could reasonably be
        expected to have a material adverse effect on our operating results, financial
        position, or cash flows.
 
 **Item
        1A. Risk Factors**
 
 In
        addition to the other information set forth in this report, you should carefully
        consider the factors discussed in Part I, Item 1A of our Annual Report on
        Form
        10-K for the year ended December 31, 2005, which could materially affect
        our
        business, financial condition or results of operations. The risks described
        in
        our Annual Report on Form 10-K are not the only risks facing the Company.
        Additional risks and uncertainties not presently known to us or that we
        currently believe to be immaterial may also adversely affect our business,
        financial condition or results of operations.
 
 **Item
        2.** **Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 Not
        applicable.
 
 **Item
        3.** **Defaults upon Senior Securities**
 
 Not
        applicable.
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 Not
        applicable.
 
 **Item
        5.** **Other Information**
 
 Not
        applicable.
  23




**Item
        6.** **Exhibits**
 
 **Number**
              
              **Description**3.1a
              
              Certificate
                  of Amendment to Certificate of Incorporation of Universal Hospital
                  Services, Inc.*3.1b
              
              Certificate
                  of Incorporation of Universal Hospital Services, Inc.
                  **3.2a
              
              Amended
                  and Restated Bylaws of Universal Hospital Services,
                  Inc.*3.3
              
              Certification
                  of Elimination of Series B 13% Cumulative Accruing Pay-In-Kind
                  Preferred
                  Stock of Universal Hospital Services, Inc.****4.1
              
              Form
                  of certificate of common stock. **4.2
              
              Indenture,
                  dated as of October 17, 2003, by and between Universal Hospital
                  Services,
                  Inc. and Wells Fargo Bank, National Association, as Trustee, relating
                  to
                  the registrant’s 10.125% Senior Notes due 2011 (including Form of
                  Note).*4.3
              
              Form
                  of Amended and Restated Stockholders’ Agreement, dated October 17, 2003,
                  by and among Universal Hospital Services, Inc., J.W. Childs Equity
                  Partners III, L.P., JWC Fund III Co-invest LLC, Halifax Capital
                  Partners,
                  L.P. and the other stockholders of Universal Hospital Services,
                  Inc.*4.4
              
              Exchange
                  and Registration Rights Agreement, dated as of October 17, 2003,
                  among
                  Universal Hospital Services, Inc., Goldman, Sachs & Co,. Credit Suisse
                  First Boston LLC, CIBC World Markets Corp. and Jefferies & Company,
                  Inc.***4.5
              
              10.125%
                  Senior Notes due 2011 in the aggregate principal amount of
                  $259,880,000.***4.6
              
              10.125%
                  Senior Note due 2011 in the aggregate principal amount of
                  $120,000.**4.7
              
              Blanket
                  Issuer Letter of Representations, dated as of October 17, 2003,
                  among
                  Universal Hospital Services, Inc., Wells Fargo Bank, National Association
                  and the Depository Trust Company.**31.1
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer31.2
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer32.1
              
              Certification
                  of Gary D. Blackford Pursuant to 18 U.S.C § 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 200232.2
              
              Certification
                  of Rex T. Clevenger Pursuant to 18 U.S.C § 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of
                  2002




*Previously
        filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
        fiscal quarter ended September 30, 2003, and incorporated by reference
        herein.
 **
        Previously filed as an Exhibit to Form S-1/A filed on September 5, 2001,
        and
        incorporated by reference herein.
 ***Previously
        filed as an Exhibit to the Registrant’s Registration Statement on Form S-4 (File
        No. 333-111606) and incorporated by reference herein.
 ****Previously
        filed as an Exhibit to Amendment No. 1 to the Registrant’s Registration
        Statement on Form S-4 (File No. 333-111606) and incorporated by reference
        herein.
  24




**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.
 
 Date:
        November 8, 2006
 Universal
                  Hospital Services, Inc.By/s/
                  Gary D. BlackfordGary
                  D. Blackford,President
                  and Chief Executive Officer(Principal
                  Executive Officer and Duly Authorized Officer)By/s/
                  Rex T. ClevengerRex
                  T. Clevenger,Senior
                  Vice President and Chief Financial Officer
                (Principal
                  Financial Officer)




25




**Universal
        Hospital Services, Inc.**
 
 **EXHIBIT
        INDEX TO REPORT ON FORM 10-Q**
  **Number**
                
                **Description**3.1a
                
                Certificate
                    of Amendment to Certificate of Incorporation of Universal Hospital
                    Services, Inc.*3.1b
                
                Certificate
                    of Incorporation of Universal Hospital Services, Inc.
                    **3.2a
                
                Amended
                    and Restated Bylaws of Universal Hospital Services,
                    Inc.*3.3
                
                Certification
                    of Elimination of Series B 13% Cumulative Accruing Pay-In-Kind
                    Preferred
                    Stock of Universal Hospital Services, Inc.****4.1
                
                Form
                    of certificate of common stock. **4.2
                
                Indenture,
                    dated as of October 17, 2003, by and between Universal Hospital
                    Services,
                    Inc. and Wells Fargo Bank, National Association, as Trustee,
                    relating to
                    the registrant’s 10.125% Senior Notes due 2011 (including Form of
                    Note).*4.3
                
                Form
                    of Amended and Restated Stockholders’ Agreement, dated October 17, 2003,
                    by and among Universal Hospital Services, Inc., J.W. Childs Equity
                    Partners III, L.P., JWC Fund III Co-invest LLC, Halifax Capital
                    Partners,
                    L.P. and the other stockholders of Universal Hospital Services,
                    Inc.*4.4
                
                Exchange
                    and Registration Rights Agreement, dated as of October 17, 2003,
                    among
                    Universal Hospital Services, Inc., Goldman, Sachs & Co,. Credit Suisse
                    First Boston LLC, CIBC World Markets Corp. and Jefferies & Company,
                    Inc.***4.5
                
                10.125%
                    Senior Notes due 2011 in the aggregate principal amount of
                    $259,880,000.***4.6
                
                10.125%
                    Senior Note due 2011 in the aggregate principal amount of
                    $120,000.**4.7
                
                Blanket
                    Issuer Letter of Representations, dated as of October 17, 2003,
                    among
                    Universal Hospital Services, Inc., Wells Fargo Bank, National
                    Association
                    and the Depository Trust Company.**31.1
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Chief Executive
                    Officer31.2
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Chief Financial
                    Officer32.1
                
                Certification
                    of Gary D. Blackford Pursuant to 18 U.S.C § 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 200232.2
                
                Certification
                    of Rex T. Clevenger Pursuant to 18 U.S.C § 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of
                    2002
 *Previously
            filed as an Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
            fiscal quarter ended September 30, 2003, and incorporated by reference
            herein.
 **
            Previously filed as an Exhibit to Form S-1/A filed on September 5, 2001,
            and
            incorporated by reference herein.
 ***Previously
            filed as an Exhibit to the Registrant’s Registration Statement on Form S-4 (File
            No. 333-111606) and incorporated by reference herein.
 ****Previously
            filed as an Exhibit to Amendment No. 1 to the Registrant’s Registration
            Statement on Form S-4 (File No. 333-111606) and incorporated by reference
            herein.
  26