**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 the Securities Exchange
                Act of
                1934 for the quarterly period ended September 30,
                2007





or





(   )
            Transition
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the transition period from _________ to
                _________





**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*
                *incorporation
                  or organization)*
            *(I.R.S.
                  Employer*
                *Identification
                  No.)*




**7700
      France Avenue South, Suite 275**


**Edina,Minnesota55435-5228**


*(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 October 31,
      2007:  1,000.0




1


**PART
      I - FINANCIAL INFORMATION**


**Item
        1. Financial Statements – Unaudited**
  **Universal
                    Hospital Services, Inc.****Balance
                    Sheets***(in
                    thousands, except share and per share information)*(unaudited)September
                    30,
                
                
                December
                    31,2007
                
                
                2006(Successor)
                
                
                (Predecessor)**Assets**Current
                    assets:Accounts
                    receivable, less allowance for doubtful accounts of$1,400
                    at September 30, 2007 (Successor) and $1,350 at December
                    31,2006
                    (Predecessor)
                
                $
                46,694
                
                
                $
                42,976Inventories
                
                
                4,710
                
                
                
                4,872Deferred
                    income taxes
                
                
                6,693
                
                
                
                4,772Other
                    current assets
                
                
                2,655
                
                
                
                3,121Total
                    current assets
                
                
                60,752
                
                
                
                55,741Property
                    and equipment, net:Movable
                    medical equipment, net
                
                
                210,664
                
                
                
                140,548Property
                    and office equipment, net
                
                
                17,703
                
                
                
                16,079Total
                    property and equipment, net
                
                
                228,367
                
                
                
                156,627Other
                    long-term assets:Goodwill
                
                
                291,970
                
                
                
                37,062Other
                    intangibles, net
                
                
                286,422
                
                
                
                7,969Other,
                    primarily deferred financing costs, net
                
                
                17,407
                
                
                
                7,607Total
                    assets
                
                $
                884,918
                
                
                $
                265,006**Liabilities
                    and Shareholders' Equity (Deficiency)**Current
                    liabilities:Current
                    portion of long-term debt
                
                $
                3,027
                
                
                $
                3,056Book
                    overdrafts
                
                
                242
                
                
                
                1,788Accounts
                    payable
                
                
                17,839
                
                
                
                13,678Accrued
                    compensation
                
                
                10,583
                
                
                
                10,241Accrued
                    interest
                
                
                13,912
                
                
                
                4,810Other
                    accrued expenses
                
                
                5,162
                
                
                
                4,311Total
                    current liabilities
                
                
                50,765
                
                
                
                37,884Long-term
                    debt, less current portion
                
                
                473,704
                
                
                
                307,135Pension
                    and other long-term liabilities
                
                
                10,845
                
                
                
                5,769Payable
                    to Parent
                
                
                1,399
                
                
                
                -Deferred
                    income taxes
                
                
                117,374
                
                
                
                7,199Commitments
                    and contingencies (Note 10)Shareholders'
                    equity (deficiency):***Predecessor:***Common
                    stock, $0.01 par value; 500,000,000 shares authorized,123,463,600.21
                    shares issued and outstanding atDecember
                    31, 2006
                
                
                -
                
                
                
                1,235***Successor:***Common
                    stock, $0.01 par value; 1,000 shares authorized,issued
                    and outstanding at September 30, 2007
                
                
                -
                
                
                
                -Additional
                    paid-in capital
                
                
                248,794
                
                
                
                2,488Accumulated
                    deficit
                
                
                (9,455
                )
                
                
                (93,527
                )Accumulated
                    other comprehensive loss
                
                
                (8,508
                )
                
                
                (3,177
                )Total
                    shareholders' equity (deficiency)
                
                
                230,831
                
                
                
                (92,981
                )Total
                    liabilities and shareholders' equity (deficiency)
                
                $
                884,918
                
                
                $
                265,006The
                    accompanying notes are an integral part of the unaudited financial
                    statements.
  2
 **Universal
                      Hospital Services, Inc.****Statements
                      of Operations***(in
                      thousands)*(unaudited)Three
                  
                  
                  ThreeMonths
                  
                  
                  MonthsEnded
                  
                  
                  EndedSeptember
                      30,
                  
                  
                  September
                      30,2007
                  
                  
                  2006(Successor)
                  
                  
                  (Predecessor)**Revenue**Medical
                      equipment outsourcing
                  
                  $
                  49,988
                  
                  
                  $
                  42,361Technical
                      and professional services
                  
                  
                  11,098
                  
                  
                  
                  7,459Medical
                      equipment sales and remarketing
                  
                  
                  4,097
                  
                  
                  
                  4,749Total
                      revenues
                  
                  
                  65,183
                  
                  
                  
                  54,569**Cost
                      of Sales**Cost
                      of medical equipment outsourcing
                  
                  
                  18,314
                  
                  
                  
                  14,822Cost
                      of technical and professional services
                  
                  
                  8,158
                  
                  
                  
                  5,235Cost
                      of medical equipment sales and remarketing
                  
                  
                  3,610
                  
                  
                  
                  3,704Movable
                      medical equipment depreciation
                  
                  
                  14,116
                  
                  
                  
                  9,459Total
                      costs of medical equipment outsourcing, technical and professional
                      services and medical equipment sales and remarketing
                  
                  
                  44,198
                  
                  
                  
                  33,220Gross
                      margin
                  
                  
                  20,985
                  
                  
                  
                  21,349Selling,
                      general and administrative
                  
                  
                  20,741
                  
                  
                  
                  15,633Transaction
                      and related costs
                  
                  
                  237
                  
                  
                  
                  -Operating
                      income
                  
                  
                  7
                  
                  
                  
                  5,716Interest
                      expense
                  
                  
                  11,231
                  
                  
                  
                  7,819Loss
                      before income taxes
                  
                  
                  (11,224
                  )
                  
                  
                  (2,103
                  )Provision
                      (benefit) for income taxes
                  
                  
                  (4,317
                  )
                  
                  
                  114Net
                      loss
                  
                  $
                  (6,907
                  )
                  
                  $
                  (2,217
                  )The
                      accompanying notes are an integral part of the unaudited financial
                      statements.
  3
  **Universal
                      Hospital Services, Inc.****Statements
                      of Operations***(in
                      thousands)*(unaudited)Four
                  
                  
                  Five
                  
                  
                  NineMonths
                  
                  
                  Months
                  
                  
                  MonthsEnded
                  
                  
                  Ended
                  
                  
                  EndedSeptember
                      30,
                  
                  
                  May
                      31,
                  
                  
                  September
                      30,2007
                  
                  
                  2007
                  
                  
                  2006(Successor)
                  
                  
                  (Predecessor)
                  
                  
                  (Predecessor)**Revenue**Medical
                      equipment outsourcing
                  
                  $
                  66,683
                  
                  
                  $
                  84,855
                  
                  
                  $
                  131,079Technical
                      and professional services
                  
                  
                  14,728
                  
                  
                  
                  14,800
                  
                  
                  
                  23,128Medical
                      equipment sales and remarketing
                  
                  
                  5,374
                  
                  
                  
                  7,867
                  
                  
                  
                  13,472Total
                      revenues
                  
                  
                  86,785
                  
                  
                  
                  107,522
                  
                  
                  
                  167,679**Cost
                      of Sales**Cost
                      of medical equipment outsourcing
                  
                  
                  24,230
                  
                  
                  
                  27,694
                  
                  
                  
                  42,762Cost
                      of technical and professional services
                  
                  
                  10,684
                  
                  
                  
                  10,124
                  
                  
                  
                  15,942Cost
                      of medical equipment sales and remarketing
                  
                  
                  4,822
                  
                  
                  
                  6,366
                  
                  
                  
                  10,140Movable
                      medical equipment depreciation
                  
                  
                  18,748
                  
                  
                  
                  18,512
                  
                  
                  
                  27,659Total
                      costs of medical equipment outsourcing, technical and professional
                      services and medical equipment sales and remarketing
                  
                  
                  58,484
                  
                  
                  
                  62,696
                  
                  
                  
                  96,503Gross
                      margin
                  
                  
                  28,301
                  
                  
                  
                  44,826
                  
                  
                  
                  71,176Selling,
                      general and administrative
                  
                  
                  27,345
                  
                  
                  
                  28,692
                  
                  
                  
                  45,977Transaction
                      and related costs
                  
                  
                  237
                  
                  
                  
                  26,891
                  
                  
                  
                  -Operating
                      income (loss)
                  
                  
                  719
                  
                  
                  
                  (10,757
                  )
                  
                  
                  25,199Interest
                      expense
                  
                  
                  15,031
                  
                  
                  
                  13,829
                  
                  
                  
                  23,523Loss
                      on extinguishment of debt
                  
                  
                  1,041
                  
                  
                  
                  22,396
                  
                  
                  
                  -Income
                      (loss) before income taxes
                  
                  
                  (15,353
                  )
                  
                  
                  (46,982
                  )
                  
                  
                  1,676Provision
                      (benefit) for income taxes
                  
                  
                  (5,898
                  )
                  
                  
                  492
                  
                  
                  
                  522Net
                      income (loss)
                  
                  $
                  (9,455
                  )
                  
                  $
                  (47,474
                  )
                  
                  $
                  1,154The
                      accompanying notes are an integral part of the unaudited financial
                      statements.
  4
  **Universal
                      Hospital Services, Inc.****Statements
                      of Cash Flows***(in
                      thousands)*(unaudited)Four
                      Months
                  
                  
                  Five
                      Months
                  
                  
                  Nine
                      MonthsEnded
                  
                  
                  Ended
                  
                  
                  EndedSeptember
                      30,
                  
                  
                  May
                      31,
                  
                  
                  September
                      30,2007
                  
                  
                  2007
                  
                  
                  2006(Successor)
                  
                  
                  (Predecessor)
                  
                  
                  (Predecessor)Cash
                      flows from operating activities:Net
                      income (loss)
                  
                  $
                  (9,455
                  )
                  
                  $
                  (47,474
                  )
                  
                  $
                  1,154Adjustments
                      to reconcile net income to net cash provided byoperating
                      activities:Depreciation
                  
                  
                  21,465
                  
                  
                  
                  21,625
                  
                  
                  
                  32,329Amortization
                      of intangibles and deferred financing costs
                  
                  
                  6,185
                  
                  
                  
                  1,913
                  
                  
                  
                  2,639Non-cash
                      write-off of deferred financing cost
                  
                  
                  290
                  
                  
                  
                  6,305
                  
                  
                  
                  -Tender
                      premium for purchase of 10.125% senior notes
                  
                  
                  751
                  
                  
                  
                  16,090
                  
                  
                  
                  -Provision
                      for doubtful accounts
                  
                  
                  499
                  
                  
                  
                  194
                  
                  
                  
                  855Provision
                      for inventory obsolescence
                  
                  
                  107
                  
                  
                  
                  256
                  
                  
                  
                  350Non-cash
                      charges related to step-up in carrying value of inventory
                  
                  
                  200
                  
                  
                  
                  -
                  
                  
                  
                  -Non-cash
                      stock-based compensation expense
                  
                  
                  1,399
                  
                  
                  
                  7,957
                  
                  
                  
                  1,180Loss
                      (gain) on sales and disposals of equipment
                  
                  
                  540
                  
                  
                  
                  (745
                  )
                  
                  
                  (1,003
                  )Deferred
                      income taxes
                  
                  
                  (5,993
                  )
                  
                  
                  486
                  
                  
                  
                  333Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  (876
                  )
                  
                  
                  (3,481
                  )
                  
                  
                  1,418Inventories
                  
                  
                  147
                  
                  
                  
                  (252
                  )
                  
                  
                  (180
                  )Other
                      operating assets
                  
                  
                  (395
                  )
                  
                  
                  643
                  
                  
                  
                  (446
                  )Accounts
                      payable
                  
                  
                  1,047
                  
                  
                  
                  590
                  
                  
                  
                  (2,197
                  )Other
                      accrued expenses
                  
                  
                  (21,047
                  )
                  
                  
                  30,211
                  
                  
                  
                  7,178Net
                      cash provided by (used in) operating activities
                  
                  
                  (5,136
                  )
                  
                  
                  34,318
                  
                  
                  
                  43,610Cash
                      flows from investing activities:Movable
                      medical equipment purchases
                  
                  
                  (13,069
                  )
                  
                  
                  (34,040
                  )
                  
                  
                  (31,217
                  )Property
                      and office equipment purchases
                  
                  
                  (1,565
                  )
                  
                  
                  (1,720
                  )
                  
                  
                  (2,977
                  )Proceeds
                      from disposition of movable medical equipment
                  
                  
                  818
                  
                  
                  
                  2,290
                  
                  
                  
                  2,221Acquisition
                      of the ICMS division of Intellamed, Inc.
                  
                  
                  -
                  
                  
                  
                  (14,590
                  )
                  
                  
                  -Acquisition
                      of Universal Hospital Services, Inc. by Parent
                  
                  
                  (335,069
                  )
                  
                  
                  -
                  
                  
                  
                  -Net
                      cash used in investing activities
                  
                  
                  (348,885
                  )
                  
                  
                  (48,060
                  )
                  
                  
                  (31,973
                  )Cash
                      flows from financing activities:Proceeds
                      under amended credit agreement
                  
                  
                  -
                  
                  
                  
                  73,625
                  
                  
                  
                  64,912Payments
                      under amended credit agreement
                  
                  
                  (74,550
                  )
                  
                  
                  (42,075
                  )
                  
                  
                  (74,868
                  )Proceeds
                      under senior secured credit facility
                  
                  
                  22,475
                  
                  
                  
                  -
                  
                  
                  
                  -Payments
                      under senior secured credit facility
                  
                  
                  (22,475
                  )
                  
                  
                  -
                  
                  
                  
                  -Payments
                      of principal under capital lease obligations
                  
                  
                  (1,600
                  )
                  
                  
                  (1,618
                  )
                  
                  
                  (873
                  )Proceeds
                      from issuance of bonds
                  
                  
                  460,000
                  
                  
                  
                  -
                  
                  
                  
                  -Payment
                      of deferred financing costs
                  
                  
                  (17,350
                  )
                  
                  
                  -
                  
                  
                  
                  -Repayment
                      of 10.125 % senior notes
                  
                  
                  (250,055
                  )
                  
                  
                  -
                  
                  
                  
                  -Tender
                      premium for purchase of 10.125% senior notes
                  
                  
                  (751
                  )
                  
                  
                  (16,090
                  )
                  
                  
                  -Cash
                      equity contributions
                  
                  
                  239,754
                  
                  
                  
                  -
                  
                  
                  
                  -Change
                      in book overdrafts
                  
                  
                  (1,427
                  )
                  
                  
                  (119
                  )
                  
                  
                  (836
                  )Proceeds
                      from issuance of common stock
                  
                  
                  -
                  
                  
                  
                  19
                  
                  
                  
                  28Net
                      cash provided by (used in) financing activities
                  
                  
                  354,021
                  
                  
                  
                  13,742
                  
                  
                  
                  (11,637
                  )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
                  
                  $
                  630
                  
                  
                  $
                  17,599
                  
                  
                  $
                  15,510Movable
                      medical equipment purchases included in accounts payable
                  
                  $
                  9,080
                  
                  
                  $
                  5,103
                  
                  
                  $
                  5,881Deferred
                      financing costs included in accounts payable
                  
                  $
                  270
                  
                  
                  $
                  -
                  
                  
                  $
                  -Income
                      taxes paid
                  
                  $
                  48
                  
                  
                  $
                  61
                  
                  
                  $
                  288Non-cash
                      activities:Equity
                      contribution from management shareholders
                  
                  $
                  9,039
                  
                  
                  $
                  -
                  
                  
                  $
                  -Capital
                      lease additions
                  
                  $
                  1,417
                  
                  
                  $
                  2,142
                  
                  
                  $
                  2,072The
                      accompanying notes are an integral part of the unaudited financial
                      statements.
  5
  **Universal
          Hospital Services, Inc.**
 
 **NOTES
          TO UNAUDITED QUARTERLY FINANCIAL STATEMENTS**
 **1. Basis
            of
            Presentation**
  On
          May 31,
          2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital
          stock of Universal Hospital Services, Inc. (“we”, “our”, “the Company”, or
“UHS”) for approximately $712.0 million in cash less debt, tender premium
          and accrued interest and capitalized leases.  Parent is owned by
          affiliates of Bear Stearns Merchant Manager III (Cayman), L.P. (together
          with
          its investing affiliates, “BSMB”) and certain members of our management, whom we
          collectively refer to as the “equity investors.”  Parent and UHS
          Merger Sub, Inc., a wholly owned subsidiary of Parent (“Merger Sub”), were
          corporations formed by BSMB solely for the purpose of completing the
          above-mentioned acquisition.
  Before
          the
          closing of the acquisition, the Company initiated a cash tender offer to
          purchase its $260.0 million outstanding aggregate principal amount of its
          10.125% Senior Notes due 2011, which the Company completed for $235.0 million
          of
          such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate
          principal amount of its Second Lien Senior Secured Floating Rate Notes
          due 2015
          (the “Floating Rate Notes”) and $230.0 million in aggregate principal amount of
          its 8.50% / 9.25% Second Lien Senior Secured PIK Toggle Notes due 2015
          (the “PIK
          Toggle Notes” and together with the Floating Rate Notes, the
“Notes”).  The Notes were issued pursuant to a second lien senior
          indenture.  Concurrently with the closing of the acquisition, Merger
          Sub merged with and into the Company, which was the surviving corporation
          and
          the Company assumed Merger Sub’s obligations with respect to the
          Notes.
  The
          Agreement and Plan of Merger, dated as of April 15, 2007, by and among
          the
          Company, Parent and Merger Sub and related documents (“Agreement and Plan of
          Merger”) resulted in the occurrence of the events outlined in Note 5, which we
          collectively refer to as the “Transaction” or the “Acquisition.”
 
 Although
          the Company continued as the same legal entity after the Acquisition, the
          accompanying statements of operations and cash flows present our results
          of
          operations and cash flows for the periods preceding the Acquisition
          (“predecessor”) and the periods succeeding the Acquisition (“successor”),
          respectively.
 
 The
          Acquisition and the allocation of the purchase price to the opening balance
          sheet accounts of the successor have been recorded as of the beginning
          of the
          first day of our new accounting period (June 1, 2007).
 
 The
          interim financial statements included in this Form 10-Q have been prepared
          by
          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 2006 Annual Report on Form 10-K filed with the Securities and Exchange
          Commission.
  6


The
        interim financial statements presented herein as of September 30, 2007, 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, 2006 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.
 
 We
        are
        required to make estimates and assumptions about future events in preparing
        financial statements in conformity with generally accepted accounting principles
        (“GAAP”).  These estimates and assumptions affect the amounts of
        assets, liabilities, revenues and expenses at the date of the unaudited
        condensed consolidated financial statements.  While we believe that
        our past estimates and assumptions have been materially accurate, our current
        estimates are subject to change if different assumptions as to the outcome
        of
        future events are made.  We evaluate our estimates and judgments on an
        ongoing basis and predicate those estimates and judgments on historical
        experience and on various other factors that we believe to be reasonable
        under
        the circumstances.  We make adjustments to our assumptions and
        judgments when facts and circumstances dictate.  Since future events
        and their effects cannot be determined with absolute certainty, actual results
        may differ from the estimates used in preparing the accompanying unaudited
        condensed financial statements.
 
 A
        description of our critical accounting policies is included in our Annual
        Report
        on Form 10-K for the year ended December 31, 2006.
 
 Certain
        prior period amounts have been reclassified to conform to current period
        presentation.  We previously included transaction and related costs as
        a component of selling, general and administrative expense.  The
        reclassifications had no impact on gross margin, operating income (loss),
        income
        (loss) before income taxes or net income (loss) as previously
        reported.
  **2. Comprehensive
          Income (Loss)**
 Comprehensive
        income is comprised of net income (loss) and other comprehensive
        loss.  Other comprehensive loss includes unrealized gains and losses
        from derivatives designated as cash flow hedges.  Other comprehensive
        loss is displayed separately on the balance sheets.  A reconciliation
        of net income (loss) to comprehensive income (loss) is provided
        below:
  7




*(in
                  thousands)*
              
              Three
                  Months
              
              
              Three
                  MonthsEnded
              
              
              EndedSeptember
                  30,
              
              
              September
                  30,2007
              
              
              2006(Successor)
              
              
              (Predecessor)Net
                  loss
              
              $
              (6,907
              )
              
              $
              (2,217
              )Unrealized
                  loss on cash flow hedge
              
              
              (6,049
              )
              
              
              -Comprehensive
                  loss
              
              $
              (12,956
              )
              
              $
              (2,217
              )*(in
                  thousands)*
              
              Four
                  Months
              
              
              Five
                  Months
              
              Nine
                  MonthsEnded
              
              
              Ended
              
              EndedSeptember
                  30,
              
              
              May
                  31,
              
              September
                  30,2007
              
              
              2007
              
              2006(Successor)
              
              
              (Predecessor)
              
              (Predecessor)Net
                  income (loss)
              
              $
              (9,455
              )
              
              $
              (47,474
              )
              $            1,154Unrealized
                  loss on cash flow hedge
              
              
              (8,508
              )
              
              
              -
              
              -Comprehensive
                  income (loss)
              
              $
              (17,963
              )
              
              $
              (47,474
              )
              $            1,154




**3. Common
        Stock**


On
        May 31,
        2007, in conjunction with the Transaction, the predecessor retired all
        123,480,264.21 of common shares and the successor authorized and issued 1,000.0
        new shares of common stock with a par value of $0.01 per share.
  **4. Recent
          Accounting Pronouncements**
 In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 159, *The Fair Value
        Option for Financial Assets and Financial Liabilities*(“SFAS 159”), which
        permits entities to elect to measure many financial instruments and certain
        other items at fair value that are not currently required to be measured
        at fair
        value.  This election is irrevocable.  The provisions of
        SFAS No. 159 are effective for fiscal years beginning after November 15,
        2007.  We are currently evaluating the impact of SFAS 159, but believe
        the adoption of SFAS 159 will not have a material impact on our financial
        position or results of operations.
  In
        September 2006, the FASB issued 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
        158”).   SFAS 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 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 158
        are effective as of the end of the fiscal year ending after June 15,
        2007.  We are currently evaluating the impact of SFAS 158, but believe
        the adoption of SFAS 158 will not have a material impact on our financial
        position or results of operations.
  8




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”)*.*SFAS 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 157 are effective for fiscal
      years beginning after November 15, 2007.  We believe the adoption of
      SFAS will not have a material impact on our financial position or results of
      operations.


**5. The
          Transaction**
 The
        Acquisition was completed on May 31, 2007 and was comprised of:
 
 ·
              the
                  purchase by the equity investors of all of the issued and outstanding
                  shares of common stock and option interests of the Company for
                  approximately $335.1 million (excluding non-cash consideration
                  of $9.0
                  million), which is comprised of the purchase price of approximately
                  $712.0 million less debt, tender premium and accrued interest and
                  capitalized leases;
 
 ·
              equity
                  investments from Parent funded by BSMB in the amount of $238.9
                  million,  management rollover of $9.0 million and management
                  contributions of $0.9 million;
 
 ·
              the
                  entry into by Merger Sub of a new $135.0 million senior secured
                  credit facility;
 
 ·
              the
                  issuance by Merger Sub of $230.0 million of Floating Rate Notes and
                  $230.0 million of PIK Toggle Notes;
                  and
 
 ·
              the
                  retirement of $309.6 million of the existing indebtedness of the
                  predecessor, which was approximately $334.6 million as of May 31,
                  2007
                  (excluding approximately $7.7 million of pre-existing capital leases
                  which
                  remained outstanding), including the repayment of $235.0 million of
                  our $260.0 million existing 10.125% Senior Notes due 2011 for which
                  we completed a tender offer and consent solicitation on May 31,
                  2007, and
                  the repayment of the outstanding balance ($74.6 million) on our
                  previous
                  $125.0 million amended and restated credit agreement (“Amended Credit
                  Agreement”) that we had entered into on May 26, 2005, with a bank group
                  led by General Electric Capital
                  Corporation.
 
 The
        Acquisition occurred simultaneously with:
 
 ·
              the
                  closing of the financing and equity investments described above;
                  and
 
 ·
              the
                  merger of Merger Sub with and into the Company, with the Company
                  as the
                  surviving corporation, and the payment of approximately
                  $712.0 million as merger
                  consideration.
 
 ***Transaction
        and Related Costs.***During the five months ended May 31,
        2007, we incurred $26.9 million of expenses in connection with the
        Transaction.  These expenses consisted primarily of:
 
 ·
              accounting,
                  legal, investment banking advisory and restructuring expenses totaling
                  $13.7 million;




9




·
              BSMB
                  fee expensed of $6.5 million (see Note 8);
                  and
 ·
              stock-based
                  compensation expense related to the accelerated vesting of options
                  under
                  our 2003 Stock Option Plan of $6.7 million upon the occurrence
                  of the
                  Transaction.
 
 ***Loss
        on Extinguishment of Debt.***In connection with the
        Transaction, as detailed above, predecessor incurred $22.4 million of expense
        associated with the purchase of $235.0 million of our 10.125% Senior Notes
        in
        May 2007.  The expense consisted of a call premium of $16.1 million
        and the write-off of $6.3 million of unamortized deferred financing costs
        related to our repurchased 10.125% Senior Notes and Amended Credit
        Agreement.
 
 **Purchase
        Accounting**
 
 We
        have
        accounted for the Acquisition in accordance with the provisions of SFAS No.
        141,
*Business Combinations*, whereby the purchase price paid to effect the
        Acquisition is allocated to state the acquired assets and liabilities at
        fair
        value.  The Acquisition and the allocation of the purchase price to
        the opening balance sheet accounts of the successor has been recorded as
        of the
        beginning of the first day of our new accounting period (June 1,
        2007).  The purchase price was $712.0 million and the total
        consideration was approximately $344.1 million (including non-cash management
        rollover and direct costs). The sources and uses of funds in connection with
        the
        Transaction and the partial redemption of our 10.125% Senior Notes are
        summarized below:
  *(in
                    millions)***Sources:**Existing
                    10.125% Senior Notes
                
                $
                25.0Floating
                    Rate Notes
                
                
                230.0PIK
                    Toggle Notes
                
                
                230.0Capitalized
                    leases
                
                
                7.7Equity
                    contribution (cash)
                
                
                239.8Equity
                    contribution (non-cash)
                
                
                9.0Cash
                    on hand
                
                
                1.4**Total
                    Sources**
                
                $
                742.9**Uses:**Consideration
                    paid (including non-cash consideration of $9.0)
                
                $
                342.9Payment
                    of existing debt
                
                
                309.6Tender
                    premium and accrued interest
                
                
                18.6Capitalized
                    leases
                
                
                7.7Existing
                    10.125% Senior Notes
                
                
                25.0Buyer
                    fees (including direct costs of $1.2)
                
                
                30.9Seller
                    fees
                
                
                8.2**Total
                    Uses**
                
                $
                742.9
  The
          following tables reconcile the total sources and uses of funds to the purchase
          price and the purchase price to the total consideration:
 10




**Reconcilliation
                  of Sources and Uses to Purchase Price***(in
                  millions)*Total
                  of Sources and Uses
              
              $
              742.9Less:
                  Buyer fees (including direct costs of $1.2)
              
              
              (30.9
              )Purchase
                  price (1)
              
              $
              712.0




**Reconciliation
                    of Purchase Price to Total Consideration***(in
                    millions)*Purchase
                    Price (1)
                
                $
                712.0Direct
                    costs
                
                
                1.2Indebtedness
                    (2)
                
                
                (360.9
                )Seller
                    fees
                
                
                (8.2
                )Total
                    Consideration
                
                $
                344.1
 
 (1)
          Per
          Agreement and Plan of Merger.
 
 (2)
          As
          defined in the Agreement and Plan of Merger, “funded indebtedness” includes
          long-term debt ($334.6 million for both debt retired and remaining), tender
          premium and accrued interest ($18.6 million) and capitalized leases ($7.7
          million) as of May 31, 2007.
 
 In
          connection with the preliminary purchase price allocation, we estimated
          the fair
          values of our long-lived and intangible assets, inventories and liabilities
          based upon assumptions related to the future cash flows, discount rates
          and
          asset lives utilizing currently available information.  We have
          recorded preliminary purchase accounting adjustments to increase the carrying
          value of our property and equipment and inventory, to establish intangible
          assets for our customer relationships, supply agreement, trade names and
          trademarks, technology database, non-compete agreements, favorable lease
          commitments and to revalue our long-term benefit plan obligations, among
          other
          things.  This allocation of the purchase price is preliminary and
          subject to our review and finalization.
 
 Further
          revisions to the purchase price allocation, including the tax impact of
          our
          valuation adjustments, final assessments of the transaction costs and valuation
          of assets and liabilities, will be made as additional information becomes
          available and such revisions could be material.
  The
          purchase price has been preliminarily allocated as follows:
  11




*(in
                    millions)*Cash
                    Consideration:Paid
                    to shareholders and option holders
                
                
                
                
                $
                333.9Direct
                    costs
                
                
                
                
                
                1.2Non-Cash
                    Consideration
                
                
                
                
                
                335.1Total
                    Consideration
                
                
                
                
                
                9.0$
                344.1Net
                    assets acquired at historical cost
                
                
                
                
                $
                (132.5
                )Adjustments
                    to state acquired assets at fair value:Increase
                    carrying value of inventories
                
                $
                0.2Increase
                    carrying value of moveable medical equipment
                
                
                60.4Increase
                    in carrying value of property and office equipment
                
                
                2.3Write-off
                    of historical goodwill and other intangibles
                
                
                (59.8
                )Record
                    intangible assets acquired:Customer
                    relationships
                
                
                87.0Supply
                    agreement
                
                
                26.0Trade
                    names and trademarks
                
                
                170.0Technology
                    database
                
                
                7.0Non-compete
                    agreements
                
                
                1.8Write-off
                    of historical deferred rent credits
                
                
                2.4Record
                    favorable lease commitments
                
                
                0.1Decrease
                    in long-term pension liability
                
                
                0.8Tax
                    impact of valuation adjustments
                
                
                (113.6
                )184.6Net
                  assets acquired at fair value
                
                
                
                
                
                
                52.1Excess
                  purchase price recorded as goodwill
                
                
                
                
                
                $
                292.0




Our
        trade
        names and trademarks have indefinite lives and are not subject to
        amortization.  Our trade names and trademarks and goodwill will be
        reviewed at least annually for impairment.  Our goodwill is generally
        not deductible for income tax purposes.
  A
        condensed balance sheet of the preliminary fair value of the acquired assets
        and
        liabilities as of May 31, 2007 follows:
  12




*(in
                  millions)*Current
                  assets
              
              $
              90.7Property
                  and equipment
              
              
              231.9Goodwill
              
              
              292.0Other
                  intangible assets
              
              
              291.8Other
                  long-term assets
              
              
              18.4Current
                  liabilities
              
              
              (61.4
              )Long-term
                  debt
              
              
              (489.4
              )Other
                  long-term liabilities
              
              
              (125.2
              )$
              248.8




Total
        estimated amortization of all Acquisition-related intangible assets during
        the
        period from October 1, 2007 through December 31, 2007 and for each of our
        fiscal
        years ending December 31, 2008 to 2012 and thereafter is currently estimated
        as
        follows:
  *(in
                  thousands)*October
                  1, 2007 to December 31, 2007
                
                $
                4,0342008
                
                
                15,6352009
                
                
                14,2532010
                
                
                13,0212011
                
                
                12,1642012
                
                
                10,490Thereafter
                
                
                46,825$
                116,422




***Pro
        Forma Financial Information***.  The following unaudited
        pro forma results of operations assume that the Transaction closed on January
        1,
        2006.  This unaudited pro forma information should not be relied upon
        as necessarily being indicative of the historical results that would have
        been
        obtained if the Transaction had actually closed on that date, nor the results
        that may be obtained in the future.
  **Three
                      Months**
                  
                  
                  **Three
                      Months**
                  
                  
                  **Nine
                      Months**
                  
                  
                  **Nine
                      Months****Ended**
                  
                  
                  **Ended**
                  
                  
                  **Ended**
                  
                  
                  **Ended****September
                      30,**
                  
                  
                  **September
                      30,**
                  
                  
                  **September
                      30,**
                  
                  
                  **September
                      30,***(in
                      thousands)*
                  
                  **2007**
                  
                  
                  **2006**
                  
                  
                  **2007**
                  
                  
                  **2006**Revenue
                  
                  $
                  65,183
                  
                  
                  $
                  54,569
                  
                  
                  $
                  194,307
                  
                  
                  $
                  167,679Net
                      loss
                  
                  $
                  (6,667
                  )
                  
                  $
                  (8,604
                  )
                  
                  $
                  (18,962
                  )
                  
                  $
                  (20,756
                  )




Included
        in the determination of pro forma net loss for three and nine months ended
        September 30, 2006 and the three and nine months ended September 30, 2007
        are
        pro forma charges for various purchase accounting adjustments. These pro
        forma
        adjustments resulted in pro forma decreases to gross margin and higher interest
        and selling, general and administrative expenses in the three and nine months
        ended September 30, 2006 and the three and nine months ended September 30,
        2007
        primarily from the increase in carrying value of movable medical equipment,
        property and office equipment and the amortization of intangible assets
        acquired.  Income taxes are provided at the estimated statutory
        rate.
  13




**6.**
              
              **Acquisition
                  by the Predecessor**
 
 As
        part of
        our strategy of growing our Technical and Professional Services segment,
        we
        completed the acquisition of customer contracts and other assets of the ICMS
        division of Intellamed, Inc. (“Intellamed”), located in Bryan, Texas, on April
        1, 2007.  The purchase price was $14.6 million including direct costs
        and the assumption of certain liabilities, having taken into account certain
        adjustments and a holdback.  The purchase agreement provided for
        additional consideration to be paid if certain revenue targets are obtained
        during the two years following the acquisition.  We have not recorded
        any such additional consideration and will not unless we consider it probable
        of
        being paid.  We financed this purchase from borrowings under our
        Amended Credit Agreement.  A condensed balance sheet of the acquired
        assets and liabilities as of April 1, 2007 is presented below.
 
 *(in
                    millions)*Current
                      assets
                  
                  $
                  0.1Property
                      and equipment
                  
                  
                  0.1Goodwill
                  
                  
                  2.7Other
                      intangible assets
                  
                  
                  13.3Current
                      liabilities
                  
                  
                  (1.6
                  )$
                  14.6
  The
            above
            condensed balance sheet amounts were revalued at May 31, 2007 in conjunction
            with the Transaction (see Note 5).
 
 Operating
        results for the acquisition of the ICMS division of Intellamed are included
        in
        the Company’s Statements of Operations from the date of
        acquisition.  Pro forma results are not presented as this acquisition
        is not considered material to the Company’s financial statements.
  **7.**
              
              **Stock-Based
                  Compensation**
 
 ***Predecessor
        Stock-Based Compensation.***We recorded non-cash charges
        for stock-based compensation expense of approximately $8.0 million during
        the
        first five months of 2007 in relation to our 2003 Stock Option Plan, $6.7
        million of which resulted from the accelerated vesting of all outstanding
        predecessor stock options in connection with the Transaction.  During
        the quarter and nine months ended September 30, 2006 we expensed $0.4 and
        $1.2
        million, respectively, related to our 2003 Stock Option Plan.  In June
        2007 we paid $23.9 million to our option holders for their remaining interests
        related to our 2003 Stock Option Plan.
 
 ***Successor
        Stock-Based Compensation.***On May 31, 2007, and in
        connection with the Transaction, our Parent’s board of directors adopted a new
        stock option plan (“2007 Stock Option Plan”).  The 2007 Stock Option
        Plan provides for the issuance of 43.9 million nonqualified stock options
        of our
        Parent to any of our and Parent’s executives, other key employees and to
        consultants and certain directors of Parent.  On June 18, 2007 Parent
        granted 35.9 million options.  As of September 30, 2007, 35.7 million
        options were outstanding and 8.2 million options were authorized and available
        for grant.  The options allow for the purchase of shares of common
        stock of our Parent at prices equal to the stock’s fair market value at the date
        of grant.  Our Parent’s compensation committee determined the exercise
        price by reference to the recent per share valuation of the Parent resulting
        from the Transaction as detailed below.  The exercise price was
        approved by Parent’s board of directors.
  14




*(in
                thousands,except
                per share amount)*Equity
                  Contribution at May 31, 2007 from BSMB andUHS
                  Management to Parent
              
              $
              248,794Parent
                  shares issued and outstanding at May 31, 2007
              
              
              248,794Per
                  share Parent valuation at May 31, 2007
              
              $
              1.00




Options
        granted have a ten-year contractual term and vest over approximately 5.5
        years.  Half of the  options have fixed vesting schedules
        and the other half of the options vest upon the achievement of established
        performance targets.  Upon a sale of Parent or the Company, all of the
        unvested options with fixed vesting schedules will vest and become exercisable,
        and the unvested options that vest upon the achievement of established
        performance targets will vest and become exercisable upon BSMB’s achievement of
        a certain internal rate of return on its investment in the Company, subject
        to
        certain conditions.  The shares issued to a grantee upon the exercise
        of such grantee’s options will be subject to certain restrictions on
        transferability as provided in the 2007 Stock Option Plan.  Grantees
        are subject to non-competition, non-solicitation and confidentiality
        requirements as set forth in their respective stock option grant
        agreements.
 
 Using
        the
        Black-Scholes option-pricing model, the per-share fair value of these options
        was approximately $0.42.  In estimating the fair value of the options,
        the following assumptions were made: expected option life of 6.5 years; expected
        volatility of 30.50%; risk-free interest rate of 4.97%; and no dividend
        yield.  Expected volatility is based on an independent valuation of
        the stock of companies within our peer group.  Given the lack of a
        true comparable company, the peer group consists of selected public health
        care
        companies representing our suppliers, customers and competitors within certain
        product lines.  The risk free-interest rate is based on the U.S.
        Treasury yield curve in effect at the grant date based on the expected option
        life.
 
 Although
        Parent grants stock options, the Company recognizes compensation expense
        related
        to these options since the services are performed for its
        benefit.  For the quarter and four months ended September 30, 2007, we
        recognized non-cash stock compensation expense of $1.0 and $1.4 million,
        respectively, which is primarily included in selling, general and administrative
        expenses.  At September 30, 2007, unearned non-cash stock-based
        compensation that we expect to recognize as expense over the next 5.3 years
        totals approximately $12.2 million, net of our estimated forfeitures of
        3.00%.
 
 **8.**
              
              **Related
                  Party Transaction**
 
 In
        connection with the Transaction, we and BSMB entered into a professional
        services agreement pursuant to which general advisory and management services
        are to be provided to us with respect to financial and operating
        matters.  The professional services agreement requires us to pay an
        annual fee for ongoing advisory and management services equal to the greater
        of
        $500,000 or 0.75% of our Adjusted EBITDA (as defined in the professional
        services agreement) for the immediately preceding fiscal year, payable in
        quarterly installments, provided that the annual advisory fee for the fiscal
        year ending December 31, 2007 shall be $500,000, as adjusted for the partial
        year.  The professional services agreement also requires us to pay a
        transaction fee in the amount of $10.0 million for services rendered in
        connection with the Transaction, $3.5 million of which is included in deferred
        financing costs on the balance sheet and the remaining portion was
        expensed.  The $10.0 million fee was paid at the consummation of the
        Transaction on May 31, 2007.  The professional services agreement
        provides that BSMB will be reimbursed for its reasonable out-of-pocket expenses
        in connection with certain activities undertaken pursuant to the professional
        services agreement and will be indemnified for liabilities incurred in
        connection with its role under the professional services agreement, other
        than
        for liabilities resulting from its gross negligence or willful misconduct.
        The
        term of the professional services agreement commenced on May 31, 2007 and
        will
        remain in effect unless and until either party notifies the other of its
        desire
        to terminate, we are sold to a third-party purchaser or we consummate a
        qualified initial public offering, as defined in the professional services
        agreement.
  15
  The
        Parent
        established the 2007 Stock Option Plan.  Compensation expense related
        to service provided by the Company’s employees is recognized in the accompanying
        Statements of Operations with an offsetting payable to Parent liability,
        which
        is not expected to be settled within the next twelve months.
 
 **9.**
              
              **Long-Term
                  Debt**
 
 Long-term
        debt consists of the following:
  *(in
                    thousands)*
                
                September
                    30,
                
                
                December
                    31,2007
                
                
                2006(Successor)
                
                
                (Predecessor)PIK
                    Toggle Notes
                
                $
                230,000
                
                
                $
                -Floating
                    Rate Notes
                
                
                230,000
                
                
                
                -Senior
                    secured credit facility
                
                
                -
                
                
                
                -10.125%
                    Senior Notes
                
                
                9,945
                
                
                
                260,000Amended
                    Credit Agreement
                
                
                -
                
                
                
                43,000Capital
                    lease obligations
                
                
                6,786
                
                
                
                7,191476,731
                
                
                
                310,191Less:
                    Current portion of long-term debt
                
                
                (3,027
                )
                
                
                (3,056
                )Total
                    long-term debt
                
                $
                473,704
                
                
                $
                307,135




***PIK
        Toggle Notes.***On May 31, 2007, Merger Sub issued $230.0
        million aggregate original principal amount of 8.50% / 9.25% PIK Toggle Notes
        under the Second Lien Senior Indenture with Wells Fargo Bank, National
        Association, as trustee (the “Second Lien Senior Indenture”).  See
“Second Lien Senior Indenture” below.  At the closing of the
        Transaction, as the surviving corporation in the Acquisition, we assumed
        all the
        obligations of Merger Sub under the Second Lien Senior
        Indenture.
  16
  For
        any
        interest payment period through June 1, 2011, the Company may, at its option,
        elect to pay interest on the PIK Toggle Notes entirely in cash (“Cash
        Interest”), entirely by increasing the principal amount of the outstanding PIK
        Toggle Notes, by issuing additional PIK Toggle Notes (“PIK Interest”) or 50%
        Cash Interest and 50% PIK Interest. Cash Interest on the PIK Toggle Notes
        accrues at the rate of 8.50% per annum.  PIK Interest on the PIK Toggle
        Notes accrues at the rate of 9.25% per annum.  After June 1, 2011, the
        Company is required to make all interest payments on the PIK Toggle Notes
        entirely as Cash Interest.  All PIK Toggle Notes mature on June 1,
        2015.  Interest on the PIK Toggle Notes is payable semiannually in
        arrears on each June 1 and December 1, commencing on December 1,
        2007.
  We
        may
        redeem some or all of the PIK Toggle Notes at any time prior to June 1, 2011,
        at
        a price equal to 100% of the principal amount thereof, plus the applicable
        premium (as defined by the Second Lien Senior Indenture), plus accrued and
        unpaid interest, if any, to the date of redemption.  In addition, on
        or before June 1, 2010, we may redeem up to 40% of the aggregate principal
        amount of the PIK Toggle Notes with the net proceeds of certain equity
        offerings.
 
 Except
        as
        noted above, we cannot redeem the PIK Toggle Notes until June 1,
        2011.  Thereafter we may redeem some or all of the PIK Toggle Notes at
        the redemption prices (expressed as percentages of principal amount) set
        forth
        below plus accrued and unpaid interest, if any, on the PIK Toggle Notes
        redeemed, to the applicable redemption date, if redeemed during the twelve-month
        period beginning on June 1 of the years indicated below, subject to the rights
        of noteholders:
 
 Year
              
              Percentage2011
              
              
              104.250
              %2012
              
              
              102.125
              %2013
                  and thereafter
              
              
              100.000
              %
 
 Upon
        the
        occurrence of a change of control, each holder of the PIK Toggle Notes has
        the
        right to require the Company to repurchase some or all of such holder’s PIK
        Toggle Notes at a price in cash equal to 101% of the aggregate principal
        amount
        thereof plus accrued and unpaid interest, and PIK Interest, if any, to the
        date
        of purchase.
  ***Floating
        Rate Notes.***On May 31, 2007, Merger Sub issued $230.0
        million aggregate original principal amount of Floating Rate Notes under
        the
        Second Lien Senior Indenture with Wells Fargo Bank, National Association,
        as
        trustee.  See “Second Lien Senior Indenture”
below.  Interest on the Floating Rate Notes is reset for each
        semi-annual interest period and is calculated at the current LIBOR rate plus
        3.375%.  At September 30, 2007, our LIBOR-based rate was 8.760%, which
        includes the credit spread noted above.  Interest on the Floating Rate
        Notes is payable semiannually, in arrears, on each June 1 and December 1,
        commencing on December 1, 2007.  At the closing of the Transaction, as
        the surviving corporation in the Acquisition, we assumed all the obligations
        of
        Merger Sub under the Second Lien Senior Indenture.  The Floating Rate Notes
        mature on June 1, 2015.
 
 We
        may
        redeem some or all of the Floating Rate Notes at any time prior to June 1,
        2009,
        at a price equal to 100% of the principal amount thereof, plus the applicable
        premium (as defined by the Second Lien Senior Indenture), plus accrued and
        unpaid interest, if any, to the date of redemption.  In addition, on
        or before June 1, 2009, we may redeem up to 40% of the aggregate principal
        amount of the Floating Rate Notes with the net proceeds of certain equity
        offerings.
 
 17
  Except
        as
        noted above, we cannot redeem the Floating Rate Notes until June 1,
        2009.  Thereafter we may redeem some or all of the Floating Rate Notes
        at the redemption prices (expressed as percentages of principal amount) set
        forth below plus accrued and unpaid interest, if any, on the Floating Rate
        Notes
        redeemed, to the applicable redemption date, if redeemed during the twelve-month
        period beginning on June 1 of the years indicated below, subject to the rights
        of noteholders:
 
 Year
              
              Percentage2009
              
              
              102.000
              %2010
              
              
              101.000
              %2011
                  and thereafter
              
              
              100.000
              %
  Upon
        the
        occurrence of a change of control, each holder of the Floating Rate Notes
        has
        the right to require the Company to repurchase some or all of such holder’s
        Floating Rate Notes at a price in cash equal to 101% of the aggregate principal
        amount thereof plus accrued and unpaid interest, if any, to the date of
        purchase.
 
 ***Interest
        Rate Swap.***In June 2007 we entered into an interest rate swap
        agreement for $230.0 million, which has the effect of converting our $230.0
        of
        Floating Rate Notes to fixed interest rates.  The effective date for
        the swap agreement is December 2007, the beginning of the next semi-annual
        interest rate period; the expiration date is May 2012.
 
 The
        interest rate swap agreement qualifies for cash flow hedge accounting under
        SFAS
        133, *Accounting for Derivative Instruments and Hedging
        Activities*.  Both at inception and on an on-going basis we must
        perform an effectiveness test.  In accordance with SFAS 133, the fair
        value of the swap agreement at September 30, 2007 is included as a cash flow
        hedge on our balance sheet.  The change in fair value was recorded as
        a component of accumulated other comprehensive loss on our balance sheet
        since
        the instrument was determined to be an effective hedge at September 30,
        2007.  We do not expect any amounts to be reclassified into current
        earnings in the future due to ineffectiveness.
 
 As
        a
        result of our swap agreement, we expect the effective interest rate on our
        $230.0 million Floating Rate Notes to be 9.065% from December 2007 through
        May
        2012.
 
 ***Second
        Lien Senior Indenture.***  Our PIK Toggle Notes and
        Floating Rate Notes (collectively, the “Notes”) are guaranteed, jointly and
        severally, on a second priority senior secured basis, by certain of our future
        domestic subsidiaries.  We do not currently have any
        subsidiaries.  The Notes are our second priority senior secured
        obligations and rank:
 
 ·
              equal
                  in right of payment with all of our existing and future unsecured
                  and
                  unsubordinated indebtedness, and effectively senior to any such
                  unsecured
                  indebtedness to the extent of the value of
                  collateral;
 ·
              senior
                  in right of payment to all of our and our guarantor’s existing and future
                  subordinated indebtedness;
 ·
              effectively
                  junior to our senior secured credit facility and other obligations
                  that
                  are secured by first priority liens on the collateral securing
                  the Notes
                  or that are secured by a lien on assets that are not part of the
                  collateral securing the Notes, in each case, to the extent of the
                  value of
                  such collateral or assets; and
 ·
              structurally
                  subordinated to any indebtedness and other liabilities (including
                  trade
                  payables) of any of our future subsidiaries that are not
                  guarantors.
  18
  The
        Second
        Lien Senior Indenture governing the Notes contains covenants that limit our
        and
        our guarantors’ ability, subject to certain definitions and exceptions, and
        certain of our future subsidiaries’ ability to:
 
 ·
              incur
                  additional indebtedness;
 ·
              pay
                  cash dividends or distributions on our capital stock or repurchase
                  our
                  capital stock or subordinated debt;
 ·
              issue
                  redeemable stock or preferred
                  stock;
 ·
              issue
                  stock of subsidiaries;
 ·
              make
                  certain investments;
 ·
              transfer
                  or sell assets;
 ·
              create
                  liens on our assets to secure debt;
 ·
              enter
                  into transactions with affiliates;
                  and
 ·
              merge
                  or consolidate with another
                  company.
  ***Senior
        Secured Credit Facility.***In connection with the
        Transaction, the Company and Parent entered into a new first lien senior
        secured
        asset-based revolving credit facility providing for loans in an amount of
        up to
        $135.0 million pursuant to a credit agreement, dated as of May 31, 2007,
        with a
        group of financial institutions. The senior secured credit facility is available
        for working capital and general corporate purposes, including permitted
        investments, capital expenditures and debt repayments, on a fully revolving
        basis, subject to the terms and conditions set forth in the credit documents
        in
        the form of revolving loans, swing line loans and letters of
        credit.
  The
        senior
        secured credit facility provides financing of up to $135.0 million, subject
        to a borrowing base calculated on the basis of certain of our eligible accounts
        receivable, inventory and equipment.  As of September 30, 2007, we had
        $132.7 million of unused borrowing availability under our senior secured
        credit
        facility based on a borrowing base of $135.0 million and after giving effect
        to
        $2.3 million used for letters of credit.
 
 The
        senior
        secured credit facility matures on May 31, 2013.  Our obligations
        under the senior secured credit facility are secured by a first priority
        security interest in substantially all of our assets, excluding a pledge
        of our
        and Parent’s capital stock, any joint ventures and certain other
        exceptions.  Our obligations under the senior secured credit facility
        are unconditionally guaranteed by our Parent.
 
 The
        senior
        secured credit facility provides that we have the right at any time to request
        up to $50.0 million of additional commitments, but the lenders are under no
        obligation to provide any such additional commitments, and any increase in
        commitments will be subject to customary conditions precedent, such as an
        absence of any default or events of default. If we were to request any such
        additional commitments and the existing lenders or new lenders were to agree
        to
        provide such commitments, the senior secured credit facility size could be
        increased to up to $185.0 million, but our ability to borrow would still be
        limited by the amount of the borrowing base.
  19
 Borrowings
        under the senior secured credit facility accrue interest at our
        option:
  ·
              At
                  a
                  per annum rate equal to 0.75% above the rate announced from time
                  to time
                  by the agent as the “prime rate” payable quarterly in arrears;
                  or
 ·
              At
                  a
                  per annum rate equal to 1.75% above the adjusted LIBOR rate used
                  by the
                  agent.
  Overdue
        principal, interest and other amounts will bear interest at a rate per annum
        equal to 2% in excess of the applicable interest rate.  The applicable
        margins of the senior secured credit facility will be subject to adjustment
        based upon leverage ratios.  The senior secured credit facility also
        provides for customary letter of credit fees, closing fees, unused line fees
        and
        other fees.
 
 The
        senior
        secured credit facility requires our compliance with various affirmative
        and
        negative covenants.  Pursuant to the affirmative covenants, we and
        Parent will, among other things, deliver financial and other information
        to the
        agent, provide notice of certain events (including events of default), pay
        our
        obligations, maintain our properties, maintain the security interest in the
        collateral for the benefit of the agent and the lenders and maintain
        insurance.
 
 Among
        other restrictions, and subject to certain definitions and exceptions, the
        senior secured credit facility restricts our ability to:
  ·
              incur
                  indebtedness;
 ·
              create
                  or permit liens;
 ·
              declare
                  or pay dividends and certain other restricted
                  payments;
 ·
              consolidate,
                  merge or recapitalize;
 ·
              acquire
                  or sell assets;
 ·
              make
                  certain investments, loans or other
                  advances;
 ·
              enter
                  into transactions with affiliates;
 ·
              change
                  our line of business; and
 ·
              enter
                  into hedging transactions.
 
 The
        senior
        secured credit facility also contains a financial covenant that is calculated
        if
        our available borrowing capacity is less than $15.0 million for a certain
        period.  Such covenant consists of a minimum ratio of trailing
        four-quarter EBITDA to cash interest expense, as defined in the credit agreement
        dated May 31, 2007.
 
 The
        senior
        secured credit facility specifies certain events of default, including among
        others, failure to pay principal, interest or fees, violation of covenants,
        inaccuracy of representations or warranties, bankruptcy events, certain
        ERISA-related events, cross-defaults to other material agreements, change
        of
        control events, and invalidity of guarantees or security
        documents.  Some events of default will be triggered only after
        certain cure periods have expired, or will provide for materiality
        thresholds.  If such a default occurs, the lenders under the senior
        secured credit facility would be entitled to take various actions, including
        all
        actions permitted to be taken by a secured creditor and the acceleration
        of
        amounts due under the senior secured credit facility.
  20
  ***10.125%
        Senior Notes.*** 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 of, on or after November 1, 2007, at
        specified redemption prices plus accrued interest to the date of
        redemption.
 
 On
        May 17,
        2007, we entered into a supplemental indenture to our Indenture governing
        our
        Senior Notes, dated as of October 17, 2003, between the Company and Wells
        Fargo
        Bank, National Association, as trustee.  The Indenture governs the
        terms of the Senior Notes.  The supplemental indenture amended our
        Indenture.
 
 In
        May
        2007, in connection with the Transaction, we tendered for all of our outstanding
        Senior Notes, pursuant to their terms.  On May 31, 2007, $235.0
        million of our Senior Notes were purchased.  We paid $253.1 million,
        including a call premium of $16.1 million and accrued interest of $2.0 million
        to complete the purchase.  We used proceeds from the issuance of our
        Notes to redeem a portion of our Senior Notes.
 
 The
        amendments set forth in the supplemental indenture (the “Amendments”) became
        operative after the Company purchased all of its Senior Notes validly tendered
        and not withdrawn pursuant to its tender offer and consent
        solicitation.  As of May 11, 2007, holders of Senior Notes
        representing an amount greater than a majority of the principal amount of
        outstanding Senior Notes had validly tendered their Senior Notes and consented
        to the execution of the supplemental indenture.  The Amendments
        eliminated from the Indenture:
 
 ·
              requirements
                  to file reports with the Securities and Exchange
                  Commission;
 ·
              requirements
                  to pay taxes;
 ·
              limitations
                  on the Company to use defenses against
                  usury;
 ·
              limitation
                  on restricted payments;
 ·
              limitation
                  on payment of dividends and other payment restrictions affecting
                  subsidiaries;
 ·
              limitations
                  on incurrence of indebtedness and issuance of preferred
                  stock;
 ·
              limitations
                  on asset sales and requirements to repurchase the Senior Notes
                  with excess
                  proceeds thereof;
 ·
              limitations
                  on affiliate transactions;
 ·
              limitations
                  on liens;
 ·
              limitations
                  on the businesses in which the Company and its subsidiaries may
                  engage;
 ·
              requirements
                  to preserve corporate existence;
 ·
              requirements
                  to purchase the Senior Notes upon a change of
                  control;
 ·
              limitation
                  on the issuance of guarantees of
                  indebtedness;
 ·
              limitations
                  on the payments for consent from holders of Senior
                  Notes;
 ·
              limitations
                  on mergers, consolidation and sale of assets with respect to the
                  Company;
 ·
              limitations
                  on mergers or consolidation of, or transfer of assets of, guarantors;
                  and
 ·
              certain
                  events of default.
  21
  On
        June
        13, 2007 we purchased an additional $15.1 million of our remaining Senior
        Notes pursuant to their terms.  We paid $15.9 million of
        cash, including a call premium of $0.7 million and accrued interest of $0.1
        million to complete the purchase.
 
 The
        Company has the right to redeem some or all of the remaining $9.9 million
        of
        Senior Notes at the redemption prices (expressed as a percentage of principal
        amount) set forth below, plus accrued and unpaid interest, if any, if redeemed
        during the twelve-month period beginning on November 1 of the years indicated
        below, subject to the rights of the noteholders:
 
 Year
              
              Percentage2007
              
              
              105.063
              %2008
              
              
              102.531
              %2009
                  and thereafter
              
              
              100.000
              %
 
 ***Termination
        of******O******ur******Amended Credit Agreement***.  In connection with the
        Transaction, we repaid all outstanding balances under our Amended Credit
        Agreement and terminated our Amended Credit Agreement.
 
 ***Maturities
        of Long-Term Debt.***At September 30, 2007, maturities of long-term
        debt during the period from October 1, 2007 through December 31, 2007 and
        for
        each of our fiscal years ending December 31, 2008 to 2012 and thereafter,
        are
        estimated as follows:
  *(in
                    thousands)*October
                    1, 2007 to December 31, 2007
                
                $
                7982008
                
                
                2,8212009
                
                
                1,7652010
                
                
                1,1092011
                
                
                10,2382012
                
                
                -Thereafter
                
                
                460,000$
                476,731
 **10.**
              
              **Commitments
                  and Contingencies**
 
 The
        Company, in the ordinary course of business, could be subject to liability
        claims related to employees and the equipment that it rents and
        services.  Asserted claims are subject to many uncertainties and the
        outcome of individual matters is not predictable with
        assurance.  While the ultimate resolution of these actions may have an
        impact on the Company’s financial results for a particular reporting period,
        management believes that any such resolution would not have a material adverse
        effect on the financial position, results of operations or cash flows of
        the
        Company.
 22
 **11.**
                
                **Income
                    Taxes**  The
          components of the Company's overall deferred tax assets and liabilities
          as of
          September 30, 2007 and December 31, 2006 are as follows:
 
 *(in
                    thousands)*
                
                September
                    30,
                  2007
                  (Successor)
                
                
                December
                    31,
                  2006
                  (Predeccessor)Deferred tax
                  assetsAccounts
                    receivable
                
                $
                531
                
                
                $
                533Accrued
                    compensation and pension
                
                
                4,237
                
                
                
                3,807Inventories
                
                
                208
                
                
                
                314Other
                    assets
                
                
                1,717
                
                
                
                804Net
                    operating loss carryforwards
                
                
                45,599
                
                
                
                29,293Deferred
                    tax assets
                
                
                52,292
                
                
                
                34,751Valuation
                    allowance
                
                
                -
                
                
                
                (9,945
                )Net
                    deferred tax asset
                
                
                52,292
                
                
                
                24,806Deferred
                  tax
                  liabilitiesAccelerated
                    depreciation and amortization
                
                
                (162,973
                )
                
                
                (27,233
                )Total
                    deferred tax liabiliites
                
                
                (162,973
                )
                
                
                (27,233
                )Net
                    deferred tax liability
                
                $
                (110,681
                )
                
                $
                (2,427
                )
 The
        Company's deferred income taxes are recorded at an effective rate of 39.8%,
        which is not materially different than the statutory rate.
 
 We
        adopted
        the provisions of FASB Interpretation No 48, *Accounting for Uncertainty in
        Income Taxes – an interpretation of FASB No. 109”* (“FIN 48”), on January 1,
        2007.  FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with FASB
        Statement 109, *Accounting for Income Taxes,* and prescribes a
        recognition threshold and measurement process for financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return.  FIN 48 also provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure and transition.
 
 Based
        on
        our evaluation, we have concluded that there are no significant unrecognized
        tax
        benefits.   Our evaluation was performed for the tax years ended
        December 31, 2003, 2004, 2005 and 2006, the tax years that remain subject
        to
        examination by major tax jurisdictions as of September 30, 2007.  We
        do not believe there will be any material changes in our unrecognized tax
        positions over the next twelve months.
 
 We
        may
        from time to time be assessed interest or penalties by major tax jurisdictions,
        although any such assessments historically have been minimal and immaterial
        to
        our financial results.  In accordance with FIN 48, paragraph 19, the
        Company has elected to classify interest and penalties as a component of
        income
        tax expense.
 
 **12.**
              
              **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 as well as a reconciliation of total
        Company gross margin to income (loss) before income tax follows:
 
 23
  **Medical
                    Equipment Outsourcing***(in
                    thousands)***Quarter-to-date**
                
                
                **Year-to-date**Three
                    Months
                  Ended
                  September
                    30,
                
                
                Three
                    Months
                  Ended
                  September
                    30,
                
                
                Four
                    Months
                  Ended
                  September
                    30,
                
                
                Five
                    Months
                  Ended
                  May
                    31,
                
                
                Nine
                    Months
                  Ended
                  September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Revenues
                
                $
                49,988
                
                
                $
                42,361
                
                
                $
                66,683
                
                
                $
                84,855
                
                
                $
                131,079Cost
                    of revenue
                
                
                18,314
                
                
                
                14,822
                
                
                
                24,230
                
                
                
                27,694
                
                
                
                42,762Movable
                    medical equipment depreciation
                
                
                14,116
                
                
                
                9,459
                
                
                
                18,748
                
                
                
                18,512
                
                
                
                27,659Gross
                    margin
                
                $
                17,558
                
                
                $
                18,080
                
                
                $
                23,705
                
                
                $
                38,649
                
                
                $
                60,658
 
 **Technical
                    and Professional Services***(in
                    thousands)***Quarter-to-date**
                
                
                **Year-to-date**Three
                    Months
                  Ended
                  September
                    30,
                
                
                Three
                    Months
                  Ended
                  September
                    30,
                
                
                Four
                    Months
                  Ended
                  September
                    30,
                
                
                Five
                    Months
                  Ended
                  May
                    31,
                
                
                Nine
                    Months
                  Ended
                  September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Revenues
                
                $
                11,098
                
                
                $
                7,459
                
                
                $
                14,728
                
                
                $
                14,800
                
                
                $
                23,128Cost
                    of revenue
                
                
                8,158
                
                
                
                5,235
                
                
                
                10,684
                
                
                
                10,124
                
                
                
                15,942Gross
                    margin
                
                $
                2,940
                
                
                $
                2,224
                
                
                $
                4,044
                
                
                $
                4,676
                
                
                $
                7,186
 
 **Medical
                    Equipment Sales and Remarketing***(in
                    thousands)***Quarter-to-date**
                
                
                **Year-to-date**Three
                    Months
                  Ended
                  September
                    30,
                
                
                Three
                    Months
                  Ended
                  September
                    30,
                
                
                Four
                    Months
                  Ended
                  September
                    30,
                
                
                Five
                    Months
                  Ended
                  May
                    31,
                
                
                Nine
                    Months
                  Ended
                  September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Revenues
                
                $
                4,097
                
                
                $
                4,749
                
                
                $
                5,374
                
                
                $
                7,867
                
                
                $
                13,472Cost
                    of revenue
                
                
                3,610
                
                
                
                3,704
                
                
                
                4,822
                
                
                
                6,366
                
                
                
                10,140Gross
                    margin
                
                $
                487
                
                
                $
                1,045
                
                
                $
                552
                
                
                $
                1,501
                
                
                $
                3,332
  24
  **Total
                    Gross Margin and Reconciliation to Income (Loss) Before Income
                    Taxes***(in
                    thousands)***Quarter-to-date**
                
                
                **Year-to-date**Three
                  Months
                    Ended
                  September
                    30,
                
                
                Three
                    Months
                  Ended
                  September
                    30,
                
                
                Four
                    Months
                  Ended
                  September
                    30,
                
                
                Five
                    Months
                  Ended
                  May
                    31,
                
                
                Nine
                    Months
                  Ended
                  September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Total
                    gross margin
                
                $
                20,985
                
                
                $
                21,349
                
                
                $
                28,301
                
                
                $
                44,826
                
                
                $
                71,176Selling,
                    general and administrative expense
                
                
                20,741
                
                
                
                15,633
                
                
                
                27,345
                
                
                
                28,692
                
                
                
                45,977Transaction
                    and related costs
                
                
                237
                
                
                
                -
                
                
                
                237
                
                
                
                26,891
                
                
                
                -Interest
                    expense
                
                
                11,231
                
                
                
                7,819
                
                
                
                15,031
                
                
                
                13,829
                
                
                
                23,523Loss
                    on extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                1,041
                
                
                
                22,396
                
                
                
                -Income
                    (loss) before income tax
                
                $
                (11,224
                )
                
                $
                (2,103
                )
                
                $
                (15,353
                )
                
                $
                (46,982
                )
                
                $
                1,676
  **13.**
              
              **Pension
                  Plan**
 
 The
        components of net periodic pension costs are as follows:
  *(in
                    thousands)*
                
                **Quarter-to-date**
                
                
                **Year-to-date**Three
                    Months Ended
                  September
                    30,
                
                
                Three
                    Months
                  Ended
                  September
                    30,
                
                
                Four
                    Months
                  Ended
                  September
                    30,
                
                
                Five
                    Months
                  Ended
                  May
                    31,
                
                
                Nine
                    Months
                  Ended
                  September
                    30,2007
                
                
                2006
                
                
                2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Interest
                    cost
                
                $
                255
                
                
                $
                244
                
                
                $
                340
                
                
                $
                421
                
                
                $
                730Expected
                    return on plan assets
                
                
                (295
                )
                
                
                (253
                )
                
                
                (393
                )
                
                
                (452
                )
                
                
                (757
                )Recognized
                    net actuarial loss
                
                
                -
                
                
                
                67
                
                
                
                -
                
                
                
                73
                
                
                
                201Service
                    cost
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                    cost
                
                $
                (40
                )
                
                $
                58
                
                
                $
                (53
                )
                
                $
                42
                
                
                $
                174
  In
        connection with the Acquisition, the obligations and assets related to our
        pension plan were valued at fair value as of the date of the Acquisition,
        using
        a discount rate of 6.15%, as follows:
  *(in
                    thousands)*Benefit
                    obligations at fair value
                
                $
                16,902Assets
                    held by defined benefit pension plan, at fair value
                
                
                14,603Excess
                    of benefit obligations over assets
                
                
                2,299Less:
                    previously recorded benefit plan obligationsrecorded
                    by predecessor
                
                
                (3,061
                )Adjustment
                    to benefit plan obligations
                
                $
                (762
                )
 Future
        benefit accruals for all participants were frozen as of December 31,
        2002.
  25
 **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”, the “Company”, or “UHS”) is the leading
        nationwide provider of medical equipment outsourcing and lifecycle 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
        medical equipment outsourcing customer base includes more than 3,850 acute
        care
        hospitals and approximately 3,550 alternate site providers.  We also
        have relationships with more than 200 medical equipment manufacturers and
        many
        of the nation’s largest group purchasing organizations (“GPOs”) and integrated
        delivery networks (“IDNs”).  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.  Our
        fees are paid directly by our customers rather than from direct reimbursement
        from third party payors, such as private insurers or Medicare and
        Medicaid.
 
 On
        May 31,
        2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital
        stock of the Company for approximately $712.0 million in cash less debt,
        tender premium and accrued interest and capitalized leases.  Parent is
        owned by affiliates of Bear Stearns Merchant Manager III (Cayman), L.P.
        (together with its investing affiliates, “BSMB”) and certain members of our
        management, whom we collectively refer to as the “equity
        investors.”  Parent and Merger Sub, a wholly owned subsidiary of
        Parent, were corporations formed by BSMB solely for the purpose of completing
        the Acquisition.
 
 Before
        the
        closing of the Acquisition, the Company initiated a cash tender offer to
        purchase its $260.0 million outstanding aggregate principal amount of its
        10.125% Senior Notes due 2011, which the Company completed for $235.0 million
        of
        such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate
        principal amount of its Floating Rate Notes due 2015 and $230.0 million in
        aggregate principal amount of its PIK Toggle Notes due 2015 (The PIK Toggle
        Notes and the Floating Rate Notes are collectively referred to as the
“Notes”).  Concurrently with the closing of the Acquisition, Merger
        Sub merged with and into the Company, which was the surviving corporation
        and
        the Company assumed Merger Sub’s obligations with respect to the Notes and
        related Second Lien Senior Indenture.
 
 The
        Agreement and Plan of Merger, dated as of April 15, 2007, by and among the
        Company, Parent and Merger Sub and related documents resulted in the occurrence
        of the events outlined in Note 5 in Part I of this Form 10-Q, which we
        collectively refer to as the “Transaction” or the “Acquisition.”
 
 Although
        the Company continued as the surviving legal entity after the Acquisition,
        the
        accompanying statements of operations and cash flows present our results
        of
        operations and cash flows for the periods preceding the Acquisition
        (“predecessor”) and the periods succeeding the Acquisition (“successor”),
        respectively.  All references to the three and nine months ended
        September 30, 2006 and for the five months ended May 31, 2007 refer to our
        predecessor results.  All references to the three and four months
        ended September 30, 2007 refer to our successor results.
 
 26
  
 Technical
                  and Professional Services Segment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                Medical
                  Equipment Sales and Remarketing Segment
              graph
              Medical
                  Equipment
                Outsourcing
                  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
        and
        gross margin before purchase accounting adjustments. The accounting policies
        of
        the individual operating segments are the same as those of the entire
        Company.
 
 We
        have
        prepared our discussion of the results of operations for the three months
        and
        nine months ended September 30, 2007 and 2006 by comparing the results of
        operations of the predecessor for the three months and nine months ended
        September 30, 2006 to those of the successor for the three and four months
        ended
        September 30, 2007 and those of the predecessor for the five months ended
        May
        31, 2007.
 
 We
        present
        the non-GAAP financial measure gross margin, before purchase accounting
        adjustments, because we use this measure to monitor and evaluate the performance
        of our business and believe that the presentation of this measure will enhance
        users’ ability to analyze trends in our business and evaluate our performance
        relative to other companies in our industry.  A reconciliation of the
        non-GAAP financial measure to its equivalent GAAP measure is included in
        the
        respective tables.
 
 **Medical
        Equipment Outsourcing Segment - Manage & Utilize**
 
 Our
        flagship business is our Medical Equipment Outsourcing segment, which accounted
        for $50.0 million, or approximately 76.7% of our revenues for the third quarter
        of 2007, $66.7 million, or approximately 76.8% of our revenues for the four
        months ended September 30, 2007 and $84.9 million, or approximately 78.9%
        of our
        revenues for the five months ended May 31, 2007.  We own approximately
        191,000 pieces of movable medical equipment, primarily in the categories
        of
        respiratory therapy, newborn care, critical care, patient monitors, and
        specialty beds and pressure area management.  In our outsourcing
        programs, we provide our customers with the use of movable medical equipment
        for
        patient care use.  We perform regular and preventative maintenance on
        the equipment and retain detailed records for documentation.  We are
        responsible for all repairs, testing and cleaning of the equipment. Our service
        includes prompt replacement of any non-working equipment and the flexibility
        to
        upgrade technology as a customer’s product of choice changes.  We have
        three primary outsourcing programs:
  27
  ·
              Supplemental
                  (Peak Needs) Outsourcing;
 ·
              Long-Term
                  Outsourcing; and
 ·
              the
                  Asset Management Partnership Program
                  (“AMPP”).
 
 In
        March
        2007, we entered into an agreement with Stryker Medical (“Stryker”), a division
        of Stryker Corporation, a major manufacturer of beds, stretchers and support
        surfaces, to provide their equipment to our customers for rent.  Under
        this exclusive arrangement, Stryker retains ownership of the equipment and
        we
        share with Stryker the rental revenues we generate from our
        customers.
 
 In
        October
        2007, we entered into an agreement with the Advance Wound Management Division
        of
        Smith & Nephew, Inc. (“Smith & Nephew”), a global leader in arthroscopy
        and advanced wound management, to be the exclusive rental provider of the
        EZCARETM and V1STATM product systems to the acute care market in the continental
        United States, excluding certain grandfathered accounts.  Under this
        agreement, Smith & Nephew retains ownership of the equipment and we share
        with Smith & Nephew the rental revenues we generate from our
        customers.
 
 Given
        our
        scale and rental infrastructure, we believe that other equipment manufacturers
        may seek to enter into similar arrangements with us in the future enabling
        additional opportunities for growth with existing as well as new
        customers.
 
 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 $11.1 million,
        or
        approximately 17.0%, of our revenues for the third quarter of 2007, $14.7
        million, or approximately 17.0% of our revenues for the four months ended
        September 30, 2007 and $14.8 million, or approximately 13.8% of our revenues
        for
        the five months ended May 31, 2007.  We leverage our more than 65
        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 325 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.  As part of our strategy to grow our Technical and
        Professional Services segment, we acquired the assets of the ICMS division
        of
        Intellamed on April 1, 2007.
 
 **Medical
        Equipment Sales and Remarketing Segment - Redeploy &
Remarket**
 
 Our
        Medical Equipment Sales and Remarketing segment accounted for $4.1 million,
        or
        approximately 6.3% of our revenues for the third quarter of 2007, $5.4 million,
        or approximately 6.2% of our revenues for the four months ended September
        30,
        2007 and $7.9 million, or approximately 7.3% of our revenues for the five
        months
        ended May 31, 2007.  This segment includes three business
        activities:
  28
  ***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 on a limited and exclusive
        basis.  We currently sell equipment in many product lines including,
        but not limited to, continuous passive motion machines, patient monitors,
        patient transfer systems and infant security systems.
 
 ***Sales
        of Disposables******.***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,
                  2007;
 ·
              the
                  results of operations for the three and four months ended September
                  30,
                  2007 and the five months ended May 31, 2007 and for the three and
                  nine
                  months ended September 30, 2006;
                  and
 ·
              the
                  cash flows for the four months ended September 30, 2007, the five
                  months
                  ended May 31, 2007 and for the nine months ended September 30,
                  2006.
 
 This
        discussion should be read in conjunction with the financial statements included
        elsewhere in this Form 10-Q and the Management's Discussion and Analysis
        of
        Financial Condition and Results of Operations section included in our 2006
        Annual Report on Form 10-K filed with the Securities and Exchange
        Commission.
 
 In
        connection with the Transaction, the Company incurred significant indebtedness
        and is highly leveraged.  See “Liquidity and Capital
        Resources.”  In addition, the purchase price paid in connection with
        the Acquisition has been preliminarily allocated to state the acquired assets
        and liabilities at fair value.  The preliminary accounting adjustments
        increased the carrying value of our property and equipment and inventory,
        established intangible assets for our customer relationships, supply agreement,
        trade names and trademarks, technology database and non-compete agreements
        and
        revalued our long-term benefit plan obligations, among other
        things.  Subsequent to the Transaction, interest expense, non-cash
        depreciation and amortization charges have significantly
        increased.  As a result, our successor financial statements subsequent
        to the Transaction are not comparable to our predecessor financial
        statements.
 
 The
        following tables provide a summary of selected financial data as a percentage
        of
        total revenues for all periods presented:
 
 29
 
 **Quarter-to-Date**Percent
                    of Total RevenuesThree
                    Months
                
                
                Three
                    MonthsEnded
                
                
                EndedSeptember
                    30,
                
                
                September
                    30,2007
                
                
                2006**Revenue**
                
                (Successor)
                
                
                (Predecessor)Medical
                    equipment outsourcing
                
                
                76.7
                %
                
                
                77.6
                %Technical
                    and professional services
                
                
                17.0
                
                
                
                13.7Medical
                    equipment sales and remarketing
                
                
                6.3
                
                
                
                8.7Total
                    revenues
                
                
                100.0
                %
                
                
                100.0
                %**Cost
                    of Revenue**Cost
                    of medical equipment outsourcing
                
                
                28.1
                
                
                
                27.2Cost
                    of technical and professional services
                
                
                12.5
                
                
                
                9.6Cost
                    of medical equipment sales and remarketing
                
                
                5.5
                
                
                
                6.8Movable
                    medical equipment depreciation
                
                
                21.7
                
                
                
                17.3Total
                    costs of medical equipment outsourcing, technical and professional
                    services and medical equipment sales andremarketing
                
                67.8
                
                
                
                60.9Gross
                    margin
                
                
                32.2
                
                
                
                39.1Selling,
                    general and administrative
                
                
                31.8
                
                
                
                28.6Transaction
                    and related costs
                
                
                0.4
                
                
                
                -Operating
                    income
                
                
                -
                
                
                
                10.5Interest
                    expense
                
                
                17.2
                
                
                
                14.3Loss
                    before income taxes
                
                
                (17.2
                )
                
                
                (3.8
                )Provision
                    (benefit) for income taxes
                
                
                (6.6
                )
                
                
                0.3Net
                    loss
                
                
                (10.6
                )%
                
                
                (4.1
                )%
  30
  **Year-to-date**Percent
                    of Total RevenuesFour
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    MonthsEnded
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006**Revenue**
                
                (Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Medical
                    equipment outsourcing
                
                
                76.8
                %
                
                
                78.9
                %
                
                
                78.2
                %Technical
                    and professional services
                
                
                17.0
                
                
                
                13.8
                
                
                
                13.8Medical
                    equipment sales and remarketing
                
                
                6.2
                
                
                
                7.3
                
                
                
                8.0Total
                    revenues
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %**Cost
                    of Revenue**Cost
                    of medical equipment outsourcing
                
                
                27.9
                
                
                
                25.8
                
                
                
                25.5Cost
                    of technical and professional services
                
                
                12.3
                
                
                
                9.4
                
                
                
                9.5Cost
                    of medical equipment sales and remarketing
                
                
                5.6
                
                
                
                5.9
                
                
                
                6.0Movable
                    medical equipment depreciation
                
                
                21.6
                
                
                
                17.2
                
                
                
                16.5Total
                    costs of medical equipment outsourcing, technical and professional
                    services and medicalequipment
                    sales and remarketing
                
                67.4
                
                
                
                58.3
                
                
                
                57.5Gross
                    margin
                
                
                32.6
                
                
                
                41.7
                
                
                
                42.5Selling,
                    general and administrative
                
                
                31.5
                
                
                
                26.7
                
                
                
                27.4Transaction
                    and related costs
                
                
                0.3
                
                
                
                25.0
                
                
                
                -Operating
                    income (loss)
                
                
                0.8
                
                
                
                (10.0
                )
                
                
                15.1Interest
                    expense
                
                
                17.3
                
                
                
                12.9
                
                
                
                14.0Loss
                    on extinguishment of debt
                
                
                1.2
                
                
                
                20.8
                
                
                
                -Income
                    (loss) before income taxes
                
                
                (17.7
                )
                
                
                (43.7
                )
                
                
                1.1Provision
                    (benefit) for income taxes
                
                
                (6.8
                )
                
                
                0.5
                
                
                
                0.4Net
                    income (loss)
                
                
                (10.9
                )%
                
                
                (44.2
                )%
                
                
                0.7
                %
  31
  **Results
        of Operations for the Third Quarter 2007 (successor) Compared to the Third
        Quarter 2006 (predecessor)**
  **Medical
                    Equipment Outsourcing Segment – Manage &
                    Utilize***(in
                    thousands)*
                
                Three
                    Months
                
                
                Three
                    MonthsEnded
                
                
                EndedSeptember
                    30,
                
                
                September
                    30,2007
                
                
                2006(Successor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                49,988
                
                
                $
                42,361Cost
                    of revenue
                
                
                18,314
                
                
                
                14,822Movable
                    medical equipment depreciation
                
                
                14,116
                
                
                
                9,459Gross
                    margin
                
                $
                17,558
                
                
                $
                18,080Gross
                    margin %
                
                
                35.1
                %
                
                
                42.7
                %Gross
                    margin
                
                $
                17,558
                
                
                $
                18,080Purchase
                    accounting adjustments, primarily non-cash charges related to
                    step-up in
                    carrying value of moveable medical equipment
                
                
                4,211
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                21,769
                
                
                $
                18,080Gross
                    margin %, before purchase accounting adjustments
                
                
                43.5
                %
                
                
                42.7
                %
 
 Total
        revenue in the Medical Equipment Outsourcing was $50.0 and $42.4 million
        for the
        quarters ended September 30, 2007 and 2006, respectively.  During the
        quarter ended September 30, 2007, we were successful in adding approximately
        125
        outsourcing customers through organic and competitive takeaway in our acute
        care
        and AMPP customer base and generating incremental business from new and existing
        technology in our fleet.
 
 Total
        cost
        of revenue in the segment was $18.3 and $14.8 for the quarters ended September
        30, 2007 and 2006, respectively.  Cost of revenue in this segment
        relates primarily to employee related expenses, equipment repair and maintenance
        charges related to our movable medical equipment fleet, occupancy and freight
        charges.  Cost of revenue for the quarter ended September 30, 2007
        includes $0.6 million of purchase accounting adjustments, primarily related
        to
        losses on disposals of equipment which was revalued in conjunction with the
        Transaction.  During the quarter ended September 30, 2007, we
        experienced robust rental demand from new and existing customers and incurred
        additional repair and maintenance and other expenses associated with increased
        rental activity.
 
 Movable
        medical equipment depreciation was $14.1 and $9.5 million for the quarters
        ended
        September 30, 2007 and 2006, respectively.  During the quarter ended
        September 30, 2007, we experienced increased movable medical equipment purchases
        to meet customer demand.  In addition, movable medical depreciation
        for the quarter ended September 30, 2007 includes $3.6 million of charges
        relating to purchase accounting adjustments.
  32
  Gross
        margin percentage for the Medical Equipment Outsourcing segment was 35.1%
        and
        42.7% for the quarters ended September 30, 2007 and 2006,
        respectively.  Gross margin percentage for the quarter ended September
        30, 2007 was negatively impacted by purchase accounting adjustments relating
        primarily to our movable medical equipment fleet.
 
 Gross
        margin percentage, before purchase accounting adjustments, was 43.5% and
        42.7%
        for the quarters ended September 30, 2007 and 2006, respectively.
  **Technical
                    and Professional Services Segment – Plan & Acquire; Maintain &
                    Repair***(in
                    thousands)*
                
                Three
                    Months
                
                
                Three
                    MonthsEnded
                
                
                EndedSeptember
                    30,
                
                
                September
                    30,2007
                
                
                2006(Successor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                11,098
                
                
                $
                7,459Cost
                    of revenue
                
                
                8,158
                
                
                
                5,235Gross
                    margin
                
                $
                2,940
                
                
                $
                2,224Gross
                    margin %
                
                
                26.5
                %
                
                
                29.8
                %Gross
                    margin
                
                $
                2,940
                
                
                $
                2,224Purchase
                    accounting adjustments, primarily non-cash charges related to
                    favorable
                    lease commitments
                
                
                7
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                2,947
                
                
                $
                2,224Gross
                    margin %, before purchase accounting adjustments
                
                
                26.6
                %
                
                
                29.8
                %
  Total
        revenue in the Technical and Professional Services segment was $11.1 and
        $7.5
        million for the quarters ended September 30, 2007 and 2006,
        respectively.  Revenue for the quarter ended September 30, 2007
        includes results from our acquisition of the assets of the ICMS division
        of
        Intellamed on April 1, 2007 and was also negatively impacted due to continued
        sales force attention on converting new customers in our medical equipment
        outsourcing segment, as well as selected contract terminations.
 
 Total
        cost
        of revenue in the segment was $8.2 and $5.2 million for the quarters ended
        September 30, 2007 and 2006, respectively.  Cost of revenue consists
        primarily of employee related expense, occupancy charges and vendor
        expenses.  Cost of revenue for the quarter ended September 30, 2007
        includes additional employee related and vendor expenses related to our
        acquisition of the ICMS division of Intellamed.
 
 Gross
        margin percentage for the Technical and Professional Services segment was
        26.5%
        and 29.8% for the quarters ended September 30, 2007 and 2006,
        respectively.  The decline in the quarter ended September 30, 2007 is
        primarily attributable to lower gross margin percentage results from the
        acquisition of the assets of the ICMS division of Intellamed.
  33
  **Medical
                    Equipment Sales and Remarketing Segment – Redeploy &
                    Remarket***(in
                    thousands)*
                
                Three
                    Months
                
                
                Three
                    MonthsEnded
                
                
                EndedSeptember
                    30,
                
                
                September
                    30,2007
                
                
                2006(Successor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                4,097
                
                
                $
                4,749Cost
                    of revenue
                
                
                3,610
                
                
                
                3,704Gross
                    margin
                
                $
                487
                
                
                $
                1,045Gross
                    margin %
                
                
                11.9
                %
                
                
                22.0
                %Gross
                    margin
                
                $
                487
                
                
                $
                1,045Purchase
                    accounting adjustments, primarily non-cash charges related to
                    step-up in
                    carrying value of inventories and our movable medical equipment
                    fleet
                
                
                380
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                867
                
                
                $
                1,045Gross
                    margin %, before purchase accounting adjustments
                
                
                21.2
                %
                
                
                22.0
                %
  Total
        revenue in the Medical Equipment Sales and Remarketing segment was $4.1 and
        $4.7
        million for the quarters ended September 30, 2007 and 2006,
        respectively.  Robust rental demand diverted equipment for sale to our
        medical equipment outsourcing segment during the quarter ended September
        30,
        2007.
 
 Total
        cost
        of revenue in the segment was $3.6 and $3.7 million for the quarters ended
        September 30, 2007 and 2006, respectively.  Cost of revenue in this
        segment consists primarily of cost of inventory, equipment sold and occupancy
        charges.  During the quarter ended September 30, 2007, purchase
        accounting adjustments of $0.4 million, primarily related to the increase
        in the
        carrying amount of inventory ($0.1 million) and movable medical equipment
        ($0.3
        million), impacted cost of revenue.
 
 Gross
        margin percentage for the Medical Equipment Sales and Remarketing segment
        was
        11.9% and 22.0% for the quarters ended September 30, 2007 and 2006,
        respectively.  Purchase accounting adjustments impacted the gross
        margin percentage for the quarter ended September 30, 2007.
 
 Gross
        margin percentage before purchase accounting adjustments for the Medical
        Equipment Sales and Remarketing segment was 21.1% and 22.0% for the quarters
        ended September 30, 2007 and 2006, respectively.  Margins and activity
        in this segment fluctuate based on equipment availability and the transactional
        size and nature of the business.
  34
 **Selling,
                    General and Administrative, Transaction and Related Costs and
                    Interest
                    Expense***(in
                    thousands)*
                
                Three
                    Months
                
                
                Three
                    MonthsEnded
                
                
                EndedSeptember
                    30,
                
                
                September
                    30,2007
                
                
                2006(Successor)
                
                
                (Predecessor)Selling,
                    general and administrative
                
                $
                20,741
                
                
                $
                15,633Transaction
                    and related costs
                
                
                237
                
                
                
                -Interest
                    expense
                
                
                11,231
                
                
                
                7,819
 
 ***Selling,
        General and Administrative***
 
 Selling,
        general and administrative expense was $20.7 and $15.6 million for the quarters
        ended September 30, 2007 and 2006, respectively.  Selling, general and
        administrative expenses consist primarily of employee-related expenses,
        professional fees, occupancy charges, bad debt expense and depreciation and
        amortization.  Expenses during the quarter ended September 30, 2007
        include $4.0 million of charges related to the amortization of our intangible
        assets which were recorded at fair value in connection with the Transaction
        and
        non-cash stock-based compensation expense related to the 2007 Stock Option
        Plan
        of Parent of $1.0 million.  Expenses during the quarter ended
        September 30, 2006 include $0.4 million related to our 2003 Stock Option
        Plan.  Selling, general and administrative expense as a percentage of
        total revenue was 31.8% and 28.6% for the quarters ended September 30, 2007
        and
        2006, respectively.
 
 ***Transaction
        and Related Costs***
 
 We
        incurred $0.2 million of expenses in connection with the Transaction during
        the
        quarter ended September 30, 2007.  These expenses consisted primarily
        of accounting and legal charges.
 
 ***Interest
        Expense***
 
 Interest
        expense was $11.2 and $7.8 million for the quarters ended September 30, 2007
        and
        2006, respectively.  Interest expense during the quarter ended
        September 30, 2007 includes interest charges related to the increased debt
        issued in connection with the Transaction, partially offset by lower average
        interest rates.
 
 **Income
        Taxes**
 
 Income
        tax
        (benefit) expense was ($4.3) and $0.1 million for the quarters ended September
        30, 2007 and 2006, respectively.  The Company moved from a net
        deferred tax asset position prior to the Transaction, where tax expense related
        primarily to minimum state taxes due to valuation allowances established
        for net
        operating losses not recognized, to a net deferred tax liability position
        after
        the Transaction.  Management believes the valuation allowance is no
        longer necessary as we determined that it was more likely than not that the
        benefits of these deferred tax assets will be realized.
 
 **Net
        Loss**
 
 35
  Net
        loss
        was $6.9 and $2.2 million for the quarters ended September 30, 2007 and 2006,
        respectively.  Net loss for the quarter ended September 30, 2007 was
        impacted by Transaction related purchase accounting adjustments and interest
        associated with our Notes, partially offset by robust revenues in our Medical
        Equipment Outsourcing Segment and income tax benefit.
 
 **Results
        of Operations for the Four Months Ended September 30, 2007 (successor) and
        Five
        Months Ended May 31, 2007 (predecessor) compared to the Nine Months Ended
        September 30, 2007 (predecessor)**
 
 **Medical
                    Equipment Outsourcing Segment – Manage &
                    Utilize***(in
                    thousands)*
                
                Four
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    MonthsEnded
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                66,683
                
                
                $
                84,855
                
                
                $
                131,079Cost
                    of revenue
                
                
                24,230
                
                
                
                27,694
                
                
                
                42,762Movable
                    medical equipment depreciation
                
                
                18,748
                
                
                
                18,512
                
                
                
                27,659Gross
                    margin
                
                $
                23,705
                
                
                $
                38,649
                
                
                $
                60,658Gross
                    margin %
                
                
                35.5
                %
                
                
                45.5
                %
                
                
                46.3
                %Gross
                    margin
                
                $
                23,705
                
                
                $
                38,649
                
                
                $
                60,658Purchase
                    accounting adjustments, primarily non-cash charges related to
                    step-up in
                    carrying value of moveable medical equipment
                
                
                5,721
                
                
                
                -
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                29,426
                
                
                $
                38,649
                
                
                $
                60,658Gross
                    margin %, before purchase accounting adjustments
                
                
                44.1
                %
                
                
                45.5
                %
                
                
                46.3
                %
 Total
        revenue in the Medical Equipment Outsourcing was $66.7, $84.9 and $131.1
        million
        for the four months ended September 30, 2007, five months ended May 31, 2007
        and
        nine months ended September 30, 2006, respectively.  During the four
        months ended September 30, 2007 and five months ended May 31, 2007, we were
        successful in adding approximately 200 and 300 outsourcing customers,
        respectively, through organic and competitive takeaway in our acute care
        and
        AMPP customer base.  During each of the aforementioned 2007 periods we
        also generated incremental business from new and existing technology in our
        fleet.
 
 Total
        cost
        of revenue in the segment was $24.2, $27.7 and $42.8 million for the four
        months
        ended September 30, 2007, five months ended May 31, 2007 and nine months
        ended
        September 30, 2006, respectively.  Cost of revenue in this segment
        relates primarily to employee related expenses, equipment repair and maintenance
        charges related to our movable medical equipment fleet, occupancy and freight
        charges.  Cost of revenue for the four months ended September 30, 2007
        includes $0.7 million of charges relating to losses on disposals of equipment
        which was revalued in conjunction with the Transaction.  During each
        of the aforementioned 2007 periods, we experienced robust rental demand from
        new
        and existing customers and incurred additional repair and maintenance and
        other
        expenses associated with increased rental activity.
 
 36
  Movable
        medical equipment depreciation was $18.7, $18.5 and $27.7 million for the
        four
        months ended September 30, 2007, five months ended May 31, 2007 and nine
        months
        ended September 30, 2006, respectively.  During each of the
        aforementioned 2007 periods we experienced increased movable medical equipment
        purchases to meet customer demand.  Movable medical equipment
        depreciation for the four months ended September 30, 2007 includes $5.0 million
        of charges relating to purchase accounting adjustments.  In May 2007,
        we determined that certain pieces of respiratory equipment in our movable
        medical equipment fleet were impaired as defined by SFAS 144, *Accounting for
        the Disposal of Long-Lived Assets,* and we wrote-off all $0.9 million of
        this equipment’s remaining net book value.
 
 Gross
        margin percentage for the Medical Equipment Outsourcing segment was 35.5%,
        45.5%
        and 46.3% for the four months ended September 30, 2007, five months ended
        May
        31, 2007 and nine months ended September 30, 2006,
        respectively.  Gross margin percentage for the four months ended
        September 30, 2007 was negatively impacted by purchase accounting adjustments
        relating primarily to our movable medical equipment fleet.  During
        each of the aforementioned 2007 periods, lower pricing related to new GPO
        contracts, higher labor costs and increased depreciation had a negative impact
        on margins.
 
 Gross
        margin percentage, before purchase accounting adjustments was 44.1%, 45.5%
        and
        46.3% for the four months ended September 30, 2007, five months ended May
        31,
        2007 and nine months ended September 30, 2006, respectively.  During
        each of the aforementioned 2007 periods, lower pricing related to new GPO
        contracts, higher labor costs and increased depreciation had a negative impact
        on margins.
 
 **Technical
                    and Professional Services Segment – Plan & Acquire; Maintain &
                    Repair***(in
                    thousands)*
                
                Four
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    MonthsEnded
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                14,728
                
                
                $
                14,800
                
                
                $
                23,128Cost
                    of revenue
                
                
                10,684
                
                
                
                10,124
                
                
                
                15,942Gross
                    margin
                
                $
                4,044
                
                
                $
                4,676
                
                
                $
                7,186Gross
                    margin %
                
                
                27.5
                %
                
                
                31.6
                %
                
                
                31.1
                %Gross
                    margin
                
                $
                4,044
                
                
                $
                4,676
                
                
                $
                7,186Purchase
                    accounting adjustments, primarily non-cash charges related to
                    favorable
                    lease commitments
                
                
                12
                
                
                
                -
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                4,056
                
                
                $
                4,676
                
                
                $
                7,186Gross
                    margin %, before purchase accounting adjustments
                
                
                27.5
                %
                
                
                31.6
                %
                
                
                31.1
                %
  37
  Total
        revenue in the Technical and Professional Services segment was $14.7, $14.8
        and
        $23.1 million for the four months ended September 30, 2007, five months ended
        May 31, 2007 and nine months ended September 30, 2006,
        respectively.  Revenue for the four months ended September 30, 2007
        and five months ended May 31, 2007 include results from our acquisition of
        the
        assets of the ICMS division of Intellamed on April 1, 2007 and were negatively
        impacted due to continued sales force attention on converting new customers
        in
        our medical equipment outsourcing segment as well as selected contract
        terminations.
 
 Total
        cost
        of revenue in the segment was $10.7, $10.1 and $15.9 million for the four
        months
        ended September 30, 2007, five months ended May 31, 2007 and nine months
        ended
        September 30, 2006, respectively.  Cost of revenue consists primarily
        of employee related expenses, vendor expenses and occupancy
        charges.  Cost of revenue for the four months ended September 30, 2007
        and five months ended May 31, 2007 include additional employee related and
        vendor expenses related to our acquisition of the assets of the ICMS division
        of
        Intellamed on April 1, 2007.
 
 Gross
        margin percentage for the Technical and Professional Services segment was
        27.5%,
        31.6% and 31.1% for the four months ended September 30, 2007, five months
        ended
        May 31, 2007 and nine months ended September 30, 2006,
        respectively.  The decline for the four months ended September 30,
        2007 is primarily attributable to lower gross margin percentage results from
        the
        acquisition of the assets of the ICMS division of Intellamed.
 
 **Medical
                    Equipment Sales and Remarketing Segment – Redeploy &
                    Remarket***(in
                    thousands)*
                
                Four
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    MonthsEnded
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Total
                    revenue
                
                $
                5,374
                
                
                $
                7,867
                
                
                $
                13,472Cost
                    of revenue
                
                
                4,822
                
                
                
                6,366
                
                
                
                10,140Gross
                    margin
                
                $
                552
                
                
                $
                1,501
                
                
                $
                3,332Gross
                    margin %
                
                
                10.3
                %
                
                
                19.1
                %
                
                
                24.7
                %Gross
                    margin
                
                $
                552
                
                
                $
                1,501
                
                
                $
                3,332Purchase
                    accounting adjustments, primarily non-cash charges related to
                    step-up in
                    carrying value of inventories
                
                
                523
                
                
                
                -
                
                
                
                -Gross
                    margin, before purchase accounting adjustments
                
                $
                1,075
                
                
                $
                1,501
                
                
                $
                3,332Gross
                    margin %, before purchase accounting adjustments
                
                
                20.0
                %
                
                
                19.1
                %
                
                
                24.7
                %
 
 Total
        revenue in the Medical Equipment Sales and Remarketing segment was $5.4,
        $7.9
        and $13.5 million for the four months ended September 30, 2007, five months
        ended May 31, 2007 and nine months ended September 30, 2006,
        respectively.  Robust rental demand diverted equipment for sale to our
        medical equipment outsourcing segment during each of the aforementioned 2007
        periods.
 
 38
  Total
        cost
        of revenue in the segment was $4.8, $6.4 and $10.1 million for the four months
        ended September 30, 2007, five months ended May 31, 2007 and nine months
        ended
        September 30, 2006, respectively.  Cost of revenue in this segment
        consists primarily of cost of inventory and equipment sold and occupancy
        charges.  During the four months ended September 30, 2007, purchase
        accounting adjustments of $0.5 million, primarily related to the increase
        in the
        carrying amount of inventory ($0.2 million) and movable medical equipment
        ($0.3
        million), impacted cost of revenue.
 
 Gross
        margin percentage for the Medical Equipment Sales and Remarketing segment
        was
        10.3%, 19.1% and 24.7% for the four months ended September 30, 2007, five
        months
        ended May 31, 2007 and nine months ended September 30, 2006,
        respectively.  The impact of purchase accounting adjustments impacted
        gross margin percentage for the four months ended September 30,
        2007.  Margins during each of the aforementioned 2007 periods were
        negatively impacted by larger individual sales with lower margins.
 
 Gross
        margin percentage, before purchase accounting adjustments, for the Medical
        Equipment Sales and Remarketing segment were 20.0%, 19.1% and 24.7% for the
        four
        months ended September 30, 2007, five months ended May 31, 2007 and nine
        months
        ended September 30, 2006, respectively.  Margins and activity in this
        segment will fluctuate based on the transactional nature of the
        business.
  **Selling,
                    General and Administrative, Transaction and Related Costs, Interest
                    Expense and Loss on Extinguishment of Debt***(in
                    thousands)*
                
                Four
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    MonthsEnded
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)Selling,
                    general and administrative
                
                $
                27,345
                
                
                $
                28,692
                
                
                $
                45,977Transaction
                    and related costs
                
                
                237
                
                
                
                26,891
                
                
                
                -Interest
                    expense
                
                
                15,031
                
                
                
                13,829
                
                
                
                23,523Loss
                    on extinguishment of debt
                
                
                1,041
                
                
                
                22,396
                
                
                
                -
 ***Selling,
        General and Administrative***
 
 Selling,
        general and administrative expense was $27.3, $28.7 and $46.0 million for
        the
        four months ended September 30, 2007, five months ended May 31, 2007 and
        nine
        months ended September 30, 2006, respectively.  Selling, general and
        administrative expenses consist primarily of employee-related expenses,
        professional fees, occupancy charges, bad debt expense and depreciation and
        amortization.  Expenses during the four months ended September 30,
        2007 include $5.4 million of charges related to the amortization of our
        intangible assets which were recorded at fair value in connection with the
        Transaction and non-cash stock-based compensation expense related to the
        2007
        Stock Option Plan of Parent of $1.4 million.  Expenses during the five
        months ended May 31, 2007 and nine months ended September 30, 2006, each
        include
        $1.2 million of expense related to our 2003 Stock Option
        Plan.  Selling, general and administrative expense as a percentage of
        total revenue was 31.5%, 26.7% and 27.4% for the four months ended September
        30,
        2007, five months ended May 31, 2007 and nine months ended September 30,
        2006,
        respectively.
  39
 ***Transaction
        and Related Costs***
 
 We
        incurred $0.2 and $26.9 million of expenses in connection with the Transaction
        during the four months ended September 30, 2007 and five months ended May
        31,
        2007, respectively.  During the four months ended September 30, 2007,
        these expenses consisted primarily of accounting and legal
        fees.  During the five months ended May 31, 2007, these expenses
        consisted primarily of accounting, legal, investment banking advisory and
        restructuring expenses totaling $13.7 million, expensed BSMB fees of $6.5
        million and stock-based compensation expense related to the accelerated vesting
        of options under our 2003 Stock Option Plan of $6.7 million.
 
 ***Interest
        Expense***
 
 Interest
        expense was $15.0, $13.8 and $23.5 million for the four months ended September
        30, 2007, five months ended May 31, 2007 and nine months ended September
        30,
        2006, respectively.  Interest expense during the four months ended
        September 30, 2007 included interest charges related to the increased debt
        issued in connection with the Transaction, partially offset by lower average
        interest rates.
 
 ***Loss
        on Extinguishment of Debt***
 
 During
        the
        four months ended September 30, 2007, we incurred $1.0 million of expense
        related to the purchase of $15.0 million of our 10.125% Senior
        Notes.  The expense consisted of a call premium of $0.7 million and
        the write-off of $0.3 million of unamortized deferred financing
        costs.
 
 During
        the
        five months ended May 31, 2007, we incurred $22.4 million of expense related
        to
        the purchase of $235.0 million of our 10.125% Senior Notes and the termination
        of our Amended Credit Agreement.  The expense consisted of call
        premiums of $16.1 million related to our 10.125% Senior Notes and the write-off
        of $6.3 million of unamortized deferred financing costs related to our 10.125%
        Senior Notes and Amended Credit Agreement.
 
 **Income
        Taxes**
 
 Income
        tax
        (benefit) expense was $(5.9), $0.5 and $0.5 million for the four months ended
        September 30, 2007, five months ended May 31, 2007 and nine months ended
        September 30, 2006, respectively.  The Company moved from a net
        deferred tax asset position prior to the Transaction, where tax expense related
        primarily to minimum state taxes due to valuation allowances established
        for net
        operating losses not recognized, to a net deferred tax liability position
        after
        the Transaction.  Management believes the valuation allowance is no
        longer necessary as we determined that it was more likely than not that the
        benefits of these deferred tax assets will be realized.
 
 **Net
        Income (Loss)**
 
 Net
        income
        (loss) was $(9.5), $(47.5) and $1.2 million for the four months ended September
        30, 2007, five months ended May 31, 2007 and nine months ended September
        30,
        2006, respectively.  Net loss for the four months ended September 30,
        2007 was impacted by Transaction related purchase accounting adjustments
        and
        interest associated with our Notes, partially offset by robust revenues in
        our
        Medical Equipment Outsourcing Segment and income tax benefit.  Net
        loss for the five months ended May 31, 2007, was impacted by $26.9 million
        of
        transaction and related costs and $22.4 million of loss on the extinguishment
        of
        debt.
  40
  **EBITDA**
 
 Earnings
        Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $26.5,
        $(10.3) and $58.9 million for the four months ended September 30, 2007, five
        months ended May 31, 2007 and nine months ended September 30, 2006,
        respectively.  EBITDA for the four months ended September 30, 2007 was
        primarily impacted by purchase accounting adjustments related to the Transaction
        and loss on the extinguishment of debt.  EBITDA for the five months
        ended May 31, 2007, was primarily impacted by transaction and related expenses
        and loss on the extinguishment of debt.  Both 2007 periods benefited
        from robust customer demand in our movable medical equipment outsourcing
        segment.
 
 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:
  Four
                  Months
              
              
              Five
                  Months
              
              
              Nine
                  MonthsEnded
              
              
              Ended
              
              
              Ended*(in
                  thousands)*
              
              September
                  30,
              
              
              May
                  31,
              
              
              September
                  30,2007
              
              
              2007
              
              
              2006(Successor)
              
              
              (Predecessor)
              
              
              (Predecessor)Net
                  cash provided by (used in) operating activities
              
              $
              (5,136
              )
              
              $
              34,318
              
              
              $
              43,610Changes
                  in operating assets and liabilities
              
              
              21,124
              
              
              
              (27,711
              )
              
              
              (5,773
              )Other
                  and non-cash expenses
              
              
              1,401
              
              
              
              (31,258
              )
              
              
              (3,002
              )Income
                  tax expense
              
              
              (5,898
              )
              
              
              492
              
              
              
              522Interest
                  expense
              
              
              15,031
              
              
              
              13,829
              
              
              
              23,523EBITDA
              
              $
              26,522
              
              
              $
              (10,330
              )
              
              $
              58,880


41
  **Supplemental
                    Information:**
                
                Four
                    Months
                
                
                Five
                    Months
                
                
                Nine
                    Months*(dollars
                    in thousands)*
                
                Ended
                
                
                Ended
                
                
                EndedSeptember
                    30,
                
                
                May
                    31,
                
                
                September
                    30,2007
                
                
                2007
                
                
                2006(Successor)
                
                
                (Predecessor)
                
                
                (Predecessor)EBITDA
                
                $
                26,522
                
                
                $
                (10,330
                )
                
                $
                58,880Net
                    cash provided by (used in) operating activities
                
                $
                (5,136
                )
                
                $
                34,318
                
                
                $
                43,610Net
                    cash used in investing activities
                
                
                (348,885
                )
                
                
                (48,060
                )
                
                
                (31,973
                )Net
                    cash provided by (used in) financing activities
                
                
                354,021
                
                
                
                13,742
                
                
                
                (11,637
                )Movable
                    medical equipment depreciation
                
                
                18,748
                
                
                
                18,512
                
                
                
                27,659Non-movable
                    medical equipment depreciation
                
                
                2,717
                
                
                
                3,113
                
                
                
                4,670Other
                    operating data:Movable
                    medical equipment owned (approximate units at end of
                    period)
                
                
                191,000
                
                
                
                185,000
                
                
                
                168,000Offices
                    (at end of period)
                
                
                80
                
                
                
                79
                
                
                
                79Number
                    of outsourcing hospital customers (approximate number at end
                    of
                    period)
                
                
                3,850
                
                
                
                3,800
                
                
                
                3,450Number
                    of total outsourcing customers (approximate number at end of
                    period)
                
                
                7,400
                
                
                
                7,200
                
                
                
                6,500
  **SEASONALITY**
 
 Quarterly
        operating results are typically affected by seasonal
        factors.  Historically, our first and fourth quarters are the
        strongest, reflecting increased customer 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 senior secured credit facility which
        matures
        in May 2013.  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 senior secured credit facility 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.
  42
  Net
        cash
        provided by (used in) operating activities was $(5.1), $34.3 and $43.6 million
        for the four months ended September 30, 2007, five months ended May 31, 2007
        and
        nine months ended September 30, 2006, respectively.  During the four
        months ended September 30, 2007, net cash used in operating activities was
        impacted primarily by the payment of accrued expenses related to the
        Transaction.
 
 Net
        cash
        used in investing activities was $348.9, $48.1 and $32.0 million for the
        four
        months ended September 30, 2007, five months ended May 31, 2007 and nine
        months
        ended September 30, 2006, respectively.  Net cash used in investing
        activities was impacted by the Acquisition of Universal Hospital Services,
        Inc.
        by Parent during the four months ended September 30, 2007.  During the
        five months ended May 31, 2007, net cash used in investing activities was
        impacted by the acquisition of the assets of the ICMS division of Intellamed
        and
        capital expenditures for movable medical equipment related to robust demand
        in
        our medical equipment outsourcing segment.
 
 Net
        cash
        provided by (used in) financing activities was $354.0, $13.7 and $(11.6)
        million
        for the four months ended September 30, 2007, five months ended May 31, 2007
        and
        nine months ended September 30, 2006, respectively.  During the four
        months ended September 30, 2007, net cash provided by financing activities
        benefited from the issuance of our Notes and cash equity contributions,
        partially offset by cash outlays related to the purchase of the debt of
        predecessor.
 
 Based
        on
        the level of operating performance expected in 2007, we believe our cash
        from
        operations, together with additional borrowings under our senior secured
        credit
        facility, 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.  As of September 30,
        2007, we had $132.7 million of unused borrowing availability under our senior
        secured credit facility based on a borrowing base of $135.0 million and after
        giving effect to $2.3 million used for letters of credit.  Our levels
        of borrowing are further restricted by the financial covenants set forth
        in our
        senior secured credit facility agreement and the second lien senior indenture
        governing our Notes, which covenants are summarized below.  As of
        September 30, 2007, the Company was in compliance with all covenants under
        the
        senior secured credit facility.
 
 **Contractual
        Obligations.**The following is a summary as of September 30,
        2007, of our future contractual obligations:
 
 43
 *(in
                      thousands)*
                  
                  **Payments
                      due by period****Contractual
                      Obligations**
                  
                  **Total**
                  
                  
                  **October
                      1,**
                    **2007
                      to**
                    **December**
                    **31,
                      2007**
                  
                  
                  **2008**
                  
                  
                  ****
                  **2009-2010**
                  
                  
                  ****
                  **2011-2012**
                  
                  
                  **2013
                      and**
                    **beyond**Long-term
                      debt principal obligations
                  
                  $
                  476,731
                  
                  
                  $
                  798
                  
                  
                  $
                  2,821
                  
                  
                  $
                  2,874
                  
                  
                  $
                  10,238
                  
                  
                  $
                  460,000Interest
                      on Senior Notes
                  
                  
                  4,363
                  
                  
                  
                  503
                  
                  
                  
                  1,007
                  
                  
                  
                  2,014
                  
                  
                  
                  839
                  
                  
                  
                  -Interest
                      on
                      Notes(1)
                  
                  
                  269,093
                  
                  
                  
                  19,849
                  
                  
                  
                  40,400
                  
                  
                  
                  80,799
                  
                  
                  
                  80,799
                  
                  
                  
                  47,246Interest
                      on capital lease obligations
                  
                  
                  520
                  
                  
                  
                  89
                  
                  
                  
                  253
                  
                  
                  
                  174
                  
                  
                  
                  4
                  
                  
                  
                  -Operating
                      lease obligations
                  
                  
                  29,633
                  
                  
                  
                  1,464
                  
                  
                  
                  5,323
                  
                  
                  
                  8,497
                  
                  
                  
                  6,410
                  
                  
                  
                  7,939Purchase
                      obligations
                  
                  
                  11,858
                  
                  
                  
                  11,858
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Pension
                      obligations(2)
                  
                  
                  140
                  
                  
                  
                  -
                  
                  
                  
                  140
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                      contractual obligations
                  
                  $
                  792,338
                  
                  
                  $
                  34,561
                  
                  
                  $
                  49,944
                  
                  
                  $
                  94,358
                  
                  
                  $
                  98,290
                  
                  
                  $
                  515,185Other
                      commercial commitments:Stand
                      by letter of credit
                  
                  $
                  2,342
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
 (1)
              In
                  June 2007, we entered into an interest rate swap agreement that
                  will be
                  accounted for as a cash flow hedge.  The interest rate swap
                  agreement is effective for periods beginning in December 2007 to
                  May
                  2012.  Interest rates through the interest rate swap agreement
                  period were prepared using our expected effective interest rate.
                  Interest
                  rates subsequent to the termination date of the interest rate swap
                  agreement have not been included as we cannot reasonably estimate
                  future
                  interest payments (See “Interest Rate Swap”
                  below.)
 (2)
              While
                  our pension liability at September 30, 2007 was approximately $1.6
                  million, we cannot reasonably estimate required payments beyond
                  2008 due
                  to changing actuarial and market
                  conditions.
 
 **Financing
        Structure*****.*********Our
        major sources of funds are comprised of $230.0 million PIK Toggle Notes,
        $230.0
        million Floating Rate Notes, $135.0 million senior secured credit facility
        and
        $9.9 million 10.125% Senior Notes.  In connection with the
        Transaction, we purchased a portion of our 10.125% Senior Notes and terminated
        our Amended Credit Agreement.
 
 ***PIK
        Toggle Notes.***On May 31, 2007, Merger Sub issued $230.0 million
        aggregate original principal amount of 8.50% / 9.25% PIK Toggle Notes under
        the
        Second Lien Senior Indenture with Wells Fargo Bank, National Association,
        as
        trustee.  See “Second Lien Senior Indenture” below.  At the
        closing of the Transaction, as the surviving corporation in the Acquisition,
        we
        assumed all the obligations of Merger Sub under the Second Lien Senior
        Indenture.
  For
        any
        interest payment period through June 1, 2011, the Company may, at its option,
        elect to pay Cash Interest, PIK Interest or 50% Cash Interest and 50% PIK
        Interest. Cash Interest on the PIK Toggle Notes accrues at the rate of 8.50%
        per
        annum.  PIK Interest on the PIK Toggle Notes accrues at the rate of 9.25%
        per annum.  After June 1, 2011, the Company is required to make all
        interest payments on the PIK Toggle Notes entirely as Cash Interest.  All
        PIK Toggle Notes mature on June 1, 2015. Interest on the PIK Toggle Notes
        is
        payable semiannually in arrears on each June 1 and December 1, commencing
        on
        December 1, 2007.  As of September 30, 2007, we intend to make future
        payments in the form of Cash Interest.
  We
        may
        redeem some or all of the PIK Toggle Notes at any time prior to June 1, 2011,
        at
        a price equal to 100% of the principal amount thereof, plus the applicable
        premium (as defined by the Second Lien Senior Indenture), plus accrued and
        unpaid interest, if any, to the date of redemption.  In addition, on
        or before June 1, 2010, we may redeem up to 40% of the aggregate principal
        amount of the PIK Toggle Notes with the net proceeds of certain equity
        offerings.
  44
  Except
        as
        noted above, we cannot redeem the PIK Toggle Notes until June 1,
        2011.  Thereafter we may redeem some or all of the PIK Toggle Notes at
        the redemption prices (expressed as percentages of principal amount) set
        forth
        below plus accrued and unpaid interest, if any, on the PIK Toggle Notes
        redeemed, to the applicable redemption date, if redeemed during the twelve-month
        period beginning on June 1 of the years indicated below, subject to the rights
        of noteholders:
 
 Year
              
              Percentage2011
              
              
              104.250
              %2012
              
              
              102.125
              %2013
                  and thereafter
              
              
              100.000
              %
 
 Upon
        the
        occurrence of a change of control, each holder of the PIK Toggle Notes has
        the
        right to require the Company to repurchase some or all of such holder’s PIK
        Toggle Notes at a price in cash equal to 101% of the aggregate principal
        amount
        thereof plus accrued and unpaid interest, and PIK Interest, if any, to the
        date
        of purchase.
  ***Floating
        Rate Notes.***On May 31, 2007, Merger Sub issued $230.0
        million aggregate original principal amount of Floating Rate Notes under
        the
        Second Lien Senior Indenture with Wells Fargo Bank, National Association,
        as
        trustee.  See “Second Lien Senior Indenture”
below.  Interest on the Floating Rate Notes is reset for each
        semi-annual interest period and is calculated at the current LIBOR rate plus
        3.375%.  At September 30, 2007, our LIBOR-based rate was 8.760%, which
        includes the credit spread noted above.  Interest on the Floating Rate
        Notes is payable semiannually, in arrears, on each June 1 and December 1,
        commencing on December 1, 2007.  At the closing of the Transaction, as
        the surviving corporation in the Acquisition, we assumed all the obligations
        of
        Merger Sub under the Second Lien Senior Indenture.  The Floating Rate Notes
        mature on June 1, 2015.
 
 We
        may
        redeem some or all of the Floating Rate Notes at any time prior to June 1,
        2009,
        at a price equal to 100% of the principal amount thereof, plus the applicable
        premium (as defined by the Second Lien Senior Indenture), plus accrued and
        unpaid interest, if any, to the date of redemption.  In addition, on
        or before June 1, 2009, we may redeem up to 40% of the aggregate principal
        amount of the Floating Rate Notes with the net proceeds of certain equity
        offerings.
 
 Except
        as
        noted above, we cannot redeem the Floating Rate Notes until June 1,
        2009.  Thereafter we may redeem some or all of the Floating Rate Notes
        at the redemption prices (expressed as percentages of principal amount) set
        forth below plus accrued and unpaid interest, if any, on the Floating Rate
        Notes
        redeemed, to the applicable redemption date, if redeemed during the twelve-month
        period beginning on June 1 of the years indicated below, subject to the rights
        of noteholders:
 
 Year
              
              Percentage2009
              
              
              102.000
              %2010
              
              
              101.000
              %2011
                  and thereafter
              
              
              100.000
              %
  45
  Upon
        the
        occurrence of a change of control each holder of the Floating Rate Notes
        has the
        right to require the Company to repurchase some or all of such holder’s Floating
        Rate Notes at a price in cash equal to 101% of the aggregate principal amount
        thereof plus accrued and unpaid interest, if any, to the date of
        purchase.
 
 ***Interest
        Rate Swap.***In June 2007, we entered into an interest rate swap
        agreement for $230.0 million, which has the effect of converting our $230.0
        of
        Floating Rate Notes to fixed interest rates.  The effective date for
        the interest rate swap agreement is December 2007, the beginning of the next
        semi-annual interest rate period; the expiration date is May 2012.
 
 The
        interest rate swap agreement qualifies for cash flow hedge accounting under
        SFAS
        133, *Accounting for Derivative Instruments and Hedging
        Activities*.  Both at inception and on an on-going basis, we must
        perform an effectiveness test.  In accordance with SFAS 133, the fair
        value of the interest rate swap agreement at September 30, 2007 is included
        as a
        cash flow hedge on our balance sheet.  The change in fair value was
        recorded as a component of accumulated other comprehensive loss on our balance
        sheet since the instrument was determined to be an effective hedge at September
        30, 2007.  We do not expect any amounts to be reclassified into
        current earnings in the future due to ineffectiveness.
 
 As
        a
        result of our interest rate swap agreement, we expect the effective interest
        rate on our $230.0 million Floating Rate Notes to be 9.065% from December
        2007
        through May 2012.
 
 ***Second
        Lien Senior Indenture.***  Our Notes are guaranteed,
        jointly and severally, on a second priority senior secured basis, by certain
        of
        our future domestic subsidiaries.  We do not currently have any
        subsidiaries.  The Notes are our second priority senior secured
        obligations and rank:
 
 ·
              equal
                  in right of payment with all of our existing and future unsecured
                  and
                  unsubordinated indebtedness, and effectively senior to any such
                  unsecured
                  indebtedness to the extent of the value of
                  collateral;
 ·
              senior
                  in right of payment to all of our and our guarantor’s existing and future
                  subordinated indebtedness;
 ·
              effectively
                  junior to our senior secured credit facility and other obligations
                  that
                  are secured by first priority liens on the collateral securing
                  the Notes
                  or that are secured by a lien on assets that are not part of the
                  collateral securing the Notes, in each case, to the extent of the
                  value of
                  such collateral or assets; and
 ·
              structurally
                  subordinated to any indebtedness and other liabilities (including
                  trade
                  payables) of any of our future subsidiaries that are not
                  guarantors.
  The
        Second
        Lien Senior Indenture governing the Notes contains covenants that limit our
        and
        our guarantors’ ability, subject to certain definitions and exceptions, and
        certain of our future subsidiaries’ ability to:
 
 46
  ·
                incur
                    additional indebtedness;
 ·
                pay
                    cash dividends or distributions on our capital stock or repurchase
                    our
                    capital stock or subordinated debt;
 ·
                issue
                    redeemable stock or preferred
                    stock;
 ·
                issue
                    stock of subsidiaries;
 ·
                make
                    certain investments;
 ·
                transfer
                    or sell assets;
 ·
                create
                    liens on our assets to secure debt;
 ·
                enter
                    into transactions with affiliates;
                    and
 ·
                merge
                    or consolidate with another
                    company.
  ***Senior
          Secured Credit Facility.***In connection with the
          Transaction, the Company and Parent entered into a new first lien senior
          secured
          asset-based revolving credit facility providing for loans in an amount
          of up to
          $135.0 million pursuant to a credit agreement, dated as of May 31, 2007
          with a
          group of financial institutions. The senior secured credit facility is
          available
          for working capital and general corporate purposes, including permitted
          investments, capital expenditures and debt repayments, on a fully revolving
          basis, subject to the terms and conditions set forth in the credit documents
          in
          the form of revolving loans, swing line loans and letters of
          credit.
  The
          senior
          secured credit facility provides financing of up to $135.0 million, subject
          to a borrowing base calculated on the basis of certain of our eligible
          accounts
          receivable, inventory and equipment.  As of September 30, 2007, we had
          $132.7 million of unused borrowing availability under our senior secured
          credit
          facility based on a borrowing base of $135.0 million and after giving effect
          to
          $2.3 million used for letters of credit.
 
 The
          senior
          secured credit facility matures on May 31, 2013.  Our obligations
          under the senior secured credit facility are secured by a first priority
          security interest in substantially all of our assets, excluding a pledge
          of our
          and Parent’s capital stock, any joint ventures and certain other
          exceptions.  Our obligations under the senior secured credit facility
          are unconditionally guaranteed by our Parent.
 
 The
          senior
          secured credit facility provides that we have the right at any time to
          request
          up to $50.0 million of additional commitments, but the lenders are under no
          obligation to provide any such additional commitments, and any increase
          in
          commitments will be subject to customary conditions precedent, such as
          an
          absence of any default or events of default.  If we were to request
          any such additional commitments and the existing lenders or new lenders
          were to
          agree to provide such commitments, the senior secured credit facility size
          could
          be increased to up to $185.0 million, but our ability to borrow would still
          be limited by the amount of the borrowing base.
 
 Borrowings
          under the senior secured credit facility accrue interest at our
          option:
  ·
                At
                    a
                    per annum rate equal to 0.75% above the rate announced from time
                    to time
                    by the agent as the “prime rate” payable quarterly in arrears;
                    or
 ·
                At
                    a
                    per annum rate equal to 1.75% above the adjusted LIBOR rate used
                    by the
                    agent.
 
 Overdue
          principal, interest and other amounts will bear interest at a rate per
          annum
          equal to 2% in excess of the applicable interest rate.  The applicable
          margins of the senior secured credit facility will be subject to adjustment
          based upon leverage ratios.  The senior secured credit facility also
          provides for customary letter of credit fees, closing fees, unused line
          fees and
          other fees.
 47
 The
          senior
          secured credit facility requires our compliance with various affirmative
          and
          negative covenants.  Pursuant to the affirmative covenants, we and
          Parent will, among other things, deliver financial and other information
          to the
          agent, provide notice of certain events (including events of default),
          pay our
          obligations, maintain our properties, maintain the security interest in
          the
          collateral for the benefit of the agent and the lenders and maintain
          insurance.
 
 Among
          other restrictions, and subject to certain definitions and exceptions,
          the
          senior secured credit facility restricts our ability to:
  ·
                incur
                    indebtedness;
 ·
                create
                    or permit liens;
 ·
                declare
                    or pay dividends and certain other restricted
                    payments;
 ·
                consolidate,
                    merge or recapitalize;
 ·
                acquire
                    or sell assets;
 ·
                make
                    certain investments, loans or other
                    advances;
 ·
                enter
                    into transactions with affiliates;
 ·
                change
                    our line of business; and
 ·
                enter
                    into hedging transactions.
 
 The
          senior
          secured credit facility also contains a financial covenant that is calculated
          if
          our available borrowing capacity is less than $15.0 million for a certain
          period.  Such covenant consists of a minimum ratio of trailing
          four-quarter EBITDA to cash interest expense, as defined in the credit
          agreement
          dated May 31, 2007.
 
 The
          senior
          secured credit facility specifies certain events of default, including
          among
          others, failure to pay principal, interest or fees, violation of covenants,
          inaccuracy of representations or warranties, bankruptcy events, certain
          ERISA-related events, cross-defaults to other material agreements, change
          of
          control events, and invalidity of guarantees or security
          documents.  Some events of default will be triggered only after
          certain cure periods have expired, or will provide for materiality
          thresholds.  If such a default occurs, the lenders under the senior
          secured credit facility would be entitled to take various actions, including
          all
          actions permitted to be taken by a secured creditor and the acceleration
          of
          amounts due under the senior secured credit facility.
 
 ***10.125%
          Senior Notes.*** The 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 of, on or after November 1, 2007, at specified
          redemption prices plus accrued interest to the date of redemption.
 
 On
          May 17,
          2007, we entered into a supplemental indenture to our Indenture governing
          our
          Senior Notes, dated as of October 17, 2003, between the Company and Wells
          Fargo
          Bank, National Association, as trustee.  The Indenture governs the
          terms of the Senior Notes.  The supplemental indenture amended the
          Indenture.
 
 In
          May
          2007, in connection with the Transaction, we tendered for all of our outstanding
          Senior Notes, pursuant to their terms.  On May 31, 2007, $235.0
          million of our Senior Notes were purchased.  We paid $253.1 million,
          including a call premium of $16.1 million and accrued interest of $2.0
          million
          to complete the purchase.  We used proceeds from the issuance of our
          Notes to redeem a portion of our Senior Notes.
 48
  The
            amendments set forth in the supplemental indenture (the “Amendments”) became
            operative after the Company purchased all of its Senior Notes validly
            tendered
            and not withdrawn pursuant to its tender offer and consent
            solicitation.  As of May 11, 2007, holders of Senior Notes
            representing an amount greater than a majority of the principal amount
            of
            outstanding Senior Notes had validly tendered their Senior Notes and
            consented
            to the execution of the supplemental indenture.  The Amendments
            eliminated from the Indenture:
 
 ·
                  requirements
                      to file reports with the Securities and Exchange
                      Commission;
 ·
                  requirements
                      to pay taxes;
 ·
                  limitations
                      on the Company to use defenses against
                      usury;
 ·
                  limitation
                      on restricted payments;
 ·
                  limitation
                      on payment of dividends and other payment restrictions affecting
                      subsidiaries;
 ·
                  limitations
                      on incurrence of indebtedness and issuance of preferred
                      stock;
 ·
                  limitations
                      on asset sales and requirements to repurchase the Senior Notes
                      with excess
                      proceeds thereof;
 ·
                  limitations
                      on affiliate transactions;
 ·
                  limitations
                      on liens;
 ·
                  limitations
                      on the businesses in which the Company and its subsidiaries
                      may
                      engage;
 ·
                  requirements
                      to preserve corporate existence;
 ·
                  requirements
                      to purchase the Senior Notes upon a change of
                      control;
 ·
                  limitation
                      on the issuance of guarantees of
                      indebtedness;
 ·
                  limitations
                      on the payments for consent from holders of Senior
                      Notes;
 ·
                  limitations
                      on mergers, consolidation and sale of assets with respect to
                      the
                      Company;,
 ·
                  limitations
                      on mergers or consolidation of, or transfer of assets of, guarantors;
                      and
 ·
                  certain
                      events of default.
 
 On
            June
            13, 2007, we purchased an additional $15.1 million of our remaining Senior
            Notes, pursuant to their terms.  We paid $15.9 million of cash
            including a call premium of $0.7 million and accrued interest of $0.1
            million to
            complete the purchase.
 
 The
            Company has the right to redeem some or all of the remaining $9.9 million
            of
            Senior Notes at the redemption prices (expressed as a percentage of principal
            amount) set forth below, plus accrued and unpaid interest, if any, if
            redeemed
            during the twelve-month period beginning on November 1 of the years indicated
            below, subject to the rights of the noteholders:
 
 Year
                  Percentage2007
                  105.063%2008
                  102.531%2009
                      and thereafter
                  100.000%
 
 ***Termination
            of******O******ur******Amended Credit Agreement***.  In connection with the
            Transaction, we repaid all outstanding balances and terminated our Amended
            Credit Agreement.
 49
  **RECENT
            ACCOUNTING PRONOUNCEMENTS**
  In
            February 2007, the Financial Accounting Standards Board (“FASB”) issued
            Statement of Financial Accounting Standards (“SFAS”) No. 159, *The Fair Value
            Option for Financial Assets and Financial Liabilities*(“SFAS 159”), which
            permits entities to elect to measure many financial instruments and certain
            other items at fair value that are not currently required to be measured
            at fair
            value.  This election is irrevocable.  The provisions of
            SFAS 159 are effective for fiscal years beginning after November 15,
            2007.  We are currently evaluating the impact of SFAS 159, but believe
            the adoption of SFAS 159 will not have a material impact on our financial
            position or results of operations.
  In
            September 2006, the FASB issued 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
            158”).   SFAS 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 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 158
            are effective as of the end of the fiscal year ending after June 15,
            2007.  We are currently evaluating the impact of SFAS 158, but believe
            the adoption of SFAS 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 157”)*.*SFAS 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 157 are effective for fiscal
            years beginning after November 15, 2007.  We believe the adoption of
            SFAS will not have a material impact on our financial position or results
            of
            operations.
  **Safe
            Harbor Statement under the Private Securities Litigation Reform Act of
            1995:** We believe statements in this Form 10-Q 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 GPOs and IDNs;
 ·
                  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;
  50
 ·
                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 II, Item 1A of our quarterly report on
          Form
          10-Q for the quarter ended June 30, 2007.
 
 **Item
          3.  Quantitative and Qualitative Disclosures about Market
          Risk**
 
 Our
          primary exposure to market risk is interest rate risk associated with our
          debt.  We use both fixed and variable rate debt as sources of
          financing.  At September 30, 2007, we had approximately $476.7 million
          of total debt outstanding.  After taking into account the effect of
          our interest rate swap agreement, we had no debt bearing variable rate
          interest.
 
 In
          June
          2007, we entered into an interest rate swap agreement for $230.0 million,
          which
          has the effect of converting our $230.0 of Floating Rate Notes to fixed
          interest
          rates.  The effective date for the interest rate swap agreement is
          December 2007, the beginning of the next semi-annual interest rate period;
          the
          expiration date is May 2012.
 
 The
          interest rate swap agreement qualifies for cash flow hedge accounting under
          SFAS
          No. 133, *Accounting for Derivative Instruments and Hedging Activities*
          (“SFAS 133”).  Both at inception and on an on-going basis, we must
          perform an effectiveness test.  In accordance with SFAS 133 the fair
          value of the interest rate swap agreement at September 30, 2007 is included
          as a
          cash flow hedge on our balance sheet.  The change in fair value was
          recorded as a component of accumulated other comprehensive loss on our
          balance
          sheet since the instrument was determined to be an effective hedge at September
          30, 2007.  We do not expect any amounts to be reclassified into
          current earnings in the future due to ineffectiveness.
 
 As
          a
          result of our interest rate swap agreement, we expect the effective interest
          rate on our $230.0 million Floating Rate Notes to be 9.065% from December
          2007
          through May 2012.
 
 As
          of
          September 30, 2007, we have no other material exposure to market
          risk.
 
 **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.
 51
 (b)           *Changes
            in internal control over financial reporting*
 
 During
            the
            first nine months of 2007, 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, 2007, 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**
 
 Our
            business faces many risks.  Any of the risks discussed elsewhere in
            this Form 10-Q or our other filings with the SEC, including our risk
            factors set
            forth in our Annual Report on Form 10-K for the year ended December 31,
            2006 and
            in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007,
            could
            have a material impact on our business, financial condition or results
            of
            operations.  Additional risks and uncertainties not presently known to
            us or that we currently believe to be immaterial may also impair our
            business
            operations.
 
 **Item
            2.  Unregistered Sales of Equity Securities and Use of
            Proceeds**
 
 None.
 
 **Item
            3.  Defaults upon Senior Securities**
 
 Not
            applicable.
 
 **Item
            4.  Submission of Matters to a Vote of Security
            Holders**
 
 None.
 
 **Item
            5.  Other Information**
 
 Not
            applicable.
 
 **Item
            6.  Exhibits**
 
 **Number**
                  
                  **Description**31.1
                  
                  Certification
                      of Principal Executive Officer Pursuant to Section 302 of the
                      Sarbanes
                      Oxley Act of 2002.31.2
                  
                  Certification
                      of Principal Financial Officer Pursuant to Section 302 of the
                      Sarbanes
                      Oxley Act of 2002.32.1
                  
                  Certification
                      of Gary D. Blackford Pursuant to Section 906 of the Sarbanes-Oxley
                      Act of
                      200232.2
                  
                  Certification
                      of Rex T. Clevenger Pursuant to Section 906 of the Sarbanes-Oxley
                      Act of
                      2002
 
 52
  **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 12, 2007
 Universal
                      Hospital Services, Inc.By
                      /s/ Gary D. BlackfordGary
                      D. Blackford,Chairman
                      of the Board and Chief Executive Officer(Principal
                      Executive Officer and Duly Authorized Officer)By
                      /s/ Rex T. ClevengerRex
                      T. Clevenger,Executive
                      Vice President and Chief Financial Officer
                    (Principal
                      Financial Officer)
  53