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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

Commission File Number: 000-20086

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of Registrant as specified in its charter)

7700 France Avenue South, Suite 275

Edina, Minnesota 55435-5228

(Address of principal executive offices)

(Zip Code)

(952) 893-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

The number of shares outstanding of common stock, $.01 par value, as of March 16, 2005, was 123,435,607.96.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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FORM 10-K TABLE OF CONTENTS

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PART I

OUR COMPANY

Universal Hospital Services, Inc. (“we”, “our” or “UHS”) is a leading, nationwide provider of medical equipment outsourcing and services to the health care industry. Our customers include national, regional and local acute care hospitals, alternate site providers (such as nursing homes and home care providers) and medical equipment manufacturers. Our diverse customer base includes more than 3,100 acute care hospitals and approximately 3,150 alternate site providers. We also have extensive and long-standing relationships with over 200 major medical equipment manufacturers and many of the nation’s largest group purchasing organizations (GPOs) and integrated delivery networks (IDNs). All of our services leverage our nationwide network of 75 district offices, 62 technical service locations (most of which are co-located with the district offices) and our more than 65 years of experience managing and servicing all aspects of movable medical equipment. These services are paid for by our customers and not directly through reimbursement from governmental or other third-party payors. We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001. Our revenue, profits, and assets for the prior five years are described in “Item 6 – Selected Financial Data.”

As a leading medical equipment lifecycle services company, we design and offer comprehensive solutions for our customers that increase equipment and staff productivity and support optimal patient care.

Effective January 1, 2004, we began reporting our financial results in three segments, to reflect how we manage our business. Our operating segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We evaluate the performance of our operating segments based on gross margin. The accounting policies of the individual operating segments are the same as those of the entire company.

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Medical Equipment Outsourcing Segment- Manage & Utilize

Our flagship business is our Medical Equipment Outsourcing Segment which accounted for $156.5 million, or approximately 78.4%, of our revenues for the year ended December 31, 2004. We own approximately 150,000 pieces of movable medical equipment, primarily in the categories of respiratory therapy, newborn care, critical care, patient monitors, and bariatric and pressure area management. During the second quarter of 2004, we began an initiative to take a leadership position in bariatric equipment outsourcing (patient handling equipment for morbidly obese patients) by reentering this market with the acquisition of certain assets from Galaxy Medical Products, Inc., the acquisition of substantially all of the assets of Advanced Therapeutics of Wisconsin, Inc. and a geographic product rollout.

In our outsourcing programs we provide our customers with the use of movable medical equipment and we maintain the equipment for our customers by performing preventative maintenance, repairs, cleaning and testing, and maintaining certain reporting records. We also provide prompt replacement of any defective equipment and the flexibility to upgrade their equipment as technology changes. We have three primary outsourcing programs:

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Our AMPP programs include management of our equipment at the customer’s facility and/or management of customer-owned equipment. As of December 31, 2004, we had 36 AMPP programs.

Our medical equipment programs enable health care providers to replace the fixed costs of owning and/or leasing medical equipment with variable costs that are more closely related to their revenues and current equipment needs. The increased flexibility and services provided to our customers allows them to:

We currently provide outsourcing services to more than 3,100 acute care hospitals in the United States, including such premier institutions as UCLA Medical Center, Brigham and Women’s Hospital, Johns Hopkins Medical Center, Baylor University and Kansas University Medical Center. Our reentry into the bariatric market has given us new opportunities with many of our existing 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 with national 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

The Technical and Professional Services segment accounted for $25.5 million, or approximately 12.8%, of our revenues for the year ended December 31, 2004. We leverage our 65 plus years of experience and our extensive equipment database in repairing and maintaining medical equipment. We offer a broad range of inspection, preventative maintenance, repair, logistic and consulting services through our team of over 250 technicians and professionals located in our nationwide network of district offices and service centers.

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As of December 31, 2004, we have 74 resident-based maintenance programs and CHAMP^® (Community Hospital Asset Management Program) part-time resident programs within this segment.

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, or lack the expertise, funding or scale to perform maintenance, repair and analytical functions.

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Our technicians are trained and certified on an ongoing basis directly by equipment manufacturers to enable them to be skilled in servicing a wide spectrum of medical equipment. They are required to maintain current certifications, to be cross-trained across equipment lines and to refresh their training on a regular basis. We also operate a quality assurance department to develop and document our own quality standards for our equipment. All equipment maintenance, inspection and repair services are performed to our specifications. We utilize our proprietary record keeping software to record these services which meets the applicable standards of the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the National Fire Protection Association (NFPA) and the Food and Drug Administration (FDA). These maintenance records are available to our customers and to regulatory agencies to verify the maintenance of our equipment throughout its useful life.

We provide our Technical and Professional Services to four distinct categories of customers:

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While our contracts with GPOs once were solely to provide medical equipment outsourcing services, we have expanded some of our agreements with these organizations to include Technical and Professional Services. We believe this trend will continue as GPOs look to provide their members with services covering the entire medical equipment lifecycle.

Medical Equipment Sales and Remarketing Segment- Redeploy & Remarket

This segment accounted for $17.6 million, or approximately 8.8%, of our revenues for the year ended December 31, 2004. This segment includes three distinct business activities:

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BUSINESS OPERATIONS

District Offices

We currently operate 75 district offices throughout the United States, allowing us to service customers in all 50 states. Each district office maintains an inventory of equipment and other items tailored to accommodate the needs of individual customers within its geographical area. Should additional or unusual equipment be required by one of our customers, a district office can draw upon the resources of all of our other districts, with access to approximately 150,000 owned pieces of equipment, and is often able to obtain the necessary equipment within 24 hours.

Our district offices are staffed by multi-disciplined teams of sales professionals, customer service representatives and technicians trained to provide the spectrum of services we offer our customers.

Service Centers

Our district offices are supported by our network of 62 technical service centers. A majority of our service centers are co-located in shared space with our district offices. At these locations our technicians perform technical services on UHS owned equipment and on customer-owned equipment. Our service centers also enable us to offer warranty, non-warranty, upgrades and other services to our healthcare and equipment manufacturer customers. During 2004 six of our large, strategically located regional service centers were designated as “Centers of Excellence” to focus on providing more specialized depot technical services on a regional and national basis. Centers of Excellence also provide overflow support and specialized depot service functions for our other service centers and customized depot service operations for our manufacturer customers.

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Centralized Functions

At the core of our nationwide service is our corporate office located in Edina, Minnesota where we have centralized many of the key elements of our equipment and service offerings in order to maximize our operating efficiencies and uniformity of service. Some of the critical aspects of our business that we have centralized include contract administration, purchasing, pricing, logistics, and information technology.

Equipment Inventory

We acquire medical equipment to meet our customers’ needs in five primary product areas: respiratory therapy, newborn care, critical care, patient monitors and bariatric and pressure area management. We maintain one of the most technologically advanced equipment fleets in the industry, routinely acquiring new and pre-owned equipment to supplement our fleet. Our specialized equipment portfolio managers evaluate over 100 new products per year to keep abreast of current market technology and determine whether to add new products to our fleet. In making equipment purchases, we consider a variety of factors, including manufacturer credibility, repair and maintenance costs, anticipated user demand, equipment mobility, and anticipated obsolescence. As of December 31, 2004, we owned approximately 150,000 pieces of equipment available for use by our customers.

During 2004, we purchased approximately 85% of our movable medical equipment from over 200 manufacturers and 15% from the used equipment market. We added 34 new types of technology to our fleet during the year. Our ten largest manufacturers of movable medical equipment supplied approximately 70% of our direct movable medical equipment purchases. In 2004 our two largest movable medical equipment suppliers were Baxter Healthcare Corporation, and Tyco International, Ltd. (Mallinckrodt Medical, Puritan Bennet and Kendall Healthcare Products Company) which together accounted for over 20% of our movable medical equipment purchases.

We seek to ensure availability of equipment at favorable prices. Although we do not generally enter into long-term fixed price contracts with suppliers of our equipment, we may receive price discounts related to the volume of our purchases. The purchase price for our equipment generally ranges from $1,000 to $45,000 per item.

OUR STRENGTHS

We believe our business model presents an attractive value proposition to our customers and has resulted in significant growth in recent years. Our industry leading position in our flagship Medical Equipment Outsourcing segment presents us with considerable competitive advantages, and has facilitated further growth in complementary areas. We service customers across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers, outsourcers and resellers of movable medical equipment.

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We attribute our historical success to, and believe that our potential for future growth comes from, the following strengths:

Unique position in the health care arena. We are the only national company providing full movable medical equipment lifecycle services to the health care industry. While there are competitors that may offer various stages of the lifecycle, none provide the comprehensive approach that we do to our customers. Our extensive and long-standing relationships with more than 3,100 hospitals, approximately 3,150 alternate site providers, over 200 medical equipment manufacturers and the nation’s most prominent GPOs and IDNs present a considerable competitive advantage over our smaller regional competitors. We are uniquely positioned in the health care industry as a result of our: 1. investment in the industry’s largest, most extensive and modern fleet of moveable medical equipment; 2. nationwide infrastructure for service and logistics; 3. proprietary medical equipment management software and tools; 4. commitment to customer service that has earned us a reputation as a leader in quality and service in our industry; and 5. extensive knowledge and experience in acquiring, managing, maintaining and remarketing medical equipment.

Superior customer service. We have a long-standing reputation among our customers for service and quality. This reputation is largely due to our customer service culture, which is continuously reinforced through significant investment in hiring and training resources. We strive to seamlessly integrate our employees and service offerings into the operations of our customers. This aggressive focus on customer service has helped us achieve a high customer retention rate.

Large, modern equipment fleet. We own and manage an extensive, modern fleet of movable medical equipment, consisting of approximately 150,000 owned units. This modern equipment fleet, along with our quality assurance programs and tools, minimizes obsolescence risk and places us in a leadership position in the areas of quality and patient safety. It also places us in a unique position to service “high end” acute care hospitals, such as teaching, research or specialty institutions that demand the most current technology to satisfy the increasingly complex needs of their patients. Because we service the full spectrum of care providers, we are able to move equipment along the care spectrum as equipment ages.

Proprietary software and asset management tools. We have used our 65 years of experience and our extensive database of equipment management information to develop sophisticated software technology and management tools. These tools have allowed us to become a leader in meeting the demands of customers by delivering sophisticated asset management and patient safety programs that we use to drive cost efficiencies, equipment productivity and patient safety programs. We believe that our continued and significant investment in new tools and technology will help us to maintain our leadership role in the industry.

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Nationwide infrastructure. We have a broad, nationwide service network coupled with focused and customized operations at the local level. This extensive network of 75 district offices, 62 service centers (6 of which are designated as Centers of Excellence) and our 24-hour-a-day, 365 day-a-year service capabilities have enabled us to compete effectively for large, national contracts as well as to drive growth regionally and locally.

Industry with favorable fundamentals. The attractiveness of our business is driven by the overall favorable trends in health care in general and our segments in particular. The growth in the moveable medical equipment outsourcing industry is being driven by a fundamental shift in the needs of hospitals and alternate site providers from supplemental and peak needs supply of movable medical equipment to full equipment lifecycle asset management programs. This move to full outsourcing is not unlike trends in similar services at hospitals including food services, laundry, professional staffing and technology. The strong fundamentals in medical equipment outsourcing are being driven by the following trends:

Strong value proposition. With our focus and expertise in medical equipment lifecycle management, we are able to create a strong value proposition for our customers. We provide our customers with the ability to improve their performance with respect to

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equipment acquisition, efficiency, utilization, management, maintenance, repair and disposal. We also can help our customers improve employee satisfaction and regulatory compliance.

No direct reimbursement risk. Generally, health care providers rely on payment from patients or reimbursement from governmental or other third party payors. Our fees are paid directly by our acute care hospital, alternate site and manufacturer customers rather than through third party payors. Accordingly, our exposure to uncollectible patient or reimbursement receivables is reduced, as evidenced by our bad debt expense of approximately 0.5% of total revenues for the year ended December 31, 2004.

Proven management team. We have an industry leading management team with an average of approximately 13 years of health care experience. Our management team has successfully supervised the development of our competitive strategy, continually enhanced our service and product offerings, established our nationwide coverage and furthered our reputation as the industry’s service and quality leader.

GROWTH STRATEGY

Historically, we have experienced significant and sustained organic and strategic growth. Our overall growth strategy is to continue to grow both organically and through strategic acquisitions.

Organic Growth

We believe that the following external and market factors will provide us significant growth opportunities: 1. the aging population; 2. increasing life expectancy; 3. continued increase in the number and sophistication of medical technologies; 4. increasing cost and staffing pressures in hospitals; 5. continuing growth of outsourcing of non-core functions by hospitals, alternate site providers and manufacturers; and 6. further penetration of our resident-based programs.

Our organic growth will be driven by the following factors: 1. converting short term supplemental rental business to longer term AMPP and related resident-based programs; 2. aggressively growing our less capital intensive technical and professional services and equipment remarketing services; 3. increasing the number of hospitals, alternative care facilities and manufacturers to which we provide services; 4. expanding our relationships with GPOs and other national account customers; and 5. leveraging our broad range of service offerings to give us opportunities to serve new customers, and to provide new services to existing customers.

Acquisitions

In recent years, we have made and successfully integrated several strategic acquisitions that have helped us expand our business by increasing our market share in existing markets, adding additional service offerings, and enabling us to penetrate new geographic

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regions. We intend to continue to pursue a disciplined course of growing our business with complementary acquisitions. We regularly evaluate potential acquisitions, and we may be evaluating or engaging in acquisition negotiations at any time.

COMPETITION

We analyze our competition as it relates to our three business segments:

Medical Equipment Outsourcing Segment

We believe that the strongest competition to our outsourcing programs is the traditional purchase and lease alternatives for obtaining movable medical equipment. Currently, many acute care hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term alternative to purchasing or leasing equipment and managing that equipment through its full lifecycle. Although we believe that we can demonstrate the cost-effectiveness of outsourcing patient-ready movable medical equipment and its management in the healthcare setting, we believe that many health care providers will continue to purchase or lease and manage internally a substantial portion of their movable medical equipment until they are educated in the advantages and efficiencies of outsourcing.

We have one principal national competitor in the movable medical equipment outsourcing business: MEDIQ, Inc., based in Pennsauken, New Jersey. On February 2, 2004, MEDIQ was acquired by Hillenbrand Industries. Hillenbrand is a publicly traded holding company serving the health care and funeral services industries. Hillenbrand’s Hill-Rom subsidiary is a leading provider of therapy bed rentals and a manufacturer of hospital furniture. Hillenbrand has announced its intention to integrate MEDIQ’s operations into its Hill-Rom subsidiary.

Our other competition consists of regional or local companies and some movable medical equipment manufacturers and dealers that provide equipment outsourcing to augment their movable medical equipment sales. Local and regional companies have difficulty matching our technology pool or service levels and, therefore, have a propensity to compete on price. This can negatively impact our margins. We believe that our extensive and modern equipment fleet, national infrastructure and superior service allow us to compete effectively with these entities.

Technical and Professional Services Segment

We face significant and direct competition in the technical and professional services area from many national, regional and local service providers, as well as from manufacturers. In addition, many of our customers choose to perform these functions using their own personnel. We believe that through our nationwide network of highly trained technicians, strong customer relations and extensive equipment database we offer customers an attractive alternative for performing biomedical repair services on their equipment.

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Medical Equipment Sales and Remarketing Segment

In medical equipment sales, we face significant direct competition from a variety of manufacturers and distributors on a nationwide basis. As a result, we are selective in our pursuit of these opportunities. We believe our competition in the remarketing and asset recovery business is less intense. The equipment remarketing market is highly fragmented with low barriers to entry. In addition to manufacturers seeking to control the remarketing and disposal of their own products, we compete with a number of localized or more specialized providers of remarketing and disposal services.

EMPLOYEES

We had 1,188 employees as of December 31, 2004, including 1,096 full-time and 92 part-time employees. Of such employees, 133 are sales representatives, 295 are technical support personnel, 110 are employed in the areas of corporate and marketing, 188 are hospital service personnel and 462 are district office support personnel.

None of our employees is covered by a collective bargaining agreement, and we have experienced no work stoppages to date. We believe that our relations with our employees are good.

INTELLECTUAL PROPERTY

We use “UHS” and “CHAMP” as service marks in connection with our services and have registered these marks with the United States Patent and Trademark Office. We use the UHS logo, “Equipment Lifecycle Services”, and the Equipment Lifecycle Services logo as service marks in connection with our services. We have applied for federal trademark registration of these and other marks with the United States Patent and Trademark Office. We have also registered the domain name UHS.com which serves as our main website and my.UHS.com which is a web-based tool that provides 24 hour on-demand access to equipment reports for all equipment outsourced from us

We have developed proprietary software programs including the Asset Information Management System for Central Services (AIMS/CS), Resource for Equipment Documentation System (REDS) and Operator Error Identification System (OEIS). AIMS/CS is a medical equipment inventory management system that allows customers to track the location and usage of their leased and owned medical equipment using barcodes and hand held laser scanners. Our proprietary REDS and OEIS programs are specifically designed to help customers meet medical equipment documentation and reporting needs under applicable regulations and standards, such as those promulgated by the Food and Drug Administration and Joint Commission on Accreditation of Healthcare Organizations.

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MARKETING

We market our programs primarily through our direct sales force, which consisted of 133 professional sales representatives as of December 31, 2004. In the third quarter of 2004, we separated sales and customer service in the field to provide focused responsibility for each function.

We also market through a website that was redesigned in 2004, participation in numerous national and regional conventions, and placement of articles and advertisements in industry-leading publications.

In our marketing efforts, we primarily target key decision makers, such as administrators, chief executive officers and chief financial officers as well as materials managers, department heads and directors of purchasing, nursing and central supply. We also promote our programs and services to hospital, manufacturer and alternate care provider groups and associations.

REGULATORY MATTERS

Sarbanes Oxley. During 2005 we anticipate that we will incur additional expenses related to the management’s report, attestation and other requirements under Section 404 of the Sarbanes-Oxley Act of 2002. On March 2, 2005, the SEC announced that the compliance date for non-accelerated filers (such as UHS) was extended to December 31, 2006.

Regulation of Medical Equipment. Our customers are subject to documentation and safety reporting regulations and standards with respect to the medical equipment they use, including those established by the Food and Drug Administration (FDA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), and the National Fire Protection Association (NFPA). Some states and municipalities also have similar regulations.

Our REDS and OEIS programs (see description in “Intellectual Property” section of this Form 10-K) are specifically designed to help customers meet documentation and reporting needs under such regulations and standards. We also monitor changes in regulations and standards and work to accommodate the needs of customers by providing specific product and manufacturer information upon request. Manufacturers of medical equipment are subject to regulation by agencies and organizations such as the FDA, Underwriters Laboratories, and the NFPA. We believe that all movable medical equipment we outsource conforms to these regulations.

The Safe Medical Devices Act of 1990 (SMDA), which amended the Food, Drug and Cosmetic Act (FDCA), requires manufacturers, user facilities, and importers of medical devices to report deaths and serious injuries which a device has or may have caused or contributed to. The SMDA also requires the establishment and maintenance of adverse event files and various other FDA reports. Manufacturers and importers are also required

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to report certain device malfunctions. We work with our customers to assist them in meeting their reporting obligations under the FDCA, including those requirements added by the SMDA.

As a distributor of medical devices, we are required by the FDCA to maintain device complaint records containing any incident information regarding the identity, quality, durability, reliability, safety, effectiveness or performance of a device. We are required to retain copies of these records for a period of two years from the date of inclusion of the record in the file or for a period of time equivalent to the expected life of the device, whichever is greater, even if we cease to distribute the device. Finally, we are required to provide authorized FDA employees access to copy and verify these records upon their request. We have current compliance records regarding maintenance, repairs, modification, and user-error with respect to all of the equipment.

Besides the FDA, a number of states regulate medical device distributors and wholesalers either through pharmacy or device distributor licensure. Currently, we hold licenses in 11 states. Some licensure regulations and statutes in additional states may apply to our activities. Although our failure to possess such licenses in these states for our existing operations may subject us to certain monetary fines, we do not believe the extent of such fines, in the aggregate, will be material to our liquidity, financial condition or results of operation.

In addition, we are required to provide information to the manufacturer regarding the permanent disposal or any change in ownership of certain categories of medical outsourcing equipment. We believe our medical tracking systems are in material compliance with these regulations.

The Health Insurance Portability and Accountability Act of 1996, commonly known as HIPAA, applies to certain covered entities, including health plans, health care clearinghouses and health care providers. HIPAA regulations protect individually identifiable health information by, among other things, setting forth specific standards under which such information may be used and disclosed, furnishing patient rights to obtain and amend their health information, and establishing certain administrative requirements for covered entities. On February 20, 2003, the Department of Health and Human Services published new security standards addressing the security of electronic protected health information. The general deadline for compliance with these new security standards is April 21, 2005.

Because of our self-insured health plans, we are a covered entity under the HIPAA regulations. Also, we may be obligated contractually to comply with certain HIPAA requirements as a business associate of various health care providers. In addition, various state legislatures may enact additional privacy legislation that is not preempted by the federal law, which may impose additional burdens on us. Accordingly, we have made and, as new standards go into effect, we expect to continue to make administrative, operational and information infrastructure changes in order to comply with these rules.

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Third Party Reimbursement

Our fees are paid directly by our customers rather than through direct reimbursement from private insurers or governmental entities, such as Medicare or Medicaid. We do not bill the patient, the insurer or other third party payors directly for services provided for hospital inpatients or outpatients. Payment to health care providers by third party payors for our services depends substantially upon the reimbursement policies of these payors. Consequently, those policies have a direct effect on the ability of health care providers to pay for our services and an indirect effect on our level of charges. Also, in certain circumstances third party payors may take regulatory or other action against service providers even though the service provider does not receive direct reimbursement from third party payors.

Hospitals and alternate site providers are facing increased cost containment pressures from public and private insurers and other managed care providers, such as health maintenance organizations, preferred provider organizations and managed fee-for-service plans, as these organizations attempt to reduce the cost and utilization of healthcare services. We believe that these payors have followed or will follow the federal government in limiting reimbursement through preferred provider contracts, discounted fee arrangements and capitated (fixed patient care reimbursement) managed care arrangements. In addition to promoting managed care plans, employers are increasingly self funding their benefit programs and shifting costs to employees through increased deductibles, co-payments and employee contributions. We believe that these cost reduction efforts will place additional pressures on health care providers’ operating margins and will encourage efficient equipment management practices, such as use of our Pay-Per-Use outsourcing and AMPP services.

Liability and Insurance

Although we do not manufacture any medical equipment, our business entails the risk of claims related to the outsourcing, sale and service of medical equipment. In addition, our instruction of hospital employees with respect to the equipment’s use and our professional consulting services are sources of potential claims. We have not suffered a material loss due to a claim; however, any such claim, if made, could have a material adverse effect on our business. We maintain commercial general liability coverage, including product and premises liability insurance. We also maintain excess liability coverage. Our policies are subject to annual renewal. We believe that our current insurance coverage is adequate. Claims exceeding such coverage may be made and we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage.

FORWARD LOOKING STATEMENTS

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

We believe statements in this Annual Report on Form 10-K looking forward in time involve risks and uncertainties. The following factors, among others, could adversely

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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 the business as planned; our substantial outstanding debt and debt service obligations; restrictions imposed by the terms of our debt; a decrease in the number of patients our customers are serving; our ability to effect change in the manner in which healthcare providers traditionally procure medical equipment; the absence of long-term commitments with customers; our ability to renew contracts with group purchasing organizations and integrated delivery networks; changes in reimbursement rates and policies by third-party payors; the impact of health care reform initiatives; the impact of significant regulation of the health care industry and the need to comply with those regulations; difficulties or delays in our continued expansion into certain of our businesses/geographic markets and developments of new businesses/geographic markets; additional credit risks in increasing business with home care providers and nursing homes; and other Risk Factors as set forth below.

We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events included in this Annual Report on Form 10-K might not occur.

RISK FACTORS

If the patient census of our customers decreases, the revenues generated by our business could decrease.

Our operating results are dependent in part upon the amount and types of equipment necessary to service our customers’ needs which are heavily influenced by the total number of patients our customers are serving at any time (which we refer to as patient census). At times of lower patient census, our customers have a decreased need for our services on a supplemental or peak needs basis. Our operating results can vary depending on the timing and severity of the cold and flu season and the impact of national catastrophes, as well as other factors affecting census.

If we are unable to fund our significant cash needs, we may be unable to expand our business as planned or to service our debt.

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, borrowings under our senior secured credit facility or other financing sources, we may not be able to grow as currently planned. We currently expect that over the next 12 months we will invest approximately $45 million in new equipment. This estimate is subject to numerous assumptions, including revenue growth and the number of AMPP signings. In addition, a substantial portion of our cash flow from operations must be dedicated to servicing our debt and there are significant restrictions on our ability to incur additional indebtedness under the

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indenture governing our 10.125% senior notes due 2011 and our senior secured credit facility.

Primarily because of our debt service obligations and debt refinancing charges, we have had a history of net losses. If we continue to incur net losses, this could result in our inability to finance our business in the future. We had net losses of $5.1 million, $3.6 million, $0.2 million, $19.5 million and $3.6 million for the years ended 2000, 2001, 2002, 2003 and 2004, respectively.

If we are unable to meet certain financial and operating covenants contained in our Senior Secured Credit Facility or Senior Notes, our creditors could accelerate the debt or restrict further borrowing.

Our Senior Secured Credit Facility and our Senior Notes contain financial and operating covenants. (For a summary of the covenants under the Senior Secured Credit Facility, see “Covenants Under Our Secured Credit Facility” in Item 7 of this Form 10-K). If we fail to meet these covenants or obtain appropriate waivers, our creditors have a number of remedies including, but not limited to, acceleration of our debt or placement of restrictions on further borrowing.

If we are unable to change the manner in which health care providers traditionally procure medical equipment, we may not be able to achieve significant revenue growth.

We believe that the strongest competition to our outsourcing programs is the traditional purchase or lease alternative for obtaining movable medical equipment. Currently, many acute care hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term, effective and cost efficient alternative to purchasing or leasing equipment. Many health care providers may continue to purchase or lease a substantial portion of their movable medical equipment.

Our competitors may engage in significant price competition or liquidate significant amounts of surplus equipment, thereby decreasing the demand for outsourcing services and possibly causing us to reduce the rates we charge for our services.

In a number of our geographic and product markets, we compete with one principal competitor and various smaller equipment outsourcing companies that compete primarily on the basis of price. These competitors may offer certain customers lower prices depending on utilization levels and other factors. Our largest movable medical equipment outsourcing competitor, MEDIQ, Inc. was acquired by Hillenbrand Industries on February 2, 2004. Hillenbrand is a publicly traded holding company serving the healthcare and funeral services industries. Hillenbrand’s Hill-Rom subsidiary is a leading provider of therapy bed rentals and a manufacturer of hospital furniture. Hillenbrand has announced its intention to integrate MEDIQ’s operations into its Hill-Rom subsidiary. MEDIQ may engage in competitive practices that may undercut our pricing. In addition, MEDIQ or another competitor may liquidate significant amounts of surplus equipment,

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thereby decreasing the demand for outsourcing services and possibly causing us to reduce the rates we may charge for our services.

We have relationships with certain key suppliers, and adverse developments concerning these suppliers could delay our ability to procure equipment or increase our cost of purchasing equipment.

We purchased our movable medical equipment from over 200 manufacturers in 2004. Our ten largest manufacturers of movable medical equipment accounted for approximately 70% of our direct movable medical equipment purchases in 2004. Adverse developments concerning key suppliers or our relationships with them could force us to seek alternative sources for our movable medical equipment or to purchase such equipment on unfavorable terms. A delay in procuring equipment or an increase in the cost to purchase equipment could limit our ability to provide equipment to our customers on a timely and cost-effective basis. If we are unable to have access to parts or if manufacturers do not provide access to equipment manuals or training, we may not be able to provide certain technical and professional services.

A substantial portion of our revenues come from customers with whom we do not have long-term commitments, and cancellations by or disputes with customers could decrease the amount of revenues we generate, thereby reducing our ability to operate and expand our business.

We derived approximately 67% of our outsourcing revenues for the year ended December 31, 2004, from customers with whom we do not have any formal long-term commitment to use our programs. Our customers are generally not obligated to outsource our equipment under long-term commitments. In addition, many of our customers do not sign written agreements with us fixing the rights and obligations of the parties regarding matters such as billing, liability, warranty or use. Therefore, we face risks such as fluctuations in usage, inaccurate or false reporting of usage by customers and disputes over liabilities related to equipment use. Some of our AMPP total outsourcing programs with customers, under which we own substantially all of the movable medical equipment that they use and provide substantial staffing resources, are not subject to a written contract and could be terminated by the healthcare provider without notice or payment of any termination fee. A large number of such terminations may adversely affect our ability to generate revenue growth and sufficient cash flows to support our growth plans.

If we are unable to renew our contracts with GPOs or IDNs, we may lose existing customers, thereby reducing the amount of revenues we generate.

Our past revenue growth and our strategy for future growth depends, in part, on access to the new customers granted by our major contracts with GPOs and IDNs. In the past, we have been able to renew such contracts when they are up for renewal. If we are unable to renew our current GPO contracts, we may lose a portion of existing business with the customers who are members of such GPOs.

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Although we do not manufacture any medical equipment, our business entails the risk of claims related to the medical equipment that we outsource and service. We may not have adequate insurance to cover a claim, and it may be more expensive or difficult for us to obtain adequate insurance in the future.

We may be liable for claims related to the use of our movable medical equipment or to our maintenance or repair of a customer’s moveable medical equipment. Any such claims, if made and upheld, could make our business more expensive to operate and therefore less profitable. We may be subject to claims exceeding our insurance coverage or we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage. In addition, litigation relating to a claim could adversely affect our existing and potential customer relationships, create adverse public relations and divert management’s time and resources from the operation of the business.

Our growth strategy depends in part on our ability to successfully identify and manage our acquisitions and a failure to do so could impede our future revenue growth, thereby weakening our position in the industry with respect to our competitors.

As part of our growth strategy, we intend to pursue acquisitions or other strategic relationships within the health care industry that we believe will enable us to generate revenue growth and enhance our competitive position. During 2004 we have acquired several new businesses for an aggregate purchase price of $15.1 million. Future acquisitions may involve significant cash expenditures that could impede our future revenue growth. In addition, our efforts to execute our acquisition strategy may be affected by our ability to identify suitable candidates and negotiate and close acquisitions. We regularly evaluate potential acquisitions, and we may be evaluating or engaging in acquisition negotiations at any time. We may not be successful in acquiring other businesses, and the businesses we do acquire in the future may not ultimately produce returns that justify our related investment.

Acquisitions may involve numerous risks, including:

If we are unable to continue to grow through acquisitions, our ability to generate revenue growth and enhance our competitive position may be impaired.

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We depend on our sales professionals and service specialists, and may lose customers when any of our sales professionals and service specialists leave us.

Our revenue growth has been supported by hiring and developing new sales professionals and service specialists and adding, through acquisitions, established sales professionals and service specialists whose existing customers generally have become our customers. We have experienced and will continue to experience intense competition for these resources. The success of our programs depends on the relationships developed between our sales professionals and service specialists and our customers.

Our cash flow fluctuates during the year because operating income as a percentage of revenue fluctuates with our quarterly operating results and we make semi-annual debt service payments.

Our results of operations have been and can be expected to be subject to quarterly fluctuations. We may experience increased revenues in the first and fourth quarters of the year, depending upon the timing and severity of the cold and flu season and the related increased hospital census and movable medical equipment usage during that season. Because a significant portion of our expenses are relatively fixed over these periods, our operating income as a percentage of revenue tends to increase during the first and fourth quarter of each year. If the cold and flu season is delayed by as little as one month, or is less severe than in prior periods, our quarterly operating results for a current period can vary significantly from prior periods. Our quarterly results can also fluctuate as a result of other factors such as the timing of acquisitions, new AMPP agreements or new office openings. In addition, semi-annual interest payments on our 10.125% senior notes are paid in the second and fourth quarters, thus leading to significant fluctuations in cash flow from operations.

Changes in reimbursement rates and policies by third-party payors for medical equipment costs may reduce the rates that providers can pay for our services, requiring us to reduce our rates or putting our ability to collect payments at risk.

Our health care provider customers who pay us directly for the services we provide to them rely on reimbursement from third party payors for a substantial portion of their operating revenue. These third party payors include both governmental payors such as Medicare and Medicaid and private payors such as insurance companies and managed care organizations. There are widespread efforts to control health care costs in the United States by all of these payor groups. These cost containment initiatives have resulted in reimbursement policies based on fixed rates for a particular patient treatment that are unrelated to the providers’ actual costs or require health care providers to provide services on a discounted basis. Consequently, these reimbursement policies have a direct effect on health care providers’ ability to pay us for our services and an indirect effect on our level of charges. Ongoing concerns about rising health care costs may cause more

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restrictive reimbursement policies to be implemented in the future. Restrictions on the amounts or manner of reimbursements to health care providers may affect their willingness and ability to pay for the services we provide and may adversely affect our customers.

In periods when significant health care reform initiatives were under consideration and uncertainty remained as to their likely outcome, our profits decreased as the cost of doing business increased. If other significant health care reform initiatives occur, they may have a similar, negative effect.

Because the regulatory and political environment for health care significantly influences the capital equipment procurement decisions of health care providers, our ability to generate profits has historically been adversely affected in periods when significant health care reform initiatives were under consideration and uncertainty remained as to their likely outcome.

A portion of our revenues are derived from home care providers and nursing homes, and these health care providers may pose additional credit risks.

We may incur losses in the future due to the bankruptcy filings of our nursing home and home care customers. Such providers may pose additional credit risks since they are generally less financially sound than hospitals. Nursing homes in particular have experienced significant financial problems since the implementation of the Balanced Budget Act of 1997.

The interests of our major stockholders may conflict with your interests and these stockholders could cause us to take action that would be against your interests.

J.W. Childs Equity Partners, L.P. (JWC Fund I), J.W. Childs Equity Partners III, L.P. (JWC Fund III), JWC UHS Co-Invest LLC, JWC Fund III Co-Invest LLC, and Halifax Capital Partners, L.P., (Halifax), and their respective affiliates beneficially own shares representing over 90% of our common equity. Accordingly, these stockholders have the power to elect our board of directors, appoint new management and approve any action requiring a stockholder vote, including amendments to our certificate of incorporation and approving mergers or sales of substantially all of our assets. Such concentration of voting power could have the effect of deterring and preventing a change of control of our company that might otherwise be beneficial to our security holders. The directors so elected will have the authority to make decisions affecting our capital structure, including the issuance of additional indebtedness and the declaration of dividends. Circumstances may occur in which the interests of equity holders could be in conflict with your interests.

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A part of our future growth strategy involves growing our Technical and Professional Services and Equipment Sales and Remarketing segments, areas in which we have significant competitors which could reduce our ability to achieve this strategy and affect our planned growth.

Approximately 22% of our revenues in 2004 came from our Technical and Professional Services and Medical Equipment Sales and Remarketing segments. We may not be able to continue to grow these segments, and even if we do so, we expect to encounter increased and significant competition which could reduce our ability to achieve this strategy and affect our planned growth.

Consolidation in the health care industry may lead to a reduction in the outsourcing rates we charge, thereby decreasing our revenues.

In recent years, many acute care hospitals and alternate site providers have consolidated to create larger health care organizations. We believe that this consolidation trend may continue. Any resulting consolidated health care organization may have greater bargaining power over us, which could lead to a reduction in the outsourcing rates that we are able to charge. A reduction in our outsourcing rates may decrease our revenues.

Our competitors may bundle products and services, some of which we do not offer.

If competitors bundle products and services, some of which we do not offer, we may have a competitive disadvantage that will lower the demand for our services.

Our customers operate in a highly regulated environment and the regulations affecting them could lead to additional expenses associated with compliance and licensing, along with penalties resulting from possible violations, thereby increasing our costs and reducing income.

The healthcare industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels. While the majority of these regulations do not directly apply to us, there are some that do, including the FDCA and certain state pharmaceutical licensing requirements. Although we believe we are in compliance with the FDCA, if the FDA expands the reporting requirements under the FDCA, we may be required to comply with the expanded requirements and may incur substantial additional expenses in doing so. With respect to state pharmaceutical licensing requirements, we are currently licensed in 11 states and may be required to be licensed in additional states. Our failure to possess such licenses for our existing operations may subject us to certain additional expenses.

Given that our industry is heavily regulated, we may be subject to additional regulatory requirements. If our operations are found to be in violation of any governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation. Any penalties, damages, fines or curtailment of our operations would significantly increase our costs of doing business, thereby leading to difficulty generating sufficient income to support our business.

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As of December 31, 2004, we operated 75 full service district offices and 62 regional service centers, with 6 designated as service Centers of Excellence. Most of our service centers are co-located with our district offices. We own our Minneapolis, Minnesota district office facility, consisting of approximately 24,000 square feet of office, warehouse, processing and technical repair space. We lease our other district offices, averaging approximately 4,800 square feet, and our regional service centers. None of our offices is dedicated to a single business segment.

In 2004 we consolidated our corporate offices at a 41,000 square foot leased facility in Edina, Minnesota. The leases for our former corporate office in Bloomington, Minnesota (approximately 17,000 square feet) and our former corporate office in Edina, Minnesota (approximately 17,700 square feet) will expire on May 31, 2005.

From time to time, we may become involved in litigation arising out of operations in the normal course of business. As of December 31, 2004, 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.

None.

PART II

As of December 31, 2004, there were 42 holders of our common stock, par value $.01 per share. There is no established public trading market for our common stock, and we have never declared or paid a cash dividend on any class of our common stock. We intend to retain earnings for use in the operation and expansion of our business and therefore do not anticipate paying any cash dividends in the foreseeable future. Our debt instruments contain certain restrictions on our ability to pay cash dividends on our common stock (See Note 7, “Long Term Debt”, in the audited financial statements included in Item 15 of this Form 10-K, and the information regarding our revolving credit facility contained under the caption “Liquidity and Capital Resources” in Item 7 of this Form 10-K).

During the fourth quarter of 2004 we issued options to purchase an aggregate of 926,500 shares of common stock to a total of 88 employees under the 2003 Stock Option Plan. All the foregoing options were issued with an exercise price of $1.20 per share, the fair market value of a share of our common stock as determined by the Board of Directors.

All such options were issued pursuant to the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

We did not repurchase any of our equity securities during the fourth quarter of 2004.

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The selected financial data presented below under the captions “Statement of Operations Data,” “Other Financial Data” and “Balance Sheet Data” for and as of each of the years in the five-year period ended December 31, 2004, are derived from our audited financial statements. The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the financial statements and notes thereto and other financial and statistical information included elsewhere in this Form 10-K, including the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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Segment Information

Segment assets for the three operating business segments (excluding Corporate and Unallocated) primarily include goodwill and intangible assets. Corporate and Unallocated contains all other Company assets.

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OVERVIEW

We are a leading nationwide provider of medical equipment outsourcing and services to the health care industry, including national, regional and local acute care hospitals and alternate site providers, such as nursing homes and home care providers. We service customers across the spectrum of the equipment life cycle as a result of our position as the industry’s largest purchaser, outsourcer and reseller of movable medical equipment. Our diverse customer base includes more than 3,100 acute care hospitals and approximately 3,150 alternate site providers. We also have extensive and long-standing relationships with over 200 major medical equipment manufacturers and the nation’s largest GPOs and IDNs. Our service offerings fall into three segments: Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. All of our services leverage our nationwide logistics network and our 65 years of experience managing and servicing all aspects of movable medical equipment. These services are paid for by our customers and not directly through reimbursement from governmental or other third-party payors.

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. However, actual results could differ from these estimates. Management believes the critical accounting policies and areas that require more significant judgments and estimates used in the preparation of our consolidated financial statements to be:

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We estimate the allowance for doubtful accounts considering a number of factors, including: 1. historical experience; 2. aging of the accounts receivable; and 3. specific information obtained by us on the condition and the current creditworthiness of our customers. If the financial conditions of our customers were to deteriorate and affect the ability of our customers to make payments on their accounts, we may be required to increase our allowance by recording additional bad debt expense. Likewise, should the financial condition of our customers improve and result in payments or settlements of previously reserved amounts, we may be required to record a reduction in bad debt expense to reverse the recorded allowance.

Depreciation and amortization are recognized using the straight-line method over the estimated useful life of the long-lived asset and intangible asset. We estimate useful lives based on historical data and industry trends. We periodically reassess the estimated useful lives of our long-lived and intangible assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in the earnings and potentially require us to record an impairment charge.

We review long-lived and intangible assets, including goodwill, for impairment annually, or at any time events or circumstances indicate that the carrying value of such assets may not be fully recoverable. For long-lived assets and amortizable intangible assets, an impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. For goodwill, an impairment is evaluated based on the fair value of each reporting unit. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value based on discounted estimated future cash flows. As of January 1, 2005, no goodwill impairment has been recognized in 2004, 2003, or 2002.

The measurement of our pension benefit obligation is dependent on a variety of assumptions determined by management. These assumptions affect the amount and timing of future contributions and expenses. The assumptions used in developing the required estimates include discount rate, projected health care cost increases, expected return or earnings on assets, retirement rates and mortality rates. We assume no changes in projected salary costs as the benefits under the plan were frozen in 2002. The discount rate assumption is based on the investment yields available at year-end on corporate long-term bonds. Projected health care cost increases are based on our long-term actual

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experience, the near-term outlook and assumed inflation. The expected return on plan assets reflects asset allocations, investment strategies and the views of investment managers over a long-term perspective. Retirement and mortality rates are based primarily on actual plan experience. The effects of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in future periods. For 2004, our discount rate used to determine our pension expense was lower than in 2003, while our expected return on plan assets remained unchanged. As a result of freezing the benefits under the plan in 2002, we assumed no increases in salary costs for 2004; this resulted in lower pension expense in 2004 and should result in lower pension expense in future periods as compared to 2003 and prior years.

In the normal course of business, we make estimates of potential future loss accruals related to legal, tax, self-insurance medical and pension matters. These accruals require the use of management’s judgment on the outcome of various issues. Management’s estimates for these items are based on the best available evidence but due to changes in facts and circumstances, the ultimate outcomes of these accruals could be different than management estimates.

ACQUISITIONS

As part of our growth strategy, we regularly review and evaluate potential acquisition opportunities.

On March 24, 2004, we completed the acquisition of Affiliated Clinical Engineering Services, Inc. (ACES), located in Boston, Massachusetts. The purchase price was approximately $4.2 million. We financed this purchase from borrowings under our revolving credit facility.

On April 15, 2004, we completed the acquisition of certain assets from Galaxy Medical Products, Inc., headquartered in Akron, Ohio. The purchase price was approximately $4.9 million. We financed this purchase from borrowings under our revolving credit facility.

On May 4, 2004, we completed the acquisition of substantially all of the assets of Advanced Therapeutics of Wisconsin, Inc., headquartered in Milwaukee, Wisconsin. The purchase price was approximately $5.1 million. We financed this purchase from borrowings under our revolving credit facility.

On August 31, 2004, we completed the acquisition of certain assets of Cardinal Health 200, Inc., headquartered in Naperville, Illinois. The purchase price was approximately $0.9 million. We financed this purchase from borrowings under our revolving credit facility.

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RESULTS OF OPERATIONS

Fiscal year ended December 31, 2004, compared to fiscal year ended December 31, 2003

The following table provides information on the percentages of certain items of selected financial data compared to total revenues and also indicates the percentage increase or decrease of this information over the prior comparable period.

Fiscal year ended December 31, 2004, compared to fiscal year ended December 31, 2003

Medical Equipment Outsourcing Segment – Manage & Utilize

Medical equipment outsourcing revenues for the year ended December 31, 2004, were $156.5 million, representing a $16.3 million, or 11.6%, increase from medical equipment outsourcing revenues of $140.2 million for the same period of 2003. This growth was driven primarily by continued penetration of existing customers, a 5.0% increase in total customers, our re-entry into the bariatrics marketplace, the acquisitions of certain assets of Galaxy Medical Products, Inc. and Advanced Therapeutics of Wisconsin, Inc., and increased revenue from the net addition of two new AMPP programs.

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Technical and Professional Services Segment – Plan & Acquire; Maintain & Repair

Technical and professional service revenues for the year ended December 31, 2004, were $25.5 million, representing a $10.8 million, or 73.8%, increase from service revenues of $14.7 million for the same period of 2003. This growth was driven by our increased focus on providing additional services to our existing equipment outsourcing customers and equipment manufacturers and the acquisitions of Affiliated Clinical Engineering Services, Inc. and certain assets of Cardinal Health 200, Inc.

Medical Equipment Sales and Remarketing Segment – Redeploy & Remarket

Medical equipment sales and remarketing revenues for the year ended December 31, 2004, were $17.6 million, representing a $1.5 million, or 9.4%, increase from sales of supplies and equipment, and other of $16.1 million for the same period of 2003. Growth in this segment relates to a $2.5 million increase in equipment sales offset by a $1.0 million decline in sales of disposable goods.

Cost of Medical Equipment Outsourcing

Cost of medical equipment outsourcing for the year ended December 31, 2004, was $47.2 million, representing a $4.8 million, or 11.2% increase from cost of medical equipment outsourcing of $42.4 million for the same period of 2003. This increase was driven by an increase in delivery and processing costs of $2.7 million as well as higher supply costs associated with increased volume. Cost of medical equipment outsourcing represented 30.1% and 30.3% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

Movable Medical Equipment Depreciation

Movable medical equipment depreciation for the year ended December 31, 2004, was $36.0 million, representing a $3.9 million, or 12.1%, increase from movable medical equipment depreciation of $32.1 million for the same period of 2003. This increase was a result of current year movable medical equipment additions of $41.3 million. For the year 2004, movable medical equipment depreciation, as a percentage of equipment outsourcing revenues, increased to 23.0% from 22.9% for the same period of 2003.

Cost of Technical and Professional Services

Cost of technical and professional services for the year ended December 31, 2004, totaled $17.3 million, representing an $8.0 million or 85.9% increase from cost of technical and professional services of $9.3 million for the same period of 2003. This increase was primarily driven by increased volume and the acquisition of the lower margin ACES business. Cost of technical and professional services represented 67.8% and 63.5% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

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Cost of Medical Equipment Sales and Remarketing

Cost of medical equipment sales and remarketing for the year ended December 31, 2004, was $13.3 million, representing a $1.7 million or 15.2% increase from cost of medical equipment sales and remarketing of $11.6 million for the same period of 2003. This increase was driven by increased sales volume coupled with a shift toward lower margin products and continued rationalization of disposable sales. Cost of equipment sales and remarketing represented 75.5% and 71.7% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

Gross Margin

Total gross margin for the year ended December 31, 2004, was $85.8 million, representing a $10.2 million, or 13.5%, increase from the total gross margin of $75.6 million for the same period of 2003. For the year of 2004, total gross margin, as a percentage of total revenues, decreased to 43.0% from 44.2% for the same period in 2003. This decline resulted from a shift in our revenue mix toward lower gross margin percentage, non-capital intensive revenue sources.

Gross margin from the Medical Equipment Outsourcing segment for the year ended December 31, 2004, was $73.3 million, representing a $7.6 million, or 11.6% increase from medical equipment outsourcing gross margin of $65.7 million for the same period of 2003. Medical equipment outsourcing gross margin represented 46.8% and 46.8% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

Gross margin from the Technical and Professional Services segment for the year ended December 31, 2004, totaled $8.2 million, representing a $2.8 million or 53.0% increase from technical and professional services gross margin of $5.4 million for the same period of 2003. Gross margin from Technical and Professional Services represented 32.1% and 36.5% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

Gross margin from the Medical Equipment Sales and Remarketing segment for the year ended December 31, 2004, was $4.3 million, representing a $0.3 million or 5.4% decrease from Medical Equipment Sales and Remarketing gross margin of $4.6 million for the same period of 2003. Gross margin from medical equipment sales and remarketing represented 24.5% and 28.3% of segment revenues for the years ended December 31, 2004, and December 31, 2003, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2004, were $57.7 million, representing a $10.7 million, or 22.9%, increase from $47.0 million before recapitalization charges for the same period of 2003. Other selling, general and

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administrative expenses as a percentage of total revenue increased to 28.9% from 27.5% for the same period of 2003 as a result of higher spending to transition UHS from a focus on supplemental rental to a full medical equipment lifecycle company. These expenses include increases of $4.9 million of costs related to strengthening our corporate infrastructure, $4.6 million in costs related to upgrading and separating our sales and customer service organizations, $0.7 million in other intangible amortization, and $0.4 million in facilities costs associated with office relocations.

In 2003, we recorded a $14.4 million charge related to the recapitalization that occurred on October 17, 2003. (For a summary of the recapitalization, see Item 6 of our Form 10-K for the fiscal year ended December 31, 2003.) Recapitalization expenses consisted primarily of compensation expenses associated with the purchase of vested stock options of $11.3 million and miscellaneous fees and expenses of approximately $2.5 million and severance expense of $0.6 million.

Interest Expense

Interest expense for the year ended December 31, 2004, was $30.5 million, representing a $10.3 million, or 50.7%, increase from interest expense of $20.2 million for the same period of 2003. This increase is attributable to a full year of interest expense related to our 10.125% senior notes due 2011 that were issued in November 2003 as well as increased borrowings under our senior secured credit facility. Total average borrowings increased to $288.2 million in 2004 from $218.9 million in 2003.

Loss on Early Retirement of Debt

In connection with the 2003 recapitalization we incurred a $13.3 million loss on early retirement of debt. Of this $13.3 million, $6.9 million related to the call premium associated with the early redemption of 10.25% senior notes due 2008 and $6.4 million for the write-off of unamortized deferred financing costs associated with the retired debt. We incurred no such charges in 2004.

Income Taxes

Tax expense for 2004 was $1.2 million representing an increase of $0.9 million or 332.0% from income tax expense of $0.3 million for the same period of 2003. Income tax expense relates primarily to valuation allowances established for net operating losses not recognized.

Net Loss

We incurred a net loss of $3.6 million in 2004, representing a $15.9 million decrease from the net loss of $19.5 million in 2003. The decreased net loss is attributable to the absence of $27.7 million of charges associated with the November 2003 recapitalization partially offset by higher interest expenses also associated with the recapitalization and higher income tax expense.

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EBITDA

EBITDA for the year ended December 31, 2004, was $68.5 million, representing a $32.0 million, or 88%, increase from $36.5 million for the same period of 2003. This increase is due to revenue growth, generating higher gross margin of $10.2 million and the absence of $27.7 million of recapitalization costs in 2004. EBITDA for the year ended December 31, 2003, was $36.5 million, representing a $14.3 million, or 28.1%, decrease from $50.8 million for the same period of 2002.

EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Management understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt. EBITDA, however, is not a measure of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity. Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. EBITDA does not represent an amount of funds that is available for management’s discretionary use.

For a reconciliation of EBITDA to net cash provided by operating activities, see note (2) under “Item 6 -Selected financial data.”

Fiscal year ended December 31, 2003, compared to fiscal year ended December 31, 2002

Medical Equipment Outsourcing

Medical equipment outsourcing revenues for the year ended December 31, 2003, were $140.2 million, representing a $9.5 million, or 7.3%, increase from medical equipment outsourcing revenues of $130.7 million for the same period of 2002. Penetration of existing customers, an increase in total customers by 6.3% and revenue generated from our ten new AMPP customers accounted for the growth in total revenues.

Technical and Professional Services

Revenues from technical and professional services for the year ended December 31, 2003, were $14.7 million, representing a $3.5 million, or 31.2%, increase from technical and professional services revenues of $11.2 million for the same period of 2002. This growth relates to our increased focus on providing additional services to our existing customers.

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Medical Equipment Sales and Remarketing

Medical equipment sales and remarketing revenues for the year ended December 31, 2003, were $16.1 million, representing a $4.2 million, or 35.8%, increase from medical equipment sales and remarketing revenue of $11.9 million for the same period of 2002. Of this increase, $4.0 million is attributable to equipment sales, $0.7 million to sales of specialty infant protection systems and $0.3 million to parts sales, offset by a reduction in disposable sales of $0.8 million.

Cost of Medical Equipment Outsourcing

Cost of medical equipment outsourcing for the year ended December 31, 2003, was $42.4 million, representing a $6.2 million, or 17.1%, increase from cost of medical equipment outsourcing of $36.2 million for the same period of 2002. This increase was the result of equipment delivery and processing costs of $1.5 million, the costs incurred to service our new AMPP and Equipment Lifecycle Services (ELS) customers of $1.4 million, increased rent expense from new office openings of $0.4 million and other costs incurred due to outsourcing revenue growth. For 2003, cost of medical equipment outsourcing as a percentage of segment revenues, increased to 30.3% from 27.7% for the same period of 2002.

Cost of Technical and Professional Services

Cost of technical and professional services for the year ended December 31, 2003, was $9.3 million, representing a $1.1 million or 13.4% increase from technical and professional services cost of $8.2 million for the same period of 2002. This increase was driven by increased volume. For 2003, cost of technical and professional services as a percentage of segment revenues, decreased to 63.5% from 73.3% for the same period of 2002 primarily due to increasing economies of scale from higher revenues.

Cost of Medical Equipment Sales and Remarketing

Cost of medical equipment sales and remarketing for the year ended December 31, 2003, was $11.6 million, representing an increase of $2.8 million or 31.8% from cost of medical equipment sales and remarketing of $8.8 million for the same period of 2002. This increase was primarily attributable to increased volume. For 2003, cost of medical equipment sales and remarketing as a percentage of segment revenues, decreased to 71.7% from 73.9% for the same period of 2002.

Movable Medical Equipment Depreciation

Movable medical equipment depreciation for the year ended December 31, 2003, was $32.1 million, representing a $2.6 million, or 9.0%, increase from movable medical equipment depreciation of $29.5 million for the same period of 2002. This increase was a result of current year movable medical equipment additions of $39.1 million. For the year 2003, movable medical equipment depreciation, as a percentage of equipment outsourcing revenues, increased to 22.9% from 22.5% for the same period of 2002.

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Gross Margin

Total gross margin for the year ended December 31, 2003, was $75.6 million, representing a $4.4 million, or 6.3%, increase from total gross margin of $71.2 million for the same period of 2002. For the year of 2003, total gross margin, as a percentage of total revenues, decreased to 44.2% from 46.3% for the same period of 2002. Gross margin percentage declined as a result of higher service and repair costs as well as the revenue mix shift toward non-capital revenue sources.

Gross margin on medical equipment outsourcing for the year ended December 31, 2003, was $65.7 million, representing an increase of $0.6 million or 0.9% from medical equipment outsourcing gross margin of $65.1 million for the same period of 2002. Gross margin as a percentage of segment revenue for the year of 2003 decreased to 46.8% from 49.8% for the same period of 2002.

Gross margin on technical and professional services revenue for the year ended December 31, 2003, was $5.4 million, representing a $2.4 million or 79.8% increase from technical and professional services gross margin of $3.0 million for the same period of 2002. Gross margin as a percentage of segment revenue for the year of 2003 increased to 36.5% from 26.7% for the same period of 2002.

Gross margin on medical equipment sales and remarketing revenue for the year ended December 31, 2003, was $4.6 million, representing and increase of $1.5 million or 47.2% from equipment sales and remarketing gross margin of $3.1 million for the same period of 2002. Gross margin as a percentage of segment revenue for the year of 2003 increased to 28.3% from 26.1% for the same period of 2002.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2003, were $47.0 million, representing a $3.9 million, or 9.1%, increase from $43.1 million for the same period of 2002. The increase consists of $1.6 million for employee benefit costs, customer service and support costs of $0.8 million, expenses related to maintaining and improving our information technology systems of $0.8 million, additional management to support outsourcing and service businesses of $0.4 million and marketing expenses incurred of $0.4 million. Other selling, general and administrative expenses as a percentage of total revenue decreased to 27.5% from 28.0% for the same period of 2002 as a result of increased efficiencies.

In 2003, we recorded a $14.4 million charge related to the recapitalization. Recapitalization expenses consisted primarily of compensation expenses associated with the purchase of vested stock options of $11.3 million and miscellaneous fees and expenses of approximately $2.5 million and severance expense of $0.6 million.

We recorded a $10.1 million pretax charge in 2002 related to severance and stock compensation expenses associated with extension of the term of outstanding stock

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options for an executive and three departed executives. Of the $10.1 million total pretax charge, $9.4 million is stock compensation expense. Additional retirement benefits were $1.6 million for 2001, inclusive of $1.2 million of stock compensation primarily related to the extension of existing stock options to a retiring employee below the estimated fair market value.

Interest Expense

Interest expense for the year ended December 31, 2003, was $20.2 million, representing a $2.1 million, or 11.7%, increase from interest expense of $18.1 million for the same period of 2002. The increase is attributable to the recapitalization. Average borrowings increased from $206.0 million for the year of 2002 to $218.9 million for the year of 2003.

Loss on Early Retirement of Debt

In connection with the 2003 recapitalization we incurred a $13.3 million loss on early retirement of debt. Of this $13.3 million, $6.9 million related to the call premium associated with the early redemption of 10.25% senior notes due 2008 and $6.4 million for the write-off of unamortized deferred financing costs associated with the retired debt.

Income Taxes

Tax expense for 2003 consists of minimum state taxes. We did not have any federal tax or benefit for the year, as net operating losses generated for 2003 were offset by a valuation allowance.

Net Loss

We incurred a net loss of $19.5 million in 2003, representing a $19.3 million decrease from the net loss of $0.2 million in 2002. The 2003 net loss relates primarily to the recapitalization expenses (See “Selling, General and Administrative Expenses” above).

Seasonality

Quarterly operating results are typically affected by seasonal factors. Historically, our first and fourth quarters are the strongest, reflecting increased hospital census during the fall and winter months.

LIQUIDITY AND CAPITAL RESOURCES

Senior Secured Credit Facility

General

We have a five-year senior secured credit facility with a bank group led by General Electric Capital Corporation. This senior secured credit facility provides us with up to $100 million in available revolving borrowings, subject to borrowing base availability. At

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December 31, 2004, $37.0 million was drawn down on the facility, excluding letters of credit of $1.7 million. At December 31, 2004, there was $89.1 million available under the facility, excluding amounts outstanding and outstanding letters of credit. Interest on loans outstanding under our revolving credit facility is payable at a rate per annum, selected at our option, equal to the base rate margin (which is the banks’ base rate plus 1.75%) or the adjusted LIBOR rate (which is the LIBOR rate plus 3.00%). The revolving credit facility terminates on October 17, 2008. Our secured credit facility is secured by substantially all of our assets and the assets of some of our future subsidiaries, if any, and by a pledge of all of the capital stock of some of our future subsidiaries, if any.

Our senior secured credit facility contains covenants which restrict and limit our ability and the ability of our future subsidiaries, if any, with respect to, among other things, making loans, making capital expenditures, incurring or canceling indebtedness, entering into affiliate transactions, changing our capital structure, changing the nature of our business, granting liens, selling stock or assets, and dividends. Our credit facility also contains financial covenants and maintenance tests, including a total leverage ratio test, and an interest coverage ratio. (See “Covenants Under Our Secured Credit Facility” below and Exhibit 10.21 to the Annual Report on Form 10-K of Universal Hospital Services, Inc. for the fiscal year ended December 31, 2003.)

Covenants Under Our Secured Credit Facility

Our senior secured credit facility contains covenants which restrict and limit our ability and the ability of our future subsidiaries, if any, with respect to, among other things:

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In addition, neither we nor any of our subsidiaries are permitted to incur any indebtedness (other than our obligations under our new senior secured credit facility) under any “Credit Facilities” (as defined in the indenture governing the notes), and we and our subsidiaries are prohibited from repaying any amount in respect to certain specified indebtedness.

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In addition, neither we nor any of our subsidiaries may enter into an agreement or other obligation (other than our new senior secured credit facility, the related loan documents and the indenture governing the notes) which could require the consent of any person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by one of our subsidiaries to us.

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