SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                   ----------

                                    FORM 10-Q

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

                   For the quarterly period ended May 31, 1997

              [ ] 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 0-11781

                        HOSPITAL STAFFING SERVICES, INC.
             (Exact name of registrant as specified in its charter)

             FLORIDA                             59-2150637
             (State or other jurisdiction of     (I.R.S. Employer
             incorporation or organization)      Identification Number)

                      6245 North Federal Highway, Suite 500
                       Fort Lauderdale, Florida 33308-1900
                    (Address of principal executive offices)

                                 (954) 771-0500
               Registrant's telephone number, including area code

        Check whether the issuer (1) has filed all reports  required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 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_____

                      APPLICABLE ONLY TO CORPORATE ISSUERS
   State the number of shares outstanding of each of the issuer's classes of
  common equity, as of the latest practicable date: 6,359,770 shares of Common
             Stock, $.001 par value, outstanding at June 30, 1997.







<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                                TABLE OF CONTENTS


                                                                         Page(s)

PART I - FINANCIAL INFORMATION

        Consolidated Condensed Balance Sheets                            3

        Consolidated Condensed Statements of Operations                  4

        Consolidated Condensed Statements of Cash Flows                  5

        Notes to Consolidated Condensed Financial Statements             6 - 10

        Management's Discussion and Analysis of Financial Condition
        and Results of Operations                                        11 - 16



PART II - OTHER INFORMATION AND SIGNATURES                               17 - 18


                                       2
<PAGE>
<TABLE>


                Hospital Staffing Services, Inc. and Subsidiaries
                      Consolidated Condensed Balance Sheets



<CAPTION>

                             ASSETS                                                LIABILITIES AND STOCKHOLDERS' EQUITY
                            ----------                                         ----------------------------------------------

                                         May 31,     November 30,                                        May 31,      November 30,
                                          1997           1996                                             1997            1996
                                      -------------- --------------                                   --------------  --------------
                                       (Unaudited)                                                      (Unaudited)
CURRENT ASSETS:                                                    CURRENT LIABILITIES:
<S>                                     <C>            <C>         <C>                                  <C>            <C>    

  Cash and cash equivalents                $256,795       $145,247  Accounts payable                     $1,978,388      $2,470,506
  Short-term investments                     12,415         12,145  Line of credit payable                9,570,527       6,540,793
  Trade accounts receivable, less                                   Accrued payroll and benefits          2,043,959       2,130,053
    allowance for doubtful accounts of                              Accrued expenses                      2,134,053       2,539,016
    $680,982 and $559,251, respectively   9,034,540      9,622,122  Income taxes payable                    198,830         216,096
  Settlements due from Medicare          14,685,906     12,201,367  Capital leases                           37,409          17,522
  Amounts due from officers/directors        71,377         71,377  Notes payable                           318,260         503,678
  Current and deferred income
     taxes receivable                       567,168        587,215
  Other current assets                      578,292        599,062
                                      -------------- --------------                                   --------------  --------------
          Total current assets           25,206,493     23,238,535      Total current liabilities        16,281,426      14,417,664
                                      -------------- --------------                                   --------------  --------------



NON-CURRENT ASSETS:                                                 NON-CURRENT LIABILITIES:
                                                                    Notes payable                           438,728         510,728
                                                                    Capital leases                          101,044          80,881
                                                                    Other                                    74,000          73,999
                                                                                                      --------------  --------------
  Net property and equipment                824,050        879,735      Total non-current liabilities       613,772         665,608
                                      -------------- --------------                                   --------------  --------------

                                                                        Total liabilities                16,895,198      15,083,272
                                                                                                      --------------  --------------


  Intangibles related to businesses                                 COMMITMENTS AND CONTINGENCIES
    acquired                              2,205,016      2,258,028
  Non-competition agreements                479,426        479,426 STOCKHOLDERS' EQUITY:
                                                                    Preferred stock - $.001 par value;
                                      -------------- --------------  authorized 5,000,000 shares;
  Total intangibles                       2,684,442      2,737,454   none issued or outstanding                  -               - 
  Less:  Accumulated amortization          (822,796)      (785,133)
                                      -------------- --------------
          Net intangibles                 1,861,646      1,952,321  Common stock- $.001 par value;
                                      -------------- --------------  authorized 20,000,000 shares;
                                                                     6,359,770 shares issued
                                                                     and outstanding                          6,360           6,360
                                                                                                      
  Deposits and other assets                 383,225        340,836
                                                                    Additional paid-in capital           22,452,627      22,452,627
                                                                    Accumulated deficit                 (11,078,771)    (11,130,832)
                                      -------------- --------------                                   --------------  --------------
          Total non-current assets        3,068,921      3,172,892      Total stockholders' equity       11,380,216      11,328,155
                                      -------------- --------------                                   --------------  --------------
                                                                        Total liabilities and
          Total assets                  $28,275,414    $26,411,427          stockholders' equity        $28,275,414     $26,411,427
                                      ============== ==============                                   ==============  ==============





<FN>

              The accompanying notes are an integral part of these
                       consolidated condensed statements.
                                               
</FN>
</TABLE>

                                        3

<PAGE>
<TABLE>
                Hospital Staffing Services, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Operations

<CAPTION>

                                              Three months ended                 Six months ended
                                         -----------------------------    ------------------------------
                                          ------------   ------------      ------------    ------------
                                          May 31, 1997   May 31, 1996      May 31, 1997    May 31, 1996
                                          ------------   ------------      ------------    ------------
                                          (Unaudited)     (Unaudited)       (Unaudited)     (Unaudited)
<S>                                       <C>             <C>              <C>             <C>         

Net revenue from services                 $17,067,932     $15,968,499       $33,761,397     $30,474,127
                                          -----------     -----------       -----------     -----------

Cost of services:
    Professional salaries and benefits     8,763,909       8,429,888        17,173,945      15,949,854
    Other professional expenses            1,640,449       1,492,261         3,169,645       2,951,022

                                          -----------     -----------       -----------     -----------
Total cost of services                    10,404,358       9,922,149        20,343,590      18,900,876
                                          -----------     -----------       -----------     -----------

Gross margin                               6,663,574       6,046,350        13,417,807      11,573,251
                                          -----------     -----------       -----------     -----------

Selling, general and administrative expenses:
    Salaries and benefits                  4,067,395       3,205,216         8,025,968       6,435,033
    Other expenses                         2,578,633       2,449,164         5,110,643       4,610,001

                                          -----------     -----------       -----------     -----------
Total selling, general and administrative  6,646,028       5,654,380        13,136,611      11,045,034
                                          -----------     -----------       -----------     -----------

Income from operations                        17,546         391,970           281,196         528,217
                                          -----------     -----------       -----------     -----------

Interest and other income (expense):
    Interest expense                        (265,356)       (125,799)         (479,299)       (234,933)
    Interest income                                0           9,790                 0          25,824
    Other income (expense), net              263,185          19,326           262,164          75,589

                                          -----------     -----------       -----------     -----------
Total interest and other income (expense)     (2,171)        (96,683)         (217,135)       (133,520)

                                          -----------     -----------       -----------     -----------
Income before provision for income taxes      15,375         295,287            64,061         394,697

Provision for income taxes                   (12,000)        (94,000)          (12,000)       (119,889)
                                          -----------     -----------       -----------     -----------

Income before extraordinary item               3,375         201,287            52,061         274,808

Extraordinary loss on early 
 extinguishment of debt                           -               -                 -         (254,955)
                                          -----------     -----------       -----------     -----------

    Net income                                $3,375        $201,287           $52,061         $19,853
                                          ===========     ===========       ===========     ===========



Income per common share:
    Income before extraordinary item           $0.00           $0.03             $0.01           $0.04
    Extraordinary loss on early 
     extinguishment of debt                       -               -                 -            (0.04)
                                          -----------     -----------       -----------     -----------

Net income per common share                    $0.00           $0.03             $0.01           $0.00
                                          ===========     ===========       ===========     ===========


Weighted average common shares 
  outstanding:                             6,359,770       6,349,770         6,359,770       6,349,770
                                          ===========     ===========       ===========     ===========


<FN>

                 The accompanying notes are an integral part of
                    these consolidated condensed statements.
                                                                        
</FN>
</TABLE>
                                          4



<PAGE>
<TABLE>
                Hospital Staffing Services, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows

<CAPTION>

                                                                           For the six months ended:
                                                                         May 31, 1997        May 31, 1996
                                                                       ---------------      --------------
                                                                          (Unaudited)         (Unaudited)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S>                                                                       <C>                <C>    
   Net income (loss)                                                         $52,061             $19,853
                                                                          -----------         -----------

   Adjustments to reconcile  net income  (loss) to net cash  provided  (used) by
     operating activities:
       Depreciation and amortization                                         399,160             421,523
       Provision for losses on trade accounts receivable                     341,192             143,339
       Extraordinary loss on early extinguishment of debt                                         99,955
       Changes in assets and liabilities:
         (Increase) decrease in assets-
           Trade accounts receivable                                         246,390          (1,202,387)
           Settlements due from Medicare                                  (2,484,539)         (1,642,756)
           Prepaid expenses and other current assets                          11,267              17,908
           Current and deferred income taxes receivable                       20,048                   0
           Other assets                                                        7,250            (142,761)
         Increase (decrease) in liabilities -
           Accounts payable                                                 (492,118)           (781,076)
           Accrued payroll and benefits                                      (86,094)           (236,872)
           Accrued expenses and other                                       (453,131)         (1,195,535)
           Income taxes payable                                              (17,266)            (12,316)

                                                                          -----------         -----------
                 Total adjustments                                        (2,507,841)         (4,530,978)
                                                                          -----------         -----------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                          (2,455,780)         (4,511,125)
                                                                          -----------         -----------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
   Sale (purchase) of short-term investments, net                            (45,269)               (260)
   Capital expenditures                                                      (85,806)           (217,929)
   Proceeds from sale of home health operations                                                  145,782
   Purchase of therapy company                                                                   (60,000)
                                                                          -----------         -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                            (131,075)           (132,407)
                                                                          -----------         -----------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
   Line of credit borrowings (repayments)                                  3,029,734           4,204,998
   Extension fee on line of credit                                          (100,000)
   Payments under notes payable                                             (209,250)           (241,500)
   Payments under capital leases                                             (22,081)             (6,070)

                                                                          -----------         -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                           2,698,403           3,957,428
                                                                          -----------         -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         111,548            (686,104)

   Cash and cash equivalents at beginning of period                          145,247           1,697,804

                                                                          -----------         -----------
   Cash and cash equivalents at end of period                               $256,795          $1,011,700
                                                                          -----------         -----------

Supplemental Cash Flow Disclosures:
   Cash paid:              Income Taxes                                      $28,710            $134,436
                           Interest                                         $476,871            $230,645

<FN>

                 The accompanying notes are an integral part of
                    these consolidated condensed statements.
</FN>
</TABLE>
                                        
                                       5

<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  May 31, 1997
                                   (Unaudited)

NOTE 1:  SIGNIFICANT ACCOUNTING POLICIES

        The accounting policies followed by Hospital Staffing Services, Inc. and
subsidiaries (the "Company") for quarterly  financial reporting purposes are the
same as those  disclosed in the Company's  annual  financial  statements on Form
10-K. In the opinion of  management,  the  accompanying  consolidated  condensed
financial  statements  reflect all  adjustments  (which  consist  only of normal
recurring  adjustments)  necessary for a fair  presentation  of the  information
presented.

        The quarterly  consolidated  condensed financial  statements herein 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  included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles  have been condensed or omitted
pursuant  to such  rules and  regulations.  Although  the  Company's  management
believes the disclosures are adequate to make the information not misleading, it
is suggested that these quarterly consolidated condensed financial statements be
read in conjunction with the audited annual  financial  statements and footnotes
thereto.  The results of  operations  for the three (3) and six (6) months ended
May 31, 1997 are not  necessarily  indicative  of the results to be expected for
the entire fiscal year ending November 30, 1997.

NOTE 2:  DEBT

        On March 12, 1997,  the Company  amended its revolving line of credit to
increase  the  line to $14  million  and to  extend  the term of the line for an
additional year to February 1999. Fees and other costs related to this amendment
amounted to approximately  $100,000 and will be amortized over the extended term
of the line.

        In June 1997, the Company  further  amended its revolving line of credit
to replace the receivables,  which  collateralized  the standby letter of credit
with other, non-credit line receivables;  thus, increasing borrowing capacity by
$1.6 million.

NOTE 3:  STOCKHOLDERS' EQUITY

        1990 Stock Option Plan

        Pursuant to Board  action  during the quarter  ended  February 28, 1997,
10,000 options to purchase common stock were granted to a member of the Board of
Directors  under the 1990 Stock Option Plan with an exercise price of $2.375 per
share.  The exercise  price was  determined  by reference to the average  market
price over the ten (10) market days preceding the date of grant.

                                       6
<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

The options vested at the date of grant and are exercisable for a period of five
years from the date of grant.

NOTE 4:  COMMITMENTS AND CONTINGENCIES

        Dade County Medicare Investigation:

        On December 3, 1992, in  connection  with a federal  investigation  into
Medicare  practices by health care providers in South  Florida,  the Company was
served with federal search warrants.  In response to the issuance of the federal
search  warrants,  the Company engaged  counsel who initiated a  lawyer-directed
internal investigation into its Medicare claims processing system. This internal
investigation  focused on a review of the  compliance of the Company's  Medicare
practices with applicable laws and regulations.

        On December 15, 1992,  the Health Care Financing  Administration  (HCFA)
(through  its fiscal  intermediary)  notified  the  Company of its  decision  to
suspend  reimbursement  to the Company's South Florida  Medicare  offices.  Such
suspension  of Medicare  payments  in South  Florida  was based,  in part,  upon
allegations  of fraud  arising from the federal  investigation  into claims that
were  submitted  to Medicare  for services  that were not  rendered.  Management
believes that the alleged  violations and investigation  relate to the Company's
Dade  County,  Florida  Medicare  provider  and to  the  allocation  of  certain
corporate overhead costs to that provider and other of the Company's  providers.
Neither the federal  investigation nor the reason for the suspension  relates to
services  performed  by other  of the  Company's  former  or  existing  Medicare
providers.

        In December 1992, due to  circumstances  arising from the  investigation
and  suspension of Medicare  payments,  the Company  downsized,  and  eventually
closed,  its Medicare  homecare  offices in Dade,  Broward and Monroe  Counties,
Florida, and terminated its subcontracting relationships with staffing providers
in South Florida.

        Subsequent  to  December  1992,  the  Company  continued  to operate its
Medicare  office in Palm Beach County,  Florida,  at a  substantial  cost to the
Company, in anticipation of the reinstatement of Medicare payments. However, the
Company was unable to reach agreement with HCFA regarding the  reinstatement  of
Medicare payments to its South Florida operations.  Therefore, in February 1993,
the Company  effectively closed its South Florida Medicare operations by closing
the Palm Beach County  Medicare  office.  The Company  currently has no Medicare
home care operations in Florida.

As a result of the federal  investigation  and HCFA  suspension,  in fiscal year
1993 the Company initiated a  lawyer-directed  internal  investigation  into its
Medicare  claims  processing   system,   which  included  obtaining  advice  and
consultation from an attorney specializing in Medicare law,

                                       7
<PAGE>

                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

engaging a criminal  defense  attorney  and  implementing  a billing  review and
submission  program.  As of November 30,  1994,  the Company had  completed  the
billing  program  with  respect to all  visits not  subject to a claim of timely
filing.  While the majority of fiscal years 1991 and 1992 claims were billed,  a
number of claims were not billed based upon the Company's determination that the
claims did not comply with the  guidelines  established  as part of its internal
review program.  Management at this time is unable to estimate when the ultimate
outcome of the fiscal  years 1991 and 1992 claims  submissions  will be known or
when the federal  investigation  may conclude.  Accordingly,  it is unknown what
ultimate impact, if any, the outcome of these matters will have on the Company's
consolidated financial statements.

        The  estimated  settlement  amounts due to the Company from  Medicare as
reflected in the accompanying  consolidated condensed balance sheets, as well as
net revenue from services presented in the accompanying  consolidated  condensed
statements of operations,  are presented net of estimated Medicare reimbursement
disallowances.  The estimated disallowances are subject to continual review and,
as such,  may be  increased  or decreased  as  substantive  information  becomes
available.  Included in the  settlements due from Medicare as of May 31, 1997 is
approximately  $2.7  million for the  Company's  former South  Florida  Medicare
operations  representing  primarily  claims billed by the Company  subsequent to
closure of its South Florida Medicare operations.  The Company believes that the
settlements  due  from  Medicare  as  recorded  in  the  Company's  consolidated
condensed  balance  sheet as of May 31, 1997 are  realizable  at their  recorded
amount.

        As of July 1997,  four (4) years and seven (7) months have passed  since
execution of the search  warrants,  and no charges have been brought against the
Company or any of its  directors,  officers or  employees.  The Company has been
engaged in discussions with  representatives  from the United States  Attorney's
Office for the Southern District of Florida  concerning the possible  resolution
of the Medicare  investigation  and allegations as they might affect the Company
directly.  There are no  assurances  that  these  discussions  will  result in a
successful  resolution  of these  matters or in a  resolution  that would not be
materially  adverse  to the  Company.  Even  if the  Company  is  successful  in
resolving the Medicare investigation with the federal government,  in accordance
with its  indemnification  obligations  under its Articles of Incorporation  and
Bylaws, the Company may continue to incur legal expenses on behalf of certain of
its existing and former  directors,  officers or employees who are  individually
the subject of such investigation. In addition, the Company had been the subject
of a staff inquiry by the Securities and Exchange Commission ("SEC") relating to
the Medicare  investigation by the United States Attorney. In July 1996, the SEC
notified the Company  that they had  terminated  their  inquiry and that at that
time no enforcement actions had been recommended to the Commission.

        Litigation, Claims and Assessments:

        In the ordinary  course of  business,  the Company is exposed to various
claims,  incidents  which may lead to claims  and legal  proceedings  other than
those items discussed above.

                                       8
<PAGE>
               
               HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

In management's  opinion,  the outcome of all other such matters will not have a
material impact upon the Company's consolidated  financial position,  results of
operations and cash flows.

        Termination and Benefits Agreements:

        The Company  has  agreements  with  certain of its key  employees  which
provide for severance in the case of involuntary  termination and/or a change in
control to promote  adherence to  non-competition  provisions.  Such  agreements
provide for severance up to 12 months dependent upon the employee involved.  The
maximum  aggregate  salary  component  commitment for these  agreements would be
approximately $467,000 as of May 31, 1997.

        Self-Funded Insurance Plans:

        The Company self-funds its health and workers'  compensation programs up
to policy  limits,  as  defined.  Claims in excess of such limits are insured by
third  party  reinsurers.  The  Company's  estimate  of its  liability  for both
outstanding  as well as  incurred  but not  reported  claims  is based  upon its
historical  loss  experience.  As of May 31, 1997 and November  30,  1996,  such
reserves  totaled  approximately  $1.6 and $1.8 million,  respectively,  and are
included as a component  of accrued  expenses in the  accompanying  consolidated
condensed  balance  sheets.   Differences  between  actual  losses  and  reserve
estimates are recognized in the period in which such  differences  become known.
Management  believes that  differences  between actual losses incurred after May
31,  1997,  related  hereto,  and its  recorded  reserve  estimates  will not be
material.

        State Taxes:

        On June 9, 1997, the Company received notice of assessment of income and
franchise taxes payable from the Mississippi  State Tax Commission based upon an
audit of tax years 1992, 1993 and 1994. The assessment totals $170,000 including
$46,000 of interest  and  penalties.  The Company  has  exercised  its option to
request a hearing at which time the  Company  believes  that the  positions  set
forth in the tax return filed will prevail and thus, no  additional  tax will be
due.  Accordingly,  the  Company  does not  believe  that the notice will have a
material impact on the Company's  financial  position,  results of operations or
cash flows.

NOTE 5:  CONCENTRATION OF CREDIT RISK

        Since  1991,  the  Company has been  providing  services  to  healthcare
facilities located in the U.S. Virgin Islands, which facilities are owned by the
government of the U. S. Virgin Islands. Revenues from these facilities accounted
for  approximately  6% and 11% of consolidated net revenue from services for the
six (6) months  ended May 31, 1997 and May 31, 1996,  respectively.  Outstanding
accounts  receivable were  approximately $2.9 million and $4.5 million as of May
31, 1997 and November 30, 1996, respectively, and are included in trade accounts


                                       9
<PAGE>

receivable  in  the   accompanying   consolidated   condensed   balance  sheets.
Approximately  $929,000 of the May 31, 1997 balance has been outstanding for 180
days  or  greater.  As of  May  31,  1997,  $3.5  million  of the  $4.5  million
outstanding at November 30, 1996 had been collected.  Collections from customers
located in the U.S.  Virgin  Islands are  generally  slower  than the  Company's
domestic  customer base.  The  government of the U. S. Virgin Islands  currently
acknowledges  the debt and is  instituting  a plan to liquidate the amounts past
due.  Accordingly,  no allowance for doubtful accounts has been recorded related
to these outstanding receivables.


                                       10
<PAGE>




                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  May 31, 1997

        The  following   Management's   Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations  focuses on those  factors that have had a
material effect on the Company's  financial  condition and results of operations
during the three and six months ended May 31, 1997 and May 31,  1996.  It should
be  read in  conjunction  with  accompanying  consolidated  condensed  financial
statements and notes thereto.  Trends and contingencies of a material nature are
discussed to the extent known and considered relevant.

        Except for the  historical  information  contained  herein,  the matters
discussed in the  following  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations may include forward-looking  statements that
are subject to certain risks, uncertainties and exceptions. Such forward-looking
statements  are  intended  to be  identified  in  this  document  by  the  words
"anticipate,"   "estimate,"  "expect,"   "possible,"   "potential"  and  similar
expressions. Actual results may vary materially. Factors that could cause actual
results to differ materially  include,  but are not limited to, general economic
conditions;  competitive  factors;  changes  in  federal  or  state  legislation
governing  the  Company's  operations,   including  the  Medicare  and  Medicaid
reimbursement  climate;  resolution  of  the  Company's  Dade  County,  Florida,
investigative  issues;  and the other risk factors disclosed on Exhibit 99.01 to
the Company's Annual Report on Form 10-K for the year ended November 30, 1996.

        The Company  provides:  (i) home health care and other  in-home  support
services; (ii) interim staffing of nurses and other medical personnel, primarily
to  hospitals;   and  (iii)   rehabilitation   services,   including   physical,
occupational,  speech and other  therapy  services.  These  services are offered
through a pool of caregivers operating within the Company's network, which as of
May 31, 1997,  consisted of 28 home health care branch  offices in seven states,
active relationships for interim staffing needs with approximately 130 hospitals
in 30 states and the U.S. Virgin Islands and six rehabilitation clinics with one
clinic located in Georgia, one clinic located in Tennessee,  one in Rhode Island
and three in Florida.

Liquidity and Capital Resources

        General.  The Company's capital  requirements consist of funding current
operations,   expanding  services  provided  by  its  home  care,  staffing  and
rehabilitative  businesses, and the acquisition of compatible companies that can
be  integrated  with  existing  operating  units.  The  Company  expects to meet
short-term  liquidity needs through cash flow and borrowings available under its
credit facility as discussed below.

        Line of Credit.  In February 1996, the Company  entered into a two-year,
$8  million  uncommitted  revolving  line of credit  with a  commercial  finance
company.  On March 12, 1997, this line was increased to $14 million and extended
an additional year.

                                       11
<PAGE>

        The credit  facility bears interest at prime plus two percent per annum,
payable  monthly,  is secured by  substantially  all assets of the  Company  and
requires  adherence to certain  financial  covenants.  Borrowing is based on the
Company's eligible accounts receivable, as defined.

        The  credit  facility  includes  up to $2.0  million  securing a standby
letter of credit  required by the insurance  carrier for the Company's  workers'
compensation  coverage.  As of May 31, 1997, the Company was contingently liable
for a $1.6 million standby letter of credit issued by its lender  representing a
reduction of otherwise eligible borrowing. In June 1997, the Company amended its
agreement to replace the receivables which collateralized the stand by letter of
credit  with other,  non-credit  line  receivables;  thus,  increasing  eligible
borrowing by $1.6 million.

        Restrictive  Covenants.   The  line  of  credit  contains  a  number  of
covenants,  some of  which  could  affect  the  Company's  operations.  The most
significant of these covenants include:  (i) maintenance of minimum tangible net
worth;  (ii)  timely  submission  of  monthly,  quarterly  and annual  financial
statements;  (iii)  limitations on payments to employees or related  parties for
consulting  agreements  and in the  case  of  terminating  employees,  severance
agreements;  (iv)  restrictions  on new  debt,  guarantees  and the  payment  of
dividends;  and  (v)  approval  and/or  notice  requirements  for  acquisitions,
mergers, the sale of assets and changes in management.

        As of May 31, 1997,  principal borrowings under the credit facility were
approximately  $9.6 million and after  reflecting the amendment to the letter of
credit  collateral  set forth above,  approximately  $125,000 was  available for
additional borrowing under the line of credit. The Company is in compliance with
all required loan covenants.

        While management  believes that the present credit facility is generally
adequate to meet the  Company's  working  capital  needs (in the absence of slow
collections  of accounts  receivable),  the present  facility is not adequate to
provide  for any  significant  liabilities  that may  arise  (see  Note  4).  If
significant  contingencies  become commitments,  then, in the absence of raising
additional  capital,  the Company's liquidity will be adversely affected and the
Company may be unable to fund its commitments as they become due.

        Settlements Due To and From Medicare.  In the normal course of business,
the Company has estimated  settlements due to and from the Medicare Program. The
estimated  settlement  amounts  due to  Medicare  are the  result of: 1) interim
reimbursement  rates, at which the Company was paid for its services  throughout
the year,  exceeding the Company's actual costs of providing such services;  and
2) revisions by certain  intermediaries of the Company's  reported  reimbursable
costs after the  intermediaries'  review or audits of the Company's  cost report
filings.  Estimated settlements due from Medicare are presented net of estimated
settlements due to Medicare in the accompanying  consolidated  condensed balance
sheets.  Management's  plans to fund  settlements to Medicare as they become due
include:  1)  negotiating   extended  payment  plans;  2)  incurring  additional
borrowings  under the line of  credit,  if  available;  3) using  proceeds  from
additional  capital that may be raised;  or 4)  offsetting  amounts due from the
Medicare  program to the  Company.  However,  there are no  assurances  that the
Company  will be able to  successfully  utilize  any of these  four (4)  funding
options.  The Company  continues to be subject to lengthy time frames associated
with resolving  Medicare appeal and reopening issues on cost

                                       12
<PAGE>

reports  reflecting
amounts due from Medicare. As more fully described below and as set forth in the
Consolidated  Condensed  Statements of Cash Flows, such lengthy time frames have
had and are continuing to have an adverse impact on the Company's cash flows.

        For the twelve months ended  November 30, 1996, the Company had received
notification from the Medicare program's fiscal  intermediaries of approximately
$3,950,000 due to Medicare.  Through May 1997,  approximately $1,570,000 of this
amount has been repaid under Medicare approved repayment plans.  Included in the
$3,950,000 is  approximately  $2,000,000 for previously sold companies for which
the  Company is  establishing  repayment  plans with HCFA.  During this time the
Company anticipates settlement of certain provider cost reports with amounts due
to the Company in excess of the $2,000,000.

        Cash Position.  Net cash used by operating  activities was approximately
$2.5  million and $4.5 million for the six (6) months ended May 31, 1997 and May
31, 1996, respectively.

        In  addition  to  increases  or  decreases  in cash flow from  operating
activities, the Company's overall cash position can be significantly affected by
its  investing  and  financing  activities.   Financing  activities  principally
consisted of net repayments of outstanding  borrowings  under the Company's line
of credit.

        Net Working Capital.  As of May 31, 1997, the Company had  approximately
$8.9  million of working  capital  and  approximately  $257,000 of cash and cash
equivalents.  The ratio of current assets to current liabilities at May 31, 1997
was 1.5 to 1. As of May 31, 1997, the Company's  commitments  that would require
large or unusual  amounts of cash  consisted of office rents,  repayments to the
Medicare Program, and amounts due to the Chairman and Chief Executive Officer.

Results of Operations - Three and Six Months Ended May 31, 1997
Compared With Three and Six Months Ended May 31, 1996

        Net   Revenue.   Consolidated   net  revenue   increased   approximately
$1,099,000,  or 6.9% to $17,068,000 and $3,287,000,  or 10.8% to $33,761,000 for
the three and six months ended May 31, 1996 and 1997, respectively.

        Net revenue  from  services  provided by the  Company's  Homecare  Group
increased approximately $639,000, or 5.6% to $12,129,000 and $1,909,000, or 8.6%
to  $24,211,000  for he three  and six  months  ended  May 31,  1996  and  1997,
respectively.  The growth is  attributable to the maturation of the new Homecare
branches  established and certified  during the latter part of fiscal year 1996,
the continued overall growth of the New England Regional Homecare Operations and
the growth of the Mid South Proprietary Homecare operations.

        Net revenue from services  provided by the Company's HSS Staffing  Group
increased  approximately  $439,000,  or 11.0%, to $4,430,000 and $1,106,000,  or
14.9% to  $8,506,000  for the three and six months  ended May  31,1996 and 1997,
respectively.  Growth is attributable  to the addition of new client  hospitals,

                                       13
<PAGE>

the  re-contracting of certain existing client hospitals at more favorable rates
and the  maturation of new per diem branches,  all  facilitated  by an increased
demand for interim  staffing.  While this has been offset somewhat by a decrease
in nurses placed in Virgin Island Hospitals,  the resulting  diversification has
reduced the Company's  reliance on any one geographic  area or client during the
six months ended May 31, 1997, as compared to the prior year. (See note 5)

        Net  revenue  from  services  provided by the  Company's  Rehabilitation
Services  Group  decreased  approximately  $246,000,  or 35%,  to  $456,000  and
$214,000,  or 19.7% to $875,000  for the three and six months ended May 31, 1996
and 1997,  respectively.  The Rehabilitation Services Group's revenues decreased
due  to  the  closing  of  unprofitable   sites  which  did  not  contribute  to
non-rehabilitation services revenues.

        Cost of Services.  The cost of services for the Homecare Group increased
approximately  $82,000,  or  1.2%,  to  $6,656,000  and  $401,000,  or  3.2%  to
$13,001,000  for  the  three  and  six  months  ended  May 31,  1996  and  1997,
respectively.  The  cost of  services  increase  is  attributable  to  increased
manpower needs to process  increased revenue volume and normal salary increases.
Lower cost of services provided for increases in Homecare Gross Margins.

        Cost of services  for the HSS  Staffing  Group  increased  approximately
$274,000,  or 8.7%, to $3,428,000  and $692,000,  or 11.8% to $6,567,000 for the
three and six  months  ended May 31,  1996 and 1997,  respectively.  The cost of
service  increase is attributable to the volume of business  increase and to the
cost  associated  with  initiating  new  client  relationships,   including  the
increased  cost of placing  travel  healthcare  professionals  in locations  not
previously served by the Company. Such increases are less than revenue increases
which provided higher Gross Margins.

        The cost of services for the  Company's  Rehabilitation  Services  Group
decreased  approximately $146,000, or 34.1%, to $282,000 and $54,000, or 7.1% to
$709,000 for the three and six months ended May 31, 1996 and 1997, respectively.
The decrease in the cost of services for the  Rehabilitative  Services  Group is
attributable  to the closing of  unprofitable  sites which did not contribute to
non-rehabilitation services revenues.

        Gross Margin.  The Company's  gross margin before  selling,  general and
administrative expenses is the difference between amounts charged by the Company
to its clients or amounts reimbursed by third party payors and wages the Company
pays to its medical  personnel,  plus related housing costs,  travel,  insurance
costs and other benefits.

        The  Company's  gross  margin is subject to a number of factors  such as
billing  rates,  pay rates and cost of travel and  housing.  The impact of these
factors vary due to competitive  and seasonal  factors as well as the geographic
mix and type of service  (discipline  and payor source)  being  performed by the
Company.

        The Company's gross margin increased  approximately  $617,000, or 10.2%,
to $6,664,000  and  $1,845,000,  or 15.9% to  $13,418,000  for the three and six
months ended May 31, 1996 and 1997,  respectively.  Gross margin as a percentage
of  revenue  increased  from 37.9% to 39.0% and 38.0% to 39.7% for the three and
six months ended May 31, 1996 and 1997, respectively.

                                       14
<PAGE>

        Selling,  General  and  Administrative  Expenses.  Selling,  General and
Administrative   expenses  increased   approximately   $992,000,  or  17.5%,  to
$6,646,000 and $2,092,000,  or 18.9% to $13,137,000 for the three and six months
ended May 31, 1996 and 1997,  respectively.  The  increase  results  from higher
payroll and payroll  related costs relative to the investments by the Company to
reestablish  information systems as an in-house function,  to centralize patient
accounting for its Rehabilitative  Services Group and certain recently certified
Homecare  operations,  and  recruiting  and  travel  expenses  within  both  the
Company's  Homecare  and HSS  Staffing  Groups.  Additionally,  in the first six
months of fiscal 1996, workers compensation insurance reserves and certain legal
reserves  experienced  non-recurring  reductions of  approximately  $540,000 and
$115,000, respectively.

        Interest and Other Income (Expense). Higher interest costs resulted from
increased  borrowing  under the Company's line of credit which were used to fund
expansion of the Company's  revenues.  During the three and six months ended May
31, 1997,  average  borrowings  outstanding were $8.4 million,  compared to $3.4
million, for the corresponding periods of the prior year.

        Pre-Tax Income. Pre-Tax Income decreased $280,000 or 94.8% from $295,000
to $15,000 and $331,000 or 83.8% from  $395,000 to $64,000 for the three and six
months ended May 31, 1996 and 1997,  respectively.  As previously discussed, the
Company  experienced  improvements in revenues,  gross margins and net income in
all areas except for rehabilitation services.

        Extraordinary  Item. In connection with the early  extinguishment of its
debt owing to its prior lender, the Company incurred an extraordinary  charge of
$254,955 during the first quarter of 1996.

        Accounting  Pronouncements.  Effective  December  1, 1996,  the  Company
adopted Statement of Financial  Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of." Such adoption had no
effect on the Company's  Consolidated  Condensed  Financial  Statements  for the
three and six months ended May 31, 1997.

        In October 1995, the Financial  Accounting  Standards  Board issued SFAS
No. 123,  "Accounting for  Stock-Based  Compensation,"  which requires  adoption
during  the  Company's  current  fiscal  year.  SFAS No. 123  requires  that the
Company's financial statements include certain disclosures regarding stock-based
employee  compensation  arrangements.  Changes  in  accounting  for  stock-based
compensation  are  optional  and,  therefore,  the  Company  will adopt only the
disclosure  requirements.  Such  adoption will be made at the end of the current
fiscal year.

        On March 3, 1997, the Financial  Accounting  Standards Board issued SFAS
No. 128,  "Earnings Per Share," effective for fiscal years ending after December
15, 1997. When adopted, it will require restatement of prior years' earnings per
share. This statement would have no effect on the Company's financial statements
were it adopted as of the three or six months  ended May 31,  1997 as  presented
herein.

                                       15
<PAGE>

        In February  of this year,  the  Financial  Accounting  Standards  Board
issued SFAS No. 129,  "Disclosures  of  Information  about  Capital  Structure,"
effective  for fiscal  years ending after  December  15,  1997.  This  statement
establishes  standards  for  disclosing  information  about a Company's  capital
structure and is not  anticipated  to have an impact on the Company's  financial
statement disclosures.


                                       16
<PAGE>



                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                           PART II - OTHER INFORMATION
                                  May 31, 1997



ITEM 1.        LEGAL PROCEEDINGS

                      See  Note  4  to  the  Notes  to  Consolidated   Condensed
                      Financial   Statements.   See   also   "Item   3  -  Legal
                      Proceedings"  which is  incorporated by reference from the
                      Company's  Annual  Report in Form 10-K for the fiscal year
                      ended  November  30,  1996 filed with the  Securities  and
                      Exchange Commission on February 28, 1997.

ITEM 2.        CHANGES IN SECURITIES

                      None.

ITEM 3.        DEFAULT UPON SENIOR SECURITIES

                      None.

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

                      None.

ITEM 5.        OTHER INFORMATION

                      None.

ITEM 6.               EXHIBITS AND REPORTS ON FORM 8-K

                      (a)    Exhibits - None.

                      (b)    Reports - None.



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<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                                   SIGNATURES
                                  May 31, 1997


        Pursuant to the  requirements  of Section 13 or 15 (d) 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.


HOSPITAL STAFFING SERVICES, INC.


By:  /s/Ronald G. Huneycutt               Ronald G. Huneycutt, Vice President of
     Ronald G. Huneycutt                  Finance, Chief Financial Officer
                                          (principal financial officer)
                                          Date:  July 15, 1997


                                       18