===================================
                       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 August 31, 1996

              [ ] 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 400
                       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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be 
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ____ 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 September 30, 1996.
                       ==================================


<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                      6 - 10
          Statements

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

PART II - OTHER INFORMATION AND SIGNATURES                        17 - 19
















                                        2

<PAGE>
<TABLE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS


<CAPTION>

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

                                             August 31,     November 30,                                 August 31,     November 30,
                                                1996            1995                                        1996            1995
                                          ---------------  -------------                                -------------- -------------
                                            (Unaudited)                                                   (Unaudited)

CURRENT ASSETS:                                                          CURRENT LIABILITIES:
<S>                                          <C>           <C>           <C>                               <C>           <C>    

Cash and cash equivalents ................   $   486,327   $ 1,697,804   Accounts payable ..............   $ 1,848,562   $ 2,577,470
Short-term investments ...................        12,011        11,620   Line of credit payable (Note 3)     4,885,122       767,115
Trade accounts receivable, ...............                               Accrued payroll and benefits ..     1,829,232     2,240,404
  less allowance for doubtful ............                               Accrued expenses ..............     3,065,274     4,224,210
  accounts of $677,179
  and $599,599, respectively .............     7,441,537     6,129,371   Income taxes payable ..........       193,043       296,000
Settlements due from Medicare ............    12,187,497    10,372,741   Capital leases ................        16,980         7,131
Prepaid expenses .........................       322,659       418,335   Notes payable .................       829,324     1,255,130
Amounts due from officers
  and directors ..........................        69,064        40,392
Notes receivable .........................        99,909          --
Current and deferred income
  taxes receivable .......................       436,592     1,149,634
Other ....................................       365,106       344,482

                                         ---------------  -------------                                 --------------  ------------
       Total current assets                   21,420,702    20,164,379    Total current liabilities         12,667,537    11,367,460
                                         ---------------  -------------                                 --------------  ------------


NON-CURRENT ASSETS:                                                     NON-CURRENT LIABILITIES:
                                                                        Notes payable                        444,728         882,965
                                                                        Capital leases                        71,455          45,304
                                                                        Minority interest in limited
                                                                          partnership                         49,126               -

                                                                                                       -------------- --------------
Net property and equipment                       852,663       986,592    Total non-current liabilities     565,309          928,269
                                         ---------------  -------------                                -------------- --------------

                                                                                                       -------------- --------------
                                                                          Total liabilities               13,232,846      12,295,729
                                                                                                       -------------- --------------

Intangibles related to businesses                                       COMMITMENTS AND CONTINGENCIES (Notes 3 & 5)
  acquired                                     2,258,028      2,160,016
Non-competition agreements                       479,426        479,426 STOCKHOLDERS' EQUITY:
                                                                        Preferred stock - $.001 par value;
                                         ---------------  -------------   authorized 5,000,000 shares;
Total intangibles                              2,737,454      2,639,442   none issued or outstanding              -               -
Less:  Accumulated amortization                 (754,546)      (664,418)         

                                         ---------------  -------------
       Net intangibles                         1,982,908      1,975,024 Common stock- $.001 par value;
                                         ---------------  -------------   authorized 20,000,000 shares;
                                                                          6,359,770 shares issued and
                                                                          outstanding; respectively            6,360          6,350
                                                                          

Deposits and other assets                        236,964        244,826 Additional paid-in capital        22,452,627     22,428,887
                                         ---------------  -------------

                                                                        Accumulated deficit              (11,198,596)   (11,360,145)

                                                                                                      --------------  --------------
       Total non-current assets                3,072,535      3,206,442     Total stockholders' equity    11,260,391     11,075,092
                                         ---------------  -------------                               --------------  --------------

                                                                            Total liabilities and
       Total assets                          $24,493,237    $23,370,821        stockholders' equity      $24,493,237    $23,370,821
                                         ===============  =============                               ==============  ==============



<FN>

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

                                        3

<PAGE>
<TABLE>
                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED INCOME STATEMENTS

<CAPTION>

                                                  Three months ended August 31,      Nine months ended August 31,
                                                      1996           1995               1996             1995
                                                  -------------- --------------     --------------   -------------
                                                   (Unaudited)    (Unaudited)        (Unaudited)     (Unaudited)
   <S>                                               <C>            <C>                <C>             <C>    

   Net revenue from services                        $15,603,347    $13,521,691        $46,077,474     $42,093,599
                                                  -------------- --------------     --------------   -------------

   Cost of services:
      Professional salaries and benefits              7,952,769      7,033,095         23,902,623      21,856,811
      Other professional expenses                     1,570,642      1,353,056          4,521,664       4,165,138

                                                  -------------- --------------     --------------   -------------
      Total cost of services                          9,523,411      8,386,151         28,424,287      26,021,949
                                                  -------------- --------------     --------------   -------------

   Gross margin                                       6,079,936      5,135,540         17,653,187      16,071,650
                                                  -------------- --------------     --------------   -------------

   Selling, general and administrative expenses:
      Salaries and benefits                           3,533,239      2,801,983          9,968,272       8,635,336
      Legal, severance and other expenses             2,385,564      2,010,493          6,995,565       6,816,006

      Total selling, general and
                                                  -------------- --------------     --------------   -------------
         administrative expenses                      5,918,803      4,812,476         16,963,837      15,451,342
                                                  -------------- --------------     --------------   -------------

   Income from operations                               161,133        323,064            689,350         620,308
                                                  -------------- --------------     --------------   -------------

   Interest and other income (expense):
      Interest expense                                 (154,778)       (62,951)          (389,711)       (203,418)
      Interest income                                    31,859         18,670             57,683          52,424
      Other income,net                                  120,887          3,622            196,476          74,381

                                                  -------------- --------------     --------------   -------------
      Total interest and other income (expense)          (2,032)       (40,659)          (135,552)        (76,613)

                                                  -------------- --------------     --------------   -------------
   Income before provision for income taxes             159,101        282,405            553,798         543,695

   Provision for income taxes                           (17,406)       (46,000)          (137,295)       (122,000)
                                                  -------------- --------------     --------------   -------------

   Income before extraordinary item                     141,695        236,405            416,503         421,695

   Extraordinary loss on early extinguishment
     of debt (Note 3)                                         -              -           (254,955)              -
                                                  -------------- --------------     --------------   -------------

      Net income                                       $141,695       $236,405           $161,548        $421,695
                                                  ============== ==============     ==============   =============


   Income per common share:
      Income before extraordinary item                     $0.02          $0.04              $0.07           $0.07
      Extraordinary loss on early extinguishment
        of debt                                               -              -               (0.04)             -
                                                  -------------- --------------     --------------   -------------

      Net income per common share                          $0.02          $0.04              $0.03           $0.07
                                                  ============== ==============     ==============   =============


   Weighted average common shares outstanding:         6,356,292      5,780,403          6,351,952       5,780,403
                                                  ============== ==============     ==============   =============


<FN>

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

                                        4

<PAGE>
<TABLE>
                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

<CAPTION>

                                                                                   For the nine months ended:
                                                                                August 31, 1996 August 31, 1995
                                                                                --------------  ---------------
                                                                                (Unaudited)          (Unaudited)
<S>                                                                            <C>                  <C>                        
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
   Net income ........................................................         $   161,548          $   421,695
                                                                                -----------          -----------

   Adjustments to reconcile net income to net cash
     provided/(used) by operating activities:
       Depreciation and amortization .................................             590,973              540,950
       Severance obligations .........................................                --                630,000
       Extraordinary loss on early extinguishment
            of debt (Note 3) .........................................              99,955                 --
       Provision for losses on trade accounts receivable .............             163,590              624,919
       Loss on disposal and retirement of intangibles,
            property and equipment....................................                --                  4,236
       Changes in assets and liabilities:
         (Increase) decrease in assets-
           Trade accounts receivable .................................          (1,356,136)             262,562
           Settlements due from Medicare .............................          (1,630,352)           1,581,311
           Prepaid expenses and other current assets .................              95,673             (105,480)
           Amounts due from officers/directors .......................             (43,322)              68,949
           Income taxes receivable ...................................             713,043             (178,780)
           Deposits and other assets .................................            (397,600)             439,792
         Increase (decrease) in liabilities -
           Accounts payable ..........................................            (749,225)          (1,834,230)
           Accrued payroll and payroll taxes .........................            (643,783)            (253,133)
           Accrued expenses and other ................................          (1,710,180)          (1,817,818)
           Income taxes payable ......................................            (102,957)            (256,067)

                                                                                -----------          -----------
    Total adjustments ................................................          (4,970,321)            (292,789)
                                                                                -----------          -----------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES .....................          (4,808,773)             128,906
                                                                                -----------          -----------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
   Sale (purchase) of short-term investments, net ....................                (391)           1,148,729
   Capital expenditures ..............................................            (177,215)            (215,319)
   Proceeds from sale of California, New York
       and Arizona home health operations ............................             145,782                 --
   Purchase of therapy company .......................................             (60,000)                --
   Notes receivable ..................................................             (50,783)                --

                                                                                -----------          -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES .....................            (142,607)             933,410
                                                                                -----------          -----------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
   Net increases (decreases) on line of credit payable ...............           4,083,630              644,210
   Payments under notes payable ......................................            (354,107)            (209,805)
   Payments under capital leases .....................................             (13,370)                --
   Exercise of Stock Options .........................................              23,750                 --

                                                                                -----------          -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .....................           3,739,903              434,405
                                                                                -----------          -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................          (1,211,477)           1,496,721

   Cash and cash equivalents at beginning of period ..................           1,697,804              516,770

                                                                                -----------          -----------
   Cash and cash equivalents at end of period ........................         $   486,327          $ 2,013,491
                                                                                ===========          ===========

Supplemental Cash Flow Disclosures:
   Cash paid:   Income Taxes                                                   $   234,077          $   466,723
                Interest                                                       $   387,717          $   197,651


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

</FN>
</TABLE>
                                        5


<PAGE>

               
                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 August 31, 1996
                                   (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
therein.  The results of  operations  for the three and nine months ended August
31, 1996 are not  necessarily  indicative  of the results to be expected for the
entire fiscal year ending November 30, 1996.


NOTE 2:  ACQUISITION AND START-UPS

         In March 1996, the Company's  Rehabilitation Service Group acquired the
assets and liabilities of a therapy  company for an aggregate  purchase price of
approximately  $60,000  resulting  in additions to  intangibles  of $98,012.  In
addition,  the Group  opened three  therapy  clinics in Florida and one in Rhode
Island during the third  quarter.  The Company's  primary  investments  in these
clinics are short term, one year leases.

         In  August  1996  the  Company,  through  a  subsidiary,  completed  an
agreement to provide billing, accounting and cost reimbursement support services
to a management  company in  California.  Currently the  management  company has
thirteen homecare agencies under contract.


NOTE 3:  DEBT

         In  February  1996,  the  Company  entered  into a two-year  $8 million
uncommitted revolving line of credit with a commercial finance company.

         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

                                        6

<PAGE>


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

covenants.  Borrowing is based on the Company's eligible accounts  receivable as
defined.  A portion of the  proceeds  from this new credit  facility was used to
retire the remaining outstanding indebtedness with the Company's prior lender.

         The new 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 August 31,  1996,  the Company  was  contingently
liable  for a $1.8  million  standby  letter  of  credit  issued  by its  lender
representing a reduction of otherwise available borrowing.

         Similar to the prior line of credit,  the total borrowing  available is
subject to the renewal of certain nursing services  contracts in the U.S. Virgin
Islands.  Such  contracts are in the process of renewal and management is of the
opinion  that the full  borrowing  capacity  will be  available  to the Company.
Additionally,  while the interest rate on the new facility is unchanged from the
prior  facility,  administration  fees and charges related to the line of credit
are significantly reduced.

         The new 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. The Company is in compliance with all required loan covenants.

         As of  August  31,  1996,  approximately  $610,000  was  available  for
additional borrowing under the line of credit.

         In retiring the old line of credit,  the Company  incurred a penalty of
approximately $150,000 and wrote off approximately $104,955 in the first quarter
of  fiscal  1996  of  unamortized   loan  costs   associated  with  the  retired
indebtedness.  As a result,  the Company recorded an after-tax loss of $254,955,
which has been reflected in the Company's  consolidated  condensed  statement of
operations as an extraordinary item.


NOTE 4:  STOCKHOLDERS' EQUITY

1990 Stock Option Plan

         Pursuant  to Board  action  during the first  quarter  of fiscal  1996,
42,500  options to purchase  common stock were granted to certain key  employees
(under the 1990 Stock Option Plan) with an exercise price ranging from $2.375 to
$3.00 per share.  The  exercise  price  exceeded  the market price of the common
stock at the date of the grant.  Of the 42,500 options  granted,  30,000 options
vest as of the date of the award and are  exercisable for a period of five years
from the date of vesting and 12,500  options  vest one year from the date of the
award and are exercisable for a

                                        7

<PAGE>


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

period of five years from the date of vesting.  No options  were  granted in the
second or third quarters. In the third quarter 10,000 options to purchase common
stock were exercised at their price of $2.375 per share.


NOTE 5:  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  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
operations in Florida.

         As a result of the federal investigation and HCFA suspension, in fiscal
year 1993 the Company  undertook  an internal  review  program,  which  included
obtaining advice and consultation from an attorney specializing in Medicare law,
engaging a criminal  defense  attorney  and  implementing  a billing  review and
submission program. The Company has completed the billing

                                        8

<PAGE>


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

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  settlement  amounts  due  to  the  Company  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 subsequent information becomes available.  Included in
the  settlements due from Medicare as of August 31, 1996 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  balance sheet as of August
31, 1996 are realizable at their recorded amount.

         As of October 1996, 47 months have passed since execution of the search
warrants,  and no charges  have been  brought  against the Company or any of its
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  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 have been recommended to the commission.

         Litigation, Claims and Assessments:

         In the ordinary  course of business,  the Company is exposed to various
claims  and legal  proceedings  other  than  those  items  discussed  above.  In
management's  opinion,  the  outcome of all other such  matters  will not have a
material  impact  upon  the  Company's   consolidated   financial  position  and
consolidated results of operations.

         Termination and Benefits Agreements:

         The Company has agreements with certain of its key employees, which 
provide for

                                        9

<PAGE>


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

severance in the case of involuntary  termination and/or a change in control, to
promote  adherence  to  non-competition   provisions.  Such  agreements  provide
severance payments for up to 12 months dependent upon the employee involved. The
maximum  aggregate  salary  component  commitment for these  agreements would be
approximately $534,000 as of August 31, 1996.

         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
actuarially  determined loss experience.  As of August 31, 1996 and November 30,
1995,  such  reserves  totaled  approximately  $1.9  million  and $2.6  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 when such differences
become known.  Management believes that the differences,  if any, between actual
losses reported subsequent to August 31, 1996 and its recorded reserve estimates
will not be material.


NOTE 6:  CONCENTRATION OF CREDIT RISK

         The  Company  has been  providing  services  to  healthcare  facilities
located in the U.S.  Virgin  Islands,  which are owned by the  government of the
U.S. Virgin Islands,  since 1991.  Revenues from these facilities  accounted for
approximately  10.2% and 9.7% of consolidated  net revenue from services for the
nine months ended August 31, 1996 and August 31, 1995, respectively. Outstanding
accounts  receivable  were  approximately  $3.6  million and $3.0  million as of
August 31, 1996 and November 30, 1995,  respectively,  and are included in trade
accounts  receivable in the accompanying  consolidated  condensed balance sheets
and approximately $1,093,000 of this amount has been outstanding for 180 days or
greater.  Collections  from  customers  located in the U.S.  Virgin  Islands are
significantly  slower than the Company's  domestic customer base. The government
of the U.S. Virgin Islands currently  acknowledges the debt and has instituted a
plan to liquidate the amounts past due. Accordingly, for this reason and because
the Company has  experienced  no  collection  losses during the history of these
contracts,  no allowances  for doubtful  accounts have 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
                                 August 31, 1996


Liquidity and Capital Resources -

         General. Prior to its acquisition of the Continental and CarePoint Home
Health  Agencies in July,  1990 and February,  1991,  respectively,  the Company
funded its growth internally and through the net proceeds of $9,036,000 obtained
from two public  offerings.  The Company later  obtained a line of credit,  term
note and term loan to satisfy a portion of the acquisition costs and provide for
future working capital requirements.  The Company's capital requirements consist
of funding current  operations,  expanding  services  provided by its home care,
including  support  services  to non owned  home  care  agencies,  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 new 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.

         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.  A portion of the proceeds
from this new  credit  facility  was used to retire  the  remaining  outstanding
indebtedness with the Company's prior lender.

         The new 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 August 31,  1996,  the Company  was  contingently
liable  for a $1.8  million  standby  letter  of  credit  issued  by its  lender
representing a reduction of otherwise eligible borrowing.

         Similar to the prior line of credit,  the total borrowing  available is
subject to the renewal of certain nursing services  contracts in the U.S. Virgin
Islands.  Such  contracts are in the process of renewal and management is of the
opinion  that the full  borrowing  capacity  will be  available  to the Company.
Additionally,  while the interest rate on the new facility is unchanged from the
prior  facility,  administration  fees and charges related to the line of credit
are significantly reduced.

         Restrictive Covenants.  The new 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)

                                       11

<PAGE>


                                 
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 August 31, 1996,  principal  borrowings under the credit facility
were  approximately  $4.9 million and  approximately  $610,000 was available for
additional borrowing under the line of credit.  Additionally,  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 5 to the
Consolidated  Condensed  Financial  Statements).  If  significant  contingencies
become  liabilities,  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 funding options.

         At November  30,  1995,  the Company had amounts due to Medicare  under
notification from the Medicare program's fiscal  intermediaries of approximately
$2.4 million. As of August 31, 1996,  approximately  $859,000 of this amount has
been repaid. The remainder is expected to be offset against amounts due from the
Medicare program to the Company.

         Cash Position.  Net cash  provided/(used)  by operating  activities was
approximately  ($4,809,000)  and  $129,000  for the nine months ended August 31,
1996 and August 31, 1995, 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.

                                       12

<PAGE>


                                 
Financing activities principally consisted of net borrowings under the Company's
line of credit.

         Net  Working   Capital.   As  of  August  31,  1996,  the  Company  had
approximately  $8.8 million of working capital and  approximately $.5 million of
cash and cash equivalents. The ratio of current assets to current liabilities at
August 31, 1996 was 1.7 to 1. As of August 31, 1996,  the Company's  commitments
that would require large or unusual  amounts of cash  consisted of office rents,
repayments to the Medicare  program,  severance  obligation to a former officer,
and an amount due to the Chairman and Chief Executive Officer.




                                       13

<PAGE>


                                 
Results of Operations - Three and Nine Months Ended August 31, 1996
Compared With Three and Nine Months Ended August 31, 1995

         Revenues.  Consolidated net revenues  increased  $2,082,000,  or 15.4%,
from  $13,521,000 to $15,603,000  and $3,984,000,  or 9.5%, from  $42,094,000 to
$46,078,000  for the three  and nine  months  ended  August  31,  1995 and 1996,
respectively.  This increase is primarily attributable to higher revenues within
the Company's Travel Nurse,  Rehabilitative and Management  Services Groups. The
discussions  below of  individual  segments do not include  the  elimination  of
intergroup  charges of  approximately  $34,400 and $370,500 for the three months
and nine  months,  respectively,  ended  August 31,  1996,  as  reflected in the
consolidated presentation.

         Net  revenues  from the  Company's  Homecare  Group for the nine months
ended August 31, 1996,  increased by $1,221,000,  or 3.7%,  from  $32,856,000 to
$34,077,000.  Substantially  all of this increase occurred in the third quarter,
and the  increase  relates  primarily  to  Medicare  revenues in the New England
region.

         Net revenues from services provided by the Company's Travel Nurse Group
increased $371,000,  or 14.6%, from $2,542,000 to $2,913,000 and $1,784,000,  or
20.9%, from $8,530,000 to $10,314,000 for the three and nine months ended August
31, 1995 and 1996,  respectively.  Contributing  to this  increase  was a higher
volume of nurses under contract,  new staffing  operations  within the Company's
New England region, and a continued enhancement of strategic marketing, employee
training, and customer service.

         Net revenues  from services  provided by the  Company's  Rehabilitation
Services  Group  increased  $143,000,  or 29.6%,  from  $483,000 to $626,000 and
$812,000,  or 89.8%,  from $904,000 to $1,716,000  for the three and nine months
ended August 31, 1995 and 1996, respectively.  The increase was due primarily to
revenues  attributable  to certain  therapy  operations  within the Atlanta area
acquired on March 31, 1996,  and the opening of four (4) therapy  clinics in the
three months ended August 31, 1996.

         Net  revenues  from  services  provided  by  the  Company's  Management
Services Group, HSS Health Initiatives, were approximately $324,000 and $342,000
for the three and nine months  ended August 31, 1996.  The  operating  group was
established during mid-second quarter.

         Cost of Services.  Cost of services for the  Homecare  Group  increased
$360,000,  or 5.9%,  from  $6,125,000 to  $6,485,000  for the three months ended
August 31,1996,  and $194,000,  or 1.0%, from $18,890,000 to $19,084,000 for the
nine months ended August 31, 1996.  Direct costs for the quarter  ending  August
31,  1996 are  higher due to a greater  utilization  of  Medicare  visits in the
Company's northeast region resulting in higher independent  contractor,  payroll
and related  expenses.  Year-to-date  this increase was offset by the downsizing
and/or consolidation of certain proprietary offices within the Homecare Group.

         Cost of services  for the Travel  Nurse Group  increased  $415,000,  or
20.4%, from $2,035,000 to $2,450,000,  and $1,522,000, or 22.4%, from $6,803,000
to  $8,325,000  for the three and nine  months  ended  August 31, 1995 and 1996,
respectively.  A higher  volume  of nurses  under  contract  and new  operations
established in the New England region, as previously discussed,  are the primary
reasons for this increase.


                                       14

<PAGE>


                                 
         Cost  of  services  for the  Company's  Rehabilitation  Services  Group
increased  $183,000,  or 62.9%,  from  $291,000 to $474,000,  and  $712,000,  or
135.8%, from $525,000 to $1,237,000,  for the three and nine months ended August
31,  1995 and  1996,  respectively.  Higher  independent  contractor  costs,  in
addition  to the  acquisition  of a therapy  company and the opening of four (4)
clinics previously discussed, have resulted in this increase.

         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,  travel,  and
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 from 38.0% and 38.2% for the three
and nine months ended August 31, 1995, to 39.0% and 38.3% for the three and nine
months ended August 31, 1996.  These increases result from higher margins within
the  Company's  Homecare  Operations  and the higher  margins  of the  Company's
Management  Services Group offset  somewhat by lower margins in the Travel Nurse
and Rehabilitation Group.

         Selling, General and Administration. The Company's Selling, General and
Administration  Expenses  increased  $1,106,000  or  23.0%  from  $4,813,000  to
$5,919,000, and $1,513,000 or 9.8% from $15,451,000 to $16,964,000 for the three
and nine months ended August 31, 1995, and 1996, respectively.  Of the increase,
the majority of which occurred in the third quarter, approximately $600,000 is a
function of accrual reversals in Workers' Compensation and Legal reserves in the
third  quarter  of 1995.  The  remainder  of the  increase  is the result of the
therapy  clinic  acquisition  and  the  start  up of  the  four  clinics  in the
Rehabilitation Group and normal increases.

         Interest  and  Other  Income  (Expense).   Interest  and  other  income
(expense),  net, was  approximately  $59,000  higher net expense during the nine
months ended August 31, 1996,  as compared to 1995.  This  increased net expense
resulted  primarily  from  higher  average  outstanding   borrowings  under  the
Company's  credit  facility and interest  costs related to a note payable to the
Company's landlord in connection with the lease termination  penalty incurred in
fiscal 1995,  net of  recoveries of accounts  receivable  in sold  operations of
approximately $120,000 during the third quarter of 1996.

         Pre-tax  Income.  Pre-tax  Income  decreased  $123,000  or  43.7%  from
$282,000  to  $159,000  for the three  months  ended  August 31,  1995 and 1996,
respectively;  however,  increased $10,000 or 1.9% from $544,000 to $554,000 for
the nine months  ended  August 31, 1995 and 1996,  respectively.  As  previously
discussed, gross margins increased in the third quarter but were offset


                                       15

<PAGE>


                                 
by increases in Selling, General and Administration expenses.

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


                                       16

<PAGE>


                                 
                        HOSPITAL STAFFING SERVICES, INC.
                           PART II - OTHER INFORMATION
                                 August 31, 1996

         ITEM 1.           LEGAL PROCEEDINGS

                           See  Note 5 to the  Notes to  Consolidated  Financial
                           Statements.  See  also  "Item 3 - Legal  Proceedings"
                           which is incorporated by reference from the Company's
                           Annual  Report on Form 10-K for the fiscal year ended
                           November  30,  1995  filed  with the  Securities  and
                           Exchange Commission on February 27, 1996.

         ITEM 2.           CHANGES IN SECURITIES

                           None.

         ITEM 3.           DEFAULT UPON SENIOR SECURITIES

                           None.

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

                           Annual   Meeting.   The  1995   Annual   Meeting   of
                           Shareholders   of  the   Company  was  held  in  Fort
                           Lauderdale,  Florida on June 4, 1996.  The  following
                           individuals  were elected as directors to hold office
                           until the next  annual  meeting  of  shareholders  or
                           until  their  successors  have been  elected and duly
                           qualified:

<TABLE>
<CAPTION>
                         Director            Shares For         Shares Withheld
                         --------            ----------         ---------------
                    <S>                      <C>                    <C>    

                    Ronald A. Cass            4,194,573              919,856
                    Robert A. Fields          4,207,353              907,076
                    William F. McConnell      4,207,153              907,276
                    Hector L. Ziperovich, M.D.4,205,793              908,636

 </TABLE>
                           Shareholders  also acted upon the following  proposal
                           at the Annual Meeting:

                           Ratified the appointment of Arthur  Andersen,  LLP as
                           independent  auditors  of the  Company for the fiscal
                           year  ending   November  30,  1996.   Votes   totaled
                           5,052,328   for;   32,561    against;    and   29,540
                           abstentions.




                                       17

<PAGE>


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

         ITEM 5.           OTHER INFORMATION

                           None.

         ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                           (a)      Exhibits - None.

                           (b)      Reports - None.


                                       18

<PAGE>


                                 
                        HOSPITAL STAFFING SERVICES, INC.
                                   SIGNATURES
                                 August 31, 1996

         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 A. Cass           Ronald A. Cass, Chairman of the Board,
       Ronald A. Cass          Chief Executive Officer, President and Treasurer
                               Date: October 14, 1996



By:/s/Ronald G. Huneycutt      Ronald G. Huneycutt, Vice President of Finance/
       Ronald G. Huneycutt     Chief Financial Officer
                               Date: October 14, 1996







                                       19