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, 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 1-11131

                        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 September 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 - 11

         Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                    12 - 17



PART II - OTHER INFORMATION AND SIGNATURES                            18 - 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,
                                        1997           1996                                               1997            1996
                                    -------------- --------------                                     --------------  --------------
                                       (Unaudited)                                                       (Unaudited)
CURRENT ASSETS:                                                     CURRENT LIABILITIES:
<S>                                 <C>            <C>            <C>                               <C>             <C>

Cash and cash equivalents                $138,398       $145,247    Accounts payable                     $1,961,891      $2,470,506
Short-term investments                     11,186         12,145    Line of credit payable                9,274,189       6,540,793
Trade accounts receivable, less                                     Accrued payroll and benefits          1,752,364       2,130,053
  allowance for doubtful accounts of                                Accrued expenses                      2,411,391       2,539,016
  $719,497 and $559,251, respectively   7,820,696      9,622,122    Income taxes payable                    187,577         216,096
Settlements due from Medicare          10,735,603     12,201,367    Capital leases                           37,496          17,522
Amounts due from officers/directors        49,160         71,377    Notes payable                           318,260         503,678
Current and deferred income
   taxes receivable                       567,168        587,215
Other current assets                      513,147        599,062
                                    -------------- --------------                                     --------------  --------------
        Total current assets           19,835,358     23,238,535        Total current liabilities        15,943,168      14,417,664
                                    -------------- --------------                                     --------------  --------------

NON-CURRENT ASSETS:                                                 NON-CURRENT LIABILITIES:
                                                                    Notes payable                           399,728         510,728
                                                                    Capital leases                           91,671          80,881
                                                                    Other                                    74,000          73,999
                                                                                                      --------------  --------------
Net property and equipment                739,924        879,735        Total non-current liabilities       565,399         665,608
                                    -------------- --------------                                     --------------  --------------
                                                                        Total liabilities                16,508,567      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          (838,810)      (785,133)
                                    -------------- --------------
        Net intangibles                 1,845,632      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                 347,706        340,836
                                                                    Additional paid-in capital           22,452,627      22,452,627
                                                                    Accumulated deficit                 (16,198,934)    (11,130,832)
                                    -------------- --------------                                     --------------  --------------
        Total non-current assets        2,933,262      3,172,892        Total stockholders' equity        6,260,053      11,328,155
                                    -------------- --------------                                     --------------  --------------
                                                                        Total liabilities and
        Total assets                  $22,768,620    $26,411,427            stockholders' equity        $22,768,620     $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                        Nine months ended
                                               -------------------------------------     -------------------------------------
                                                  ---------------   -----------------     -----------------    ---------------
                                                  August 31, 1997    August 31, 1996       August 31, 1997     August 31, 1996
                                                  ---------------   -----------------     -----------------    ---------------
                                                   -------------      --------------        --------------      --------------
                                                   (Unaudited)         (Unaudited)           (Unaudited)         (Unaudited)
<S>                                                <C>                <C>                   <C>                 <C>    

Net revenue from services                           $11,493,646         $15,603,347           $45,255,043         $46,077,474
                                                   -------------      --------------        --------------      --------------

Cost of services:
    Professional salaries and benefits                8,515,949           7,952,769            25,689,894          23,902,623
    Other professional expenses                       1,620,137           1,570,642             4,789,782           4,521,664

                                                   -------------      --------------        --------------      --------------
    Total cost of services                           10,136,086           9,523,411            30,479,676          28,424,287
                                                   -------------      --------------        --------------      --------------

Gross margin                                          1,357,560           6,079,936            14,775,367          17,653,187
                                                   -------------      --------------        --------------      --------------

Selling, general and administrative expenses:
    Salaries and benefits                             3,694,047           3,533,239            11,720,015           9,968,272
    Other expenses                                    2,486,782           2,385,564             7,597,427           6,995,565

                                                   -------------      --------------        --------------      --------------
Total selling, general and administrative expenses    6,180,829           5,918,803            19,317,442          16,963,837
                                                   -------------      --------------        --------------      --------------

Income/(loss) from operations                        (4,823,269)            161,133            (4,542,075)            689,350
                                                   -------------      --------------        --------------      --------------

Interest and other income (expense):
    Interest expense                                   (293,318)           (154,778)             (770,190)           (389,710)
    Interest income                                      11,186              31,859                 8,757              57,686
    Other income (expense), net                          (9,759)            120,887               252,406             196,472

                                                   -------------      --------------        --------------      --------------
    Total interest and other income (expense)          (291,891)             (2,032)             (509,027)           (135,552)

                                                   -------------      --------------        --------------      --------------
Income/(loss) before provision for income taxes      (5,115,160)            159,101            (5,051,102)            553,798

Provision for income taxes                               (5,000)            (17,406)              (17,000)           (137,295)
                                                   -------------      --------------        --------------      --------------

Income/(loss) before extraordinary item              (5,120,160)            141,695            (5,068,102)            416,503

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

    Net income/(loss)                               ($5,120,160)           $141,695           ($5,068,102)           $161,548
                                                   =============      ==============        ==============      ==============



Income/(loss) per common share:
Income/(loss) before extraordinary item                  ($0.81)              $0.02                ($0.80)              $0.07
Extraordinary loss on early extinguishment of debt                                                                      (0.04)
                                                   -------------      --------------        --------------      --------------

    Net income/(loss) per common share                   ($0.81)              $0.02                ($0.80)              $0.03
                                                   =============      ==============        ==============      ==============


Weighted average common shares outstanding:           6,359,770           6,356,292             6,359,770           6,351,952
                                                   =============      ==============        ==============      ==============


<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 nine months ended:
                                                                               August 31, 1997       August 31, 1996
                                                                               ----------------      ----------------
                                                                                 (Unaudited)           (Unaudited)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S>                                                                                <C>                   <C>                 

   Net income (loss)                                                               ($5,068,102)             $161,548
                                                                                   ------------          ------------

   Adjustments to reconcile  net income  (loss) to net cash  provided  (used) by
     operating activities:
       Depreciation and amortization                                                   544,760               590,973
       Provision for losses on trade accounts receivable                               462,774               163,590
       Extraordinary loss on early extinguishment of debt                                                     99,955
       Loss on early retirement of Fixed Assets                                         11,543
       Changes in assets and liabilities:
         (Increase) decrease in assets-
           Trade accounts receivable                                                 1,338,652            (1,356,136)
           Settlements due from Medicare                                             1,465,764            (1,630,352)
           Prepaid expenses and other current assets                                   101,218                95,673
           Amounts due from officers/directors                                          22,217               (43,322)
           Current and deferred income taxes receivable                                 20,047               713,043
           Other assets                                                                (18,814)              (397,600)
         Increase (decrease) in liabilities -
           Accounts payable                                                           (508,615)             (749,225)
           Accrued payroll and benefits                                               (377,689)             (643,783)
           Accrued expenses and other                                                 (175,793)           (1,710,180)
           Income taxes payable                                                        (28,519)             (102,957)

                                                                                   ------------          ------------
                  Total adjustments                                                  2,857,545            (4,970,321)
                                                                                   ------------          ------------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                    (2,210,557)           (4,808,773)
                                                                                   ------------          ------------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
   Sale (purchase) of short-term investments, net                                      (44,040)                 (391)
   Capital expenditures                                                               (106,031)             (177,215)
   Proceeds from sale of home health operations                                                              145,782
   Purchase of therapy company                                                                               (60,000)
   Notes receiveable                                                                                         (50,783)

                                                                                   ------------          ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                      (150,071)             (142,607)
                                                                                   ------------          ------------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
   Line of credit borrowings                                                         2,733,396             4,083,630
   Extension fee on line of credit                                                    (100,000)
   Payments under notes payable                                                       (248,250)             (354,107)
   Payments under capital leases                                                       (31,367)              (13,370)
   Exercise of stock options                                                                                  23,750

                                                                                   ------------          ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                     2,353,779             3,739,903
                                                                                   ------------          ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (6,849)           (1,211,477)

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

                                                                                   ------------          ------------
                                                                                   ============          ============
   Cash and cash equivalents at end of period                                         $138,398              $486,327
                                                                                   ============          ============

Supplemental Cash Flow Disclosures:
   Cash paid:                 Income Taxes                                             $45,578              $234,077
                              Interest                                                $770,190              $387,717

<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
                                 August 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 nine (9) months ended
August 31, 1997 are not necessarily indicative of the results to be expected for
the entire fiscal year ending November 30, 1997.

NOTE 2:  GOING CONCERN

         The Company has experienced cash flow deficits from operations in eight
of the eleven quarters since November 30, 1994  aggregating  approximately  $8.9
million, has incurred losses of $5.1 million in the nine months ended August 31,
1997,  and  currently  has a loan  balance  on its line of  credit  in excess of
eligible  borrowing  under  the terms of the loan  agreement.  In  addition,  in
September 1997 the Company became subject to three Notices of Overpayment  After
Final Settlement received from Medicare  Intermediaries  requiring the repayment
of  overpayments  of  approximately  $6.1 million  relating to the Company's New
England home care  operations  for fiscal 1993 and 1994,  for which the Medicare
program seeks  recoupment from cash payments  otherwise due to the Company's New
England  provider  for services  provided in 1996 and 1997.  The Company is also
obligated  to make  payments  totaling  approximately  $2.5 million for existing
Medicare  repayment  plans.  As more fully  described  in Note 5, the Company is
subject to  additional  contingencies,  the outcome of which may have a material
impact on the Company's  results of operations and liquidity.  These  conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.

         Management's  plans to address  the cash flow  deficits  and  operating
losses  described above include a restructuring  of its operations to return the
Company  to  profitability,   sales  of  non-strategic  assets  to  raise  cash,
restructuring or replacing its current loan agreement to adequately fund working
capital needs, entering into extended repayment plans for overpayments due to

                                       6
<PAGE>

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

Medicare,  negotiating global settlements with the Medicare program of open cost
reports  and  appeal and  reopening  issues  included  in  Settlements  Due From
Medicare,  and the issuance of equity securities.  The Board of Directors of the
Company  has  also  authorized  management  to  explore  the  possibility  of  a
protective  bankruptcy  filing.  There  can be no  assurance  that the  Medicare
payment recoupment will be lifted administratively,  or that the Company will be
able to raise sufficient cash to continue to fund its operations.

NOTE 3:  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  increase  borrowing  capacity by an  additional  $1.6  million by  replacing
receivables,  which  collateralized  the standby  letter of credit,  with other,
non-credit line receivables.

         At  October  13,  1997,  the Company was not in compliance with certain
covenants in the loan agreement which require that the line's balance not exceed
"eligible  borrowing," as defined,  that the Company's tangible net worth exceed
$6,000,000  and that  leases in excess of $50,000 be  approved  in  writing.  At
October 13,  1997,  the line's  balance  was $9.2  million,  exceeding  eligible
borrowing by $258,000.  The Company is currently in discussions  with the lender
to cure these defaults.

NOTE 4:  STOCKHOLDERS' EQUITY

         1990 Stock Option Plan

         Pursuant to Board action  during the quarter  ended  February 28, 1997,
10,000  options to purchase  common  stock under the 1990 Stock Option Plan were
granted to a member of the Board of Directors  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.  The options
vested at the date of grant and are  exercisable for a period of five years from
the date of grant.

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.  
                                       7
<PAGE>

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

In response to the issuance of the federalsearch  warrants,  the Company engaged
counsel who initiated a lawyer-directed internal investigation into its Medicare
claims processing system.  Thisinternal 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 home care 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, 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.



                                       8
<PAGE>

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

         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 August 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 August 31, 1997 are  realizable at their recorded
amount.

         In August 1997,  certain of the Company's  current and former  officers
and employees,  including its current Chief Executive Officer,  were served with
federal grand jury subpoenas requesting information.  The Company believes these
subpoenas relate to the issues which  precipitated the search warrants  executed
in  December  1992.  The Company  continues  to be 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 such  allegations  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 and incidents which may lead to 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, results of operations and cash flows.

         Settlements Due To and From Medicare:

         As  a  Medicare  provider,   the  Company   continually  has  estimated
settlements  due to and from the  Medicare  Program.  The  estimated  settlement
amounts due to Medicare are the result of: 

                                       9
<PAGE>

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

(1) interim  reimbursement  rates, atwhich the Company was paid for its services
throughout  the year,  exceeding  the Company's  actual costs of providing  such
services;  and  (2)  revisions  by  intermediaries  of  the  Company's  reported
reimbursable  costs after the  intermediaries'  review oraudits 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.  Until now,  the Company has funded  settlements  to
Medicare as they become due by: (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.  In addition,  the Company
continues  to be  subject to  lengthy  time  frames  associated  with  resolving
Medicare appeal and reopening issues on cost reports reflecting amounts due from
Medicare.  During  September 1997, the Company  received  notification  from two
intermediaries  requiring  repayments of approximately $6.1 which is in addition
to the remaining  balances of $2.5 million from notices  received in fiscal year
1996.  Accordingly,  as more fully  described in Note 2, the Company is actively
seeking other alternatives to fund the repayments.

         Also,  during  September  1997,  President  Clinton imposed a six month
moratorium on new home care  providers and imposed  additional  restrictions  on
existing  providers.  While the  Company  sees no direct  adverse  impact on its
operations  from the six month  moratorium,  the President's  message  regarding
additional  restrictions on existing  providers along with accusations and other
remarks and  analyses by  legislators  and  regulators  regarding  the home care
industry has had, and the Company  believes  will  continue to have,  an adverse
impact on the business environment in which it operates.

         The Company believes the Notices of Overpayment  After Final Settlement
received in September  1997,  as described  above,  are an  indication  of a new
climate between  intermediaries and providers.  It appears that there may be new
and different  standards of documentation  and  interpretations  of the Medicare
regulations than existed when the cost reports were prepared.

         Because of the Notices of Overpayment  After Final Settlement  received
in September and the changes in the business and regulatory  climate in which it
appears the  Company now  operates,  in the  quarter  ended  August 31, 1997 the
Company  provided  approximately $4,200,000 in additional allowances against the
Settlements  Due From  Medicare  resulting  in a  corresponding  charge  against
income.

         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 depending upon the employee involved.  The
maximum  aggregate  salary  component  commitment for these  agreements would be
approximately $507,000 as of August 31, 1997.

                                       10
<PAGE>


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

         Self-Funded Insurance Plans:

         The Company self-funds all of its workers' compensation and much of its
employee health  coverage  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. At both August 31,
1997 and November 30, 1996, such reserves totaled approximately $1.8 million 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 August
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 state
income and franchise  taxes payable 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  resolution of the notice will have a material  impact
on the Company's financial position, results of operations or cash flows.

NOTE 6:  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 10% of consolidated net revenue from services for the
nine months ended August 31, 1997 and August 31, 1996, respectively. Outstanding
accounts  receivable  attributable  to services to facilities in the U.S. Virgin
Islands were  approximately  $2.1 million and $4.5 million as of August 31, 1997
and  November  30,  1996,  respectively,  and are  included  in  trade  accounts
receivable  in  the   accompanying   consolidated   condensed   balance  sheets.
Approximately  $707,000 of the August 31, 1997 balance has been  outstanding for
180 days or greater.  As of August 31,  1997,  $4.4  million of the $4.5 million
outstanding  at  November  30,  1996 had been  collected.  Collections  from the
government  owned healthcare  facilities  located in the U.S. Virgin Islands are
generally slower than the Company's  domestic customer base;  however,  this has
been mitigated somewhat by an overall decrease in nurses placed in Virgin Island
healthcare  facilities.   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.

                                       11

<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                 August 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 nine months ended  August 31, 1997 and August 31, 1996.  It
should  be read in  conjunction  with the  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
August 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 has historically met
its  short-term  liquidity  needs from cash flow from  operations and borrowings
from its credit facility. However, during the nine-month period ended August 31,
1997, the Company  incurred cash flow deficits from  operations in the amount of
$2.2 million and has experienced  cash flow deficits from operations in eight of
the eleven  quarters  since  November 30, 1994  aggregating  approximately  $8.9
million.  In addition,  in September  1997 the Company  became  subject to three
Notices  of   Overpayment   After  Final   Settlement   received  from  Medicare
intermediaries  requiring the repayment of  overpayments of  approximately  $6.1
million  relating to the Company's New England home care  operations  for fiscal
1993 and 1994, for which the

                                       12
<PAGE>

Medicare  program  seeks  recoupment  from cash  payments  otherwise  due to the
Company's  New England  provider  for  services  provided in 1996 and 1997.  The
Company is also obligated to make payments totaling  approximately  $2.5 million
for existing  Medicare  repayment  plans.  As discussed below and in Note 3, the
Company is also  currently in default under the terms of its  revolving  line of
credit.  The Medicare  program's  recoupment  of payments to the  Company's  New
England  Medicare home care provider has materially  and adversely  affected the
Company's liquidity.

         The Company  continues  to contest the  overpayment  and to seek relief
from the Medicare payment recoupment through all available means,  including the
Medicare program's  administrative  appeals process.  The Company also has under
consideration  alternative  means to augment its  short-term  liquidity  to fund
current  operations,  including the  possibility of asset sales,  cash infusions
from strategic and/or financial  partners,  and possible business  combinations.
The Board of Directors of the Company has also authorized  management to explore
the  possibility of a protective  bankruptcy  filing.  There can be no assurance
that the Medicare payment  recoupment will be lifted  administratively,  or that
the  Company  will be able to  raise  sufficient  cash to  continue  to fund its
operations.  If the  Company  is unable to fund its  operations,  the  Company's
ability to continue as a going concern may be materially and adversely  affected
(see note 2).

         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.

         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 August 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 August 31, 1997,  principal  borrowings under the credit facility
were approximately  $9.3 million which exceeds eligible  borrowing  available on
that date by $437,000. The Company's present facility is not adequate to provide
for the approximately $8.6 million of program repayments due to Medicare, or for
any other significant  liabilities that may arise. See 

                                       13
<PAGE>

Note 5. 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 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. Until recently the Company has been able to fund settlements to Medicare
as they become due by: (1) negotiating  extended  repayment 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, during September 1997, the Company
received   notification  from  two   intermediaries   requiring   repayments  of
approximately  $6.1 million  which is in addition to the  remaining  balances of
$2.5 million from notices received in prior fiscal years. The Company  continues
to be subject to lengthy time frames  associated with resolving  Medicare appeal
and  reopening  issues on cost  reports  reflecting  amounts due from  Medicare.
Accordingly,   as  discussed  above,  the  Company  is  actively  seeking  other
alternatives to fund the repayments.

         During September 1997, President Clinton imposed a six month moratorium
on new home care  providers  and  imposed  additional  restrictions  on existing
providers.  While the Company sees no direct  adverse  impact on its  operations
from the six month  moratorium,  the President's  message  regarding  additional
restrictions on existing  providers along with accusations and other remarks and
analyses by legislators and regulators regarding the home care industry has had,
and the  Company  believes  will  continue  to have,  an  adverse  impact on the
business environment in which it operates.

         The Company believes the Notices of Overpayment  After Final Settlement
received in September  1997,  as described  above,  are an  indication  of a new
climate between  intermediaries and providers.  It appears that there may be new
and different  standards of documentation  and  interpretations  of the Medicare
regulations than existed when the cost reports were prepared.

         Because of the Notices of Overpayment  After Final Settlement  received
in September and the changes in the business and regulatory  climate in which it
appears the Company now  operates,  during the quarter ended August 31, 1997 the
Company provided  approximately  $4,200,000 in additional allowances against the
Settlements  Due From  Medicare,  resulting in a  corresponding  charge  against
income.

         Cash Position. Net cash used by operating activities was approximately
$2.2 million and $4.8  million for the nine months  ended  August 31, 1997 and 
August 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.

                                       14
<PAGE>

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

         Net  Working   Capital.   As  of  August  31,  1997,  the  Company  had
approximately $3.9 million of working capital and approximately $138,000 of cash
and cash  equivalents.  The ratio of current  assets to current  liabilities  at
August 31, 1997 was 1.2 to 1. As of August 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 Nine Months Ended August 31, 1997
Compared With Three and Nine Months Ended August 31, 1996

         Net  Revenue.   Consolidated   net  revenue   decreased   approximately
$4,110,000, or 26.3% to $11,494,000 and $822,000, or 1.8% to $45,255,000 for the
three and nine  months  ended  August 31, 1996 and 1997,  respectively.  As more
fully discussed in Note 1 of the Company's annual  financial  statements on Form
10-K,  variances from recorded  estimated amounts of settlements due to and from
Medicare are treated as  adjustments  to revenue from  Medicare in the period in
which such amounts are settled or when better  information  is known as to their
ultimate  resolution.  Accordingly,  the $4.2 million charge  described above is
recorded as a  reduction  of Medicare  home care  revenue for the quarter  ended
August 31, 1997.

         Net revenue from  services  provided by the  Company's  Homecare  Group
decreased approximately  $4,548,000,  or 38.6% to $7,227,000 and $2,639,000,  or
7.7% to  $31,438,000  for the three and nine  months  ended  August 31, 1996 and
1997,  respectively.  After  considering  the  $4.2  million  charge  previously
described, net revenues are relatively flat for the quarter when compared to the
prior year.  The nine month  comparison  reflects an increase of  $1,598,000  or
4.7%,  after  excluding the $4.2 million  charge,  which is  attributable to the
maturation of new home care branches established and certified during the latter
part of fiscal  year  1996,  the  continued  overall  growth of the New  England
Regional home care operations and the growth of the Mid South  proprietary  home
care operations.

         Net revenue from services  provided by the Company's HSS Staffing Group
increased by approximately  $1,217,000,  or 41.8%, to $4,130,000 and $2,323,000,
or 22.5% to  $12,636,000  for the three and nine months ended August 31,1996 and
1997,  respectively.  This increase is attributable to the addition of more than
100  new  client  hospitals,  the  re-contracting  of  certain  existing  client
hospitals at more favorable rates facilitated by an increased demand for interim
staffing at healthcare facilities  nation-wide.  The addition of new clients has
also facilitated  continued  diversification  of nurse placements,  reducing the
Company's  reliance on any one geographic  area or client during the nine months
ended August 31, 1997, as compared to the prior year. See Note 6.

         Net revenue  from  services  provided by the  Company's  Rehabilitation
Services  Group  decreased  approximately  $503,000,  or 80.4%,  to $122,700 and
$718,000,  or 41.8% to $998,000  for the three and nine months  ended August 31,
1996 and  1997,  respectively.  The  Rehabilitation  

                                       15
<PAGE>

Services Group's revenues decreased due to the closing of unprofitable sites and
the curtailment of low margin business in remaining sites.

         Cost of Services. The cost of services for the Homecare Group increased
approximately  $232,000,  or  3.6%,  to  $6,717,000  and  $634,000,  or  3.3% to
$19,718,000  for the three  and nine  months  ended  August  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.

         Cost of services for the HSS  Staffing  Group  increased  approximately
$809,000, or 33.0%, to $3,259,000 and $1,501,000, or 18.0% to $9,826,000 for the
three  and nine  months  ended  August  31,  1996 and 1997,  respectively.  Such
increases  are less than  revenue  increases  for the HSS  Staffing  Group which
provided  higher  gross  margins.  The cost of service  increase is  principally
attributable to the salaries paid to, and housing  expenses  associated  with, a
greater number of nurses and other  healthcare  professionals  working at client
and proprietary facilities.

         The cost of services for the Company's  Rehabilitation  Services  Group
decreased  approximately  $342,000, or 72.1%, to $132,000 and $396,000, or 32.0%
to  $841,000  for the three and nine  months  ended  August  31,  1996 and 1997,
respectively.  The  decrease  in the  cost of  services  for the  Rehabilitative
Services Group follows the decrease in revenues and is likewise  attributable to
the closing of unprofitable  sites and the curtailment of low margin business in
remaining sites.

         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 payers 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 payer source)  being  performed by the
Company.

         The  Company's  gross margin  decreased  approximately  $4,722,000,  or
77.7%, to $1.358,000 and  $2,878,000,  or 16.3% to $14,775,000 for the three and
nine months  ended  August 31, 1996 and 1997,  respectively.  Gross  margin as a
percentage of revenue  decreased  from 39.0% to 11.8% and 38.3% to 32.6% for the
three and nine months ended August 31, 1996 and 1997, respectively. The decrease
in the third quarter is principally related to the $4.2 charge to revenue.

         Selling,  General and  Administrative  Expenses.  Selling,  General and
Administrative expenses increased approximately $262,000, or 4.4%, to $6,181,000
and  $2,354,000,  or 13.9% to  $19,317,000  for the three and nine months  ended
August 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

                                       16
<PAGE>

operations,  and  recruiting  and  travel  expenses  within  both the  Company's
Homecare  and HSS  Staffing  Groups.  Additionally,  in the first nine months of
fiscal 1996, workers compensation  insurance reserves and certain legal reserves
experienced  non-recurring  reductions of  approximately  $815,000 and $182,000,
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 the repayments of Medicare  overpayments  (see Note 5) and the expansion of
the Company's  revenues.  During the nine months ended August 31, 1997,  average
borrowings  outstanding  were $7.8 million,  compared to $3.8  million,  for the
corresponding period of the prior year.

         Pre-Tax Income.  Pre-Tax Income  decreased  $5,274,000 from $159,000 in
income  to a  $5,115,000  loss and  $5,605,000  from  $554,000  in  income  to a
$5,051,000  loss for the three and nine months  ended  August 31, 1996 and 1997,
respectively.  As previously discussed, the losses are principally the result of
the $4.2 million charge and losses from 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 nine months ended August 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 nine  months  ended  August  31,  1997 as
presented herein.

         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.

                                       17
<PAGE>


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



ITEM 1.           LEGAL PROCEEDINGS

                           See  Note 5 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.




                                       18
<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                                   SIGNATURES
                                 August 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
Ronald G.Huneycutt                          of Finance, Chief Financial Officer
                                            (principal accounting officer)
                                            Date:  October 15, 1997







                                       19