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 February 28, 1997

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

             For the transition period from _________ to __________

                         Commission File Number 0-11781

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

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

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

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

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X  No____
                      
                      APPLICABLE ONLY TO CORPORATE ISSUERS
     State the number of shares outstanding of each of the issuer's classes
              of common equity, as of the latest practicable date:
6,359,770 shares of Common Stock, $.001 par value, outstanding at March 31,1997.







<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 - 9

     Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                       10 - 14



PART II - OTHER INFORMATION AND SIGNATURES                           15 - 16







                                       2
<PAGE>
<TABLE>
                                            Hospital Staffing Services, Inc. and Subsidiaries
                                                  Consolidated Condensed Balance Sheets



<CAPTION>

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

                                       February 28,   November 30,                                      February 28,    November 30,
                                          1997           1996                                               1997            1996
                                      -------------- --------------                                    --------------  -------------
                                       (Unaudited)                                                       (Unaudited)
CURRENT ASSETS:                                                        CURRENT LIABILITIES:
<S>                                     <C>             <C>            <C>                                 <C>            <C>    

Cash and cash equivalents ..........     $   38,966     $  145,247     Accounts payable                    $2,670,914     $2,470,506
Short-term investments .............         12,278         12,145     Line of credit payable               9,397,286      6,540,793
Trade accounts receivable, less                                        Accrued payroll and benefits         1,731,115      2,130,053
  allowance for doubtful accounts of                                   Accrued expenses                     2,347,072      2,539,016
  $682,121 and $559,251, respectively     9,679,970      9,622,122     Income taxes payable                   187,386        216,096
Settlements due from Medicare ......     14,656,038     12,201,367     Capital leases                          18,001         17,522
Amounts due from officers/directors          71,377         71,377     Notes payable                          370,760        503,678
Current and deferred income
  taxes receivable                          567,339        587,215
Prepaid expense and other current assets    539,517        599,062
                                      -------------- --------------                                     --------------  ------------
          Total current assets           25,565,485     23,238,535       Total current liabilities         16,722,534     14,417,664
                                      -------------- --------------                                     --------------  ------------



NON-CURRENT ASSETS:                                                    NON-CURRENT LIABILITIES:
                                                                       Notes payable                          480,728        510,728
                                                                       Capital leases                          76,454         80,881
                                                                       Other                                   74,000         73,999
                                                                                                        --------------  ------------
Net property and equipment                  854,904        879,735        Total non-current liabilities       631,182        665,608
                                      -------------- --------------                                     --------------  ------------

                                                                          Total liabilities                17,353,716     15,083,272
                                                                                                        --------------  ------------


Intangibles related to businesses                                      COMMITMENTS AND CONTINGENCIES 
  acquired                                2,303,028      2,258,028
Non-competition agreements                  479,426        479,426     STOCKHOLDERS' EQUITY:
                                                                        Preferred stock - $.001 par value;
                                      -------------- --------------       authorized 5,000,000 shares;
Total intangibles                         2,782,454      2,737,454        none issued or outstanding             -               -
Less:  Accumulated amortization            (811,274)      (785,133)       
                                      -------------- --------------
          Net intangibles                 1,971,180      1,952,321      Common stock- $.001 par value;
                                      -------------- --------------       authorized 20,000,000 shares;
                                                                          6,359,770 and 6,359,770 shares
                                                                          issued and outstanding; respectively  6,360         6,360
                                                                          
  Deposits and other assets                 338,988        340,836
                                                                        Additional paid-in capital         22,452,627    22,452,627
                                                                        Accumulated deficit               (11,082,146)  (11,130,832)
                                      -------------- --------------                                     -------------- -------------
          Total non-current assets        3,165,072      3,172,892        Total stockholders' equity       11,376,841    11,328,155
                                      -------------- --------------                                     -------------- -------------
                                                                          Total liabilities and
          Total assets                  $28,730,557    $26,411,427          stockholders' equity          $28,730,557   $26,411,427
                                      ============== ==============                                     ============== =============

<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 Statements of Operations

<CAPTION>

                                                                      Three months ended
                                                          -----------------------------------------
                                                          ------------------      -----------------
                                                          February 28, 1997       February 29, 1996
                                                          ------------------      -----------------
                                                              --------------         --------------
                                                               (Unaudited)            (Unaudited)
<S>                                                           <C>                    <C>          

Net revenue from services                                       $16,693,467            $14,505,628
                                                              --------------         --------------

Cost of services:
    Professional salaries and benefits                            8,299,186              7,519,966
    Other professional expenses                                   1,640,044              1,458,761

                                                              --------------         --------------
    Total cost of services                                        9,939,230              8,978,727
                                                              --------------         --------------

Gross margin                                                      6,754,237              5,526,901
                                                              --------------         --------------

Selling, general and administrative expenses:
    Salaries and benefits                                         3,958,575              3,229,817
    Legal expenses                                                  139,113                137,614
    All other expenses                                            2,392,897              2,023,223

                                                              --------------         --------------
    Total selling, general and administrative expenses            6,490,585              5,390,654
                                                              --------------         --------------

Income from operations                                              263,652                136,247
                                                              --------------         --------------

Interest and other income (expense):
    Interest expense                                               (217,402)              (109,134)
    Interest income                                                   2,861                 16,034
    Other income (expense), net                                        (425)                56,263

                                                              --------------         --------------
    Total interest and other income (expense)                      (214,966)               (36,837)

                                                              --------------         --------------
Income before provision for income taxes                             48,686                 99,410

Provision for income taxes                                              -                  (25,889)
                                                              --------------         --------------

Income before extraordinary item                                     48,686                 73,521

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

    Net income (loss)                                           $    48,686            $  (181,434)
                                                              ==============         ==============


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

    Net income (loss) per common share                                $0.01                 ($0.03)
                                                              ==============         ==============


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

<FN>


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

                                        4
<PAGE>
<TABLE>
                Hospital Staffing Services, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows
<CAPTION>


                                                                                              For the three months ended:
                                                                                       February 28, 1997       February 29, 1996
                                                                                       ------------------      ------------------
                                                                                          (Unaudited)             (Unaudited)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S>                                                                                       <C>                      <C>    
Net income (loss)                                                                                $48,686               ($181,434)
                                                                                           --------------          --------------
   Adjustments to reconcile  net income  (loss) to net cash  provided  (used) by
     operating activities:
       Depreciation and amortization                                                             154,133                 231,282
       Provision for losses on trade accounts receivable                                          81,897                  59,842
       Extraordinary loss on early extinguishment of debt                                                                 99,955
       Changes in assets and liabilities:
         (Increase) decrease in assets-
           Trade accounts receivable                                                            (139,745)               (350,188)
           Settlements due from Medicare                                                      (2,454,671)                  7,833
           Prepaid expenses and other current assets                                              73,253                  92,356
           Current and deferred income taxes receivable                                           19,877
           Deposits and other assets                                                             (33,387)               (127,136)
         Increase (decrease) in liabilities -
           Accounts payable                                                                      200,408                (667,688)
           Accrued payroll and benefits                                                         (398,938)                485,800
           Accrued expenses                                                                     (240,112)               (150,718)
           Income taxes payable                                                                  (28,710)                (79,985)

                                                                                           --------------          --------------
                    Total adjustments                                                         (2,765,995)               (398,647)
                                                                                           --------------          --------------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                              (2,717,309)               (580,081)
                                                                                           --------------          --------------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
   Sale (purchase) of short-term investments, net                                                (45,133)                   (133)
   Capital expenditures                                                                          (81,634)               (176,833)
   Proceeds from sale of home health operations                                                                          145,782

                                                                                           --------------          --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                                (126,767)                (31,184)
                                                                                           --------------          --------------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
   Line of credit borrowings (repayments)                                                      2,856,493               1,630,232
   Payments under notes payable                                                                 (114,750)               (117,750)
   Payments under capital leases                                                                  (3,948)

                                                                                           --------------          --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                               2,737,795               1,512,482
                                                                                           --------------          --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            (106,281)                901,217

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


                                                                                           --------------          --------------
   Cash and cash equivalents at end of period                                                    $38,966              $2,599,021
                                                                                           --------------          --------------

Supplemental Cash Flow Disclosures:
   Cash paid:                   Income Taxes                                                     $28,710                $108,105
                                Interest                                                        $216,804                 $96,869

<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
                                February 28, 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) months ended February 28,
1997 are not necessarily indicative of the results to be expected for the entire
fiscal year ending November 30, 1997.

NOTE 2:  DEBT

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

NOTE 3:  STOCKHOLDERS' EQUITY

         1990 Stock Option Plan

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

                                       6
<PAGE>

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

NOTE 4:  COMMITMENTS AND CONTINGENCIES

         Dade County Medicare Investigation:

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

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

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

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

         As a result of the federal investigation and HCFA suspension, in fiscal
year 1993 the Company initiated a lawyer-directed  internal  investigation  into
its Medicare  claims  processing  system,  which included  obtaining  advice and
consultation from an attorney  specializing in Medicare law, 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
                                       7
<PAGE>

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

of claims were not billed based upon the Company's determination that the claims
did not comply with the guidelines  established  as part of its internal  review
program. Management at this time is unable to estimate when the ultimate outcome
of the fiscal years 1991 and 1992 claims  submissions  will be known or when the
federal  investigation  may conclude.  Accordingly,  it is unknown what ultimate
impact,  if any,  the  outcome  of  these  matters  will  have on the  Company's
consolidated financial statements.

         The  estimated  settlement  amounts due to the Company from Medicare as
reflected in the accompanying  consolidated condensed balance sheets, as well as
net revenue from services presented in the accompanying  consolidated  condensed
statements of operations,  are presented net of estimated Medicare reimbursement
disallowances.  The estimated disallowances are subject to continual review and,
as such,  may be  increased  or decreased  as  substantive  information  becomes
available. Included in the settlements due from Medicare as of February 28, 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 February 28, 1997 are realizable at their recorded
amount.
         As of March 1997, four (4) years and three (3) months have passed since
execution of the search  warrants,  and no charges have been brought against the
Company or any of its  directors,  officers or  employees.  The Company has been
engaged in discussions with  representatives  from the United States  Attorney's
Office for the Southern District of Florida  concerning the possible  resolution
of the Medicare  investigation  and allegations as they might affect the Company
directly.  There are no  assurances  that  these  discussions  will  result in a
successful  resolution  of these  matters or in a  resolution  that would not be
materially  adverse  to the  Company.  Even  if the  Company  is  successful  in
resolving the Medicare investigation with the federal government,  in accordance
with its  indemnification  obligations  under its Articles of Incorporation  and
Bylaws, the Company may continue to incur legal expenses on behalf of certain of
its existing and former  directors,  officers or employees who are  individually
the subject of such investigation. In addition, the Company had been the subject
of a staff inquiry by the Securities and Exchange Commission ("SEC") relating to
the Medicare  investigation by the United States Attorney. In July 1996, the SEC
notified the Company  that they had  terminated  their  inquiry and that at that
time no enforcement actions had been recommended to the Commission.

         Litigation, Claims and Assessments:

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

                                       8
<PAGE>

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

         Termination and Benefits Agreements:

         The Company has  agreements  with  certain of its key  employees  which
provide for severance in the case of involuntary  termination and/or a change in
control to promote  adherence to  non-competition  provisions.  Such  agreements
provide for severance up to 12 months dependent upon the employee involved.  The
maximum  aggregate  salary  component  commitment for these  agreements would be
approximately $581,000 as of February 28, 1997.

         Self-Funded Insurance Plans:

         The Company self-funds its health and workers' compensation programs up
to policy  limits,  as  defined.  Claims in excess of such limits are insured by
third  party  reinsurers.  the  Company's  estimate  of its  liability  for both
outstanding  as well as  incurred  but not  reported  claims  is based  upon its
historical loss experience.  As of February 28, 1997 and November 30, 1996, such
reserves  totaled  approximately  $1.7 and $1.8 million,  respectively,  and are
included as a component  of accrued  expenses in the  accompanying  consolidated
condensed  balance  sheets.   Differences  between  actual  losses  and  reserve
estimates are recognized in the period in which such  differences  become known.
Management  believes  that  differences  between  actual losses  incurred  after
February 28, 1997,  related hereto,  and its recorded reserve estimates will not
be material.

NOTE 5:  CONCENTRATION OF CREDIT RISK

         Since  1991,  the  Company has been  providing  services to  healthcare
facilities located in the U.S. Virgin Islands, which facilities are owned by the
government of the U. S. Virgin Islands. Revenues from these facilities accounted
for  approximately  7% and 11% of consolidated net revenue from services for the
three (3) months ended  February  28, 1997 and February 29, 1996,  respectively.
Outstanding accounts receivable were approximately $3.2 million and $4.5 million
as of February 28, 1997 and November 30, 1996, respectively, and are included in
trade accounts  receivable in the accompanying  consolidated  condensed  balance
sheets.  Approximately  $802,000  of the  February  28,  1997  balance  has been
outstanding  for 180 days or greater.  As of February 28, 1997,  $2.4 million of
the  $4.5  million   outstanding  at  November  30,  1996  had  been  collected.
Collections  from  customers  located in the U.S.  Virgin  Islands are generally
slower than the Company's  domestic  customer  base. The government of the U. S.
Virgin  Islands  currently  acknowledges  the debt and is  instituting a plan to
liquidate the amounts past due. Accordingly,  no allowance for doubtful accounts
has been recorded related to these outstanding receivables.

                                       9
<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                February 28, 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 quarters  ended February 28, 1997 and February 29, 1996. It should be
read  in  conjunction  with  accompanying   consolidated   condensed   financial
statements and notes thereto.  Trends and contingencies of a material nature are
discussed to the extent known and considered relevant.

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

General

         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
February  28,  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 two clinics  located in Georgia,  one clinic  located in Tennessee,
one in Rhode Island and two in Florida.

Liquidity and Capital Resources

         General.  The Company's capital requirements consist of funding current
operations,   expanding  services  provided  by  its  home  care,  staffing  and
rehabilitative  businesses, and the acquisition of compatible companies that can
be  integrated  with  existing  operating  units.  The  Company  expects to meet
short-term  liquidity needs through cash flow and borrowings available under its
credit facility as discussed below.
                                       10
<PAGE>

         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 February 28, 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.

         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 February 28, 1997, principal borrowings under the credit facility
were  approximately  $9.4 million and  approximately  $826,000 was available for
additional borrowing under the line of credit. The Company is in compliance with
all required loan covenants.

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

         Settlements Due To and From Medicare. In the normal course of business,
the Company has estimated  settlements due to and from the Medicare Program. The
estimated  settlement  amounts  due to  Medicare  are the  result of: 1) interim
reimbursement  rates, at which the Company was paid for its services  throughout
the year,  exceeding the Company's actual costs of providing such services;  and
2) revisions by certain  intermediaries of the Company's  reported  reimbursable
costs after the  intermediaries'  review or audits of the Company's  cost report
filings.  Estimated settlements due from Medicare are presented net of estimated
settlements due to Medicare in the accompanying  consolidated  condensed balance
sheets.  Management's  plans to fund  settlements to Medicare as they become due
include:  1)  negotiating   extended  payment  plans;  2)  incurring  additional
borrowings  under the line of  credit,  if  available;  3) using  proceeds  from
additional capital that may be raised; or 4) offsetting amounts due from the

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<PAGE>

         Medicare program to the Company.  However, there are no assurances that
the Company will be able to  successfully  utilize any of these four (4) funding
options.  The Company  continues to be subject to lengthy time frames associated
with resolving  Medicare appeal and reopening issues on cost reports  reflecting
amounts due from Medicare. As more fully described below and as set forth in the
Consolidated  Condensed  Statements of Cash Flows, such lenghty time frames have
had and are continuing to have an adverse impact on the Company's cash flows.

         For the twelve months ended November 30, 1996, the Company had received
notification from the Medicare program's fiscal  intermediaries of approximately
$3,950,000 due to Medicare.  Through  February 1997,  approximately  $188,000 of
this amount has been repaid under Medicare approved repayment plans. Included in
the $3,950,000 is  approximately  $2,000,000  for previously  sold companies for
which the Company is establishing  repayment  plans with HCFA.  During this time
the Company anticipates settlement of certain provider cost reports with amounts
due to the Company in excess of the $2,000,000.

         Cash Position.  Net cash used by operating activities was approximately
$2.7 million and  $580,000 for the three (3) months ended  February 28, 1997 and
February 29, 1996, respectively.

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

         Net  Working  Capital.  As  of  February  28,  1997,  the  Company  had
approximately  $8.8  million  of  working  capital  and  approximately  $39,000 
of cash and cash equivalents. The ratio of current assets to current liabilities
at February  28,  1997 was 1.5 to 1. As of  February  28,  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 Months Ended February 28, 1997
Compared With Three Months Ended February 29, 1996

         Net  Revenues.   Consolidated  net  revenue   increased   approximately
$2,187,000,  or 15.1%, from $14,506,000 for the first quarter ended February 29,
1996 to $16,693,000 for the first quarter ended February 28, 1997.

         Net revenues from services  provided by the  Company's  Homecare  Group
increased approximately  $1,270,000,  or 11.7%, to approximately $12,081,000 for
the first quarter ended February 28, 1997 from $10,811,000 for the first quarter
ended February 29, 1996. The growth is attributable to the maturation of the new
Homecare  branches  established  and certified  during the latter part of fiscal
year 1996,  the continued  overall growth of the New England  Regional  Homecare
Operations and the growth of the Mid South Proprietary Homecare operations.

         Net revenues from services provided by the Company's HSS Staffing Group
increased approximately $667,000, or 19.6%, to approximately  $4,076,000 for the

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<PAGE>

first  quarter  ended  February  28,  1997  from  approximately  $3,409,000  for
the first  quarter  ended  February  29,  1996.  The  Staffing  Group  growth is
attributable  to the  addition of client  hospitals  and staffing  offices,  the
increase  in demand  for  interim  staffing  and  internal  operational  changes
accomplished during the quarter ended February 28, 1997.

         Net revenues  from services  provided by the  Company's  Rehabilitation
Services Group increased  approximately  $32,000,  or 8.3% from $387,000 for the
first quarter ended  February 29, 1996 to  approximately  $419,000 for the first
quarter ended February 28, 1997. The  Rehabilitation  Services Group's growth is
attributable to the opening of additional clinics offset by a decline in Georgia
based facility staffing.

         Cost of Services. The cost of services for the Homecare Group increased
approximately $319,000, or 5.3%, from approximately  $6,026,000 to approximately
$6,345,000 for the quarters ended  February,  1996 and 1997,  respectively.  The
cost of services  increase is  directly  attributable  to the volume of business
increase, predominately in the New England Region.

         Cost of services for the HSS  Staffing  Group  increased  approximately
$417,000,  or 15.3%, from approximately  $2,721,000 to approximately  $3,138,000
for the  quarters  ending  February  1996 and  1997,  respectively.  The cost of
services increase is directly  attributable to the volume of business  increase,
and the opening of new staffing offices.

         The cost of services for the Company's  Rehabilitation  Services  Group
increased  approximately  $92,000,  or  27.6%  from  approximately  $334,000  to
approximately   $426,000  for  the  quarters   ended  February  1996  and  1997,
respectively.  The  increase  in the  cost of  services  for the  Rehabilitative
Services Group is attributable  to volume of business  increase and the
opening of new clinics.

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

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

         The  Company's  gross margin  increased  approximately  $1,227,000,  or
22.2%,  from  approximately  $5,527,000  to  approximately  $6,754,000  for  the
quarters  ended  February  1996  and  1997,  respectively.  Gross  margin  as  a
percentage  of revenue  increased  from 38.1% to 40.5% for the  quarters  ending
February 1996 and 1997,  respectively.  Homecare operations  continued to pursue
higher  skilled,  higher  margin  business and the staffing  group was favorably
impacted by the increased  placements of temporary  healthcare  professionals in
client facilities.

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<PAGE>

         Selling,  General and  Administrative  Expenses.  Selling,  General and
Administrative  expenses  increased  approximately  $1,100,000,  or 20.4%,  from
approximately  $5,391,000 to  approximately  $6,491,000  for the quarters  ended
February 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,  the centralization of
patient  accounting for its  Rehabilitative  Services Group,  and recruiting and
travel  expenses  within both the  Company's  Homecare and HSS Staffing  Groups.
Additionally,  in  the  first  quarter  of  fiscal  1996,  workers  compensation
insurance  reserves  and  certain  legal  reserves   experienced   non-recurring
reductions of approximately $145,000.

         Interest and Other Income  (Expense).  Higher  interest  costs resulted
from increased  borrowing  under the Company's line of credit which were used to
fund expansion of the Company's revenues.  During the quarter ended February 28,
1997,  average borrowings  outstanding were $7,723,000,  compared to $3,259,000,
for the corresponding period of the prior year.

         Pre-Tax Income. While pre-tax income for the quarter ended February 28,
1997  remained  comparable  to the quarter  ended  February  29,  1996,  $48,686
compared  to  $99,410,  respectively,  income from  operations  continues  to be
negatively  affected  by  certain  Rehabilitative  Services  operations.   These
operations have improved in comparison to the fourth quarter of 1996.

         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
quarter ended February 28, 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 in the current quarter 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.

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<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                           PART II - OTHER INFORMATION
                                February 28, 1997



ITEM 1.           LEGAL PROCEEDINGS

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

ITEM 2.           CHANGES IN SECURITIES

                           None.

ITEM 3.           DEFAULT UPON SENIOR SECURITIES

                           None.

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

                           None.

ITEM 5.           OTHER INFORMATION

                           None.

ITEM 6.                    EXHIBITS AND REPORTS ON FORM 8-K

                           (a)      Exhibits - None.

                           (b)      Reports - None.







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<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                                   SIGNATURES
                                February 28, 1997


         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


HOSPITAL STAFFING SERVICES, INC.


By:  /S/Ronald G. Huneycutt               Ronald G. Huneycutt, Vice President of
     Ronald G.Huneycutt                   Finance, Chief Financial Officer
                                          (principal financial officer)
                                          Date:  April 14, 1997


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