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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

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

                   For the Fiscal Year Ended November 30, 1996
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                       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


               Securities registered pursuant to Section 12(b) of 

          Title of Each Class Name of each exchange on which registered
              Common Stock $.001 par value New York Stock Exchange

               Securities registered pursuant to Section 12(g) of 
                                    the Act:

                                      None
                                (Title of Class)




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Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports);  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___

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



         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates of the registrant.


         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant at December 31, 1996 was $14,909,605.

         Indicate the number of shares  outstanding of each of the  Registrant's
classes of common stock, as of the latest practicable date.

         As of December 31, 1996,  6,359,770  shares of common stock,  par value
$.001 per share, were outstanding.





                       DOCUMENTS INCORPORATED BY REFERENCE

         The information  required by Items 10 (Directors and Executive Officers
of the Company), 11 (Executive Compensation),  12 (Security Ownership of Certain
Beneficial  Owners and  Management)  and 13 (Certain  Relationships  and Related
Transactions)  will be set forth in the Proxy Statement of the Company  relating
to the 1996  Annual  Meeting  of  Stockholders  and is  incorporated  herein  by
reference.


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                                     PART I

ITEM 1.  BUSINESS
         Hospital Staffing Services,  Inc. and Subsidiaries (the "Company") is a
Florida  corporation  which was  incorporated  in 1981. The Company's  principal
executive  offices are located at 6245 North  Federal  Highway,  Suite 500, Fort
Lauderdale, Florida 33308-1900.

General
         The Company  provides:  (i) home health care and other in-home  support
services through its "HSSI HomeCare Group";  (ii) interim staffing of nurses and
other medical personnel, primarily to hospitals through its "HSS Staffing Group"
(formerly  referred to as Traveler Group);  and (iii)  rehabilitation  services,
including physical,  occupational,  speech and other therapy services, primarily
to  manufacturing  enterprises,  long-term  care  facilities,  counties,  school
boards,  home care  companies  and  through the  Company's  own  clinics.  These
services are offered through a pool of caregivers operating within the Company's
network which, as of November 30, 1996,  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 clinic located in Rhode Island and two located in Florida.

Home Care Group
         Services.   The  "HSSI   HomeCare   Group"  offers  a  broad  range  of
professional  health care and support  services to meet the medical and personal
needs of  individuals  in their  homes.  These  home care  services  provide  an
alternative to institutional  care. These services include  specialized  skilled
nursing  services  such  as  administration  of  infusion  therapies  (including
chemotherapy, antibiotics, enteral and parenteral feeding), medical social work,
standard  skilled nursing  services (such as changing of dressings,  injections,
catheterization   and   administration   of   medication),   physical   therapy,
occupational  therapy,  speech  therapy,  home aide services (such as assistance
with personal hygiene,  dressing and feeding),  and homemaker  services (such as
preparation of meals, light housecleaning and shopping).  The home care services
provided by the HSSI  HomeCare  Group are available  twenty-four  hours per day,
seven days per week, on a live-in, hourly, shift or per visit basis.

         Based on published  industry  information,  the Company  considers home
health care a rapidly growing and diverse industry. The industry has experienced
an estimated  annual growth rate of  approximately  13% since 1991.  The primary
reasons for rapid growth in the home health care market  include (i) the general
aging of the U.S.  population;  (ii) the realization of substantial cost savings
through treatment at home as an alternative to hospitalization;  (iii) the fixed
amount of Medicare  reimbursement to hospitals based upon a patient's diagnosis,
regardless of the cost of service, thereby providing hospitals with an incentive
to minimize the length of patient  stays and requiring an  alternative  means of
patient care; (iv) advances in medical technology,  which have enabled a growing
number  of  treatments  to  be  provided  in  the  home  rather  than  requiring
hospitalization;  (v) the general preference of patients to receive treatment in
a familiar  environment;  and (vi) the  growing  acceptance  within the  medical
profession of home health care.

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         History  and  Recent  Developments.   The  HSSI  HomeCare  Group  began
operation  in 1990  with  the  Company's  acquisition  of the home  health  care
division of Continental  Health  Affiliates,  Inc. In 1991, the Company acquired
substantially all of the assets, exclusive of accounts receivable,  of CarePoint
Personal  Services  d/b/a  CarePoint  Nursing  Services.  The  Company  has been
refining  its  operating  strategy  for  HSSI  HomeCare  Group  since  the  1990
acquisition.  The 1992 federal  investigation into the Medicare practices of the
Company in Dade County, Florida, and the suspension of Medicare reimbursement to
the Company's South Florida  Medicare  providers,  led the Company to close down
its South  Florida  Medicare  operations  (see "Dade  County  Investigation  and
Related Matters"  herein).  The situation in South Florida resulted in decreased
revenue, cash flow pressure,  and a diversion of resources and management's time
and focus.  In response to the  financial  and  management  strain,  the Company
evaluated the  profitability  of its various home care operations and decided to
focus its home care  business in the New  England  operating  region  (including
Massachusetts,  New Hampshire and Rhode Island) and the South Central  operating
region (including Tennessee and Mississippi).  In keeping with this strategy, in
August  1994,  the Company sold its  California,  New York and Arizona home care
operations,  and in early fiscal  1995,  the Company  sold its  remaining  South
Florida and  Texas-based  branches.  The South Florida branch office was sold to
the Company's  Chairman and Chief  Executive  Officer.  See Notes 2 and 6 to the
accompanying  consolidated  financial  statements for further  discussion of the
acquisitions and sales of the Company and their financial impact on the Company.

         The  Company's  current  strategy   anticipates   focusing  on  smaller
acquisitions in the New England and South Central operating regions to build the
strength of the home care business in those  regions.  In addition,  during 1996
the Company reentered the California geographic region with the establishment of
a Medicare Certified Home Health Agency located in Fresno, California and a Home
Care Support  Services  office located in Los Angeles,  California.  The Company
also  entered  the  Connecticut  market  with the  establishment  of a  Medicare
Certified  Home Health Agency located in Hartford,  Connecticut.  The Company is
considering geographic expansion beyond those regions.

         Branches.  The home  health  care  industry  is a  localized  industry.
Patients and referral  sources utilize home care services based in the immediate
geographic  area in which the services are  required.  Therefore,  the Company's
branch  managers are  responsible  for the majority of the  Company's  home care
development and networking efforts. Additionally, the Company's computer systems
have been  designed  to allow the  branches  to  handle  certain  administrative
functions,  such as  entering  plans of  treatment.  The  generation  of claims,
invoices and payroll  checks is performed at the regional  level.  This point of
service process  eliminates  duplicate  corporate  efforts with respect to those
functions and reduces the need for corporate personnel and overhead.  Credit and
collections  functions  for private pay and insurance  beneficiaries  who have a
co-pay responsibility are all handled at the regional level.

         As of November 30, 1996,  HSSI  HomeCare  operated 28 branches  located
within three regions: New England,  encompassing  Massachusetts,  New Hampshire,
Connecticut  and  Rhode  Island;  South  Central,   encompassing  Tennessee  and
Mississippi;  and Western,  encompassing  California.  During  fiscal 1995,  the
"regionalization"  of  the  Company's  New  England  home  care  operations  was
completed.  Consequently,  as of November 30, 1996,  all of the  Company's  home
health  care  operations  are  fully   independent  with  complete  back  office
capabilities.

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         Development  and Sales.  While  clients  select  their own home  health
providers, they usually receive input from physicians, hospitals, nursing homes,
community  resources,  other home health care  agencies,  managed care  programs
("HMO's"),  and  state  programs  (collectively,  "primary  referral  sources").
Therefore,  the Company's  coordinating and liaising  efforts are  predominantly
directed at the primary referral sources. The Company believes the growth of its
business  depends  on its  ability  to  maintain  and  enhance  current  working
relationships  and establish and maintain new working  relationships  with these
primary referral sources.

         Because  the  Company  believes  relationships  with  primary  referral
sources must be  established on a local basis,  the Company spends  considerable
resources in hiring branch  clinical  personnel  and training such  personnel in
coordinating and liaison skills.  While  coordinating and liaising are primarily
the  responsibility  of the  branch  office,  members  of the  Company's  senior
management  (including  regional managers) devote considerable time in assisting
the branch offices with these efforts.

         Recruitment.  The  Company  recruits  personnel  through  its  in-house
corporate  recruiting  department in Fort Lauderdale,  Florida.  That department
maintains a data base of  registered  and  licensed  practical  nurses,  nurses'
aides, home health aides and companions,  and physical,  speech and occupational
therapists  available  for  assignment.   The  Company  recruits  its  personnel
principally   through   referrals   from  its  current   personnel  and  through
advertisements  and supplements its recruiting efforts with periodic direct mail
solicitations  to nursing  schools,  therapy schools and certified aide training
programs.  The Company conducts  qualified  educational  training for its staff.
Management  believes  that the  experience  and  reputation  of the  Company for
recruiting  qualified medical personnel for its HSS Staffing Group have enhanced
the  Company's  ability to  recruit  home  health  care  personnel  for the HSSI
HomeCare  Group.  Demand  for  physical,   occupational  and  speech  therapists
typically  exceeds supply.  The HSSI HomeCare Group has occasionally been unable
to  capitalize  on  opportunities  due to the shortage of such  therapists.  The
Company has sought to address this shortage by offering attractive  compensation
packages to needed therapists and by increasing its capabilities with respect to
the recruitment of such therapist.

         Seasonality.  Traditionally, the business of the HSSI HomeCare Group 
has not been subject to material seasonal fluctuations.

         Competition.   The  HSSI   HomeCare   Group  faces   competition   from
freestanding,  independently owned Medicare/Medicaid certified and non-certified
home health providers,  hospital-based home health agencies, home care providers
owned by or affiliated with other  proprietary  chains,  and a variety of public
and semi-public home care providers, such as home care divisions of state public
health  departments and visiting nurse  associations.  Some of these entities or
their sponsoring organizations have capital resources substantially greater than
those of the Company.

         Recent  industry  data  published by NAHC  indicates  that there are in
excess of 17,500 home care agencies  (including home health agencies,  home care
aide  organizations,  and hospices) in the United States.  The Company  believes
that no one company controls more than 10% of the current home care market.

                                        6

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         Since most home health care  business is  generated  through  referrals
from  primary  referral  sources,  home care  providers  must compete to develop
relationships with these key referral sources.  Home care providers also compete
to deliver high quality, accessible, cost effective services to their customers.
Furthermore,  providers must compete for the most qualified  caregivers and also
must  strive to provide all of the home care  services  needed in the areas they
serve.

         Customers.  The  HSSI  HomeCare  Group  does not  depend  upon a single
customer  or a group  of  customers,  the loss of which  would  have a  material
adverse effect on the Company's business.

HSS Staffing Group.
         Services.  The HSS Staffing Group provides  registered nurses and other
professional medical personnel,  often referred to as "Travelers",  primarily to
client hospitals on a contractual  basis for periods generally ranging from 8 to
52 weeks, with the average being approximately 17 weeks.  (Standard  assignments
are usually for  durations of thirteen or  twenty-six  weeks).  Clients  utilize
Travelers  to  provide  cost  effective   interim  staff  to  meet   predictable
fluctuations in staffing requirements.  In addition,  unlike daily or other very
short-term  supplemental  staff,  Travelers  serve the client for a long  enough
period to function as  permanent  hospital  staff.  The ability of  Travelers to
function as permanent  staff improves the continuity and  consistency of patient
care  and  reduces  the  overall  administration,  orientation  and  supervisory
requirements of the clients' permanent staff.

         Each of the programs  administered  by the HSS Staffing  Group includes
(i)  recruitment  and  pre-screening  of  medical  personnel  to  fill  specific
positions;   (ii)   verification   of   valid   state   licenses,   professional
qualifications  and immigration  status;  (iii)  preparation of applications and
other presentation materials; (iv) coordination of travel arrangements;  and (v)
preliminary  orientation  of the  Traveler.  The Company  typically  employs its
Travelers on a full-time  basis for the period of each  assignment.  The Company
also provides Travelers with housing (or a housing subsidy) while on assignment,
travel allowance, and other employee benefits, including malpractice, health and
dental insurance at little or no cost to the Traveler.

         History and Recent  Development.  The Company has provided Travelers to
clients  since 1981.  All back  office  support  for the HSS  Staffing  Group is
provided  through the Corporate  office.  When the Company entered the home care
field in 1990,  the Company  shifted its primary  focus to the  development  and
operation of the HSSI HomeCare Group. The Company has developed the strategy and
support for its home care  operations  and is now placing a renewed  emphasis on
the HSS Staffing Group. During 1996, the Company increased its marketing efforts
for the HSS Staffing  Group and  continued  efforts to expand and increase  this
line of  business.  This  marketing  effort  will  reflect  and  respond  to the
increasing  consolidation  among health care providers.  The Company anticipates
that,  while the  increased  marketing and  expansionary  efforts will result in
increases  in the  dollar  volume  of  business,  the  HSS  Staffing  Group  may
experience short term decreasing margins.

         Clients and Marketing.  As of November 30, 1996, active clients of the
HSS Staffing Group consisted of approximately 130 hospitals and other clients
located in 30 states and the

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U.S. Virgin Islands. Travelers serve both for-profit and not-for-profit entities
which  range  from  small  rural   hospitals  to  major  teaching  and  research
institutions.  The Company's typical client is a hospital with approximately 250
beds which is located in or near a major metropolitan  area.  Approximately 9.9%
of HSS Staffing  Group  revenue for the fiscal year 1996 was from two  hospitals
and two small  nursing home clients  located in the U.S.  Virgin  Islands.  With
increased emphasis on domestic U.S.  contracts,  U.S. Virgin Island business and
revenue has decreased  over the past year  relative to total HSS Staffing  Group
revenue.

         During 1996, the Company opened up two "per diem" offices to support an
expanded service of providing per diem nurses, physical therapists, occupational
therapists  and speech  therapists  under  exclusive  agreements  to  supplement
hospital staffing. Additional per diem offices are planned for the current year.

         The Company markets Travelers  principally  through its corporate sales
department.   The  Company's  marketing  approach  targets  hospitals  in  major
metropolitan areas and in other areas which are attractive from a patient census
perspective and which also appeal geographically to Travelers.  In addition, the
HSS Staffing  Group  targets  niche  markets,  including  home health  agencies,
clinics and per diem  staffing  companies.  Marketing  activities  are conducted
primarily by telephone contact, direct mail, attendance at national and regional
conventions, seminars, and direct contact with providers of healthcare services.

         Through years of recruiting  nurses and other  medical  personnel,  the
Company has developed an extensive  computer  database of  available,  qualified
personnel,  which data base  enhances the Company's  ability to match  personnel
with a client's  specific needs.  The Company  believes its database serves as a
competitive advantage in the interim staffing market.

         Recruitment.  The Company recruits personnel for its HSS Staffing Group
through its in-house corporate recruiting department. Recruiting methods include
national and local advertising, attendance at national and regional conventions,
personal and  professional  referrals and the  sponsoring  of local  seminars in
selected cities  throughout the United States and Canada.  Approximately  30% of
the Company's current Travelers are recruited from Canada.

         The  aggregate  database  contains  information  on  more  than  20,000
pre-screened  personnel  classified  by  skill,  experience,  and  choice of and
availability  for  assignments.  The Company  updates the  database on a regular
basis.  When called upon to fill an  assignment,  the Company's  recruiters  can
readily access this database to  appropriately  match a client's  staffing needs
with  available  personnel.  Nurses and other  medical  personnel  listed in the
Company's database generally do not work exclusively for the Company.

         The Company  believes the  traveling  nurse  program is  attractive  to
nurses because it provides an opportunity to combine work and travel. Demand for
medical  professionals in the Traveler  business is high. The HSS Staffing Group
has addressed  this  shortage by offering  attractive  compensation  packages to
needed personnel,  particularly physical, speech and occupational therapists. In
addition,  the HSS Staffing  Group has not been able to capitalize on all of its
opportunities   due  to  the  shortage  of  personnel  which  match   assignment
opportunities.


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         Seasonality.  Historically, the Company's Traveler business in the U.S.
Virgin Islands has not been subject to material seasonal fluctuations.  However,
the Traveler  business in the rest of the United States has been seasonal,  with
demand for  Travelers  being  highest in the first and  fourth  quarters  of the
fiscal year (September  through February) and lowest in the third quarter of the
fiscal year (June  through  August).  This is due largely to  increased  demand,
particularly during the peak tourist and winter home period in Florida,  coupled
with an  increase  in the  availability  of nurses  during  the first and fourth
quarters of the Company's fiscal year.

         Competition.  The  Company's  HSS Staffing  Group  competes  with other
professional  medical recruitment  organizations which offer the same or similar
services  provided by the Company.  The Company's  management  believes that the
Traveler  portion  of the  supplemental  staffing  market is highly  fragmented.
Management  also estimates  that the ten largest  traveling  nurse firms,  which
includes the Company,  account for approximately  60% of the market.  Certain of
the Company's  competitors  have capital or other  resources  greater than those
available to the Company.  Competition  for hospital  clients is generally based
upon the ability to provide  qualified nurses and medical  personnel on a timely
basis to a  hospital  in a  cost-competitive  manner.  Location  of  assignment,
compensation  and benefits are  generally the  principal  factors  considered by
nurses and other  medical  professionals  when  determining  whether to become a
traveling professional.  The Company believes that it can effectively compete in
the Traveler  market because of its  long-standing  position in the industry and
established name recognition.

Rehabilitation Group
         On February 15, 1995, the Company  acquired certain assets of a therapy
company and in March, 1996,  completed a second acquisition.  The rehabilitation
services offered by the Company include physical, occupational, speech and other
therapy services, and are provided to manufacturing enterprises,  long-term care
facilities,  hospitals,  school  boards,  home care  companies  and  through the
Company's own clinics.  The Company  currently owns six clinics,  two located in
Georgia,  one  located in  Tennessee,  one in Rhode  Island  and two  located in
Florida.

Reimbursement and Payment Sources
         Home Health Care and Rehabilitation Services.
         General. Most of the revenues of the Company are derived from Medicare,
Medicaid,  and other third-party payors,  including local government health care
programs,  commercial  insurance  carriers,  managed care entities,  and nursing
homes.  The Company  obtains an  assignment  of benefits from each patient which
enables  the  Company  to  be  paid  directly  by  third-party  payors  for  the
reimbursable  amounts of its charges.  The  Company's  experience  has been that
insurance  carriers  typically  reimburse  between 80% to 100% of the  Company's
charges,  and that the coverage policies may impose payment  limitations.  Where
coverage policies do not provide coverage for 100% of the Company's charges, the
balance of the Company's charges are the  responsibility  of the patient.  Where
patients  have more than one source of  coverage,  the portion of the  Company's
charges  that are not  covered by a primary  payor may be covered by a secondary
payor.

         The Company reasonably expects to generate sufficient revenues from its
third-party payors to cover its expenses. However, third-party reimbursement and
coverage  policies,  and  federal  and  state  regulations,   may  change.  Such
unanticipated changes may affect the Company's

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expectations.  Significant changes may be made in Medicare and other third-party
payor  programs,  which  changes  could have a material  impact on the Company's
financial condition.

         Legislation has been or may be introduced in the Congress of the United
States which, if enacted,  could affect the financial  operations of the Company
by, for example,  altering  reimbursement by third-party payors such as Medicare
and Medicaid,  or by encouraging  the growth of managed care networks.  One such
budget  proposal  would  impose  a  prospective  payment  system  applicable  to
Medicare-reimbursed  home  health  services,  and would  include  a  "fail-safe"
mechanism  to  automatically  reduce all  Medicare  spending if certain  federal
budget  projections are not realized.  It is impossible to predict whether these
or any other legislative or regulatory proposals will be enacted or promulgated,
and if so,  whether such changes  would affect the  Company's  ability to remain
competitive  and/or the Company's level of  reimbursement  for medical  services
rendered by the Company.

         While  occasional  funding  delays occur with  respect to  governmental
payor sources,  the Company  generally has had adequate external funds available
under its credit facility to finance temporary buildups in accounts  receivable.
In the case of Medicare,  which is a  cost-reimbursement  program,  the interest
charges the Company  incurs on outside  borrowings are reimbursed to the Company
to the extent that such charges are within the Medicare allowable cost limits.

         Medicare.  A  substantial  portion of the  revenues  of the Company are
derived from the federal  Medicare  program.  Title XVIII of the Social Security
Act authorizes Part A of the Medicare program, the health insurance program that
pays for home health care services for covered persons (generally, those aged 65
and older and the long-term disabled). Home health care providers, including the
Company,  may participate in the Medicare program subject to certain  conditions
of participation and upon acceptance of a provider agreement by the Secretary of
the Department of Health and Human Services.  Only enumerated services, upon the
satisfaction   of  certain   coverage   criteria,   are  eligible  for  Medicare
reimbursement as a Medicare "provider".

         Currently,  Medicare Part A reimburses  providers for certain costs for
certain home health care visits to eligible Medicare beneficiaries.  There is no
limit to the number of home health  visits a  beneficiary  may receive.  Covered
services  include  part-time or  intermittent  skilled  nursing care;  physical,
occupational,   or  speech  therapy;  medical  social  services;   part-time  or
intermittent services of a home health aide; and certain medical supplies.

         Reimbursement   is  made  on  a  reasonable   cost  basis   subject  to
program-imposed  cost per  visit  limitations  applicable  to each  type of home
health  service.  Medicare  reimbursement  does not  include  a  profit  factor.
Medicare  providers  are subject to  periodic  audits of charges  submitted  for
reimbursement,  which could result in recoupment of payments  previously made to
the provider, or increases in payments to the provider.

         Medicare  providers are also subject to regulation by state health care
agencies,   which  award  operating   licenses  and  perform  certain  delegated
administrative functions including certification (See "Regulation").  Failure to
remain in  compliance  with any program  requirements  may subject the  Medicare
provider to fines,  suspensions,  or termination from the Medicare program.  The
Company is Medicare certified in its current home health care service areas.

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Management  of the  Company  believes  it is in  material  compliance  with  all
relevant  licensure and certification  requirements  imposed by those states. In
areas where the Company is not certified as a Medicare provider,  it may provide
home health  personnel  on a  subcontract  basis to  certified  home health care
providers, who in turn receive Medicare reimbursement.

         The Company  closed its South Florida  Medicare home health  operations
subsequent to fiscal year 1992 as a result of a suspension of Medicare  payments
relative  to the South  Florida  operation.  While the  suspension  of  Medicare
payments  applied to all South Florida Medicare home health  operations,  to the
best of the  Company's  knowledge,  the related  federal  investigation  did not
involve any of the  Company's  operations  outside of Dade County,  Florida (See
"Dade County  Investigation  and Related  Matters").  As a result of the sale or
nonrenewal of certain of the Company's Medicare  certifications,  the Company is
no longer Medicare certified in Dade, Broward, and Palm Beach Counties,  Florida
(See "Regulation").

         Medicaid.  The Company  derives a portion of its revenue from  Medicaid
reimbursement.   Pursuant  to  the  Medicaid  program,  the  federal  Government
supplements  funds provided by the various states for medical  assistance to the
indigent.  Payment for home health care services  rendered to eligible  Medicaid
recipients is made in an amount  determined in accordance  with  procedures  and
standards established by state law under federal guidelines. States differ as to
reimbursement  policies  and rates.  However,  in all states  where the  Company
currently provides home health care services to Medicaid recipients, the Company
is  reimbursed  on a fee schedule or  prospective  charge rate for its services.
Medicaid  reimbursement  rates may be reduced in response to state  economic and
budgetary constraints.

         HSS Staffing Group.
         The HSS  Staffing  Group's  services  are paid for directly by clients.
Since  the  Company's  inception  in  1981,  the  Company  has  not  experienced
significant delays in collecting its accounts receivable in a timely manner from
its client hospitals other than those in the U.S. Virgin Islands.  The Company's
accounts  receivable from the U.S. Virgin Islands was approximately $4.5 million
as of November 30, 1996 (see Note 11 to the accompanying  consolidated financial
statements).  As of January 31, 1997, approximately $2.3 million of the November
30, 1996 outstanding receivable balance from these customers remained unpaid, of
which  approximately  $937,000 has been  outstanding  for greater than 180 days.
Delayed receipts from the U.S. Virgin Islands sometimes  requires the Company to
delay payment to its vendors.


                                       11

<PAGE>



         Net Revenue by Payor Source.  While the Company does not, in all cases,
track  revenue by payor  source,  the  following  chart sets forth the Company's
estimated percentage breakdown of net revenue by payor source for the five years
ended November 30, 1996:
<TABLE>
<CAPTION>

                                        1996     1995     1994     1993     1992
Home Health Care
<S>                                      <C>      <C>      <C>      <C>      <C>
Medicare ..........................      60%      59%      49%      44%      53%
Medicaid2 .........................       4%       5%      15%      14%      10%
Insurance Carriers ................       8%       3%       5%       6%       6%
Private (Individuals) .............       3%       6%       6%       6%       7%
Contract ..........................       1%       5%       7%       9%       6%
Management Fees3 ..................      --       --        1%      --       --
                                       ------  ------    -----   ------   ------
Total .............................      76%      78%      83%      79%      82%

HSS Staffing ......................      20%      20%      17%      21%      18%
------------

Rehabilitation ....................       3%       2%      --       --       --
--------------                                 

Health Initiatives ................       1%      --       --       --       --
------------------                     -------- ------   ------  ------   ------
                                         100%    100%     100%    100%      100%
                                         ====    ====     ====    ====      ====

<FN>

(1)      During the fiscal year ended  November 30, 1993,  revenue was decreased
         by $6.9  million  as a  result  of  providing  for  estimated  Medicare
         reimbursement    disallowances   related   primarily   to   potentially
         non-reimbursable costs which were incurred during fiscal years 1991 and
         1992 on subcontracted staffing for the Company's now closed Dade County
         Medicare offices. See Note 7 for further discussion.
(2)      Medicaid revenue declined in fiscal 1995 as a result of the sale by the
         Company of its California  and New York home health care  operations in
         August  1994,  and the  Company's  remaining  Florida  home health care
         operations in January 1995.
(3)      Represents management services to third-party owned home health 
         agencies.
</FN>
</TABLE>


Regulation
         The  Company  is subject to  various  city,  county and state  payroll,
occupational   and   professional   licensing   laws  that   apply  to   medical
professionals.   Many  states  have  laws  requiring  training,  monitoring  and
regulating of medical professionals.  The nature of the services provided by the
Company  potentially  exposes the Company to greater risks of liability for acts
or omissions than are posed by other non-medical  personnel service  businesses.
The Company  maintains  public  liability and  malpractice  insurance in amounts
which it deems adequate to protect against this potential risk.

         The federal  government  and all states in which the Company  currently
operates  regulate  various  aspects of the Company's home health care business.
Home health agency  certification  by the Health Care  Financing  Administration
("HCFA") is required to enable the Company to receive  reimbursement for patient
care services and supplies provided to Medicare  beneficiaries.  The Company has
26 branches  which  provide  services  covered by  Medicare.  As  conditions  of
participation  as a home health agency in the Medicare  program,  HCFA requires,
among other things, satisfaction of certain standards with respect to personnel,
services and  supervision,  the preparation of annual budgets,  cost reports and
capital expenditure plans, and the establishment

                                       12

<PAGE>



of  a  professional  advisory  group  that  includes  at  least  one  practicing
physician,   one  registered  nurse  and  other   representatives  from  related
disciplines and consumer  groups.  The Medicare and Medicaid Patient and Program
Protection  Act of 1987  authorized the Office of Inspector  General  ("OIG") to
exclude from the Medicare  and Medicaid  programs  persons who engage in certain
activities. The OIG has been given authority to exclude individuals and entities
on any one of several grounds,  such as criminal  convictions relating to health
programs and  engaging in  activities  subject to criminal  and civil  penalties
under the Social Security Act. The OIG has also authorized permissive exclusions
derived from a criminal  conviction,  including  convictions  relating to fraud,
license revocation or suspension, prior suspension or exclusion, failure to make
certain  disclosures,  failure to grant  immediate  access  and  failure to take
certain  corrective  actions.  The exclusion may be for a period of three years,
but the OIG has the  authority  to increase or decrease  the period based on the
existence of aggravating or mitigating circumstances, the degree of culpability,
prior history of sanctions or offenses and other factors as justice may require.
The  regulations  do not  establish  a precise  time  period for  non-derivative
permissive exclusions. Rather, the OIG considers aggravating and mitigating 
circumstances.

         Some  states  have  enacted  Certificate  of Need  ("CON")  legislation
requiring  a  provider  to file an  application  that  must be  approved  by the
appropriate  state authority before certain health care services can be provided
in an area.  Approval is dependent upon a demonstration that the need exists for
such services in the area. In states having a CON  requirement,  HCFA will grant
Medicare  certification  only to  providers  which have  obtained  a CON.  As of
November  30,  1996,  of the  seven  states  in which  the HSSI  HomeCare  Group
operates,  three have CON requirements.  The Company operates in compliance with
these  requirements.  To the extent that a provider  has not obtained a CON with
respect to a geographic service area in a state which requires one, the provider
is unable to bill  directly  for services to  Medicare-covered  patients in that
geographic  service  area.  CONs limit the access of  providers  to markets  and
impose  costs,  because  providers  who  wish to serve  an area  subject  to CON
legislation  must be  approved  for a CON or  purchase  the  CON of a  qualified
provider.  Other providers will be unable to enter that market and bill for care
to  Medicare  patients  without  obtaining  a CON.  As a result of the 1992 Dade
County  investigation (see below), the Company sold its CONs in Broward and Palm
Beach Counties, Florida, and the CON in Dade County, Florida, was not renewed.

         The  Corporation  is also subject to various  local,  state and federal
environmental  laws and  regulations  which  regulate the discharge of materials
into the  environment  or are  otherwise  designed to protect  the  environment.
Management   of  the  Company  does  not  project  that  any  material   capital
expenditures will be necessary for the Company to comply with such environmental
laws and regulations.

Dade County, Florida Investigation and Related Matters
         As reflected in prior annual and quarterly reports of the Company,  the
Company is involved  in a federal  investigation  concerning  the  propriety  of
certain of its Florida Medicare claims.  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  legal
counsel who initiated and directed an internal  investigation  into its Medicare
claims processing system. The internal  investigation focused on a review of the
Company's compliance with applicable Medicare laws and regulations.

                                       13

<PAGE>




         On December 15, 1992, HCFA (through its fiscal  intermediary)  notified
the Company of its  decision to suspend  reimbursement  to the  Company's  South
Florida  Medicare  providers.  Such  suspension  of  Medicare  payments in South
Florida was based,  in part,  upon  allegations  of fraud arising from a federal
investigation  into claims that were  submitted  to Medicare  for  services  not
rendered.  Management  believes that the alleged  violations  and  investigation
relate to services  performed by the Company's  Dade County  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 any 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  curtailed its operations in
Dade,  Broward  and Monroe  Counties,  Florida,  terminated  its  subcontracting
relationships  with staffing  providers in South Florida,  and ultimately ceased
operations in these counties.

         Subsequent  to  December  1992,  the Company  continued  to operate its
Medicare  provider 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 payment 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  branch.  The Company  currently has no Medicare
Home Care operations in Florida.

         As of November 30, 1992,  based on information  available to management
at  that  time,  the  Company  provided  for  estimated  Medicare  reimbursement
disallowances for potentially  non-reimbursable  costs incurred in South Florida
in fiscal years 1991 and 1992. As a result of the federal investigation and HCFA
suspension,  in fiscal  year  1993 the  Company  undertook  an  internal  review
program,   which  included   obtaining  advice  and  consultation  from  counsel
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 untimely filing.  While the
majority  of fiscal  years  1991 and 1992  claims  were  billed to the  Medicare
program,   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 results of operations, financial condition or
cash flow as effected in its consolidated financial statements.

         The estimated  Medicare  settlement  amounts  payable to the Company as
reflected  in the  accompanying  consolidated  balance  sheets,  as  well as net
revenue from services presented in the accompanying  consolidated  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  estimated  settlements  due from  Medicare  as of  November  30,  1996,  is
approximately $2.7

                                       14

<PAGE>



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 estimated settlements
due from Medicare as recorded in the Company's  consolidated balance sheet as of
November 30, 1996, are realizable at their recorded amount.

         In  December   1992,  as  a  result  of  the  South  Florida   Medicare
investigation, the Company's Board of Directors appointed a special committee of
its Board of Directors to work with legal  counsel to oversee the defense of the
federal investigation, and to otherwise review the Company's Medicare operations
in South Florida.  The special  committee had the  responsibility of conducting,
through  counsel,  an  internal  investigation  into the  underlying  facts  and
circumstances which gave rise to the execution of the search warrants. While the
special committee received information  suggesting that employees of the Company
may have been involved in Medicare  improprieties,  such information has neither
been substantiated nor disproved.  Future action by the Board of Directors could
include  consideration of legal action against any individuals or entities whose
actions adversely affected the Company.

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


                                       15

<PAGE>




Backlog of Orders
         The  Company  does  not  have a  waiting  list  for  its  home  care or
rehabilitation services. The Company's HSS Staffing Group has a backlog since it
is sometimes unable to immediately match a medical professional with the medical
skills or location required by the assignment.

Employees
         Exclusive of medical personnel  (caregivers),  as of November 30, 1996,
the Company  had  approximately  315  full-time  employees.  For the week ending
November 30, 1996, the Company employed  approximately  1,400 caregivers for the
HSSI HomeCare  Group,  the HSS Staffing Group and its  rehabilitation  services.
These  caregivers  do not  necessarily  work  full-time  shifts.  The  Company's
employees  are not  represented  by a union and the  management  of the  Company
considers relations with employees to be satisfactory.

ITEM 2.  PROPERTIES
         The  Company's  headquarters  are in office  facilities  at 6245  North
Federal Highway, Suite 500, Fort Lauderdale, Florida. Leased headquarter offices
consist of  approximately  15,000 square feet.  Leases expire in January,  2000,
subject to one five-year  renewal period,  and provide for an annual base rental
of  approximately  $200,000.  In addition,  the Company leases all of its branch
office locations with terms generally from one to three years.

         ITEM 3.   LEGAL PROCEEDINGS
         The Company, in the ordinary course of business,  is subject to certain
claims and lawsuits.  The Company  maintains  insurance in such amounts and with
such  coverages  and  deductibles  as  management  believes are  reasonable  and
prudent.  The  principal  risks that the Company  insures  against are  workers'
compensation, director and officer liability, personal injury, bodily injury and
professional  malpractice.  There is no assurance  that the Company's  insurance
coverage  will be  sufficient  to cover the  liabilities  resulting  from claims
brought against the Company.

         As of  November  30,  1996 the  Company  was not  involved in any legal
proceedings expected by management to have a material impact on the Company.

         For  information  with  respect to the federal  investigation  of South
Florida  Medicare  practices and HCFA  suspension,  see  "Regulation"  and "Dade
County, Florida, Investigation and Related Matters".


                                       16

<PAGE>



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

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

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

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

</TABLE>

         Shareholders  also  acted  upon the  following  proposal  at the Annual
Meeting:

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

                                       17

<PAGE>



                                     PART II



ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         SECURITY HOLDER MATTERS

         The Company has never  declared  or paid cash  dividends  on its common
stock. The Company presently intends to retain all future earnings,  if any, for
the operation and expansion of its business and does not anticipate  paying cash
dividends in the foreseeable future. In addition, the Company's credit agreement
precludes  the Company  from paying any  dividends or  purchasing,  redeeming or
retiring  any of its  capital  stock  without the prior  written  consent of the
lender.  Notwithstanding  the above,  holders of the Company's  common stock are
entitled to receive such  dividends as may be declared  from time to time by the
Board of Directors and paid out of funds legally available therefore. Any future
determination as to the payment of cash dividends will depend upon the Company's
results of operations,  financial  condition,  capital  requirements  and lender
restrictions,  if any, as well as such other factors as the  Company's  Board of
Directors may consider. As of December 31, 1996, there were 2,673 holders of the
Company Common Stock and approximately 3,000 beneficial holders.

         The Company's common stock trades on the New York Stock Exchange,  Inc.
("NYSE")  under the symbol HSS. The following  table sets forth,  for the period
indicated,  the high and low closing sales prices for the Company's common stock
as reported on the NYSE.
<TABLE>
<CAPTION>
                                                        High               Low
            Fiscal Year                1996
<S>                                                   <C>                <C>    

First Quarter ............................            $2 7/8             $1 5/8
Second Quarter ...........................             4 3/8              2 5/8
Third Quarter ............................             4 1/8              2
Fourth Quarter ...........................             3 3/8              2 1/8
<CAPTION>
            Fiscal Year                1995
<S>                                                    <C>               <C>
First Quarter ............................             $1 3/4             $1 1/8
Second Quarter ...........................             2 1/4              15/16
Third Quarter ............................             2 1/2              1 5/8
Fourth Quarter ...........................             2 3/8              1 3/4
</TABLE>



ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data for the five years ended November
30,  1996 have been  compiled  by the Company  from its  consolidated  financial
statements which have been audited by independent certified public accountants.



                                       18

<PAGE>


<TABLE>
<CAPTION>

                                   (In Thousands, except per share amounts)
                                            Years Ended November 30,
Selected Financial                1996      1995      1994      1993      1992
                                  ----      ----      ----      ----      ----
<S>                             <C>       <C>       <C>       <C>       <C>     
Net revenue from services ...   $62,234   $56,186   $78,624   $84,061   $120,591
Cost of services ............   $38,045   $33,626   $50,703   $56,934   $ 79,848
Gross margin ................   $24,049   $22,560   $27,921   $27,127   $ 40,743
Selling, general and administrative
expenses ....................   $23,416   $21,113   $36,970   $33,860   $ 45,978
Income (loss) before income taxes and                                                                    
  cumulative effect of change in
  accounting principle ......   $   482   $ 1,202  ($8,896)  ($6,454)   ($4,824)
Income (loss) from continuing                                                                         
  effect of change in accounting
  principle .................   $   484   $ 1,903 ($11,417)  ($5,858)  ($ 3,185)
Primary earnings (loss) from continuing
  operations per common and
  common share equivalents
  before cumulative effect of
change in accounting principle  $  0.04   $  0.32   ($ 2.02)  ($ 1.04)  ($ 0.58)
</TABLE>
<TABLE>
<CAPTION>

                                                  November 30,
                                 1996      1995      1994      1993       1992
                                 ----      ----      ----      ----       ----
Balance Sheet Data:
<S>                             <C>       <C>       <C>       <C>       <C>     
Total Assets ................   $26,411   $23,371   $24,413   $34,690   $ 45,785
Long-term debt, including current
portion .....................   $   519   $ 1,173      --        --         --
Notes Payable - Severance 
Obligations .................   $   546   $ 1,017   $ 1,000      --         --
Stockholders' equity ........   $11,328   $11,075   $ 8,035   $19,276   $ 24,905
</TABLE>














        1 On August 31, 1994,  the Company sold its  California,  New York,  and
Arizona  home  health care  operations.  In January and March of fiscal 1995 the
Company sold its Florida and Texas home care  operations.  These sold operations
contributed  approximately  $25.5 million to net revenues in fiscal 1994. During
fiscal 1995,  the Company was able to maintain  its ongoing  revenue base in its
home health care operations and experienced modest growth in select areas.

        2 During the fiscal year ended November 30, 1993,  revenue was decreased
by $6.9 million as a result of providing  for estimated  Medicare  reimbursement
disallowances related primarily to potentially non-reimbursable costs which were
incurred  during  fiscal years 1991 and 1992 on  subcontracted  staffing for the
Company's  now closed  Dade  County  Medicare  offices.  See Note 7 for  further
discussion.


                                       19

<PAGE>




ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

         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  fiscal  1996 and  fiscal  1995.  It should be read in  conjunction  with
accompanying  consolidated  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 climate;
resolution of the Company's Dade County, Florida, operations; and the other risk
factors  listed  from time to time by the  Company  in  reports  filed  with the
Securities and Exchange Commission, including Exhibit 99.01 hereto.

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
November  30, 1996  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.

         On August 31, 1994,  the Company  sold its  California,  New York,  and
Arizona  home  health care  operations.  In January and March of fiscal 1995 the
Company sold its Florida and Texas home care  operations.  These sold operations
contributed  approximately  $25.5  million to net  revenues  in fiscal  1994 and
$500,000 in 1995.  During  fiscal  1996,  the  Company was able to increase  its
revenue base in its home health care operations and experienced modest growth in
all areas as discussed below.

         On February 15, 1995, a wholly-owned subsidiary of the Company acquired
certain fixed and  intangible  assets of a therapy  company.  The purchase price
included the  forgiveness of trade accounts  receivable  owed to the Company and
the issuance of a promissory  note with the balance due in equal annual payments
over the next five years.

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


                                       20

<PAGE>



         In July 1996 the Company, through a subsidiary,  completed an agreement
to provide billing,  accounting and cost  reimbursement  support services to two
management companies in California. Currently the management companies have five
homecare agencies under contract.

Results of Operations

         The  following  table  sets  forth for the  periods  indicated  the net
revenue by operating group in the Company's statement of operations:
<TABLE>
<CAPTION>

                                  (In Millions)
                         Fiscal Years Ended November 30,

Operating Group:                             1996          1995          1994
----------------
                                        ----------------------------------------
<S>                                      <C>     <C>   <C>     <C>   <C>     <C>
Home Care Group ......................   $  46.6 75%   $  43.9 78%   $  65.6 83%
HSS Staffing Group ...................   $  13.2 21%   $  10.9 20%   $  13.0 17%
Management Services Group ............   $   0.6  1%       --  --%       --  --%
Rehabilitation Group (Therapy) .......   $   1.8  3%   $   1.4  2%       --  --%
                                        ----------------------------------------
Total Net Revenue ...........            $  62.2 100%  $  56.2 100%  $ 78.6 100%
</TABLE>





         The following  table sets forth certain items included in the Company's
Consolidated  Statements of Operations as a percentage of the Company's  revenue
for the periods indicated:
<TABLE>
<CAPTION>

                                                       Percentage of Revenue
                                                      Years Ended November 30,
                                                      1996      1995       1994
                                                      ----      ----       ----
<S>                                                  <C>       <C>        <C>   
Net revenue from services .........................  100.0%    100.0%     100.0%
Cost of services ..................................   61.1%     59.8%      64.5%
Gross margin ......................................   38.9%     40.2%      35.5%
Selling, general and administrative expenses ......   37.6%     37.6%      47.0%
Other income/(expense), net .......................   (0.5)%    (0.4)%      0.2%
                                                                             
Net income/(loss)   before  income  taxes,
 extraordinary  loss  on  early
 extinguishment of debt and 
 cumulative effect of change in
 accounting principle .............................   0.8%      2.1%     (11.3)%
Net income/(loss) .................................   0.4%      3.4%     (14.3)%
</TABLE>


                                       21

<PAGE>



         The following  unaudited  selected  proforma  financial data represents
ongoing operations net of sold operations described above for 1995 and 1994, the
only years affected for data presented,  and should be read in conjunction  with
the consolidated financial statements and related notes herein:

<TABLE>
<CAPTION>

                                                  (In Millions)
                                              Years Ended Nov. 30,
                                                1995                   1994
                                               ------                 -----
<S>                                  <C>          <C>       <C>          <C>  

Net Revenue from Services ........   $  55.7      100.0%    $  53.1      100.0%
Cost of Services .................   $  33.1       59.4%    $  32.5       61.2%
Gross Margin .....................   $  22.6       40.6%    $  20.6       38.8%
</TABLE>


Comparison of 1996 to 1995

         Net Revenues.  Consolidated net revenues  increased  approximately $6.0
million or 10.8% from $56.2 million in fiscal 1995 to $62.2 million for the year
ended November 30, 1996. While revenues  increased in all areas of the Company's
operations, the primary growth, in dollars, was in the HomeCare and HSS Staffing
Groups.

         Net  revenues  of the Home  Care  Group  increased  approximately  $2.7
million,  or 6.2%, from $43.9 million in fiscal 1995 to $46.6 million for fiscal
1996.  Volume was the primary  factor,  as visits  increased from  approximately
558,000 to 585,000 for the years ended November 30, 1995 and 1996, respectively.
Additionally,  an improved mix of higher skill  services  contributed  to higher
proprietary  revenues.  The mix of  proprietary  and  Medicare  visits  remained
relatively the same and the resulting rates per visit remained stable as well.

         Net revenues of the HSS Staffing  Group  increased  approximately  $2.3
million,  or 20.7%,  from $10.9  million in fiscal 1995 to $13.2 million for the
year ended  November  30,  1996.  With  hourly  revenue  rates  only  increasing
marginally,  the increase in revenue is largely  attributable  to an increase in
hours billed.

         With the acquisition of a therapy company in the second quarter of 1996
and the opening of four (4) clinics, as previously discussed,  net revenues from
the Company's Rehabilitation Services Group increased by approximately $413,000,
or 30.2%,  from $1.4  million to $1.8  million for the years ended  November 30,
1995 and 1996,  respectively.  Not included in their net revenues are the common
patients and other synergies created with the HomeCare Group.

         The  Company's  Management  Services  Group,  established  during 1996,
generated net revenues of  approximately  $653,000 for its first partial year of
operations.

         Cost of Services.  Direct  expenses of the HomeCare Group  increased by
6.2%, the same rate of increase as for net revenues, from $23.8 million to $25.3
million,  an increase of $1.5 million from fiscal year 1995 to fiscal year 1996,
respectively.

         Cost of services for the HSS Staffing Group  increased by $1.9 million,
or 20.9%,  from $8.9 million to $10.8 million,  for fiscal 1995 and fiscal 1996,
respectively.  This rate of increase is comparable to the 20.7% rate of increase
for net revenues.

                                       22

<PAGE>




         The  Rehabilitation  Services  Group  experienced  increases  in direct
expenses,  primarily  salaries and  benefits,  in excess of its increases in net
revenue.  Direct expenses  increased  approximately  $889,000,  or 104.8%,  from
$848,000 to  $1,736,000  for the fiscal years ended  November 30, 1995 and 1996,
respectively.  The  increases  are  directly  attributable  to the newly  opened
clinics and the therapy company acquisition.

         Much of the costs of support services for the Management Services Group
were  furnished  by  existing  Company  support  services  functions,   such  as
accounting,   reimbursement  and  payroll  and,  therefore,  was  absorbed  into
corporate overhead.  The Group did, however, incur additional incremental direct
costs of approximately $185,000.

         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 and other
direct expenses the Company pays to its medical  personnel or to support service
personnel in the case of the Management Services Group.

         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 overall gross margin increased by $1.6 million,  or 7.2%,
from $22.6  million to $24.2  million for the fiscal  years ended 1995 and 1996,
respectively.  The  gross  margin  as a  percentage  of  net  revenue,  however,
decreased from 40.2% to 38.9%.  Although  confronted with  significant  downward
pressures on margins experienced throughout the healthcare industry, the Company
managed to maintain  its gross  margins in all areas  except for  Rehabilitation
Services.  Due to lower than  expected  revenues  and  significant  declines  in
productivity,   the  gross  margin  from  the  Rehabilitation  Group  fell  from
approximately $520,000 to $45,000 in fiscal 1995 and 1996, respectively. Without
the impact of the  Rehabilitation  Services  Group,  the Company's  gross margin
percentage would have remained the same for fiscal 1995 to fiscal 1996.

         Selling,  General  and  Administration  Expense.  Selling,  general and
administration  expenses increased by $2.3 million, or 10.9%, from $21.1 million
to $23.4 million for the years ended  November 30, 1995 and 1996,  respectively.
The increase is due primarily to the expansion of services and growth throughout
the  Company  mitigated  somewhat  by  lower  litigation  and  legal  and  other
professional fees.

         Interest  and Other  Income  (Expense).  The net expense  increased  by
$46,000 from $245,000 to $291,000 from fiscal 1995 to 1996, respectively, due to
increased  interest  expense of $281,000 on an expanded  line of credit  largely
offset by collection of receivables from sold operations.

         Pre-tax Net Income.  Pre-tax net income  decreased  from  approximately
$1,202,000   to   approximately   $482,000   due  to  losses   incurred  in  the
Rehabilitation  Services  Group  offset by income  generated  in the  Management
Services Group.

         Income  Taxes.  For fiscal 1996,  the Company  recognized a benefit for
income taxes of $2,705.  Such benefit is primarily the result of recognizing the
current  defined  tax  benefit  associated  with  the  turnaround  of  temporary
differences  in the  current  year,  offset  partially  by an  increase  in the
valuation allowance.

                                       23

<PAGE>





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

Comparison of 1995 to 1994

         Net Revenues.  Net revenues decreased  approximately  $22.4 million, or
28.5%,  from $78.6  million in Fiscal  1994 to $56.2  million for the year ended
November 30, 1995.  This  decrease is directly  attributable  to the sale of the
Company's home health care  operations in  California,  New York, and Arizona on
August 31, 1994 and the sale of its Florida and Texas  operations in January and
March of Fiscal  1995.  In Fiscal 1994,  these sold  operations  contributed  in
excess of $25.5 million to consolidated revenue.

         Net revenues from services  provided by the  Company's  HomeCare  Group
decreased  approximately  $21.7 million, or 33.1%, to $43.9 million for the year
ended  November 30, 1995,  from  approximately  $65.6 million for the year ended
November 30, 1994.  These  decreases in revenues are principally due to the sale
of certain Company operations previously discussed, offset by an increase in net
revenues within ongoing HomeCare  operations of approximately  $2.4 million,  or
5.9%,  from $41.0 million to $43.4  million for the fiscal years ended  November
30, 1994 and 1995, respectively.  The growth is attributed to increased Medicare
business within remaining HomeCare operations.

         The  revenues  for  the   Company's   HSS  Staffing   Group  were  down
approximately $2.1 million, or 16.0%, from $13.0 million in Fiscal 1994 to $10.9
million in Fiscal 1995 due  primarily  to reduced  demand for  contract  nursing
staff in serviced hospitals.

         Since the  acquisition,  during its first nine months of  operations in
fiscal  1995,  the  Company's  rehabilitative  service  business  generated  net
revenues  of  approximately  $1.4  million.  The focus of this  group will be on
hospital rehabilitation facility management, providing therapy services to other
home care  companies,  and  expansion  of its  existing  clinics in Georgia  and
Tennessee.

         Cost of Services. The cost of services for the HomeCare Group decreased
approximately  $16.4  million,  or 40.8%,  from  approximately  $40.2 million to
approximately  $23.8  million for the fiscal  years ended  November 30, 1994 and
1995,  respectively.  The  primary  reasons for this  reduction  are the sale of
certain HomeCare  operations,  discussed earlier, and lower estimated litigation
losses based upon  favorable  trends in the  resolution  of certain  independent
contractor  claims related to the Dade County operations as discussed in Part I.
This  reduction in estimated  litigation  losses  resulted in decreased  cost of
services in the fourth quarter by approximately $715,000.

         Cost of services from the HSS Staffing Group  decreased to $8.9 million
in the year  ended  November  30,  1995 from  $10.5  million  in the year  ended
November  30,  1994.  The  decrease in cost of services  are  attributable  to a
reduction in contracts  primarily due to cutbacks of open positions (less demand
for nurses) at various hospitals within the current services areas.

         The cost of services for the Company's  rehabilitative  services  group
were approximately  $848,000 during its first nine months of operation in fiscal
1995.


                                       24

<PAGE>



         Gross Margin.  The Company's gross margin decreased  approximately $5.3
million,  or 19.0%,  from $27.9  million in fiscal 1994 to  approximately  $22.6
million  in  fiscal  1995.  This  resulted  from  the  sale of  certain  Company
operations  previously  discussed.  As a  percentage  of revenue,  gross  margin
increased  from 35.5% to  approximately  40.2% for the years ended  November 30,
1994  and  1995.  This  increase  resulted  from  the  sale  of  low  performing
operations,  the  improvement  of the  expected  settlement  of  certain  claims
discussed above, and a general improvement in operations.

         Selling,  General  and  Administrative  Expense.  Selling,  general and
administrative  expenses decreased from approximately $37.0 million, or 47.0% of
net  revenue,  during  1994 to  approximately  $21.1  million,  or  37.5% of net
revenue,  during 1995.  The 1995 decrease is  attributable  to operations of the
Company  being  sold in late 1994 and early  1995,  offset by  certain  employee
severance  costs and  litigation  settlements.  Bad debt expense  decreased $1.8
million,  from  $2.4  million  or  3.1%  of net  revenues,  in  fiscal  1994  to
approximately  $553,000,  or 1.0% of net revenues, in fiscal 1995. The principal
reason for this is the additional reserves required,  in fiscal 1994, related to
the accounts receivable from sold operations.

         Interest  and Other  Income  (Expense).  The net amount of interest and
other  income/(expense),  changed from net income of $153,049 in 1994 to expense
of $245,319 in 1995. This change resulted  primarily from the recognition of the
gain on the Company's sale of its California,  New York, and Arizona home health
care  operations in the amount of $300,000 in fiscal 1994.  Interest  costs were
lower in 1995 due to  average  outstanding  borrowings  being less than they had
been in 1994.

         Pre-tax Net Income. Pre-tax net income increased by approximately $10.1
million  from  approximately  ($8.9)  million  for the fiscal year ended 1994 to
approximately  $1.2 million for the fiscal year ended 1995,  and  increased as a
percentage of revenue from (11.3)% to 2.1%.

         Income Taxes. The Company recognized a net benefit for income taxes for
the fiscal year ended November 30, 1995 of approximately $701,000 primarily as a
result of certain tax deductible legal  settlements which can be carried back to
recover income taxes previously paid by the Company. The provision (benefit) for
income  taxes  from  1995 to  1994  changed  significantly  as a  result  of the
recognition  of certain  deferred tax assets which were fully reserved in fiscal
1994. See Note 8 to the Consolidated Financial Statements.


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.

         Prior Line of Credit. At November 30, 1995, under an arrangement with a
commercial finance company, the Company had a $15 million uncommitted  revolving
line of credit,  of which $2.0 million was reserved to support a standby  letter
of credit  for the  benefit of the  Company's  workers'  compensation  insurance
carrier.

                                       25

<PAGE>




         Line  of  Credit.  In  February  1996,  under  an  arrangement  with  a
commercial finance company,  the Company entered into an $8 million  uncommitted
revolving  line of  credit,  of which $2.0  million  was  reserved  to support a
standby letter of credit for the benefit of the Company's workers'  compensation
insurance  carrier.  At  November  30,  1996,  the  letter of credit was at $1.6
million.  The amount of the Line of Credit  available to the Company at any time
is determined primarily by the eligible accounts receivable,  as defined.  Prior
to November 30, 1996, the Company  obtained a verbal  agreement,  to be followed
with a  revised  written  commitment,  to  increase  the  line  to $14  million.
Negotiations are in progress on the written commitment.

         Loan activity  (exclusive  of the $1.6 million  reserved to support the
standby  letter of credit  for the  Company's  workers'  compensation  insurance
carrier) for the two years ended November 30 was as follows:
<TABLE>
<CAPTION>

                        (In Millions, except percentages)
                                                               1996        1995
<S>                                                          <C>         <C>    
Maximum outstanding ..................................       $   7.0     $   2.1
Borrowings outstanding at November 30 ................       $   6.5     $   0.8
Amount available for additional borrowing ............       $   0.3     $   0.4
Weighted average interest rate .......................          14.5%      21.0%
</TABLE>


         Early  retirement  of the prior line of credit  resulted in the Company
incurring a penalty of  approximately  $150,000 and a write-off  of  unamortized
loan costs in the amount of approximately  $144,000,  the aggregate of which was
recorded as an extraordinary charge in the first quarter of 1996.

         Restrictive  Covenants under the Line of Credit.  The Company's Line of
Credit contains certain restrictive covenants precluding the Company from paying
any dividends, other than stock dividends, or purchasing,  redeeming or retiring
any of the Company's  capital  stock.  In addition,  written  contracts with the
government  agencies  operating the two hospitals in the U.S.  Virgin Islands to
which the Company provides Traveler services are required.  If the Company fails
to have  such  written  contracts  in  place,  the  commercial  finance  company
providing  the Line of Credit may  restrict  the  definition  of those  eligible
accounts  receivable,  so that no U.S.  Virgin Island  accounts  receivable  are
included.  Currently  written  contracts are in place with  expiration  dates in
September and November 1997.

         Trade Accounts  Receivable.  At November 30, 1996 and 1995, the Company
had outstanding accounts  receivables,  net of allowances for doubtful accounts,
of  approximately  $9.6 million and $6.1 million,  respectively.  For the fiscal
year ended  November 30, 1996,  turnover of accounts  receivable  decreased from
3.54 to 3.20 times per year and average days outstanding increased from 103 days
to 114 days. The resulting  decreases in cash collections makes up approximately
$2 million of the increases in borrowing under our line of credit. The Company's
U.S. Virgin Island clients are  historically  slow-paying.  At November 30, 1996
and 1995, the average days  outstanding for the U.S. Virgin Island accounts were
208 and 198 days, respectively.

         During the third and fourth quarters of 1995, all outstanding  accounts
receivables relating to sold operations were written off as uncollectible. These
outstanding accounts  receivables amounted to approximately  $1,200,000 and were
fully  reserved at November  30,  1994.  Cash  recoveries  of these  write-offs,
subsequent  to year  end  1995,  were  approximately  $199,600.  Minimal  future
recoveries are expected.

                                       26

<PAGE>




         Settlements  due to and due from  Medicare.  Periodically,  the Company
estimates  settlements  due to the Medicare  Program.  The estimated  settlement
amounts  due 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 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,  or 3) using  proceeds  from  additional  capital that may be raised.
However,  there are no assurances  that the Company will be able to successfully
utilize any of these three funding options. For the twelve months ended November
30, 1995,  the Company had  received  notification  from the Medicare  program's
fiscal  intermediaries  of  approximately  $3,132,000  due to Medicare.  Through
February  1997,  approximately  $364,000 of this  amount has been  repaid  under
Medicare approved  repayment plans.  Included in the $3,132,000 is approximately
$1,024,000 which the Medicare intermediaries are not pursuing in anticipation of
the settlement of certain  provider cost reports with amounts due to the Company
in excess of the $1,024,000.

         Cash Position. Net cash generated by (used in) operating activities was
($6,693,344),  $109,552  and  ($630,475)  in fiscal  years 1996,  1995 and 1994,
respectively.  In addition to cash flow from operating activities, the Company's
overall  cash  position  can be  significantly  affected  by its  investing  and
financing  activities.  Significant  investing  activities for the twelve months
ended November 30, 1996 consisted of capital  expenditures  and  acquisitions of
therapy company.  The Company's  principal  financing  activities for the fiscal
year ended  November  30, 1996  consisted  of net  borrowings  under the line of
credit.

         Net Working  Capital.  As of November 30, 1996, the Company had current
assets of approximately  $23.2 million and current  liabilities of approximately
$14.4 million,  resulting in net working capital of  approximately  $8.8 million
and a current ratio of 1:6x. This compares to working  capital of  approximately
$8.8 million and a current  ratio of 1:8x at November  30,  1995.  Cash and cash
equivalents  were  approximately  $0.1 million at fiscal year ended November 30,
1996.

As of November 30, 1996, the Company's  commitments  that would require large or
unusual amounts of cash,  consisted of office rents,  repayments to the Medicare
program,  the  severance  obligation  to a former  officer and an amount due its
current Chairman and Chief Executive Officer (See Notes 6 and 7).

Seasonality

         Historically,  the  Company's  Traveler  business  in the  U.S.  Virgin
Islands has not been subject to material  seasonal  fluctuations.  However,  the
Traveler  business  in the rest of the  United  States has been  seasonal,  with
demand for  Travelers  being  highest in the first and  fourth  quarters  of the
fiscal year (September  through February) and lowest in the third quarter of the
fiscal year (June  through  August).  This is due largely to  increased  demand,
particularly  during the peak  tourist  and  winter  retirement  home  period in
Florida, coupled with an increase in the availability of nurses during the first
and fourth  quarters  of the  Company's  fiscal  year.  The  Company's  HomeCare
business has not been subject to material seasonal fluctuations.


                                       27

<PAGE>



Impact of Inflation

         Inflation, while moderate,  continues to increase the cost of goods and
services  purchased by the  Company.  Inflation  is  considered  in all contract
proposals developed for hospital and home care clients. Historically,  inflation
has not had a significant impact on the operations of the Company.

Statement of Financial Accounting Standards SFAS No. 109

         Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".  SFAS No. 
109 required, among other things, recognition of future tax benefits as an 
asset.
  
         During 1994, the Company  determined  that, due to recurring  losses in
prior years and other factors, realization of the net deferred tax asset did not
meet the "more  likely  than not"  criteria of SFAS No.  109.  Consequently,  at
November  30,  1994,  the  valuation  allowance  was  increased  so that the net
deferred tax asset was fully reserved.  As a result of pre-tax income  generated
in 1995 and 1996, the Company realized  certain  deferred tax assets  previously
reserved.  Additionally,  the Company has recognized  approximately $310,000 and
$146,000 of its net operating  loss  carryforwards  generated in fiscal 1995 and
1996,  respectively,  as management believes that it is more likely than not the
Company will generate  sufficient  future  taxable income to realize this asset.
The  valuation  allowance  is subject to continual  review and, as such,  may be
decreased in the future as substantive  information  becomes available about the
Company's  ability to generate  sufficient  future taxable income to realize the
net deferred tax asset (See Note 8).

         The  effective  tax rate for the  provision  (benefit) for income taxes
during the fiscal years ended 1996,  1995 and 1994 differ from the statutory tax
rate. This is primarily due to adjustments to the valuation allowance,  as noted
above,  and the  Company's  inability to derive a benefit from its net operating
loss  carryforwards  in 1994 and 1993 and due to the  increase in the  valuation
allowance discussed above.

                                       28

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEX TO FINANCIAL STATEMENTS

                                                                     Page Number

Consolidated Balance Sheets .............................................29

Consolidated Statements of Operations ...................................30

Consolidated Statements of Stockholders' Equity .........................31

Consolidated Statements of Cash Flows ...................................32

Notes to Consolidated Financial Statements ..............................33 - 46

Report of Independent Certified Public Accountants ......................47


                                       29

<PAGE>
<TABLE>
<CAPTION>
                Hospital Staffing Services, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                                  November 30,


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


                                      1996          1995                                            1996         1995
                                    ----------   -----------                                     -----------  -----------


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

  Cash and cash equivalents          $145,247    $1,697,804       Accounts payable               $2,470,506   $2,577,470
  Short-term investments               12,145        11,620       Line of credit payable (Note 4) 6,540,793      767,115
  Trade accounts receivable, less                                 Accrued payroll and benefits    2,130,053    2,240,404
    allowance for doubtful accounts of                            Accrued expenses (Note 12)      2,539,016    4,224,210
    $559,251 and $599,599, 
    respectively                    9,622,122     6,129,371       Income taxes payable              216,096      296,000
  Settlements due from Medicare    12,201,367    10,372,741       Capital leases                     17,522        7,131
  Amounts due from officers/directors  71,377        40,392       Notes payable (Notes 2, 6 &7)     503,678    1,255,130
  Current and deferred income
     taxes receivable                 587,215     1,149,634
  Prepaid expense and other current
  assets                              599,062       762,817


                                    ----------   -----------                                     -----------  -----------
        Total current assets        23,238,535   20,164,379          Total current liabilities   14,417,664   11,367,460
                                    ----------   -----------                                     -----------  -----------


NON-CURRENT ASSETS:                                             NON-CURRENT LIABILITIES:
                                                                  Notes payable (Notes 2, 6 &7)     510,728      882,965
                                                                  Capital leases                     80,881       45,304
                                                                  Other                              73,999
                                                                                                 -----------  -----------
  Net property and equipment (Note 3) 879,735       986,592          Total non-current liabilities  665,608      928,269
                                    ----------   -----------                                     -----------  -----------

                                                                                                 -----------  -----------
                                                                     Total liabilities           15,083,272   12,295,729
                                                                                                 -----------  -----------

  Intangibles related to businesses                             COMMITMENTS AND CONTINGENCIES (Notes 4, 5 & 7)
    acquired                        2,258,028     2,160,016
  Non-competition agreements          479,426       479,426     STOCKHOLDERS' EQUITY:
                                                                 Preferred stock - $.001 par value;
                                    ----------   -----------
  Total intangibles                 2,737,454     2,639,442          authorized 5,000,000 shares;
  Less:  Accumulated amortization    (785,133)     (664,418)         none issued or outstanding            -           -

                                    ----------   -----------
        Net intangibles             1,952,321     1,975,024       Common stock- $.001 par value;
                                    ----------   -----------
                                                                     authorized 20,000,000 shares;
                                                                     6,359,770 and 6,349,770 shares 
                                                                     issued and outstanding; 
                                                                     respectively                     6,360        6,350
  Deposits and other assets           340,836       244,826
                                                                  Additional paid-in capital      22,452,627   22,428,887

                                                                  Accumulated deficit            (11,130,832) (11,360,145)
                                    ----------   -----------

                                                                                                 -----------  -----------
        Total non-current assets    3,172,892     3,206,442          Total stockholders' equity  11,328,155   11,075,092
                                    ----------   -----------                                     -----------  -----------

                                                                     Total liabilities and
        Total assets                $26,411,427  $23,370,821             stockholders' equity    $26,411,427  $23,370,821
                                    ==========   ===========                                     ===========  ===========

<FN>




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






                                       30

<PAGE>
<TABLE>
<CAPTION>
                Hospital Staffing Services, Inc. and Subsidiaries
                      Consolidated Statements of Operations
                        For the Years Ended November 30,



                                                                       1996                      1995                       1994
                                                               ---------------------      --------------------       ---------------
<S>                                                                  <C>                       <C>                       <C>    
Net revenue from services ............................               $62,234,015               $56,185,723               $78,624,465
                                                               ---------------------      --------------------       ---------------
Cost of services:
Professional salaries and benefits ...................                31,992,511                28,231,790                44,531,227
Other professional expenses ..........................                 6,053,002                 5,393,817                 6,172,436

                                                               ---------------------      --------------------       ---------------
Total cost of services ...............................                38,045,513                33,625,607                50,703,663
                                                               ---------------------      --------------------       ---------------

Gross margin .........................................                24,188,502                22,560,116                27,920,802
                                                               ---------------------      --------------------       ---------------

Selling, general and administrative expenses:
Salaries and benefits ................................                13,149,216                11,891,179                15,743,219
Legal expenses .......................................                   201,817                 1,040,019                 2,106,442
Severance obligations (Note 6) .......................                   552,316                   646,724                 1,387,480
Litigation settlements (Note 7) ......................                    12,500                   135,000                 1,887,500
All other expenses ...................................                 9,500,001                 7,399,767                15,845,168

                                                               ---------------------      --------------------       ---------------
Total selling, general and administrative expenses ...                23,415,850                21,112,689                36,969,809
                                                               ---------------------      --------------------       ---------------

Income (loss) from operations ........................                   772,652                 1,447,427               (9,049,007)
                                                               ---------------------      --------------------       ---------------

Interest and other income (expense):
Interest expense .....................................                  (554,362)                 (273,027)                (398,590)
Interest income ......................................                    64,165                    71,523                    63,318
Other income (expense), net ..........................                   199,108                   (43,815)                  488,321

                                                               ---------------------      --------------------       ---------------
Total interest and other income (expense) ............                  (291,089)                 (245,319)                  153,049

                                                               ---------------------      --------------------      ----------------
Income (loss) before (provision) benefit for income taxes                481,563                 1,202,108               (8,895,958)

(Provision) benefit for income taxes (Note 8) ........                     2,705                   700,570               (2,520,565)
                                                               ---------------------      --------------------      ----------------

Income (loss) before extraordinary item and cumulative effect of
change in accounting principle .......................                   484,268                 1,902,678              (11,416,523)

Extraordinary loss on early extinguishment of debt (Note 4)             (254,955)                     --                        --
                                                               ---------------------      --------------------       ---------------

Income (loss) before cumulative effect of change in accounting princi    229,313                 1,902,678              (11,416,523)

Cumulative effect of change in accounting principle ..                      --                        --                     162,000
                                                               ---------------------      --------------------       ---------------

Net income (loss) ....................................               $   229,313               $ 1,902,678             ($11,254,523)
                                                               =====================      ====================       ===============


Income (loss) per common share:
    Income (loss) before extraordinary item and cumulative
effect of change in accounting principle .............               $      0.08               $      0.32              ($     2.02)
Extraordinary loss on early extinguishment of debt ...                     (0.04)                     --                        --
Cumulative effect of change in accounting principle ..                      --                        --                       0.03
                                                               ---------------------      --------------------       ---------------

Net income (loss) per common share ...................               $      0.04               $      0.32              ($     1.99)
                                                               =====================      ====================      ================


Weighted average common shares outstanding: ..........                 6,353,868                 5,922,213                 5,649,770
                                                               =====================      ====================      ================

<FN>

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

                                                         31

<PAGE>
<TABLE>
<CAPTION>


                Hospital Staffing Services, Inc. and Subsidiaries
                 Consolidated Statements of Stockholders' Equity



                                                                 Common Stock
                                                          ---------------------------
                                                          Number of                               Additional
                                                            Shares                                  Paid-In            Retained
                                                          Outstanding           Amount              Capital       Earnings (Deficit)
                                                          -----------         -----------         ------------    ------------------
<S>                                                        <C>                <C>                  <C>                  <C>         
BALANCE, November 30, 1993 ....................            5,646,020          $     5,646          $21,278,966          ($2,008,300)

Exercise of Warrants ..........................                3,750                    4               13,121                 --

Net Loss ......................................                 --                   --                   --            (11,254,523)

                                                          -----------         -----------         ------------     -----------------
BALANCE, November 30, 1994 ....................            5,649,770                5,650           21,292,087          (13,262,823)

Litigation Settlement (Note 7) ................              700,000                  700            1,136,800                 --

Net Income ....................................                 --                   --                   --              1,902,678

                                                          -----------         -----------         ------------     -----------------
BALANCE, November 30, 1995 ....................            6,349,770                6,350           22,428,887          (11,360,145)


Stock Options Exercised .......................               10,000                   10               23,740                 --

Net Income ....................................                 --                   --                   --                229,313


                                                         -----------          ------------         ------------        -------------
BALANCE, November 30, 1996 ....................            6,359,770          $     6,360          $22,452,627         ($11,130,832)
                                                         ===========          ============         ============        =============


<FN>

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


                                                            32

<PAGE>
<TABLE>
<CAPTION>

                Hospital Staffing Services, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                        For the Years Ended November 30,


                                                                                             1996            1995          1994
                                                                                         ----------     ------------   -------------

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S>                                                                                      <C>             <C>           <C>          
Net income (loss) .................................................................      $  229,313      $1,902,678    ($11,254,523)
                                                                                         ----------     ------------   -------------

Adjustments to reconcile  net income  (loss) to net cash  
     provided (used) by operating activities:     
Severance obligations .............................................................            --           630,000       1,310,000
Depreciation and amortization .....................................................         621,560         989,741       1,340,748
Cumulative effect of change in accounting principle ...............................            --              --          (162,000)
Provision for losses on trade accounts receivable .................................         248,422         552,663       2,382,948
Gain on sale of home health operations ............................................            --              --          (299,492)
Extraordinary loss on early extinguishment of debt (Note 4) .......................          99,955            --              --
Loss on disposal and retirement of intangibles, property and equipment ............         129,541          10,611
Write-off of intangibles related to businesses acquired, net ......................            --              --           133,505
Deferred income tax provision (benefit), net of increase in valuation 
allowances ........................................................................        (146,466        (309,532)       2,120,655
       Changes in assets and liabilities:
        (Increase) decrease in assets-
Trade accounts receivable .........................................................      (3,519,553)        797,122        1,920,683
Settlements due from Medicare .....................................................      (1,644,222)       (252,523)     (3,022,514)
Prepaid expenses and other current assets .........................................         (80,636)       (168,431)       (171,622)
Amounts due from officers/directors ...............................................         (45,635)         77,749           32,897
Current and deferred income taxes receivable ......................................         708,885        (628,061)       1,850,802
Deposits and other assets .........................................................        (236,526)        263,705          204,304
Increase (decrease) in liabilities -
Accounts payable ..................................................................        (127,281)     (2,006,662)       1,874,055
Accrued payroll and benefits ......................................................        (342,962)       (233,239)     (1,534,022)
Accrued expenses ..................................................................      (2,378,335)     (1,369,954)       1,777,733
Other liabilities .................................................................            --              --            293,512
Income taxes payable ..............................................................         (79,904)       (265,245)         561,245

                                                                                        -------------   ------------   -------------
Total adjustments .................................................................      (6,922,698)     (1,793,126)      10,624,048
                                                                                        -------------   ------------   -------------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ..................................      (6,693,385)        109,552        (630,475)
                                                                                        -------------   ------------   -------------

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Issuance of notes receivable ......................................................        (101,933)           --                 --
Minority interest in limited partnership ..........................................          73,999            --                 --
Sale (purchase) of short-term investments, net ....................................            (525)      1,137,109        (148,729)
Capital expenditures ..............................................................        (204,287)       (369,775)       (130,205)
Acquisition of therapy company ....................................................         (60,000)           --                 --
Proceeds from disposal of property and equipment ..................................            --             9,500           22,071
Proceeds from sale of home health operations (Note 2) .............................         145,782         160,000        3,492,993

                                                                                        -------------   ------------   -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES ..................................        (146,964)        936,834        3,236,130
                                                                                        -------------   ------------   -------------

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Line of credit borrowings (repayments) ............................................       5,773,678         462,203      (3,012,794)
Payments under notes payable ......................................................        (506,234)       (327,555)              --
Payments under capital leases .....................................................          (3,402)           --                 --
Exercise of Warrants ..............................................................            --              --             13,125
Exercise of Stock Options .........................................................          23,750            --                 --

                                                                                        -------------   ------------   -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ..................................       5,287,792         134,648      (2,999,669)
                                                                                        -------------   ------------   -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..............................      (1,552,557)      1,181,034        (394,014)

Cash and cash equivalents at beginning of period ..................................       1,697,804         516,770         910,784

                                                                                        -------------   ------------   -------------
                                                                                        -------------   ------------   -------------
Cash and cash equivalents at end of period ........................................      $  145,247      $1,697,804      $   516,770
                                                                                        -------------   ------------   -------------

Supplemental Cash Flow Disclosures:
   Cash paid:             Income Taxes                                                   $  240,243      $  499,139      $   661,793
                          Interest                                                       $  554,362      $  276,816      $   396,448

   Cash Received:        Income Tax Refunds                                              $  704,044              -       $ 2,644,910

              
<FN>

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











                                       33

<PAGE>



                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -

Organization and Purpose: Hospital Staffing Services, Inc. and subsidiaries (the
"Company"  or "HSSI")  provides (i) home health care and other  in-home  support
services through its "HSSI HomeCare Group",  (ii) interim staffing of nurses and
other  medical  personnel,  primarily  to  hospitals  through its "HSS  Staffing
Group", and (iii) rehabilitation services, including physical, occupational, and
speech therapy services to patients in the home,  other  healthcare  facilities,
and through its own  clinics.  These  services  are  provided  through a pool of
caregivers  operating within the Company's network of 28 home health care branch
offices in seven states,  130 hospitals in 30 states and the U.S. Virgin Islands
and six rehabilitative clinics in four states.

Basis of Consolidation:  The accompanying consolidated financial statements 
include the accounts of Hospital Staffing Services, Inc. and its wholly-owned
subsidiaries.  All significant intercompany accounts and transactions have
been eliminated in consolidation.

Revenue Recognition Policy:  Gross revenue is recorded on an accrual basis based
upon the date of service at amounts equal to the Company's  established rates or
estimated cost  reimbursement  rates, as applicable.  Allowances and contractual
adjustments  representing  the  difference  between  the  established  rates  or
estimated  cost  reimbursement  rates  for  covered  services  and  the  amounts
estimated to be paid by third  parties are also recorded on an accrual basis and
deducted from gross revenue to determine net revenue from services.  The Company
provides certain care to charity  patients,  based upon need, but these unbilled
revenues and related costs are immaterial.

Cash and Cash Equivalents:  The Company  classifies as cash and cash equivalents
all highly  liquid  investments  with  maturities  of three  months or less.  At
November  30,  1996 and  1995,  cash  equivalents  were  composed  primarily  of
investments  in money market funds and are reflected at their  approximate  fair
value.

Trade Accounts Receivable:  All Company services, other than to patients covered
by the Medicare  program,  are recorded at  established  rates as trade accounts
receivable on an accrual basis.  Provisions for estimated uncollectible accounts
are reported as selling,  general and  administrative  expenses in the financial
statements in the period that services are rendered.

The Company is subject to losses which may be incurred from Accounts  Receivable
that may be uncollectible in excess of its established  reserves.  The provision
(credit) for doubtful accounts included in operations was approximately 
($218,000) in 1996, $553,000 in 1995, and $2,400,000 in 1994.

Settlements  Due From  Medicare:  The  Company is a provider of home health care
services to patients covered by the Medicare program.  Reimbursement for covered
services is based on cost reimbursed  rates.  Final  reimbursement is determined
after  submission  of annual  cost  reports  and  audits  thereof  by the fiscal
intermediaries.  The  settlement  amounts  due the Company as  reflected  in the
accompanying

                                       34

<PAGE>


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

consolidated  balance  sheets and the net revenue from  services as reflected in
the  accompanying  consolidated  statements of  operations  are presented net of
estimated reimbursement disallowances.

Property  and  Equipment:  Property  and  equipment,   consisting  primarily  of
furniture,  fixtures,  office and computer equipment, and leasehold improvements
are recorded at cost. Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the depreciable  assets (3 - 7 years).
Betterments,  renewals and extraordinary  repairs that extend the useful life of
the asset are capitalized; other repairs and maintenance charges are expensed as
incurred.  The cost and related  accumulated  depreciation  applicable to assets
retired are removed  from the accounts  and the gain or loss on  disposition  is
recognized in other income (expense).

Included  in  property  and  equipment  are  capitalized  leases  which  consist
primarily  of computer  equipment.  Capital  leases are  recorded at the present
value of the future rentals at lease inception and are amortized over the lesser
of the applicable lease term or the useful life of the equipment (See Note 3).

Intangible Assets:  Intangible assets, primarily goodwill,  represent the excess
of the  purchase  price  of  acquisitions  over the  fair  value  of net  assets
acquired.  Such costs are being  amortized  over various  periods not  exceeding
forty years.  Amortization expense was approximately  $396,000 in 1996, $345,000
in 1995, and $740,000 in 1994. The Company periodically reviews the value of its
goodwill to determine if an impairment  has occurred.  The Company  measures the
potential  impairment of recorded goodwill by the undiscounted value of expected
future operating cash flows in relation to its net capital investment.  Based on
its review,  the Company does not believe that an impairment of its goodwill has
occurred.

Non-Competition Agreements:  Non-competition agreements are amortized on a 
straight-line basis over the estimated period to be benefited, usually three to
five years.

Income  Taxes:  The  Company  adopted  Statement  of  Financial  Accounting
Standards No. 109  "Accounting  for Income  Taxes" (SFAS No. 109)  effective the
beginning of fiscal 1994 which decreased the net loss by $162,000 for that year.
Under SFAS No. 109,  deferred tax assets and liabilities are computed based upon
differences between financial reporting and tax bases of assets and liabilities.
(See Note 8 for additional information related to income taxes).

Income (Loss) Per Common Share: Income (loss) per common share is computed based
on  the  weighted  average  of  common  shares  and  common  share   equivalents
outstanding  during the periods.  Fully diluted  income (loss) per share has not
been presented as it would be antidilutive.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.Actual results could differ from those estimates.

     Accounting   Pronouncements:   In  March  1995,  the  Financial  Accounting
Standards  Board  issued  SFAS  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of", which requires
adoption  by the Company in fiscal  1997.  SFAS No. 121  establishes  accounting
standards  for  the  impairment  of  long-lived  assets,   certain  identifiable
intangibles, and goodwill
                                       35

<PAGE>


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

related  to those  assets to be held and used,  and for  long-lived  assets  and
certain  identifiable  intangibles  to be  disposed.  The Company  believes  the
adoption  of SFAS  No.  121 will not have a  material  effect  on the  Company's
financial  condition or results of  operations.  In October 1995,  the Financial
Accounting  Standards  Board issued SFAS No. 123,  "Accounting  for  Stock-Based
Compensation",  which requires  adoption by the Company in fiscal 1997. SFAS No.
123 requires that the Company's financial statements include certain disclosures
about stock-based employee compensation arrangements and permits the adoption of
a change  in  accounting  for  such  arrangements.  Changes  in  accounting  for
stock-based  compensation  are optional and the Company  plans to adopt only the
disclosure requirements in 1997.

NOTE 2:  ACQUISITIONS AND DIVESTITURES -

         In 1994,  the  Company  sold  certain  assets of its home  health  care
operations  in  California,  New York and Arizona to a national home health care
provider.  In  connection  with the sale,  the  Company  placed  $500,000 of the
purchase  price into an escrow  account;  $100,000 to be released on November 1,
1995 and the remaining  $400,000 to be released  upon the Company  demonstrating
its ability to collect certain specified accounts receivable. In September 1995,
the initial $100,000, plus interest, was released to the Company.  Subsequent to
November 30, 1995, the Company received  approximately $145,000 of the remaining
$400,000  outstanding  and the  Company  believes  that  issues  related  to the
remaining  $255,000  will be  resolved  and that  losses,  if any,  in excess of
established reserves will not be material.

         In 1995, operations in Texas were sold for $60,000.

         On January 13, 1995, all the fixed assets and certain intangible assets
of the Company's  Broward  County,  Florida private duty home health agency were
sold to the Company's Chairman and Chief Executive Officer. The assets were sold
at their fair market value of $185,000.

         On February 15, 1995, a wholly-owned subsidiary of the Company acquired
certain  assets  of a  therapy  company  for  an  aggregate  purchase  price  of
approximately $496,000,  representing  approximately $96,000 in fixed assets and
approximately  $400,000  in certain  intangibles.  The  purchase  price is being
satisfied by the  forgiveness  of a $75,000 trade accounts  receivable  that the
therapy  company owed the Company for therapy  services  provided by the Company
prior to the  acquisition  date and through the issuance of a promissory note of
$420,650  with the  balance  due in equal  annual  payments  of $84,130 for five
years.

         In March 1996, the Company's  Rehabilitation Service Group acquired the
assets and liabilities of a therapy  company for an aggregate  purchase price of
approximately  $60,000  resulting  in additions to  intangibles  of $98,012.  In
addition,  during 1996 the Group opened two therapy  clinics in Florida,  one in
Tennessee and one in Rhode Island.  The Company's  primary  investments in these
clinics  are short term,  one year  leases.  In July 1996 the Company  through a
subsidiary,  completed  an  agreement to provide  billing,  accounting  and cost
reimbursement support services to management companies in California.  Currently
the management companies have five HomeCare agencies under contract.

                                       36

<PAGE>


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

          NOTE 3:  NET PROPERTY AND EQUIPMENT -

         Net  Property  and  Equipment at November 30 consist of assets owned or
leased under capital lease arrangements and were approximately as follows:
<TABLE>
<CAPTION>

                                                        1996              1995
                                                       ------             -----
<S>                                                 <C>               <C>      
Furniture and Fixtures .....................        $  462,000        $ 400,000
Clinical and Office Equipment ..............         1,242,000          687,000
Computer Equipment .........................           364,000          918,000
Capitalized Software .......................           357,000          723,000
                                                  ---------------    -----------
                                                     2,425,000        2,728,000
Less Accumulated Depreciation ..............        (1,545,000)      (1,741,000)
                                                  ---------------    -----------

Net Property and Equipment ...................        $880,000         $987,000
                                                      ========         ========


<FN>

Depreciation  expense was approximately  $494,000 in 1996, $645,000 in 1995, and
$765,000 in 1994.
</FN>
</TABLE>

NOTE 4:  DEBT -

         In  February  1996,  the  Company  entered  into a two-year  $8 million
uncommitted revolving line of credit with a commercial finance company. The line
was  increased  to $14 million  with a verbal  commitment  prior to November 30,
1996. Negotiations are in progress on a written commitment.

         The credit facility bears interest at prime plus two percent per annum,
payable  monthly,  is secured by  substantially  all assets of the  Company  and
requires  adherence to certain  financial  covenants.  Borrowing is based on the
Company's  eligible  accounts  receivable as defined.  A portion of the proceeds
from this new  credit  facility  was used to retire  the  remaining  outstanding
indebtedness with the Company's prior lender.

         The new credit facility  includes up to $2.0 million securing a standby
letter of credit  required by the insurance  carrier for the Company's  workers'
compensation  coverage.  As of November 30, 1996,  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.

         Borrowing  throughout  fiscal 1996 had a weighted average interest rate
of approximately  14.5%,  inclusive of the unused line of credit and other fees.
The maximum amount  outstanding  during the fiscal year under the line of credit
was approximately $7.0 million.  In retiring the old line of credit, the Company
incurred  a penalty  of  approximately  $150,000  and  wrote  off  approximately
$144,000 of  unamortized  loan costs,  the aggregate of which was recorded as an
extraordinary charge in the first fiscal quarter of 1996.

         The new line of credit  contains  a number of  covenants  some of which
could affect the Company's  operations.  The more significant of those 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

                                       37

<PAGE>


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

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.

NOTE 5:  STOCK OPTION PLANS -

1983 Stock Option Plan

         The Company's 1983  Incentive  Stock Option Plan, as amended (the "1983
Plan"),  provided  for the grant of options to purchase up to 300,000  shares of
common stock at an exercise price of not less than 100% of the fair market value
of the Company's Common Stock on the date of grant (110% of fair market value in
the case of an optionee who is the owner of greater than 10% of the  outstanding
shares).

         During the three fiscal years ended  November 30, 1996, no options were
granted or exercised under the 1983 Plan and none expired. At November 30, 1996,
options to purchase  15,000  shares  were  outstanding  at an exercise  price of
$5.875 per share.  These  options are  exercisable  for up to ten years from the
date of grant. No options will be granted under the 1983 Plan in the future.

1990 Stock Option Plan

         In 1989,  the  Company  adopted  the 1990 Stock  Option Plan (the "1990
Plan")  which  provides  that  options  may be granted to purchase up to 770,000
shares of common stock.  Options  granted under the 1990 Plan are in the form of
either an incentive  stock option  ("ISO")  qualified  under  Section 422 of the
Internal  Revenue Code, a non-qualified  stock option ("NSO") or a reload option
(a newly issued option to purchase shares of common stock equal in number to the
shares of common  stock which may be tendered,  in lieu of cash,  to pay for the
exercise of options  previously  granted).  The Company's Stock Option Committee
determines which employees are awarded options under the 1990 Plan and the terms
and vesting provisions of such options.


                                       38

<PAGE>


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

         At November  30,  1996,  options to purchase  241,550  shares of common
stock were  outstanding  under the 1990 Plan with exercise  prices  ranging from
$1.750 to $13.500 per share.  These options are  exercisable for periods ranging
up to six years from vesting  dates.  As of November 30, 1996,  518,450  options
were available to be granted under the 1990 Plan.
<TABLE>
<CAPTION>

                                                 SHARES
1990 PLAN                                    UNDER OPTIONS     PRICE PER SHARE
---------                                    ------------      ----------------
<S>                                             <C>            <C>              
Outstanding, December 1, 1993 ..........        360,800        $3.000 to $14.125
Expired ................................       (168,000)       $3.000 to $14.125
                                             -----------
Outstanding, November 30, 1994 .........        192,800        $3.000 to $13.500
Granted ................................         90,000        $1.750 to $3.000
Expired ................................        (51,000)       $3.000 to $13.500
Terminated .............................         (7,500)       $          13.500
                                             -----------
Outstanding, November 30, 1995 .........        224,300        $1.750 to $13.500
Granted ................................         42,500        $           3.000
Exercised ..............................        (10,000)       $           2,375
Terminated .............................        (15,250)       $3.000 to $13.500
                                          ------------
Outstanding, November 30, 1996 .........        241,550        $1.750 to $13.500
                                          ============
</TABLE>

         The  weighted  average  exercise  price of the options  outstanding  at
November 30, 1996 under the 1990 plan was approximately $3.121 per share.

Warrants

         During fiscal 1994, the Company issued warrants to acquire 3,750 shares
of common stock with an exercise price of $.01 to a non-employee in exchange for
services to the Company.  These warrants were  exercised in August 1994.  During
1991, the Company issued  warrants to acquire 10,000 shares of common stock with
an  exercise  price of $7.75 in exchange  for  services  to the  Company.  These
warrants have not been exercised.

Other Options

         Prior to 1994, the Company  granted options to purchase common stock to
consultants or other individuals which were not under the 1983 or 1990 plans. At
November  30,  1996,  options to purchase  255,000  shares of common  stock were
outstanding  pursuant to these grants with exercise prices from $3.000 to $3.375
per share and a weighted average price of $3.270.

NOTE 6:  SEVERANCE OBLIGATIONS -

          In May 1994, the Company incurred a severance obligation to a previous
officer of  approximately  $310,000.  Such amount was expensed as of the date of
the May  termination.  As of November 30, 1995, the Company's  obligation to the
officer was satisfied in its entirety.


                                       39

<PAGE>


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

         On December 30, 1994, the Company and its Chairman and Chief  Executive
Officer  entered  into an  agreement  to modify  the  Termination  and  Benefits
Agreement dated June 1, 1991. The Company and the Chief Executive Officer agreed
to  currently  settle the future  obligation  for $1  million.  Such  amount was
charged to expense in the fiscal year ended November 30, 1994.

         In connection with the January 13, 1995 sale of the Broward County home
health agency to the Chief  Executive  Officer (see Note 2),  $185,000 of the $1
million  obligation  was  satisfied  as an offset to the  purchase  price of the
Broward  agency.  Additionally,  $100,000  of  the  $1  million  obligation  was
satisfied as  settlement  of the amounts  advanced from the Company to the Chief
Executive  Officer in prior  years.  As of  November  30,  1996,  the  Company's
remaining  future  obligation to the officer was  approximately  $414,000 and is
being  satisfied under a note payable at prime rate (8.25% at November 30, 1996)
with monthly payments of $13,000.

         As part of a  severance  agreement  with  the  Company's  former  Chief
Financial Officer,  approximately  $647,000 was expensed in 1995. As of November
30, 1996, the Company's remaining  liability was approximately  $131,000 payable
under a promissory note with a payment of $26,250 per month.


NOTE 7:  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,  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  Medicare  provider  and to the  allocation  of  certain  corporate
overhead  costs to that provider and other of the Company's  providers.  Neither
the federal  investigation nor the reason for the suspension relates to services
performed by other of the Company's former or existing Medicare providers.

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


                                       40

<PAGE>


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

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

         The estimated settlement amounts due to the Company as reflected in the
accompanying  consolidated  balance sheets, as well as net revenue from services
presented  in  the  accompanying  consolidated  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
estimated settlements due from Medicare as of November 30, 1996 is approximately
$2.7  million  for  the  Company's  former  South  Florida  Medicare  operations
representing primarily claims billed by the Company subsequent to closure of its
South  Florida  Medicare  operations.  The Company  believes  that the estimated
settlements due from Medicare as recorded in the Company's  consolidated balance
sheet as of November 30, 1996 are realizable at their recorded amount.

         As of  February  1997,  four years and two  months  have  passed  since
execution of the search  warrants,  and no charges have been brought against the
Company or any of its  officers or  employees.  The Company has been  engaged in
discussions with  representatives  from the United States  Attorney's Office for
the  Southern  District of Florida  concerning  the possible  resolution  of the
Medicare  investigation  and  allegations  as  they  might  affect  the  Company
directly.  There are no  assurances  that  these  discussions  will  result in a
successful  resolution  of these  matters or in a  resolution  that would not be
materially  adverse  to the  Company.  Even  if the  Company  is  successful  in
resolving the Medicare investigation with the federal government,  in accordance
with its  indemnification  obligations  under its Articles of Incorporation  and
Bylaws, the Company may continue to incur legal expenses on behalf of certain of
its  existing  and former  employees  who are  individually  the subject of such
investigation. In addition, the Company had been the subject of 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 SEC.

                                       41

<PAGE>


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


Settled Shareholder Class Action Suits:

         In October 1992,  plaintiffs filed a proposed class action alleging, in
general,  that the Company and certain of its  officers  and  directors  and the
Company's  independent  certified public accountants  violated provisions of the
Securities  and Exchange  Act of 1934 by issuing  alleged  false and  misleading
financial statements during the period February 19, 1991 through July 15, 1992.

         On October 29, 1994, the Company's Board of Directors, after evaluating
the economic merits of the continuing  legal costs required to defend this class
action,  as well as its  potential  exposure  to  adverse  judgment,  versus the
settlement amount sought by the plaintiff class,  agreed to a settlement between
the Company and plaintiff  class.  Based on the value of the common stock issued
and the cash payment, the Company recorded a charge totaling  approximately $1.9
million in its fiscal year ended  November  30, 1994  consolidated  statement of
operations  to accrue the  estimated  settlement  liability.  At a June 30, 1995
hearing,  the court  approved the  settlement  and ordered the  dismissal of the
claims of all class  members  against the Company  and the other  defendants  as
described in the  Stipulation of Settlement.  The court's  judgment is now final
and the  required  cash  payment  plus the  shares  of  common  stock  have been
deposited with the escrow agent.

         In  November  1993,  a proposed  class  action  with  nearly  identical
allegations  as those set forth above was filed against the Company,  certain of
its officers and  directors,  and the  Company's  independent  certified  public
accountants. On October 30, 1995, an Order of Dismissal was entered by the Court
discharging this proposed class action.

         The Company  received  $900,000 of  directors  and  officers  insurance
proceeds  during  1993 to fund legal fees with  respect to these  matters.  Such
proceeds were included in Other Income (Expense),  in the consolidated statement
of operations.

         Other 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 such
matters  will  not  have a  material  impact  upon  the  Company's  consolidated
financial position, results of operations and cash flows.

         Lease Commitments:

         The Company leases its corporate  office and  substantially  all of its
branch offices under certain  non-cancelable  long-term  operating  leases which
expire at various dates. Certain of these leases require additional payments for
taxes, insurance, common area maintenance, and in most cases provide for renewal
options. Generally, terms are from one to three years.


                                       42

<PAGE>


                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
<TABLE>
<CAPTION>

The following is a schedule of future  minimum lease payments as of November 30,
1996:

     Fiscal Year                   Dollar Amount
     -----------                   -------------
<S>     <C>                          <C>      
        1997                         1,555,000
        1998                         1,189,000
        1999                           932,000
        2000                           548,000
        2001                           211,000
</TABLE>




         Total rent expense under operative  leases for the years ended November
30, 1996, 1995, and 1994, including the Corporate office,  branch facilities and
nurses'  housing  for the  HSS  Staffing  Group  was  approximately  $3,294,000,
$3,452,000 and $4,514,000, respectively.

         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 $580,500 as of November 30, 1996.

         Self-Funded Insurance Plans:

         The Company self-funds its health and workers' compensation programs up
to policy  limits,  as  defined.  Claims in excess of such limits are insured by
third  party  reinsurers.  The  Company's  estimate  of its  liability  for both
outstanding  as well as  incurred  but not  reported  claims  is based  upon its
historical  loss  experience.  As of November 30, 1996 and 1995,  such  reserves
totaled  approximately  $1.8  million and $2.6  million,  respectively,  and are
included as a component  of accrued  expenses in the  accompanying  consolidated
balance  sheets (See Note 12).  Differences  between  actual  losses and reserve
estimates  are  recognized  in the period when such  differences  become  known.
Management  believes that the  differences  between actual losses to be incurred
after November 30, 1996 related hereto and its recorded  reserve  estimates will
not be material.


                                       43

<PAGE>


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

         Directors Indemnification Fund:

         On October 29, 1994,  the  Company's  Board of  Directors  approved the
creation  of an  indemnification  fund for up to $2  million  for any  potential
future expenses which may be incurred by the directors as a result of any future
action  against  them  resulting  from  their  services  to  the  Company.  Such
indemnification  fund  would,  if  funded,  supplement  proceeds  which  may  be
available to the directors under the Company's  Directors and Officers insurance
policy.  As of November  30,  1996,  no funding has  occurred;  however,  at the
director's  discretion  and based upon the  Company's  future cash  position and
other factors as need be  considered,  such funding may take place.  On April 3,
1995, the Company's  Board of Directors  approved the inclusion of the Company's
past directors, and current and past officers, in the indemnity fund.

NOTE 8:  INCOME TAXES -

         The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                                             Years Ended November 30,
                                             -------------------------
                                       1996             1995              1994
                                      ------           ------            -----
<S>                                  <C>             <C>                <C>    
Current:
Federal ....................         $  --           $(780,000)         $   --
State ......................          64,797           247,000           115,000
Foreign ....................          78,964           141,188           284,910
                                    ---------        ----------         --------
                                     143,761          (391,812)          399,910
                                    ---------        ----------         --------
Deferred:
Federal ....................         (177,073)         890,000       (2,673,193)
State ......................           3,313           141,000         (394,000)
Foreign ....................           9,338          (285,000)        (284,910)
                                    ---------        ----------      -----------
                                     164,422         1,316,000       (3,352,103)
                                    ---------        ----------      -----------
Increase (decrease) in
valuation allowance ........          17,956         (1,624,758)       5,472,758
                                    ---------        ----------     ------------
                                      $2,705          $(700,570)      $2,520,565
                                    =========        ==========     ============
</TABLE>



                                       44

<PAGE>


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

The  significant  components  of  deferred  tax assets  (liabilities)  which are
included in the accompanying consolidated balance sheets at November 30 are:
<TABLE>
<CAPTION>

                                                        1996              1995
                                                       ------             -----
<S>                                                  <C>              <C>       
Self insurance reserve .......................       $  705,752       $  994,344
Accrued legal and accounting fees ............          150,602          406,767
Accrued severance, compensation &  benefits ..          250,745          544,185
Depreciation and amortization ................          (76,524)       (146,655)
Bad debt reserve .............................          340,580          212,648
Net operating loss carryforwards .............        3,931,919        3,027,540
Other, net ...................................           68,780          168,703
                                                      ----------     -----------
                                                       5,371,954       5,207,532
Valuation allowance                                   (4,915,956)    (4,898,000)
                                                      ----------     -----------
                                                        $455,998       $309,532
                                                      ==========     ==========
</TABLE>



         As of November 30, 1996,  the Company has  available  Federal and State
net operating loss carryforwards  totaling  approximately $9.5 million and $20.4
million, respectively, expiring through 2011.



                                       45

<PAGE>


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

         The effective  income tax provision  (benefit) on pre-tax income (loss)
differed from the provision  (benefit)  computed at the U.S.  Federal  statutory
rate for the following reasons:
<TABLE>
<CAPTION>




                                            1996        1995            1994
                                            ----        ----            ----
<S>                                       <C>         <C>           <C>    
Provision (benefit) computed at
Federal statutory rate of 34% ......      $77,047     $408,717      ($3,024,626)
Effect of current tax benefit            (229,467)
Effect of state income taxes .......       44,953      213,000         (279,000)
Foreign tax effects ................       58,283      130,000             --
Non-deductible meal expenses .......       23,224      148,447          307,194
Increase (decrease) in valuation
allowance ..........................       17,956   (1,624,758)       5,472,758
Other ..............................        5,299       24,024           44,239
                                        ---------   ----------        ----------
Provision (benefit) for income taxes      ($2,705)    $700,570        2,520,565
                                        =========   ==========        =========
</TABLE>


         In fiscal  1996,  the Company  recognized a benefit for income taxes of
$2,705. Such benefit is primarily the result of recognizing the current deferred
tax benefit  associated  with the  turnaround  of temporary  differences  in the
current year, offset partially by an increase in the valuation allowance.

         In fiscal  1995,  the Company  recognized a benefit for income taxes of
$700,570.  Such  benefit is primarily a result of certain tax  deductible  legal
settlements  which were carried back to recover income taxes  previously paid by
the  Company,  as well as,  the  recognition  of  certain  deferred  tax  assets
previously reserved by the Company, as discussed below.

         During 1994, the Company  determined  that, due to recurring  losses in
prior years and other factors, realization of the net deferred tax asset did not
meet the "more  likely  than not"  criteria of SFAS No.  109.  Consequently,  at
November  30,  1994,  the  valuation  allowance  was  increased  so that the net
deferred tax asset was fully reserved.  As a result of pre-tax income  generated
in 1995  and  1996,  the  Company  has  realized  certain  deferred  tax  assets
previously  reserved.  Additionally,  the Company has  recognized  approximately
$310,000 of its net  operating  loss  carryforward  generated  in fiscal 1995 as
management  believes  that it is more likely than not the Company will  generate
sufficient future taxable income to realize this asset. The valuation  allowance
is subject to continual  review and, as such,  may be decreased in the future as
substantive  information  becomes  available  about  the  Company's  ability  to
generate sufficient future taxable income to realize the net deferred tax asset.

NOTE 9:  RELATED PARTY TRANSACTIONS -

         Starting in 1994,  the Company has  utilized the services of an outside
director  as  a  consultant.   Such  services  included  shareholder  relations,
evaluation  of  strategic  alternatives  for the  Company  and  other  duties as
assigned  by the  Chief  Executive  Officer.  The fees for  such  services  were
approximately $6,000 in 1996 and $32,000 in 1995 and $173,000 in 1994.


                                       46

<PAGE>


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

         During 1995 and 1996,  the Company  utilized the services of an outside
director  as  its  National  Medical  Director  to  provide  services  including
utilization review, quality assurance, medical guidance, and compliance with all
Federal and State  regulations.  The services  agreement was terminated in 1996.
For  the  fiscal  years  1995  and  1996,   the  fees  for  such  services  were
approximately $42,000 and $30,000 respectively.

         During 1995,  the Company also  received  consulting  services from two
former  officers of the  Company.  Fees for those  services  were  approximately
$28,000.

         See Note 2 and Note 6 for a  description  of the sale of the  Company's
Broward County,  Florida home health agency to the Company's  Chairman and Chief
Executive Officer.

NOTE 10:  DEFINED CONTRIBUTION PLAN -

         The Company has a defined contribution plan under Section 401(K) of the
Internal  Revenue Code (the  "Plan").  The Plan is  available  to all  full-time
employees.  Participants  can  contribute  from  1% up to  15% of  their  annual
compensation to the Plan. Additional discretionary  contributions may be made by
the Company.  Since inception of the Plan, no discretionary  contributions  have
been made.

NOTE 11:  CONCENTRATION OF CREDIT RISK -

         The  Company  has been  providing  services  to  healthcare  facilities
located in the U.S.  Virgin  Islands,  which are owned by the  government of the
U.S. Virgin Islands,  since 1991.  Revenues from these facilities  accounted for
approximately  9.9% and 9.6% of  consolidated  net revenue from services for the
fiscal  years  ended  November  30,  1996 and  1995,  respectively.  Outstanding
accounts  receivable  were  approximately  $4.5  million and $3.0  million as of
November 30, 1996 and 1995,  respectively,  and are  included in trade  accounts
receivable in the accompanying  consolidated  balance sheets.  As of January 31,
1997, approximately $2.3 million of the November 30, 1996 outstanding receivable
balance from these facilities  remained unpaid.  Approximately  $937,000 of this
amount has been outstanding for 180 days or greater.  Collections from customers
located in the U.S.  Virgin  Islands are  generally  slower  than the  Company's
domestic customer base.  Management  believes the November 30, 1996 balances due
are realizable at their  recorded  amounts  primarily  because 100% of all prior
amounts due the Company  for  services  rendered  since the  inception  of these
contracts  have been paid in full by the  government  agencies.  The  government
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.


                                       47

<PAGE>


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

NOTE 12:  ACCRUED EXPENSES

         Accrued  expenses  consisted of the  following  approximate  amounts at
November 30:
<TABLE>
<CAPTION>

                                                         1996            1995
                                                        ------          -----
<S>                                                  <C>              <C>       
Workers' compensation insurance ..............       $1,439,600       $2,088,000
Health insurance .............................          375,500          527,800
Litigation services ..........................          373,600          661,000
Professional fees ............................          132,500          334,800
Termination costs-sold operations ............             --             27,500
Other ........................................          217,800          585,100
                                                     ----------      -----------
          Total                                      $2,539,000       $4,224,200
                                                     ==========       ==========
</TABLE>



                                       48

<PAGE>




               Report of Independent Certified Public Accountants

To the Stockholders of
Hospital Staffing Services, Inc.:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Hospital Staffing Services,  Inc. (a Florida Corporation) and subsidiaries ("the
Company")  as of  November  30,  1996 and  1995,  and the  related  consolidated
statements of  operations,  stockholders'  equity and cash flows for each of the
three years in the period ended November 30, 1996. These consolidated  financial
statements  and the  schedule  referred to below are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements and the schedule based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the financial  position of Hospital Staffing
Services,  Inc.  and  subsidiaries  as of November  30,  1996 and 1995,  and the
results of their  operations and their cash flows for each of the three years in
the period  ended  November  30,  1996 in  conformity  with  generally  accepted
accounting principles.

         As  discussed  in  Note 1 to  the  consolidated  financial  statements,
effective  December 1, 1993,  the Company  changed its method of accounting  for
income taxes.

         Our audit was made for the  purpose  of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Part IV, Item 14.2
of this Form 10-K is presented for purposes of complying with the Securities and
Exchange  Commission's rules and is not part of the basic financial  statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic  financial  statements and, in our opinion,  fairly states,  in all
material  respects,  the  financial  data  required  to be set forth  therein in
relation to the basic financial statements taken as a whole.






ARTHUR ANDERSEN LLP

/s/Arthur Andersen LLP
Fort Lauderdale, Florida,
 February 27, 1997.


<PAGE>




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

                                             NONE










                                       50

<PAGE>



                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The  information  required  by this item will be set forth in the Proxy
Statement of the Company relating to the 1996 Annual Meeting of Stockholders and
is incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

         The  information  required  by this item will be set forth in the Proxy
Statement of the Company relating to the 1996 Annual Meeting of Stockholders and
is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The  information  required  by this item will be set forth in the Proxy
Statement of the Company relating to the 1996 Annual Meeting of Stockholders and
is incorporated herein by reference.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required  by this item will be set forth in the Proxy
Statement of the Company relating to the 1996 Annual Meeting of Stockholders and
is incorporated herein by reference.




                                       51

<PAGE>




                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

          1.      Financial Statements

                    (i)    Report of Independent Certified Public Accountants;

                   (ii)    Consolidated Balance Sheets;

                  (iii)    Consolidated Statements of Operations;

                   (iv)    Consolidated Statements of Changes in Stockholders'
                           Equity;

                    (v)    Consolidated Statements of Cash Flows;

                   (vi)    Notes to Consolidated Financial Statements.


          2.      Financial Statement Schedules

                    (i)    Valuation and Qualifying Accounts.


          3.      Exhibits

                    (i)    Reports on Form 8-K
                                    None

                   (ii)    Exhibits Required by Item 601 of Regulation S-K

Exhibit No.

     2.1 Purchase  Agreement  dated September 2, 1994 and effective as of August
31, 1994 between Hospital Staffing Services, Inc., Hospital Staffing Services of
California,  Inc., Cura Care,  Inc. of Arizona,  and HSSI  Acquisition  Corp. as
seller and Interim  Healthcare of New York Inc., and Interim  Healthcare Inc. as
buyer.  (Incorporated  by reference to Exhibit 10.31 to  Registrant's  Quarterly
Report on Form  10-Q for the  quarter  ended  August  31,  1994). 

     2.2 Purchase  Agreement  dated  December 30, 1994 and effective  January 1,
1995 between  Hospital  Staffing  Services,  Inc. and Cardinal  Nursing and Home
Care, Inc. as sellers and Ronald A. Cass as buyer. (Incorporated by reference to
Exhibit 2.2 to registrant's Annual Report on Form 10-K for the fiscal year ended
November 30, 1995).
    
     2.3 Purchase  Agreement dated and effective as of February 15, 1995 between
Tri Therapy,  Inc., as seller and HSSI of Georgia, Inc. as buyer.  (Incorporated
by reference to Exhibit 2.3 to  registrant's  Annual Report on Form 10-K for the
fiscal year ended November 30, 1995).

     3.1  Amended  and  Restated  Articles of  Incorporation  of the  Registrant
(Incorporated by reference to an exhibit to the  Registration  Statement on Form
S-18 (No.  2-87290-A)  filed with the  Securities  and  Exchange  Commission  on
October 19, 1983, amended on November 23, 1983 and December 5, 1983 and declared
effective on December 6, 1983 ("Form S-18 (No. 2-87290-A)")).

                                       52

<PAGE>



     3.2  Articles of Amendment to Articles of  Incorporation  (Incorporated  by
reference to an exhibit to the Registration Statement on Form S-1 (No. 33-42640)
filed with the Securities and Exchange  Commission on September 6, 1991, amended
on October 4, 1991 and  declared  effective  on October 4, 1991  ("Form S-1 (No.
33-42640)").

     3.3 Articles of Amendment to Articles of  Incorporation  of the Registrant.
(Incorporated  by  reference to Exhibit 3.4 filed with the  Registrant's  Annual
Report on Form 10-K for the fiscal year ended November 30, 1993).

     3.4 By-Laws of the Registrant, as amended (Incorporated by reference to the
Registrant's  Current  Report on Form 8-K dated July 30,  1991  filed  August 1,
1991).

     4.1 Form of Common  Share  Certificate  (Incorporated  by  reference  to an
exhibit to the Registration Statement on Form S-18 (No. 2-87290-A)).

     10.1 Incentive Stock Option Plan, as amended  (Incorporated by reference to
Exhibit A(i) to Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1989).

     10.2 Amended and Restated 1990 Stock Option Plan (Incorporated by reference
to Exhibit 4 filed with the Registrant's  Registration  Statement on Form S-8 on
May 17, 1991).

     10.3 Second  Amended and Restated 1990 Stock Option Plan  (Incorporated  by
reference  to Exhibit 4 filed with the  Registrant's  Registration  Statement on
Form S-8 on June 26, 1992).
    
     10.4  Alternative  Deferred  Compensation  Plan approved  January 19, 1994.
(Incorporated by reference to Exhibit 10.26 filed with the  Registrant's  Annual
Report on Form 10-K for the fiscal year ended November 30, 1993).

     10.5 Agreement for Lease between Registrant and 62nd Street Partners, dated
July 29, 1989 for Registrant's office in Fort Lauderdale,  Florida (Incorporated
by reference to Exhibit A(ii) to Registrant's  Quarterly Report on Form 10-Q for
the quarter ended August 31, 1989).

     10.6 Addendum to Lease Agreement dated October 31, 1994.  (Incorporated  by
reference to Exhibit  10.6 to  registrant's  Annual  Report on Form 10-K for the
fiscal year ended November 30, 1995).

     10.7 Second Addendum to Lease Agreement dated November 1, 1995, and related
Promissory  Note dated December 1, 1995.  (Incorporated  by reference to Exhibit
10.7 to  registrant's  Annual  Report on Form  10-K for the  fiscal  year  ended
November 30, 1995).

     10.8  Termination  and Benefits  Agreement  with Warren  Marmorstein  dated
November 1, 1993.  (Incorporated  by reference  to Exhibit  10.25 filed with the
Registrant's  Annual Report on Form 10-K for the fiscal year ended  November 30,
1993).
    
     10.9  Termination  Agreement  with  Brian M.  Lechner  dated  June 1, 1994.
(Incorporated by reference to Exhibit 10.29 to Registrant's  Quarterly Report on
Form 10-Q for the quarter ended May 31, 1994).

     10.10Settlement  Agreement  with  Ronald A. Cass  dated  January  1,  1995.
(Incorporated  by reference to Exhibit  10.10 to  registrant's  Annual Report on
Form 10-K for the fiscal year ended November 30, 1995).

     10.11Employment  Agreement  with Jay  Gershberg  dated  September  1, 1995.
(Incorporated  by reference to Exhibit  10.11 to  registrant's  Annual Report on
Form 10-K for the fiscal year ended November 30, 1995).

     10.12Employment Agreement with Jeffrey A. Barnhill dated September 1, 1995.
(Incorporated  by reference to Exhibit  10.12 to  registrant's  Annual Report on
Form 10-K for the fiscal year ended November 30, 1995).

                                       53

<PAGE>




     10.13Employment  Agreement  with Ronald  Huneycutt  dated February 1, 1996.
(Incorporated  by reference to Exhibit  10.13 to  registrant's  Annual Report on
Form 10-K for the fiscal year ended November 30, 1995).

     10.14Loan  and  Security  Agreement  with  Congress  Financial  Corporation
(Florida)  dated August 23, 1993.  (Incorporated  by reference to Exhibit  10.24
filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended
November 30, 1993).

     10.15Amendment No. 1 to Loan and Security Agreement with Congress Financial
Corporation  (Florida)  dated  January 27, 1994.  (Incorporated  by reference to
Exhibit  10.27 filed with the  Registrant's  Annual  Report on Form 10-K for the
fiscal year ended November 30, 1993).

     10.16Amendment No. 2 to Loan and Security Agreement with Congress Financial
Corporation  (Florida)  dated March 15,  1994.  (Incorporated  by  reference  to
Exhibit  10.28 to  Registrant's  Quarterly  Report on Form 10-Q for the  quarter
ended May 31, 1994.)

     10.17Management  Agreement between Hospital Staffing Services, Inc. and its
wholly-owned  subsidiaries  dated June 13,  1994,  effective  December  1, 1990.
(Incorporated by reference to Exhibit 10.30 to Registrant's  Quarterly Report on
Form 10-Q for the quarter ended May 31, 1994.)

     10.18Loan and Security  Agreement with Capital  Healthcare  Financing dated
February 7, 1996.  (Incorporated  by reference to Exhibit 10.18 to  registrant's
Annual Report on Form 10-K for the fiscal year ended November 30, 1995).

     21.1 Subsidiaries of the Registrant.

     23.1 Consent of Arthur Andersen LLP - filed herewith.
    
     99.01 Risk Factors


                                       54

<PAGE>


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

                                   SIGNATURES

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

  HOSPITAL STAFFING SERVICES, INC.


By:   /s/Ronald A. Cass                  Ronald A. Cass, Chairman of the Board,
                                         Chief Executive Officer and President
                                         Date:  February 27, 1997


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.


Signature                                           Title                  Date


/s/Ronald A. Cass                     Chairman of the Board, Chief       2/27/97
Ronald A. Cass                        Executive Officer and President,
                                      (Principal Executive Officer)



/s/Ronald G. Huneycutt                Vice President Finance and Chief   2/27/97
 Ronald G. Huneycutt                  Financial Officer


/s/Lawrence W. Cappel                 Director                           2/27/97
Lawrence W. Cappel



/s/Robert B. Fields                   Director                           2/27/97
Robert B. Fields


/s/William F. McConnell               Director                           2/27/97
William F. McConnell


/s/Hector L. Ziperovich               Director                           2/27/97
Hector L. Ziperovich, M.D.



                                       55

<PAGE>




EXHIBIT 23.1



               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



As  independent   certified  public  accountants,   we  hereby  consent  to  the
incorporation  of our  report  included  in this Form 10-K,  into the  Company's
previously filed  Registration  Statements on Forms S-8, File Nos.  33-40658 and
2-92689.





ARTHUR ANDERSEN LLP



/s/Arthur Andersen LLP



Fort Lauderdale, Florida,
February 27, 1997.


                                       56

<PAGE>



                                  EXHIBIT INDEX

Filing   Exhibit
Method     No.
p    2.1 Purchase  Agreement  dated September 2, 1994 and effective as of August
     31, 1994  between  Hospital  Staffing  Services,  Inc.,  Hospital  Staffing
     Services  of  California,  Inc.,  Cura  Care,  Inc.  of  Arizona,  and HSSI
     Acquisition  Corp. as seller and Interim  Healthcare of New York Inc.,  and
     Interim  Healthcare  Inc. as buyer.  (Incorporated  by reference to Exhibit
     10.31 to Registrant's  Quarterly  Report on Form 10-Q for the quarter ended
     August 31, 1994).

P    2.2 Purchase  Agreement  dated  December 30, 1994 and effective  January 1,
     1995 between Hospital Staffing Services, Inc. and Cardinal Nursing and Home
     Care, Inc. as sellers and Ronald A. Cass as buyer.

P    2.3 Purchase  Agreement dated and effective as of February 15, 1995 between
     Tri Therapy, Inc., as seller and HSSI of Georgia, Inc. as buyer.

P    3.1  Amended  and  Restated  Articles of  Incorporation  of the  Registrant
     (Incorporated by reference to an exhibit to the  Registration  Statement on
     Form S-18 (No. 2-87290-A) filed with the Securities and Exchange Commission
     on October 19, 1983,  amended on November 23, 1983 and December 5, 1983 and
     declared effective on December 6, 1983 ("Form S-18 (No. 2-87290-A)")).

P    3.2  Articles of Amendment to Articles of  Incorporation  (Incorporated  by
     reference  to an exhibit  to the  Registration  Statement  on Form S-1 (No.
     33-42640) filed with the Securities and Exchange Commission on September 6,
     1991,  amended on October 4, 1991 and declared effective on October 4, 1991
     ("Form S-1 (No. 33-42640)").

P    3.3 Articles of Amendment to Articles of  Incorporation  of the Registrant.
     (Incorporated  by  reference  to Exhibit  3.4 filed  with the  Registrant's
     Annual Report on Form 10-K for the fiscal year ended November 30, 1993).

P    3.4 By-Laws of the Registrant, as amended (Incorporated by reference to the
     Registrant's Current Report on Form 8-K dated July 30, 1991 filed August 1,
     1991).

P    4.1 Form of Common  Share  Certificate  (Incorporated  by  reference  to an
     exhibit to the Registration Statement on Form S-18 (No. 2-87290-A)).


                                       57

<PAGE>



P    10.1 Incentive Stock Option Plan, as amended  (Incorporated by reference to
     Exhibit A(i) to Registrant's  Quarterly Report on Form 10-Q for the quarter
     ended August 31, 1989).

P    10.2 Amended and Restated 1990 Stock Option Plan (Incorporated by reference
     to Exhibit 4 filed with the Registrant's Registration Statement on Form S-8
     on May 17, 1991).

P    10.3 Second  Amended and Restated 1990 Stock Option Plan  (Incorporated  by
     reference to Exhibit 4 filed with the Registrant's  Registration  Statement
     on Form S-8 on June 26, 1992).

P    10.4  Alternative  Deferred  Compensation  Plan approved  January 19, 1994.
     (Incorporated  by  reference to Exhibit  10.26 filed with the  Registrant's
     Annual Report on Form 10-K for the fiscal year ended November 30, 1993).

P    10.5 Agreement for Lease between Registrant and 62nd Street Partners, dated
     July  29,  1989  for  Registrant's  office  in  Fort  Lauderdale,   Florida
     (Incorporated  by  reference  to Exhibit  A(ii) to  Registrant's  Quarterly
     Report on Form 10-Q for the quarter ended August 31, 1989).

P    10.6 Addendum to Lease Agreement dated October 31, 1994.

P    10.7 Second Addendum to Lease Agreement dated November 1, 1995, and related
     Promissory Note dated December 1, 1995.

P    10.8  Termination  and Benefits  Agreement  with Warren  Marmorstein  dated
     November 1, 1993.  (Incorporated  by reference to Exhibit  10.25 filed with
     the  Registrant's  Annual  Report on Form 10-K for the  fiscal  year  ended
     November 30, 1993).

P    10.9  Termination  Agreement  with  Brian M.  Lechner  dated  June 1, 1994.
     (Incorporated  by  reference  to Exhibit  10.29 to  Registrant's  Quarterly
     Report on Form 10-Q for the quarter ended May 31, 1994).

P    10.10 Settlement Agreement with Ronald A. Cass dated January 1, 1995.

P    10.11 Employment Agreement with Jay Gershberg dated September 1, 1995.

P    10.12  Employment  Agreement  with Jeffrey A. Barnhill  dated  September 1,
     1995.

P    10.13 Employment Agreement with Ronald Huneycutt dated February 1, 1996.


                                       58

<PAGE>



P    10.14 Loan and  Security  Agreement  with  Congress  Financial  Corporation
     (Florida)  dated  August 23,  1993.  (Incorporated  by reference to Exhibit
     10.24 filed with the Registrant's Annual Report on Form 10-K for the fiscal
     year ended November 30, 1993).

P    10.15  Amendment  No.  1 to  Loan  and  Security  Agreement  with  Congress
     Financial  Corporation  (Florida) dated January 27, 1994.  (Incorporated by
     reference to Exhibit  10.27 filed with the  Registrant's  Annual  Report on
     Form 10-K for the fiscal year ended November 30, 1993).

P    10.16  Amendment  No.  2 to  Loan  and  Security  Agreement  with  Congress
     Financial  Corporation  (Florida)  dated March 15, 1994.  (Incorporated  by
     reference to Exhibit 10.28 to  Registrant's  Quarterly  Report on Form 10-Q
     for the quarter ended May 31, 1994.)

P    10.17 Management Agreement between Hospital Staffing Services, Inc. and its
     wholly-owned  subsidiaries dated June 13, 1994, effective December 1, 1990.
     (Incorporated  by  reference  to Exhibit  10.30 to  Registrant's  Quarterly
     Report on Form 10-Q for the quarter ended May 31, 1994.)

P    10.18 Loan and Security Agreement with Capital  Healthcare  Financing dated
     February 7, 1996.

DT   21.1 Subsidiaries of the Registrant.

DT   23.1 Consent of Arthur Andersen LLP - filed herewith.

DT   99.01 Risk Factors.



                                       59

<PAGE>



                                  EXHIBIT 99.01


                                  RISK FACTORS

         Set forth below is a  discussion  of certain  risk factors to which the
Company and its operations are subject:

     Reliance on Management.  The Company's business is dependent upon Ronald A.
Cass, the Company's founder, Chief Executive Officer and President;  and Jeffrey
A. Barnhill,  the Company's Senior Vice President,  Health Services. The loss of
Ronald A. Cass or Jeffrey A. Barnhill  could have a material  adverse  effect on
the Company.  The Company does not  presently  maintain key man insurance on the
life of any member of management.

         Reimbursement  and Payment Sources.  Substantially  all the revenues of
HSSI  HomeCare are  attributable  to  reimbursements  or payments  received from
third-party  payors,  such  as  insurance  companies  or  governmental  programs
including  the  Medicare  and  Medicaid  programs.  The levels of  revenues  and
profitability  of the Company,  like those of other health care  companies,  are
affected by the continuing  efforts of  third-party  payors to contain or reduce
the costs of health care by lowering reimbursement or payment rates,  increasing
case management  review of services and negotiating  reduced  contract  pricing.
Home health care organizations, which generally provide less costly alternatives
to third-party payors than hospital-based  care, have benefitted from those cost
containment objectives.  However, as expenditures in the home health care market
continue  to grow,  initiatives  aimed at  reducing  the  costs of  health  care
delivery at non-hospital  sites will increase.  A significant change in coverage
or a reduction  in payment  rates by  third-party  payors  would have a material
adverse effect upon the Company's business and financial condition. In addition,
government  reimbursed  charges of certified  expenses  through programs such as
Medicare  and  Medicaid  are  subject  to  audit.  Audits  may  result in either
decreases or increases in payments the Company has previously received.

         Regulation.  Health care is an area of extensive and dynamic regulatory
change.  Changes in the law or new  interpretations  of existing laws can have a
dramatic effect on permissible activities,  the relative costs of doing business
and the amount of  reimbursement by government and private  third-party  payors.
Laws and  regulations  often are adopted to regulate new products,  services and
industries.  Federal laws changing coverage and  reimbursement  requirements are
considered  frequently  and  there can be no  assurance  that  federal  or state
governments will not impose additional restrictions upon all or a portion of the
Company's activities which might adversely affect the Company's business.

         Competition.  The home health care  industry and staffing  industry are
highly  competitive.  The Company  competes  with other  health care  companies,
hospitals,   nursing   homes,   temporary   employment   companies   and   other
organizations,  some of which are larger  and more  established  companies  with
significantly greater resources and access to capital than the Company.

         Potential  Liability  and  Insurance.  In  recent  years,   physicians,
hospitals and other  participants  in the health care market have become subject
to an increasing number of lawsuits alleging malpractice,  negligence or related
legal  theories,  many of which  involve  large claims and  significant  defense
costs. The Company has not experienced any material liability claims relating to
its services and  management is not aware of any basis for any material  claims.
Further, the Company believes that its exposure to

                                       60

<PAGE>


liability is reduced  since the Company's  nursing and other  support  personnel
perform  services  in  accordance  with  treatments  prescribed  by  third-party
physicians or under hospital  supervision.  The Company has in force general and
professional  liability insurance policies with coverage limits on an occurrence
basis of $1 million and $3 million,  respectively, per claim, and $1 million and
$5 million,  respectively, in the aggregate, which coverage the Company believes
is adequate.  The Company  believes that insurance  coverage will continue to be
available  for the  foreseeable  future  at  acceptable  rates.  There can be no
assurance,  however,  that  material  claims  will not be  asserted  against the
Company in the future, or that if asserted, such claims will be fully covered by
the Company's insurance limits.

         Relationships   with  Referral  Sources.   The  Company's  business  is
dependent  on  its  ability  to  establish  close  working   relationships  with
hospitals,   clinics,   nursing  homes,  physician  groups,  health  maintenance
organizations,  and other  health  care  providers.  Although  the  Company  has
established such relationships in the markets in which it operates,  there is no
assurance  that existing  relationships  can be  maintained  or that  additional
relationships can be successfully developed in future markets.

         Availability of Medical Personnel.  The Company's business is dependent
in large part upon its ability to recruit and retain qualified registered nurses
and other  professional  and medical  support  personnel to fill  positions in a
timely  manner.  There is a high  level of demand  for such  personnel  by other
companies which provide  services  similar to those of the Company as well as by
health care facilities  themselves.  The success and growth of such business may
therefore be constrained by the number of such available personnel.

         Uncertainty Due to Potential  Changes in National and State Health Care
Policies.  The Clinton  administration  and members of  Congress  have  proposed
reforms to the system of health care delivery in the United States.  The process
by which the  administration  or Congress  will pursue  proposals  for  national
health care reform and the precise  nature of any such  proposals are unclear at
this time.  In addition,  several  states are  considering  various  health care
reforms, including reforms through Medicaid managed care demonstration projects.
It is not  possible  to predict  what  reforms of the health care system will be
adopted or the effect,  if any, such reforms may have on the Company's  business
and its results of operations.


                                       61

<PAGE>
<TABLE>
<CAPTION>

Hospital Staffing Services, Inc. and Subsidiaries                                                            Schedule II
Valuation and Qualifying Accounts
For the Years Ended November 30, 1996, 1995, and 1994

                               Balance at    Charged to    Charged to                                         Balance at
                                Beginning     Costs and       Other                                             End of
       Description              of Period     Expenses      Accounts           Description        Amount        Period
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>         <C>                     <C>           <C>

For the Year Ended
November 30, 1996

Deducted from the Balance
Sheet Caption "Trade                                                       Uncollectible
Accounts Receivable"                                                       Accounts
Allowance for Doubtful                                                     Charged Against
Accounts                           $599,599      $248,422            $0    Allowance                $288,770     $559,251
                              --------------------------------------------------------------------------------------------


For the Year Ended
November 30, 1995

Deducted from the Balance
Sheet Caption "Trade                                                       Uncollectible
Accounts Receivable"                                                       Accounts
Allowance for Doubtful                                                     Charged Against
Accounts                         $2,345,598      $552,663            $0    Allowance              $2,298,662     $599,599
                              --------------------------------------------------------------------------------------------


For the Year Ended
November 30, 1994

Deducted from the Balance
Sheet Caption "Trade                                                       Uncollectible
Accounts Receivable"                                                       Accounts
Allowance for Doubtful                                                     Charged Against
Accounts                         $1,724,655    $2,382,948      $608,166 (1)Allowance              $2,370,171   $2,345,598
                              --------------------------------------------------------------------------------------------
<FN>


(1) Reclassifications between Accounts Receivable and Allowance Account
</FN>
</TABLE>