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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, 1995
                                       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 400
                       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 the Act:

     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 (SS. 229.405 OF THIS CHAPTER) 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. [X] [ADDED IN RELEASE NO. 34-28869
(P. 84, 709) EFFECTIVE MAY 1, 1991, 56. F.R. 7242.]

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405).

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at January 31, 1996 was $11,355,227.

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

     As of January 31, 1996, 6,349,770 shares of common stock, par value $.001
per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by this item will be set forth in the Proxy
Statement of the Company relating to the 1995 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 400, 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 "Travel Nurse
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,
1995, consisted of 26 home health care branch offices in five states, active
relationships for interim staffing needs with approximately 91 hospitals in 28
states and the U.S. Virgin Islands, and three rehabilitation clinics with two
clinics located in Georgia and one clinic located in Tennessee.

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 National Association of
HomeCare ("NAHC") estimates that home health care was a $26.5 billion industry
in 1995. The industry has experienced an estimated annual growth rate of
approximately 12% 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
tensions, 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. The Company is also 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 are 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, 1995, HSSI HomeCare operated 26 branches located within
two regions: New England, encompassing Massachusetts, New Hampshire and Rhode
Island; and South Central, encompassing Tennessee and Mississippi. During fiscal
1995, the "regionalization" of the Company's New England home care operations
was completed. Consequently, as of November 30, 1995, all of the Company's home
health care operations are fully independent with complete back office
capabilities.

     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

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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
file 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. The Company 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 Travel Nurse 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 HomeCare Group has sought to address
this shortage by offering attractive compensation packages to needed therapists.

     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. This number of agencies
reflects growth of home health care from, approximately, a $2 billion industry
in 1980 to a $26.5 billion industry in 1995. The Company believes that no one
company controls more than 10% of the current home care market.

     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

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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 few customers, the loss of which would have a material adverse effect on
that group of the Company's business.

TRAVEL NURSE GROUP.

     SERVICES. The Travel Nurse Group provides registered nurses and other
professional medical personnel, often referred to as "Travel Nurses", primarily
to client hospitals on a contractual basis for periods generally ranging from 8
to 52 weeks, with the average being approximately 17 weeks. Clients utilize
Travel Nurses to provide cost effective interim staff to meet predictable
fluctuations in staffing requirements. In addition, unlike daily or other very
short-term supplemental staff, Travel Nurses serve the client for a long enough
period to function as permanent hospital staff. The ability of Travel Nurses 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 Travel Nurse Group includes (i)
recruitment and pre-screening of medical personnel to fill specific positions;
(ii) verification of valid state licenses and immigration status; (iii)
completion of all applications and other administrative work; (iv) coordination
of travel arrangements; and (v) preliminary orientation. The Company typically
employs its Travel Nurses on a full-time basis for the period of each
assignment. The Company also provides Travel Nurses with housing (or a housing
subsidy) while on assignment, travel allowance, and other employee benefits,
including malpractice and health insurance at little or no cost to the employee.

     HISTORY AND RECENT DEVELOPMENT. The Company has provided Travel Nurses to
clients since 1981. All back office support for the Travel Nurse 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 Travel Nurse Group. The Company anticipates an increase in marketing efforts
for the Travel Nurse 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, to the extent that the increased marketing and expansionary efforts result
in increases in the dollar volume of business, the Travel Nurse Group will
experience decreasing margins.

     CLIENTS AND MARKETING. As of November 30, 1995, active clients of the
Travel Nurse Group consisted of approximately 91 hospitals and other clients
located in 28 states and the U.S. Virgin Islands. Travel Nurses 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 48% of Travel Nurse Group revenue for the
fiscal year 1995 was from two hospitals and two small nursing home clients
located in the U.S. Virgin Islands. The Company presently provides services to
its U.S. Virgin Island client based on verbal agreements. However,

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a written agreement with the St. Thomas Hospital has been negotiated, and will
be effective upon its signing by the appropriate U.S. Virgin Island government
officials. The U.S. Virgin Island business and revenue has increased over the
years relative to total Travel Nurse Group revenue.

     The Company markets Travel Nurses 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 Travel Nurses. In addition,
the Travel Nurse 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 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 Travel Nurse 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 one-third of the Company's current Travel Nurses are recruited
from Canada.

     The Company maintains an extensive database of information on qualified
nurses and medical personnel. The aggregate database contains information on
approximately 15,000 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 Travel Nurse business is high. The Travel Nurse
Group has addressed this shortage by offering attractive compensation packages
to needed personnel, particularly physical, speech and occupational therapists.
In addition, the Travel Nurse Group has not been able to capitalize on all of
its opportunities due to the shortage of personnel.

     SEASONALITY. Historically, the Company's Travel Nurse business in the U.S.
Virgin Islands has not been subject to material seasonal fluctuations. However,
the Travel Nurse business in the rest of the United States has been seasonal,
with demand for Travel Nurses 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 vacation period in Florida, coupled with an
increase in the availability of nurses during the first and fourth quarters of
the Company's fiscal year.

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     COMPETITION. The Company's Travel Nurse 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
Travel Nurse 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 medical personnel when determining whether to become a traveling
professional. The Company believes that it can effectively compete in the Travel
Nurse 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. As a result, the Company now has a rehabilitation line of business. 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
three clinics, two located in Georgia and one located in Tennessee.

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 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

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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.
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

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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.

     TRAVEL NURSE GROUP.

     The Travel Nurse Group's services are paid for directly by clients. Since
the Company's inception in 1981, the Company has not experienced significant
problems 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 $3.0 million as of
November 30, 1995 (see Note 11 to the accompanying consolidated financial
statements). As of January 31, 1996, approximately $2.2 million of the November
30, 1995 outstanding receivable balance from these customers remained unpaid, of
which approximately $507,000 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.

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     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, 1995:

                                   1995      1994     1993(1)    1992      1991
                                   ----      ----     -------    ----      ----
HOME HEALTH CARE
Medicare                             59%       49%       44%       53%       44%
Medicaid(2)                           5%       15%       14%       10%       13%
Insurance Carriers                    3%        5%        6%        6%        8%
Private (Individuals)                 6%        6%        6%        7%        7%
Contract                              5%        7%        9%        6%        5%
Management Fees(3)                   --         1%       --        --        --
                                     ---       ---       ---       ---       ---
Total                                78%       83%       79%       82%       77%

TRAVEL NURSE                         20%       17%       21%       18%       23%

REHABILITATION                        2%       --        --        --        --
                                    ----      ----      ----      ----      ----
                                    100%      100%      100%      100%      100%
                                    ====      ====      ====      ====      ====

(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 and "Management's Discussion and Analysis
         of Financial Condition and Results of Operations" 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.

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
23 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

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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, 1995, of the five 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, and the CON in Dade County 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 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 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.

                                       12

<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 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
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, terminated its subcontracting relationships with
staffing providers in South Florida, and ultimately ceased operations.

     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 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 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, 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, 1995 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

                                       13

<PAGE>

that the estimated settlements due from Medicare as recorded in the Company's
consolidated balance sheet as of November 30, 1995 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 1996, 38 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 has been the subject of an investigation
by the Securities and Exchange Commission ("SEC") relating to the Medicare
investigation by the United States Attorney. The SEC has not instituted any
enforcement proceedings against the Company and any resolution of the matter
with the United States Attorney's Office would not necessarily resolve any
potential future action by the SEC.

BACKLOG OF ORDERS

     The Company does not have a waiting list for its home care or
rehabilitation services. The Company's Travel Nurse 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, 1995, the
Company had approximately 300 full-time employees. For the week ending November
30, 1995, the Company employed approximately 1,500 caregivers for the HSSI
HomeCare Group, the Travel Nurse 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 400, Fort Lauderdale, Florida. During the fourth quarter of 1994,
in connection with the downsizing of its corporate office, the Company
terminated its old lease early and simultaneously

                                       14

<PAGE>

entered into a new lease to reflect the reduction in its needed space. The new
lease consists of approximately 7,900 square feet and expires in January, 2000,
subject to one five-year renewal period, and provides for an annual base rental
of approximately $95,000. In connection with this early termination, the Company
agreed to a penalty of $800,000 in exchange for the landlord's release of the
Company from approximately $1.5 million in future minimum rentals. On November
1, 1994, $100,000 of the penalty was paid. The $700,000 balance was scheduled to
be paid on November 1, 1995. Instead of the scheduled payment, the Company
executed a Promissory Note under which the Company made an initial cash payment
of $150,000 plus accrued interest at the rate of 11% and agreed to make,
beginning on January 1, 1996, twelve equal monthly installments of principal and
interest in the amount of approximately $48,610. The Company has made the
January and February payments under the Promissory Note (See Note 7 to the
accompanying consolidated financial statements). 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.

     Significant legal matters outside the ordinary course of business as of
November 30, 1995 were as follows:

     WALTER ROE AND MATT SANSEVERIO, ON BEHALF OF THEMSELVES AND ALL OTHERS
SIMILARLY SITUATED VS. HOSPITAL STAFFING SERVICES, INC., LEONARD J. CASS, RONALD
A. CASS, BRIAN M. LECHNER, JACK R. KRONFELD AND ARTHUR ANDERSEN & COMPANY (Case
No. C92-4101CAL).

     On October 31, 1992, plaintiffs filed a proposed class action alleging, in
general, that the Company and certain of its officers and directors violated
provisions of the Securities Exchange Act of 1934 by issuing allegedly false and
misleading 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 the potential for an adverse judgment, versus the settlement
amount sought by the plaintiff class, agreed to a proposed settlement between
the Company and the plaintiff class. Based on the value of the common stock
issuance and cash payment, the Company recorded a charge totaling approximately
$1.9 million in its fiscal 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.


                                       15

<PAGE>

     WIDER V. HOSPITAL STAFFING SERVICES, INC., RONALD A. CASS, LEONARD J. CASS,
BRIAN M. LECHNER AND ARTHUR ANDERSEN & COMPANY, (Case No. 93-1013 CIV-GONZALEZ).
The WIDER matter, a proposed class action, was filed November 24, 1993. In
substance, the complaint contained the same allegations as the ROE amended
complaint. The plaintiffs in WIDER stipulated to dismissal of the case, in view
of the settlement in the ROE matter. On October 30, 1995, an Order of Dismissal
was entered by the Court.

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

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

     The 1994 Annual Meeting of Shareholders of the Company was held in Fort
Lauderdale, Florida on November 17, 1995. 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:

     DIRECTOR                           SHARES FOR           SHARES WITHHELD
     --------                           ----------           ---------------
     Ronald A. Cass                      4,906,178               183,946
     Robert B. Fields                    4,911,278               178,846
     William F. McConnell                4,905,478               184,646
     Hector L. Ziperovich, M.D.          4,911,778               178,346

     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, 1995. Votes totaled
5,031,510 for; 35,611 against; and 23,003 abstentions.

                                       16

<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 January 31, 1996, there were 454 holders of the
Company Common Stock and approximately 3,000 beneficial holders.

     As of June 1, 1992, the Company's common stock commenced trading on the New
York Stock Exchange, Inc. ("NYSE") under the symbol HSS. Prior thereto, the
Company's common stock traded in the over-the-counter market on the NASDAQ
National Market System under the symbol HSSI. 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.

                                                            HIGH           LOW
                                                            ----           ---
     FISCAL YEAR    1995
                    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
     FISCAL YEAR    1994
                    First Quarter                          $3 7/8         $1 3/4
                    Second Quarter                          3 3/4          2 7/8
                    Third Quarter                           3 1/4          1 7/8
                    Fourth Quarter                          2 1/8          1 5/8


ITEM 6.     SELECTED FINANCIAL DATA

     The following selected financial data for the five years ended November 30,
1995 have been compiled by the Company from its consolidated financial
statements which have been audited by independent certified public accountants.

                                       17

<PAGE>

<TABLE>
<CAPTION>
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                         YEARS ENDED NOVEMBER 30,
                                                                         ------------------------
SELECTED FINANCIAL DATA:                                1995(1)       1994       1993(2)       1992       1991(3)
                                                        -------       ----       -------       ----       -------
<S>                                                     <C>         <C>          <C>         <C>          <C>
Net revenue from services                               $56,186     $78,624      $84,061     $120,591     $90,121
Cost of services                                        $33,626     $50,703      $56,934      $79,848     $57,994
Gross margin                                            $22,560     $27,921      $27,127      $40,743     $32,127
Selling, general and administrative
     expenses                                           $21,113     $36,970      $33,860      $45,978     $27,424
Income (loss) before income taxes and
     cumulative effect of change in
     accounting principle                               $1,202      ($8,896)     ($6,454)     ($4,824)     $4,511
Income (loss) from continuing
     operations before cumulative
     effect of change in accounting
     principle                                          $1,903     ($11,417)     ($5,858)     ($3,185)     $2,711
 
Primary earnings (loss) from
    continuing operations per
    common and common shares
    equivalent before cumulative
    effect of change in accounting
    principle                                            $0.32       ($2.02)      ($1.04)      ($0.58)      $0.57
Fully diluted earnings (loss) from
    continuing operations per
    common and common shares
    equivalent                                             N/A          N/A          N/A          N/A       $0.55
</TABLE>

<TABLE>
<CAPTION>
                                                                                NOVEMBER 30,
                                                                                ------------
                                                         1995         1994         1993         1992     1991(3)(4)
                                                         ----         ----         ----         ----     ----------
<S>                                                    <C>          <C>          <C>          <C>        <C>
BALANCE SHEET DATA:
Total Assets                                           $23,371      $24,413      $34,690      $45,785    $41,867
Long-term debt, including current portion               $1,173           --           --           --     $2,500
Notes Payable - Severance Obligations                   $1,017       $1,000           --           --         --
Stockholders' equity                                   $11,075       $8,035      $19,276      $24,905    $27,120
<FN>
---------------------
     (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 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion.

     (3) Effective February 24, 1991, the Company acquired substantially all of
the assets of CarePoint which were accounted for under the purchase method of
accounting and accordingly, the results of operations of CarePoint subsequent to
those respective dates are included herein.

     (4) In 1991, the Company issued an additional 1,151,400 shares of Common
Stock in a secondary public offering and received approximately $10,300,000 in
net proceeds in connection therewith.
</FN>
</TABLE>

                                       18

<PAGE>

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

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, 1995 consisted of 26 home health care branch offices in five
states, active relationships for interim staffing needs with approximately 91
hospitals in 28 states and the U.S. Virgin Islands and three rehabilitation
clinics with two clinics located in Georgia and one clinic located in Tennessee.

     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 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.

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:                          1995                1994                  1993
----------------                ----------------------------------------------------------------
<S>                                <C>        <C>       <C>        <C>       <C>         <C>
Home Care Group                    $43.9       78%      $65.6       83%      $66.2        79%
Travel Nurse Group                 $10.9       20%      $13.0       17%      $17.9        21%
Rehabilitative Group (Therapy)      $1.4        2%        --        --%        --         --%
                                ----------------------------------------------------------------
Total Net Revenue                  $56.2      100%      $78.6      100%      $84.1       100%
</TABLE>

                                       19

<PAGE>

                  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:

                                                    PERCENTAGE OF REVENUE
                                                    ---------------------
                                                   YEARS ENDED NOVEMBER 30,
                                                   ------------------------
                                                1995        1994        1993
                                                ----        ----        ----
Net revenue from services                      100.0%      100.0%      100.0%
Cost of services                                59.8%       64.5%       67.7%
Gross margin                                    40.2%       35.5%       32.3%
Selling, general and administrative expenses    37.6%       47.0%       40.3%
Other income/(expense), net                     (0.4)%       0.2%        0.3%
Net income/(loss) before income taxes and
      cumulative effect of change in
      accounting principle                       2.1%      (11.3)%      (7.7)%
Net income/(loss)                                3.4%      (14.3)%      (7.0)%

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

                                                    (IN MILLIONS)
                                                    -------------
                                                YEARS ENDED NOV. 30TH
                                                ---------------------
Proforma Selected Financial Data - 
      Ongoing Operations                    1995                    1994
                                            ----                    ----
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%


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 Travel Nurse 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.

                                       20

<PAGE>

     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 costs of
services in the fourth quarter by approximately $715,000.

     Cost of services from the Travel Nurse 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 is 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.

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

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

     The Company's gross margin 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.

                                       21

<PAGE>

     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.

Comparison of 1994 to 1993

     Net revenue for the fiscal year ended November 30, 1994 decreased
approximately $5.4 million (6.5%) from revenue for fiscal year 1993. In the
absence of the $6.9 million provision for estimated Medicare reimbursement
disallowances recorded as a reduction of revenue in fiscal year 1993 (see below)
net revenue for fiscal year ended November 30, 1994 decreased approximately
$12.3 million (13.6%) from revenue for fiscal year 1993.

     This decrease is attributable, in part, to the downsizing of the Company's
South Florida Medicare offices which began in December 1992 and which were
effectively closed by the end of the quarter ended February 28, 1993 (See "Dade
County Investigation and Related Matters"). The remaining decrease in net
revenue during fiscal year 1994 is primarily attributable to four factors.
First, the August 31, 1994 sale of the Company's California, New York and
Arizona home health care operations which had contributed revenue of
approximately $8 million in the fourth quarter of fiscal year 1993. Second,
revenue for the Travel Nurse Group declined by approximately $4.9 million in
1994 due to less demand for contract nursing staff in serviced hospitals.
Thirdly, an additional provision was recorded as a reduction of revenue for
estimated reimbursement disallowances on the Company's non-South Florida
Medicare receivables in connection with management's continuing review of its
estimated reimbursement disallowances. Lastly, certain 1993 and 1994 home care
visits that were initially considered reimbursable by the Medicare program were
determined as part of the Company's internal patient chart review during the
second quarter of 1994 to be reimbursable by other payor sources. As these other
payor sources have yet to be identified and billing for these services has
therefore not occurred, a reduction of revenue of approximately $800,000 was
recorded.

     Net revenue from services from HSSI HomeCare decreased to $65.6 million in
the year ended November 30, 1994 from $66.2 million in the year ended November
30, 1993. In the absence of the $6.9 million provision for estimated Medicare
reimbursement disallowances recorded in fiscal year 1993 (see below) net revenue
from home health care operations decreased by $7.5 million between the two
years. Cost of services from HSSI HomeCare decreased to $40.7 million in the
year ended November 30, 1994 from $42.8 million in the year ended November 30,
1993. The decreases in net revenue from

                                       22

<PAGE>

services and cost of services are attributable to the factors discussed in the
paragraph above.

     Net revenue from services from the Travel Nurse Group and supplemental
staffing services decreased to $13 million in the year ended November 30, 1994
from $17.9 million in the year ended November 30, 1993. Cost of services from
the Travel Nurse Group and supplemental staffing services decreased to $10.5
million in the year ended November 30, 1994 from $14.1 million in the year ended
November 30, 1993. The decreases in net revenue from services and 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 Company's gross margin before selling, general and administrative
expenses is the difference between amounts charged by the Company to its clients
or amounts reimbursed by third party payors and wages the Company pays to its
medical personnel, plus related housing costs, travel, insurance costs and other
benefits.

     The Company's gross margin increased by 3.3% to approximately 35.5% for the
year ended November 30, 1994 from approximately 32.2% for 1993. Most
significantly, the Company's 1994 gross margin was higher than in 1993 because
of the 1993 $6.9 million reduction of revenue from recording a provision for
estimated Medicare reimbursement disallowances as discussed below. Secondly,
gross margin in 1994 was positively impacted by a decrease in the use of
independent contractors for providing home health care services, most notably in
the Company's South Florida Medicare business whose operations ceased at the end
of the first quarter of fiscal 1993. 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.

     Selling, general and administrative expenses increased from approximately
$33.9 million or 40.3% during 1993 to approximately $37.0 million or 47.0%
during 1994. The 1994 increase is attributable to a number of factors. These
factors include an increase in the trade accounts receivable bad debt provision
over the prior year amounting to approximately $1 million resulting from an
on-going analysis of accounts receivable whereby the Company revised its
estimate of collectability, a severance obligation to a previous officer of
approximately $310,000 (see Note 6 to the consolidated financial statements),
and to a previous key employee of approximately $85,000, the probable settlement
of the two shareholder suits of approximately $1.9 million (see Note 7 to the
consolidated financial statements), a lease penalty of approximately $400,000
incurred on terminating the old and entering into a new Corporate office lease
net of the remaining pro rata future payments under the old lease (see Note 7 to
the consolidated financial statements) and an accelerated severance obligation
to a current officer of $1 million (see Note 6 to the consolidated financial
statements).

     In light of the 1994 loss from operations, that portion of the 1993 bonus
accrual which had not been reversed as of November 30, 1993, approximately
$300,000, was reversed during 1994. No accrual was recorded for bonuses during
1994.

     Interest and other income (expense), net, decreased approximately $125,000
during the year ended November 30, 1994 from the comparable year ended November
30, 1993. The decrease resulted primarily from the receipt of $900,000 in 1993
of insurance proceeds in connection with the original proposed shareholder class
action suit (See Note 7 to the consolidated financial statements). No such

                                       23

<PAGE>

proceeds were received in 1994. Offsetting the amount of this decrease is an
approximately $300,000 gain on the 1994 sale of the Company's California, New
York, and Arizona home health care operations. Further offsetting the decrease
between years is the lower interest costs in 1994 on outside indebtedness as the
Company's 1994 average outstanding borrowings were less than they had been in
1993.

     The provision (benefit) for income taxes from 1993 to 1994 also changed
significantly as a result of the Company's decision to fully reserve its net
deferred tax asset resulting in an increase in the income tax provision of $2.1
million (See Note 8).

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 new 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 (the "Prior Line of Credit"). Amounts outstanding under the Prior Line
of Credit accrued interest at the rate of prime plus two percent per annum
payable monthly, and were secured by substantially all of the Company's assets.
Loan activity (exclusive of the $2.0 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:

                                               (IN MILLIONS, EXCEPT PERCENTAGES)
                                                        1995        1994
                                                        ----        ----
Maximum outstanding                                     $2.1        $5.1
Borrowings outstanding at November 30, 1995             $0.8        $0.3
Amount available for additional borrowing               $0.4        $1.0
Weighted average interest rate                           21%         17%

     The New Line of Credit. In February 1996, under an arrangement with a
commercial finance company, the Company entered into a new $8 million
uncommitted revolving line of credit, of which $1.8 million was reserved to
support a standby letter of credit for the benefit of the Company's workers'
compensation insurance carrier (the "New Line of Credit"). Like the Prior Line
of Credit, the amount of the New Line of Credit available to the Company at any
time is determined primarily by the eligible accounts receivable, as defined.
Although the Company's Prior Line of Credit was for $15 million rather than $8
million, the New Line of Credit increases the Company's base of borrowing,
because the new loan agreement contains a less restrictive definition of
eligible accounts receivable. A comparison on a proforma basis of the Prior Line
of Credit with the New Line of Credit as of November 30, 1995 reflects that the
permitted borrowing under the Prior Line of Credit was $1.1 million and under
the New Line of Credit (taking into account the amounts reserved under each line
of credit to support the standby letter of credit referenced above) would have
been $4.6 million for a $3.5 million increase in available borrowing. While the
interest rate on the amount outstanding under the New Line of Credit is
unchanged

                                       24

<PAGE>

from that on the amount outstanding under the Prior Line of Credit,
administration fees and charges related to the New Line of Credit are greatly
reduced.

     Early retirement of the Prior Line of Credit will result in the Company
incurring a penalty of approximately $150,000 and the write-off of unamortized
loan costs in the amount of approximately $144,000, the aggregate of which will
be recorded as a charge in the first quarter of 1996.

     Restrictive Covenants under the New Line of Credit. The Company's New 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, as with the Prior Line
of Credit, if written contracts are not finalized with the government agencies
operating the two hospitals in the U.S. Virgin Islands to which the Company
provides Travel Nurse services, the commercial finance company providing the New
Line of Credit may restrict the definition of those eligible accounts
receivable, so that no U.S. Virgin Island accounts receivable are included.
While this restriction would have limited the amount available to the Company
under the New Line of Credit by approximately $1.7 million, as of November 30,
1995 the permitted borrowing under the new line of credit would still be
substantially greater than under the Prior Line of Credit (See Note 4).

     Trade Accounts Receivable. At November 30, 1995 and 1994, the Company had
outstanding accounts receivables, net of allowances for doubtful accounts, of
approximately $6.1 million and $7.6 million, respectively. During Fiscal 1995,
the Company's ability to convert receivables to cash improved significantly,
particularly within ongoing home care operations. The improvement in conversion
of receivables to cash resulted primarily from the transfer of billing and
collection activities from the central to the regional level, and the recruiting
of qualified staff to administer this process at the regional level. For the
fiscal year ended November 30, 1995, turnover of accounts receivable increased
19.7%, from 2.96 to 3.54 times per year and average days outstanding decreased
16.4%, from 123 days to 103 days. The improvements in conversion of receivables
increased cash by approximately $1,200,000. The improvement in conversion of
receivables to cash did not occur in the U.S. Virgin Islands accounts. The
Company's U.S. Virgin Island clients are traditionally very slow-paying clients.
At November 30, 1995 and 1994, the average days outstanding for the U.S. Virgin
Island accounts were 198 and 142 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 $157,000 and minimal future
recoveries are expected.

     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 New Line of Credit,
if available, or 3) using proceeds from additional capital that

                                       25

<PAGE>

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 $2,400,000 due to Medicare. As
of November 30, 1995, $78,000 of this amount had been repaid as the first
payment of an 11 month repayment plan applicable to $859,000 of the noticed
debt. As of November 30, 1995, the intermediaries were not pursuing the
remaining $1,500,000 amount because the future settlement of certain provider
cost reports of the Company are expected to result in amounts in excess of
$1,500,000 due to the Company from Medicare. These future settlements will be
used to offset the $1,500,000 due to Medicare.

     In addition to external sources, the Company generates or uses cash in its
operating activities. Net cash generated by (used in) operating activities was
$109,552, ($630,475), and $333,394 in fiscal years 1995, 1994 and 1993,
respectively.

     Cash Position. 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, 1995 consisted of liquidating the Company's short-term
investments to satisfy cash flow requirements. Additionally, in connection with
the shareholder class action settlement, as previously discussed, a Money Market
account was established in the second quarter of 1995 to accumulate funds to
liquidate the shareholder obligations which became due in July and August 1995.
The Company's principal financing activities for the fiscal year ended November
30, 1995 consisted of net borrowings under the Prior Line of Credit.

     Net Working Capital. As of November 30, 1995, the Company had current
assets of approximately $20.2 million and current liabilities of approximately
$11.4 million, resulting in net working capital of approximately $8.8 million
and a current ratio of 1:8x. This compares to working capital of approximately
$6.0 million and a current ratio of 1:4x at November 30, 1994. Cash and cash
equivalents were approximately $1.7 million at fiscal year ended November 30,
1995.

     The increase in working capital for fiscal 1995 was primarily due to the
liquidation of a current liability in the amount of $1,137,500 by issuing of
700,000 shares of common stock at $1-5/8 per share. As of November 30, 1995, 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 Travel Nurse business in the U.S. Virgin
Islands has not been subject to material seasonal fluctuations. However, the
Travel Nurse business in the rest of the United States has been seasonal, with
demand for Travel Nurses 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 vacation 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.


                                     26

<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, 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 (See Note 8).

     The effective tax rate for the provision (benefit) for income taxes during
the fiscal years ended 1995, 1994 and 1993 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.

                                       27

<PAGE>

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                     PAGE NUMBER
                                                                     -----------
Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Certified Public Accountants

                                       28

<PAGE>
                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                  NOVEMBER 30,
                                     ASSETS
                                 --------------
                                                         1995           1994
                                                     -----------    -----------
CURRENT ASSETS:
Cash and cash equivalents                            $ 1,697,804    $   516,770
Short-term investments                                    11,620      1,148,729
Trade accounts receivable, less allowance
  for doubtful accounts of $599,599
  and $2,345,598, respectively                         6,129,371      7,554,155
Settlements due from Medicare                         10,372,741     10,120,218
Prepaid expenses                                         418,335        249,904
Amounts due from officers/directors                       40,392        240,781
Current and deferred income taxes receivable           1,149,634        212,042
Other                                                    344,482        785,360
                                                     -----------    -----------
       Total current assets                           20,164,379     20,827,959
                                                     -----------    -----------
NON-CURRENT ASSETS:
Net property and equipment (Note 3)                      986,592      1,254,676
                                                     -----------    -----------
Intangibles related to businesses acquired             2,160,016      2,022,183
Non-competition agreements                               479,426        551,544
                                                     -----------    -----------
Total intangibles                                      2,639,442      2,573,727
Less: Accumulated amortization                          (664,418)      (759,725)
                                                     -----------    -----------
       Net intangibles                                 1,975,024      1,814,002
                                                     -----------    -----------
Deposits and other assets                                244,826        516,512
                                                     -----------    -----------
       Total non-current assets                        3,206,442      3,585,190
                                                     -----------    -----------
       Total assets                                  $23,370,821    $24,413,149
                                                     ===========    ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
                                                         1995          1994
                                                      ----------    -----------
CURRENT LIABILITIES:                                           
  Accounts payable                                    $2,577,470     $5,744,272
  Line of credit payable (Note 4)                        767,115        304,912
  Accrued payroll and benefits                         2,240,404      2,473,643
  Accrued expenses (Note 12)                           4,224,210      5,594,163
  Income taxes payable                                   296,000        561,245
  Capital leases                                           7,131             --
  Notes payable (Notes 2, 6 & 7)                       1,255,130        156,000
                                                     -----------    -----------
       Total current liabilities                      11,367,460     14,834,235
                                                     -----------    -----------
NON CURRENT LIABILITIES:
  Notes payable (Notes 2, 6 & 7)                         882,965        844,000
  Capital leases                                          45,304             --
  Lease settlement (Note 7)                                   --        700,000
                                                     -----------    -----------
       Total non-current liabilities                     928,269      1,544,000
                                                     -----------    -----------
       Total liabilities                              12,295,729     16,378,235
                                                     -----------    -----------
COMMITMENTS AND CONTINGENCIES (Notes 4,5 & 7)                          
STOCKHOLDERS' EQUITY:
 Preferred stock - $.001 par value;
     authorized 5,000,000 shares;
     none issued or outstanding                              --              --

  Common stock- $.001 par value;
     authorized 20,000,000 shares;
     issued and outstanding;
     6,349,770 and 5,649,770 shares                       6,350           5,650

  Additional paid-in capital                         22,428,887      21,292,087

  Accumulated deficit                               (11,360,145)    (13,262,823)
                                                    -----------     -----------
       Total stockholders' equity                    11,075,092       8,034,914
                                                    -----------     -----------
       Total liabilities and                                            
          stockholders' equity                      $23,370,821     $24,413,149
                                                    ===========     ===========

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                       29
<PAGE>
<TABLE>
<CAPTION>
               HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED NOVEMBER 30,

                                                             1995            1994            1993
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>
NET REVENUE FROM SERVICES                                $ 56,185,723    $ 78,624,465    $ 84,060,916

COST OF SERVICES:
   PROFESSIONAL SALARIES AND BENEFITS                      28,231,790      44,531,227      49,911,330
   OTHER PROFESSIONAL EXPENSES                              5,393,817       6,172,436       7,022,704
                                                         ------------    ------------    ------------
   TOTAL COST OF SERVICES                                  33,625,607      50,703,663      56,934,034
                                                         ------------    ------------    ------------
 GROSS MARGIN                                              22,560,116      27,920,802      27,126,882
                                                         ------------    ------------    ------------
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
   SALARIES AND BENEFITS                                   11,891,179      15,743,219      17,900,751
   LEGAL EXPENSES                                           1,040,019       2,106,442       1,708,216
   SEVERANCE OBLIGATIONS (NOTE 6)                             646,724       1,387,480              -- 
   LITIGATION SETTLEMENTS (NOTE 7)                            135,000       1,887,500              -- 
   ALL OTHER EXPENSES                                       7,399,767      15,845,168      14,251,132
                                                         ------------    ------------    ------------
   TOTAL SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES     21,112,689      36,969,809      33,860,099
                                                         ------------    ------------    ------------
 INCOME (LOSS) FROM OPERATIONS                              1,447,427      (9,049,007)     (6,733,217)
                                                         ------------    ------------    ------------
 INTEREST AND OTHER INCOME (EXPENSE):
   INTEREST EXPENSE                                          (273,027)       (398,590)       (579,344)
   INTEREST INCOME                                             71,523          63,318          68,008
   OTHER INCOME (EXPENSE),NET                                 (43,815)        488,321         790,164
                                                         ------------    ------------    ------------

   TOTAL INTEREST AND OTHER INCOME (EXPENSE)                 (245,319)        153,049         278,828
                                                         ------------    ------------    ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
   INCOME TAXES                                             1,202,108      (8,895,958)     (6,454,389)

(PROVISION) BENEFIT FOR INCOME TAXES (NOTE 8)                 700,570      (2,520,565)        596,581
                                                         ------------    ------------    ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
   CHANGE IN ACCOUNTING PRINCIPLE                           1,902,678     (11,416,523)     (5,857,808)

CUMULATIVE EFFECT OF CHANGE
   IN ACCOUNTING PRINCIPLE                                         --         162,000              --
                                                         ------------    ------------    ------------
   NET INCOME (LOSS)                                       $1,902,678    ($11,254,523)    ($5,857,808)
                                                         ============    ============    ============

INCOME (LOSS) PER COMMON SHARE:
   INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
      CHANGE IN ACCOUNTING PRINCIPLE                            $0.32          ($2.02)         ($1.04)
   CUMULATIVE EFFECT OF CHANGE
      IN ACCOUNTING PRINCIPLE                                      --            0.03              --
                                                         ------------    ------------    ------------
INCOME (LOSS) PER COMMON SHARE                                  $0.32          ($1.99)         ($1.04)
                                                         ============    ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                 5,922,213       5,649,770       5,646,020
                                                         ============    ============    ============

</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements

                                       30
<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, 1992                     5,646,020    $5,646     $21,049,966    $  3,849,508

   Additional offering costs of 1991
     issuance of common stock                         --        --         (40,000)             --

   Tax benefit of disqualifying
     disposition of incentive stock options           --        --         269,000              --

   Net loss                                           --        --            --        (5,857,808)
                                               ---------    ------     -----------    ------------
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)
                                               =========    ======     ===========    ============

</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       31
<PAGE>
<TABLE>
<CAPTION>

                HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED NOVEMBER 30,

                                                                                      1995             1994            1993
                                                                                   ------------    ------------    ------------ 
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S>                                                                                <C>             <C>             <C>          
   Net income (loss)                                                               $  1,902,678    ($11,254,523)   ($ 5,857,808)
                                                                                   ------------    ------------    ------------ 

   Adjustments to reconcile net income (loss) to net cash provided
     (used) by operating activities:
       Severance obligations (Note 6)                                                   630,000       1,310,000              --
       Depreciation and amortization                                                    989,741       1,340,748       1,400,681
       Cumulative effect of change in accounting principle                                   --        (162,000)             --
       Provision for losses on trade accounts receivable                                552,663       2,382,948       1,365,224
       Gain on sale of California, New York and Arizona home health operations               --        (299,492)             --
       Loss on disposal and retirement of intangibles, property and equipment           129,541          10,611         145,257
       Write-off of intangibles related to businesses acquired, net                          --         133,505         110,281
       Deferred income tax provision (benefit), net of increase in valuation
         allowance                                                                     (309,532)      2,120,655         592,000
       Changes in assets and liabilities:
         (Increase) decrease in assets-
           Trade accounts receivable                                                    797,122       1,920,683        (173,619)
           Settlements due from Medicare                                               (252,523)     (3,022,514)      6,263,091
           Prepaid expenses and other current assets                                   (168,431)       (171,622)        223,273
           Amounts due from officers/directors                                           77,749          32,897          45,662
           Income taxes receivable                                                     (628,061)      1,850,802         783,830
           Deposits and other assets                                                    263,705         204,304        (980,464)
         Increase (decrease) in liabilities -
           Accounts payable                                                          (2,006,662)      1,874,055        (996,653)
           Accrued payroll and benefits                                                (233,239)     (1,534,022)     (1,177,242)
           Accrued expenses                                                          (1,369,954)      1,777,733      (1,392,343)
           Other liabilities                                                                 --         293,512         (17,776)
           Income taxes payable                                                        (265,245)        561,245              --
                                                                                   ------------    ------------    ------------ 
     Total adjustments                                                               (1,793,126)     10,624,048       6,191,202
                                                                                   ------------    ------------    ------------ 

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                        109,552        (630,475)        333,394
                                                                                   ------------    ------------    ------------ 

CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
   Sale (purchase) of short-term investments, net                                     1,137,109        (148,729)       (743,775)
   Capital expenditures                                                                (369,775)       (130,205)       (193,394)
   Proceeds from disposal of property and equipment                                       9,500          22,071          35,646
   Proceeds from sale of California, New York and Arizona home health operations        100,000       3,492,993              --
   Proceeds from sale of Texas home health operations                                    60,000              --              --
                                                                                   ------------    ------------    ------------ 
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                        936,834       3,236,130        (901,523)
                                                                                   ------------    ------------    ------------ 
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
   Line of credit borrowings                                                         59,199,000      83,830,000      36,147,437
   Line of credit repayments                                                        (58,736,797)    (86,842,794)    (38,029,731)
   Payments under notes payable                                                        (327,555)             --              --
   Borrowings under term loan                                                                --              --       8,100,000
   Payments under term loan                                                                  --              --      (8,100,000)
   Exercise of warrants                                                                      --          13,125              --
   Borrowings under loans payable to officers                                                --              --         480,000
   Repayments under loans payable to officers                                                --              --        (480,000)
                                                                                   ------------    ------------    ------------ 
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                        134,648      (2,999,669)     (1,882,294)
                                                                                   ------------    ------------    ------------ 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  1,181,034        (394,014)     (2,450,423)

   Cash and cash equivalents at beginning of period                                     516,770         910,784       3,361,207
                                                                                   ------------    ------------    ------------ 
   Cash and cash equivalents at end of period                                      $  1,697,804    $    516,770    $    910,784
                                                                                   ============    ============    ============ 

Supplemental Cash Flow Disclosures:
   Cash paid:     Income Taxes                                                     $    499,139    $    661,793    $    76,213
                  Interest                                                         $    276,816    $    396,448    $   691,498

   Cash received: Income Tax Refunds                                               $         --    $  2,644,910    $        --
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       32
<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 "Travel Nurse
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 26 home health care branch
offices in five states, 91 hospitals in 28 states and the U.S.
Virgin Islands and three rehabilitative clinics in the Southeast.

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, 1995 and 1994, 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
for doubtful accounts included in operations was approximately $553,000 in 1995,
$2,400,000 in 1994, and $1,400,000 in 1993.

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 

                                       33

<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 $345,000 in 1995, $740,000
in 1994, and $717,000 in 1993. 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. Prior to
1994, deferred income tax expenses or credits were provided to reflect the tax
consequences of income and expense differences between financial reporting and
tax filings (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.

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
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

                                       34

<PAGE>

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

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 was released to the Company; however, the release of the
remaining $400,000 is in dispute. Subsequent to November 30, 1995, the Company
received approximately $145,000 of the $400,000 outstanding and believes 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.

     During 1993, in connection with the closure of its South Florida Medicare
Branches and subsequent sale of the related Certificates of Need ("CON") for
approximately $375,000, the Company wrote off approximately $485,000, net of
accumulated amortization, in intangibles related to businesses acquired. Such
charge was recorded net of the proceeds of the sale of the related CONs as a
component of Other Income (Expense), in the accompanying 1993 consolidated
statement of operations.

                                       35

<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:

                                                       1995             1994
                                                      ------            -----
Furniture and Fixtures                              $  400,000       $  389,000
Clinical and Office Equipment                          687,000        1,166,000
Computer Equipment                                     918,000        1,279,000
Capitalized Software                                   723,000          704,000
                                                    ----------       ----------
                                                     2,728,000        3,538,000
Less Accumulated Depreciation                       (1,741,000)      (2,283,000)
                                                    ----------       ----------
Net Property and Equipment                          $  987,000       $1,255,000
                                                    ==========       ==========



Depreciation expense was approximately $645,000 in 1995, $765,000 in 1994, and
$791,000 in 1993.

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 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, 1995, the Company was
contingently liable for a $2.0 million standby letter of credit issued by its
lender representing a reduction of otherwise eligible borrowing. In connection
with the Company's new financing arrangements the Company's workers'
compensation insurance carrier reduced the letter of credit requirement to $1.8
million from $2.0 million.

                  Based on a broader base of eligible accounts receivable, the
Company has approximately $3.5 million available of additional borrowing under
the line compared to the prior line of credit at November 30, 1995. However, the
total borrowing available is subject to the renewal of certain nursing services
contracts in the U.S. Virgin Islands. Such contracts are in the process of
renewal and management is of the opinion that the full borrowing capacity will
be available to the Company. Additionally, while the interest rate on the new
facility is unchanged from the prior facility, administration fees and charges
related to the line of credit are significantly reduced. Borrowing throughout
fiscal 1995 had a weighted average interest rate of approximately 21%, 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 $2.1 million.
In retiring the old line of credit, the Company will incur a penalty of
approximately $150,000

                                       36

<PAGE>

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

and will write off approximately $144,000 of unamortized loan costs, the 
aggregate of which will be recorded as a 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 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, 1995 no
options were granted or exercised under the 1983 Plan and none expired. At
November 30, 1995, options to purchase 17,250 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.

                                       37

<PAGE>

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

                  At November 30, 1995, options to purchase 224,300 shares of
common stock were outstanding under the 1990 Plan with exercise prices ranging
from $1.75 to $13.50 per share. These options are exercisable for periods
ranging up to six years from vesting dates. As of November 30, 1995, 545,700
options were available to be granted under the 1990 Plan.

                                             SHARES
1990 PLAN                                 UNDER OPTIONS      PRICE PER SHARE
---------                                 -------------     -----------------
Outstanding, December 1, 1992                 354,319       $3.000 to $14.125
Granted                                       100,000       $3.000 to $6.875
Expired                                       (93,519)      $3.250 to $13.500
                                             --------
Outstanding, November 30, 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       $1.75  to $3.00
Expired                                       (51,000)      $3.000 to $13.500
Terminated                                     (7,500)      $13.500
                                             --------
Outstanding, November 30, 1995                224,300       $1.75  to $13.500
                                             ========

                  The weighted average exercise price of the options outstanding
at November 30, 1995 under the 1990 plan was approximately $3.142 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

                  From time to time the Company has granted options to purchase
common stock to consultants or other individuals which were not under the 1983
or 1990 plans.  At  November 30, 1995 options to purchase 302,500 shares
of common stock  were outstanding with exercise prices from $3.00 to $10.25 
per share and a weighted average price of $3.488.  No such grants were issued 
in fiscal years  1995 or 1994.

NOTE 6:  SEVERANCE OBLIGATIONS -

                  In 1992, the Company incurred a severance obligation to a
previous officer of approximately $900,000. Such amount was expensed as of the
date of the termination. As of November 30, 1995, the Company's obligation to
the officer was satisfied in its entirety.

                  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.

                                       38
<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, 1995, the Company's
remaining future obligation to the officer was approximately $571,000 and is
being satisfied under a note payable at prime rate (8.75% at November 30, 1995)
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, 1995, the Company's remaining liability was approximately $446,000
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.

                                       39

<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
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, 1995 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, 1995 are realizable at their
recorded amount.

                  As of February 1996, 38 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 has been the subject of an investigation
by the Securities and Exchange Commission ("SEC") relating to the Medicare
investigation by the United States Attorney. The SEC has not instituted any
enforcement proceedings against the Company and any resolution of the matter
with the United States Attorney's Office would not necessarily resolve any
potential future action by the SEC.

                                       40

<PAGE>

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

Proposed 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 and consolidated results of operations.

                  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.

                                       41

<PAGE>

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

The following is a schedule of future minimum lease payments as of November 30,
1995:

                FISCAL YEAR                         AMOUNT
                -----------                         ------
                   1996                           $1,582,000
                   1997                              471,000
                   1998                              242,000
                   1999                              170,000
                   2000                               40,000

                  The Company's headquarters are located at 6245 North Federal
Highway, Suite 400, Fort Lauderdale, Florida. During the fourth quarter of 1994
the Company terminated its old lease and agreed to a penalty of $800,000 in
exchange for the landlord's release of the Company from approximately $1.4
million in future minimum rentals. On November 1, 1994, $100,000 of the penalty
was paid and the remaining $700,000 was scheduled to be liquidated on November
1, 1995, either by a cash payment or newly issued common stock. Prior to
November 1, 1995, the Company entered into discussions with the Landlord and it
was agreed that the Company would execute a Promissory Note whereby the Company
would make an initial cash payment of $150,000 plus accrued interest at the rate
of 11% and thereafter, beginning January 1, 1996, twelve equal monthly
installments of principal and interest in the amount of approximately $48,610
until December 1, 1996.

                  Total rent expense for the years ended November 30, 1995,
1994, and 1993, including the Corporate office, branch facilities and nurses'
housing for the Travel Nurse Group was approximately $3,452,000, $4,514,000 and
$5,229,000, 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 $450,000 as of November 30, 1995.

                  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, 1995 and 1994, such reserves
totaled approximately $2.6 million and $2.9 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. As of
November 30, 1995, management believes that the differences between actual
losses to be incurred after November 30, 1995 related hereto and its recorded
reserve estimates will not be material.

                                       42

<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, 1995, 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:

                                       YEARS ENDED NOVEMBER 30,
                                     ---------------------------
                               1995               1994            1993
                             ----------        ----------      ----------- 
Current:
  Federal                    $ (780,000)       $       --      $(1,940,000)
  State                         247,000           115,000          175,000
  Foreign                       141,188           284,910          576,000
                             ----------        ----------      ----------- 
                               (391,812)          399,910       (1,189,000)
                             ----------        ----------      ----------- 
Deferred:
  Federal                       890,000        (2,673,193)         592,419
  State                         141,000          (394,000)              --
  Foreign                       285,000          (284,910)              --
                             ----------        ----------      ----------- 
                              1,316,000        (3,352,103)         592,419
                             ----------        ----------      ----------- 
Increase (decrease) in 
  valuation allowance        (1,624,758)        5,472,758               --
                             ----------        ----------      ----------- 
                             $ (700,570)       $2,520,565      $  (596,581)
                             ==========        ==========      =========== 

                                       43

<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:

                                                          1995          1994
                                                       -----------   ----------
Self insurance reserve                                 $   994,344   $1,089,271
Accrued legal and accounting fees                          406,767      446,584
Accrued severance, compensation & benefits                 544,185      707,478
Depreciation and amortization                             (146,655)    (272,348)
Bad debt reserve                                           212,648      891,327
Accrued shareholder suit settlement                             --      717,250
Accrued transition costs related to branches sold               --      447,350
Net operating loss carryforwards                         3,027,540    2,047,467
Foreign tax credit carryforward                                 --      284,910
Other, net                                                 168,703      163,469
                                                       -----------   ----------
                                                         5,207,532    6,522,758
Valuation allowance                                     (4,898,000)  (6,522,758)
                                                       -----------   ----------
                                                       $   309,532   $       --
                                                       ===========   ==========

                  The deferred tax provision for 1993, prior to the adoption of
SFAS No. 109, is related to the recognition in different periods of certain
components of income and expense for financial statement and tax reporting
purposes, primarily accruals for litigation and compensation settlements and
allowances for doubtful accounts.

                  As of November 30, 1995, the Company has available Federal and
State net operating loss carryforwards totaling approximately $6.8 million and
$17.8 million, respectively, expiring through 2010.

                  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:

                                          1995          1994            1993
                                        ---------     ----------      ---------
Provision (benefit) computed at 
  Federal statutory rate of 34%          $408,717    ($3,024,626)   ($2,194,492)
Tax benefit not realized subject to 
  future realization                           --             --        638,985
Effect of state income taxes              213,000       (279,000)       175,000
Foreign tax effects                       130,000             --        576,000
Effect of alternative minimum tax              --             --        182,000
Non-deductible meal expenses              148,447        307,194             --
Increase (decrease) in valuation
  allowance                            (1,624,758)     5,472,758             --
Other                                      24,024         44,239         25,926
                                        ---------     ----------      ---------
Provision (benefit) for income taxes    ($700,570)    $2,520,565      ($596,581)
                                        =========     ==========      ========= 



                                       44
<PAGE>

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

                  In fiscal 1995, the Company recognized a benefit for income
taxes of approximately $701,000. Such benefit is primarily a result of certain
tax deductible legal settlements which can be 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, 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 $32,000 in 1995 and $173,000 in 1994.

                  During 1995, the Company utilized the services of an outside
director as its National Medical Director and in July 1995 entered into a
written contractual arrangement whereby the Director would continue as the
Company's Medical Director for an indeterminate time or until the contract is
terminated by either party. Such services include utilization review, quality
assurance, medical guidance, and compliance with all Federal and State
regulations. For the Fiscal Year 1995, the fees for such services were
approximately $42,000.

                  During 1994 and 1995, the Company also received consulting 
services from two former officers of the Company.  Fees for those services were
approximately $28,000 and $146,000 for the years ended 1995 and 1994,
respectively.

                  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 9.6% and 7.2% of consolidated net revenue from services for
the fiscal years ended November 30, 1995 and 1994, respectively. Outstanding
accounts receivable were approximately $3.0 million and $2.2 million as of
November 30, 1995 and 1994, respectively, and are included in trade accounts
receivable in the accompanying consolidated balance sheets. As of January 31,
1996, approximately $2.2 million of the November 30, 1995 outstanding receivable
balance from these facilities remained unpaid. Approximately $507,000 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, 1995 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 

                                       45

<PAGE>

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

due. Accordingly, no allowance for doubtful accounts has been recorded related
to these outstanding receivables.

NOTE 12:  ACCRUED EXPENSES

                  Accrued expenses consisted of the following approximate
amounts at November 30:

                                                        1995             1994
                                                     ----------       ----------
Workers' Compensation Insurance                      $2,088,000       $2,250,000
Health Insurance                                        527,800          615,600
Litigation Services                                     661,000          807,000
Professional Fees                                       334,800          271,900
Termination Costs-Sold Operations                        27,500        1,177,000
Other                                                   585,100          472,500
                                                     ----------       ----------
                   Total                             $4,224,200       $5,594,000
                                                     ==========       ==========

                                       46

<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, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended November 30, 1995. 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, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended November 30, 1995 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

Fort Lauderdale, Florida,
 February 23, 1996.

                                       47
<PAGE>


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

                                      NONE

                                       48


<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 1995 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 1995 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 1995 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 1995 Annual Meeting of
Stockholders and is incorporated herein by reference.

                                       49

<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.

     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.

     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)")).

     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)").

                                       50

<PAGE>

     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.

    10.7   SECOND ADDENDUM TO LEASE AGREEMENT DATED NOVEMBER 1, 1995, AND 
           RELATED PROMISSORY NOTE DATED DECEMBER 1, 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).

    10.10  SETTLEMENT AGREEMENT WITH RONALD A. CASS DATED JANUARY 1, 1995.

    10.11  EMPLOYMENT AGREEMENT WITH JAY GERSHBERG DATED SEPTEMBER 1, 1995.

    10.12  EMPLOYMENT AGREEMENT WITH JEFFREY A. BARNHILL DATED SEPTEMBER 1, 
           1995.

    10.13  EMPLOYMENT AGREEMENT WITH RONALD HUNEYCUTT DATED FEBRUARY 1, 1996.

    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).

    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).

                                       51

<PAGE>

    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.)

    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.)

    10.18  LOAN AND SECURITY AGREEMENT WITH CAPITAL HEALTHCARE FINANCING DATED
           FEBRUARY 7, 1996.

    21.1   SUBSIDIARIES OF THE REGISTRANT.

    23.1   CONSENT OF ARTHUR ANDERSEN LLP - FILED HEREWITH.

                                       52

<PAGE>
                                   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,
    -----------------                and Chief Executive Officer, and President

                                     Date: February 27, 1996

          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             2/27/96
--------------------------    Executive Officer and President,
Ronald A. Cass                (Principal Executive Officer)


/S/RONALD G. HUNEYCUTT         Vice President Finance and Chief        2/27/96
--------------------------     Financial Officer
Ronald G. Huneycutt


/S/WILLIAM F. MCCONNELL        Director                                2/27/96
--------------------------
William F. McConnell


/S/ROBERT B. FIELDS            Director                                2/27/96
--------------------------
Robert B. Fields


/S/HECTOR L. ZIPEROVICH        Director                                2/27/96
--------------------------
Hector L. Ziperovich, M.D.

                                       53
<PAGE>

<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES                   SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993

COLUMN A                              COLUMN B       COLUMN C                      COLUMN D                           COLUMN E
                                                     ADDITIONS                     DEDUCTIONS

                                      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, 1995

DEDUCTED FROM THE BALANCE
SHEET CAPTION "TRADE                                                               UNCOLLECTIBLE
ACCOUNTS RECEIVABLE"                                                               ACCOUNTS
ALLOWANCE FOR DOUBTFUL                                                             CHARGED AGAINST
ACCOUNTS                              $2,345,598     $552,663           --         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
                                      ----------------------------------------------------------------------------------------
FOR THE YEAR ENDED
NOVEMBER 30, 1993

DEDUCTED FROM THE BALANCE
SHEET CAPTION "TRADE                                                               UNCOLLECTIBLE
ACCOUNTS RECEIVABLE"                                                               ACCOUNTS
ALLOWANCE FOR DOUBTFUL                                                             CHARGED AGAINST
ACCOUNTS                              $1,069,266   $1,365,224     $107,442(2)      ALLOWANCE             $817,277   $1,724,655
                                      ----------------------------------------------------------------------------------------
<FN>
(1) RECLASSIFICATIONS BETWEEN ACCOUNTS RECEIVABLE AND ALLOWANCE ACCOUNT.

(2) CHARGED DIRECTLY AGAINST REVENUE.
</FN>
</TABLE>

                                      S-1