UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

|(Mark One)                                                       |                                                                                         
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 28, 2003                     
|OR                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                to

Commission File No. 001-31299

---

MEDICAL STAFFING NETWORK HOLDINGS, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                  |  | 65-0865171(I.R.S. Employer Identification Number)
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------
|901 Yamato Road, Suite 110
Boca Raton, FL 33431(Address of principal executive offices)
|Registrant's telephone number, including area code:(561) 322-1300                      
|Securities registered pursuant to Section 12(b) of the Act:                            
|                                                                                        |  |                                                  
|Title of each class:                                                                    |  | Name of each exchange
on which registered:       
|Common Stock, par value $0.01                                                           |  | New York Stock Exchange                          
|Securities registered pursuant to Section 12(g) of the Act:None                        

---

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    ý           No    o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes    ý           No    o

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold as of June 27, 2003 (the last business day of the registrant's most recently completed second fiscal quarter) was $218,905,992.50. As of March 2, 2004, there were
30,225,859 shares of common stock, $0.01 par value, outstanding.

Documents Incorporated by Reference:

Part III of this Form 10-K incorporates certain information by reference from the registrant's Definitive Proxy Statement for the 2004 Annual Meeting
of Stockholders, which will be filed no later than 120 days after December 28, 2003.



---



TABLE OF CONTENTS

|           |  |                                                                                                              |  | Page
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I     |  |                                                                                                              |  |     
|Item 1.    |  | Business                                                                                                     |  | 1   
|Item 2.    |  | Properties                                                                                                   |  | 15  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 15  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 15  
|PART II    |  |                                                                                                              |  |     
|Item 5.    |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 16  
|Item 6.    |  | Selected Financial Data                                                                                      |  | 16  
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 18  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 33  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 33  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 33  
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 34  
|PART III   |  |                                                                                                              |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 35  
|Item 11.   |  | Executive Compensation                                                                                       |  | 35  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 35  
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 35  
|Item 14.   |  | Principal Accounting Fees and Services                                                                       |  | 35  
|PART IV    |  |                                                                                                              |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                              |  | 36  
|SIGNATURES |  | 37                                                                                                          

All
references to "we, "us," or "our," in this Annual Report on Form 10-K means Medical Staffing Network Holdings, Inc.

i

---



PART I

Item 1. Business

General Development of Business

We are a leading healthcare staffing company and the largest provider of per diem nurse staffing services (staffing assignments of less than 13 weeks in duration)
in the United States as measured by revenues. Our per diem staffing assignments place our professionals, predominately nurses, at hospitals and other healthcare facilities to solve our clients'
temporary staffing needs. We believe we are also a leading provider of specialized radiology and diagnostic imaging specialists and clinical laboratory technicians, or "allied health" professionals,
as measured by revenues. We serve our clients through what we believe to be the largest temporary medical staffing network in the United States, which was comprised as of December 28, 2003 of
over 140 per diem branches that provide nurse staffing on a per diem basis in 43 states. Our extensive client base includes over 7,000 healthcare facilities including leading for-profit
and not-for-profit hospitals, leading teaching hospitals and regional healthcare providers. We do not receive a material portion of our revenues from Medicare or Medicaid
reimbursements or similar state reimbursement programs.

Our
business has grown significantly since our founding in 1998. We call branches that we have opened since our inception "de novo"
branches, as opposed to branches acquired from third parties. Approximately 75% of all existing branches as of December 28, 2003 werede novobranches.

In
the second quarter of 2003, we discontinued our physician staffing services. As such, the results of operations from these services are shown separately, as a total amount, in our
consolidated statements of income for all years presented.

In
March 2003, we purchased substantially all of the assets and assumed certain of the liabilities of Saber-Salisbury Group (SSG), which operates a temporary healthcare staffing
company. The transaction was consummated pursuant to the terms of an asset purchase agreement, dated March 22, 2003.

On
June 16, 2003, we completed our plan to restructure our operations by closing 29 branches. The restructuring was necessary to adjust the infrastructure we had put in place to
support multiple growth initiatives and reflects the current contraction in demand for our services. As a result, in the second quarter of 2003, we recorded a pre-tax charge, of
approximately $0.8 million, relating to employee severance costs, branch closing costs and lease termination costs.

For
the year ended December 28, 2003, we had revenues of $513.0 million and income from operations of $17.5 million. During this period, we earned 72% of our
revenues from our per diem nurse staffing assignments, 17% from our specialized radiology and diagnostic imaging technicians and clinical laboratory technicians, or our "allied health" assignments,
and 11% from our travel nurse staffing assignments.

We
believe the flexibility of our service offerings provides substantial value to our clients and professionals. We provide our clients with significant assistance in managing their
profitability by giving them a high degree of control in managing their labor costs without sacrificing clinical expertise. In addition, working on a per diem basis allows our healthcare professionals
substantial flexibility in balancing their careers with their lifestyle objectives.

We
were formed as a Delaware corporation in 1998. Our predecessor corporation, Southeast Staffing Partners, Inc., a Florida corporation, was founded in June 1997.

Industry Overview

The temporary nurse staffing market has two major components: per diem nursing and travel nursing. Per diem nurse staffing is the largest sector of the temporary
medical staffing industry, providing healthcare professionals for assignments of a single shift to 13 weeks, and is used to meet

1

---

local
labor shortages and openings due to holidays, vacations, illness and staff turnover, as well as daily and seasonal fluctuations in hospital volume. The per diem market operates with many local
operators and is highly fragmented. The per diem staffing model requires a local presence in every market served because these short-term staffing needs are typically filled on a local
basis, and are dependant on the relationship that exists between local operators, local professionals and the healthcare facility.

In
the travel nurse market, healthcare facilities hire travel nurses on a contract, fixed-term basis to meet seasonal fluctuations in hospital census levels for time periods
ranging from several weeks to one year, but are typically 13 weeks long. Travel nurse companies coordinate travel and housing arrangements for their professionals who typically relocate to the area in
which they are placed. The travel staffing model utilizes a centralized approach to serving its clients.

Allied
staffing consists of highly specialized radiology and diagnostic imaging specialties, clinical laboratory specialties, pharmacists and respiratory therapists. These professionals
are staffed on both a per diem and travel basis.

Service
revenues and gross profit margins have been under pressure as demand for temporary nurses is currently going through a period of contraction. Due to the current difficult
economic times, the unemployment rate is near a nine-year high, which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is causing such nurses
to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected census levels and are placing greater reliance on existing
full-time staff, resulting in increased overtime and nurse-patient loads.

We
cannot predict when conditions will reverse, but we are confident in the long-term growth of the industry. In a January 13, 2000 report, the U.S. Census Bureau,
Population Projections Bureau, projected that the number of Americans over 65 years of age is expected to grow from 34.5 million in 2000 to 53.7 million in 2020. In a
July 2002 report, the U.S. Department of Health and Human Services stated that the national supply of full-time equivalent registered nurses was approximately 1.9 million
while demand was approximately 2.0 million. This gap between supply and demand, for nurses, is expected to grow from 0.1 million in 2000 to 0.8 million by 2020. In conjunction
with the two aforementioned factors, as the economy rebounds, the prospects for the healthcare
staffing industry should improve as hospitals experience higher census levels and increasing shortages of healthcare workers.

Description of the Business

We provide hospitals and other healthcare facilities with a wide range of staffing services, including per diem nurses, allied professionals and travel nurses.
While we have a national presence, we operate on a local basis through an integrated network, which consisted of over 140 per diem branches in 43 states as of December 28, 2003, so that we may
develop significant relationships with our clients and healthcare professionals and provide the highest level of service. We have provided services to over 7,000 healthcare facilities that have paid
us directly for the services we provide.

Services Provided

Per Diem Nursing.The per diem nurse staffing portion of our business provides nurses for assignments
with durations ranging from a single shift to a 13-week assignment and represented approximately 72% of our fiscal year 2003 revenues. We offer our clients all major classifications of
nurses, including registered nurses and licensed practical nurses, across all specialties such as pediatric, geriatric, intensive care unit and cardiovascular. We provide per diem personnel to a
variety of healthcare facilities including acute care hospitals, nursing homes, clinics and surgical and ambulatory care centers. We serve both for-profit and
not-for-profit organizations that range in scope from one facility to national chains with over 100 facilities.

2

---

Allied Staffing.Our allied staffing division, which represented approximately 17% of our 2003
revenues, specializes in providing allied professionals to hospitals, nursing homes, clinics and surgical and ambulatory care centers, both on a per diem and a travel basis. We believe our allied
healthcare business to be among the largest in the country as measured by revenues. Allied specialties that we staff include diagnostic imaging and radiology technicians, clinical laboratory
technicians, pharmacists and respiratory therapists.

Travel Nursing.Comprising approximately 11% of our 2003 revenues, our travel nursing operations
provide nurses and surgical technicians to hospitals across the country for assignments lasting over thirteen weeks.

Physicians.During the second quarter of 2003, we discontinued our physician staffing operation, and
as such, the results of operations from these services are shown separately, as a total amount, in our consolidated statements of income for all years presented.

National Branch Network

We currently operate an integrated network, which consisted of over 140 per diem branches located in 43 states as of December 28, 2003. Our branches are
organized into several geographic regions, each of which is coordinated by a regional director. These branches serve as our direct contact with our healthcare professionals and clients and are active
in recruiting, scheduling and sales and marketing. Each branch is responsible for covering a specific local geographic region. Our typical branch is staffed with four or five professionals who are
responsible for the day-to-day operations of the business. These professionals include a branch manager, two to three staffing coordinators, and a payroll administrator.

The
cost structure of our typical branch is primarily fixed, consisting of limited personnel, office space rent, information systems infrastructure and supplies. We have been able to
develop a highly efficient branch management model that is easily scaleable to meet increasing demand.

Recruitment and Retention

Our ability to recruit and retain a pool of talented, motivated and highly credentialed healthcare professionals is critical to our success. Our active pool of
professionals has grown 52% compounded annually from 7,000 in 1999 to 37,000 in 2003, with a significant number of new recruits generated via word of mouth. Over 80% of our senior operations
management has nursing or other clinical backgrounds. We believe this depth of clinical experience helps us understand the needs of clinical personnel and has enhanced our reputation in the industry
as an advocate for nurses and other healthcare professionals, improving our ability to recruit such personnel. In addition, we offer competitive benefits packages that differentiate us from the
smaller, local per diem staffing companies with which we compete, and which are typically unable to offer the package of services and benefits that we offer. We believe our competitive advantages in
recruiting skilled personnel include the ability to offer the following opportunities to our personnel:



3

---



We
have several proven recruitment channels that consistently augment our pool of healthcare professionals at low marginal cost. In 2003, we spent approximately 1% of our revenues on
recruitment activities. Our recruiting activities include print advertisements in local newspapers and in trade journals, mailings, Internet listings and solicitations at trade conventions.

Quality Management

We have developed a substantial clinical quality improvement program to uphold our high standards in recruiting healthcare professionals. Our two-step
internal process ensures that all of our temporary professionals have the proper credentials, skills and experience for their assignments. We have found that our adherence to high quality management
standards is an integral component of satisfying both clients and professionals with our placements. Our two-step process for quality management includes the following:

Pre-employment Qualifications.All of our per diem healthcare professionals undergo a
rigorous screening process which includes requirements such as a minimum of one year of related work experience and the successful completion of written tests specific to the area of specialty. Each
applicant is then interviewed in person by a local branch manager. This sets us apart from our competitors who often do not conduct face-to-face interviews. We also check prior
work references, confirm the validity of the applicant's professional license(s) and screen the applicant for any criminal activity and drug abuse. All of these standards comply with or exceed those
required by OSHA (Occupational Safety & Health Administration) and JCAHO (Joint Commission on Accreditation of Healthcare Organizations).

Placement and Ongoing Monitoring.Once we have hired a healthcare professional, we enter all of the
professional's data into our database, which tracks any "renewal dates" with respect to licenses and continuing education requirements. Our database also matches our clients' needs with our available
pool of professionals. We strive to place our professionals in facilities where they have previously worked in order to enhance the continuity of our services to our clients. If this is not possible,
we provide our professionals with pre-staffing orientation to the facility. By taking these steps, we ensure that the healthcare professional is comfortable with the facility's physical
layout, permanent staff and clinical protocols. We also continually monitor the performance of our professionals through evaluations and client feedback, among other things. In addition, our database
allows remote access (via the Internet) by our clients, providing them the ability to view the credentials of the professionals being staffed at their facilities.

4

---

Sales and Marketing

We have developed a three-pronged approach to our sales and marketing activities in order to address the different levels of decision makers at our clients'
facilities:

Our
first level of business development and relationship management is with the purchasing manager, administrator(s) or chief nursing officer at a group of facilities we service.
Commonly-owned hospitals, nursing home chains and healthcare group alliances often purchase temporary staffing services for multiple facilities under a single contract, and a single person typically
manages the selection process. A senior member of our staff, the regional director and, in certain circumstances, the Executive Vice President of Nurse Per Diem Operations, handle the negotiation of
contractual terms and pricing with such groups of facilities.

Our
second level of business development and relationship management is with the director of nursing or a nurse/allied department manager who reviews our services from a clinical
competency and quality hiring standards perspective. Our regional director and local branch manager establish, build and maintain relationships at this level.

Our
third level of relationship management is with the facility staffing coordinators and the after-hours and weekend supervisors who are the actual users of the services. Our branch
managers and local staffing coordinators regularly contact these buyers to coordinate the daily staffing and scheduling of personnel.

Information Systems

Our information system for our per diem staffing operation, for which we hold an exclusive twenty-five year license and which we refer to as MSN
HealthWorks, is customized to our recruiting, regulatory credentialing, scheduling and billing needs. Not only is the database used as a management tool, but it is also used by our staffing
coordinators in each branch to respond quickly to client questions and requests. MSN HealthWorks' applications and its supporting infrastructure house and organize all of our client and employee
information. Electronic files are maintained on our client facilities, detailing historical and prospective requests for staffing. These files also contain facility-specific procedures and protocols
so that we can ensure our healthcare professionals integrate quickly. Each employee's electronic file contains the employee's credentials, test scores, employment record and availability. This data
enables our branch-office staff to automatically match open requests with qualified candidates.

MSN
HealthWorks also monitors billing records using time cards to generate invoices for our clients and paycheck information for our employees. MSN HealthWorks operates as a single entry
system, meaning that the initial shift confirmation entry enables our payroll to be generated at the branch level on a daily basis and the invoicing to be generated at our corporate office. This
system enables us not only to monitor costs and compliance, but also to ensure that we respond to client requests as quickly as possible. We typically fill a client staffing request in less than 15
minutes.

We
have adapted our MSN HealthWorks platform to provide our clients with functionality for budgeting and access to nurse and employee credentials via an Internet connection.

Competition

The temporary medical staffing industry is highly competitive. We compete with both national firms and local and regional firms. We compete with these firms to
attract nurses and other healthcare professionals as temporary healthcare professionals and to attract hospital and healthcare facility clients. We compete for temporary healthcare professionals on
the basis of the quantity, diversity and quality of assignments available, compensation packages, and the benefits that we provide to temporary healthcare professionals while they are on assignment.
We compete for hospital and healthcare facility clients on the basis of the quality of our temporary healthcare professionals, the timely availability of our professionals with the requisite skills,
quality and scope, price and geographic reach of our services.

5

---

The per diem market includes many local operators and is highly fragmented. The per diem staffing business requires a local presence in every market served since an important
relationship exists between the local branch and the healthcare facility. We believe, however, that larger, nationally established firms enjoy distinct competitive advantages over smaller, local and
regional competitors in the healthcare staffing industry. Larger and more established firms have a critical mass of available nursing candidates, substantial word-of-mouth
referral networks and established brand names, enabling them to attract a consistent flow of new applicants. Larger firms can also more easily provide payroll services, which are cash flow intensive,
to healthcare providers. As a result, sizable and established firms such as ours have had a significant advantage over small participants.

Some
of our large competitors in the temporary medical staffing industry include AMN Healthcare Services, Inc., Cross Country Healthcare, Inc. and InteliStaf
Healthcare, Inc.

Liability Insurance

We currently maintain a professional liability insurance policy, which we believe is sufficient for the risks associated with our business. Medical malpractice
claims against us relating to our healthcare professionals are defended by our insurance carrier. We have indemnity agreements with approximately 80% of our clients which state that we will defend,
indemnify and hold harmless those clients against any act of omission or willful or reckless acts, including negligence and misconduct. A majority of such agreements are reciprocal.

Trademarks and Service Marks

The service mark "Medical Staffing Network, Inc." (Name and Logo), which was registered with the U.S. Patent and Trademark Office as of May 6, 2003,
and the trade name "Medical Staffing Network" are each owned and licensed from Medical Staffing Network Assets, LLC, our indirectly wholly-owned subsidiary.

Government Regulation

The healthcare industry is subject to extensive and complex federal and state laws and regulations relating to professional licensure, conduct of operations,
payment for services and payment for referrals. The extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other
federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare facility clients could suffer civil and/or
criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses.

Our
business, however, is not directly impacted by or subject to the laws and regulations that generally govern the healthcare industry, because we provide services on a contract basis
and are paid directly by our hospital and other healthcare facility clients.

Some
states require state licensure for businesses that employ and/or assign healthcare personnel to provide healthcare services on-site at hospitals and other healthcare
facilities. We hold a Nursing Pool License in those jurisdictions in which we do business that require such licenses, which are Connecticut, Delaware, the District of Columbia, Florida, Illinois,
Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Jersey, Nevada, North Carolina, Rhode Island, Tennessee, Texas and Washington.

Most
of our temporary healthcare professionals are required to be individually licensed or certified under applicable state laws. We take reasonable steps to ensure that our
professionals possess all necessary licenses and certifications in all material respects. These steps include: employee must present

6

---

original
version of state issued license; we validate employee's identity through government issued photo identification; we call or verify online employee's license with the applicable state board
prior to assignment; and, a copy of the license is maintained in the employee's personnel file and expiration dates are monitored through our MSN HealthWorks platform.

Seasonality

Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences
for destinations by our temporary
healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients
are located in areas, particularly Florida, that experience seasonal fluctuations in population, during the winter and summer months. These facilities adjust their staffing levels to accommodate the
change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

Historically,
the number of temporary healthcare professionals on assignment has increased from December through March followed by declines or minimal growth from April through November.
This pattern may or may not continue in the future. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter
or for any year.

Employees

As of December 28, 2003, we employed 1,338 people in the following areas: 1,170 in branch staff, 148 in corporate office staff and 20 in regional and de
novooperations staff. In addition, during 2003 we employed over 37,000 temporary healthcare professionals. We do not have any organized labor
unions. We believe we have excellent relationships with our employees.

Generally,
our allied health professionals, per diem nurses and travel nurses are our employees. However, our certified registered nurse anesthetists and anesthesiologists are, and
before discontinuation of our physician staffing business our physicians were, independent contractors. We have not entered into any employment agreements with any of our healthcare professionals.

Available Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission. Our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge in the "Investor Relations" section of our website at www.msnhealth.com. These reports,
and any amendments to these reports, are made available on our website as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission.

In
addition, our website, www.msnhealth.com, will include, free of charge, items related to corporate governance matters, including our Corporate Governance Guidelines, charters of
various committees of our Board of Directors and our Code of Business Conduct and Ethics applicable to our employees, officers and directors. A printed copy of our Corporate Governance Guidelines and
our Code of Business Conduct and Ethics is available without charge by sending a written request to: Secretary, Medical Staffing Network Holdings, Inc., 901 Yamato Road, Suite 110, Boca Raton,
Florida 33431.

7

---

Risk Factors

There are a number of factors, including those specified below, which may adversely affect our business, financial results or stock price.
Additional risks that we do not know about or that we currently view as immaterial may also impair our business or adversely impact our financial results or stock price.

Risks Related to Our Business and Industry

If we are unable to attract qualified nurses and allied healthcare professionals for our healthcare staffing business, our business could
be negatively impacted.

We
rely significantly on our ability to attract and retain nurses and allied healthcare professionals who possess the skills, experience and licenses necessary to meet the requirements
of our hospital and healthcare facility clients. We compete for healthcare staffing personnel with other temporary healthcare staffing companies and with hospitals and healthcare facilities. We must
continually evaluate and expand our temporary healthcare professional network to keep pace with our hospital and healthcare facility clients' needs. Currently, there is a shortage of qualified nurses
in most areas of the United States, competition for nursing personnel is increasing, and salaries and benefits have risen. We may be unable to continue to increase the number of temporary healthcare
professionals that we recruit, decreasing the potential for growth of our business. Our ability to attract and retain temporary healthcare professionals depends on several factors, including our
ability to provide temporary healthcare professionals with assignments that they view as attractive and to provide them with competitive benefits and wages. We cannot assure you that we will be
successful in any of these areas. The cost of attracting temporary healthcare professionals and providing them with attractive benefits packages may be higher than we anticipate and, as a result, if
we are unable to pass these costs on to our hospital and healthcare facility clients, our profitability could decline. Moreover, if we are unable to attract and retain temporary healthcare
professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients.

Contraction of demand for our temporary nurses may continue if unemployment rates remain high or increase and hospital census levels remain lower than
projected.

Demand
for temporary nurses is currently experiencing a period of contraction. Due to the current difficult economic times, the unemployment rate is near a nine-year high,
which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is causing such nurses to seek more traditional full-time employment. Additionally,
hospitals are experiencing lower than projected census levels and are placing greater reliance on existing full-time staff, resulting in increased overtime and nurse-patient loads.
Consequently, our service revenues and gross profit margins have been under pressure. In June 2003, we completed a plan to restructure our operations by closing 29 branches. The restructuring
was in response to the current contraction in demand for our services and was necessary to adjust the infrastructure we had put in place to support multiple growth initiatives. If these industry
trends continue, our revenues and gross profit margins may decline.

We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining hospital and healthcare facility
clients and temporary healthcare professionals.

The
temporary medical staffing business is highly competitive. We compete in national, regional and local markets with full-service staffing companies and with specialized
temporary staffing agencies. Some of our competitors in the temporary nurse staffing sector include AMN Healthcare Services, Inc., Cross Country Healthcare, Inc. and InteliStaf
Healthcare, Inc. Some of these companies may have greater marketing and financial resources than we do. Competition for hospital and healthcare facility clients and temporary healthcare
professionals may increase in the future and, as a result, we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing
marketing expenditures, we could lose revenues or hospital and healthcare

8

---

facility
clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline. In addition, the development of alternative recruitment
channels could lead our hospital and healthcare facility clients to bypass our services, which would also cause our revenues and margins to decline.

Our business depends upon our continued ability to secure and fill new orders from our hospital and healthcare facility clients, because we do not have
long-term agreements or exclusive contracts with them.

We
do not have long-term agreements or exclusive guaranteed order contracts with our hospital and healthcare facility clients. The success of our business depends upon our
ability to
continually secure new orders from hospitals and other healthcare facilities and to fill those orders with our temporary healthcare professionals. Our hospital and healthcare facility clients are free
to place orders with our competitors and may choose to use temporary healthcare professionals that our competitors offer them. Therefore, we must maintain positive relationships with our hospital and
healthcare facility clients. If we fail to maintain positive relationships with our hospital and healthcare facility clients, we may be unable to generate new temporary healthcare professional orders
and our business may be adversely affected.

Reacting
to concerns over agency utilization in prior years, hospitals and other healthcare facilities have devised strategies to reduce agency expenditure and limit overall agency
utilization. If current pressures to control agency usage continue and escalate, we will have fewer business opportunities, which could harm our business.

An important part of our long-term strategy is the expansion of market share of our business through the opening and development of de novo branches
and the expansion of the service areas of our existing branches. The success of this expansion depends on our ability to continue to identify and retain local management and to secure good
locations.

Since
our founding in 1998, we have opened manyde novobranches. This expansion activity contributed substantially to our operating
results and has been an important part of our business strategy. Our ability to opende novobranches depends on a number of factors, including
identifying, attracting and retaining local management and securing good locations on acceptable terms. In 2003, we opened fivede novobranches as
compared to 40 for 2002. If our ability to opende novobranches or the ability to expand the service areas of our existing branches is impaired, our
revenue growth may be adversely affected. In addition, if our existingde novobranches do not develop as quickly as we anticipate, or if we fail to
integratede novobranches effectively into our national network, our results of operations and cash flows may be adversely affected.

Fluctuations in patient occupancy at our hospital and healthcare facility clients may adversely affect the demand for our services and therefore the profitability
of our business.

Demand
for our temporary healthcare staffing services is significantly affected by the general level of patient occupancy at our hospital and healthcare facility clients. When occupancy
increases, hospitals and other healthcare facilities often add temporary employees before full-time employees are hired. As occupancy decreases, hospitals and other healthcare facilities
typically reduce their use of temporary employees before undertaking layoffs of their regular employees. In addition, we may experience more competitive pricing pressure during periods of occupancy
downturn. Occupancy at our hospital and healthcare facility clients also fluctuates due to the seasonality of some elective procedures. We are unable to predict the level of patient occupancy at any
particular time and its effect on our revenues and earnings.

Healthcare reform could negatively impact our business opportunities, revenues and margins.

The
U.S. government has undertaken efforts to control increasing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and drug companies.
In

9

---

the
recent past, the U.S. Congress has considered several comprehensive healthcare reform proposals. The proposals were generally intended to expand healthcare coverage for the uninsured and reduce
the growth of total healthcare expenditures. While the U.S. Congress did not adopt any comprehensive reform proposals, members of Congress may raise similar proposals in the future. If any of these
proposals are approved, hospitals and other healthcare facilities may react by spending less on healthcare staffing, including nurses. If this were to occur, we would have fewer business
opportunities, which could seriously harm our business.

State
governments have also attempted to control increasing healthcare costs. For example, the state of Massachusetts has implemented a regulation that limits the hourly rate payable to
temporary nursing agencies for registered nurses, licensed practical nurses and certified nurses' aides. The state of Minnesota has also implemented a statute that limits the amount that nursing
agencies may charge nursing homes. Other states have also proposed legislation that would limit the amounts that temporary staffing companies may charge. Any such current or proposed laws could
seriously harm our business, revenues and margins.

Furthermore,
third party payors, such as health maintenance organizations, increasingly challenge the prices charged for medical care. Failure by hospitals and other healthcare
facilities to obtain full reimbursement from those third party payors could reduce the demand or the price paid for our staffing services.

There
is a growing trend to restrict mandatory healthcare worker overtime requirements by employers and to establish nurse-patient ratios. The state of California has already enacted
such legislation and several other states have similar legislation pending. This legislation could ultimately have a potential positive or negative impact on our business.

We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our
revenues and profitability.

The
healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, payment for services and
payment for referrals. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or
cease and desist orders.

The
extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs,
could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare facility clients could suffer civil and/or criminal penalties and/or be excluded from
participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses. In addition, our hospital and healthcare facility
clients could receive reduced reimbursements, or be excluded from coverage, because of a change in the rates or conditions set by federal or state governments. In turn, violations of or changes to
these laws and regulations that adversely affect our hospital and healthcare facility clients could also adversely affect the prices that these clients are willing or able to pay for our services.



Our company is dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations
identify and match staffing resources and client assignments and regulatory credentialing scheduling and perform billing and accounts receivable functions. Our information systems are vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. If our information systems fail or are otherwise unavailable, these
functions would have to be accomplished manually, which could impact

10

---

our
ability to identify business opportunities quickly, maintain billing and clinical records reliably, pay our staff in a timely fashion and bill for services efficiently.

Competition for acquisition opportunities may restrict our future growth by limiting our ability to make acquisitions at reasonable
valuations.

Since
our founding in 1998, we have completed 26 acquisitions. Our business strategy includes increasing our market share and presence in the temporary healthcare staffing industry
through strategic acquisitions of companies that complement or enhance our business. We have historically faced competition for acquisitions. In the future, this could limit our ability to grow by
acquisitions or could raise the prices of acquisitions and make them less accretive to us. In addition, restrictive covenants in our credit facility, including a covenant that requires us to obtain
the approval of our lenders for any acquisition with a purchase price over $3 million, may limit our ability to complete desirable acquisitions. If we are unable to secure necessary financing
under our credit facility or otherwise, we may be unable to complete desirable acquisitions.

We may face difficulties integrating our acquisitions into our operations and our acquisitions may be unsuccessful, involve significant cash expenditures or
expose us to unforeseen liabilities.

We
continually evaluate opportunities to acquire healthcare staffing companies that complement or enhance our business and frequently have preliminary acquisition discussions with some
of these companies.

These
acquisitions involve numerous risks, including:



These
acquisitions may also involve significant cash expenditures, debt incurrence and integration expenses that could seriously harm our financial condition and results of operations.
Any acquisition may ultimately have a negative impact on our business and financial condition.



On December 22, 2003, we entered into a new credit facility, consisting of a three-year $65 million asset-based revolving credit
facility and a two-year $17 million term note. Our ability to borrow under the new credit facility is based upon, and thereby limited by, the amount of our accounts receivable. Any
material deterioration in our service revenues could reduce our borrowing base, which could cause us to lose our ability to borrow additional amounts under the new credit facility. In such a
circumstance, the borrowing availability under the new credit facility may not be sufficient for our capital needs.

11

---

Significant legal actions could subject us to substantial uninsured liabilities.

In
recent years, healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these
actions involve large claims and significant defense costs. In addition, we may be subject to claims related to torts or crimes committed by our employees or temporary healthcare professionals. In
some instances, we are required to indemnify our clients against some or all of these risks. A failure of any of our employees or healthcare professionals to observe our policies and guidelines
intended to reduce these risks, relevant client policies and guidelines or applicable federal, state or local laws, rules and regulations could result in negative publicity, payment of fines or other
damages. Our professional malpractice liability insurance and general liability insurance coverage may not cover all claims against us or continue to be available to us at a reasonable cost. If we are
unable to maintain adequate insurance coverage or if our insurers deny coverage we may be exposed to substantial liabilities.

We may be legally liable for damages resulting from our hospital and healthcare facility clients' mistreatment of our healthcare
personnel.

Because
we are in the business of placing our temporary healthcare professionals in the workplaces of other companies, we are subject to possible claims by our temporary healthcare
professionals alleging discrimination, sexual harassment, negligence and other similar activities by our hospital and healthcare facility clients. The cost of defending such claims, even if
groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain qualified healthcare professionals in the future.

If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.

We
provide workers compensation coverage through a program that is partially self-insured. In addition, we provide medical coverage to our employees through a partially
self-insured preferred provider organization. If we become subject to substantial uninsured workers compensation or medical coverage liabilities, our financial results may be adversely
affected.

Our operations may deteriorate if we are unable to continue to attract, develop and retain our sales personnel.

Our
success depends upon the performance of our sales personnel, especially regional directors, branch managers and staffing coordinators. The number of individuals who meet our
qualifications for these positions is limited and we may experience difficulty in attracting qualified candidates. In addition, we commit substantial resources to the training, development and support
of these individuals. Competition for qualified sales personnel in the line of business in which we operate is strong and there is a risk that we may not be able to retain our sales personnel after we
have expended the time and expense to recruit and train them.

The loss of key senior management personnel could adversely affect our ability to remain competitive.

We
believe that the success of our business strategy and our ability to operate profitably depends on the continued employment of our senior management team, consisting of Robert J.
Adamson, Kevin S. Little, Greg Guckes, Patricia G. Donohoe, Lynne Stacy, Judy Johnson, Jan Casford and Pat Layton. If any members of our senior management team become unable or unwilling to continue
in their present positions, our business and financial results could be materially adversely affected.

12

---

We have a substantial amount of goodwill on our balance sheet. Our level of goodwill may have the effect of decreasing our earnings or increasing our
losses.

As
of December 28, 2003, we had $125 million of goodwill, net on our balance sheet, which represents the excess of the total purchase price of our acquisitions over the
fair value of the net assets acquired. At December 28, 2003, goodwill represented approximately 55% of our total assets.

Historically,
we amortized goodwill on a straight-line basis over the estimated period of future benefit of 20 years. In July 2001, the Financial Accounting
Standards Board issued SFAS No. 141,Business Combinations, and SFAS No. 142,Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase
method business combinations completed after June 30, 2001. SFAS No. 142 requires that, subsequent to January 1, 2002, goodwill not be amortized but rather that it be reviewed
annually for impairment. In the event impairment is identified, a charge to earnings would be recorded. We have adopted the provisions of SFAS No. 141 and SFAS No. 142 as of
December 31, 2001. Although it does not affect our cash flow, amortization of goodwill or an impairment charge to earnings has the effect of decreasing our earnings or increasing our losses, as
the case may be. If we are required to amortize a substantial amount of goodwill or take a charge to earnings, our stock price could be adversely affected.

Our costs of providing housing for nurses and other healthcare personnel in our travel business may be higher than we anticipate and, as a result, our margins
could decline.

We
currently have approximately 200 apartments on lease throughout the United States. If the costs of renting apartments and furniture for our nurses and other healthcare personnel
increase more than we anticipate and we are unable to pass such increases on to our clients, our margins may decline. To the extent the length of a nurse's or other professional's housing lease
exceeds the term of the nurse's or other professional's staffing contract, we bear the risk that we will be obligated to pay rent for housing we do not use. To limit the costs of unutilized housing,
we try to secure leases with term lengths that match the term lengths of our staffing contracts, which typically last 13 weeks. In some housing markets we have had, and believe we will continue to
have, difficulty identifying short-term leases. If we cannot identify a sufficient number of appropriate short-term leases in regional markets, or if, for any reason, we are
unable to efficiently utilize the apartments we do lease, we may be required to pay rent for unutilized housing or, to avoid such risk, we may forego otherwise profitable opportunities.

Demand for medical staffing services is significantly affected by the general level of economic activity and unemployment in the United
States.

When
economic activity increases, temporary employees are often added before full-time employees are hired. However, as economic activity slows, many companies, including our
hospital and healthcare facility clients, reduce their use of temporary employees before laying off full-time employees. In addition, we may experience more competitive pricing pressure
during periods of economic downturn. Therefore, any significant economic downturn could have a material adverse impact on our condition and results of operations.

Our executive officers, directors and significant stockholders will be able to influence matters requiring stockholder approval and could discourage the purchase
of our outstanding shares at a premium.

Our
executive officers and directors (including stockholders with which directors are affiliated) control approximately 62% of our outstanding common stock. Warburg Pincus Private Equity
Fund VIII, L.P., a Delaware limited partnership (Warburg Pincus), owns approximately 46% of our common stock. This concentration of ownership may have the effect of delaying, preventing or deterring a
change in control of our company, could deprive our stockholders of an opportunity to receive a

13

---

premium
for their common stock as part of a sale or merger of our company and may negatively affect the market price of our common stock. These transactions might include proxy contests, tender
offers, mergers or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our common
stock.

Warburg
Pincus has the right under our stockholders agreement to designate two persons to our Board of Directors. As a result of this share ownership and minority representation on our
Board of Directors, our current stockholders, in particular Warburg Pincus, will be able to influence all affairs and actions of our company, including matters requiring stockholder approval such as
the election of directors and approval of significant corporate transactions. The interests of our executive officers, directors and principal stockholders may differ from the interests of the other
stockholders.

Warburg
Pincus and certain significant stockholders have demand registration rights to cause us to file, at any time and at our expense, a registration statement under the Securities Act
covering resales of their shares. These shares represent approximately 46% of our outstanding common stock, or approximately 14.0 million shares. These shares may also be sold under
Rule 144 of the Securities Act, depending on their holding period and subject to significant restrictions in the case of shares held by persons deemed to be our affiliates.

If provisions in our corporate documents and Delaware law delay or prevent a change in control of our company, we may be unable to consummate a transaction that
our stockholders consider favorable.

Provisions
in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example,
our certificate of incorporation authorizes our Board of Directors to issue up to 15 million shares of "blank check" preferred stock. Without stockholder approval, the Board of Directors has
the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to
acquire us. Applicable Delaware law may also discourage, delay or prevent someone from acquiring or merging with us.

Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

With
the current uncertainty about healthcare policy, reimbursement and coverage in the United States, there has been significant volatility in the market price and trading volume of
securities of healthcare and other companies, which is unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common
stock.

Some
specific factors that may have a significant effect on our common stock market price include:



14

---



Item 2. Properties

Our U.S. corporate headquarters is located in Boca Raton, Florida and has an aggregate of 50,000 square feet. We operate on a national basis with a presence in 43
states and over 140 locations as of December 28, 2003. The facilities at our headquarters and at each of our locations are leased. The lease to our headquarters expires in 2013. We believe that
our properties are adequate for our current needs. In addition, we believe that adequate space can be obtained to meet our foreseeable business needs. With the exception of our corporate headquarters,
we have no material operating leases.

Item 3. Legal Proceedings

On February 20, 2004, Joseph and Patricia Marrari filed a class action lawsuit against Medical Staffing Network in the United States District Court of the
Southern District of Florida, on behalf of themselves and purchasers of our common stock pursuant to or traceable to our initial public offering in April 2002. The lawsuit also named as
defendants certain of our directors and executive officers. The complaint alleges that certain disclosures in the Registration Statement/Prospectus filed in connection with our initial public offering
on April 17, 2002 were materially false and misleading in violation of Sections 11 and 15 of the Securities Act of 1933. The complaint seeks compensatory damages as well as costs and
attorney fees.

On
March 3, 2004, another class action complaint was filed by Jerome Gould against Medical Staffing Network and certain of our directors and executive officers in the United
States District Court for the Southern District of Florida, individually and on behalf of a class of Medical Staffing Network's stockholders who purchased stock during the period from April 18,
2002 through June 16, 2003. The complaint alleges that certain of our public disclosures during the class period were materially false and misleading in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint also seeks compensatory damages, costs and attorney fees.

We
believe that these two class action lawsuits are without merit and intend to vigorously defend this litigation.

From
time to time, we are subject to lawsuits and claims that arise out of our operations in the normal course of business. We are plaintiffs or defendants in various litigation matters
in the ordinary course of business, some of which involve claims for damages that are substantial in amount. We believe that the disposition of claims currently pending will not have a material
adverse effect on our financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 28, 2003.

15

---



PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share of our common stock, as reported by the New York Stock
Exchange (NYSE).

Year Ended December 28, 2003YearHigh

Low2002First Quarter

$


$
Second Quarter (from April 17, 2002)

$
29.75

$
21.00Third Quarter

$
24.47

$
12.15Fourth Quarter

$
17.00

$
9.252003First Quarter

$
18.04

$
8.40Second Quarter

$
10.80

$
6.78Third Quarter

$
9.28

$
6.88Fourth Quarter

$
10.65

$
7.35


Our
common stock has traded on the NYSE under the symbol "MRN" since our initial public offering on April 17, 2002. Prior to that time, there was no public trading market for our
common stock.

As
of December 28, 2003, there were approximately 24 holders of record of our common stock, which numbers do not reflect stockholders who beneficially own common stock held in
nominee or street name.

We
have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do
not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. Except as otherwise restricted by our current senior credit facility, any payment of cash dividends on
our common stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed
relevant by our Board of Directors. Our current senior credit facility prohibits us and our subsidiaries from declaring or paying any dividends or any other distributions without the consent of
lenders holding more than 50% of the loans under the facility (or if a single lender holds more then 50% of the loans under the facility, the consent of that lender and at least one other lender is
required), except that we and our subsidiaries may pay dividends or make other distributions to each other, except further that our operating subsidiary may pay dividends or make other distributions
to us to be used to pay our operating expenses in an amount up to $500,000 in the aggregate in any fiscal year.

We
did not repurchase any shares of our common stock during the fourth quarter of the fiscal year ended December 28, 2003.

Item 6. Selected Financial Data

The selected Consolidated Statement of Income data for the years ended December 28, 2003, December 29, 2002 and December 30, 2001 and the
selected Consolidated Balance Sheet data as of December 28, 2003 and December 29, 2002 are derived from our audited consolidated financial statements included elsewhere in this annual
report. The selected Consolidated Statement of Income data for the years ended December 31, 2000 and 1999 and the selected Consolidated Balance Sheet data as of December 30, 2001,
December 31, 2000 and 1999 are derived from our audited consolidated financial statements not included in this annual report. Certain reclassifications have been made to prior year amounts to
conform to the 2003 presentation.

16

---

In
the following tables, we provide you with select consolidated financial data and other operating information of Medical Staffing Network which should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and accompanying notes included in this annual report.

|                                                                    |         | Fiscal Years Ended |        
|------------------------------------------------------------------- | ------- | ------------------ | -------
|
|
|Consolidated Statement of Income Data:                              |         |                    |        
|Service revenues(1)                                                 |         | $                  | 512,985
|Cost of services rendered(1)                                        |         |                    | 398,224
|                                                                    |         |                    |        
|Gross profit                                                        |         |                    | 114,761
|Selling, general and administrative expenses(2)                     |         |                    | 78,771 
|Corporate and administrative expenses                               |         |                    | 11,748 
|Depreciation and amortization expenses(3)                           |         |                    | 6,773  
|Recapitalization expenses(4)                                        |         |                    |       
|                                                                    |         |                    |        
|Income from operations                                              |         |                    | 17,469 
|Loss on early extinguishment of debt(5)                             |         |                    | 3,555  
|Interest expense, net                                               |         |                    | 4,685  
|                                                                    |         |                    |        
|Income from continuing operations before provision for income taxes |         |                    | 9,229  
|Provision for income taxes                                          |         |                    | 3,708  
|                                                                    |         |                    |        
|Income (loss) from continuing operations                            |         |                    | 5,521  
|Income (loss) from discontinued operations, net of taxes            |         |                    | (506   
|                                                                    |         |                    |        
|Net income (loss)                                                   |         |                    | 5,015  
|Deduct required dividends on convertible preferred stock(6)         |         |                    |       
|                                                                    |         |                    |        
|Income (loss) available to common stockholders                      |         | $                  | 5,015  
|                                                                    |         |                    |        
|Income (loss) per sharebasic:                                      |         |                    |        
|Income (loss) from continuing operations                            |         | $                  | 0.18   
|Discontinued operations, net of taxes                               |         |                    | (0.01  
|                                                                    |         |                    |        
|Basic net income (loss) per share                                   |         | $                  | 0.17   
|                                                                    |         |                    |        
|Income (loss) per sharediluted:                                    |         |                    |        
|Income (loss) from continuing operations                            |         | $                  | 0.18   
|Discontinued operations, net of taxes                               |         |                    | (0.02  
|                                                                    |         |                    |        
|Diluted net income (loss) per share                                 |         | $                  | 0.16   
|                                                                    |         |                    |        
|Weighted average common shares outstanding:                         |         |                    |        
|                                                                    | Basic   |                    |        
|                                                                    | Diluted |                    |        
|Other Operating Data:                                               |         |                    |        
|Number of per diem branches at year end                             |         |                    | 146    
|Cash flows provided by (used in) operating activities               |         | $                  | 36,719 
|Cash flows used in investing activities                             |         | $                  | (15,432
|Cash flows (used in) provided by financing activities               |         | $                  | (25,057

17

---

|                                                 |  | As of Fiscal Years Ended
|------------------------------------------------ |  | ------------------------
|
|
|Balance Sheet Data:                              |  |                         
|Cash and cash equivalents                        |  | $                       
|Total assets                                     |  |                         
|Total liabilities and redeemable preferred stock |  |                         
|Total common stockholders' equity (deficit)      |  |                         

---

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management's discussion and analysis of financial condition and results of operations is provided as a supplement to our consolidated financial statements and
accompanying notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:



18

---



Overview

Business Description

We are a leading healthcare staffing company and the largest provider of per diem nurse staffing services in the United States as measured by revenues. More than
two-thirds of our clients are acute care hospitals, clinics and surgical and ambulatory care centers. We serve both for-profit and not-for-profit
organizations that range in scope from one facility to national chains with over 100 facilities. Our clients pay us directly. We do not receive a material portion of our revenues from Medicare or
Medicaid reimbursements or similar state reimbursement programs. All of our revenues are derived from providing healthcare staffing services. Approximately 72% of our 2003 revenues were derived from
per diem nurse staffing, while allied healthcare professional staffing represented 17% of our 2003 revenues, and travel nurse staffing (assignments lasting more than four weeks) represented 11% of our
2003 revenues. In the second quarter of 2003, we discontinued our physician staffing and have reported the results separately as discontinued operations, net of taxes. Our 7% growth in revenue for
2003 was primarily the result of growth from acquisitions of 15%, partially offset by an organic decline of 8%.

Industry Trends

Service revenues and gross profit margins have been under pressure as demand for temporary nurses is currently going through a period of contraction. Due to the
current difficult economic times, the unemployment rate is near a nine-year high, which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is
causing such nurses to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected census levels and are placing greater reliance on existing
full-time staff, resulting in increased overtime and nurse-patient loads.

We
cannot predict when conditions will reverse, but we are confident in the long-term growth of the industry. In a January 13, 2000 report, the U.S. Census Bureau,
Population Projections Bureau,
projected that the number of Americans over 65 years of age is expected to grow from 34.5 million in 2000 to 53.7 million in 2020. In a July 2002 report, the U.S.
Department of Health and Human Services stated that the national supply of full-time equivalent registered nurses was approximately 1.9 million while demand was approximately
2.0 million. This gap between supply and demand, for nurses, is expected to grow from 0.1 million in 2000 to 0.8 million by 2020. In conjunction with the two aforementioned
factors, as the economy rebounds, the prospects for the healthcare staffing industry should improve as hospitals experience higher census levels and increasing shortages of healthcare workers.

19

---

Acquisitions

In 2003, we purchased substantially all of the assets of one healthcare staffing company for an aggregate purchase price of $10.8 million. In 2002, we
purchased substantially all of the assets of seven healthcare staffing companies for an aggregate purchase price of $56.4 million. In 2001, we purchased substantially all of the assets of one
healthcare staffing company for an aggregate purchase price of $9.8 million. All such acquisitions were accounted for as purchases and, accordingly, the results of these acquired businesses are
included in our consolidated financial statements from the acquisition dates or the dates when we assumed substantial control.

Discontinued Operations

We discontinued our physician staffing services in the second quarter of 2003. Pursuant to the provisions of the FASB Statement of Financial Accounting Standards
(SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No. 144), results of operations are to be
classified as discontinued when the disposal of the "component of an entity" has occurred or it has met the "held for sale" criteria. As such, the total is shown separately in the line item, income
(loss) from discontinued operations, net of taxes, in our consolidated statements of income. For the year ended December 28, 2003, we had a loss from discontinued operations, net of taxes, of
approximately $0.5 million. For the years ended December 29, 2002 and December 30, 2001, we had income from discontinued operations, net of taxes, of approximately $0.1 million
and $0.3 million, respectively. Net assets of the discontinued operations were less than approximately $10,000 at December 28, 2003 and consisted solely of current assets. Net assets of
the discontinued operations were approximately $0.6 million at December 29, 2002 and were comprised of $0.7 million of current assets and $0.1 million of current
liabilities. No reclassification of current or prior year balance sheet presentation was made to reflect the net assets of the discontinued operations, due to immateriality.

Restructuring Charge

On June 16, 2003, we completed our plan to restructure our operations by closing 29 branches. The restructuring was necessary to adjust the infrastructure
we had put in place to support multiple growth initiatives and was in response to the current contraction in demand for our services. As a result, in the second quarter of 2003, we recorded a
pre-tax charge, of approximately $0.8 million,
relating to employee severance costs, branch closing costs and lease termination costs. The restructuring charge is included in selling, general and administrative expenses in our consolidated
statement of income for the year ended December 28, 2003. No amounts have been or are expected to be incurred or paid in subsequent quarters relating to this restructuring.

Loss on Early Extinguishment of Debt

In December 2003, we entered into a new credit facility. The new $82.0 million facility is comprised of a three-year
$65.0 million revolving credit facility and a two-year $17.0 million term note. Approximately $60.0 million of proceeds from the new credit facility were used to
refinance all of our existing debt and to pay financing related fees. The remaining borrowing availability will be used for working capital and general business purposes. As a result of the prepayment
of the facility, we recorded a charge of approximately $3.6 million to write off debt issuance costs associated with the extinguished facility. The charge appears in the line item loss on early
extinguishment of debt on the consolidated statement of income for the year ended December 28, 2003.

In
October 2001, we recapitalized our business. In connection with the recapitalization, we incurred approximately $165.0 million of indebtedness, approximately
$83.0 million of which was used to repay existing indebtedness. As a result of the prepayment of this facility, we recorded a pre-tax charge of approximately $4.4 million to
write off debt issuance costs associated with the facility. The charge appears in the line item loss on early extinguishment of debt on the consolidated statement of income for the year ended
December 30, 2001.

20

---

Initial Public Offering

On April 23, 2002, we completed our initial public offering of 7.8 million shares of common stock at $19.00 per share. Additionally, the
underwriters exercised the over-allotment option of 1.2 million shares, bringing the total number of shares issued to 9.0 million. Total proceeds received by us, net of
expenses related to the initial public offering were $156.3 million. The proceeds were used to repay $62.9 million of our outstanding balance under the senior unsecured notes, and
approximately $93.4 million of our outstanding loans under the senior credit facility. Immediately prior to the completion of the initial public offering, the outstanding shares of
Series I Preferred Stock were converted into 21.1 million shares of common stock.

Recapitalization

In October 2001, an investment group led by Warburg Pincus acquired majority ownership of us in a transaction that recapitalized our business. Our
recapitalization was accounted for as a leveraged recapitalization of our company and, accordingly, we have retained the historical cost basis of accounting. In connection with the recapitalization,
we incurred approximately $165.0 million of indebtedness, approximately $83.0 million of which was used to repay existing indebtedness.

Recent Accounting Pronouncements

Accounting for Business Combinations

In June 2001, the FASB issued SFAS No. 141,Business Combinations(SFAS No. 141) and SFAS
No. 142,Goodwill and Other Intangible Assets(SFAS No. 142). These standards change the accounting for business combinations by, among
other things, prohibiting the use of pooling-of-interests accounting and requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful
life. Instead, goodwill and intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. These new standards were effective for us beginning in the
first quarter of 2002 and for purchase business combinations consummated after June 30, 2001. Upon adoption of SFAS No. 142 and pursuant to its provisions, we completed our annual
impairment test and determined that there was no impairment of goodwill or other intangible assets with an indefinite life.

Financial Statement Presentation of Early Extinguishment of Debt

In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections(SFAS No. 145). SFAS No. 145 rescinds SFAS No. 4 which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result of SFAS No. 145, the criteria in APB No. 30 will now be used
to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. The provisions of SFAS No. 145 shall
be applied effective fiscal years beginning after May 15, 2002, with early application encouraged. We adopted the provisions as of December 29, 2002 and, as such, we were required to
reclassify our extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of $1.7 million, related to the October 2001 recapitalization transaction
into income from continuing operations for the year ended December 30, 2001.

Exit or Disposal Activity Costs

In June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal
Activities(SFAS No. 146), which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather
than when a commitment to an exit plan is made. It is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We adopted the
provisions of SFAS 146 as of December 30, 2002. The adoption of this new accounting standard may delay the period or periods in which any future restructuring costs are recognized.

21

---

Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of FASB Statement No. 123(SFAS No. 148). This Statement amends SFAS No. 123,Accounting for
Stock-Based Compensation(SFAS No. 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years ending after December 15,
2002 and pursuant to its provisions, we have added the required disclosures.

Revenue Classification Changes

In November 2001, the Emerging Issues Task Force (EITF) of the FASB announced EITF Topic D-103,Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred, which has subsequently been recharacterized as EITF
01-14, which is effective for financial statements beginning after December 31, 2001. EITF 01-14 requires that reimbursements received for
out-of-pocket expenses incurred, generally be characterized as revenue in the statement of income. We adopted EITF 01-14 in the quarter ended June 30, 2002.
We historically recorded reimbursements for out-of-pocket expenses as net amounts in cost of services rendered in the statement of income. In accordance with the transition
guidance included in EITF 01-14, our adoption required the reclassification of financial statements for prior
periods presented for comparative purposes. The adoption of EITF 01-14 did not affect our net income, financial position or cash flows. The reclassification resulted in an increase in both
service revenues and cost of services rendered for the year ended December 30, 2001 of $4.6 million.

Accounting for Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity(SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No. 150, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS
No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning
after June 15, 2003. There was no impact to our financial statements upon the adoption of the provisions of SFAS No. 150.

Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51(FIN No. 46). FIN No. 46 requires companies to make certain disclosures about variable interest entities (VIEs) with which it has involvement,
if it is reasonably possible that it will consolidate or disclose information about VIEs when FIN No. 46 was to have become fully effective in July 2003. The disclosure requirements are
effective to all financial statements issued after January 31, 2003. We have no VIEs so no entities have been consolidated and no additional disclosures have been provided.

In
December 2003, the FASB issued Interpretation No. 46R (FIN No. 46R), a revision to FIN No. 46. FIN No. 46R clarifies some of the provisions of FIN
No. 46 and exempts certain entities from its requirements. FIN No. 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted
FIN No. 46 prior to this effective date can continue to apply the provisions of FIN No. 46 until the effective date of FIN No. 46R. The provisions of FIN No. 46R, which
will become applicable in the first quarter of 2004, are not expected to have an impact on our consolidated financial statements.

22

---

Results of Operations

Comparison of Year Ended December 28, 2003 to Year Ended December 29, 2002

The following table sets forth, for the periods indicated, certain selected financial data (in thousands, except percentages):

|                                                                    |  | December 28, 2003 |         | December 29, 2002 |       |   |   |         | 
|------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | ----- | - | - | ------- | 
|
|
|
|Service revenues                                                    |  | $                 | 512,985 |                   | 100.0 | % | $ | 478,827 | 
|Cost of services rendered                                           |  |                   | 398,224 |                   | 77.6  |   |   | 358,394 | 
|                                                                    |  |                   |         |                   |       |   |   |         | 
|Gross profit                                                        |  |                   | 114,761 |                   | 22.4  |   |   | 120,433 | 
|Selling, general and administrative expenses(1)                     |  |                   | 78,771  |                   | 15.4  |   |   | 70,716  | 
|Corporate and administrative expenses                               |  |                   | 11,748  |                   | 2.3   |   |   | 7,386   | 
|Depreciation and amortization expenses                              |  |                   | 6,773   |                   | 1.3   |   |   | 4,486   | 
|                                                                    |  |                   |         |                   |       |   |   |         | 
|Income from operations                                              |  |                   | 17,469  |                   | 3.4   |   |   | 37,845  | 
|Loss on early extinguishment of debt                                |  |                   | 3,555   |                   | 0.7   |   |   |        | 
|Interest expense, net                                               |  |                   | 4,685   |                   | 0.9   |   |   | 7,603   | 
|                                                                    |  |                   |         |                   |       |   |   |         | 
|Income from continuing operations before provision for income taxes |  |                   | 9,229   |                   | 1.8   |   |   | 30,242  | 
|Provision for income taxes                                          |  |                   | 3,708   |                   | 0.7   |   |   | 12,400  | 
|                                                                    |  |                   |         |                   |       |   |   |         | 
|Income (loss) from continuing operations                            |  |                   | 5,521   |                   | 1.1   |   |   | 17,842  | 
|Income (loss) from discontinued operations, net of taxes            |  |                   | (506    | )                 | (0.1  | ) |   | 52      | 
|                                                                    |  |                   |         |                   |       |   |   |         | 
|Net income                                                          |  | $                 | 5,015   |                   | 1.0   |   | $ | 17,894  | 
|                                                                    |  |                   |         |                   |       |   |   |         | 

---

Service Revenues.Our service revenues for 2003 increased $34.2 million, or
7.1%, from $478.8 million in 2002 to $513.0 million in 2003. Our revenue growth for the year ended December 28, 2003 was primarily the result of acquisitions, which more than
offset an organic decline of 7.6%. The organic decline was attributable to a decrease in the number of hours worked by professionals due to the current weak demand for temporary healthcare staffing.
For the year ended December 28, 2003, we had an organic decline from our continuing branch locations of 3.2%. For the year ended December 28, 2003, price rates increased less than 1%
over the same period in 2002.

A
portion of the increase in revenues for the year ended December 28, 2003 was attributable to a $4.0 million, or 1.1% increase in our per diem nurse staffing revenues from
$366.2 million for the year ended December 29, 2002 to $370.2 million for the year ended December 28, 2003. Of the increase of $4.0 million in per diem nurse
staffing revenues, growth from acquisitions completed in 2002 and 2003 contributed $36.0 million, offset by an organic decline from continuing locations of $16.7 million, and an organic
decline of $15.3 million attributable to the locations closed in the second quarter restructuring.

The
remainder of the increase in service revenues is from our staffing divisions other than the per diem nurse staffing division, which collectively increased $30.2 million, or
26.7%, from $112.6 million for the year ended December 29, 2002 to $142.8 million for the year ended December 28, 2003. Of the increase of $30.2 million,
acquisitions completed in 2002 and 2003 contributed $34.6 million, offset by an organic decline of $4.4 million.

Cost of Services Rendered.Cost of services rendered increased $39.8 million, or 11.1%, from
$358.4 million in 2002 to $398.2 million in 2003. The increase was attributable to the increase in service

23

---

revenues
and higher compensation, benefits and insurance costs associated with our healthcare professionals.

Gross Profit.Gross profit decreased $5.6 million, or 4.7%, from $120.4 million in 2002
to $114.8 million in 2003, driven primarily by higher compensation, benefits and insurance costs associated with our healthcare professionals and other direct costs, partially offset by the
growth in service revenues. This resulted in a gross margin percentage of 22.4% for the year ended December 28, 2003, as compared to 25.2% for the year ended December 29, 2002.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased
$8.1 million, or 11.4%, from $70.7 million in 2002 to $78.8 million in 2003. As a percentage of revenue, selling, general and administrative expenses were 14.8% and 15.4% for the
years ended December 29, 2002 and December 28, 2003, respectively. The increase is primarily attributable to the restructuring initiative completed during the second quarter of 2003, the
expansion of the branch-in-branch (BiB) program prior to May 2003, and the acquisitions that the we made in the latter half of 2002 and the early portion of 2003,
partially offset by a $3.8 million pre-tax charge we took in the fourth quarter of 2002 related to a client bankruptcy.

Corporate and Administrative Expenses.Corporate and administrative expenses increased
$4.3 million, or 59.1%, from $7.4 million in 2002 to $11.7 million in 2003. The increase was primarily due to increased infrastructure associated with the aforementioned
acquisitions and expansion of the BiB program. As a percentage of revenue, corporate and administrative expenses were 1.5% and 2.3% for the years ended December 29, 2002 and December 28,
2003, respectively.

Depreciation and Amortization Expenses.Depreciation and amortization expenses increased
$2.3 million, or 51.0%, from $4.5 million in 2002 to $6.8 million in 2003. The increase was attributable to an increase in depreciation expense of $2.0 million related to
depreciation on fixed asset additions and an increase in amortization expense of $0.3 million related to certain intangibles acquired in acquisitions.

Income from Operations.As a result of the above, income from operations decreased
$20.3 million, or 53.8%, from $37.8 million in 2002 to $17.5 million in 2003. As a percentage of revenue, income from operations was 7.9% and 3.4% for the years ended
December 29, 2002 and December 28, 2003, respectively.

Loss on Early Extinguishment of Debt.There was a loss on early extinguishment of debt of
$3.6 million in 2003 due to the December 2003 refinancing. There was no loss from the early extinguishment of debt in 2002.

Interest Expense, Net.Net interest expense decreased $2.9 million, or 38.4%, from
$7.6 million in 2002 to $4.7 million in 2003. The decrease was attributable to lower average debt levels and lower interest rates for the year ended December 28, 2003 as compared
to the comparable period of 2002. The average debt balance decreased as the proceeds from our initial public offering, which was completed on April 23, 2002, was used to pay down a portion of
our outstanding debt.

Income from Continuing Operations Before Provision for Income Taxes.As a result of the above, income
from continuing operations before provision for income taxes decreased $21.0 million, or 69.5%, from $30.2 million in 2002 to $9.2 million in 2003.

Provision for Income Taxes.Our provision for income taxes was $12.4 million in 2002 and
$3.7 million in 2003 representing effective tax rates of 41.0% in 2002 and 40.2% in 2003. The decrease in our effective tax rate is attributable to lower expected state tax expense.

24

---

Income (Loss) from Continuing Operations.As a result of the above, income (loss) from continuing
operations decreased $12.3 million, or 69.1%, from income of $17.8 million in 2002 to $5.5 million in 2003.

Income (Loss) from Discontinued Operations, Net of Taxes.Income (loss) from discontinued operations
was income of $0.1 million in 2002 and a loss of $0.5 million in 2003.

Net Income.As a result of the above, net income decreased $12.9 million from
$17.9 million in 2002 to $5.0 million in 2003.

Comparison of Year Ended December 29, 2002 to Year Ended December 30, 2001

The following table sets forth, for the periods indicated, certain selected financial data (in thousands, except percentages):

|                                                                    |  | December 29, 2002 |         | December 30, 2001(1) |       |   |   |         |  
|------------------------------------------------------------------- |  | ----------------- | ------- | -------------------- | ----- | - | - | ------- | -
|
|
|
|Service revenues                                                    |  | $                 | 478,827 |                      | 100.0 | % | $ | 338,229 |  
|Cost of services rendered                                           |  |                   | 358,394 |                      | 74.8  |   |   | 253,139 |  
|                                                                    |  |                   |         |                      |       |   |   |         |  
|Gross profit                                                        |  |                   | 120,433 |                      | 25.2  |   |   | 85,090  |  
|Selling, general and administrative expenses(2)                     |  |                   | 70,716  |                      | 14.8  |   |   | 46,793  |  
|Corporate and administrative expenses                               |  |                   | 7,386   |                      | 1.5   |   |   | 6,428   |  
|Depreciation and amortization expenses                              |  |                   | 4,486   |                      | 1.0   |   |   | 5,870   |  
|Recapitalization expenses                                           |  |                   |        |                      |      |   |   | 7,160   |  
|                                                                    |  |                   |         |                      |       |   |   |         |  
|Income from operations                                              |  |                   | 37,845  |                      | 7.9   |   |   | 18,839  |  
|Loss on early extinguishment of debt                                |  |                   |        |                      |      |   |   | 4,380   |  
|Interest expense, net                                               |  |                   | 7,603   |                      | 1.6   |   |   | 14,312  |  
|                                                                    |  |                   |         |                      |       |   |   |         |  
|Income from continuing operations before provision for income taxes |  |                   | 30,242  |                      | 6.3   |   |   | 147     |  
|Provision for income taxes                                          |  |                   | 12,400  |                      | 2.6   |   |   | 1,794   |  
|                                                                    |  |                   |         |                      |       |   |   |         |  
|Income (loss) from continuing operations                            |  |                   | 17,842  |                      | 3.7   |   |   | (1,647  | )
|Income from discontinued operations, net of taxes                   |  |                   | 52      |                      |      |   |   | 341     |  
|                                                                    |  |                   |         |                      |       |   |   |         |  
|Net income (loss)                                                   |  | $                 | 17,894  |                      | 3.7   |   | $ | (1,306  | )
|                                                                    |  |                   |         |                      |       |   |   |         |  

---

Service Revenues.Our service revenues for 2002 increased $140.6 million, or
41.6%, from $338.2 million in 2001 to $478.8 million in 2002. Approximately 82% of our revenue growth in 2002 was organic and was the result of increased volume and a favorable shift in
mix with the balance the result of acquisitions and increased pricing. In 2002, price rates increased approximately 5% over 2001 rates. The majority of the increase in revenues in 2002 was
attributable to a $113.0 million increase in our per diem nurse staffing revenues from $253.2 million in 2001 to $366.2 million in 2002.

25

---

De novobranches opened in 2001 contributed $69.0 million of the increase in revenues andde
novobranches opened in 2002 contributed $7.2 million of the increase. Acquisitions completed in 2001 contributed $9.3 million of the increase in revenues and
acquisitions in 2002 contributed $15.0 million of the increase. The balance of the 2002 per diem nurse staffing revenue growth came from a $12.5 million increase in the revenue of
branches opened prior to 2001.

Service
revenues from our staffing divisions other than the per diem nurse staffing division collectively increased $27.6 million, or 32.5%, from $85.0 million in 2001 to
$112.6 million in 2002. The growth in 2002 came from organic growth.

Cost of Services Rendered.Cost of services rendered increased $105.3 million, or 41.6%, from
$253.1 million in 2001 to $358.4 million in 2002. The increase was attributable to the increase in service revenues.

Gross Profit.Gross profit increased $35.3 million, or 41.5%, from $85.1 million in
2001 to $120.4 million in 2002, representing gross margin percentages of 25.2% in both 2001 and 2002.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased
$23.9 million, or 51.1%, from $46.8 million in 2001 to $70.7 million in 2002. As a percentage of revenue, selling, general and administrative expenses were 13.8% and 14.8% for the
years ended December 30, 2001 and December 29, 2002, respectively. The increase is primarily attributable to a $3.8 million pretax charge we took in the fourth quarter of 2002
related to a client bankruptcy and expenses required to establish the infrastructure for ourde novobranches opened in 2002, which were partially
offset by the continued growth and maturation ofde novobranches opened in 2001 and earlier.

Corporate and Administrative Expenses.Corporate and administrative expenses increased
$1.0 million, or 14.9%, from $6.4 million in 2001 to $7.4 million in 2002. As a percentage of revenue, corporate and administrative expenses were 1.9% and 1.5% for the years ended
December 30, 2001 and December 29, 2002, respectively. The decrease as a percentage of revenue was a result of increased operating leverage. The decrease occurred despite significant
expansion of the corporate infrastructure required to sustain the rapid growth of the business.

Depreciation and Amortization Expenses.Depreciation and amortization expenses decreased
$1.4 million, or 23.6%, from $5.9 million in 2001 to $4.5 million in 2002. The decrease was primarily due to the
adoption of SFAS No. 142. Pursuant to the provisions of SFAS No. 142, goodwill or intangible assets with an indefinite life are no longer amortized after December 30, 2001. The
decrease was partially offset by an increase in depreciation expense related to depreciation on fixed asset additions.

Recapitalization Expenses.There were no recapitalization expenses for 2002 as compared to
$7.2 million from 2001, which were comprised of non-capitalizable costs incurred in conjunction with our recapitalization in October 2001. The recapitalization was accounted
for as a leveraged recapitalization and, accordingly, we retained the historical cost basis of accounting.

Income from Operations.As a result of the above, income from operations increased
$19.0 million, or 100.9%, from $18.8 million in 2001 to $37.8 million in 2002. As a percentage of revenue, income from operations was 5.6% and 7.9% for the years ended
December 30, 2001 and December 29, 2002, respectively.

Loss on Early Extinguishment of Debt.There was no loss from the early extinguishment of debt in
2002. In 2001, loss on early extinguishment of debt of $4.4 million was attributable to the write off of

26

---

deferred
financing costs and note discounts associated with the debt that was repaid in conjunction with our October 2001 recapitalization. Pursuant to the provisions of SFAS No. 145,
which we adopted as of December 29, 2002, we were required to reclassify our extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of
$1.7 million, into income from continuing operations.

Interest Expense, Net.Net interest expense decreased $6.7 million, or 46.9% from
$14.3 million in 2001 to $7.6 million in 2002. The decrease was attributable to lower average debt levels in 2002 as compared to 2001.

Income from Continuing Operations Before Provision for Income Taxes.As a result of the above, income
from continuing operations before provision for income taxes increased $30.1 million, or 20,472.8%, from $0.1 million in 2001 to $30.2 million in 2002.

Provision for Income Taxes.Our provision for income taxes was $1.7 million in 2001 and
$12.4 million in 2002 representing effective tax rates of 1,220.4% in 2001 and 41.0% in 2002. The decrease in the effective rate is due to a certain percentage of our 2001 recapitalization
expenses being nondeductible for tax purposes.

Income (Loss) from Continuing Operations.As a result of the above, income (loss) from continuing
operations increased $19.4 million, or 1,183.3%, from a loss of $1.6 million in 2001 to income of $17.8 million in 2002.

Income from Discontinued Operations, Net of Taxes.Income (loss) from discontinued operations was
$0.3 million in 2001 and $0.1 million in 2002.

Net Income (Loss).As a result of the above, net income increased $19.2 million from a net
loss of $1.3 million in 2001 to net income of $17.9 million in 2002.

Unaudited Quarterly Results of Operations

The following table presents a summary of our unaudited quarterly operating results for each of the four quarters in 2003 and 2002. We derived this information
from unaudited interim financial statements that have been prepared on a basis consistent with the financial statements contained elsewhere in this annual report and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with our

27

---

audited
financial statements and accompanying notes. The operating results for any quarter are not necessarily indicative of results for any future period.

|                                                                                          |                                                 | Quarters Ended
|----------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------
|
|Service revenues                                                                          |                                                 | $             
|Cost of services rendered                                                                 |                                                 |               
|Gross profit                                                                              |                                                 |               
|Operating Expenses:                                                                       |                                                 |               
|                                                                                          | Selling, general and administrative expenses(1) |               
|                                                                                          | Corporate and administrative expenses           |               
|                                                                                          | Depreciation and amortization expenses          |               
|Income from operations                                                                    |                                                 |               
|Income (loss) from continuing operations before provision for (benefit from) income taxes |                                                 |               
|Income (loss) from continuing operations                                                  |                                                 |               
|Income (loss) from discontinued operations, net of taxes                                  |                                                 |               
|Net income (loss)                                                                         |                                                 |               
|Income (loss) per share  basic:                                                          |                                                 |               
|Income (loss) from continuing operations                                                  |                                                 |               
|Discontinued operations, net of taxes                                                     |                                                 |               
|Basic net income (loss) per share                                                         |                                                 |               
|Income (loss) per share  diluted:                                                        |                                                 |               
|Income (loss) from continuing operations                                                  |                                                 |               
|Discontinued operations, net of taxes                                                     |                                                 |               
|Diluted net income (loss) per share                                                       |                                                 |               

---

Seasonality

Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences
for destinations by our temporary healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our
hospital and healthcare facility clients are located in areas, particularly Florida, that experience seasonal fluctuations in population, during the winter and summer months. These facilities adjust
their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

28

---

Historically,
the number of temporary healthcare professionals on assignment has increased from December through March followed by declines or minimal growth from April through November.
This trend may or may not continue in the future. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or
for any year.

Liquidity and Capital Resources

Discussion on Liquidity and Capital Resources

We fund our cash needs through various equity and debt issuances and through cash flow from operations. Currently, we have no commitments to make any material
capital expenditures.

At
December 28, 2003, we had cash and cash equivalents totaling $0.8 million, working capital totaling $68.5 million and unused availability under our committed
credit facility totaling $27.0 million, of which $9.3 million is immediately available for borrowing, compared to cash and cash equivalents totaling $4.6 million, working capital
totaling $81.1 million and unused capacity under our committed credit facility totaling $2.0 million at December 29, 2002. Cash provided by operating activities was
$36.7 million during the year ended December 28, 2003 compared to cash used in operating activities of $5.9 million and $1.7 million during the years ended
December 29, 2002 and December 30, 2001, respectively. Cash provided by continuing operations was $37.2 million during the year ended December 28, 2003 compared to cash
used in continuing operations of $6.0 million and $2.1 million during the years ended December 29, 2002 and December 30, 2001, respectively. Cash used by discontinued
operations was $0.5 million during the year ended December 28, 2003 as compared to cash provided by discontinued operations of $0.1 million and $0.4 million during the
years ended December 29, 2002 and December 30, 2001, respectively.

Cash
flows from operating activities were positively impacted in 2003, primarily the result of a lower accounts receivable balance due to improved collections and lower sales volume, the
closure of 29 cash using offices in the restructuring completed during the second quarter of 2003, and the opening of fewerde novobranches in 2003
(five as compared to 40 in 2002). Cash flows from operating activities were negatively impacted in 2002, due to cash required to fund ourde novobranches, partially offset by the positive impact of increased earnings. Because we rely on cash flow from operations as a source of liquidity, we are subject to the risk that a decrease in the demand
for our staffing services could have an adverse impact on our liquidity. Decreased demand for our staffing services could result from an inability to attract qualified healthcare professionals,
fluctuations in patient occupancy at our hospital and healthcare facility clients and changes in state and federal regulations relating to our business.

In
October 2001, an investment group led by Warburg Pincus acquired a majority interest in our company in a recapitalization that provided us with proceeds from new equity and
senior debt issuances totaling approximately $156.0 million and advances from a new senior credit facility totaling $105.0 million. Together, these funds were used to provide us with
working capital for operations, to retire then-outstanding debt obligations and accrued interest totaling approximately $82.0 million, as consideration for the acquisition of the
former stockholders' equity interests for approximately $173.0 million, and to pay recapitalization costs of approximately $7.2 million.

On
April 23, 2002, we completed our initial public offering of 7.8 million shares of common stock at $19.00 per share. Additionally, the underwriters exercised the
over-allotment option of 1.2 million shares, bringing the total number of shares issued to 9.0 million. Total proceeds received by us, net of expenses related to the initial
public offering were $156.3 million. The proceeds were used to repay $62.9 million of our outstanding balance under the senior unsecured notes, and approximately $93.4 million of
our outstanding loans under the senior credit facility. Immediately prior to the

29

---

completion
of the initial public offering, the outstanding shares of Series I Preferred Stock were converted into 21.1 million shares of common stock.

We
entered into a senior credit facility, in connection with our 2001 recapitalization, which consisted of a term loan arrangement and a revolving line of credit. On July 3, 2002,
we amended the terms of the senior credit facility and entered into a $25.0 million note. In accordance with the amendment, the remaining balance on the existing senior credit facility was paid
off. On October 3, 2002, we amended the terms of the senior credit facility and entered into a $65.0 million note with terms and rights identical to the previous Term A notes and reduced
the borrowing capacity of the revolving loan from $20.0 million to $15.0 million. On March 21, 2003, we amended the terms of our senior credit facility as follows: (i) Term
A notes were increased to $77.0 million (Tranche A-1) with terms and rights identical to its previous Term A notes, (ii) Tranche A-2 term loans (Tranche
A-2) provide for up to $13.0 million of borrowings prior to December 31, 2003, with a minimum initial borrowing of $5.0 million and in integral multiples of
$1.0 million thereafter. Tranche A-2 loans cannot be reborrowed once repaid, are due in October 2006 and bear interest at a variable rate based on our leverage ratio with
interest payable at least quarterly and principal payments payable quarterly commencing on March 31, 2004. The amendment did not affect the revolving loan's $15.0 million borrowing
capacity. This senior credit facility was repaid in full with the proceeds from the December 2003 refinancing, as described below.

On
December 22, 2003, we entered into a new credit facility. The new $82.0 million facility is comprised of a three-year $65.0 million revolving credit
facility and a two-year $17.0 million term note. Approximately $60.0 million of proceeds from the new credit facility were used to refinance all of our existing debt and to
pay financing related fees. Unused capacity under the revolving credit facility bears interest at 0.5% and is payable monthly. The term note is due on December 21, 2005 and bears interest at a
variable rate based on our leverage ratio (as defined) with interest payable monthly. As of December 28, 2003, there was $38.0 million outstanding under our credit facility with unused
capacity of $27.0 million, of which $9.3 million is immediately available for borrowing, and $17.0 million outstanding under our term loan.

For
the twelve months ended December 28, 2003, the weighted average interest rate for the loans under our extinguished and new credit facilities was 4.77%. As of
December 28, 2003 the blended rate for loans outstanding under our new credit facility was 5.73%.

As
the borrower under our senior credit facility, our subsidiary, Medical Staffing Network, Inc., may only pay dividends or make other distributions to us in the amount of
$500,000 in any fiscal year to pay our operating expenses. This limitation on our subsidiary's ability to distribute cash to us will limit our ability to obtain and service any additional debt at the
holding company level. In addition, our subsidiary is subject to restrictions under the senior credit facility against incurring additional indebtedness.

We
believe that our current cash balances, together with our existing credit line, other available sources of liquidity and expected cash flows from our operating activities, will be
sufficient for us to meet our current and future financial obligations, as well as to provide us with funds for working capital, anticipated capital expenditures and other needs for at least the next
twelve months. No assurance can be given, however, that this will be the case. In the longer term, we may require additional equity and debt financing to meet our working capital needs, or to fund our
acquisition activities, if any. There can be no assurance that additional financing will be available when required or, if available, will be available on satisfactory terms.

30

---

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.

Contractual Obligations

The following table reflects our significant contractual obligations and other commitments as of December 28, 2003 (in thousands):

|                           |       | Payments due by period
|-------------------------- | ----- | ----------------------
|
|Long-term debt obligations |       | $                     
|Operating leases           |       |                       
|Capital lease obligations  |       |                       
|                           |       |                       
|                           | Total |                       
|                           |       |                       

Critical Accounting Policies

In response to the Securities and Exchange Commission (SEC) Release Number 33-8040 "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies" and SEC Release Number 33-8056, "Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations," we have identified the
following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we will evaluate our estimates, including those related to asset impairment,
accruals for self-insurance and compensation and related benefits, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on the information that is
currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or
conditions. For a summary of all our significant accounting policies, including the critical accounting policies discussed below, see Note 1 to the accompanying consolidated financial
statements.

We
believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:



31

---



Caution Concerning Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed
investment disclosures. This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, operating income and cash flow. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include the
following:



32

---



Although
we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed
herein might not occur.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to interest rate risk arises principally from the variable rates associated with our credit facility. On December 28, 2003, we had borrowings
of $55.0 million under our credit facility that were subject to variable rates, with a blended rate of 5.73%. As of December 28, 2003, an adverse change of 1.0% in the interest rate of
all such borrowings outstanding would have caused us to incur an increase in interest expense of approximately $0.6 million on an annual basis. During the year ended December 29, 2002,
we were a party to an interest rate swap agreement with a notional amount of $50.0 million. Under the swap agreement, the net settlement was computed on a quarterly basis as the difference
between the 90-day LIBOR and the fixed rate of 4.34%. This resulted in a fixed interest rate on $50.0 million of borrowings under our credit facility at 4.34% effective
December 24, 2001, plus the applicable margin. The swap agreement was terminated on May 9, 2002 for approximately $0.5 million. In addition, during the year ended
December 29, 2002, there was exposure to market risk associated with our senior unsecured note which bore interest at a fixed rate. The carrying amount of the senior unsecured notes
approximated fair value as the terms of the debt were based on similar terms, maturities, and interest rates as other debt issues with similar risk factors that are not traded on quoted market prices.
Our senior unsecured notes were redeemed in full with proceeds from our initial public offering.

Foreign Currency Risk

We have no foreign currency risk as we have no revenue outside the United States and all of our revenues are in U.S. dollars.

Inflation

We do not believe that inflation has had a material effect on our results of operations in recent years and periods. There can be no assurance, however, that we
will not be adversely affected by inflation in the future.

Item 8. Financial Statements and Supplementary Data

The information required to be presented by this item is presented commencing on page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no disagreements with our independent accountants on any matter of accounting principles or practices or financial statement disclosure.

33

---

Item 9A. Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 28, 2003 was carried out by us
under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that the information required to be disclosed by us in reports
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's forms and rules. A controls system, no matter how
well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected. Subsequent to the date of the most recent evaluation of our internal controls, there were no significant changes in internal
controls or other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

34

---



PART III.

Item 10. Directors and Executive Officers of the Registrant

Information regarding our directors and executive officers is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the captions
"Board Nominees ProposalDirectors and Executive Officers", "Class III DirectorsTerm Expiring 2007", "Nominees for Class II
DirectorsTerm Expiring 2006", "Class I DirectorsTerm Expiring 2005", "Non-Director Executive Officers", "Board of Directors and
Committees", "Compliance with Section 16(a) of the Exchange Act" and "Code of Business Conduct and Ethics" and is incorporated herein by reference.

Item 11. Executive Compensation

Information regarding executive compensation is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the captions "Board Nominees
ProposalBoard of Directors and Committees", "Director Compensation," "Executive Compensation", " Employment Agreements", and "Compensation Committee
Interlocks and Insider Participation" and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management and related stockholder matters is included in our Proxy Statement for the
2004 Annual Meeting of Stockholders
under the caption "Board Nominees ProposalPrincipal Stockholders" and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the
caption "Board Nominees ProposalCertain Transactions" and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding principal accounting fees and services is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption
"Independent Public Accountants" and is incorporated herein by reference.

35

---

PART IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K







The
following Reports on Form 8-K were filed by us during the quarter ended December 28, 2003:

Report
on Form 8-K, filed on October 16, 2003, under Items 7 and 9.

Report
on Form 8-K, filed on November 6, 2003, under Items 7 and 12.

Report
on Form 8-K, filed on November 13, 2003, under Item 9.

Report
on Form 8-K, filed on December 22, 2003, under Items 7 and 9.

36

---



SIGNATURES

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

| |  | Medical Staffing Network Holdings, Inc.
| |  | ---------------------------------------
| |  | By:                                    

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

|Signature                             |  | Title                                                                                     |  | Date         
|------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | -------------
|                                      |  |                                                                                           |  |              
|/s/ROBERT J. ADAMSONRobert J. Adamson |  | Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) |  | March 5, 2004
|/s/KEVIN S. LITTLEKevin S. Little     |  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)    |  | March 5, 2004
|/s/JOEL ACKERMANJoel Ackerman         |  | Director                                                                                  |  | March 5, 2004
|/s/DAVID J. WENSTRUPDavid J. Wenstrup |  | Director                                                                                  |  | March 5, 2004
|Scott F. Hilinski                     |  | Director                                                                                  |  |              
|/s/THOMAS E. TIMBIEThomas E. Timbie   |  | Director                                                                                  |  | March 5, 2004
|/s/ANNE BOYKINAnne Boykin             |  | Director                                                                                  |  | March 5, 2004
|/s/PHILIP INCARNATIPhilip Incarnati   |  | Director                                                                                  |  | March 5, 2004

37

---



EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger, dated August 20, 2001, among Warburg Pincus Private Equity VIII, L.P., MSN Acquisition Corp., Medical Staffing Network Holdings, Inc. and certain stockholders (Incorporated by
reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                             
|2.2         |  | First Amendment to Agreement and Plan of Merger, dated October 26, 2001, among Warburg Pincus Private Equity VIII, L.P. and Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 2.2
to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                      
|2.3         |  | Asset Purchase Agreement, dated October 31, 2002, among Clinical Resource Services, Inc., Health Search International, Inc., Cheryl Rhodes, Stacey Birnbach and Medical Staffing Network, Inc. (Incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, dated November 22, 2002).                                                                  
|2.4         |  | Escrow Agreement, dated as of October 31, 2002, among Medical Staffing Network, Inc., Clinical Resource Services, Inc. and Silver, Friedman & Taft, LLP (Incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K, dated November 22, 2002).                                                                                                         
|3.1         |  | Amended and Restated Certificate of Incorporation of Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (File No. 001-31299)).                                                                                                                            
|3.2         |  | Amended and Restated Bylaws of Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002
(File No. 001-31299))                                                                                                                                                   
|4.1         |  | Registration Rights Agreement, dated October 26, 2001, among the investors listed on Schedule I to such Agreement and Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                            
|4.2         |  | Form of Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, dated April 1, 2002 (Registration Number 333-82438)).                                                                                                                                                                                                   
|10.1        |  | Stockholders Agreement, dated as of October 26, 2001, by and among Medical Staffing Network Holdings, Inc. and the investors named therein (Incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                              
|10.2       |  | Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Robert Adamson, dated August 20, 2001 (Incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                            
|10.3       |  | First Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Robert Adamson, dated October 26, 2001
(Incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                     

38

---

|10.4  |  | Second Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Robert Adamson, dated October 26,
2001 (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)). 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Kevin Little, dated August 20, 2001 (Incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                                
|10.6  |  | First Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Kevin Little, dated October 26, 2001
(Incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).    
|10.7  |  | Second Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Kevin Little, dated October 26, 2001
(Incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).   
|10.8  |  | Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Patricia Donohoe, dated August 20, 2001 (Incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                            
|10.9  |  | First Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Patricia Donohoe, dated October 26,
2001 (Incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).
|10.10 |  | Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Linda Duval, dated August 20, 2001 (Incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                                
|10.11 |  | First Amendment to the Medical Staffing Network, Inc. Amended and Restated Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Linda Duval, dated October 26, 2001
(Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).    
|10.12 |  | Termination Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Linda Duval, dated Januray 4, 2003 (filed herewith).                                                                                                                                                                                                                          
|10.13 |  | Employment Agreement among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Jeffrey Jacobsen, dated November 1, 1999 (Incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                          
|10.14 |  | Amended and Restated Stock Option Plan of Medical Staffing Network Holdings, Inc., dated February 27, 2001 (Incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-1,
dated February 8, 2002 (Registration Number 333-82438)).                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                       

39

---

|10.15 |  | Amendment No. 1 to the Amended and Restated Stock Option Plan of Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1,
dated February 8, 2002 (Registration Number 333-82438)).                                                                                                                                                                                                                                                  
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | 2001 Stock Incentive Plan of Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration
Number 333-82438)).                                                                                                                                                                                                                                                                                      
|10.17 |  | Form of Amended and Restated Executive Incentive Stock Ownership Plan of Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 10.16 to the Registrant's Registration Statement on
Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                                                                                                                                                                                         
|10.18  |  | Credit Agreement, dated as of October 26, 2001, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, LaSalle Bank, National Association, as syndication agent, Bank of America, N.A., as administrative
agent, and General Electric Capital Corporation, Barclays Bank, PLC, and Antares Capital Corporation, as co-documentation agents (Incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-1, dated
February 8, 2002 (Registration Number 333-82438)).
|10.19  |  | Amendment to Credit Agreement, dated as of April 3, 2002, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, the Subsidiaries of the Borrower identified as "Guarantors" on the signature pages
thereto, the Lenders identified on the signature pages thereto and Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (File No. 001-31299)).                    
|10.20  |  | Second Amendment to Credit Agreement, dated as of July 5, 2002, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, the Subsidiaries of the Borrower identified as "Guarantors" on the signature pages
thereto, the Lenders identified on the signature pages thereto and Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (File No. 001-31299)).              
|10.21  |  | Third Amendment to Credit Agreement, dated as of October 3, 2002, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, the Subsidiaries of the Borrower identified as "Guarantors" on the signature
pages thereto, the Lenders identified on the signature pages thereto and Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (File No. 001-31299)).            
|10.22  |  | Fourth Amendment to Credit Agreement, dated as of December 23, 2002, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, the Subsidiaries of the Borrower identified as "Guarantors" on the signature
pages thereto, the Lenders identified on the signature pages thereto and Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (File No. 001-31299)).         
|10.23  |  | Fifth Amendment to Credit Agreement, dated as of March 21, 2003, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC, the Subsidiaries of the Borrower identified as "Guarantors" on the signature
pages thereto, the Lenders identified on the signature pages thereto and Bank of America, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 2003 (File No. 001-31299)).         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

40

---

|10.24 |  | Security Agreement, dated as of October 26, 2001, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC and Bank of America, N.A., as collateral agent (Incorporated by reference to Exhibit 10.18
to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                       
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | Credit Agreement, dated December 22, 2003, among Medical Staffing Network, Inc., the other Credit Parties identified on the signature pages thereto, the Lenders identified on the signature pages thereto, General
Electric Capital Corporation, as Administrative Agent, and LaSalle Bank, National Association, as syndication agent (filed herewith).
|10.26 |  | Credit Party Pledge Agreement, dated as of October 26, 2001, among Medical Staffing Network, Inc., Medical Staffing Holdings, LLC and Bank of America, N.A., as collateral agent (Incorporated by reference to
Exhibit 10.19 to the Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).            
|10.27 |  | Holdings Pledge Agreement, dated as of October 26, 2001, among Medical Staffing Network Holdings, Inc. and Bank of America, N.A., as collateral agent (Incorporated by reference to Exhibit 10.20 to the
Registrant's Registration Statement on Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                       
|10.28 |  | Lease Agreement, dated November 22, 1999, between Fairfax Boca "92 LP and Medical Staffing Network, Inc. (Incorporated by reference to Exhibit 10.21 to the Registrant's Registration Statement on Form S-1,
dated February 8, 2002 (Registration Number 333-82438)).                                                                                    
|10.29 |  | Lease Amendment No. 1, dated July 31, 2001, between Fairfax Boca "92 LP and Medical Staffing Network, Inc. (Incorporated by reference to Exhibit 10.22 to the Registrant's Registration Statement on
Form S-1, dated February 8, 2002 (Registration Number 333-82438)).                                                                                  
|10.30 |  | License and Master Agreement, dated February 8, 2002, between Premier Computer Systems, Inc. and Medical Staffing Network Holdings, Inc. (Incorporated by reference to Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1, dated March 15, 2002 (Registration Number 333-82438)).                                                      
|21.1  |  | List of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                                                                                   
|23.1  |  | Consent of Ernst & Young LLP (filed herewith).                                                                                                                                                                                                                                                                                                           
|31.1  |  | Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                           
|31.2  |  | Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                             
|32.1  |  | Certification of Robert J. Adamson, Chief Executive Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).                                                                                                                       
|32.2  |  | Certification of Kevin S. Little, Chief Financial Officer of Medical Staffing Network Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).                                                                                                                         

---

41

---



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

Contents

|Report of Independent Certified Public Accountants                                                                                                                                        |  | F-2 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Balance Sheets as of December 28, 2003 and December 29, 2002                                                                                                                 |  | F-3 
|Consolidated Statements of Income for the years ended December 28, 2003, December 29, 2002 and December 30, 2001                                                                          |  | F-4 
|Consolidated Statements of Changes in Redeemable Preferred Stock and Common Stockholders' (Deficit) Equity for the years ended December 30, 2001, December 29, 2002 and December 28, 2003 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 28, 2003, December 29, 2002 and December 30, 2001                                                                      |  | F-8 
|Notes to Consolidated Financial Statements                                                                                                                                                |  | F-10

F-1

---



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board
of Directors and Stockholder
Medical Staffing Network Holdings, Inc.

We
have audited the accompanying consolidated balance sheets of Medical Staffing Network Holdings, Inc. and Subsidiaries (the Company) as of December 29, 2002 and
December 28, 2003, and the related consolidated statements of income, changes in redeemable preferred stock and common stockholders' equity (deficit), and cash flows for each of the three years
in the period ended December 28, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Medical Staffing Network Holdings, Inc.
and Subsidiaries at December 29, 2002 and December 28, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
December 28, 2003, in conformity with accounting principles generally accepted in the United States.

As
discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill, its method of reporting gains and losses on the early
extinguishment of debt
and its classification of reimbursements for out-of-pocket expenses during the year ended December 29, 2002, all related to the adoption of recent accounting principles.



Fort
Lauderdale, Florida
February 13, 2004, except with respect to the matters
        discussed in Note 19, as to which the date is March 3, 2004

F-2

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (thousands, except per share amounts)

|                                                                                                                                    |                                                                                                                                                  | December 28,
2003 |         | December 29,
2002 |  
|----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | ------- | ----------------- | -
|ASSETS                                                                                                                              |                                                                                                                                                  |                   |         |                   |  
|Current assets:                                                                                                                     |                                                                                                                                                  |                   |         |                   |  
|                                                                                                                                    | Cash and cash equivalents                                                                                                                        |                   | $       | 825               |  
|                                                                                                                                    | Accounts receivable, net of allowance for doubtful accounts of$1,920and $2,757 atDecember 28, 2003and December 29, 2002,
respectively            |                   |         | 68,602            |  
|                                                                                                                                    | Prepaid expenses                                                                                                                                 |                   |         | 9,140             |  
|                                                                                                                                    | Other current assets                                                                                                                             |                   |         | 4,645             |  
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total current assets                                                                                                                |                                                                                                                                                  |                   | 83,212  |                   |  
|Furniture and equipment, net of accumulated depreciation of$13,112and $7,068 atDecember 28, 2003and December 29, 2002, respectively |                                                                                                                                                  |                   | 11,377  |                   |  
|Goodwill, net of accumulated amortization of$8,545at bothDecember 28, 2003and December 29, 2002                                     |                                                                                                                                                  |                   | 125,028 |                   |  
|Intangible assets, net of accumulated amortization of$1,174and $521 atDecember 28, 2003and December 29, 2002,
respectively          |                                                                                                                                                  |                   | 3,187   |                   |  
|Other assets                                                                                                                        |                                                                                                                                                  |                   | 6,066   |                   |  
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total assets                                                                                                                        |                                                                                                                                                  | $                 | 228,870 |                   | $
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                |                                                                                                                                                  |                   |         |                   |  
|Current liabilities:                                                                                                                |                                                                                                                                                  |                   |         |                   |  
|                                                                                                                                    | Accounts payable                                                                                                                                 |                   | $       | 3,975             |  
|                                                                                                                                    | Accrued payroll and related liabilities                                                                                                          |                   |         | 6,616             |  
|                                                                                                                                    | Other current liabilities                                                                                                                        |                   |         | 3,073             |  
|                                                                                                                                    | Current portion of long-term debt                                                                                                                |                   |         |                  |  
|                                                                                                                                    | Current portion of capital lease obligations                                                                                                     |                   |         | 1,090             |  
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total current liabilities                                                                                                           |                                                                                                                                                  |                   | 14,754  |                   |  
|Long-term debt, net of current portion                                                                                              |                                                                                                                                                  |                   | 54,978  |                   |  
|Deferred income taxes                                                                                                               |                                                                                                                                                  |                   | 7,115   |                   |  
|Capital lease obligations, net of current portion                                                                                   |                                                                                                                                                  |                   | 418     |                   |  
|Other liabilities                                                                                                                   |                                                                                                                                                  |                   | 318     |                   |  
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total liabilities                                                                                                                   |                                                                                                                                                  |                   | 77,583  |                   |  
|Commitments and contingencies                                                                                                       |                                                                                                                                                  |                   |         |                   |  
|Stockholders' equity:                                                                                                               |                                                                                                                                                  |                   |         |                   |  
|                                                                                                                                    | Common stock, $0.01 par value, 75,000 authorized:30,209and 30,119 issued and outstanding atDecember 28, 2003and December 29,
 2002, respectively |                   |         | 302               |  
|                                                                                                                                    | Additional paid-in capital                                                                                                                       |                   |         | 284,346           |  
|                                                                                                                                    | Accumulated other comprehensive loss, net of taxes                                                                                               |                   |         |                  |  
|                                                                                                                                    | Accumulated deficit                                                                                                                              |                   |         | (133,361          | )
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total stockholders' equity                                                                                                          |                                                                                                                                                  |                   | 151,287 |                   |  
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  
|Total liabilities and stockholders' equity                                                                                          |                                                                                                                                                  | $                 | 228,870 |                   | $
|                                                                                                                                    |                                                                                                                                                  |                   |         |                   |  

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

F-3

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF INCOME  (thousands, except per share amounts)

|                                                         |                                                                     | Years Ended |        
|-------------------------------------------------------- | ------------------------------------------------------------------- | ----------- | -------
|
|Service revenues                                         |                                                                     | $           | 512,985
|Cost of services rendered                                |                                                                     |             | 398,224
|                                                         |                                                                     |             |        
|Gross profit                                             |                                                                     |             | 114,761
|Operating expenses:                                      |                                                                     |             |        
|                                                         | Selling, general and administrative                                 |             |        
|                                                         | Provision for doubtful accounts                                     |             |        
|                                                         | Corporate and administrative                                        |             |        
|                                                         | Depreciation                                                        |             |        
|                                                         | Amortization                                                        |             |        
|                                                         | Recapitalization transaction fees                                   |             |        
|                                                         |                                                                     |             |        
|                                                         | Income from operations                                              |             |        
|Loss on early extinguishment of debt                     |                                                                     |             | 3,555  
|Interest expense, net                                    |                                                                     |             | 4,685  
|                                                         |                                                                     |             |        
|                                                         | Income from continuing operations before provision for income taxes |             |        
|Provision for income taxes                               |                                                                     |             | 3,708  
|                                                         |                                                                     |             |        
|                                                         | Income (loss) from continuing operations                            |             |        
|Income (loss) from discontinued operations, net of taxes |                                                                     |             | (506   
|                                                         |                                                                     |             |        
|Net income (loss)                                        |                                                                     |             | 5,015  
|Deduct required dividends on convertible preferred stock |                                                                     |             |       
|                                                         |                                                                     |             |        
|Income (loss) available to common stockholders           |                                                                     | $           | 5,015  
|                                                         |                                                                     |             |        
|Income (loss) per sharebasic:                           |                                                                     |             |        
|                                                         | Income (loss) from continuing operations                            |             | $      
|                                                         | Discontinued operations, net of taxes                               |             |        
|                                                         |                                                                     |             |        
|                                                         | Basic net income (loss) per share                                   |             | $      
|                                                         |                                                                     |             |        
|Income (loss) per sharediluted:                         |                                                                     |             |        
|                                                         | Income (loss) from continuing operations                            |             | $      
|                                                         | Discontinued operations, net of taxes                               |             |        
|                                                         |                                                                     |             |        
|                                                         | Diluted net income (loss) per share                                 |             | $      
|                                                         |                                                                     |             |        
|Weighted average number of common shares outstanding:    |                                                                     |             |        
|                                                         | Basic                                                               |             |        
|                                                         |                                                                     |             |        
|                                                         | Diluted                                                             |             |        
|                                                         |                                                                     |             |        

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

F-4

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK  AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)  (thousands)

|                             |                                                                                       | Redeemable Preferred Stock |       
|---------------------------- | ------------------------------------------------------------------------------------- | -------------------------- | ------
|
|
|Balance at December 31, 2000 |                                                                                       | 1,511                      |       
|                             | Repurchased and converted common and preferred stock and warrants in recapitalization |                            | (1,511
|                             | New equity issued in recapitalization                                                 |                            |      
|                             | Payment of stock subscription                                                         |                            |      
|                             | Dividends on Series I Convertible Preferred Stock                                     |                            |      
|                             | Net loss                                                                              |                            |      
|                             |                                                                                       |                            |       
|Balance at December 30, 2001 |                                                                                       |                           |       
|                             | Net income                                                                            |                            |      
|                             | Unrealized loss on derivative, net of taxes                                           |                            |      
|                             |                                                                                       | Comprehensive income       |       
|                             | Dividends on Series I Convertible Preferred Stock                                     |                            |      
|                             | Conversion of redeemable preferred stock into common stock                            |                            |      
|                             | Sale of common stock under public offering, net of expenses                           |                            |      
|                             | Stock subscription payment                                                            |                            |      
|                             | Exercise of stock options                                                             |                            |      
|                             |                                                                                       |                            |       
|Balance at December 29, 2002 |                                                                                       |                           |       
|                             | Net income                                                                            |                            |      
|                             | Unrealized loss on derivative, net of taxes                                           |                            |      
|                             |                                                                                       | Comprehensive income       |       
|                             | Exercise of stock options                                                             |                            |      
|                             |                                                                                       |                            |       
|Balance at December 28, 2003 |                                                                                       |                           |       
|                             |                                                                                       |                            |       

Continued on next page.

F-5

---

MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK  AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)(Continued)  (thousands)

|                             |                                                                                       | Redeemable Preferred Stock |     | Common Stockholders'
Equity (Deficit) |    
|---------------------------- | ------------------------------------------------------------------------------------- | -------------------------- | --- | ------------------------------------- | ---
|
|
|Balance at December 31, 2000 |                                                                                       | 30                         |     | $                                     | 147
|                             | Repurchased and converted common and preferred stock and warrants in recapitalization |                            | (30 | )                                     |    
|                             | New equity issued in recapitalization                                                 |                            |    |                                       |    
|                             | Payment of stock subscription                                                         |                            |    |                                       |    
|                             | Dividends on Series I Convertible Preferred Stock                                     |                            |    |                                       |    
|                             | Net loss                                                                              |                            |    |                                       |    
|                             |                                                                                       |                            |     |                                       |    
|Balance at December 30, 2001 |                                                                                       |                           |     |                                       |   
|                             | Net income                                                                            |                            |    |                                       |    
|                             | Unrealized loss on derivative, net of taxes                                           |                            |    |                                       |    
|                             |                                                                                       | Comprehensive income       |     |                                       |    
|                             | Dividends on Series I Convertible Preferred Stock                                     |                            |    |                                       |    
|                             | Conversion of redeemable preferred stock into common stock                            |                            |    |                                       |    
|                             | Sale of common stock under public offering, net of expenses                           |                            |    |                                       |    
|                             | Stock subscription payment                                                            |                            |    |                                       |    
|                             | Exercise of stock options                                                             |                            |    |                                       |    
|                             |                                                                                       |                            |     |                                       |    
|Balance at December 29, 2002 |                                                                                       |                           |     |                                       |   
|                             | Net income                                                                            |                            |    |                                       |    
|                             | Unrealized loss on derivative, net of taxes                                           |                            |    |                                       |    
|                             |                                                                                       | Comprehensive income       |     |                                       |    
|                             | Exercise of stock options                                                             |                            |    |                                       |    
|                             |                                                                                       |                            |     |                                       |    
|Balance at December 28, 2003 |                                                                                       |                           |     | $                                     |   
|                             |                                                                                       |                            |     |                                       |    

Continued on next page.

F-6

---

MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK  AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)(Continued)  (thousands)

|                             |                                                                                       | Common Stockholders' Equity (Deficit) |        
|---------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------- | -------
|
|Balance at December 31, 2000 |                                                                                       | $                                     | 12,364 
|                             | Repurchased and converted common and preferred stock and warrants in recapitalization |                                       |        
|                             | New equity issued in recapitalization                                                 |                                       |        
|                             | Payment of stock subscription                                                         |                                       |        
|                             | Dividends on Series I Convertible Preferred Stock                                     |                                       |        
|                             | Net loss                                                                              |                                       |        
|                             |                                                                                       |                                       |        
|Balance at December 30, 2001 |                                                                                       |                                       |       
|                             | Net income                                                                            |                                       |        
|                             | Unrealized loss on derivative, net of taxes                                           |                                       |        
|                             |                                                                                       |                                       |        
|                             |                                                                                       | Comprehensive income                  |        
|                             | Dividends on Series I Convertible Preferred Stock                                     |                                       |        
|                             | Conversion of redeemable preferred stock into common stock                            |                                       |        
|                             | Sale of common stock under public offering, net of expenses                           |                                       |        
|                             | Stock subscription payment                                                            |                                       |        
|                             | Exercise of stock options                                                             |                                       |        
|                             |                                                                                       |                                       |        
|Balance at December 29, 2002 |                                                                                       |                                       | 283,848
|                             | Net income                                                                            |                                       |        
|                             | Unrealized loss on derivative, net of taxes                                           |                                       |        
|                             |                                                                                       |                                       |        
|                             |                                                                                       | Comprehensive income                  |        
|                             | Exercise of stock options                                                             |                                       |        
|                             |                                                                                       |                                       |        
|Balance at December 28, 2003 |                                                                                       | $                                     | 284,346
|                             |                                                                                       |                                       |        

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

F-7

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (thousands)

|                                                                                                   |                                              | Years Ended                               |        
|-------------------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | -------
|
|Operating activities                                                                               |                                              |                                           |        
|Net income (loss)                                                                                  |                                              | $                                         | 5,015  
|Loss (income) from discontinued operations, net of taxes                                           |                                              |                                           | 506    
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                              |                                           |        
|                                                                                                   | Loss on early extinguishment of debt         |                                           |        
|                                                                                                   | Accretion of put warrants                    |                                           |        
|                                                                                                   | Depreciation and amortization                |                                           |        
|                                                                                                   | Amortization of debt issuance cost           |                                           |        
|                                                                                                   | Deferred income taxes                        |                                           |        
|                                                                                                   | Provision for doubtful accounts              |                                           |        
|                                                                                                   | Loss on derivative instrument                |                                           |        
|                                                                                                   | Loss on termination of leases                |                                           |        
|                                                                                                   | Changes in operating assets and liabilities: |                                           |        
|                                                                                                   |                                              | Accounts receivable                       |        
|                                                                                                   |                                              | Prepaid expenses and other current assets |        
|                                                                                                   |                                              | Other assets                              |        
|                                                                                                   |                                              | Accounts payable                          |        
|                                                                                                   |                                              | Accrued payroll and related liabilities   |        
|                                                                                                   |                                              | Other current liabilities                 |        
|                                                                                                   |                                              | Other liabilities                         |        
|                                                                                                   |                                              |                                           |        
|Cash provided by (used in) continuing operations                                                   |                                              |                                           | 37,219 
|Cash provided by (used in) discontinued operations                                                 |                                              |                                           | (500   
|                                                                                                   |                                              |                                           |        
|Cash provided by (used in) operating activities                                                    |                                              |                                           | 36,719 
|Investing activities                                                                               |                                              |                                           |        
|Cash paid for acquisitions, net of cash acquired                                                   |                                              |                                           | (10,803
|Purchases of furniture and equipment, net                                                          |                                              |                                           | (3,516 
|Capitalized internal software costs                                                                |                                              |                                           | (1,113 
|                                                                                                   |                                              |                                           |        
|Net cash used in investing activities                                                              |                                              |                                           | (15,432
|Financing activities                                                                               |                                              |                                           |        
|Proceeds from issuance of common stock                                                             |                                              |                                           |       
|Proceeds from issuance of redeemable preferred stock                                               |                                              |                                           |       
|Proceeds from issuance of senior subordinated debt                                                 |                                              |                                           |       
|Repurchase of common stock in recapitalization                                                     |                                              |                                           |       
|Exercise and (repurchase) net, of warrants in recapitalization                                     |                                              |                                           |       
|Repurchase of put warrants in recapitalization                                                     |                                              |                                           |       
|Proceeds from promissory notes                                                                     |                                              |                                           |       

Continued on next page.

F-8

---

MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)  (thousands)

|                                                                       |  | Years Ended |        
|---------------------------------------------------------------------- |  | ----------- | -------
|
|Proceeds from borrowings on credit facility, net of financing costs    |  | $           | 16,500 
|Proceeds from sale of common stock, net of issuance costs              |  |             |       
|Proceeds from exercise of stock options                                |  |             | 499    
|Principal payments under capital lease obligations                     |  |             | (1,104 
|Principal payments on outstanding debt                                 |  |             | (40,952
|                                                                       |  |             |        
|Net cash (used in) provided by financing activities                    |  |             | (25,057
|                                                                       |  |             |        
|Net (decrease) increase in cash                                        |  |             | (3,770 
|Cash and cash equivalents at beginning of year                         |  |             | 4,595  
|                                                                       |  |             |        
|Cash and cash equivalents at end of year                               |  | $           | 825    
|                                                                       |  |             |        
|Supplemental disclosure of noncash investing and financing activities: |  |             |        
|Noncash payoff of extinguished credit facility                         |  | $           | 56,123 
|                                                                       |  |             |        
|Common stock issued in exchange for retained shares                    |  | $           |       
|                                                                       |  |             |        
|Redeemable preferred stock issued in exchange for retained shares      |  | $           |       
|                                                                       |  |             |        
|Senior subordinated debt issued in exchange for retained shares        |  | $           |       
|                                                                       |  |             |        
|Purchases of equipment through capital leases                          |  | $           | 185    
|                                                                       |  |             |        
|Capital leases assumed in connection with acquisitions                 |  | $           |       
|                                                                       |  |             |        
|Additional consideration to be paid relating to acquisitions           |  | $           | 113    
|                                                                       |  |             |        
|Supplemental disclosures of cash flow information:                     |  |             |        
|Interest paid                                                          |  | $           | 3,982  
|                                                                       |  |             |        
|Income taxes paid                                                      |  | $           | 3,394  
|                                                                       |  |             |        

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

F-9

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Medical Staffing Network Holdings, Inc. (the "Company"), a Delaware corporation, is a provider of healthcare staffing services in the United States. The
Company's per diem staffing assignments place professionals, predominately nurses, at hospitals and other healthcare facilities to solve temporary staffing needs. The Company also provides staffing of
allied health professionals such as specialized radiology and diagnostic imaging specialists and clinical laboratory technicians. The Company's client base includes profit and non-profit
hospitals, teaching hospitals, and regional healthcare providers. The Company considers the different services described above to be one segment as each of these services relate solely to providing
healthcare staffing to customers that are healthcare providers and the Company utilizes similar distribution methods, common systems, databases, procedures, processes and similar methods of
identifying and serving these customers. The operating results of the services provided within this segment are reviewed in the aggregate by the Company's chief operating decision maker when making
resource allocation decisions and assessing performance of the individual components. The Company does not prepare financial information other than limited information on a branch by branch basis, and
as such the chief operating decision maker generally does not review information at any level other than the healthcare staffing business in total. These healthcare staffing services represent 100% of
the Company's consolidated revenue for each of the years ended December 28, 2003, December 29, 2002 and December 30, 2001.

Recent Accounting Pronouncements

Accounting for Business Combinations

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations(SFAS No. 141) and SFAS No. 142,Goodwill and Other Intangible
Assets(SFAS No. 142). These standards change the accounting for business combinations by, among other things, prohibiting the use of
pooling-of-interests accounting and requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill and
intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. These new standards were effective for the Company beginning in the first quarter of 2002
and for purchase business combinations consummated after June 30, 2001. Upon adoption of SFAS No. 142 and pursuant to its provisions, the Company completed its annual impairment test and
determined that there was no impairment of goodwill or other intangible assets with an indefinite life. For additional discussion on the impact of adopting SFAS No. 142, see Note 5.

Financial Statement Presentation of Early Extinguishment of Debt

In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections(SFAS No. 145). SFAS No. 145 rescinds SFAS No. 4 which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result of SFAS No. 145, the criteria in APB No. 30 will now be used
to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. The provisions of SFAS No. 145 shall
be applied effective for fiscal years beginning after May 15, 2002, with early application encouraged. The Company elected to early adopt the provisions as of December 29,

F-10

---

2002
and as such, the Company was required to reclassify its extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of $1.7 million, related to the
October 2001 recapitalization transaction into income from continuing operations for the year ended December 30, 2001.

Exit or Disposal Activity Costs

In June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal
Activities(SFAS No. 146), which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather
than when a commitment to an exit plan is made. It is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company
adopted the provisions of SFAS No. 146 as of December 30, 2002 and there was no impact on the Company's consolidated financial statements.

Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of FASB Statement No. 123(SFAS No. 148). This Statement amends SFAS No. 123,Accounting for
Stock-Based Compensation(SFAS No. 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Statement is effective for fiscal years ending after December 15, 2002.
Pursuant to the provisions of SFAS No. 148, the Company has added the required disclosures to the "Stock-Based Compensation" subsection in the "Summary of Significant Accounting Policies"
section below.

Revenue Classification Changes

In November 2001, the Emerging Issues Task Force (EITF) of the FASB announced EITF Topic D-103,Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred, which has subsequently been recharacterized as EITF
01-14, which is effective for financial statements beginning after December 31, 2001. EITF 01-14 requires that reimbursements received for
out-of-pocket expenses incurred, generally, be characterized as revenue in the statement of income. The Company adopted EITF 01-14 in its quarter ended
June 30, 2002. The Company historically recorded reimbursements for out-of-pocket expenses as net amounts in cost of services rendered in the consolidated statement of
income. In accordance with the transition guidance included in EITF 01-14, the Company's adoption required the reclassification of financial statements for prior periods presented for
comparative purposes. The adoption of EITF 01-14 did not affect the Company's net income, financial position or cash flows. The reclassification resulted in an increase in both service
revenues and cost of services rendered of $4.6 million for the year ended December 30, 2001.

Accounting for Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity(SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No. 150, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS
No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the

F-11

---

first
interim period beginning after June 15, 2003. There was no impact to the Company's consolidated financial statements upon the adoption of the provisions of SFAS No. 150.

Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51(FIN No. 46). FIN No. 46 requires companies to make certain disclosures about variable interest entities (VIEs) with which it has involvement,
if it is reasonably possible that it will consolidate or disclose information about VIEs when FIN No. 46 was to have become fully effective in July 2003. The disclosure requirements are
effective to all financial statements issued after January 31, 2003. The Company has no VIEs so no entities have been consolidated and no additional disclosures have been provided.

In
December 2003, the FASB issued Interpretation No. 46R (FIN No. 46R), a revision to FIN No. 46. FIN No. 46R clarifies some of the provisions of FIN
No. 46 and exempts certain entities from its requirements. FIN No. 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted
FIN No. 46 prior to this effective date can continue to apply the provisions of FIN No. 46 until the effective date of FIN No. 46R. The provisions of FIN No. 46R, which
will become applicable in the first quarter of 2004, are not expected to have an impact on the Company's consolidated financial statements.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most significant areas requiring the use of
management estimates relate to the determination of allowances for doubtful accounts, the determination of required accruals for health, workers compensation and professional liability that are
partially self funded and the determination of estimates used in the impairment analysis of goodwill and other intangible assets.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Medical Staffing Holdings, LLC (MSN LLC), Medical
Staffing Network, Inc. (MSN Inc.), a wholly-owned subsidiary of MSN LLC, MSN-Illinois Holdings, Inc. (MSN-Ill), a wholly-owned subsidiary of
MSN Inc., Medical Staffing Network of Illinois, LLC, a wholly-owned subsidiary of MSN-Ill, and Medical Staffing Network Assets, LLC, a wholly-owned subsidiary of
MSN-Ill. All material intercompany transactions and balances have been eliminated in consolidation.

The
Company's fiscal year consists of 52/53 weeks ending on the last Sunday in December in each year. Each of the years ended December 28, 2003, December 29, 2002 and
December 30, 2001 consisted of 52 weeks.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents. Deposits in banks

F-12

---

may
exceed the amount of insurance provided on such deposits. The Company performs reviews of the creditworthiness of its depository banks. The Company has not experienced any losses on deposits.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk as defined by SFAS No. 105,Disclosure
of Information About Financial Instruments With Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, consist principally of accounts
receivable. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across a number of geographic areas. However,
essentially all trade receivables are concentrated in the hospital and healthcare sectors in the United States and, accordingly, the Company is exposed to their respective business and economic
variables. Although the Company does not currently foresee a concentrated credit risk associated with these receivables, repayment is dependent upon the financial stability of these industry sectors.
The Company does not generally require collateral.

Furniture and Equipment

Furniture and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets,
ranging generally from three to seven years. Leasehold improvements are depreciated over the lives of the related leases or their estimated useful lives, whichever is shorter.

Certain
software development costs for internally developed software have been capitalized in accordance with the provisions of Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.These capitalized costs include purchased software for internal
use, consulting services and costs for personnel associated with programming, coding and testing such software during the application development stage. Amortization of capitalized software costs
begins when the software is placed into service and is included in depreciation expense in the accompanying consolidated statements of income. Software development costs are being amortized using the
straight-line method over three years.

Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired. Identifiable intangible assets are being amortized using the
straight-line method over their estimated useful lives ranging from 6 to 7.5 years. Pursuant to the provisions of SFAS No. 142, which the Company adopted in 2002, the Company
ceased amortizing goodwill or intangible assets deemed to have an indefinite useful life. Per SFAS No. 142, impairment for goodwill and intangible assets deemed to have an indefinite life
exists if the net book value of the goodwill or intangible asset exceeds its fair value, as measured by projected discounted future cash flows. This differs from the Company's prior policy, in
accordance with accounting standards in effect at that time, of using undiscounted future cash flows to determine its fair value. An impairment test is required to be performed annually or more
frequently if circumstances indicate a test is necessary. The Company completed the transitional impairment test of goodwill and intangible assets with an indefinite life during the first quarter of
2002. Based on the results of this test, the Company determined that there was no impairment of goodwill or intangible assets with an indefinite life as of the transition date, December 31,
2001. The Company completed its annual impairment test during the fourth quarter of 2003 and determined that there was no impairment of goodwill or other intangible assets with an indefinite life.

F-13

---

The
Company accounts for long-lived assets with definite useful lives pursuant to SFAS No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets(SFAS No. 144), which requires impairment losses to be recorded on long-lived assets used in operations when events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with a definite useful life is determined by comparison of the carrying
amount of the asset to net future cash flows expected to be generated from the asset. Management reviews long-lived assets for impairment whenever events or changes in circumstances
indicate the assets may be impaired. An impairment loss is recorded when the net book value of the assets exceeds the fair value, as measured by projected undiscounted future cash flows.

Reserves for Claims

Workers' compensation, healthcare benefits and professional liability are provided under self-insured and partially self-funded plans,
respectively, for certain employees. The Company records its estimate of the ultimate cost of, and reserves for, workers' compensation, healthcare benefits and professional liability based on
actuarial computations using the Company's loss history as well as industry statistics. Furthermore, in determining its reserves, the Company includes reserves for estimated claims incurred but not
reported.

The
ultimate cost of workers' compensation, healthcare benefits and professional liability will depend on actual costs incurred to settle the claims and may differ from the amounts
reserved by the Company for those claims. Accruals for workers' compensation claims and professional liability are included in accounts payable and accruals for healthcare benefits are included in
other current liabilities on the consolidated balance sheets.

Debt Issuance Costs

Deferred costs related to the issuance of debt are being amortized using the effective interest method over the terms of the respective debt. Debt issuance costs
of $1.4 million, less accumulated amortization of $12,000 at December 28, 2003, and $4.7 million, less accumulated amortization of $0.9 million at December 29, 2002,
are recorded in other assets on the consolidated balance sheets.

Revenue Recognition

Revenue from services consists of temporary staffing revenues. Revenues are recognized when services are rendered.

Pursuant
to the adoption of EITF 01-14 in the quarter ended June 2002, the Company now records as service revenues, gross reimbursements received for
out-of-pocket expenses incurred, which includes reimbursement paid by the Company to employees for out-of-pocket expenses. Reimbursable
out-of-pocket expenses include travel, per diem allowances and housing for certain long-term contract employees.

Stock-Based Compensation

The Company grants stock options for a fixed number of common shares to employees and directors from time to time. The Company accounts for employee stock options
using the intrinsic value method as prescribed by APB Opinion No. 25,Accounting for Stock Issued to Employees, and accordingly, recognizes no
compensation expense for stock option grants when the exercise price of the options equals, or is greater than, the market value of the underlying stock on the date of
grant.Accordingly, the Company did not recognize any compensation cost during each of the years ended

F-14

---

December 28,
2003, December 29, 2002 and December 30, 2001 for stock-based employee compensation awards. The Company follows the disclosure provisions of SFAS No. 123 as
amended by SFAS No. 148, for stock options issued to nonemployees.

The
effect of applying the fair value method prescribed by SFAS No. 123, as amended by SFAS No. 148, to the Company's options would have the Company recording the following
net income (loss) and pro forma net income (loss) per share amounts (in thousands, except per share information):

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Net income (loss) as reported

$
5,015

$
17,894

$
(1,306
)Fair value method of stock based compensation, net of tax


(1,257
)

(1,068
)

(101
)Pro forma net income (loss)

$
3,758

$
16,826

$
(1,407
)As reported basic income (loss) from continuing operations

$
0.18

$
0.70

$
(0.54
)Discontinued operations, net of taxes


(0.01
)




0.05As reported basic income (loss) per share

$
0.17

$
0.70

$
(0.49
)As reported diluted income (loss) from continuing operations

$
0.18

$
0.62

$
(0.54
)Discontinued operations, net of taxes


(0.02
)




0.05As reported diluted income (loss) per share

$
0.16

$
0.62

$
(0.49
)Pro forma basic income (loss) from continuing operations

$
0.14

$
0.65

$
(0.27
)Discontinued operations, net of taxes


(0.02
)




0.05Pro forma basic income (loss) per share

$
0.12

$
0.65

$
(0.22
)Pro forma diluted income (loss) from continuing operations

$
0.14

$
0.59

$
(0.27
)Discontinued operations, net of taxes


(0.02
)




0.05Pro forma diluted income (loss) per share

$
0.12

$
0.59

$
(0.22
)


F-15

---



Pro forma information regarding net income or loss is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. The fair value of options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following
assumptions:

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Expected life

38

38

58Risk-free interest rate

3.25%4.19%

2.02%3.68%

3.76%4.91%Volatility

70%

65%

60%Dividend yield

0%

0%

0%


Income (Loss) Per Share

In accordance with the requirements of SFAS No. 128,Earnings Per Share(SFAS No. 128), basic
earnings per share is computed by dividing net income or loss by the weighted average number of shares outstanding and diluted earnings per share reflects the dilutive effects of stock options and
other common stock equivalents (as calculated utilizing the treasury stock or reverse treasury stock method, as appropriate). Shares of common stock that are issuable upon the exercise of options have
been excluded from the 2001 per share calculation because their effect would have been anti-dilutive. See Note 15 for the calculation of income (loss) per share.

Income Taxes

The Company accounts for income taxes under SFAS No. 109,Accounting for Income Taxes(SFAS
No. 109). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse.

Derivative Financial Instruments

The Company is exposed to market risks arising from changes in interest rates. To protect against such risks, the Company had one derivative financial instrument,
an interest rate swap agreement, which is more fully disclosed in Note 18.

During
1998, the FASB issued SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities(SFAS No. 133),
effective as of January 1, 2001. SFAS No. 133 requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position
at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship
and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the
exposure being hedged, as either a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. As the Company's derivative instrument is designated and qualifies as a
cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining
gain or loss on the derivative

F-16

---

instrument
in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.

The
Company implemented the provisions of SFAS No. 133 on January 1, 2001. As of December 28, 2003, the Company marked to market the fair value of the interest rate
swap and recorded a loss of approximately $0.1 million. Additionally, in connection with the December 2003 refinancing of the credit facility (see Note 9), the Company wrote off
the remaining balance of approximately $0.1 million.

Comprehensive Income (Loss)

SFAS No. 130,Comprehensive Income(SFAS No. 130), requires that an enterprise (a) classify
items of other comprehensive income by their nature in the financial statements, and (b) display the accumulated balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The items of other comprehensive income (loss) that are typically required to be displayed are foreign currency
items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities and the effective portion of certain derivative instruments. There are no
components of comprehensive income (loss) other than the Company's net income (loss) and unrealized income (loss) on the derivative instrument for the years ended December 28, 2003,
December 29, 2002 and December 30, 2001. The following table sets forth the computation of comprehensive income (loss) for the periods indicated:

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Net income (loss)

$
5,015

$
17,894

$
(1,306
)Other comprehensive income (loss):Income (loss) on derivative, net of taxes


105


(105
)

Total comprehensive income (loss)

$
5,120

$
17,789

$
(1,306
)


Reclassifications

Certain reclassifications have been made to the 2001 and 2002 consolidated financial statements to conform to the 2003 presentation.

2. DISCONTINUED OPERATIONS

The Company discontinued its physician staffing services in the second quarter of 2003. Pursuant to the provisions of SFAS No. 144 results of operations
are to be classified as discontinued when the disposal of the "component of an entity" has occurred or it has met the "held for sale" criteria. As such, the total is shown separately in the line item,
income (loss) from discontinued operations, net of taxes, in the Company's consolidated statements of income for the years ended December 28, 2003, December 29, 2002 and
December 30, 2001. Net assets of the discontinued operations were less than approximately $10,000 at December 28, 2003 and consisted solely of current assets. Net assets of the
discontinued operations were approximately $0.6 million at December 29, 2002 and were comprised of $0.7 million of current assets and $0.1 million of current liabilities.
No reclassification of current or prior year balance sheet presentation was made to reflect the net assets of the discontinued operations, due to immateriality.

F-17

---

Service
revenues, cost of services, gross profit (loss) and income (loss) from discontinued operations, net of taxes, are as follows (in thousands):

Years EndedDec. 28,
2003

Dec. 29,
2002

Dec. 30,
2001Service revenues

$
495

$
4,682

$
4,729Cost of service revenues


(1,095
)

(3,604
)

(3,528
)Gross profit (loss)

$
(600
)
$
1,078

$
1,201Income (loss) before benefit of (provision for) income taxes

$
(845
)
$
88

$
578Benefit of (provision for) income taxes


339


(36
)

(237
)Income (loss) from discontinued operations, net of taxes

$
(506
)
$
52

$
341


3. RESTRUCTURING CHARGE

As announced on June 16, 2003, the Company completed its plan to restructure its operations by closing 29 branches. The restructuring was necessary to
adjust the infrastructure the Company had put in place to support multiple growth initiatives and was in response to the current contraction in demand for its services. Approximately 130 branch staff
and corporate employees were terminated as part of the restructuring. As a result, in the second quarter of 2003, the Company recorded a pre-tax charge, of approximately
$0.8 million, relating to employee severance costs, branch closing costs and lease termination costs. The restructuring charge is included in selling, general and administrative expenses in the
Company's consolidated statements of income for the year ended December 28, 2003. No amounts have been or are expected to be incurred or paid in subsequent quarters relating to this
restructuring. A breakdown of the restructuring charge is as follows (in thousands):

Lease termination costs

$
390Office closing costs


164Employee termination costs


158Miscellaneous


51Total

$
763


F-18

---



4.    ACQUISITIONS

In
March 2003, the Company acquired certain assets of Saber-Salisbury Group (SSG), a temporary healthcare staffing company, for approximately $10.8 million in cash, of
which approximately $2.2 million was held in escrow and the potential for additional consideration contingent upon SSG achieving certain financial results. Approximately $10.4 million of
the purchase price was allocated to goodwill. The primary reason for the acquisition was to expand service offerings within the temporary healthcare industry. The acquisition was accounted for in
accordance with SFAS No. 141, and, accordingly, the results of operations have been included in the consolidated statement of income beginning from March 1, 2003, the date when the
Company assumed substantial control over SSG.

The
allocation of purchase price related to the acquisitions completed during the year ended December 28, 2003 is based on preliminary assessments of the assets acquired and
liabilities assumed and could be subject to adjustment based on the ultimate resolution of such assessments.

In
July 2002, the Company acquired substantially all of the assets and certain of the liabilities of STAT Medical Services, Inc. (STAT), a temporary healthcare staffing
company, for approximately $10.1 million in cash, of which approximately $2.0 million was held in escrow, and the potential for additional consideration contingent upon STAT achieving
certain financial results. Approximately $8.9 million was allocated to goodwill. The primary reason for the acquisition was to expand our geographic scope of services. The acquisition was
accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income beginning from its date of acquisition.

In
July 2002, the Company acquired substantially all of the assets and certain of the liabilities of Medical Staffing Services, Inc. (MSS), a temporary healthcare staffing
company, for approximately $0.8 million in cash, of which $0.2 million was held in escrow, and the potential for additional consideration contingent upon MSS achieving certain financial
results. Approximately $0.7 million was
allocated to goodwill. The primary reason for the acquisition was to expand our geographic scope of services and market penetration within the temporary healthcare industry. The acquisition was
accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income beginning from its date of acquisition.

In
July 2002, the Company acquired certain assets and liabilities of Pro Med, Inc. (Pro Med), a temporary healthcare staffing company, for approximately $5.1 million
in cash, of which approximately $0.5 million was held in escrow, and the potential for additional consideration contingent upon Pro Med achieving certain financial results. Approximately
$4.8 million was allocated to goodwill. The primary reason for the acquisition was to expand our geographic scope of services. The acquisition was accounted for in accordance with SFAS
No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income beginning from its date of acquisition.

In
August 2002, the Company acquired certain assets and liabilities of Pharmstaff, Ltd., a provider of temporary pharmacists and pharmacy technicians to hospitals and other
facilities, for approximately $8.5 million in cash, of which approximately $0.4 million was held in escrow, and the potential for additional consideration contingent upon Pharmstaff
achieving certain financial results. Approximately $8.5 million was allocated to goodwill. The primary reason for the acquisition was to expand our service offerings within the temporary
healthcare industry. The acquisition was accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income
from its date of acquisition.

F-19

---

In
October 2002, the Company acquired certain assets and liabilities of B&G Nurse Registry (B&G), a temporary healthcare staffing company, for approximately $8.6 million in
cash, of which approximately $1.7 million was held in escrow, and the potential for additional consideration contingent upon B&G achieving certain financial results. Approximately
$6.8 million and $529,000 were allocated to goodwill and certain intangible assets, respectively. The primary reason for the acquisition was to expand our geographic scope of services. The
acquisition was accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income from its date of
acquisition.

In
November 2002, the Company acquired substantially all of the assets and certain of the liabilities of Clinical Resource Services, Inc. and Health Search
International, Inc. (collectively, CRS/HSI), both of which operate healthcare staffing businesses under common control and ownership, for approximately $13.8 million in cash, of which
approximately $2.1 million was held in escrow, with the potential for additional consideration contingent upon CRS/HSI achieving certain financial results. Approximately $12.0 million
and $0.5 million were allocated to goodwill and certain intangible assets, respectively. The primary reason for the acquisition was to expand our service offerings within the temporary
healthcare industry. The acquisition was accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement of income
from its date of acquisition.

In
December 2002, the Company acquired substantially all of the assets and certain of the liabilities of Travel Nurse International (TNI), a temporary healthcare staffing company,
for approximately $5.5 million in cash, of which approximately $3.5 million was held in escrow, and the potential for additional consideration contingent upon TNI achieving certain
financial results. Additionally, $4.0 million was loaned to the seller pursuant to a promissory note in favor of the Company bearing an interest rate of 6% per annum. Approximately
$4.0 million and $1.0 million were allocated to goodwill and certain intangible assets, respectively. The primary reason for the acquisition was to expand our service offerings within
the temporary healthcare industry. The acquisition was accounted for in accordance with SFAS No. 141 and, accordingly, the results of operations have been included in the consolidated statement
of income from its date of acquisition.

In
June 2001, the Company acquired substantially all of the assets and certain of the liabilities of Excel Staffing Services, Inc. (Excel), a temporary healthcare staffing
company, in exchange for approximately $9.8 million in cash of which $2.0 million was held in escrow, and the potential for additional consideration contingent upon Excel achieving
certain financial results. The purchase price exceeded the fair value of the assets acquired by approximately $9.1 million, of which $1.4 million was allocated to the fair value of
noncompete agreements entered into with the former owners. The results of operations have been included in the consolidated statement of income from its date of acquisition.

In
addition, during 2003, the Company made no payments of additional consideration related to prior year acquisitions. In 2003, the Company accrued $0.1 million for additional
consideration to be paid related to prior year acquisitions. In 2002, the Company paid approximately $1.7 million of additional consideration related to the seven acquisitions. In 2001, the
Company paid approximately $0.5 million of additional consideration related to two acquisitions.

All
acquisitions were accounted for as purchases and, accordingly, the accompanying consolidated financial statements include the results of the acquired operations from the acquisition
dates or from the date the Company assumed substantial control.

The
following unaudited pro forma financial information reflects the results of operations for the years ended December 28, 2003, December 29, 2002 and December 30,
2001, as if the acquisitions had

F-20

---

occurred
at the beginning of the respective periods presented. The pro forma financial information, in the schedule below, does not purport to be indicative of the results of operations that would
have occurred had the transactions taken place at the beginning of the periods presented or of future results of operations (in thousands, except per share information):

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Net revenues

$
515,892

$
571,422

$
445,948Income from operations


17,754


43,622


19,065Income from continuing operations


5,690


20,618


14Income (loss) from discontinued operations, net of taxes


(506
)

52


341Net income


5,184


19,839


355Net income (loss) available to common shares


5,184


17,571


(1,449
)Income (loss) per share  basic:Income (loss) from continuing operations

$
0.19

$
0.83

$
(0.28
)Discontinued operations, net of taxes


(0.02
)




0.05Basic net income (loss) per share

$
0.17

$
0.83

$
(0.23
)Income (loss) per share  diluted:Income (loss) from continuing operations

$
0.18

$
0.72

$
(0.28
)Discontinued operations, net of taxes


(0.01
)




0.05Diluted net income (loss) per share

$
0.17

$
0.72

$
(0.23
)


5.    GOODWILL AND INTANGIBLE ASSETS

As discussed in Note 1, pursuant to the provisions of SFAS No. 142, which the Company adopted in 2002, the Company ceased amortizing goodwill or
intangible assets deemed to have an indefinite useful life. Identifiable intangibles with definite lives will continue to be amortized. SFAS No. 142 requires that goodwill be separately
disclosed from other intangible assets on the balance sheet and tested for impairment on a periodic basis, or more frequently if certain indicators arise. The Company performed the transitional test
upon adoption and determined that there was no impairment of goodwill or intangibles with an indefinite useful life. The Company performed its annual review in the fourth quarter of 2003 and
determined that there was no impairment of goodwill. The Company will perform its annual impairment review during the fourth quarter of each year.

Goodwill
increased by $10.6 million from $114.4 million at December 29, 2002 to $125.0 million at December 28, 2003. The $10.6 million increase
is comprised of $10.4 million associated with the acquisition of SSG in March 2003, $0.1 million accrual for an estimated payment to be made to the prior owners of B&G as
additional consideration for achieving certain financial results and $0.1 million related to the final purchase accounting assessment for the acquisitions made in the fourth quarter of 2002;
see Note 4 for individual acquisition details. No goodwill was deemed to be impaired during the year.

F-21

---



As of December 28, 2003 and December 29, 2002, the Company's intangible assets, other than goodwill, and related accumulated amortization, consisting primarily of noncompete agreements,
were as follows (in thousands):

December 28,
2003

December 29,
2002Intangible assets:Gross

$
4,361

$
4,361Accumulated amortization


(1,174
)

(521
)Net

$
3,187

$
3,840


In
2003, the Company did not purchase any intangible assets. In 2002, the Company purchased intangible assets, primarily in the form of noncompete agreements, with a gross carrying value
of $2.9 million related to the various acquisitions it made during the year. The Company recorded amortization expense on goodwill and intangibles of $0.7 million, $0.3 million
and $3.7 million for the years ended December 28, 2003, December 29, 2002 and December 30, 2001, respectively. The Company adopted the provisions of SFAS No. 142
and, as such, goodwill and intangible assets with an indefinite life ceased being amortized after December 30, 2001.

The
estimated annual amortization expense for intangible assets for the next five fiscal years as of December 28, 2003 is as follows (in thousands):

2004

$
6482005


6342006


6342007


6252008


345


The
following pro forma information presents net loss and basic and diluted loss per share, adjusted to exclude amounts no longer being amortized, as if the adoption of SFAS
No. 142 had occurred on January 1, 2000 (in thousands, except per share amounts):

Year Ended December 30, 2001Net Loss

Basic
Net Loss
Per Share

Diluted
Net Loss
Per ShareAs reported  historical

$
(3,110
)
$
(0.49
)
$
(0.49
)Add: Goodwill amortization, net


2,212


0.35


0.35Pro Forma

$
(898
)
$
(0.14
)
$
(0.14
)


F-22

---

6.    FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following (in thousands):

December 28,
2003

December 29,
2002Leasehold improvements

$
1,146

$
714Furniture and equipment


13,211


10,118Internally developed software


6,560


5,447Equipment held under capital leases


3,572


3,432Total


24,489


19,711Less accumulated depreciation and amortization


(13,112
)

(7,068
)Furniture and equipment, net

$
11,377

$
12,643


Accumulated
amortization on assets held under capital leases was $2.2 million and $1.1 million at December 28, 2003 and December 29, 2002, respectively.

7.    OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

December 28,
2003

December 29,
2002Health benefit claims payable

$
1,360

$
811Accrued expenses


1,264


955Other


449


1,339Total

$
3,073

$
3,105


8.    INCOME TAXES

As of December 28, 2003, December 29, 2002 and December 30, 2001, the Company had temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and such amounts measured by the tax laws.

The
provision for income taxes is as follows (in thousands):

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Current income taxes

$
(910
)
$
10,874

$
1,389Deferred income taxes


4,618


1,526


405Provision for income taxes

$
3,708

$
12,400

$
1,794


F-23

---

Significant
components of the Company's deferred tax assets and liabilities are as follows (in thousands):

December 28,
2003

December 29,
2002Deferred tax assets:Provision for doubtful accounts

$
722

$
2,520Accrued expenses and reserves


168


147Total deferred tax assets

$
890

$
2,667Deferred tax liabilities:Intangibles

$
6,045

$
2,956Fixed assets and software amortization


1,070


1,318Total deferred tax liabilities

$
7,115

$
4,274


Total
deferred tax assets are included in Other Current Assets in the Company's consolidated balance sheets. SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. After consideration of all the evidence,
both positive and negative, management has determined that no valuation allowance is required as of December 28, 2003, December 29, 2002 and December 30, 2001.

The
reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense is as follows:

Years EndedDecember 28,
2003

December 29,
2002

December 30,
2001Tax at U.S. statutory rate

34.00
%
35.00
%
34.00
%State taxes, net of federal benefit

3.63

3.58

3.63Nondeductible items

2.92

1.56

1,178.13Other, net

(0.39
)
0.86

4.65Effective income tax rate

40.16
%
41.00
%
1,220.41
%


9.    LONG-TERM DEBT

On October 26, 2001, in connection with the recapitalization discussed in Note 12, the Company entered into a $120.0 million senior credit
facility. The senior credit facility consisted of (i) senior credit notes (Term A) in the amount of $40.0 million due October 2006 which bore interest at a variable rate
based on the Company's leverage ratio (as defined) with interest payable at least quarterly and principal payments payable quarterly commencing on March 31, 2003; (ii) senior credit
notes (Term B) in the amount of $60.0 million, which were due on October 2007 and bore interest at a variable rate based on the Company's leverage ratio (as defined) with interest
payable at least quarterly and principal payments payable quarterly commencing on March 31, 2003; and (iii) provide for up to $20.0 million of revolving loans expiring on
October 2006, bearing interest at a variable rate payable at least quarterly. The proceeds of the above senior credit facility were used to extinguish the outstanding balance of the
$75.0 million revolving credit note ($62.0 million) and the $20.0 million subordinated promissory note described below. In connection with the early pay-off of these
notes during fiscal 2001,

F-24

---

debt
issuance costs of approximately $1.5 million and a discount on notes of $2.3 million were written off. These amounts as well as a prepayment penalty of $0.6 million are
reflected in the accompanying consolidated statements of income as a loss on early extinguishment of debt.

Also,
in connection with the recapitalization, the Company issued Senior Unsecured Promissory Notes (Senior Unsecured Notes) to the Warburg Pincus-led investor group (the
Investor Group) and the previous stockholders (including officers) approximating $59.3 million. The Senior Unsecured Notes bore interest at 12% per annum compounding quarterly, with principal
and interest due on October 2009. The holders of the Senior Notes were required to redeem the notes upon the consummation of (i) an underwritten public offering or (ii) a Change
of Control (as defined).

On
April 23, 2002, the Company completed its initial public offering, as discussed more fully in Note 14. Total proceeds of $156.3 million were used to repay
$62.9 million of its outstanding balance under the senior unsecured notes, and approximately $93.4 million of the Company's outstanding loans under the senior credit facility. On
July 3, 2002, the Company amended the terms of its senior credit facility and entered into a $25.0 million note with terms and rights identical to its previous Term A note. In accordance
with the amendment, the remaining balance on the existing Term A and Term B notes was paid off. On October 3, 2002, the Company amended the terms of its senior credit facility and entered into
a $65.0 million note with terms and rights identical to its previous Term A notes and reduced the borrowing capacity of its revolving loan from $20.0 million to $15.0 million. On
March 21, 2003, the Company amended the terms of its senior credit facility as follows: (i) Term A notes were increased to $77.0 million (Tranche A-1) with terms and
rights identical to its previous Term A note, (ii) Tranche A-2 term loans (Tranche A-2) provided for up to $13.0 million of borrowings prior to
December 31, 2003, with a minimum initial borrowing of $5.0 million and in integral multiples of $1.0 million thereafter. Tranche A-2 loans could not be reborrowed
once repaid, were due in October 2006 and bore interest at a variable rate based on the Company's leverage ratio (as defined) with interest payable at least quarterly and principal payments
payable
quarterly commencing on March 31, 2004. The amendment did not affect the revolving loan's $15.0 million borrowing capacity.

On
December 22, 2003, the Company entered into a new credit facility. The new $82.0 million facility is comprised of a three-year $65.0 million revolving
credit facility and a two-year $17.0 million term note. The revolving credit facility is due on December 21, 2006 and bears interest at a variable rate based on the Company's
leverage ratio (as defined) with interest payable monthly. Unused capacity under the revolving credit facility bears interest at 0.5% and is payable monthly. The term note is due on
December 21, 2005 and bears interest at a variable rate based on the Company's leverage ratio (as defined) with interest payable monthly. Approximately $60.0 million of proceeds from the
new credit facility were used to refinance all of the Company's existing debt and to pay financing-related fees. As of December 28, 2003, the Company had drawn approximately
$38.0 million on the revolving line of credit and had unused capacity of $27.0 million, of which $9.3 million is immediately available for borrowing. As of December 28,
2003, the blended rate for loans outstanding under the new credit facility was 5.73%. In connection with the early pay-off of these notes, debt issuance costs of approximately
$3.5 million and an unrealized loss associated with a swap agreement (see Note 18) of approximately $0.1 million were written off. These amounts are reflected in the accompanying
consolidated statement of income as a loss on early extinguishment of debt.

The
senior credit facility is secured by substantially all of the assets of the Company and contains certain covenants that, among other things, limits the payments of dividends and
restricts additional indebtedness and obligations, and requires maintenance of certain financial ratios.

F-25

---

On
September 29, 1998, the Company entered into a $25.0 million revolving credit note with a bank. In November 1999, the note was increased to $40.0 million
and ultimately to $75.0 million in September 2000 with the addition of debt syndication partners. The revolving credit note bore interest at a variable rate based on the Company's
leverage ratio (as defined) payable monthly. The revolving credit note had an expiration date of December 31, 2003, with quarterly principal payments in an amount equal to a certain percentage
of the outstanding principal amount (as defined). All amounts outstanding under the revolving credit note were repaid on October 26, 2001 in connection with the recapitalization. In connection
with the revolving credit note, the Company issued stock purchase warrants, expiring on September 29, 2008, to the bank to purchase a total of 0.5 million shares of the Company's common
stock at an exercise price of $1.10 per share. Deferred interest expense of approximately $0.1 million representing the estimated value of the warrants was recorded. These warrants were
exercised in connection with the recapitalization.

On
September 29, 2000, the Company entered into a $20.0 million subordinated promissory note with an investment banking firm. The subordinated promissory note bore an
interest rate of 12% payable quarterly and matured on September 29, 2007. In connection with the subordinated promissory note, the Company issued put warrants, expiring on September 29,
2010, to the investment banking firm to
purchase a total of 1.3 million shares of the Company's common stock at an exercise price of $.003 per share. The put warrants were valued at $2.7 million, representing their estimated
fair value using a Black-Scholes valuation model. The Company used a volatility factor of 60%, a risk free interest rate of 6.7% and an expected life of 10 years. In connection with the
recapitalization, the put warrants were put back to the Company. The difference between the fair value of the put warrants at the time of the recapitalization and the recorded amount approximated
$5.0 million and is included as a component of interest expense for the year ended December 30, 2001.

A
summary of long-term debt as of December 28, 2003 and December 29, 2002 is as follows (in thousands):

December 28,
2003

December 29,
2002Senior facility

$
37,978

$
Term loan


17,000


Senior credit notes, Tranche A-1 due October 2006





65,000Revolving loan, due October 2006





13,000$
54,978

$
78,000Less current portion





(8,775
)$
54,978

$
69,225


Scheduled
maturities of long-term debt as of December 28, 2003 are as follows (in thousands):

2004

$
2005


17,0002006


37,978


F-26

---

10.    EMPLOYEE BENEFIT PLANS

The Company has a voluntary defined contribution 401(k) profit-sharing plan covering all eligible employees as defined in the plan documents. The plan provides
for matching up to 50% of the participants' contributions up to a maximum of 7% of the participants' compensation and provides for a discretionary matching contribution, which would be allocated to
each employee based on the employee's annual pay divided by the total annual pay of all participants eligible to receive such contribution. There was no voluntary contribution during 2003, 2002 and
2001. The Company's matching contribution was approximately $1.4 million, $1.1 million and $0.2 million for the year ended December 28, 2003, December 29, 2002 and
December 30, 2001, respectively.

In
2003, the Company established a Deferred Compensation Plan covering senior management who have executive-level decision making responsibilities. The plan allows for its participants
to defer up to 50% of the annual salary up to the adjusted 401(k) maximum that individuals can defer in the Company's existing 401(k) plan (see above). In no case can an individual's combined
deduction exceed the maximum adjusted amounts established by the Internal Revenue Service. In addition, the Company will match 50% of the participant's contributions up to a maximum of 7% of the
participant's compensation, a match that is consistent with the Company's existing 401(k) plan. The plan is a nonqualified, unfunded deferred compensation plan and all participants' contributions are
held in trust in the Company's name. As such, the Company has recorded the fair value of the trust of $0.1 million, and it is included in the consolidated balance sheet Other Current Assets and
Other Current Liabilities for the year ended December 28, 2003. The Company made no matching contributions for Deferred Compensation Plan in the year ended December 28, 2003.

11.    COMMITMENTS AND CONTINGENCIES

Capital Leases

The Company leases equipment under several lease agreements, which are accounted for as capital leases. The assets and liabilities under capital leases are
recorded at the lower of the net present value of the minimum lease payments or the fair value of the asset. The assets are amortized over the related lease term.

Future
minimum lease payments under capital leases are as follows as of December 28, 2003 (in thousands):

2004

$
1,1772005


4432006


362007


42008 and thereafter


1,660Less amount representing interest


(152
)Less amount classified as current


(1,090
)$
418


F-27

---



Operating Leases

The Company has entered into noncancelable operating lease agreements for the rental of space and equipment. Future minimum lease payments as of
December 28, 2003 associated with these agreements are as follows (in thousands):

2004

$
4,9232005


3,5922006


2,5682007


1,6452008


1,395Thereafter


5,459


Total
operating lease expense was approximately $6.3 million, $4.3 million and $3.0 million for the years ended December 28, 2003, December 29, 2002
and December 30, 2001, respectively.

Litigation

The Company is involved in litigation arising in the ordinary course of business. After consultation with legal counsel, management estimates that these matters
will be resolved without a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

12.    RECAPITALIZATION OF THE COMPANY AND RELATED CHARGES

On October 26, 2001, a recapitalization of the Company was completed, as contemplated by (i) an Agreement, dated as of August 20, 2001 as
amended on October 26, 2001 (the Recapitalization Agreement), by and among Warburg Pincus Private Equity Fund VIII, L.P., a Delaware limited partnership (Warburg Pincus), MSN Acquisition Corp.,
a wholly owned subsidiary of Warburg Pincus, and the Company; and (ii) an Amended Voting, Sale and Retention Agreement, dated as of October 26, 2001 (the Stockholders Agreement), by
Warburg Pincus, the Company and MSN Acquisition Corp.

Pursuant
to the terms of the Recapitalization Agreement, holders of the Company's common stock became entitled to receive $18.60 per share of common stock and holders of the Company's
convertible preferred stock became entitled to receive $18.60 times the number of shares of common stock into which the preferred stock was then convertible. Certain of the stockholders, including
executive officers, elected to retain certain of their shares of common stock rather than to receive the cash consideration for a portion of their shares. These retained shares were then exchanged for
the same securities that the Investor Group received.

Upon
completion of the recapitalization, the Investor Group was issued redeemable preferred stock, common stock and senior unsecured promissory notes, together representing approximately
85% of the equity ownership in exchange for cash consideration totaling approximately $156.6 million. In addition and as further discussed in Note 9, a banking syndicate extended a
senior credit facility to the Company in the amount of $120.0 million, of which $105.0 million was advanced to the Company at closing. Together, these funds were used to pay the merger
consideration to the former stockholders, retire approximately $82.0 million of the then outstanding debt obligations, pay transaction fees and expenses of approximately $7.2 million and
provide the Company with working capital for operations.

F-28

---

Due
to the significant minority stockholders which remained, the transactions described above have been accounted for as a leveraged recapitalization. Accordingly, the Company has
retained its historical cost basis of accounting. The shares repurchased by the Company have been canceled.

The
Company incurred approximately $3.7 million in debt issuance costs related to these transactions. These costs have been capitalized as long-term assets and are
being amortized over the terms of the indebtedness. In addition, the Company also incurred the following charges, which are included in the 2001 results of operations: (i) a loss of
approximately $4.4 million from the retirement of debt outstanding prior to the recapitalization; and (ii) transaction costs of approximately $7.2 million comprised of bonus
payments and stock option buyouts of approximately $3.1 million, and professional service fees of approximately $4.1 million.

13.    REDEEMABLE PREFERRED STOCK

In October 2001, in connection with our recapitalization, the Company authorized 15.0 million shares of preferred stock, par value $0.01, of which
7.0 million shares were designated as Series I Convertible Preferred Stock. The Series I Convertible Preferred Stock had a stated value of $18.60 and 6.6 million shares
were issued in connection with the recapitalization. The holders of the Series I Convertible Preferred Stock were entitled to receive dividends at a rate of 8% per annum of the stated value
compounded quarterly, which were cumulative and accrued whether or not declared by the Board of Directors and were payable when and as declared by the Board of Directors pursuant to certain
restrictions as defined by the Company's credit agreement. The Series I Convertible Preferred Stock could be converted at any time, at the option of the holder on a
one-for-one basis by the holder upon written notice into fully paid and nonassessable shares of the Company's common stock at an initial conversion price of $6.06, which is
subject to adjustment pursuant to anti-dilution provisions. Upon completion of a Qualified Public Offering (as defined), each share of Series I Convertible Preferred Stock was to be
automatically converted into common stock at its then effective conversion price. At any time after October 26, 2009, or upon consummation of a Change in Control (as defined), the holders of
the Series I Convertible Preferred Stock could require the Company to redeem any or all of the outstanding shares of the Series I Convertible Preferred Stock at a price in cash equal to
the stated value per share plus any accrued but unpaid dividends. As discussed in Note 14, the outstanding shares of Series I Convertible Preferred Stock were converted into
21.1 million shares of common stock in connection with the completion of the Company's initial public offering on April 23, 2002.

Pursuant
to the recapitalization, the Company converted the previously authorized 4.0 million, 4.0 million, 0.8 million, 2.0 million and 2.0 million
shares of Series A, Series B, Series C, Series D and Series E redeemable preferred stock, respectively, into common shares. As of December 31, 2000,
1.5 million, 1.9 million, 0.6 million, 1.5 million and 30,000 shares of Series A, Series B, Series C, Series D and Series E redeemable
preferred stock, respectively, were issued and outstanding. The Series A and Series B redeemable preferred stock had identical rights with the exception that Series A redeemable
preferred stock holders as a group may elect two members of the Board of Directors and Series B redeemable preferred stock is nonvoting. Series A and Series B redeemable preferred
stock were convertible on a one-for-one basis by the holders upon written notice into fully paid and nonassessable shares of the Company's common stock. The Series B
redeemable preferred stock was convertible by the holder upon written notice into fully paid and nonassessable shares of the Series A redeemable preferred stock. The liquidation value of both
Series A and Series B redeemable preferred stock was $3.375 per share.

F-29

---

Each
share of Series A and Series B redeemable preferred stock was automatically convertible into common stock upon the closing of a Qualified Public Offering (as defined).
If a Qualified Public Offering was not completed by June 1, 2004, the holders were entitled to redeem the outstanding shares of either Series A or Series B redeemable preferred
stock at a price that is the greater of the liquidation value or the fair market value of each share. At December 31, 2000, the Company had issued and outstanding 1.5 million shares of
Series A redeemable preferred stock and 1.9 million of Series B redeemable preferred stock.

The
Company issued 0.6 million shares of Series C redeemable preferred stock in conjunction with the acquisition of Staff Relief, Inc. Series C redeemable
preferred stock shares were convertible on a one-for-one basis by the holder upon written notice into fully paid and nonassessable shares of the Company's common stock.
Series C redeemable preferred stockholders as a group had the ability to elect one member to the Board of Directors. The liquidation value of the Series C redeemable preferred stock was
$5.00 per share. Each share of Series C redeemable preferred stock was automatically convertible into common stock upon the closing of a Qualified Public Offering (as defined). If a Qualified
Public Offering was not completed by September 30, 2004, the holders had the ability to redeem the outstanding shares of Series C redeemable preferred stock at a price of $5.00 per
share.

The
rights and preferences of the Series D and Series E redeemable preferred stock were similar to those of the Company's Series A and Series B redeemable
preferred stock, respectively, described herein, except that the liquidation value of the Series D and Series E redeemable preferred stock was $5.00 per share and the Series D
redeemable preferred stock shareholders could only elect one Director to the Board. At December 31, 2000, the Company had issued and outstanding 1.5 million shares of Series D
redeemable preferred stock and 30,000 of Series E redeemable preferred stock.

14.    COMMON STOCKHOLDERS' EQUITY (DEFICIT)

Common Shares

On April 12, 2002, the Company approved an amendment to its Certificate of Incorporation increasing the Company's authorized shares of common stock to
75.0 million shares and a stock split in the form
of a stock dividend of 3.069375 for 1, each of which took effect immediately prior to the closing of the Company's initial public offering. The consolidated financial statements have been restated to
give retroactive recognition to the stock split in the prior periods, including all references in the consolidated financial statements to number of shares and per share amounts.

Initial Public Offering

On April 23, 2002, the Company completed its initial public offering of 7.8 million shares of common stock at $19.00 per share. Additionally, the
underwriters exercised the over-allotment option of 1.2 million shares, bringing the total number of shares issued to 9.0 million. Total proceeds received by the Company, net
of expenses related to the initial public offering were $156.3 million. The proceeds were used to repay $62.9 million of the Company's outstanding balance under the senior unsecured
notes, and approximately $93.4 million of the Company's outstanding loans under the senior credit facility. Immediately prior to the completion of the initial public offering, the outstanding
shares of Series I Preferred Stock were converted into 21.1 million shares of common stock.

F-30

---

Stock Options

The Company has a stock option plan (the Plan), under which 1.2 million shares of common stock are available for grant. At December 30, 2001,
0.3 million shares were reserved for future issuances under the Plan. The Plan is designed to serve as an incentive for retaining qualified and competent employees. The Compensation Committee
of the Board of Directors administers the Plan and is authorized to grant options thereunder to all eligible employees of the Company, including officers and directors of the Company and consultants.
The Plan provides for the granting of both "incentive stock options" (as defined in Section 422A of the Internal Revenue Code) and nonqualified stock options. Options are granted under the Plan
on such terms and at such prices as determined by the Compensation Committee, except that the per share exercise price of incentive stock options cannot be less than the fair market value of the
common stock on the date of grant, unless the optionee owns more than 10% of the total combined voting power of the Company, in which case options cannot be granted at a price less than 110% of the
fair market value of the Company's common stock on the date of grant. Each option is exercisable after the period or periods specified in the option agreement, but no option can be exercised after the
expiration of ten years and one day from the date of grant. Options granted under the Plan are not transferable other than by will or by the laws of descent and distribution.

The
Company's 2001 Stock Incentive Plan (the 2001 Plan) was adopted by the Board on November 14, 2001. Under the terms of the 2001 Plan, the Company is authorized to grant
incentive stock options and nonqualified stock options, make stock awards and provide the opportunity to purchase stock to employees, directors, officers and consultants of the Company. The 2001 Plan
provides for the issuance of a maximum of 2.3 million shares of common stock. On June 17, 2003 the shareholders of the Company approved an amendment to the 2001 Plan which increased the
maximum number of shares for issuance by 0.5 million, to 2.8 million. The Compensation Committee of the Board of Directors administers the 2001 Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers and directors of the Company and consultants. The 2001 Plan provides for the granting of both "incentive stock options" (as
defined in Section 422A of the Internal Revenue Code) and nonqualified stock options. Options are granted under the 2001 Plan on such terms and at such prices as determined by the Compensation
Committee, except that the per share exercise price of incentive stock options cannot be less than the fair market value of the common stock on the date of grant, unless the optionee owns more than
10% of the total combined voting power of the Company, in which case options cannot be granted at a price less than 110% of the fair market value of the Company's common stock on the date of grant.
The options granted under the 2001 Plan are exercisable upon vesting ratably over time ranging from three to eight years, but no option can be exercised after the expiration of ten years and one day
from the date of grant. Options granted under the 2001 Plan are not transferable other than by will or by the laws of descent and distribution.

F-31

---

A
summary of the Company's stock option activity and related information is as follows:

Shares

Weighted Average
Exercise PriceOutstanding at December 31, 2000

354,513

$
1.94Granted

2,106,769

$
5.44Forfeited

(428,202
)
$
2.01Outstanding at December 30, 2001

2,033,080

$
5.55Granted

243,750

$
16.23Exercised

(32,058
)
$
2.58Forfeited

(145,833
)
$
5.48Outstanding at December 29, 2002

2,098,939

$
6.84Granted

235,788

$
8.94Exercised

(90,362
)
$
4.00Forfeited

(272,304
)
$
7.21Outstanding at December 28, 2003

1,972,061

$
7.16Exercisable at end of year

946,906

$
6.55


Weighted Average
Fair ValueOptions granted during the year:Issued at market price

$
6.12


Information
about options outstanding as of December 28, 2003 is as follows:

Options Outstanding

Options ExercisableRange
of Exercise
Prices

Shares

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise Price

Shares

Weighted
Average
Exercise Price$1.87 to $2.20

122,640

6.9

$
2.17

27,560

$
2.17$6.06

1,425,633

7.9

$
6.06

866,097

$
6.06$8.00

125,000

9.5

$
8.00



$
$10.00

110,788

10.0

$
10.00



$
$14.00 to $21.00

188,000

8.8

$
16.41

53,249

$
16.671,972,061






946,906


F-32

---

Promissory Notes Due for Purchases of Common Stock

During Fiscal Year 2000, certain executives of the Company, pursuant to the Executive Incentive Stock Ownership Plan, executed promissory notes in exchange for
the purchase of 2.7 million restricted common shares ranging in price from $1.63 to $2.20. The promissory notes were repaid in full by the executives in 2002. While the promissory notes were
outstanding, these restricted common shares were included in diluted earnings per share using the treasury stock method. The promissory notes were secured by the common shares. The notes were due ten
years from date of issuance and bore interest at the published prime rate. In connection with the recapitalization, approximately $2.4 million of the promissory notes were repaid.

Stockholders' Agreement

The Company and certain of its stockholders entered into a stockholders agreement conferring certain rights and restrictions, including among others, restrictions
on transfers of shares, rights to acquire shares, and designation of Board of Director seats. This agreement terminated upon the Company's initial public offering except that:



F-33

---





15.    INCOME (LOSS) PER SHARE

|                                      |                                                                                                          | Years Ended |      
|------------------------------------- | -------------------------------------------------------------------------------------------------------- | ----------- | -----
|
|
|Numerator:                            |                                                                                                          |             |      
|                                      | Net income (loss) before preferred stock dividends                                                       |             | $    
|                                      | Less preferred stock dividends                                                                           |             |      
|                                      |                                                                                                          |             |      
|                                      | Numerator for basic income (loss) per share-available to common stockholders                             |             |      
|                                      | Effect of dilutive securities:                                                                           |             |      
|                                      | Add back preferred stock dividends                                                                       |             |      
|                                      |                                                                                                          |             |      
|                                      | Numerator for diluted income (loss) per share-available to common stockholders                           |             |      
|                                      |                                                                                                          |             |      
|Denominator:                          |                                                                                                          |             |      
|                                      | Denominator for basic income (loss) per share-weighted-average shares                                    |             |      
|                                      | Effect of dilutive shares:                                                                               |             |      
|                                      | Employee stock options                                                                                   |             |      
|                                      | Convertible preferred stock                                                                              |             |      
|                                      |                                                                                                          |             |      
|                                      | Dilutive potential common shares                                                                         |             |      
|                                      |                                                                                                          |             |      
|                                      | Denominator for diluted income (loss) per share-adjusted weighted-average shares and assumed conversions |             |      
|                                      |                                                                                                          |             |      
|Income (loss) per share  basic:      |                                                                                                          |             |      
|Income from continuing operations     |                                                                                                          | $           | 0.18 
|Discontinued operations, net of taxes |                                                                                                          |             | (0.01
|                                      |                                                                                                          |             |      
|Basic net income (loss) per share     |                                                                                                          | $           | 0.17 
|                                      |                                                                                                          |             |      
|Income (loss) per share  diluted:    |                                                                                                          |             |      
|Income from continuing operations     |                                                                                                          | $           | 0.18 
|Discontinued operations, net of taxes |                                                                                                          |             | (0.02
|                                      |                                                                                                          |             |      
|Diluted net income (loss) per share   |                                                                                                          | $           | 0.16 
|                                      |                                                                                                          |             |      

For
the years ended December 28, 2003, December 29, 2002 and December 30, 2001, 0.3 million, 0.2 million and 2.0 million incremental options,
respectively, were excluded from the denominator for diluted earnings per share as the impact of conversion is anti-dilutive.

F-34

---

16.    RELATED PARTY TRANSACTIONS

During 2000, certain executives of the Company, pursuant to the Executive Incentive Stock Ownership Plan, executed promissory notes in exchange for restricted
common shares. The promissory notes were repaid in full by the executives in 2002 (see Note 14).

During
the years ended December 28, 2003 and December 29, 2002, the Company provided staffing services to a healthcare system of which one of the Company's directors, Phil
A. Incarnati, is the President and Chief Executive Officer for which the Company billed approximately $2.2 million and $1.0 million, respectively, for its services. The Company had a
receivable balance from the healthcare system of $0.3 million and $0.1 million, at December 28, 2003 and December 29, 2002 respectively.

The
Company paid approximately $0.1 million during each of the years ended December 28, 2003 and December 29, 2002, in donations to a Florida Atlantic University
(FAU) Foundation to support a center for nursing. One of the Company's directors, Dr. Anne Boykin, is the Dean of the College of Nursing at FAU, a university located in Boca Raton, Florida.

The
Company paid $0.2 million during the year ended December 30, 2001 in consulting fees to a stockholder for services rendered. No payments were made for the years ended
December 28, 2003 and December 29, 2002.

During
2001, the Company entered into senior unsecured promissory notes of approximately $59.3 million with certain related parties. The senior unsecured promissory notes were
repaid in 2002 when the Company completed its initial public offering (see Note 9).

17.    ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate fair value
because of their short duration of maturity. The carrying amounts of the revolving credit note and term note approximate fair value because the interest rate is tied to a quoted variable index. The
carrying amount of the senior subordinated debt approximates fair value as the terms of the debt were based on similar terms, maturities and interest rates as other debt issues with similar risk
factors that are not traded on quoted market prices. The fair value of the put warrants was based on valuation models using current market rates.

18.    INTEREST RATE SWAP

The Company's former senior credit facility required that the Company maintain an interest rate protection agreement to manage the impact of interest rate changes
on a portion of the Company's variable rate obligations. Effective December 24, 2001, the Company entered into an interest rate swap agreement (the Swap Agreement) with a financial institution.
The Swap Agreement involved the receipt of floating interest rate payments based on the U.S. Dollar London Interbank Offered Rate, which was reset quarterly, and of fixed interest rate payments of
4.34% over the life of the Swap Agreement without an exchange of the underlying notional amount, which was set at $50.0 million. The interest rate swap was scheduled to mature on
December 24, 2004.

The
Company entered into the Swap Agreement to reduce the exposure to adverse fluctuations in floating interest rates on the underlying debt obligation and not for trading purposes. Any
differences paid or received under the terms of the Swap Agreement shall be recognized as adjustments to interest expense over the life of the interest rate swap, thereby adjusting the effective
interest rate on the underlying debt obligation.

F-35

---

The
Swap Agreement was terminated on May 9, 2002 for approximately $0.5 million. As the facility the swap agreement was associated with was repaid in full in
December 2003, the Company recorded a charge of approximately $0.1 million in the fourth quarter of 2003 to write off the remaining balance.
As a result, at December 28, 2003, the Company had no accumulated other comprehensive loss balance related to the loss associated with the termination of the interest rate swap.

19.    SUBSEQUENT EVENTS

On February 20, 2004, a class action lawsuit was filed against the Company in the United States District Court of the Southern District of Florida, on
behalf of purchasers of the common stock of the Company pursuant to or traceable to its initial public offering in April 2002. The lawsuit also named as defendants certain of the Company's
directors and executive officers. The complaint alleges that certain disclosures in the Registration Statement/Prospectus filed in connection with the Company's initial public offering on
April 17, 2002 were materially false and misleading in violation of Sections 11 and 15 of the Securities Act of 1933. The complaint seeks compensatory damages as well as costs and attorney
fees.

On
March 3, 2004, another class action complaint was filed against the Company and certain of its directors and executive officers in the United States District Court for the
Southern District of Florida on behalf of a class of the Company's stockholders who purchased stock during the period from April 18, 2002 through June 16, 2003. The complaint alleges
that certain of the Company's public disclosures during the class period were materially false and misleading in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder. The complaint also seeks compensatory damages, costs and attorney fees.

The
Company believes that these two class action lawsuits are without merit and intends to vigorously defend this litigation.

F-36

---



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board
of Directors and Stockholders
Medical Staffing Network Holdings, Inc.

We
have audited the consolidated financial statements of Medical Staffing Network Holdings, Inc. as of December 28, 2003 and December 29, 2002, and for each of the
three years in the period ended December 28, 2003, and have issued our reports thereon dated February 13, 2004, except with respect to the matters discussed in Note 19, as to which the
date is March 3, 2004 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule listed in Item 15(a)2 of this
Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.

In
our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

| | /s/ERNST & YOUNG LLP
| | --------------------

Fort
Lauderdale, Florida
February 13, 2004, except with respect to the matters
        discussed in Note 19, as to which the date is March 3, 2004

S-1

---



MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES  SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

|Description                      |                              | Balance at
Beginning
of Period |   | Charged to
Costs and
Expenses |  | Writeoffs
And
Adjustments |       | Balance at
End
of Period
|-------------------------------- | ---------------------------- | ------------------------------ | - | ----------------------------- |  | ------------------------- | ----- | ------------------------
|
|Allowance for doubtful accounts: |                              |                                |   |                               |  |                           |       |                         
|                                 | Year ended December 30, 2001 |                                | $ | 1,435                         |  | $                         | 1,728 |                         
|                                 |                              |                                |   |                               |  |                           |       |                         
|                                 | Year ended December 29, 2002 |                                | $ | 2,182                         |  | $                         | 6,259 |                         
|                                 |                              |                                |   |                               |  |                           |       |                         
|                                 | Year ended December 28, 2003 |                                | $ | 2,757                         |  | $                         | 3,226 |                         
|                                 |                              |                                |   |                               |  |                           |       |                         

S-2

---

QuickLinks