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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-11781
HOSPITAL STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2150637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6245 NORTH FEDERAL HIGHWAY, SUITE 400
FORT LAUDERDALE, FLORIDA 33308-1900
(Address of principal executive offices)
(305) 771 - 0500
Registrant's telephone number, including area code
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
5,649,770 shares of Common Stock, $.001 par value, outstanding at July 13, 1995.
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<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Operations
Consolidated Condensed Statements of
Stockholders' Equity
Consolidated Condensed Statements of Cash Flows
Notes to Consolidated Condensed Financial
Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION AND SIGNATURES
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MAY 31, 1995 AND NOVEMBER 30, 1994
ASSETS
------
MAY 31, NOVEMBER 30,
1995 1994
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,847,877 $516,770
Short-term investments - 1,148,729
Trade accounts receivable, less allowance
for doubtful accounts of $1,531,600
and $2,345,598, respectively 6,245,862 7,554,155
Estimated settlements due from Medicare 9,476,581 10,120,218
Prepaid expenses and other 386,839 249,904
Amounts due from officers/directors 122,769 240,781
Income taxes receivable 171,147 212,042
Other 594,979 785,360
----------- -----------
Total current assets 18,846,054 20,827,959
----------- -----------
NON-CURRENT ASSETS:
PROPERTY AND EQUIPMENT, at cost 3,731,900 3,537,469
Less: Accumulated depreciation (2,565,347) (2,282,793)
----------- -----------
Net property and equipment 1,166,553 1,254,676
----------- -----------
INTANGIBLES RELATED TO BUSINESSES
ACQUIRED 2,160,016 2,022,183
NON-COMPETITION AGREEMENTS 479,426 551,544
----------- -----------
Total intangibles 2,639,442 2,573,727
Less: Accumulated amortization (632,711) (759,725)
----------- -----------
Net Intangibles 2,006,731 1,814,002
----------- -----------
DEPOSITS AND OTHER ASSETS 313,493 516,512
----------- -----------
Total non-current assets 3,486,777 3,585,190
----------- -----------
Total assets $22,332,831 $24,413,149
=========== ===========
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS-(Continued)
MAY 31, 1995 AND NOVEMBER 30, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
MAY 31, NOVEMBER 30,
1995 1994
------ ------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $4,939,535 $5,744,272
Line of credit payable - 304,912
Accrued payroll and payroll taxes 2,161,482 2,473,643
Accrued expenses and other 4,357,334 5,594,163
Notes payable (Notes 3 & 7) 555,130 156,000
Lease settlement (Note 8) 700,000 700,000
Income taxes payable 280,253 561,245
----------- ----------
Total current liabilities 12,993,734 15,534,235
----------- ----------
NON-CURRENT LIABILITIES
Notes payable (Notes 3 & 7) 1,118,893 844,000
----------- ----------
Total non-current liabilities 1,118,893 844,000
----------- ----------
Total liabilities 14,112,627 16,378,235
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred Stock - $.001 par value;
5,000,000 shares authorized;
none issued and outstanding - -
Common stock- $.001 par value;
20,000,000 shares authorized;
5,649,770 shares
issued and outstanding 5,650 5,650
Additional paid-in capital 21,292,087 21,292,087
Accumulated deficit (13,077,533) (13,262,823)
----------- ----------
Total stockholders' equity 8,220,204 8,034,914
----------- ----------
Total liabilities and
stockholders' equity $22,332,831 $24,413,149
============ ===========
The accompanying notes to consolidated condensed financial statements are an
integral part of these consolidated condensed balance sheets.
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1995 AND MAY 31, 1994 AND
FOR THE SIX MONTHS ENDED MAY 31, 1995 AND MAY 31, 1994
(UNAUDITED)
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET REVENUE FROM SERVICES $14,860,176 $21,016,350 $28,571,908 $42,279,295
COST OF SERVICES:
PROFESSIONAL SALARIES AND PAYROLL TAXES 7,391,322 12,334,609 14,823,716 24,200,453
OTHER PROFESSIONAL EXPENSES 1,410,833 1,575,511 2,812,082 3,209,944
----------- ----------- ----------- ------------
TOTAL COST OF SERVICES 8,802,155 13,910,120 17,635,798 27,410,397
----------- ----------- ----------- ------------
GROSS MARGIN 6,058,021 7,106,230 10,936,110 14,868,898
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
ALL OTHER EXPENSES 1,727,232 4,828,119 3,302,124 7,600,612
SALARIES AND PAYROLL TAXES 3,154,143 4,607,887 5,833,352 8,807,631
LEGAL EXPENSES (NOTE 9) 370,652 364,829 856,666 835,045
SEVERANCE OBLIGATION (NOTE 7) 646,724 309,768 646,724 309,768
----------- ----------- ----------- ------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,898,751 10,110,603 10,638,866 17,553,056
----------- ----------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS 159,270 (3,004,373) 297,244 (2,684,158)
----------- ----------- ----------- ------------
INTEREST AND OTHER INCOME (EXPENSE):
INTEREST EXPENSE (52,910) (123,053) (140,467) (245,560)
INTEREST INCOME 16,085 21,011 33,754 34,547
OTHER INCOME, NET 37,750 174,018 70,759 177,522
----------- ----------- ----------- ------------
TOTAL INTEREST AND OTHER INCOME (EXPENSE) 925 71,976 (35,954) (33,491)
----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 160,195 (2,932,397) 261,290 (2,717,649)
PROVISION (BENEFIT) FOR INCOME TAXES 38,000 (100,000) 76,000 -
----------- ----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 122,195 (2,832,397) 185,290 (2,717,649)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 162,000
----------- ----------- ----------- ------------
NET INCOME (LOSS) $122,195 ($2,832,397) $185,290 ($2,555,649)
=========== =========== =========== ============
PRIMARY EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $0.02 ($0.50) $0.03 ($0.48)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 0.03
----------- ----------- ----------- ------------
$0.02 ($0.50) $0.03 ($0.45)
=========== =========== =========== ============
FULLY DILUTED EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $0.02 ($0.50) $0.03 ($0.48)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 0.03
----------- ----------- ----------- ------------
$0.02 ($0.50) $0.03 ($0.45)
=========== =========== =========== ============
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
PRIMARY 5,649,770 5,646,020 5,649,770 5,646,020
=========== =========== =========== ============
FULLY DILUTED 5,649,770 5,646,020 5,649,770 5,646,020
=========== =========== =========== ============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1994 AND
FOR THE SIX MONTHS ENDED MAY 31, 1995
COMMON STOCK
-------------------------
NUMBER OF ADDITIONAL
SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT
----------- ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, November 30, 1993 5,646,020 $5,646 $21,278,966 ($2,008,300)
Exercise of warrants 3,750 4 13,121 -
Net Loss - - - (11,254,523)
----------- ------- ----------- -----------
BALANCE, November 30, 1994 5,649,770 5,650 21,292,087 (13,262,823)
Net Income - - - 185,290
----------- ------- ----------- -----------
BALANCE, May 31, 1995 (Unaudited) 5,649,770 $5,650 $21,292,087 ($13,077,533)
=========== ======= =========== ===========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1995 AND MAY 31, 1994
(UNAUDITED)
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $185,290 ($2,555,649)
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 354,494 737,662
Provision for losses on accounts receivable 153,673 1,826,242
Loss on disposal and retirement of property and equipment 5,380 24,952
Write-off of intangibles related to businesses acquired, net - 61,933
Severance obligation (Note 7) 630,000 310,000
Changes in assets and liabilities
net of effects of acquisition of Tri-Therapy:
(Increase) decrease in assets -
Trade accounts receivable 1,079,620 (1,392,127)
Estimated settlements due from Medicare 643,637 2,015,484
Prepaid expenses and other current assets (136,935) (65,124)
Amounts due from officers/directors 18,012 (7,617)
Income taxes receivable 40,895 524,389
Deposits and other assets 387,729 (116,660)
Increase (decrease) in liabilities -
Accounts payable (804,737) (447,807)
Accrued payroll and payroll taxes (312,161) 110,544
Accrued expenses and other (1,236,829) 221,190
Income taxes payable (280,992) -
----------- -----------
Total adjustments 541,786 3,803,061
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 727,076 1,247,412
----------- -----------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Sale of short-term investments, net 1,148,729 1,000,000
Capital expenditures (148,159) (77,709)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,000,570 922,291
----------- -----------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Line of credit borrowings 29,959,000 42,857,000
Line of credit repayments (30,263,912) (44,657,444)
Notes payable (91,627) -
Nonemployee compensation relating to warrant grant - 13,088
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (396,539) (1,787,356)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,331,107 382,347
Cash and cash equivalents at beginning of period 516,770 1,280,545
----------- -----------
Cash and cash equivalents at end of period $1,847,877 $1,662,892
=========== ===========
Supplemental Cash Flow Disclosures:
Cash paid: Income Taxes $226,048 $259,761
Interest $137,978 $222,202
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 1995
(UNAUDITED)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES -
The accounting policies followed by Hospital Staffing Services, Inc. and
subsidiaries (the "Company") for quarterly financial reporting purposes are the
same as those disclosed in the Company's annual financial statements. In the
opinion of management, the accompanying consolidated condensed financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of the information presented.
Certain amounts in the accompanying consolidated 1994 financial statements have
been reclassified to conform to the 1995 presentation.
The quarterly consolidated condensed financial statements herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. Although the Company's management believes the
disclosures are adequate to make the information not misleading, it is suggested
that these quarterly consolidated condensed financial statements be read in
conjunction with the audited annual financial statements and footnotes thereto.
NOTE 2: GOING CONCERN -
The Company has suffered recurring losses from operations for the past
three fiscal years and as of fiscal year ended November 30, 1994 was in
violation of certain credit facility covenants, waivers for which were obtained
through November 30, 1995 on March 13, 1995. Additionally, while the Company's
negative cash flow has improved during the second quarter as a result of
increases in collection activity and restructuring of its North Eastern home
care operations, the Company still projects negative cash flow in fiscal 1995
primarily as a result of funding of prior years' recorded liabilities, slow
collections of certain customer accounts and loss contingencies that are, in
part, expected to mature over the next twelve months. In addition, as more fully
described in Note 8 to the consolidated condensed financial statements, the
Company is subject to additional contingencies, the outcome of which may have a
material impact on the Company's results of operations and liquidity. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
Management's plans to overcome the above, certain of which have been
implemented, consists of restructuring its operations to become profitable,
further enhancing collection efforts on slow paying accounts, obtaining payment
terms beneficial to the Company and its vendors as necessary, negotiating
extended repayment for estimated settlements which may need to be paid to the
Medicare program, managing the contingencies described in Note 8 to the
<PAGE>
consolidated condensed financial statements to successful resolution, seeking
merger and/or acquisition partners, and lastly, raising additional capital. The
Company is presently exploring ways to raise the additional capital through a
number of means including developing additional borrowing eligibility under its
existing credit facility, private placement of debt, issuance of preferred
and/or common stock. Under certain conditions the Company may consider the sale
of certain of the Company's remaining operating units in part or in whole.
NOTE 3: ACQUISITIONS AND DIVESTITURES -
On January 13, 1995, certain assets of the Company's Broward County,
Florida private duty home health agency were sold to the Company's Chairman and
Chief Executive Officer. The assets were sold for $185,000 representing all of
the fixed assets and certain intangibles. This price, which the Company believes
is slightly in excess of fair market value, was based upon the Company's
investment banker's valuations and various offers received by the Company from
third parties.
On February 15, 1995, a wholly-owned subsidiary of the Company acquired
certain assets of a therapy company for an aggregate purchase price of
approximately $496,000 representing approximately $96,000 in fixed assets and
approximately $400,000 in certain intangibles. The purchase price is being
satisfied by the forgiveness of a $75,000 trade accounts receivable that the
therapy company owed the Company for nursing services provided by the Company
prior to the acquisition date and through the issuance of a promissory note of
approximately $421,000 with the balance due in equal annual payments of $84,130
over the next five years.
NOTE 4: DEBT -
On August 23, 1993, the Company obtained a three year $15 million revolving
line of credit with a commercial finance company to replace its prior credit
facility with a bank. The present credit facility bears interest at prime (9.0%
at May 31, 1995) plus 2% per annum payable monthly, is secured by substantially
all assets of the Company and requires adherence to certain financial covenants.
Borrowing is based on the Company's eligible accounts receivable.
The present credit facility includes up to $3.5 million to secure a
workers' compensation standby letter of credit required by the insurance carrier
for the Company's workers' compensation coverage. As of May 31, 1995, the
Company was contingently liable for a $2 million standby letter of credit issued
by its lender for the benefit of the insurance carrier. Such amount is reserved
under the $15 million line of credit with its lender, representing a reduction
of otherwise eligible borrowing. As of May 31, 1995, approximately $528,000 was
available for additional borrowing under the line of credit.
As of May 31, 1995, there were no outstanding principal borrowings under
the credit facility. As of November 30, 1994 and May 31, 1995, the Company was
not in compliance with the financial
<PAGE>
covenant relating to maintenance of a minimum tangible net worth and a second
covenant relating to a prohibition against entering into a consulting agreement
with a director of the Company. Waivers from its lender for the covenant
violations through November 30, 1995 were obtained on March 13, 1995.
NOTE 5: STOCKHOLDERS' EQUITY -
No stock options were granted or exercised during the six months ended May
31, 1995 under any of the Company's stock option plans.
In connection with the Chief Financial Officer's resignation from the
Company on May 1, 1995, see Note 7, the Board of Directors waived for the Chief
Financial Officer the provision of the Company's 1990 Stock Option Plan which
provided for a ninety day expiration date from the date of termination for the
exercise of all stock options previously granted. The exercise prices of the
previously granted stock options, which can be exercised for 100,000 shares of
common stock on May 1, 1995, were in excess of the fair market value of the
Company's common stock on this date.
NOTE 6: EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT -
Earnings per common and common share equivalent is based on the combined
weighted average number of common shares and common share equivalents
outstanding which includes the assumed exercise of those stock options and
warrants which are dilutive.
The Company utilizes the treasury stock method for computing earnings per
share. Under the treasury stock method the dilutive effect of outstanding common
stock equivalents for determining primary earnings per share is computed using
the average market price during the period, whereas the dilutive effect of
outstanding common stock equivalents for determining fully diluted earnings per
share is computed using the market price as of period end, if greater than the
average market price.
NOTE 7: SEVERANCE OBLIGATIONS -
Upon termination in October, 1992 the Company incurred a severance
obligation to a previous officer of approximately $900,000. Such amount was
expensed as of the date of the October termination. As of May 31, 1995 and
November 30, 1994, the Company's remaining unpaid obligation was approximately
$12,100 and $166,000, respectively, and is included in accrued payroll and
payroll taxes in the accompanying consolidated condensed balance sheets.
Upon termination in May, 1994 the Company incurred a severance obligation
to a previous officer of approximately $310,000. Such amount was expensed as of
the date of the May termination. As of May 31, 1995 and November 30, 1994, the
Company's remaining unpaid obligation was approximately $61,900 and $186,000,
respectively, and is included in accrued payroll and
<PAGE>
payroll taxes in the accompanying consolidated condensed balance sheets.
On December 30, 1994, the Company and its Chairman and Chief Executive
Officer entered into an agreement to modify the Termination and Benefits
Agreement dated June 1, 1991. In lieu of the Company's future obligation to the
Chief Executive Officer of between three and five years of base salary and
certain benefits (as defined), totaling approximately $1.2 - $2 million, which
would result from a termination of the Chief Executive Officer upon his
resignation or dismissal by the Company without cause, respectively, the Company
and the Chief Executive Officer agreed to currently settle the future obligation
for $1 million. Such amount was charged to fiscal year ended November 30, 1994's
consolidated statement of operations as the Board of Directors had effectively
approved the terms of the agreement as of that date. Also, in connection with
this agreement, effective on January 1, 1995, the Chief Executive Officer's base
salary was reduced from $330,000 to $175,000 per year.
The Chief Executive Officer continues to remain in the Company's employ and
upon ninety days written notice from the Company, can be terminated at will
whereby the Company's only continuing obligation, in addition to the remaining
unpaid portion of the $1 million settlement discussed above, would be for the
payment of certain benefits (primarily life, health and disability insurance)
for a period of one year.
In connection with the January 13, 1995 sale of the Broward County home
health agency to the Chief Executive Officer (see Note 3), $185,000 of the $1
million obligation was satisfied as an offset to the purchase price of the
Broward agency. Additionally, $100,000 of the $1 million obligation was
satisfied as settlement of the amounts advanced from the Company to the Chief
Executive Officer in prior years. The remaining obligation of $715,000 is being
satisfied through installment payments under a promissory note dated January 13,
1995. The promissory note requires monthly installments of $13,000 plus accrued
interest at prime rate per annum from the date of the agreement for a period of
55 months. The promissory note provides for acceleration of the balance due to
be immediately payable to the Chief Executive Officer upon the Company's default
of a scheduled monthly payment. In the absence of an event constituting
acceleration, as of May 31, 1995, the Company's future obligation under the
amount due the officer was approximately as follows:
Obligation Amount
---------- --------
Total $649,600
Less current portion (156,000)
--------
Non-current portion $493,600
========
<PAGE>
On March 31, 1995, the Company's Chief Financial Officer accepted the
conditions imposed upon him by the Company's Board of Directors with respect to
the Company's severance obligation due him. Upon his resignation on May 1, 1995,
the Company incurred a severance obligation in the amount of $630,000.
In connection with the Chief Financial Officer's resignation the Board of
Directors waived the provision of the Company's 1990 Stock Option Plan which
provided for a ninety day expiration date from the date of termination for the
exercise of stock options previously granted to the Chief Financial Officer (see
Note 5.) The entire severance obligation, inclusive of payroll taxes and related
costs, aggregating approximately $647,600 was expensed as of the date of the
officer's resignation. The obligation of $630,000 is being satisfied through a
promissory note dated May 31, 1995 requiring 24 monthly installments of $26,250
from the date of the agreement. The promissory note provides for acceleration of
the balance due upon the Company's default of a scheduled monthly payment. In
the absence of an event constituting acceleration, as of May 31, 1995, the
Company's future obligation under the amount due the officer was approximately
as follows:
Obligation Amount
---------- --------
Total $603,750
Less current portion (315,000)
--------
Non-current portion $288,750
========
NOTE 8: COMMITMENTS AND CONTINGENCIES -
Dade County Medicare Investigation:
On December 3, 1992, in connection with a federal investigation into
Medicare practices by health care providers in South Florida, the Company was
served with federal search warrants. In response to the issuance of the search
warrants, the Company engaged counsel who initiated a lawyer directed, internal
investigation into its Medicare claims processing system and which was committed
to the identification and elimination of any and all improprieties discovered in
the course of such investigation. As of June 1995, thirty (30) months have
passed since execution of the search warrants and no charges have been brought
against the Company, its officers or employees.
On December 15, 1992, in what appears to have been an action related to the
federal investigation, the Health Care Financing Administration ("HCFA"),
through its fiscal intermediary, notified the Company of its decision to suspend
reimbursement to the Company's South Florida Medicare offices. Such suspension
of Medicare payments in South Florida was based, among other
<PAGE>
considerations, upon allegations of fraud arising from the federal investigation
into claims that were submitted for Medicare services that were not rendered.
The suspension related to all three of the Company's Medicare providers in South
Florida, because all of the providers were part of the same legal entity,
Hospital Staffing Services of Florida, Inc., a wholly-owned subsidiary of the
Company. Management, however, believes that the alleged violations relate solely
to the Dade County Medicare provider and that neither the suspension nor the
federal investigation relates to any of the Company's operations in any of its
other Florida offices or outside of Florida.
While management of the Company had considered a reduction of its use of
subcontracted services in its South Florida Medicare business prior to December
1992, because of circumstances arising from the investigation and suspension of
payments, the Company, in late December 1992, downsized its offices in Dade,
Broward and Monroe counties and terminated its subcontracting relationships with
staffing providers in South Florida, which relationships management believes
substantially gave rise to the federal investigation and suspension of Medicare
payments.
Subsequent to December 1992, the Company continued to operate its Medicare
office in Palm Beach County at a substantial cost to the Company in anticipation
of the reinstatement of Medicare payments. However, because the Company was
still unable to reach consensus with HCFA regarding the reinstatement of
Medicare payments to its South Florida operations, in February 1993 the Company
effectively closed its South Florida Medicare offices, including the Palm Beach
County Medicare office.
On November 30, 1992 and based on information available to management at
that time, the Company provided for estimated Medicare reimbursement
disallowances for potentially non-reimbursable costs which were incurred during
fiscal years 1992 and 1991 on subcontracted staffing in its now closed Dade
County Medicare offices. Because of the investigation into Medicare practices by
health care providers in South Florida and the related seizure of certain of the
Company's records pursuant to federal search warrants in December 1992, the
Company had been unable to complete the billing of a substantial amount of the
Dade County visits made in 1992 and 1991. During fiscal 1993, the Company
undertook an internal review program which included obtaining advice and
consultation from an attorney specializing in Medicare law, engaging a criminal
defense attorney and performing a billing project. An objective of the internal
review program was to bill the balance of the 1992 and 1991 visits, upon return
of the Company's records that had previously been seized pursuant to the federal
search warrants, within the context of the Dade County Medicare investigation.
Additionally, the Company and its attorneys established parameters and
guidelines, greater than those required by the Medicare program, to be followed
during the billing project to insure that the visits were rendered and billable
based on a detailed patient chart review.
Based upon information which became available to management
<PAGE>
during the third quarter of fiscal 1993, which suggested that certain visits may
not be billable for various reasons, including the expiration of certain
administrative deadlines, at that time, the Company recorded additional
estimated Medicare reimbursement disallowances related to the Dade County
Medicare offices.
In November 1994, the Company completed the billing project with respect to
all visits not subject to a claim of untimely filing. While the majority of
prior years claims were billed, certain prior year claims were not billed based
upon the Company's determination from the results of its internal review
program. The internal review program encompassed detailed patient chart reviews
which included, among other tasks, visit verification by patients' doctors and
other caregivers. Management at this time is unable to estimate when the
ultimate outcome of the claims submissions will be known or when the federal
investigation may conclude. Accordingly, it is unknown what the ultimate impact,
if any, the outcome of these matters will have on the Company's consolidated
condensed financial statements.
The estimated settlement amounts due the Company as reflected in the
accompanying consolidated condensed balance sheets, as well as net revenue from
services presented in the accompanying consolidated condensed statements of
operations, are presented net of estimated Medicare reimbursement disallowances.
The estimated disallowances are subject to continual review and, as such, may be
increased or decreased as substantive information becomes available. Included in
the estimated settlements due from Medicare as of May 31, 1995 is approximately
$4.5 million for the Company's former South Florida Medicare operations
representing primarily claims billed by the Company subsequent to closure of its
South Florida Medicare operations. The Company believes that the estimated
settlements due from Medicare, as recorded in the accompanying consolidated
condensed balance sheet as of May 31, 1995, are realizable at their recorded
amount.
Proposed Shareholder Class Action Suits:
On October 13, 1992, a proposed class action suit was filed against the
Company and certain of its officers and directors, and, as amended, the
Company's independent certified public accountants (the "defendants") alleging
violations of the Securities and Exchange Act of 1934. On March 19, 1993, the
court denied without prejudice the defendants' motion to dismiss this action. On
November 24, 1993, another proposed class action suit with nearly identical
allegations was filed against the Company, certain of its officers and directors
and the Company's independent certified public accountants. The defendants
vigorously deny all allegations. To date, the Company has succeeded in staying
the second shareholder action pending the outcome of the first suit. Pursuant to
the provisions of Florida law and the Company's Articles of Incorporation and
Bylaws, the named officers and directors are entitled to indemnity against any
damages they may incur resulting from these suits.
On October 29, 1994, the Company's Board of Directors, after
<PAGE>
evaluating the economic merits of the continuing legal costs required to defend
the original class action, as well as its potential exposure to adverse
judgement, against the amount of settlement that the plaintiff was seeking,
agreed to a proposed settlement between the Company and legal counsel for the
individual shareholders in the original class action suit. The Stipulation of
Settlement which provides for a class period end date of November 30, 1993, the
issuance of 700,000 shares of Common Stock and a cash payment. Accordingly,
based on the estimated future value of the common stock issuance and cash
payment, the Company recorded a charge totaling approximately $1.9 million in
its fiscal year ended November 30, 1994 consolidated statement of operations to
accrue the estimated settlement liability. At a June 30, 1995 hearing, the court
approved the settlement and ordered the dismissal of the claims of all class
members against the Company and the other defendants as described in the
Stipulation of Settlement. The time to appeal the court's ruling expires July
31, 1995. There had been no objections to the settlement raised at the district
court level. It is expected that the second proposed class action will be
dismissed because the members of the proposed class in the second shareholder
suit are encompassed within the settlement class period of the original action.
No additional provision for any liability that may result from any successful
challenge to the court approved settlement, or a change in the estimated fair
market value of the stock at a future distribution date has been recorded.
Directors and officers insurance policy proceeds of up to $1 million were
available to fund legal fees and settlement or adverse judgement costs, as
applicable. The Company received $900,000 of such insurance proceeds during
1993. As of May 31, 1995 and November 30, 1994, approximately $71,800 and
$250,000 of the remaining insurance proceeds are being held in escrow and are
restricted to usage on the shareholder suits and are included in Other Assets in
the accompanying consolidated condensed balance sheets, respectively.
Other Litigation, Claims and Assessments:
In the ordinary course of business, the Company is exposed to various
claims, threats and legal proceedings other than those items discussed above. In
management's opinion, the outcome of all other such matters will not have a
material impact upon the Company's consolidated financial position and
consolidated results of operations.
Rents:
The Company conducts a major portion of its operations from various leased
office facilities.
The Company had a ten year, non-cancelable operating lease agreement for
its corporate office facility in Fort Lauderdale, Florida. In connection with
the Company's sale of its California, New York and Arizona home health care
operations, the Company terminated, effective November 1, 1994, its old lease
for the corporate office facility and simultaneously entered into a new
<PAGE>
lease agreement to reflect the reduction in needed space. In connection with
this early termination the Company agreed to a penalty of $800,000 in exchange
for the landlord's release of the Company from approximately $1.4 million in
future minimum rentals. On November 1, 1994, $100,000 of the penalty was paid.
The $700,000 balance is due on November 1, 1995 and is payable in cash or in
newly issued shares of common stock of the Company at the Company's election.
The number of shares to be issued will be based upon the average closing price
of the shares for the period from October 26 to October 31, 1995 provided that
the minimum and maximum valuation shall be $1.00 and $3.00, respectively. As a
result of the lease restructuring, the Company recorded a charge totaling
approximately $400,000 for the termination penalty, net of the remaining pro
rata future payments under the old lease during the fourth quarter of fiscal
year ended November 30, 1994.
Total rent expense for the six months ended May 31, 1995 and 1994 on the
above and all other rentals, including HSSI HomeCare's branch facilities and
nurses' housing for the Travel Nurse Group, was approximately $1,532,000 and
$1,936,000, respectively.
Future minimum lease payments under all of the Company's non-cancelable
operating lease agreements as of May 31, 1995 are summarized as follows:
Fiscal Year Amount
----------- ------
1995 $1,329,000
1996 641,100
1997 264,300
1998 179,400
1999 171,000
Thereafter 25,500
----------
Total $2,610,300
==========
Termination and Benefits Agreements:
Apart from the severance obligations discussed in Note 7, the Company has
agreements with certain other of its key employees which provide for severance
in the case of termination. Such agreements generally provide for severance from
three to six months dependent upon the employee involved. The maximum aggregate
commitment for these agreements would be approximately $450,000 as of May 31,
1995, if all of the key employees were to be terminated without cause.
Self Insurance:
The Company self insures its health and workers' compensation programs up
to policy limits, as defined. Claims in excess of such limits are insured by
third party reinsurers. The Company's estimate of its liability for both
outstanding as well as incurred but unreported claims is based upon its
historical loss experience.
<PAGE>
As of May 31, 1995 and November 30, 1994, such reserves totaled approximately
$2.7 million and $2.9 million, respectively, and are included as a component of
Accrued Expenses and Other in the accompanying consolidated condensed balance
sheets. Differences between actual losses and reserve estimates are recognized
in the period when such differences become known. As of May 31, 1995, management
believes that the differences between actual losses to be incurred after May 31,
1995 related thereto and its recorded reserve estimates will not be material.
Directors and Officers Indemnification Fund:
On October 29, 1994, the Company's Board of Directors approved the creation
of an indemnification fund for up to $2 million for any potential future
expenses which may be incurred by the current directors as a result of any
future action against them resulting from their services to the Company. Such
indemnification fund supplements proceeds which may be available to the
directors under the Company's Directors and Officers insurance policy. As of May
31, 1995 no funding has occurred, however, at the directors discretion, based
upon the Company's future cash position and other factors as may be considered,
funding of the $2 million or whatever is deemed reasonable at the time of
funding may be made. On April 3, 1995, the Company's Board of Directors approved
the inclusion of the Company's past directors and current and past officers in
the indemnification fund.
NOTE 9: LEGAL EXPENSES -
In the ordinary course of business the Company is exposed to various
claims, threats and legal proceedings. The Company incurred legal expenses of
approximately $857,000 and $835,000 during its six months ended May 31, 1995 and
1994, respectively.
During the six months ended May 31, 1995, in addition to normal recurring
legal costs, the Company continued to incur costs related to a South Florida
Medicare investigation and proposed shareholder class action suits (see Note 8).
NOTE 10: NET REVENUE FROM SERVICES -
While the Company does not, in all cases, track revenue by payor source,
management estimates the Company's breakdown of net revenue by type of service
and payor source for the three and six months ended May 31, 1995 and 1994 were
as follows:
<PAGE>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1995 MAY 31, 1994 MAY 31, 1995 MAY 31, 1994
------------ ------------ ------------ ------------
HOME HEALTH
- -----------
MEDICARE 58% 49% 57% 49%
MEDICAID 5% 16% 6% 15%
PVT: (INSUR) 3% 5% 4% 5%
PVT: (INDIV) 6% 5% 6% 6%
CONTRACT 5% 8% 5% 8%
MGMT FEES - 1% - 1%
TRAVEL NURSE
- ------------
HOSPITALS 23% 16% 22% 16%
--- --- --- ---
100% 100% 100% 100%
==== ==== ==== ====
NOTE 11: CONCENTRATION OF CREDIT RISK -
The Company has been providing services to healthcare facilities located in
the U.S. Virgin Islands which are owned by the government of the U.S. Virgin
Islands since the first quarter, 1991. Sales to these facilities accounted for
approximately 9.9% and 7.3% of consolidated net revenue from services for the
six months ended May 31, 1995 and 1994, respectively. Outstanding accounts
receivable were approximately $2.7 million and $2.2 million as of May 31, 1995
and November 30, 1994, respectively, and are included in trade accounts
receivable in the accompanying consolidated balance sheets. As of June 30, 1995,
approximately $2.4 million of the May 31, 1995 outstanding receivable balance
from these facilities remained unpaid of which approximately $708,000 has been
outstanding for 180 days or greater. Collections from customers located in the
U.S. Virgin Islands are generally slower than the Company's domestic customer
base. Management believes the May 31, 1995 balances due are realizable at their
recorded amounts primarily because 100% of all prior amounts due the Company for
services rendered since the inception of these contracts have been paid in full
by the government agencies. The government currently acknowledges the debt and
is instituting a plan to liquidate the amounts past due. Accordingly, no
allowance for doubtful accounts has been recorded related to the outstanding
receivable.
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAY 31, 1995
Liquidity and Capital Resources -
Prior to its acquisition of the Continental and CarePoint Home Health
Agencies in July, 1990 and February, 1991, respectively, the Company funded its
growth internally and through the net proceeds of $9,036,000 obtained from two
public offerings. The Company later obtained a line of credit, term note and
term loan to satisfy a portion of the acquisition costs and provide for future
working capital requirements.
In an action related to the December 3, 1992 federal investigation (see
Note 8), the Medicare program suspended reimbursement to the Company's South
Florida Medicare offices. Because the Company believed it was in full compliance
with the Medicare program and its license was not revoked, upon advice from its
legal counsel, the Company continued to operate its South Florida Medicare
offices at a substantial cost (such operations generated approximately $30
million in sales) in anticipation of the reinstatement of Medicare payments. In
continuing these operations the Company borrowed substantial sums under that
line of credit and simultaneously created large accounts receivable from the
Medicare program. After a few months of continuing operations in the South
Florida Medicare offices, the Company was still unable to reach agreement with
the Medicare program to reinstate the Medicare payments. The lender, soon
thereafter, notified the Company that it was discontinuing the credit facility
and required all amounts of indebtedness then outstanding, approximately $10
million, to be immediately due and payable. In response thereto, the Company
closed all remaining South Florida Medicare operations and agreed to installment
payments until a new lender could be found.
On August 23, 1993 the Company obtained a three year $15 million revolving
line of credit with a commercial finance company to replace its credit facility
with its bank. The credit facility bears interest at prime plus two percent per
annum, payable monthly, is secured by substantially all assets of the Company
and requires adherence to certain financial covenants. Borrowing is based on the
Company's eligible accounts receivable. A portion of the proceeds from this new
credit facility was immediately used to retire the then remaining outstanding
indebtedness with the bank. Subsequent to August 23, 1993 and for the next
several months of fiscal 1993, the Company continued its strategy of halted
growth and operational restructuring in order to remain cash flow positive and
dramatically reduced the outstanding borrowings with its new lender. After
substantially all operational restructuring which could take place to generate
positive cash flow did take place, the Company changed its course to a strategy
of maintaining
<PAGE>
a smaller base of business.
The present credit facility includes up to $3.5 million securing a standby
letter of credit required by the insurance carrier for the Company's workers'
compensation coverage. As of May 31, 1995 the Company was contingently liable
for a $2 million standby letter of credit issued by its lender for the benefit
of the insurance carrier. Such amount is reserved under the $15 million line of
credit with its lender, representing a reduction of otherwise eligible
borrowing. As the definition of eligible accounts receivable is strict, the
Company's borrowing capacity is extremely limited. As of May 31, 1995,
approximately $528,000 was available for additional borrowing under the line of
credit. This amount fluctuates daily consistent with the revolving nature of the
facility.
As of May 31, 1995, there were no outstanding principal borrowings under
the present credit facility.
Due to the large loss incurred by the Company in the fourth quarter of
fiscal year ended November 30, 1994, the Company was in violation of certain
covenants of the credit facility, including the covenant relating to maintenance
of a minimum tangible net worth. Waivers for the covenant violations through
November 30, 1995 were obtained on March 13, 1995.
For the reasons set forth above, and other reasons as set forth in the
March 13, 1995 Report of Independent Certified Public Accountants, such
accountants have modified their report on the Company's 1994 consolidated
financial statements to call attention to the possible inability of the Company
to continue as a going concern.
While management believes that the present credit facility is generally
adequate to meet the Company's working capital needs in the absence of slow
collections of accounts receivable, the present facility is not adequate to
provide for any significant liabilities that may arise (see paragraph below) or
for growth, internally or by acquisition. Accordingly, the Company is exploring
ways to raise additional capital through a number of means including developing
additional borrowing eligibility under its existing credit facility, private
placement of debt, issuance of preferred and/or common stock. Under certain
conditions the Company may consider the sale of certain of the Company's
remaining operating units in part or in whole. In the absence of raising
additional capital, management believes that, subject to timely collections of
accounts receivable and/or obtaining acceptable payment terms with its
creditors, as may be necessary, the Company has the ability to fund its current
level of activities through cash generated from continuing operations and that
its focus would be on attempting to achieve profitability through operating
efficiencies. If, however, the above does not occur and/or significant
contingencies become commitments and, in the absence of raising additional
capital, the Company's liquidity will be adversely affected and the Company will
be unable to fund its commitments as they become due.
<PAGE>
Periodically, the Company has estimated settlements due to Medicare. The
estimated settlement amounts due are the result of interim reimbursement rates,
at which the Company was paid for its services throughout the year, exceeding
the Company's actual costs of providing such services and also includes
revisions by certain intermediaries of the Company's reported reimbursable costs
after their reviews or audits of the Company's cost report filings. Estimated
settlements due from Medicare are presented net of estimated settlements due to
Medicare in the accompanying consolidated balance sheets. Management's plans to
fund such settlements as they become due include negotiating extended payment
plans and incurring additional borrowings under the existing credit facility, if
available, or to use proceeds from additional capital that may be raised.
However, there are no assurances that the Company will be able to do so. As of
May 31, 1995 the Company had amounts due under notification from the Medicare
program's fiscal intermediaries of approximately $626,000. The Company is
repaying the amounts due through reductions of its current payments from the
program. As of May 31, 1995 approximately $135,000 of the $626,000 had been
repaid.
In addition to external sources, the Company generates or uses cash in its
operating activities. Net cash provided by operating activities was
approximately $727,000 and $1,247,000 for the six months ended May 31, 1995 and
1994, respectively.
In addition to cash flow from operating activities the Company's overall
cash position can be significantly affected by its investing and financing
activities. Significant investing activities for the six months ended May 31,
1995 consisted of liquidating the Company's short-term investments to satisfy
cash flow requirements. Additionally, a Money Market account was established in
the second quarter, 1995 for the purpose of accumulating funds to liquidate
obligations expected to become due in July and August, 1995. This account is
reflected as a component of cash and cash equivalents in the accompanying May
31, 1995 consolidated condensed balance sheet. Financing activities principally
consisted of net repayments of outstanding borrowings under the $15 million line
of credit.
As of May 31, 1995, the Company had approximately $5.9 million of working
capital and approximately $1.8 million of cash and cash equivalents. The ratio
of current assets to current liabilities at May 31, 1995 was 1.5 to 1. As of May
31, 1995, the Company's commitments that would require large or unusual amounts
of cash consisted of office rents, settlement of the two shareholder suits,
severance obligations to former officers and an amount due to the Chairman and
Chief Executive Officer (see Notes 7 and 8 to the consolidated condensed
financial statements).
<PAGE>
RESULTS OF OPERATIONS -
THREE AND SIX MONTHS ENDED MAY 31, 1995 COMPARED WITH THREE AND SIX
MONTHS ENDED MAY 31, 1994
Net revenue for the three and six months ended May 31, 1995 decreased
approximately $6.2 million (29.3%) and $13.7 million (32.4%) from net revenue
for the three and six months ended May 31, 1994, respectively. This decrease is
attributable to the sale of the Company's California, New York and Arizona home
health care operations which occurred on August 31, 1994, and sale of the
Company's Texas home health care operations on March 1, 1995. Additionally,
revenue for the Travel Nurse Group declined slightly due to less demand for
contract nursing staff in serviced hospitals.
The Company's gross margin before selling, general and administrative
expenses is the difference between amounts charged by the Company to its clients
and wages the Company pays to its medical personnel, plus related housing costs,
travel, insurance costs and other benefits.
The Company's gross margin increased from 33.8% and 35.2% for the three and
six months ended May 31, 1994 to 40.7% and 38.3% for the three and six months
ended May 31, 1995, respectively. This results from a larger absorption of
corporate overhead related to the increase in Medicare business, and the full
absorption into current operations of Tri-Therapy, Inc. acquired in February,
1995 which is reflecting a gross margin of approximately 45.0%, and a shift in
the current operating activity to more Medicare business.
The Company's gross margin is subject to a number of factors such as
billing rates, pay rates and cost of travel and housing. The impact of these
factors varies due to competitive and seasonal factors as well as the geographic
mix and type of service (discipline and payor source) being performed by the
Company.
Selling, general and administrative expenses have decreased as a percentage
of revenue from 48.1% and 41.5% during the three and six month periods ended May
31, 1994 to approximately 39.7% and 37.2% for the comparable periods of the
current year. The higher 1994 percentages are primarily attributable to an
increase in the allowance for doubtful amounts on trade receivables of
approximately $1.2 million and the severance obligation to a previous officer of
$310,000, both recorded in the second quarter of 1994. The lower percentages for
the same periods of the current year are attributable to aggressive cost
containment measures company-wide and the operational restructuring of the
Company's New England region, which has decreased salaries, rents and other
operating home care operating overhead. The benefit achieved by this was
partially offset by the Company's May 1, 1995 severance obligation to its
former Chief Financial Officer.
Interest and other income (expense), net, was approximately $71,000 and
$2,500 lower during the three and six months ended May 31, 1995 as
<PAGE>
compared to comparable periods of 1994 resulting primarily from lower average
outstanding borrowing under the Company's credit facility. Additionally, in
Fiscal 1994, the Company received New York State Medicaid retroactive payments
resulting from a legal settlement filed on behalf of providers by the New York
State Association of Health Care Providers, Inc., which recalculated personal
care aid rates for 1992, 1993 and 1994 services.
The effective tax rate for the provision for income taxes during the
quarter ended May 31, 1995 differs from the statutory tax rate as a result of
state and foreign (U.S. Virgin Islands) income tax provisions and adjustments to
the valuation allowance.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 requires, among other things, recognition of future tax benefits as an
asset. To the extent that realization of such benefits is more likely than not,
these future tax benefits have been measured using enacted tax rates and are
attributable to deductible temporary differences between the financial statement
and income tax bases of assets and liabilities, and to net operating loss and
foreign tax credit carryforwards. Under the provisions of SFAS No. 109, the
Company elected not to restate prior years' consolidated financial statements.
The cumulative effect of adoption was to increase first quarter fiscal year 1994
earnings by $162,000 as management assessed the realization of this amount of
the available gross deferred tax asset to be more likely than not. The valuation
allowance at December 1, 1993 was established at an amount equal to 75% of the
federal and 100% of the state net operating loss carryforwards. The valuation
allowance is subject to continual review and, as such, may be increased or
decreased as substantive information becomes available about the Company's
ability to generate sufficient future taxable income to realize the deferred tax
assets. During the fourth quarter of 1994, due to the Company's recurring losses
and other matters discussed in Note 2, management no longer was of the belief
that the future realizability of the net deferred tax asset was more likely than
not. Consequently, at November 30, 1994, the valuation allowance was increased
so that the net deferred tax asset was fully reserved resulting in an increase
in the income tax provision of approximately $2.1 million in the fiscal year
ended 1994 consolidated statement of operations.
As of May 31, 1995, the Company has available Federal and state net
operating loss carryforwards totaling approximately $4.0 million and $12.1
million, respectively, expiring through 2009. Additionally, as of this same
date, the Company has available a foreign tax credit carryforward of
approximately $285,000, expiring in 2000.
<PAGE>
HOSPITAL STAFFING SERVICES, INC.
PART II - OTHER INFORMATION
MAY 31, 1995
ITEM 1. LEGAL PROCEEDINGS
See Note 8 and Note 9 to the Notes to Consolidated Condensed
Financial Statements. See also "ITEM 3 - LEGAL PROCEEDINGS" which
is incorporated by reference from the Company's Annual Report in
Form 10-K for the fiscal year ended November 30, 1994 filed with
the Securities and Exchange Commission on March 14, 1995.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
See Note 8 (Commitments and Contingencies) to the Consolidated
Condensed Financial Statements concerning the proposed settlement
of the shareholder class action law suits and the payment of cash
and issuance of shares of the Company's common stock in
connection therewith.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports - None.
<PAGE>
HOSPITAL STAFFING SERVICES, INC.
SIGNATURES
MAY 31, 1995
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOSPITAL STAFFING SERVICES, INC.
By: /s/Ronald A. Cass
------------------------------
Ronald A. Cass, Chairman
Chief Executive Officer
Chief Operating Officer and President
Acting Chief Financial Officer
Date: July 13, 1995
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<PERIOD-START> DEC-01-1994
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