10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2004
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 Number 001-31299
MEDICAL STAFFING NETWORK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware		65-0865171
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
901 Yamato Road Suite 110 Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 322-1300
(Registrant’s telephone number, including area code)

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, and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý  No  o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 30,230,620 shares of common stock, par value $0.01 per share, were outstanding as of August 3, 2004.

MEDICAL STAFFING NETWORK HOLDINGS, INC.

INDEX

		Page Numbers
PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of June 27, 2004 (Unaudited) and December 28, 2003	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three months and six months ended June 27, 2004 and June 29, 2003	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 27, 2004 and June 29, 2003	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4.	CONTROLS AND PROCEDURES	29
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	30
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	31
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	31
SIGNATURES		33
EXHIBIT INDEX		34

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PART I - FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)	June 27, 2004			December 28, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,377		$	825
Accounts receivable, net of allowance for doubtful accounts of $1,176 and $1,920 at June 27, 2004 and December 28, 2003, respectively	59,923			68,602
Prepaid expenses	12,512			9,140
Other current assets	2,368			4,645
Total current assets	77,180			83,212
Furniture and equipment, net of accumulated depreciation of $15,958 and $13,112 at June 27, 2004 and December 28, 2003, respectively	9,832			11,377
Goodwill, net of accumulated amortization of $8,545 at June 27, 2004 and December 28, 2003	125,052			125,028
Intangible assets, net of accumulated amortization of $1,500 and $1,174 at June 27, 2004 and December 28, 2003, respectively	2,861			3,187
Other assets	5,927			6,066
Total assets	$	220,852		$	228,870
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,067		$	3,975
Accrued payroll and related liabilities	8,039			6,616
Other current liabilities	4,737			3,073
Current portion of capital lease obligations	789			1,090
Total current liabilities	19,632			14,754
Long-term debt	42,241			54,978
Deferred income taxes	8,701			7,115
Capital lease obligations, net of current portion	154			418
Other liabilities	305			318
Total liabilities	71,033			77,583
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 75,000 authorized: 30,230 and 30,209 issued and outstanding at June 27, 2004 and December 28, 2003, respectively	302			302
Additional paid-in capital	284,414			284,346
Accumulated deficit	(134,897		)	(133,361		)
Total stockholders’ equity	149,819			151,287
Total liabilities and stockholders’ equity	$	220,852		$	228,870

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

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MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
(in thousands, except per share amounts)	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
Service revenues	$	106,002		$	137,455		$	212,395		$	281,468
Cost of services rendered	83,324			107,963			167,548			217,405
Gross profit	22,678			29,492			44,847			64,063
Operating expenses:
Selling, general and administrative	17,032			22,230			34,294			42,871
Corporate and administrative	4,307			3,089			7,585			5,388
Depreciation and amortization	1,650			1,701			3,297			3,325
Income (loss) from operations	(311		)	2,472			(329		)	12,479
Interest expense, net	1,011			1,243			1,971			2,402
Income (loss) from continuing operations before provision for (benefit from) income taxes	(1,322		)	1,229			(2,300		)	10,077
Provision for (benefit from) income taxes	(383		)	492			(764		)	4,030
Income (loss) from continuing operations	(939		)	737			(1,536		)	6,047
Loss from discontinued operations, net of taxes	—			(402		)	—			(506		)
Net income (loss)	$	(939	)	$	335		$	(1,536	)	$	5,541
Income (loss) per share – basic:
Income (loss) from continuing operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Basic net income (loss) per share	$	(0.03	)	$	0.01		$	(0.05	)	$	0.18
Income (loss) per share – diluted:
Income (loss) from continuing operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Diluted net income (loss) per share	$	(0.03	)	$	0.01		$	(0.05	)	$	0.18
Weighted average number of common shares outstanding:
Basic	30,230			30,191			30,226			30,176
Diluted	30,230			30,668			30,226			30,915

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

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MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
(in thousands)	June 27, 2004			June 29, 2003
Operating activities
Net income (loss)	$	(1,536	)	$	5,541
Loss from discontinued operations, net of taxes	—			506
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	3,297			3,325
Amortization of debt issuance cost	320			526
Deferred income taxes	1,573			1,555
Provision for doubtful accounts	550			1,901
Loss on derivative instrument	—			26
Loss on termination of capital leases	—			38
Reduction of debt issue costs	55			—
Changes in operating assets and liabilities:
Accounts receivable	8,129			319
Prepaid expenses and other current assets	(1,100		)	(808		)
Other assets	(199		)	(237		)
Accounts payable	2,092			(2,520		)
Accrued payroll and related liabilities	1,423			(805		)
Other current liabilities	1,664			(633		)
Other liabilities	(13		)	(36		)
Cash provided by continuing operations	16,255			8,698
Cash used in discontinued operations	—			(500		)
Cash provided by operating activities	16,255			8,198
Investing activities
Purchases of furniture and equipment	(756		)	(2,587		)
Capitalized internal software costs	(669		)	(729		)
Cash paid for acquisitions, net of cash acquired	(24		)	(10,803		)
Cash used in investing activities	(1,449		)	(14,119		)
Financing activities
Principal payments under capital lease obligations	(564		)	(495		)
Net payments under revolving credit facility	(12,737		)	(3,000		)
Proceeds from borrowings on term note	—			12,000
Payments on term note	—			(2,599		)
Proceeds from exercise of stock options	47			303
Cash provided by (used in) financing activities	(13,254		)	6,209
Net increase in cash and cash equivalents	1,552			288
Cash and cash equivalents at beginning of period	825			4,595
Cash and cash equivalents at end of period	$	2,377		$	4,883
Supplemental disclosure of noncash investing and financing activities:
Purchase of equipment through capital leases	$	—		$	1,845
Supplemental disclosures of cash flow information:
Interest paid	$	1,164		$	1,944
Income taxes paid	$	44		$	2,960

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

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MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Medical Staffing Network Holdings, Inc. (the “Company”), a Delaware corporation, is a provider of temporary staffing services in the United States. The Company’s per diem healthcare 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 temporary healthcare staffing 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. Temporary staffing services represent 100% of the Company’s consolidated revenue for the three and six months ended June 27, 2004 and June 29, 2003.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 27, 2004 are not necessarily indicative of the results that may be expected for the year ending December 26, 2004.

The condensed consolidated balance sheet as of December 28, 2003 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

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For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 28, 2003 (File No. 001-31299).

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No.150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 established 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 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. There was no impact to the Company’s condensed 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 required companies to make certain disclosures about variable interest entities (VIEs) with which it has involvement, if it was reasonably possible that it would consolidate or disclose information about VIEs when FIN No. 46 became effective. The disclosure requirements were 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. The provisions of FIN No. 46R, which became applicable in the first quarter of 2004, did not have an impact on the Company’s condensed consolidated financial statements.

3. STOCK-BASED COMPENSATION PLANS

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 the three and six months ended June 27, 2004 and June 29, 2003 for stock-based employee compensation awards.

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Application of the fair value method prescribed by SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), to the Company’s options would require the Company to record the following pro forma net income (loss) and net income (loss) per share amounts (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
Net income (loss) as reported	$	(939	)	$	335		$	(1,536	)	$	5,541
Fair value method of stock based compensation, net of taxes	(191		)	(238		)	(545		)	(562		)
Pro forma net income (loss)	$	(1,130	)	$	97		$	(2,081	)	$	4,979
Per share amounts:
As reported basic income (loss) from continuing operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
As reported basic income (loss)	$	(0.03	)	$	0.01		$	(0.05	)	$	0.18
As reported diluted income (loss) from continuing operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
As reported diluted income (loss)	$	(0.03	)	$	0.01		$	(0.05	)	$	0.18
Pro forma basic income (loss) from continuing operations	$	(0.04	)	$	0.01		$	(0.07	)	$	0.18
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Pro forma basic income (loss)	$	(0.04	)	$	—		$	(0.07	)	$	0.16
Pro forma diluted income (loss) from continuing operations	$	(0.04	)	$	0.01		$	(0.07	)	$	0.18
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Pro forma diluted income (loss)	$	(0.04	)	$	—		$	(0.07	)	$	0.16

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:

	Three Months Ended		Six Months Ended
	June 27, 2004	June 29, 2003	June 27, 2004	June 29, 2003
Expected life in years	3 – 8	3 – 8	3 – 8	3 – 8
Risk-free interest rate	3.25% – 4.44%	2.02% – 3.68%	3.25% – 4.44%	2.02% – 3.68%
Volatility	67%	65%	67%	65%
Dividend yield	0%	0%	0%	0%

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4. DISCONTINUED OPERATIONS

The Company discontinued its physician staffing services in the second quarter of 2003. Pursuant to the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, 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, loss from discontinued operations, net of taxes, in the Company’s condensed consolidated statement of operations for the three and six months ended June 29, 2003. There were no revenues or cost of services rendered from physician staffing services during the three and six months ended June 27, 2004. There were no net assets of the discontinued operations at June 27, 2004. Net assets of the discontinued operations were less than $0.1 million at December 28, 2003, and consisted solely of current assets.

Service revenues, cost of services, gross loss and loss from discontinued operations, net of taxes, for the three and six months ended June 29, 2003 are as follows (in thousands):

	Three Months Ended			Six Months Ended
Service revenues	$	88		$	495
Cost of service revenues	(644		)	(1,095		)
Gross loss	$	(556	)	$	(600	)
Loss before benefit from income taxes	$	(672	)	$	(845	)
Benefit from income taxes	270			339
Loss from discontinued operations, net of taxes	$	(402	)	$	(506	)

5. 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 operations for the three and six months ended June 29, 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	$	390
Office closing costs	164
Employee termination costs	158
Miscellaneous	51
Total	$	763

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6. ACQUISITION

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, Business Combinations, and, accordingly, the results of operations have been included in the condensed consolidated statement of operations beginning from March 1, 2003, the date when the Company assumed substantial control over SSG.

7. LONG-TERM DEBT

On October 26, 2001, 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 in October 2006 that bore interest at a variable rate based on the Company’s leverage ratio (as defined), interest was payable at least quarterly and principal payments were payable quarterly commencing on March 31, 2003; (ii) senior credit notes (Term B) in the amount of $60.0 million which were due in 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) up to $20.0 million of revolving loans expiring on October 2006, bearing interest at a variable rate payable at least quarterly.

In connection with the Company’s initial public offering completed on April 23, 2002 approximately $93.4 million of the senior credit facility was repaid. 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 notes. In accordance with the amendment, the remaining balance on the existing Term A and Term B notes were 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 $82.0 million facility was 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

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payable monthly. Unused capacity under the revolving credit facility bears interest at 0.5% 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.

On June 25, 2004, the Company amended its senior credit facility and it is now comprised of a $60.0 million revolving line of credit and the same $17.0 million term note with identical repayment dates and substantially similar terms as the original facility. The amendment favorably modified certain financial covenants while it increased the interest rate on the revolving line of credit by 0.5% and on the term note by 1.0%.  In conjunction with the amendment, on July 1, 2004, the Company repaid $5.0 million of borrowings under the term note. The impact of repaying the higher average interest rate borrowings under the term note, offset partially by the marginally higher interest rates, will reduce the overall cost of capital under the facility going forward.

As of June 27, 2004, prior to the $5.0 million repayment, the Company had $17.0 million outstanding on the term note, had drawn approximately $25.2 million on the revolving line of credit and had unused capacity of $34.8 million, of which $16.1 million was immediately available for borrowing.

The senior credit facility is secured by substantially all of the assets of the Company and contains certain covenants that, among other things, limit the payments of dividends and restrict additional indebtedness and obligations, and require maintenance of certain financial ratios. As of June 27, 2004, the Company was in compliance with all covenants.

8. COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, Comprehensive Income, 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 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. The Company’s results of operations were the sole component of comprehensive loss for the three and six months ended June 27, 2004. The Company’s results of operations and accumulated unrealized loss on the derivative instrument were the only components of comprehensive income for the three and six months ended June 29, 2003.

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The following table sets forth the computation of comprehensive income (loss) for the periods indicated (in thousands):

	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
Net income (loss)	$	(939	)	$	335		$	(1,536	)	$	5,541
Other comprehensive loss:
Unrealized loss on derivative, net of taxes	—			(13		)	—			(26		)
Total comprehensive income (loss)	$	(939	)	$	322		$	(1,536	)	$	5,515

9. INCOME (LOSS) PER SHARE

	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(in thousands, except per share amounts)
Numerator:
Numerator for basic income (loss) per share	$	(939	)	$	335		$	(1,536	)	$	5,541
Denominator:
Denominator for basic income (loss) per share-weighted average shares	30,230			30,191			30,226			30,176
Effect of dilutive shares:
Employee stock options	—			477			—			739
Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions	30,230			30,668			30,226			30,915
Income (loss) per share – basic:
Income (loss) before discontinued operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Basic net income (loss) per share	$	(0.03	)	$	0. 01		$	(0.05	)	$	0.18
Income (loss) per share – diluted:
Income (loss) before discontinued operations	$	(0.03	)	$	0.02		$	(0.05	)	$	0.20
Discontinued operations, net of taxes	—			(0.01		)	—			(0.02		)
Diluted net income (loss) per share	$	(0.03	)	$	0. 01		$	(0.05	)	$	0.18

For the three and six months ended June 27, 2004, 1.9 million options were outstanding but were not included in the calculation of dilutive shares as the impact of their conversion is anti-dilutive due to the net loss. For the three and six months ended June 29, 2003, 0.2 million incremental options were excluded from the denominator for diluted earnings per share as the impact of conversion is anti-dilutive.

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10. RELATED PARTY TRANSACTIONS

The Company provides staffing services to a healthcare system of which one of the Company’s directors, Philip A. Incarnati, is the President and Chief Executive Officer. During the three months ended June 27, 2004 and June 29, 2003, the Company billed approximately $0.9 million and $0.5 million, respectively, for its services to the healthcare system.  During the six months ended June 27, 2004 and June 29, 2003, the Company billed approximately $1.7 million and $0.6 million, respectively, for its services to the healthcare system.  The Company had a receivable balance from the healthcare system of $0.2 million and $0.3 million at June 27, 2004 and December 28, 2003, respectively.

The Company paid less than $0.1 million during the six months ended June 27, 2004 and June 29, 2003, 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.

11. CONTINGENCIES

On February 20, 2004, Joseph and Patricia Marrari, and on April 16, 2004, Tommie Williams, filed class action lawsuits against Medical Staffing Network in the United States District Court for the Southern District of Florida, on behalf of themselves and purchasers of the Company’s common stock pursuant to or traceable to the Company’s initial public offering in April 2002.  These lawsuits also named as defendants certain of the Company’s directors and executive officers.  The complaints allege 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 the Securities Act of 1933.  The complaints seek compensatory damages as well as costs and attorney fees.  On March 29, 2004, a third class action lawsuit brought on behalf of the same class of the Company’s stockholders making claims similar to those in the lawsuits filed by Plaintiffs Joseph and Patricia Marrari and Tommie Williams was commenced by Plaintiff Haddon Zia in the Florida Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida.  Defendants have removed this case to the United States District Court for the Southern District of Florida and Plaintiff has moved to remand the case back to the Florida Circuit Court of the Fifteenth Judicial Circuit, which motion Defendants have opposed.  The Zia complaint seeks rescission or damages as well as certain equitable relief and costs and attorney fees.

On March 2, 2004, another class action complaint was filed against Medical Staffing Network and certain of the Company’s directors and executive officers in the United States District Court for the Southern District of Florida by Jerome Gould, 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 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 seeks compensatory damages, costs and attorney fees.

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Subsequent to quarter end, on July 2, 2004, the Marrari, Gould, Williams and Zia actions were consolidated, Plaintiff Thomas Greene was appointed Lead Plaintiff of the consolidated action and the law firm of Cauley Geller Bowman & Rudman LLP was appointed Lead Counsel for Plaintiffs.

The Company believes that these lawsuits are without merit and it intends to defend itself against them vigorously.

From time to time, the Company is subject to lawsuits and claims that arise out of its operations in the normal course of business. The Company is a plaintiff or defendant in various litigation matters in the ordinary course of business, some of which involve claims for damages that are substantial in amount. The Company believes that the disposition of any claims that arise out of operations in the normal course of business will not have a material adverse effect on its financial position or results of operations.

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ITEM 2. 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 condensed 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:

•Overview.  This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we believe are important in understanding our financial condition and results of operations.

•Recent accounting pronouncements.  This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and the effect of those pronouncements.

•Results of operations.  This section provides an analysis of our results of operations for the three and six months ended June 27, 2004 relative to the three and six months ended June 29, 2003 presented in the accompanying condensed consolidated statements of operations.

•Liquidity and capital resources.  This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and our outstanding debt and commitments as of June 27, 2004.

•Critical accounting policies.  This section discusses those accounting policies that are both considered important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application.

•Caution concerning forward-looking statements.  This section discusses how certain forward-looking statements made by us throughout this discussion and analysis are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.

Overview

Business Description

We are a leading temporary 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.

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Our per diem nurse staffing division currently operates in an integrated network of branches that are organized into several geographic regions. These branches serve as our direct contact with our healthcare professionals and clients. The cost structure of a typical branch is fixed, consisting of limited personnel, office space rent, information systems infrastructure and office supplies. We have been able to develop a highly efficient branch management model that is easily scalable.

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, while slightly improved over the past year, remains near a nine-year high. We believe this has resulted in nurses in many households becoming a primary wage earner, which is causing such nurses to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected admissions 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. Additionally, there is a growing trend to restrict mandatory healthcare worker overtime requirements by employers and to establish nurse-patient ratios. Four states have enacted legislation prohibiting mandatory overtime and several other states have similar legislation pending. In conjunction with the 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.

Acquisition

In the first six months of 2004, we made no acquisitions. In the first six months of 2003, we purchased certain assets of one healthcare staffing company for an aggregate purchase price of $10.8 million. The acquisition was accounted for as a purchase and, accordingly, the results of the acquired business were included in our condensed consolidated financial statements from the date we assumed substantial control.

Service Revenues

Our temporary staffing services represent 100% of our consolidated revenue for the three and six months ended June 27, 2004 and June 29, 2003. Approximately 75% of our revenues for the three and six months ended June 27, 2004 were derived from per diem nurse staffing. Allied healthcare professional staffing, which includes various non-nursing specialties such as, radiology and diagnostic imaging specialists and clinical laboratory technicians, represented 16%

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of our revenues for the three and six months ended June 27, 2004. Travel nurse staffing (assignments lasting no more than thirteen weeks) represented 9% of our revenues for the three months and six months ended June 27, 2004.

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, 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, loss from discontinued operations, net of taxes, in our condensed consolidated statements of operations. For the three and six months ended June 29, 2003, we had a loss from discontinued operations, net of taxes, of approximately $0.4 million and $0.5 million, respectively. There were no net assets of discontinued operations as of June 27, 2004. Net assets of discontinued operations were less than $0.1 million at December 28, 2003 and consisted solely of current assets. No reclassification of the prior year-end 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 reflected the softening 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 operations for the three and six months ended June 29, 2003. No amounts have been or are expected to be incurred or paid in subsequent quarters relating to this restructuring.

Recent Accounting Pronouncements

Accounting for Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 established 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 were required to be classified as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. There was no impact to our consolidated financial statements upon the adoption of the provisions of SFAS No. 150.

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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 became effective. 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. The provisions of FIN No. 46R, which became applicable in the first quarter of 2004, did not have an impact on our condensed consolidated financial statements.

Results of Operations

Comparison of Three Months Ended June 27, 2004 to Three Months Ended June 29, 2003

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

	Three Months Ended
	June 27, 2004					June 29, 2003					Difference
	$ Amount			% of rev		$ Amount			% of rev		$			%
Service revenues	$	106,002		100.0	%	$	137,455		100.0	%	$	(31,453	)	(22.9	%)
Cost of services rendered	83,324			78.6		107,963			78.5		(24,639		)	(22.8	)
Gross profit	22,678			21.4		29,492			21.5		(6,814		)	(23.1	)
Selling, general and administrative expenses(1)	17,032			16.1		22,230			16.2		(5,198		)	(23.4	)
Corporate and administrative expenses	4,307			4.1		3,089			2.2		1,218			39.4
Depreciation and amortization expenses	1,650			1.5		1,701			1.3		(51		)	(3.0	)
Income (loss) from operations	(311		)	(0.3	)	2,472			1.8		(2,783		)	(112.6	)
Interest expense, net	1,011			0.9		1,243			0.9		(232		)	(18.7	)
Income (loss) from continuing operations before provision for (benefit from) income taxes	(1,322		)	(1.2	)	1,229			0.9		(2,551		)	(207.6	)
Provision for (benefit from) income taxes	(383		)	(0.3	)	492			0.4		(875		)	(177.8	)
Income (loss) from continuing operations	(939		)	(0.9	)	737			0.5		(1,676		)	(227.4	)
Loss from discontinued operations, net of taxes	—			—		(402		)	(0.3	)	402			100.0
Net income (loss)	$	(939	)	(0.9	)	$	335		0.2		$	(1,274	)	(380.3	)

(1)Includes provision for doubtful accounts.

Service Revenues.  Our service revenues decreased $31.5 million, or 22.9%, from $137.5 million for the three months ended June 29, 2003, to $106.0 million for the three months ended June 27, 2004. The decrease was the result of a decrease in the number of hours worked by professionals due to the current weak demand for temporary healthcare staffing. For the three months ended June 27, 2004, we have received no material pricing increases from the prior year.

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Our per diem nurse staffing revenues decreased $18.8 million, or 19.2%, from $97.7 million for the three months ended June 29, 2003 to $78.9 million for the three months ended June 27, 2004. The entire was the result of a decrease in the number of hours worked by professionals.

Our revenues from staffing divisions other than per diem nurse staffing collectively decreased $12.7 million, or 32.0%, from $39.8 million for the three months ended June 29, 2003 to $27.1 million for the three months ended June 27, 2004. The entire decrease was the result of a decrease in the number of hours worked by professionals.

Cost of Services Rendered.  Cost of services rendered decreased $24.7 million, or 22.8%, from $108.0 million for the three months ended June 29, 2003 to $83.3 million for the three months ended June 27, 2004. The decrease was primarily attributable to the decrease in the number of hours worked by professionals.

Gross Profit.  Gross profit decreased $6.8 million, or 23.1%, from $29.5 million for the three months ended June 29, 2003 to $22.7 million for the three months ended June 27, 2004, driven primarily by the reduction in service revenues. This resulted in a gross margin percentage of 21.4% for the three months ended June 27, 2004, as compared to 21.5% for the comparable period in 2003.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses decreased $5.2 million, or 23.4%, from $22.2 million for the three months ended June 29, 2003 to $17.0 million for the three months ended June 27, 2004. As a percentage of revenue, selling, general and administrative expenses were 16.2% and 16.1% for the three months ended June 29, 2003 and June 27, 2004, respectively. The $5.2 million decrease is primarily attributable to the locations closed and other cost reduction programs implemented as part of a restructuring initiative and the second quarter of 2003 included a $0.8 million pretax restructuring charge associated with the initiative.

Corporate and Administrative Expenses.  Corporate and administrative expenses increased $1.2 million, or 39.4%, from $3.1 million for the three months ended June 29, 2003 to $4.3 million for the three months ended June 27, 2004. The increase was primarily due to a pretax $0.7 million charge associated with executive severance and search costs and to a lesser extent, higher professional fees. As a percentage of revenue, corporate and administrative expenses were 2.2% and 4.1% for the three months ended June 29, 2003 and June 27, 2004, respectively.

Depreciation and Amortization Expenses.  Depreciation and amortization expenses remained relatively unchanged at $1.7 million for the three months ended June 29, 2003 and June 27, 2004.

Income (Loss) from Operations.  As a result of the above, income (loss) from operations decreased $2.8 million, from income of $2.5 million for the three months ended June 29, 2003 to a loss of $0.3 million for the three months ended June 29, 2004. As a percentage of revenue,

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income (loss) from operations was 1.8% and (0.3%) for the three months ended June 29, 2003 and June 27, 2004, respectively.

Interest Expense, Net.  Interest expense, net, decreased $0.3 million, or 18.7%, from $1.3 million for the three months ended June 29, 2003 to $1.0 million for the three months ended June 27, 2004. The decrease was attributable to lower average debt levels for the three months ended June 27, 2004 as compared to the comparable period in 2003, partially offset by costs associated with the amendment to the credit facility completed in the second quarter of 2004.

Income (Loss) from Continuing Operations Before Provision for (Benefit from) Income Taxes.  As a result of the above, income (loss) from continuing operations before provision for (benefit from) income taxes decreased $2.5 million, from income of $1.2 million for the three months ended June 29, 2003 to a loss of $1.3 million for the three months ended June 27, 2004.

Provision for (Benefit from) Income Taxes.  Our provision for income taxes was $0.5 million for the three months ended June 29, 2003 and our benefit from income taxes was $0.4 million for the three months ended June 27, 2004 representing effective tax rates of 40.0% and 29.0%, respectively. The 29.0% tax rate for the three months ended June 27, 2004, represents the quarterly tax rate required to arrive at our expected blended state and federal tax rate for the year of 33.2%. The decrease in the effective tax rate for the benefit from income taxes (which implies a higher tax rate) is the result of nondeductible items having a greater percentage impact on the rate than on an actual tax dollar amount.

Income (Loss) from Continuing Operations.  As a result of the above, income (loss) from continuing operations decreased $1.6 million, from income of $0.7 million for the three months ended June 29, 2003 to a loss of $0.9 million for the three months ended June 27, 2004.

Loss from Discontinued Operations, Net of Taxes.  Loss from discontinued operations, net of taxes, was $0.4 million for the three months ended June 29, 2003. There was no loss from discontinued operations for the three months ended June 27, 2004.

Net Income (Loss).  As a result of the above, net income (loss) decreased $1.2 million from income of $0.3 million for the three months ended June 29, 2003 to loss of $0.9 million for the three months ended June 27, 2004.

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Comparison of Six Months Ended June 27, 2004 to Six Months Ended June 29, 2003

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

	Six Months Ended
	June 27, 2004					June 29, 2003					Difference
	$ Amount			% of rev		$ Amount			% of rev		$			%
Service revenues	$	212,395		100.0	%	$	281,468		100.0	%	$	(69,073	)	(24.5	%)
Cost of services rendered	167,548			78.9		217,405			77.2		(49,857		)	(22.9	)
Gross profit	44,847			21.1		64,063			22.8		(19,216		)	(30.0	)
Selling, general and administrative expenses(1)	34,294			16.1		42,871			15.2		(8,577		)	(20.0	)
Corporate and administrative expenses	7,585			3.6		5,388			1.9		2,197			40.8
Depreciation and amortization expenses	3,297			1.6		3,325			1.3		(28		)	(0.8	)
Income (loss) from operations	(329		)	(0.2	)	12,479			4.4		(12,808		)	(102.6	)
Interest expense, net	1,971			0.9		2,402			0.8		(431		)	(17.9	)
Income (loss) from continuing operations before provision for (benefit from) income taxes	(2,300		)	(1.1	)	10,077			3.6		(12,377		)	(122.8	)
Provision for (benefit from) income taxes	(764		)	(0.4	)	4,030			1.4		(4,794		)	(119.0	)
Income (loss) from continuing operations	(1,536		)	(0.7	)	6,047			2.2		(7,583		)	(125.4	)
Loss from discontinued operations, net of taxes	—			—		(506		)	(0.2	)	506			(100.0	)
Net income (loss)	$	(1,536	)	(0.7	)	$	5,541		2.0		$	(7,077	)	(127.7	)

(1)Includes provision for doubtful accounts.

Service Revenues.  Our service revenues decreased $69.1 million, or 24.5%, from $281.5 million for the six months ended June 29, 2003, to $212.4 million for the six months ended June 27, 2004. The decrease was the result of a decrease in the number of hours worked by professionals due to the current weak demand for temporary healthcare staffing, partially offset by revenues from the acquisition we made in the first quarter of 2003.  For the six months ended June 27, 2004, we received no material pricing increases from the prior year.

Our per diem nurse staffing revenues decreased $41.6 million, or 20.1%, from $200.4 million for the six months ended June 29, 2003 to $158.8 million for the six months ended June 27, 2004. The decrease of $41.6 million was the result of a decrease of $44.7 million associated by a decline in the number of hours worked by professionals, partially offset by growth from acquisition of $3.1 million.

Our revenues from staffing divisions other than per diem nurse staffing collectively decreased $27.5 million, or 33.9%, from $81.1 million for the six months ended June 29, 2003 to $53.6 million for the six months ended June 27, 2004. The entire decrease was the result of a decrease in the number of hours worked by professionals.

Cost of Services Rendered.  Cost of services rendered decreased $49.9 million, or 22.9%, from $217.4 million for the six months ended June 29, 2003 to $167.5 million for the six months ended June 27, 2004. The decrease was attributable to the decrease in the number of hours worked by professionals, partially

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

Gross Profit.  Gross profit decreased $19.2 million, or 30.0%, from $64.1 million for the six months ended June 29, 2003 to $44.9 million for the six months ended June 27, 2004, driven primarily by the reduction in service revenues, higher compensation, benefits and insurance costs associated with our healthcare professionals and other direct costs. This resulted in a gross margin percentage of 21.1% for the six months ended June 27, 2004, as compared to 22.8% for the comparable period in 2003.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses decreased $8.6 million, or 20.0%, from $42.9 million for the six months ended June 29, 2003 to $34.3 million for the six months ended June 27, 2004. As a percentage of revenue, selling, general and administrative expenses were 15.2% and 16.1% for the six months ended June 29, 2003 and June 27, 2004, respectively. The $8.6 million decrease is primarily attributable to the locations closed and other cost reduction programs implemented as part of a restructuring initiative and the second quarter of 2003 included a $0.8 million restructuring charge associated with the initiative.

Corporate and Administrative Expenses.  Corporate and administrative expenses increased $2.2 million, or 40.8%, from $5.4 million for the six months ended June 29, 2003 to $7.6 million for the six months ended June 27, 2004. The increase was primarily due to a $0.7 million charge associated with executive severance and search costs and increased professional fees. As a percentage of revenue, corporate and administrative expenses were 1.9% and 3.6% for the six months ended June 29, 2003 and June 27, 2004, respectively.

Depreciation and Amortization Expenses.  Depreciation and amortization expenses remained relatively unchanged at $3.3 million for the six months ended June 29, 2003 and June 27, 2004.

Income (Loss) from Operations.  As a result of the above, income (loss) from operations decreased $12.8 million from income of $12.5 million for the six months ended June 29, 2003 to a loss of $0.3 million for the six months ended June 29, 2004. As a percentage of revenue, income (loss) from operations was 4.4% and (0.2%) for the six months ended June 29, 2003 and June 27, 2004, respectively.

Interest Expense, Net.  Interest expense, net, decreased $0.4 million, or 17.9%, from $2.4 million for the six months ended June 29, 2003 to $2.0 million for the six months ended June 27, 2004. The decrease was attributable to lower average debt levels for the six months ended June 27, 2004 as compared to the comparable period in 2003, partially offset by costs associated with the amendment to the credit facility completed in the second quarter of 2004.

Income (Loss) from Continuing Operations Before Provision for (Benefit from) Income Taxes.  As a result of the above, income (loss) from continuing operations before provision for (benefit from) income taxes decreased $12.4 million, from income of $10.1 million for the six months ended June 29, 2003 to a loss of $2.3 million for the six months ended June 27, 2004.

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Provision for (Benefit from) Income Taxes.  Our provision for income taxes was $4.1 million for the six months ended June 29, 2003 and our benefit from income taxes was $0.8 million for the six months ended June 27, 2004 representing effective tax rates of 40.0% and 33.2%, respectively. The 33.2% tax rate for the six months ended June 27, 2004, represents our expected blended state and federal tax rate. The decrease in the effective tax rate for the benefit from income taxes (which implies a higher tax rate) is the result of nondeductible items having a greater percentage impact on the rate than on an actual tax dollar amount

Income (Loss) from Continuing Operations.  As a result of the above, income (loss) from continuing operations decreased $7.5 million, from income of $6.0 million for the six months ended June 29, 2003 to a loss of $1.5 million for the six months ended June 27, 2004.

Loss from Discontinued Operations, Net of Taxes.  Loss from discontinued operations, net of taxes, was $0.5 million for the six months ended June 29, 2003. There was no loss from discontinued operations for the six months ended June 27, 2004.

Net Income (Loss).  As a result of the above, net income (loss) decreased $7.0 million from income of $5.5 million for the six months ended June 29, 2003 to loss of $1.5 million for the six months ended June 27, 2004.

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 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 June 27, 2004, we had cash and cash equivalents totaling $2.4 million, working capital totaling $57.5 million and unused capacity under our committed credit facility totaling $34.8 million, of which $16.1 million was immediately available for borrowing, compared to cash and cash equivalents totaling $0.8 million, working capital totaling $68.5 million and unused

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availability under our committed credit facility totaling $27.0 million, of which $9.3 million was immediately available for borrowing, at December 28, 2003. Cash provided by operating activities was $16.3 million during the six months ended June 27, 2004 compared to $8.2 million during the six months ended June 29, 2003. Cash provided by continuing operations was $8.7 million and cash used by discontinued operations was $0.5 million during the six months ended June 29, 2003.

Cash flows from operating activities were positively impacted in 2004 by improved accounts receivable collections and the closure during the second quarter of 2003 of 29 branches that were utilizing cash. 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 related 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 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) 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

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due in October 2006 and bore 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 $82.0 million facility was 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.

On June 25, 2004, we amended our senior credit facility and it is now comprised of a $60.0 million revolving line of credit and the same $17.0 million term note with identical repayment dates and substantially similar terms as the original facility. The amendment favorably modified certain financial covenants while it increased the interest rate on the revolving line of credit by 0.5% and on the term note by 1.0%.  In conjunction with the amendment, on July 1, 2004, we repaid $5.0 million of borrowings under the term note. The impact of repaying the higher average interest rate borrowings under the term note, offset partially by the marginally higher interest rates, will reduce the overall cost of capital under the facility going forward.

As of June 27, 2004, prior to the $5.0 million repayment, we had $17.0 million outstanding on the term note, had drawn approximately $25.2 million on the revolving line of credit and had unused capacity of $34.8 million, of which $16.1 million was immediately available for borrowing.

For the six months ended June 27, 2004, the weighted average interest rate for the loans under our credit facility was 6.1%. As of June 27, 2004, the blended rate for loans outstanding under our credit facility was 6.1%.

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.

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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
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt obligations	$	54,978	$	—	$	54,978	$	—	$	—
Operating leases	19,582		4,923		6,160		3,040		5,459
Capital lease obligations	1,508		1,090		414		4		—
Total	$	76,068	$	6,013	$	61,552	$	3,044	$	5,459

Long-term debt obligations have decreased to $42.2 million as of June 27, 2004 since we repaid $12.8 million during the first six months of 2004.  No material changes have occurred with regards to operating leases and capital lease obligations since December 28, 2003.

Critical Accounting Policies

In response to the Security 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 on going 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 consolidated financial statements included in the Form 10-K for the year ended December 28, 2003.

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

•We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for bad debt expense. The adequacy of this allowance is determined by continually evaluating customer receivables, considering the customers’ financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

•We have recorded goodwill and other intangibles resulting from our acquisitions through December 28, 2003. Through December 30, 2001, goodwill and other intangibles were amortized on a straight-line basis over their lives of 6 to 20 years. Pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which we adopted in 2002, goodwill and intangible assets deemed to have an indefinite life are no longer amortized. We evaluate the recovery of the carrying amount of costs in excess of net tangible assets acquired by determining if an impairment has occurred. This evaluation is done annually or more frequently if indicators of an impairment arise. Indicators of an impairment include duplication of resources resulting from acquisitions, instances in which the estimated undiscounted cash flows of the entity are less than the remaining unamortized balance of the underlying intangible assets and other factors. At such time that impairment is determined, the intangible assets are written off during that period. If we are required to record an impairment charge in the future, it would have an adverse impact on results of operations.

•We maintain an accrual for our health, workers compensation and professional liability that are either self-insured or partially self-insured and are classified in accounts payable. The adequacy of these accruals are determined by periodically evaluating our historical experience and trends related to health, workers compensation, and professional liability claims and payments, based on company-specific actuarial computations and industry experience and trends. If such information indicates that the accruals are overstated or understated, we will adjust the assumptions utilized in its methodologies and reduce or provide for additional accruals as appropriate.

•We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include professional liability and employee-related matters. Hospital and healthcare facility clients may also become subject to claims, governmental inquiries and investigations and legal actions to which we may become a party relating to services provided by our professionals. From time to time, and depending upon the particular facts and circumstances, we may be subject to indemnification obligations under our contracts with hospital and healthcare facility clients relating to these matters. Although we are currently not aware of any such pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our financial condition or results of operations, if we become aware of such claims against us, we will evaluate the

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probability of an adverse outcome and provide accruals for such contingencies as necessary.

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 decisions. 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:

•Our ability to attract and retain qualified nurses and other healthcare personnel;

•The overall level of demand for services provided by temporary nurses;

•Our ability to enter into contracts with hospital and healthcare facility clients on terms attractive to us;

•The willingness of hospital and healthcare facility clients to utilize temporary healthcare staffing services;

•The general level of patient occupancy at our hospital and healthcare facility clients;

•The functioning of our information systems;

•The effect of existing or future government regulation and federal and state legislative and enforcement initiatives on our business;

•Our clients’ ability to pay for services;

•Our ability to successfully implement our acquisition and integration strategies;

•The effect of liabilities and other claims asserted against us;

•The effect of competition in the markets we serve; and

•Our ability to carry out our business strategy.

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.

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ITEM 3.                  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 senior credit facility. On June 27, 2004, we had borrowings of $42.2 million under our credit facility that were subject to variable rates, with a blended rate of 6.1%. As of June 27, 2004, 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 $0.4 million on an annualized basis.

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 effected by inflation in the future.

ITEM 4.                  CONTROLS AND PROCEDURES

Based on an evaluation of the disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q, the Chairman of the Board of Directors and Chief Executive Officer, Robert J. Adamson, and Chief Financial Officer, Kevin S. Little, have concluded that the disclosure controls and procedures are effective.

There were no significant changes in our internal control over financial reporting or in other factors that could significantly affect those controls subsequent to the date of the our most recent evaluation thereof.

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PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

On February 20, 2004, Joseph and Patricia Marrari, and on April 16, 2004, Tommie Williams, filed class action lawsuits against Medical Staffing Network in the United States District Court for 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.  These lawsuits also named as defendants certain of our directors and executive officers.  The complaints allege 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 the Securities Act of 1933.  The complaints seek compensatory damages as well as costs and attorney fees.  On March 29, 2004, a third class action lawsuit brought on behalf of the same class of our stockholders making claims similar to those in the lawsuits filed by Plaintiffs Joseph and Patricia Marrari and Tommie Williams was commenced by Plaintiff Haddon Zia in the Florida Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida.  Defendants have removed this case to the United States District Court for the Southern District of Florida and Plaintiff has moved to remand the case back to the Florida Circuit Court of the Fifteenth Judicial Circuit, which motion Defendants have opposed.  The Zia complaint seeks rescission or damages as well as certain equitable relief and costs and attorney fees.

On March 2, 2004, another class action complaint was filed against Medical Staffing Network and certain of our directors and executive officers in the United States District Court for the Southern District of Florida by Jerome Gould, 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 seeks compensatory damages, costs and attorney fees.

Subsequent to quarter end, on July 2, 2004, the Marrari, Gould, Williams and Zia actions were consolidated, Plaintiff Thomas Greene was appointed Lead Plaintiff of the consolidated action and the law firm of Cauley Geller Bowman & Rudman LLP was appointed Lead Counsel for Plaintiffs.

We believe that these lawsuits are without merit and we intend to defend ourselves against them vigorously.

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 any claims that arise out of operations in the normal course of business will not have a material adverse effect on our financial position or results of operations.

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

On June 15, 2004, we held our Annual Meeting of Stockholders, at which our stockholders voted on the election of three directors to serve until our 2007 Annual Meeting.

Our stockholders voted to elect the following Class III directors to serve until our 2007 Annual Meeting:

Nominee	In Favor	Against	Abstain
Robert J. Adamson	25,693,162	261,882	—
David J. Wenstrup	25,917,681	37,363	—
C. Daryl Hollis	25,917,681	37,363	—

Our directors who continued in office after the meeting are Joel Ackerman and Thomas Timbie, who are Class I directors whose term expires in 2005, and Scott F. Hilinski, Anne Boykin and Philip A. Incarnati, who are Class II directors whose term expires in 2006.

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits

10.1Separation Agreement, among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Gregory K. Guckes, dated June 7, 2004.

10.2First Amendment to Credit Agreement, dated June 25, 2004, among Medical Staffing Network, Inc., the other Credit Parties identified on the signature pages thereto, General Electric Capital Corporation, LaSalle Bank National Association and Special Situations Investing Group, Inc.

31.1Certification 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.

31.2Certification 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.

32.1Certification 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.

32.2Certification 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.

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(b)Reports on Form 8-K

The following reports on Form 8-K were filed or furnished by Medical Staffing Network Holdings, Inc. during the quarter ended June 27, 2004:

Report on Form 8-K providing notice of the issuance by Medical Staffing Network Holdings, Inc. of a press release dated March 29, 2004, under Items 5 and 7, furnished on March 29, 2004.

Report on Form 8-K providing notice of the issuance by Medical Staffing Network Holdings, Inc. of a press release dated April 19, 2004, under Items 7 and 9, furnished on April 19, 2004.

Report on Form 8-K providing notice of the issuance by Medical Staffing Network Holdings, Inc. of a press release dated May 5, 2004, under Items 7 and 12, furnished on May 5, 2004.

Report on Form 8-K providing notice of the issuance by Medical Staffing Network Holdings, Inc. of a press release dated May 14, 2004, under Items 5 and 7, filed on May 14, 2004.

Report on Form 8-K providing notice of the slide presentation given by Medical Staffing Network Holdings, Inc. on May 25, 2004, under Item 9, furnished on May 25, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MEDICAL STAFFING NETWORK HOLDINGS, INC.
Dated: August 5, 2004	By:	/s/ Robert J. Adamson
		Robert J. Adamson
		Chairman of the Board of Directors and
		Chief Executive Officer
Dated: August 5, 2004	By:	/s/ Kevin S. Little
		Kevin S. Little
		President, Chief Operating Officer and
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Separation Agreement, among Medical Staffing Network, Inc., Medical Staffing Network Holdings, Inc. and Gregory K. Guckes, dated June 7, 2004 (filed herewith).
10.2	First Amendment to Credit Agreement, dated June 25, 2004, among Medical Staffing Network, Inc., the other Credit Parties identified on the signature pages thereto, General Electric Capital Corporation, LaSalle Bank National Association and Special Situations Investing Group, Inc. (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).

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT, WAIVER AND RELEASE

Separation Agreement, Waiver and Release (“Agreement”) by and amongMedical Staffing Network, Inc. (“MSN”), Medical Staffing Network Holdings, Inc. (“Holdings”) and Gregory K. Guckes (“Employee”).

Recitals

A.            MSN, Holdings and Employee are parties to an Employment Agreement (the “Employment Agreement”) dated as of June 9, 2003.

B.            MSN, Holdings and Employee desire to terminate the Employment Agreement subject to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.             Resignation; Termination of Employment Agreement.  Employee hereby resigns from all positions held by him with MSN effective June 7, 2004 (the “Effective Date”) and such resignation is hereby accepted by MSN.  The Employment Agreement is hereby terminated effective as of June 7, 2004; provided, however, MSN, Holdings and Employee acknowledge and agree that each of Section 6(j) (Survival of Operative Sections), Section 7 (Restrictive Covenants), Section 8 (Injunctive Relief), Section 10 (Taxes) and Section 13 (Severability and Governing Law) shall remain in full force and effect.

2.             Severance.  MSN agrees to pay as severance to Employee an amount equal to 12 months’ salary plus other compensation to which Employee is entitled as of the Effective Date minus any applicable withholding and similar taxes required by law (the “Severance Amount”).  The Severance Amount shall be paid to Employee in accordance with MSN’s normal payroll practices.  In addition, MSN agrees to pay to Employee on the Effective Date an amount equal to $9,443.31 minus any applicable withholding and similar taxes required by law (the “Accrued Vacation Amount”), which amount represents accrued vacation for the period commencing on June 9, 2003 and ending on the Effective Date.  To the extent permitted by MSN’s health plans, Employee will continue to receive the health benefits provided to him as of the Effective Date for the 12-month period following the Effective Date.  Employee acknowledges and agrees that upon payment of the Severance Amount and the Accrued Vacation Amount, no wages, commission, bonuses, sick pay, personal leave pay, severance pay, vacation pay or other compensation or payments or form of remuneration of any kind or nature is or will be owed to him under this Agreement or the Employment Agreement.

3.             Release.  Employee, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, for himself and his heirs, executors, administrators, successors, personal representatives and assigns, does hereby remise, release, acquit, satisfy and forever discharge MSN and Holdings, and their respective predecessors,

subsidiaries, affiliates, officers, employees, stockholders, directors, attorneys, sureties, successors and assigns (collectively, the “MSN Parties”), of and from any claim and all causes of action, contracts, agreements, promises, claims for tort or negligence, damages, claims for wages and demands whatsoever, in law or in equity, under state, federal or local law, including but not limited to claims arising under 29 U.S.C. §201 et.seq., 29 U.S.C. §623, Title VII of the Civil Rights Act of 1964, 42 U.S.C. §1981, Chapter 760 of the Florida Civil Rights Act, and all other causes of action which Employee ever had, now has, or he or any of his heirs, executors, administrators, successors, personal representatives or assigns hereafter can, shall or may have against the MSN Parties or any of them, known, unknown, foreseen or unforeseen from the beginning of the world to the Effective Date.

4.             Claims and Lawsuits.  Employee agrees not to file any claims or lawsuits against any of the MSN Parties with any court or governmental agency.  If Employee is requested to participate in any lawsuit, other proceeding, or investigation against any of the MSN Parties, Employee agrees to immediately notify MSN in writing of such request, to the extent permitted by applicable law.

5.             Confidentiality.  Employee agrees to keep the existence of this Agreement confidential and not to make or cause to have made any disparaging or negative remarks about any of the MSN Parties.  Employee further agrees not to disclose to any third party the terms of this Agreement; provided, however, the Employee may make such disclosure if, in the opinion of counsel, it is determined that such disclosure must be made (i) in order that Employee does not violate any applicable law, (ii) to comply with any proper request of any governmental or judicial authority having proper jurisdiction and authority to require such disclosure, (iii) to comply with any properly issued subpoena or (iv) as otherwise required by applicable law; and provided, further, that in the event of any such determination, Employee agrees to notify MSN as promptly as practicable prior to disclosure.

6.             Return of Company Property.  Except for the equipment described on Schedule 1 to this Agreement which MSN has agreed to allow Employee to retain for his personal use, Employee hereby certifies that all property of the MSN Parties in his possession or control including, but not limited to, credit cards, keys, cellular telephones, computers, computer manuals and disks, equipment, employee manuals, letters and reports, has been returned to MSN and that all returned equipment and computers are in good working order, ordinary wear and tear excepted.

7.             No Admission.  The parties understand that nothing in this Agreement shall be construed as an admission or evidence of liability for any violation of the law, willful or otherwise, by any entity or person.

8.             Representations of Employee.  By signing this Agreement, Employee acknowledges that he has:

(a)           been advised to review this Agreement with counsel of his choice and has been given twenty-one (21) days in which to consider signing this Agreement;

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(b)           seven (7) days in which to revoke this Agreement by written notice to MSN;

(c)           fully read and understands the terms of this Agreement including, without limitation, the release set forth in Section 3;

(d)           signed this Agreement freely and voluntarily; and

(e)           not relied on any representation or statement made by any of the MSN Parties or any of the MSN Parties’ respective agents or employees, except those set forth in this Agreement.

9.             Waiver.  No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument signed by the party charged with the waiver or estoppel.  No written waiver shall be deemed to be a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of the term or condition for the future or as to any act other than that specifically waived.

10.           Governing Law; Venue and Jurisdiction.  This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without regard to conflicts of law principles.  Venue and jurisdiction of all actions relating to the performance or interpretation of this Agreement may be brought only in the courts of the State of Florida located in Palm Beach County or in the United Stated District Court for the Southern District of Florida.  The parties consent to personal jurisdiction in the courts described in this Section for the purpose of all actions, and waive all objections to venue and the right to assert that a court chosen under this Section is improper based on the doctrine of forum non conveniens.

11.           Attorneys’ Fees.  If litigation is brought concerning this Agreement, the prevailing party shall be entitled to receive from the nonprevailing party, and the nonprevailing party shall immediately pay upon demand, all reasonable attorneys’ fees and expenses of the prevailing party.  Except as otherwise provided in this Agreement, each party shall pay its own legal fees and disbursements and other expenses incurred in connection with this Agreement.

12.           Notices.  All notices and other communications required or permitted under this Agreement shall be in writing and delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested (deemed delivered five business days after the date sent) addressed to the address of the applicable party appearing on the signature page of this Agreement.  Any party may by notice given in accordance with this Section to the other party designate another address or person for receipt of notices.

13.           Binding Effect.  This Agreement shall inure to the benefit of and be legally binding upon all successors and assigns of the Company.

14.           Entire Agreement; Amendment.  This Agreement constitutes the entire understanding of the parties and supersedes all discussions, negotiations, agreements and understandings, whether oral or written, with respect to its subject matter.  This Agreement may

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be modified only by a written instrument properly executed by the Employee, MSN and MSN Holdings.

15.           Severability.  If any one or more of the provisions of this Agreement is held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision which comes closest to the intent of the parties.

16.           Counterparts.  This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same agreement.

17.           WAIVER OF JURY TRIAL.  IF LITIGATION IS BROUGHT TO ENFORCE THIS AGREEMENT, THE PARTIES KNOWINGLY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM HAS TO A TRIAL BY JURY.  THE PARTIES AGREE THIS PROVISION IS A MATERIAL INDUCEMENT TO THE PARTIES’ ENTERING INTO THIS AGREEMENT.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.

MEDICAL STAFFING NETWORK, INC.

By:	/s/	Robert J. Adamson
Name:		Robert J. Adamson
Title:		Chief Executive Officer
Address:		901 Yamato Road, Suite 110
		Boca Raton, Florida 33431

MEDICAL STAFFING NETWORK HOLDINGS, INC.

By:	/s/	Robert J. Adamson
Name:		Robert J. Adamson
Title:		Chief Executive Officer
Address:		901 Yamato Road, Suite 110
		Boca Raton, Florida 33431

By:	/s/		Gregory K. Guckes
Name:		Gregory K. Guckes
Address:			c/o Medical Staffing Network Holdings, Inc.
			901 Yamato Road, Suite 110
			Boca Raton, Florida 33431

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SCHEDULE 1

EQUIPMENT RETAINED BY EMPLOYEE

1              IBM T40 Laptop Computer

1              Port Replicator

1              Linksys Wireless Router

1              Booster

1              Ink Jet Printer

1              APC Surge Protector

EX-10.2

Exhibit 10.2

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is made as of June 25, 2004 (the “Effective Date”) by and among MEDICAL STAFFING NETWORK, INC, a Delaware corporation (the “Borrower”), the other Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Administrative Agent”) for itself, as a Lender, and as Administrative Agent for the Lenders, LASALLE BANK NATIONAL ASSOCIATION, as a Lender and SPECIAL SITUATIONS INVESTING GROUP, INC., as a Lender.

Statement of Facts

WHEREAS, Administrative Agent, the Lenders, the Borrower and each of the other Credit Parties are parties to that certain Credit Agreement, dated as of December 22, 2003 (such Credit Agreement, as the same may be amended, supplemented, extended, renewed, restated or replaced from time to time being hereinafter referred to as the “Credit Agreement”);

WHEREAS, Borrower desires to amend its financial covenants so as to avoid a default under the Credit Agreement and the Administrative Agent and the Lenders are willing to allow such amendments provided that the Revolving Credit Commitment is reduced to $60,000,000, the outstanding principal amount of the Term Loans is paid by an amount of $5,000,000 (to be paid together with the prepayment fee and any LIBOR breakage fees), the rates of interest are increased, the Availability Block is increased by $2,000,000 and certain other conditions are satisfied; and

WHEREAS, Administrative Agent, the Lenders, Borrower and each of the Credit Parties desire to amend the Credit Agreement in certain respects, all in accordance with and subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement (except as otherwise expressly defined or limited herein) and do hereby further agree as follows:

Statement of Terms

1.Amendment to Credit Agreement.  Subject to the terms and conditions of this Amendment, the Credit Agreement is hereby amended as follows:

1.1Section 1.1 is hereby amended by deleting the definitions of “Applicable Margin,” “Availability Block,” “EBITDAR,” and “Revolving Credit Commitment,” in their entirety in and substituting in lieu thereof the following definitions to read in their entirety as follows:

“Applicable Margin” means: (a) (i) 2.50% per annum for LIBOR Loan Advances and 1.25% per annum for Base Rate Advances, (ii) 1.25% per annum for Swingline Loans, (iii) 2.50% per annum for the Letter of Credit Fee Applicable Margin and (iv) 0.50% for the Unused Line Fee Applicable Margin; and (b) (i) from the Closing Date until the Initial Adjustment Date 9.00% per annum for Term Loans constituting LIBOR Loans and (ii) commencing on the Initial Adjustment Date and on the first day of each calendar month thereafter that follows by at least five (5) days the receipt of financial statements delivered pursuant to Section 5.1(a), the Applicable Margin for Term Loans shall be that determined from the chart below based on such financial statements:

If Leverage Ratio is:	Level of Applicable Margins:
<2.5 to 1.0	Level I
<3.0 to 1.0, but > 2.5 to 1.0	Level II
<3.5 to 1.0, but > 3.0 to 1.0	Level III
>3.5 to 1.0	Level IV

	Level I	Level II	Level III	Level IV
Applicable Margin for Term Loans constituting LIBOR Loans	8.50%	9.00%	9.50%	11.00%
Applicable Margin for Term Loans constituting Base Rate Loans	7.00%	7.50%	8.00%	9.50%

Notwithstanding the foregoing, if the Borrower shall fail to timely deliver to the Administrative Agent the financial statements required for the calculation of the Leverage Ratio for any Fiscal Month, then commencing after the date such financial statements were due and continuing through the next Business Day following the date of delivery thereof, the Leverage Ratio for such period shall be conclusively presumed to be, and the Applicable Margin shall be calculated based upon, the highest Leverage Ratio level listed in the table set forth above.

Furthermore, notwithstanding the foregoing, at the election of the Administrative Agentso long as a Default shall have occurred and be continuing, the Applicable Margins shall be the highest rate specified in the table above for all Classes of Extensions of Credit.

“Availability Block” means an amount equal to $7,000,000, provided that such amount shall equal $0 for all times that the Borrower demonstrates that the Borrower’s EBITDA for the twelve month period ending on such date of determination is greater than $25,000,000.

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“EBITDAR” means, for any period, with respect to the Credit Parties and their Subsidiaries on a consolidated basis, the sum of (a) Net Income for such period (excluding the effect of any (i) intercompany items, (ii) all earnings attributable to equity interests in Persons that are not Subsidiaries unless actually received by such Person, (iii) all income arising from the forgiveness, adjustment or negotiated settlement of any Indebtedness, (iv) any extraordinary items of income and (v) any increase or decrease in income arising from any change in such Person’s method of accounting, subject to Section 1.2) plus (b) an amount which, in the determination of Net Income for such period has been deducted for (i) Interest Expense for such period, (ii) total Federal, state, foreign or other income taxes for such period, (iii) depreciation and amortization expense for such period and (iv) Rent Expense for such period, all as determined in accordance with GAAP minus (c) the amount of all earn-out payments made during such period in connection with Permitted Acquisitions consummated subsequent to the Closing Date; provided that, for the calculation of EBITDAR made (i) for the first Fiscal Quarter of Fiscal Year 2003, EBITDAR shall be the sum of the amounts set forth above plus the amount of the Discontinued Operation Fees First Quarter 2003, (ii) for the second Fiscal Quarter of Fiscal Year 2003, EBITDAR shall be the sum of the amounts set forth above plus the amount of the Discontinued Operation Fees Second Quarter 2003 plus the amount of the Restructuring Fees, (iii) during and for the fourth Fiscal Quarter of Fiscal Year 2003, EBITDAR shall be the sum of the amounts set forth above plus the amount of the Prior Facility Financing Fees, (iv) during and for the third Fiscal Quarter of Fiscal Year 2004 and for the subsequent four Fiscal Quarters after incurrence, EBITDAR shall be the sum of the amounts set forth above minus the amount of the Term Loan Paydown, and (v) for the subsequent four Fiscal Quarters after incurrence, EBITDAR shall be the sum of the amounts set forth above minus the amount of the Severance Payments and minus the amount of the D&O Deductible.

“Revolving Credit Commitment” means (a) with respect to any Lender listed on the signature pages of the First Amendment, the amount (if any) set forth thereon opposite the name of such Lender under the heading “Revolving Credit Commitment”, (b) with respect to any assignee of a Revolving Credit Commitment, the amount of the transferor Lender’s Revolving Credit Commitment assigned to such assignee pursuant to Section 11.6, and (c) as to all Lenders having a Revolving Credit Commitment, the aggregate commitment of all Lenders to make Revolving Credit Advances, which aggregate commitment shall be sixty million dollars ($60,000,000) on the First Amendment Effective Date, in each case, as such amount may be reduced from time to time pursuant to Section 2.8 or changed as a result of an assignment pursuant to Section 11.6.  The term “Revolving Credit Commitment” does not include the Swingline Commitment.

1.2Section 1.1 is hereby further amended by adding the following definitions to read in their entirety as follows:

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“D&O Deductible” means the amount of charges incurred by Borrower during or after the second Fiscal Quarter of Fiscal Year 2004 for the deductible required for the D&O policy to defend shareholder lawsuit, not to exceed $500,000.

“First Amendment” means that certain First Amendment to Credit Agreement dated as of June 25, 2004 by and among Medical Staffing Network, Inc., the other Credit Parties signatory thereto, General Electric Capital Corporation, LaSalle Bank National Association and Special Situation Investing Group, Inc.

“First Amendment Effective Date” means June 25, 2004.

“Severance Payments” means the amount of payments paid by Borrower during or after the second Fiscal Quarter of Fiscal Year 2004 for severance and search firm costs, not to exceed $750,000.

“Term Loan Paydown” means the amount of $5,000,000 paid by Borrower in the third Fiscal Quarter of Fiscal Year 2004 as a prepayment of the outstanding Term Loans in connection with the First Amendment.

1.3Section 6.10 is hereby amended by deleting such section in its entirety in and substituting in lieu thereof the following revised Section 6.10 to read in its entirety as follows:

Section 6.10Financial Covenants.  The Borrower’s fiscal year ends on the Sunday closest to December 31 of each calendar year.  Each reference to March 31, June 30, September 30 and December 31 in this Section 6.10 shall be deemed to refer to the last day of the fiscal quarter or fiscal year of the Borrower, as applicable, ending on or about such date.  In addition, each reference to January 1, April 1, July 1 and October 1 shall be deemed to refer to the first day of the fiscal quarter or fiscal year of the Borrower, as applicable, beginning on or about such date.

(a)Leverage Ratio.  The Leverage Ratio, at all times during the periods set forth below, shall be less than or equal to the ratio set forth opposite such period:

(i)From the Closing Date to and including December 31, 2003, 3.00 to 1.0.

(ii)From January 1, 2004 to and including June 30, 2004, 4.50 to 1.0;

(iii)From July 1, 2004 to and including September 30, 2004, 5.90 to 1.0.

(iv)From October 1, 2004 to and including December 31, 2004,  7.00 to 1.0.

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(v)From January 1, 2005 to and including March 31, 2005, 5.75 to 1.0.

(vi)From April 1, 2005 to and including June 30, 2005, 4.50 to 1.0.

(vii)From July 1, 2005 to and including September 30, 2005, 3.50 to 1.0.

(viii)From October 1, 2005 to and including December 31, 2005, 2.75 to 1.0.

(ix)From January 1, 2006  to and including June 30, 2006, 2.50 to 1.0

(x)From July 1, 2006 and thereafter, 2.25 to 1.0.

(b)Fixed Charge Coverage Ratio.  The Fixed Charge Coverage Ratio, as of the end of each Fiscal Quarter of the Borrower set forth below, shall be greater than or equal to the ratio set forth opposite such Fiscal Quarter:

Fiscal Quarter	Minimum Fixed Charge Coverage Ratio
Fiscal Quarter ending December 31, 2003	1.15 to 1.0
Fiscal Quarter ending March 31, 2004	1.15 to 1.0
Fiscal Quarter ending June 30, 2004	1.25 to 1.0
Fiscal Quarter ending September 30, 2004	1.00 to 1.0
Fiscal Quarter ending December 31, 2004	0.75 to 1.0
Fiscal Quarter ending March 31, 2005	0.75 to 1.0
Fiscal Quarter ending June 30, 2005	1.20 to 1.0
Fiscal Quarter ending September 30, 2005	1.50 to 1.0

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Fiscal Quarter	Minimum Fixed Charge Coverage Ratio
Fiscal Quarter ending December 31, 2005	0.75 to 1.0
Fiscal Quarter ending March 31, 2006	0.75 to 1.0
Fiscal Quarter ending June 30, 2006	0.75 to 1.0
Fiscal Quarter ending September 30, 2006	0.75 to 1.0
Fiscal Quarter ending December 31, 2006 and each Fiscal Quarter thereafter	2.00 to 1.0

(c)EBITDA.  EBITDA, for each 12 month period ending as of the last day of each Fiscal Quarter set forth below, shall not be less than the amount set forth opposite such period:

Fiscal Quarter	EBITDA
Fiscal Quarter ending December 31, 2003	$	21,000,000
Fiscal Quarter ending March 31, 2004	$	13,000,000
Fiscal Quarter ending June 30, 2004	$	11,200,000
Fiscal Quarter ending September 30, 2004	$	8,000,000
Fiscal Quarter ending December 31, 2004	$	6,500,000
Fiscal Quarter ending March 31, 2005	$	8,100,000
Fiscal Quarter ending June 30, 2005	$	10,500,000

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Fiscal Quarter	EBITDA
Fiscal Quarter ending September 30, 2005	$	13,600,000
Fiscal Quarter ending December 31, 2005	$	17,800,000
Fiscal Quarter ending March 31, 2006	$	18,500,000
Fiscal Quarter ending June 30, 2006	$	18,500,000
Fiscal Quarter ending September 30, 2006 and each Fiscal Quarter thereafter.	$	19,000,000

(d)  Days Sales Outstanding.  As of the end of each Fiscal Monthfrom the Closing Date, Days Sales Outstanding shall not be greater than 70 days for any Fiscal Month.

1.4Section 7.13 is hereby amended by deleting such section in its entirety in and substituting in lieu thereof the following revised Section 7.13 to read in its entirety as follows:

Section 7.13  Capital Expenditures.  The Credit Parties will not permit aggregate Capital Expenditures for each period set forth below to exceed the amount set forth opposite such period:

Fiscal Quarter ending on or about December 31, 2003	$		1,500,000
Fiscal Year ending on or about December 31, 2004	$	4,000,000
Fiscal Year ending on or about December 31, 2005	$		4,000,000
Fiscal Year ending on or about December 31, 2006	$		5,500,000.

2.No Other Amendments.  Except for the amendments set forth in Section 1 of this Amendment, the Credit Agreement shall remain unchanged and in full force and effect. Nothing in this Amendment is intended, or shall be construed, to constitute a novation or an accord and satisfaction of any of Borrower’s or any other Credit Party’s Obligations under or in connection with the Credit Agreement or any other Loan Document or to modify, affect or

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impair the perfection or continuity of Administrative Agent’s security interests in, security titles to or other liens on any Collateral for the Obligations.

3.Representations and Warranties.  To induce Administrative Agent to enter into this Amendment, Borrower and each of the other Credit Parties hereby warrant, represent and covenant to Administrative Agent and Lender that after giving effect to this Amendment:

3.1Each representation or warranty of Borrower and each other Credit Party set forth in the Credit Agreement is true and correct in all material respects on and as of the date hereof (except to the extent that any such representation or warranty expressly relates to a prior specific date or period).

3.2No Default or Event of Default has occurred and is continuing.

3.3Borrower and each other Credit Party have the power and are each duly authorized to enter into, deliver and perform this Amendment, and this Amendment is the legal, valid and binding obligation of the Borrower and each other Credit Party enforceable against it in accordance with its terms.

3.4The execution, delivery and performance by each Credit Party of the Credit Agreement, as amended by this Amendment: (a) is within such Person’s power; (b) has been duly authorized by all necessary corporate, limited liability company or limited partnership action; (c) does not contravene any provision of such Person’s charter or bylaws; (d) does not violate any law or regulation, or any order or decree of any court or Governmental Authority (including specifically any applicable rule or regulation relating to the eligibility of such Person or to receive payment and to participate as an accredited and certified provider of health care services under Medicare, Medicaid, TRICARE, CHAMPVA or any equivalent program or relating to the licenses and permits required therein or in connection therewith); (e) does not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) does not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Administrative Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) does not require the consent or approval of any Governmental Authority or any other Person.

4.Conditions Precedent to Effectiveness of this Amendment.  This Amendment shall become effective, as of the Effective Date, upon receipt by Administrative Agent, in form and substance satisfactory to Administrative Agent, of:

4.1one or more counterparts of this Amendment duly executed and delivered by Borrower and each other Credit Party;

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4.2payment by Borrower to the Term Lenders pro rata, an amount to reduce the outstanding principal amount of the Term Loans by an aggregate amount of $5,000,000;

4.3Revolving Notes evidencing the amended Revolving Credit Commitments, duly executed and delivered to the Revolving Lenders by Borrower;

4.4within 60 days of the Effective Date, evidence satisfactory to the Administrative Agent that each Credit Party has entered into control agreements for all lockbox and deposit accounts of such Credit Party, including, without limitation, payroll and other zero accounts;

4.5payment by the Borrower to the Administrative Agent for the ratable benefit of the Term Lenders a prepayment fee in the amount of $62,500 pursuant to Section 2.7(c) of the Credit Agreement in connection with the prepayment of the Term Loan Commitments;

4.6payment by the Borrower to the Term Lenders the amount of any LIBOR breakage fee due to such Lender pursuant to Section 9.4(d) of the Credit Agreement in connection with the prepayment of the Term Loan Commitments;

4.7payment by Borrower to the Administrative Agent for the ratable benefit of the Revolving Lenders of an amendment fee in the amount of $225,000, which fee shall be fully earned and non-refundable when paid; and

4.8payment by Borrower to the Administrative Agent for the ratable benefit of the Term Lenders of an amendment fee in the amount of $45,000, which fee shall be fully earned and non-refundable when paid.

5.Reimbursement of Expenses.  The Borrower hereby agrees that it shall reimburse the Administrative Agent and the Lenders on demand for all costs and expenses (including without limitation attorney’s fees) incurred by such parties in connection with the negotiation, documentation and consummation of this Amendment and the other documents executed in connection herewith and therewith and the transactions contemplated hereby and thereby.

6.Ratification; No Novation.  Borrower and each of the other Credit Parties hereby ratifies and reaffirms each and every term, covenant and condition set forth or incorporated by reference in the Credit Agreement (as amended and supplemented by this Amendment), all Loan Documents and all other documents delivered by Borrower in connection therewith (including without limitation the other documents executed in connection with Letters of Credit to which any Credit Party is a party) effective as of the date hereof and none of the rights, interests and obligations existing and to exist under such documents are hereby released, diminished or impaired. The execution and delivery of this Amendment shall not, and shall not be deemed to, constitute a novation of any indebtedness or other obligations owing to the Administrative Agent or the Lenders under the Credit Agreement, the other Loan Documents or any other documents delivered by Borrower in connection therewith (including without limitation the other documents executed in connection with Letters of Credit to which any Credit

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Party is a party).  Subject to Section 4, on the date of this Amendment, the Credit Agreement shall be amended and supplemented as described in this Amendment, and all loans and other obligations of the Credit Parties outstanding as of the date hereof under the Credit Agreement shall be deemed to be loans and obligations outstanding under the Credit Agreement as amended, without further action by any Person.

7.Waiver and Release.  To induce the Administrative Agent and the Lenders to enter into this Amendment, Borrower and each of the other Credit Parties hereby waives and releases any claim, defense, demand, action or suit of any kind or nature whatsoever against any or all of the Administrative Agent or Lenders arising on or prior to the date hereof in connection with the Credit Agreement or any of the other Loan Documents, or any of the transactions contemplated thereunder, except that this Section 7 shall not waive or release any of the Administrative Agent’s or the Lenders’ contractual obligations under this Amendment, the Credit Agreement or any of the other Loan Documents.

8.Estoppel.  To induce Administrative Agent (in its various capacities) to enter into this Amendment, Borrower and each of the other Credit Parties hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense or counterclaim in favor of any Credit Party as against Administrative Agent (in its various capacities) with respect to the obligations of any Credit Party to Administrative Agent (in its various capacities) under the Credit Agreement or the other Loan Documents, either with or without giving effect to this Amendment.

9.Counterparts.  This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument.

10.Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.

11.Severability of Provisions.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.  To the extent permitted by applicable law, Borrower and each of the other Credit Parties hereby waive any provision of law that renders any provision hereof prohibited or unenforceable in any respect.

12.Entire Agreement.  The Credit Agreement as amended by this Amendment embodies the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof.

13.Binding Effect.  This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided that

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no Credit Party may assign any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and the Lender.

[Remainder of page intentionally blank; next page is signature page]

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IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Credit Agreement to be duly executed and delivered as of the day and year specified at the beginning hereof.

MEDICAL STAFFING NETWORK, INC., as Borrower
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: President and Chief Operating Officer
OTHER CREDIT PARTIES:
MEDICAL STAFFING NETWORK HOLDINGS, INC.
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: President and Chief Operating Officer
MEDICAL STAFFING HOLDINGS, LLC
By: Medical Staffing Network Holdings, Inc., as its sole Member
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: President and Chief Operating Officer
MSN-ILLINOIS HOLDINGS, INC.
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: Director

MEDICAL STAFFING NETWORK OF ILLINOIS, LLC
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: Manager
MEDICAL STAFFING NETWORK ASSETS, LLC
By:	/s/ Kevin S. Little
Name: Kevin S. Little
Title: Manager

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	AGENT AND LENDERS:
	GENERAL ELECTRIC CAPITAL CORPORATION, as Lender and as Administrative Agent
Revolving Credit	By:	/s/ Steven Wagnblas
Commitment:  $42,500,000	Name:		Steven Wagnblas
	Its Duly Authorized Signatory

	LASALLE BANK NATIONAL ASSOCIATION, as Lender
Revolving Loan	By:	/s/ Dana Friedman
Commitment:  $17,500,000	Name:			Dana Friedman
	Title:		First Vice President

SPECIAL SITUATIONS INVESTING GROUP, INC., as Lender
By:	/s/ Michael Mansour
Name:			Michael Mansour
Title:		Authorized Signatory

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Robert J. Adamson, certify that:

I have reviewed this quarterly report on Form 10-Q of Medical Staffing Network Holdings, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(c)Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2004
	/s/ Robert J. Adamson
	Robert J. Adamson
	Chairman of the Board of Directors and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Kevin S. Little, certify that:

I have reviewed this quarterly report on Form 10-Q of Medical Staffing Network Holdings, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(c)Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2004
	/s/ Kevin S. Little
	Kevin S. Little
	President, Chief Operating Officer and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Medical Staffing Network Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended June 27, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Adamson, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert J. Adamson

Robert J. Adamson

Chairman of the Board of Directors and

Chief Executive Officer

August 5, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Medical Staffing Network Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended June 27, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin S. Little, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kevin S. Little

Kevin S. Little

President, Chief Operating Officer and

Chief Financial Officer

August 5, 2004