**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**








**FORM
      10-Q**





(Mark
      One)





x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





FOR
      THE
      QUARTERLY PERIOD ENDED MARCH 31, 2006




**OR**





 ̈
            
            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





**PATIENT
      SAFETY TECHNOLOGIES, INC.**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
            
            **13-3419202****(State
                or other jurisdiction of incorporation or
                organization)**
            
            **(I.R.S.
                Employer Identification Number)****1800
                Century Park East, Ste. 200, Los Angeles, CA
                90067****(Address
                of principal executive offices) (Zip
                Code)**





**Registrant’s
      telephone number, including area code: (310) 895-7750**





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
      past 12 months (or for such shorter period that the registrant was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days. Yes x No  ̈ .




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filerx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2) of the Act. Yes  ̈ No x .





There
      were 6,260,048 shares of the registrant's common stock outstanding as of May
      15,
      2006.








**PATIENT
      SAFETY TECHNOLOGIES, INC.**





**FORM
      10-Q FOR THE FISCAL QUARTER**


**ENDED
      MARCH 31, 2006**





**TABLE
      OF CONTENTS**





**Page****PART
                I - FINANCIAL INFORMATION**Item 1.
            Financial
                Statements
            1Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            21Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            34Item 4.
            Controls
                and Procedures
            34**PART
                II - OTHER INFORMATION**Item 1.
            Legal
                Proceedings
            34Item 1A.
            Risk
                Factors
            35Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            47Item 3.
            Defaults
                Upon Senior Securities
            47Item 4.
            Submission
                of Matters to a Vote of Security Holders
            47Item 5.
            Other
                Information
            47Item 6.
            Exhibits
            48**SIGNATURES**
            51








**"SAFE
      HARBOR" STATEMENT UNDER**


**THE
      PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**





We
      believe that it is important to communicate our plans and expectations about
      the
      future to our stockholders and to the public. Some of the statements in this
      report are forward-looking statements about our plans and expectations of what
      may happen in the future, including in particular the statements about our
      plans
      and expectations in Part I of this report under the heading “Item 2.
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations.” Statements that are not historical facts are forward-looking
      statements. These forward-looking statements are made pursuant to the
“safe-harbor” provisions of the Private Securities Litigation Reform Act of
      1995. You can sometimes identify forward-looking statements by our use of
      forward-looking words like “may,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue”
or the negative of these terms and other similar expressions.





Although
      we believe that the plans and expectations reflected in or suggested by our
      forward-looking statements are reasonable, those statements are based only
      on
      the current beliefs and assumptions of our management and on information
      currently available to us and, therefore, they involve uncertainties and risks
      as to what may happen in the future. Accordingly, we cannot guarantee you that
      our plans and expectations will be achieved. Our actual results and stockholder
      values could be very different from and worse than those expressed in or implied
      by any forward-looking statement in this report as a result of many known and
      unknown factors, many of which are beyond our ability to predict or control.
      These factors include, but are not limited to, those contained in Part II of
      this report under “Item 1A. Risk Factors.” All written and oral forward-looking
      statements attributable to us are expressly qualified in their entirety by
      these
      cautionary statements.





Our
      forward-looking statements speak only as of the date they are made and should
      not be relied upon as representing our plans and expectations as of any
      subsequent date. Although we may elect to update or revise forward-looking
      statements at some time in the future, we specifically disclaim any obligation
      to do so, even if our plans and expectations change.








**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**




**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND SUBSIDIARIES****Condensed
                  Consolidated Balance Sheets**
  **March
                  31,**
              
              
              **December
                  31,****2006**
              
              
              **2005****(Unaudited)****ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              57,863
              
              $
              79,373Receivables
                  from investments
              
              
              34,031
              
              
              934,031Marketable
                  securities
              
              
              104,790
              
              
              923,800Inventories
              
              
              77,481
              
              
              77,481Prepaid
                  expenses
              
              
              130,607
              
              
              112,734Other
                  current assets
              
              
              118,460
              
              
              118,394**TOTAL
                  CURRENT ASSETS**
              
              
              523,232
              
              
              2,245,813Restricted
                  certificate of deposit
              
              
              87,500
              
              
              87,500Property
                  and equipment, net
              
              
              3,442,609
              
              
              1,348,275Goodwill
              
              
              2,658,563
              
              
              2,301,555Patents,
                  net
              
              
              4,332,556
              
              
              4,413,791Long-term
                  investments
              
              
              4,880,826
              
              
              5,636,931**TOTAL
                  ASSETS**
              
              $
              15,925,286
              
              $
              16,033,865**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Notes
                  payable, current portion
              
              $
              3,484,066
              
              $
              1,796,554Accounts
                  payable
              
              
              543,805
              
              
              785,507Accrued
                  liabilities
              
              
              756,214
              
              
              569,116Due
                  to broker
              
              
              275,056
              
              
              801,863**TOTAL
                  CURRENT LIABILITIES**
              
              
              5,059,141
              
              
              3,953,040**LONG-TERM
                  LIABILITIES**Notes
                  payable, less current portion
              
              
              1,423,036
              
              
              1,116,838Deferred
                  tax liabilities
              
              
              1,560,800
              
              
              1,590,045**TOTAL
                  LONG-TERM LIABILITIES**
              
              
              2,983,836
              
              
              2,706,883**MINORITY
                  INTEREST**
              
              
              
              
              
              252,992**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS'
                  EQUITY**Convertible
                  preferred stock, $1 par value, cumulative 7% dividend:1,000,000
                  shares authorized; 10,950 issued and outstandingat
                  March 31, 2006 and December 31, 2005(Liquidation
                  preference $1,133,325)
              
              
              10,950
              
              
              10,950Common
                  stock, $0.33 par value: 25,000,000 shares authorized;7,371,376
                  shares issued and 6,248,545 shares outstanding as of March 31,
                  2006;
                  6,995,276shares
                  issued and 5,672,445 shares outstanding at December 31,
                  2005
              
              
              2,432,554
              
              
              2,308,441Paid-in
                  capital
              
              
              25,214,572
              
              
              22,600,165Accumulated
                  other comprehensive income
              
              
              1,629,143
              
              
              2,374,858Accumulated
                  deficit
              
              
              (19,376,803
              )
              
              (15,784,108
              )9,910,416
              
              
              11,510,306Less:
                  1,122,831 and 1,322,831 shares of treasury stock,at
                  cost, at March 31, 2006 and December 31, 2005,
                  respectively
              
              
              (2,028,107
              )
              
              (2,389,356
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              7,882,309
              
              
              9,120,950**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              15,925,286
              
              $
              16,033,865
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




1


**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND SUBSIDIARIES****Condensed
                  Consolidated Statements of Operations and Comprehensive Loss
                  (Unaudited)**
  **For
                  The Three Months**
                **Ended
                  March 31,****2006**
              
              
              **2005****REVENUES**
              
              $
              75,760
              
              $
              —**OPERATING
                  EXPENSES**Salaries
                  and employee benefits
              
              
              2,450,884
              
              
              1,210,950Professional
                  fees
              
              
              612,307
              
              
              556,971Rent
              
              
              33,287Insurance
              
              
              30,007
              
              
              19,551Taxes
                  other than income taxes
              
              
              34,261
              
              
              22,035Amortization
                  of patents
              
              
              81,235
              
              
              27,078General
                  and administrative
              
              
              245,900
              
              
              257,770**Total
                  operating expenses**
              
              
              3,487,881
              
              
              2,094,355**Operating
                  loss**
              
              
              (3,412,121
              )
              
              (2,094,355
              )**OTHER
                  INCOME (EXPENSES)**Interest,
                  dividend income and other
              
              
              1,094
              
              
              28,602Realized
                  loss on investments, net
              
              
              (136,262
              )
              
              (34,728
              )Interest
                  expense
              
              
              (132,403
              )
              
              (27,318
              )Unrealized
                  gains on marketable securities, net
              
              
              76,915
              
              
              343,587**Loss
                  before deferred income tax benefit**
              
              
              (3,602,777
              )
              
              (1,784,212
              )**Deferred
                  income tax benefit**
              
              
              29,245**Net
                  loss**
              
              
              (3,573,532
              )
              
              (1,784,212
              )**Preferred
                  dividends**
              
              
              (19,163
              )
              
              (12,738
              )**Loss
                  available to common shareholders**
              
              $
              (3,592,695
              )
              $
              (1,796,950
              )**Basic
                  and diluted net loss per common share**
              
              $
              (0.60
              )
              $
              (0.37
              )**Weighted
                  average common shares outstanding**
              
              
              6,003,103
              
              
              4,910,963**Comprehensive
                  loss:****Net
                  loss**
              
              $
              (3,573,532
              )
              $
              (1,784,212
              )**Other
                  comprehensive loss, unrealized loss on available-for-sale
                  investments**
              
              
              (745,715
              )
              
              —**Total
                  comprehensive loss**
              
              $
              (4,319,247
              )
              $
              (1,784,212
              )
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




2


**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND SUBSIDIARIES****Condensed
                  Consolidated Statements of Cash Flows
                  (Unaudited)**
   **For
                  The Three Months**
                **Ended
                  March 31,****2006**
              
              
              **2005**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (3,573,532
              )
              $
              (1,784,212
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
              
              
              8,519
              
              
              546Amortization
                  of patents
              
              
              81,235
              
              
              27,078Non-cash
                  interest
              
              
              75,245Realized
                  loss on investments, net
              
              
              136,262
              
              
              34,728Unrealized
                  gain on marketable securities
              
              
              (76,915
              )
              
              (343,587
              )Stock-based
                  compensation to employees and directors
              
              
              1,935,967
              
              
              1,127,517Stock-based
                  compensation to consultants
              
              
              418,012
              
              
              96,584Deferred
                  income tax benefit
              
              
              (29,245
              )Changes
                  in operating assets and liabilities:Receivables
                  from investments
              
              
              900,000Marketable
                  securities, net
              
              
              749,544
              
              
              (1,727,528
              )Prepaid
                  expenses
              
              
              (17,873
              )Other
                  current assets
              
              
              (66
              )
              
              (13,942
              )Accounts
                  payable and accrued liabilities
              
              
              (73,767
              )
              
              198,265Due
                  to broker
              
              
              (526,807
              )
              
              2,103,973Net
                  cash provided by (used in) operating activities
              
              
              6,579
              
              
              (280,578
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (2,102,853
              )
              
              (11,707
              )Purchase
                  of Surgicount
              
              
              
              
              
              (432,398
              )Proceeds
                  from sale of long-term investments
              
              
              20,508Purchases
                  of long-term investments
              
              
              
              
              
              (65,006
              )Net
                  cash used in investing activities
              
              
              (2,082,345
              )
              
              (509,111
              )Cash
                  flows from financing activities:Proceeds
                  from exercise of stock options
              
              
              
              
              
              26,250Payments
                  of preferred dividends
              
              
              
              
              
              (19,163
              )Proceeds
                  from notes payable
              
              
              2,685,893Payments
                  and decrease in notes payable
              
              
              (631,637
              )
              
              (53,061
              )Net
                  cash provided by (used in) financing activities
              
              
              2,054,256
              
              
              (45,974
              )Net
                  decrease in cash
              
              
              (21,510
              )
              
              (835,663
              )Cash
                  at beginning of period
              
              
              79,373
              
              
              846,404Cash
                  at end of period
              
              $
              57,863
              
              $
              10,741
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




3




**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND SUBSIDIARIES****Condensed
                  Consolidated Statements of Cash Flows (Unaudited)
                  (continued)**
  **For
                  The Three Months**
                **Ended
                  March 31,****2006**
              
              
              **2005**Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for interest
              
              $
              12,946
              
              $
              19,574Supplemental
                  schedule of non cash investing and financing activities:Dividends
                  accrued
              
              $
              19,163
              
              $
              12,738Capitalized
                  interest
              
              $
              30,453
              
              $
              —In
                  connection with the Company's acquisiton of the remaining 50% interest
                  in
                  ASG, equity instruments were issued during 2006 as
                  follows:ASGGoodwill
              
              $
              357,078Common
                  stock issued
              
              
              (610,000
              )Minority
                  interest
              
              
              252,922Liabilities
                  assumed
              
              $
              —
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.


4
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited**
 March
              31,
              2006





**1.
      DESCRIPTION OF BUSINESS AND GOING CONCERN CONSIDERATION**




Patient
      Safety Technologies, Inc. (*"PST"*, or the *"Company"*) (formerly
      known as Franklin Capital Corporation) is a Delaware corporation. Currently,
      the
      Company has four wholly-owned operating subsidiaries: (1) SurgiCount Medical,
      Inc., a California corporation; (2) Patient Safety Consulting Group, LLC, a
      Delaware Limited Liability Company; (3) Ault Glazer Bodnar Capital Properties,
      LLC, a Delaware Limited Liability Company; and (4) Automotive Services Group,
      Inc., (formerly known as Ault Glazer Bodnar Merchant Capital, Inc.) a Delaware
      corporation.





The
      Company, including its operating subsidiaries, is engaged in the acquisition
      of
      controlling interests in companies and research and development of products
      and
      services focused primarily in the health care and medical products field,
      particularly the patient safety markets. SurgiCount Medical, Inc., a provider
      of
      patient safety devices and Patient Safety Consulting Group, LLC, a healthcare
      consulting services company, focus on the Company’s primary target industries,
      the health care and medical products field. Ault
      Glazer Bodnar Capital Properties, LLC ( *“AGB
      Properties”* )
      holds
      the Company’s real estate investments, which the Company intends to liquidate.
      Automotive Services Group, Inc. ( *“Automotive
      Services Group”* )
      holds
      the Company’s investment in Automotive Services Group, LLC ( *“ASG”* ),
      its
      wholly-owned subsidiary. As discussed in Note 3, the Company purchased the
      remaining equity interest in ASG in March 2006.





**Going
      Concern**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared assuming that the Company will continue as a going concern. At March
      31, 2006, the Company has an accumulated deficit of approximately $19.4 million
      and a working capital deficit of approximately $4.5 million. For the three
      months ended March 31, 2006, the Company incurred a loss of approximately $3.6
      million. Further, as of March 31, 2006 and through the date hereof, the Company
      has yet to generate revenues from its medical products and healthcare solutions
      segments. These conditions raise substantial doubt about the Company’s ability
      to continue as a going concern. During the three months ended March 31, 2006,
      the Company has relied on liquidating investments and certain financing to
      fund
      its operations. Management is currently seeking additional financing and
      believes, however no assurances can be made, that these avenues will continue
      to
      be available to the Company to fund its operations until the fruition of
      adequate cash flow from its medical products segment. The
      unaudited condensed consolidated financial statements do not include any
      adjustments that might result from the outcome of this
      uncertainty.





**2.
      BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**





**Basis
      of Presentation and Use of Estimates**





The
      accompanying unaudited condensed consolidated financial statements have
      been prepared in accordance with the instructions to Form 10-Q and Article
      10 of
      Regulation S-X and do not include all the information and disclosures required
      by accounting principles generally accepted in the United States of America.
      The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amounts reported in the financial
      statements and accompanying notes. The accounting estimates that require
      management’s most difficult and subjective judgments are the valuation of the
      non-marketable equity securities. The actual results may differ from
      management’s estimates.







5
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006





The
      interim condensed consolidated financial information is unaudited, but reflects
      all normal adjustments that are, in the opinion of management, necessary to
      provide a fair statement of results for the interim periods presented. The
      condensed consolidated interim financial statements should be read in connection
      with the consolidated financial statements in the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2005. All intercompany transactions
      have been eliminated in consolidation.





**Investments
      - Debt and Equity Securities**





The
      Company complies with accounting and reporting requirements of SFAS No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* .
      SFAS
      No. 115 requires that certain debt and equity securities be classified into
      one
      of three categories: held-to-maturity, available-for-sale or trading securities.





*Trading
      Securities.* The
      Company’s investment in marketable securities that are bought and held
      principally for the purpose of selling them in the near-term are classified
      as
      trading securities. Trading securities are recorded at fair value on the balance
      sheet in current assets, with the change in fair value during the period
      included in earnings in the statement of operations.





*Available-for-Sale
      Investments.* Investments
      designated as available-for-sale include both marketable equity and debt
      (including redeemable preferred stock) securities. Investments that are
      designated as available-for-sale are reported at fair value, with unrealized
      gains and losses recorded in stockholders’ equity. Realized gains and losses on
      the sale or exchange of equity securities and declines in value judged to be
      other than temporary are recorded in realized gains (losses) on investments,
      net.





**Investments
      - Equity Method**





The
      Company complies with APB No. 18, *The
      Equity Method of Accounting for Investments in Common Stock* .
      Investments are accounted for using the equity method of accounting if the
      investment provided the Company the ability to exercise significant influence,
      but not control, over an investee. Significant influence is generally deemed
      to
      exist if the Company has an ownership interest in the voting stock of the
      investee of between 20% and 50%, although other factors, such as representation
      on the investee's board of directors, are considered in determining whether
      the
      equity method of accounting is appropriate. The Company records its investments
      in equity method investees meeting these characteristics under Long-Term
      Investments in the accompanying consolidated financial statements. These
      investments are carried at cost, adjusted for the Company’s proportionate share
      of their undistributed earnings or losses. The Company’s proportionate share of
      income or losses are recorded in equity in income (loss) of investee in the
      statements of operations.





Other
      investments that the Company has less than 20% ownership of common stock of
      the
      investee is accounted for under the cost method of accounting.





*Valuation
      of Investments.* Security
      investments which are publicly traded on a national exchange or Nasdaq Stock
      Market are stated at the last reported sales price on the day of valuation
      or,
      if no sale was reported on that date, then the securities are stated at the
      last
      quoted bid price. The management of the Company may determine, if appropriate,
      to discount the value where there is an impediment to the marketability of
      the
      securities held.




6
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006


Investments
      for which there is no ready market are initially valued at cost and, thereafter,
      at fair value. To determine fair value, an impairment analysis is performed
      based upon the financial condition and operating results of the issuer and
      other
      pertinent factors as determined in good faith by management Other pertinent
      factors taken into consideration to determine the fair value of an investment
      includes, but are not limited to, assumptions related to future results of
      operations and growth of the investee company, the nature and value of any
      collateral, the investee company’s ability to make payments, the markets in
      which the investee company does business, comparison to valuations of publicly
      traded companies, comparisons to recent sales of comparable companies, the
      discounted value of the cash flows of the portfolio company and other relevant
      factors. The financial condition and operating results have been derived
      utilizing both audited and unaudited data. In the absence of a ready market
      for
      an investment, numerous assumptions are inherent in the valuation process.
      Some
      or all of these assumptions may not materialize. Unanticipated events and
      circumstances may occur subsequent to the date of the valuation and values
      may
      change due to future events. Therefore, the actual amounts eventually realized
      from each investment may vary from the valuations shown and the differences
      may
      be material.




The
      Company complies with the FASB's Emerging Issues Task Force ( *“EITF”* )
      Issue
      No. 03-1, *The
      Meaning of Other-Than-Temporary Impairment and It's Application to Certain
      Investments* ,
      to
      determine whether certain investments are considered impaired, whether that
      impairment is other-than-temporary, and the measurement and recognition of
      an
      impairment loss. The EITF also provides guidance on accounting considerations
      subsequent to the recognition of an other-than-temporary impairment and requires
      certain disclosures about unrealized losses that have been recognized as
      other-than-temporary impairments.





Investments
      identified as having an indicator of impairment are subject to further analysis
      to determine if the investment is other than temporarily impaired, in which
      case
      the investment is written down to its impaired value. When an investee company
      is not considered viable from a financial or technological point of view, the
      entire investment is written down since we consider the estimated fair market
      value to be nominal. If an investee company obtains additional funding at a
      valuation lower than the Company’s carrying amount or requires a new round of
      equity funding to stay in operation and the new funding does not appear
      imminent, a presumption is made that the investment is other than temporarily
      impaired, unless specific facts and circumstances indicate otherwise. No
      impairment charges were recognized during the three months ended March 31,
      2006
      and 2005.




**Revenue
      Recognition**




The
      Company complies with SEC Staff Accounting Bulletin (SAB) 101, Revenue
      Recognition, amended by SAB 104. Consulting service contract revenue of
      approximately $55,000 and $0 at March 31, 2006 and 2005, respectively, is
      recognized when the service is performed. Consequently, the recognition of
      such
      consulting service contract revenue is deferred until each phase of the contract
      is complete. This method is predominately used by the Financial Services and
      Real Estate segment. Service activities may include the following: financial
      advice on mergers, acquisitions, restructurings and similar corporate finance
      matters. Revenues generated by Automotive Services Group of approximately
      $21,000, the Company’s automated car wash subsidiary, are recognized at the time
      of service.





Stock-Based
      Compensation





The
      Company adopted SFAS 123(R), “ *Share-Based
      Payment* ,”
as
      of
      January 1, 2005 using the modified retrospective application method as provided
      by SFAS 123(R). During the three months ended March 31, 2006, the Company had
      stock-based compensation expense, from issuances to the Company’s employee


7
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006




and
      directors, included in reported net loss, of approximately $1,936,000. This
      included restricted stock grants valued at approximately $1,014,000 and stock
      options valued at approximately $922,000. During the three months ended March
      31, 2005, the Company had stock-based compensation expense, from issuances
      to
      the Company’s employee and directors, included in reported net loss, of
      approximately $1,128,000. This included restricted stock grants valued at
      approximately $575,000 and stock options valued at approximately $553,000. All
      options that the Company granted in 2006 and 2005 were granted at the per share
      fair market value on the grant date. Vesting of options differs based on the
      terms of each option. The Company utilized the Black-Scholes option pricing
      model and the assumptions used for each period are as follows:




**Three
                months ended March 31,****2006**
            
            
            **2005**Weighted
                average risk free interest rate
            
            
            3.75
            %
            
            3.75
            %Weighted
                average life (in years)
            
            
            3.0
            
            
            3.0Volatility
            
            
            89
            %
            
            83
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %Weighted
                average grant-date fair value per share of options granted
            
            $
            4.25
            
            $
            2.92





**Loss
      per Common Share**





Loss
      per
      common share is based on the weighted average number of common shares
      outstanding. The Company complies with SFAS No. 128, *“Earnings
      Per Share,”* which
      requires dual presentation of basic and diluted earnings per share on the face
      of the condensed consolidated statements of operations. Basic loss per share
      excludes dilution and is computed by dividing income (loss) available to common
      stockholders by the weighted-average common shares outstanding for the period.
      Diluted loss per share reflects the potential dilution that could occur if
      convertible preferred stock or debentures, options and warrants were to be
      exercised or converted or otherwise resulted in the issuance of common stock
      that then shared in the earnings of the entity.





Since
      the
      effects of outstanding options, warrants and the conversion of convertible
      preferred stock are anti-dilutive in all periods presented it has been excluded
      from the computation of loss per common share.





**Recent
      Accounting Pronouncements**




In
      February 2006, the Financial Accounting Standards Board ( *“FASB”* )
      released SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments* .
      SFAS No.155 is an amendment of SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      and
      SFAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* .
      SFAS No. 155 establishes, among other items, the accounting for certain
      derivative instruments embedded within other types of financial instruments;
      and, eliminates a restriction on the passive derivative instruments that a
      qualifying special-purpose entity may hold. Effective for the Company beginning
      January 1, 2007, SFAS No. 155 is not expected to have any impact on
      the Company's financial position, results of operations or cash flows.




In
      March 2006, the FASB released SFAS No. 156, *Accounting
      for Servicing of Financial Assets, an amendment of SFAS
      No. 140* .
      SFAS No. 156 amends SFAS No. 140 to require that all separately
      recognized servicing assets and liabilities in accordance with SFAS No. 140
      be
      initially measured at fair value, if practicable. Furthermore, this standard
      permits, but does not require, fair value measurement for separately recognized
      servicing assets and liabilities in subsequent reporting periods. SFAS No.
      156 is also effective for the Company beginning January 1, 2007; however,
      the standard is not expected to have any impact on the Company's financial
      position, results of operation or cash flows.


8
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006




**3.
      ACQUISITION**





***Automotive
      Services Group, LLC***





In
      July
      2005, the Company purchased 50% of the outstanding equity interests of
      Automotive Services Group LLC ( *“ASG”* ),
      an
      Alabama Limited Liability Company, from an unrelated party for $300,000. ASG
      was
      formed to develop and operate automated car wash sites under the trade name
      “Bubba’s Express Wash” . ASG’s
      first site, developed in Birmingham, Alabama, had its grand opening on March
      8,
      2006 .
      From
      the Company’s initial purchase through November 2005, the Company accounted for
      its 50% investment in ASG under the equity method of accounting. However, as
      a
      result of negotiations which commenced during the 4 th quarter
      of 2005, and ultimately resulted in the Company’s acquisition of the remaining
      50% equity interest of ASG on March 15, 2006, the Company determined that it
      became the primary beneficiary of ASG, a Variable Interest Entity as determined
      by Financial Accounting Standards Board ( *“FASB”* ) In terpretation
      No. 46R, *“Consolidation
      of Variable Interest Entities”* ( *“FIN
      46R”* ). Accordingly, the Company has consolidated the accounts of ASG since the
      4 th quarter
      of 2005.





On
      March
      15, 2006, the Company entered into a Unit Purchase Agreement (the *“Agreement”* )
      for
      Automotive Services Group to purchase the remaining 50% equity interest (the *“Membership
      Interest”* )
      in ASG.
      After completing the transaction, Automotive Services Group now owns 100% of
      the
      outstanding equity interests in ASG. As consideration for the Membership
      Interest, the Company issued 200,000 shares of the Company’s common stock valued
      at $610,000, which is based on the closing stock price at March 15,
      2006.





The
      Company has not provided pro forma data summarizing the results of operations
      for the periods indicated as if the ASG acquisition had been completed as of
      the
      beginning of each period presented since the effects were considered immaterial
      to actual operating results.





Upon
      initial measurement, components of the purchase price are as
      follows:





Land
            
            $
            480,211Furniture
                and equipment
            
            
            972Notes
                payable
            
            
            (495,211
            )Net
                liabilities assumed
            
            
            (14,028
            )Goodwill
            
            
            614,028Minority
                interest
            
            
            (300,000
            )Purchase
                price
            
            $
            300,000







9
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006




In
      March
      2006, upon the purchase of the remaining 50% interest, components of the
      purchase price are as follows:





Goodwill
            
            $
            357,008Minority
                interest
            
            
            252,992Purchase
                price
            
            $
            610,000





**4.
      GOODWILL**





The
      Company’s goodwill relates primarily to the Financial Services and
      Real Estate and Medical Products reporting segment. The changes in the
      amount of goodwill for the three months ended March 31, 2006, is as
      follows:





GoodwillBalance
                as of December 31, 2005
            
            $
            2,301,555Goodwill
                for purchase of ASG
            
            
            357,008Balance
                as of March 31, 2006 (unaudited)
            
            $
            2,658,563





5.
      LONG-TERM INVESTMENTS





Long-term
      investments at March 31, 2006 and December 31, 2005 are comprised of the
      following:






March
                31,
              2006
              (unaudited)
            
            
            December
                31,
              2005Alacra
                Corporation
            
            $
            1,000,000
            
            $
            1,000,000Digicorp
            
            
            2,772,793
            
            
            3,025,398IPEX,
                Inc.
            
            
            627,000
            
            
            1,130,500Investments
                in Real Estate
            
            
            481,033
            
            
            481,033$
            4,880,826
            
            $
            5,636,931





*Alacra
      Corporation*





At
      March
      31, 2006, the Company had an investment in shares of Series F convertible
      preferred stock of Alacra Corporation ( *“Alacra”* ),
      valued
      at $1,000,000, and classified as an available-for-sale investment. The Company
      has the right to have the Series F convertible preferred stock redeemed by
      Alacra for face value plus accrued dividends on December 31, 2006. Alacra,
      based
      in New York, is a global provider of business and financial information. Alacra
      provides a diverse portfolio of fast, sophisticated online services that allow
      users to quickly find, analyze, package and present mission-critical business
      information. Alacra's customers include more than 750 financial institutions,
      management consulting, law and accounting firms and other corporations
      throughout the world.




10
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006
  *Digicorp*





At
      March
      31, 2006, the Company held 2,738,561 shares, or approximately 7.5%, of the
      common stock of Digicorp. The Company has borrowed against 255,000 of these
      shares and has therefore pledged 255,000 shares to a financial institution
      as
      discussed in Note 8. Prior to December 31, 2005, the Company accounted for
      its
      investment in Digicorp under the equity method of accounting and the Company’s
      proportionate share of income or losses from this investment was recorded in
      equity in income (loss) of investee. However, on December 29, 2005, Digicorp
      completed the purchase of all of the issued and outstanding shares of capital
      stock of Rebel Crew Films, Inc. ( *"Rebel
      Crew"* ),
      a
      California corporation. Digicorp issued approximately 21 million shares of
      its
      common stock to the shareholders of Rebel Crew which decreased the Company’s
      ownership interest from approximately 20% at September 30, 2005, to
      approximately 7.5%. The 2,738,561 shares of common stock are valued at
      $2,772,793. Digicorp's common stock is traded on the OTC Bulletin Board, which
      reported a closing price, at March 31, 2006, of $1.35 per share. The Company
      has
      valued its holdings in Digicorp at an approximate 25% discount to the $1.35
      closing price, or $1.01 per share, due to the limited average number of shares
      traded on the OTC Bulletin Board.





*IPEX,
      Inc.*





At
      March
      31, 2006, the Company held 1,045,000 shares of common stock and warrants to
      purchase 787,500 shares of common stock at $1.00 per share of IPEX, formerly
      Administration for International Credit & Investments, Inc. The Company
      acquired 450,000 shares of the common stock and all of the warrants directly
      from IPEX in March 2005 and received 500,000 shares of the common stock directly
      from the majority shareholder of IPEX, former President, former Chief Executive
      Officer and former director of IPEX and, until such time as the sale of the
      securities is either registered with the SEC or the securities are eligible
      to
      be sold without restriction pursuant to Rule 144(k) promulgated pursuant to
      the
      Securities Exchange Act of 1934, the Company is restricted from publicly selling
      these securities except in accordance with Rule 144. The remaining 95,000 shares
      of common stock are valued at $62,700 and included in marketable securities.
      The
      Company has borrowed against these 95,000 shares and has therefore pledged
      these
      shares to a financial institution as discussed in Note 8. IPEX's common stock
      is
      traded on the OTC Bulletin Board, which reported a closing price, at March
      31,
      2006, of $0.88. The Company has valued its holdings in IPEX at a 25% discount
      to
      the $0.88 closing price, or $0.66 per share, due to the limited average number
      of shares traded on the OTC Bulletin Board as well as other trading restrictions
      on the Company’s unregistered holdings in IPEX. The warrants are exercisable for
      a period of five years and are callable by IPEX in certain instances. IPEX
      operates an electronic market for collecting, detecting, converting, enhancing
      and routing telecommunication traffic and digital content. Members of the
      exchange anonymously exchange information based on route quality and price
      through a centralized, web accessible database and then route traffic. IPEX’s
      fully-automatic, highly scalable Voice over Internet Protocol routing platform
      updates routes based on availability, quality and price and executes the
      capacity request of the orders using proprietary software and delivers them
      through IPEX’s system. IPEX invoices and processes payments for its members’
transactions and offsets credit risk through its credit management programs
      with
      third parties.





*Investments
      in Real Estate*





At
      March
      31, 2006, the Company had several real estate investments, recorded at its
      cost
      of $481,033. These investments are included in long-term investments. The
      Company holds its real estate investments in AGB Properties. AGB Properties
      real
      estate holdings consist of approximately 8.5 acres of undeveloped land in Heber
      Springs, Arkansas, 0.61 acres of undeveloped land in Springfield, Tennessee,
      and
      various loans secured by real estate in Heber Springs, Arkansas. AGB Properties
      is in the process of liquidating its real estate holdings.


11
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 **March
              31, 2006**




**6.
      NOTES PAYABLE**





Notes
      payable at March 31, 2006 and December 31, 2005 are comprised of the
      following:






**March
                31,**
              **2006**
              **(unaudited)**
            
            
            **December
                31,**
              **2005**Note
                payable to Winstar (a)
            
            $
            785,667
            
            $
            796,554Note
                payable to Bodnar Capital Management, LLC (b)
            
            
            1,000,000
            
            
            1,000,000Notes
                payable to Ault Glazer Bodnar Acq. Fund, LLC (c)
            
            
            2,181,981
            
            
            1,116,838Note
                payable to Steven J. Caspi (d)
            
            
            1,000,000
            
            
            —4,967,648
            
            
            2,913,392Less:
                unamortized debt discount
            
            
            (60,546
            
            
            —Total
                notes payable
            
            $
            4,907,102
            
            $
            2,913,392





Aggregate
      future required principal payments on these notes during the twelve month period
      subsequent to March 31, 2006 are as follows:





2006
            $
            3,484,0662007
            
            —2008
            
            —2009
            
            —2010
            
            1,423,036$
            4,907,102





(a)
            On
                August 28, 2001, the Company made an investment in Excelsior Radio
                Networks, Inc. (***“Excelsior”***)
                which was completely liquidated during 2005. As part of the purchase
                price
                paid by the Company for its investment in Excelsior, the Company
                issued a
                $1,000,000 note to Winstar. This note was due February 28, 2002 with
                interest at 3.54% but in accordance with the agreement has a right
                of
                offset against certain representations and warranties made by Winstar
                and
                we believe the amount of the offsets exceed the amount of the note
                payable. However, since Winstar does not agree with this belief,
                the only
                offsets against the principal balance of the note reflected in the
                accompanying condensed consolidated financial statements relate to
                legal
                fees attributed to our defense of the lawsuits filed against us.
                The due
                date of the note is extended until the lawsuit discussed in Note
                11 is
                settled. At March 31, 2006, the Company had incurred a total of
                approximately $214,000 in legal expenses, of which approximately
                $11,000
                and $53,000 was incurred during the three months ended March 31,
                2006 and
                2005, respectively. These amounts have been offset against the amount
                due.


12
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 **March
              31, 2006**
  (b)
              On
                  April 7, 2005, the Company issued a $1,000,000 principal amount
                  promissory
                  note (the***"Bodnar
                  Note"***)
                  to Bodnar Capital Management, LLC, in consideration for a loan
                  from Bodnar
                  Capital Management, LLC to the Company in the amount of $1,000,000.
                  Steven
                  J. Bodnar is a managing member of Bodnar Capital Management, LLC.
                  Mr.
                  Bodnar, through Bodnar Capital Management, LLC, is a principal
                  stockholder
                  of the Company. The principal amount of the Bodnar Note and interest
                  at
                  the rate of 6% per annum is payable on May 31, 2006. The obligations
                  under
                  the Note are collateralized by all real property owned by the Company.
                  During the three months ended March 31, 2006 and 2005, the Company
                  incurred interest expense of approximately $15,000 and $0, respectively,
                  on the Bodnar Note, all of which is accrued at March 31,
                  2006.  (c)
              From
                  January 11, 2006 through March 31, 2006 AGB Acquisition Fund, a
                  related
                  party, loaned the Company a total of approximately $443,000, of
                  which
                  approximately $401,000 was repaid. As consideration for the outstanding
                  balance of $42,000, the Company issued AGB Acquisition Fund secured
                  promissory notes in the principal amount of $42,000 (the***“AGB
                  Acquisition Fund Notes”***),
                  and entered into a security agreement granting AGB Acquisition
                  Fund a
                  security interest in the Company’s personal property and fixtures,
                  inventory, products and proceeds as security for the Company’s obligations
                  under the AGB Acquisition Fund Notes. The AGB Acquisition Fund
                  Notes
                  accrue interest at the rate of 7% per annum, which together with
                  principal
                  are due to be repaid sixty days from the dates the notes were issued
                  and
                  will began to expire on April 24, 2006. At the option of the Company,
                  payments of principal and interest may be paid by exchange of any
                  securities owned by the Company valued on the day before the maturity
                  date
                  of the Note.  On
                  February 8, 2006, AGB Acquisition Fund loaned approximately $687,000
                  to
                  ASG. As consideration for the loan, ASG issued AGB Acquisition
                  Fund a
                  secured promissory note in the principal amount of approximately
                  $687,000
                  (the***“ASG
                  Note”***)
                  and granted a real estate mortgage in favor of AGB Acquisition
                  Fund
                  relating to certain real property located in Jefferson County,
                  Alabama
                  (the***“ASG
                  Property”***).
                  The ASG Note bears interest at the rate of 10% per annum and is
                  due on
                  April 10, 2006, or within 30 days thereafter. AGB Acquisition Fund
                  received warrants to purchase 20,608 shares of the Company’s common stock
                  at an exercise price of $3.86 per share as additional consideration
                  for
                  entering into the loan agreement. The Company recorded debt discount
                  in
                  the amount of approximately $44,000 as the estimated value of the
                  warrants. The debt discount will be amortized as non-cash interest
                  expense
                  over the term of the debt using the effective interest method.
                  Through
                  March 31, 2006, interest expense of approximately $29,000 has been
                  recorded from the debt discount amortization, and as of March 31,
                  2006,
                  the remaining debt discount balance of approximately $15,000 is
                  reflected
                  as a reduction of notes payable. As security for the performance
                  of ASG’s
                  obligations pursuant to the ASG Note, ASG granted AGB Acquisition
                  Fund a
                  security interest in all personal property and fixtures located
                  at the ASG
                  Property. During the three months ended March 31, 2006, the Company
                  had
                  incurred interest expense, excluding amortization of debt discount,
                  of
                  approximately $10,000 on the ASG Note, all of which is accrued
                  at March
                  31, 2006.  As
                  of March 31, 2006 and December 31, 2005, AGB Acquisition Fund had
                  loaned
                  an aggregate of approximately $1,423,000 and $1,117,000, respectively,
                  to
                  ASG. The loans were advanced to ASG pursuant to the terms of a
                  Real Estate
                  Note dated July 27, 2005, as amended (the***"Real
                  Estate Note"***).
                  The Real Estate Note bears interest at the rate of 3% above the
                  Prime Rate
                  as published in the Wall Street Journal (7.75% at March 31, 2006).
                  All
                  unpaid principal, interest and charges under the Real Estate Note
                  are due
                  in full on July 31, 2010. The Real Estate Note is collateralized
                  by a
                  mortgage on certain real estate owned by ASG pursuant to the terms
                  of a
                  Future Advance Mortgage Assignment of Rents and Leases and Security
                  Agreement dated July 27, 2005 between ASG and AGB Acquisition Fund.
                  During
                  the three months ended March 31, 2006, the Company had incurred
                  interest
                  of approximately $30,000 on the Real Estate Note, all of which
                  is accrued
                  at March 31, 2006.
  13
 
 **Patient
                Safety Technologies, Inc. and Subsidiaries**
 **Notes
                to Condensed Consolidated Financial Statements - Unaudited
                (continued)**
 March
                31,
                2006


As
              of March 31, 2006, AGB Acquisition Fund had loaned an aggregate of
              approximately $30,000 to the Company. The loans were advanced to the
              Company pursuant to a Revolving Line of Credit Agreement (the “Revolving
              Line of Credit”) entered into with AGB Acquisition Fund on March 7, 2006.
              The Revolving Line of Credit allows the Company to request advances
              of up
              to $500,000 from AGB Acquisition Fund. The initial term of the Revolving
              Line of Credit is for a period of six months and may be extended for
              one
              or more additional six month periods upon mutual agreement of the parties.
              Each advance under the Revolving Line of Credit will be evidenced by
              a
              secured promissory note and a security agreement. The secured promissory
              notes issued pursuant to the Revolving Line of Credit must be repaid
              with
              interest at the Prime Rate plus 1% within 60 days from issuance and
              will
              be convertible into shares of the Company’s common stock at the option of
              AGB Acquisition Fund at a price of $3.10 per share. The obligations
              of the
              Company pursuant to such secured promissory notes will be secured by
              the
              Company’s assets, personal property and fixtures, inventory, products and
              proceeds therefrom.  (d)
            On
              January 12, 2006, Steven J. Caspi (***“Caspi”***)
              loaned $1,000,000 to ASG. As consideration for the loan, ASG issued
              Caspi
              a promissory note in the principal amount of $1,000,000 (the***“Caspi
              Note”***)
              and granted Caspi a mortgage on certain real estate owned by ASG and
              a
              security interest on all personal property and fixtures located on
              such
              real estate as security for the obligations under the Caspi Note. In
              addition, the Company entered into an agreement guaranteeing ASG’s
              obligations pursuant to the Caspi Note and Caspi received warrants
              to
              purchase 30,000 shares of the Company’s common stock at an exercise price
              of $4.50 per share. The Company recorded debt discount in the amount
              of
              approximately $92,000 as the estimated value of the warrants. The debt
              discount will be amortized as non-cash interest expense over the term
              of
              the debt using the effective interest method. Through March 31, 2006,
              interest expense of approximately $46,000 has been recorded from the
              debt
              discount amortization, and as of March 31, 2006, the remaining debt
              discount balance of approximately $46,000 is reflected as a reduction
              of
              notes payable. The Caspi Note accrues interest at the rate of 10% per
              annum, which together with principal, is due to be repaid on July 13,
              2006.




**7.
      ACCRUED LIABILITIES**





Accrued
      liabilities at March 31, 2006 and December 31, 2005 are comprised of the
      following:




**March
                31,****2006**
              **(unaudited)**
            
            
            **December
                31,**
              **2005**Accrued
                officer's severance
            
            $
            164,229
            
            $
            22,716Accrued
                interest
            
            
            274,250
            
            
            215,093Accrued
                professional fees
            
            
            176,000
            
            
            160,000Deferred
                revenue
            
            
            48,882
            
            
            103,875Accrued
                salaries
            
            
            52,083
            
            
            45,833Other
            
            
            40,770
            
            
            21,599$
            756,214
            
            $
            569,116





14
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006





**8.
      DUE TO BROKER**





In
      August
      2005, the Company entered into an agreement with a financial institution to
      borrow against securities. The agreement, which extends for 53 weeks, is subject
      to a premium of up to 6% of the amount of the borrowings which is amortized
      on a
      straight line basis over the term of the agreement. To the extent the agreement
      is terminated early, the Company does not incur a premium for the amount of
      time
      that the agreement is terminated. The agreement also provides that in addition
      to the securities held by the financial institution, the Company pledge a total
      of 25% of the value of the securities in cash. The pledged cash is reduced
      daily
      by the amount of the earned premium and protects the financial institution
      from
      decreases in the market value of the securities. Any decrease in the market
      value of the pledged securities in excess of 5% over the securities notional
      value would require the Company to fund additional monies, such that 25% of
      the
      initial borrowing, as adjusted by the earned premium, was covered. If the
      Company failed to fund additional monies the financial institution has the
      right
      to liquidate the pledged securities. In the event the proceeds from liquidation
      are insufficient to cover the amount of the borrowings, the financial
      institution’s sole recourse is against the pledged cash. During the three months
      ended March 31, 2006, the Company received proceeds from such borrowings of
      approximately $645,000, of which $370,000 was repaid. Consequently, the Company
      recorded a liability at March 31, 2006 of approximately $275,000 which is
      included in current liabilities under the heading “Due to broker.”





**9.
      WARRANTS**





In
      February 2006, the Company issued 175,000 warrants to purchase shares of common
      stock at $3.95 per share to a consultant. The warrants vested immediately and
      have a three-year life. The warrants were valued at approximately $405,000
      and
      were expensed during the three months ended March 31, 2006.





Warrants
      granted during the three months ended March 31, 2006, were valued using the
      Black-Scholes valuation model assuming expected dividend yield, risk-free
      interest rate, expected life and volatility of 0%, 3.75%, three to five years
      and 89%, respectively. Warrants granted during the year ended December 31,
      2005
      were valued using the same assumptions with the exception that the Company
      used
      volatility of 83%. As of March 31, 2006, all warrants issued to the consultants
      remain outstanding.





**10.
      RELATED PARTY TRANSACTIONS**





During
      the year ended December 31, 2005, the Company paid approximately 75% of the
      base
      rent on the corporate offices and Ault Glazer & Company Investment
      Management LLC ( *"Ault
      Glazer"* ),
      based
      upon their usage of the facilities, paid the remaining base rent. Ault Glazer
      is
      a private investment management firm that manages an estimated $20 million
      in
      individual client accounts and private investment funds. Ault Glazer has been
      given discretionary authority to buy, sell, and vote securities on behalf of
      each of those client accounts and funds. Together, Milton “Todd” Ault III
      ( *“Ault”* ),
      our
      former Chairman and Chief Executive Officer of the Company, and Louis Glazer,
      Chief Health and Science Officer and Class I Director of the Company, and
      Melanie Glazer, Manager of AGB Propeties, (together, the *“Glazers”* )
      own
      approximately 69% of the outstanding membership interests in Ault Glazer. As
      of
      December 31, 2005, Ault Glazer, Ault and the Glazers indirectly beneficially
      own
      or control approximately 25% of the outstanding common stock of the Company
      and
      beneficially own approximately 98.2% of the outstanding preferred stock of
      the
      Company.





At
      March
      31, 2006 and December 31, 2005, the Company had an amount due from Strome
      Securities of $0 and $8,636, respectively, recorded in other current assets.
      Until October 31, 2005, the Company maintained a brokerage account with Strome
      Securities and until December 31, 2004, Ault was a registered representative
      of
      Strome Securities. Beginning November 1, 2005, the Company moved its brokerage
      account from Strome Securities to AGB Securities, Inc., a related party. A
      nominal amount of commissions were incurred by the Company during the three
      months ended March 31, 2006 as a result of trades in the Company’s brokerage
      account.


15
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 **March
              31, 2006**


*AGB
      Properties*





On
      April
      28, 2005, the Company purchased 0.61 acres of vacant land in Springfield,
      Tennessee from a related party. The purchase price consisted of approximately
      $90,000 in cash, 20,444 shares of common stock and 10,221 warrants to purchase
      common stock at an exercise price of $4.53 and a 5 year contractual life valued
      at approximately $86,000.





*IPEX,
      Inc.*





On
      June
      30, 2005, the Company formalized the terms of a consulting agreement, consented
      to by IPEX, whereby the Company was retained by Wolfgang Grabher, the majority
      shareholder of IPEX, former President, former Chief Executive Officer and former
      director of IPEX, to serve as a business consultant to IPEX. At June 30, 2005,
      Mr. Grabher owned 18,855,900 shares of IPEX's 28,195,566 outstanding shares
      of
      common stock and granted Mr. Ault, the Company’s Chairman and Chief Executive
      Officer at that time, an irrevocable voting proxy for his shares. At December
      31, 2005, the Company held 7.8% of IPEX’s outstanding shares of common stock. On
      June 30, 2005, the Company agreed with IPEX as to the scope of such consulting
      services and the consideration for such services. The Company has provided
      and/or will provide if reasonably necessary within the next 12 months, the
      following services to IPEX: (a) substantial review of IPEX's business and
      operations in order to facilitate an analysis of IPEX's strategic options
      regarding a turnaround of IPEX's business; (b) providing advice in the following
      areas: (i) identification of financing sources; (ii) providing capital
      introductions of financial institutions and/or strategic investors; (iii)
      evaluation and recommendation of candidates for appointment as officers,
      directors or employees; (iv) making personnel of the Company available to IPEX
      to provide services to IPEX on a temporary or permanent basis; (v) evaluation
      and/or negotiation of merger or sale opportunities, or such other form of
      transaction or endeavor which IPEX may elect to pursue; and (vi) providing
      any
      other services as are mutually agreed upon in writing by the Company and
      Wolfgang Grabher from time to time; and (c) assisting IPEX in installing a
      new
      management team.





The
      Company has performed a significant amount of the services stipulated under
      the
      terms of the consulting agreement, including but not limited to: (i) a review of
      the business and operations; (ii) the execution of two purchase agreements
      for
      the purchase of certain intellectual property assets; (iii) the hiring of a
      Chief Executive Officer, Chief Operating Officer and a Vice President of
      Research & Development; and (iv) the appointment of two members to the Board
      of Directors of IPEX. The Company initially valued the amount of the consulting
      services at approximately $1,331,000, which was due on August 15, 2005. The
      Company received 500,000 shares of IPEX common stock in December 2005 as payment
      for the services. At the time of payment, the fair market value of IPEX common
      stock had decreased by approximately 33%. Accordingly, the Company reduced
      the
      initial value of the consulting services by the amount of the decrease in the
      fair market value of IPEX common stock, approximately $675,000. As a result
      of
      the decrease in the fair market value of IPEX common stock, the Company now
      expects to ultimately recognize approximately $656,000 in revenue as a result
      of
      this agreement, of which approximately $607,000 has been recognized and
      approximately $49,000 has been deferred. Management expects that it will
      recognize the deferred revenue during the three months ended June 30,
      2006.




16
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006


The
      Company’s former Chairman and Chief Executive Officer and significant beneficial
      owner of the Company, Milton “Todd” Ault III, is currently a director of IPEX.
      Further, the Chief Executive Officer of ASG served as an IPEX director and
      member of IPEX’s Audit Committee from August 2005 through January
      2006.





*Digicorp*





At
      March
      31, 2006, the Company had an investment in Digicorp recorded in long-term
      investments. The Company’s Chief Financial Officer, William B. Horne, is also
      Chief Financial Officer of Digicorp and a director of the Company. Alice M.
      Campbell is also a director of Digicorp. Further, certain Company officers
      and
      directors, both past and present, served in various management and director
      roles at Digicorp.




*Loans*





During
      the three months ended March 31, 2006 and year ended December 31, 2005, the
      Company received loans from AGB Acquisition Fund (see Note 6). Ault Glazer
      Bodnar & Company Investment Management, LLC ( *“AGB
      & Company IM”* )
      is the
      managing member of AGB Acquisition Fund. The managing member of AGB &
Company IM is Ault Glazer Bodnar & Company, Inc. ( *“AGB
      & Company”* ).
      The
      Company’s former Chairman and Chief Executive Officer, Milton “Todd” Ault, III,
      is Chairman, Chief Executive Officer and President of AGB & Company. The
      Company’s Chief Financial Officer, William B. Horne, is also Chief Financial
      Officer of AGB & Company. Melanie Glazer, Manager of the Company’s
      subsidiary AGB Properties is also a director of AGB & Company.





During
      the three months ended March 31, 2006 the Company received short-term loans
      from
      an entity whose primary beneficiary is Melanie Glazer. The Notes, which were
      repaid during the three months ended March 31, 2006, accrued interest at the
      rate of 7% per annum, or approximately $1,700.





*Due
      from Related Parties*





At
      March
      31, 2006 and December 31, 2005, the Company had an amount due from related
      parties of approximately $101,000 and $85,000, respectively, recorded in other
      current assets. This amount relates to an allocation of expenses from the
      Company to the related parties





**11.
      COMMITMENTS AND CONTINGENCIES**





*Legal
      Proceedings*





On
      October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family Partnership, L.P.
      filed a lawsuit (the *“Leve
      Lawsuit”* )
      against
      the Company, Sunshine Wireless, LLC ( *"Sunshine"* ),
      and
      four other defendants affiliated with Winstar Communications, Inc. ( *“Winstar”* ).
      On
      February 25, 2003, the case against the Company and Sunshine was dismissed,
      however, on October 19, 2004, Jeffrey A. Leve and Jeffrey Leve Family
      Partnership, L.P. exercised their right to appeal. The initial lawsuit alleged
      that the Winstar defendants conspired to commit fraud and breached their
      fiduciary duty to the plaintiffs in connection with the acquisition of the
      plaintiff's radio production and distribution business. The complaint further
      alleged that the Company and Sunshine joined the alleged conspiracy. On June
      1,
      2005, the United States Court of Appeals for the Second Circuit affirmed the
      February 25, 2003 judgment of the district court dismissing the claims against
      the Company.




17
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006


On
      July
      28, 2005, Jeffrey A. Leve and Jeffrey Leve Family Partnership, L.P. filed a
      new
      lawsuit (the *“new
      Leve Lawsuit”* )
      against
      the Company, Sunshine Wireless, LLC ( *"Sunshine"* ),
      and
      four other defendants affiliated with Winstar Communications, Inc. ( *“Winstar”* ).
      The
      new Leve Lawsuit attempts to collect a federal default judgment of $5,014,000
      entered against only two entities, i.e., Winstar Radio Networks, LLC and Winstar
      Global Media, Inc., by attempting to enforce the judgment against a number
      of
      additional entities who are not judgment debtors. Further, the new Leve Lawsuit
      attempts to enforce the plaintiffs default judgment against entities who were
      dismissed on the merits from the underlying action in which plaintiffs obtained
      their default judgment. An unfavorable outcome in the lawsuit, may have a
      material adverse effect on the Company's business, financial condition and
      results of operations. The Company believes the lawsuit is without merit and
      intends to vigorously defend itself. These consolidated financial statements
      do
      not include any adjustments for the possible outcome of this
      uncertainty.





On
      February 3, 2006, Winstar Global Media, Inc. ( *“WGM”* )
      filed a
      lawsuit against the Company. The WGM lawsuit attempts to collect upon the
      $1,000,000 note between the Company and Winstar discussed in Note 6. The Company
      believes the lawsuit is without merit and intends to vigorously defend
      itself.





*Severance
      Compensation*





On
      January 9, 2006, Milton “Todd” Ault, III resigned as our Chairman and Chief
      Executive Officer. As severance compensation the Company granted Mr. Ault one
      year of salary totaling $180,000, options to purchase 90,000 shares of the
      Company’s common stock and 60,000 shares of the Company’s common stock. At March
      31, 2006, the Company had accrued the remaining salary amount due Mr. Ault
      of
      approximately $142,000 (See Note 7).





**12.
      SEGMENT REPORTING**





The
      Company reports selected segment information in its financial reports to
      shareholders in accordance with SFAS No. 131, *“Disclosures
      about Segments of an Enterprise and Related Information.”* The
      segment information provided reflects the three distinct lines of business
      within the Company’s organizational structure: medical
      products, which consists of SurgiCount and Patient Safety Consulting Group,
      LLC,
      a provider of patient safety devices and health care solutions, financial
      services and real estate, which consists of AGB
      Properties and car wash services, which consists of Automotive Services
      Group . Unallocated
      corporate expenses are centrally managed at the corporate level and not reviewed
      by the Company’s chief operating decision maker in evaluating results by
      segment.





Transactions
      between segments are not common and are not material to the segment information.
      Some business activities that cannot be classified in the aforementioned
      segments are shown under “corporate”.





18
 
 **Patient
                Safety Technologies, Inc. and Subsidiaries**
 **Notes
                to Condensed Consolidated Financial Statements - Unaudited
                (continued)**
 March
                31,
                2006





Segment
      information for the three months ended March 31, 2006 and 2005 is as follows:




**Three
                Months Ended****March 31,**
            
            
            **March 31,****2006**
            
            
            **2005****Medical
                Products**Revenue
            
            $
            —
            
            $
            —Net
                loss
            
            $
            (506,116
            )
            $
            (348,455
            )Total
                Assets
            
            $
            6,380,973
            
            $
            4,657,497**Financial
                Services and Real Estate**Revenue
            
            $
            54,993
            
            $
            —Net
                income (loss)
            
            $
            (39,790
            )
            $
            75,164Total
                Assets
            
            $
            5,019,647
            
            $
            6,805,884**Car
                Wash Services**Revenue
            
            $
            20,767
            
            $
            —Net
                loss
            
            $
            (170,212
            )
            $
            —Total
                Assets
            
            $
            4,161,472
            
            $
            —**Corporate**Revenue
            
            $
            —
            
            $
            —Net
                loss
            
            $
            (2,857,414
            )
            $
            (1,510,921
            )Total
                Assets
            
            $
            363,194
            
            $
            330,519**Total**Revenue
            
            $
            75,760
            
            $
            —Net
                loss
            
            $
            (3,573,532
            )
            $
            (1,784,212
            )Total
                Assets
            
            $
            15,925,286
            
            $
            11,793,900





**13.
      SUBSEQUENT EVENTS**





On
      May 1,
      2006, Herbert Langsam, a Class II Director of the Company, loaned the Company
      $500,000. The loan is documented by a $500,000 Secured Promissory Note (the ***“Langsam
      Note”*** )
      payable
      to the Herbert Langsam Irrevocable Trust. The Langsam Note accrues interest
      at
      the rate of 12% per annum and has a maturity date of November 1, 2006. Interest
      is payable monthly on the 30th day of each calendar month. In the event of
      breach or default on any provision of the Langsam Note, the interest rate will
      increase to 16% per annum. Pursuant to the terms of a Security Agreement dated
      May 1, 2006, the Company granted the Herbert Langsam Revocable Trust a security
      interest in all of the Company’s assets as collateral for the satisfaction and
      performance of the Company’s obligations pursuant to the Langsam
      Note.





On
      April
      18, 2006, the Company entered into a consulting agreement with Ault Glazer
      Bodnar Securities, LLC, a registered broker-dealer ( ***“AGB
      Securities”*** )
      and a
      related party. Pursuant to the agreement, AGB Securities and its representatives
      will provide non-exclusive investment banking and financial advisory services
      to
      the Company in connection with the evaluation of its strategic options, which
      may include, among others, acquisitions, business combinations, divestitures,
      liquidations and capital events such as pursuing a capital raising or financing
      transaction. In the event that any such transaction is consummated, the Company
      will pay AGB Securities a fee in an amount up to 6% of the aggregate
      consideration





19
 
 **Patient
              Safety Technologies, Inc. and Subsidiaries**
 **Notes
              to Condensed Consolidated Financial Statements - Unaudited
              (continued)**
 March
              31,
              2006




received
      by the Company in connection with each
      transaction. The Company agreed to negotiate the fee with AGB Securities in
      good
      faith; provided, however, that the fee will not be less than 3% of the
      consideration received by the Company from any contemplated transaction. In
      addition to any fees that may be payable to AGB Securities, the Company agreed
      to reimburse AGB Securities for all reasonable travel, legal and other
      out-of-pocket expenses in performing the services required of AGB Securities
      pursuant to the agreement. The initial term of the agreement is for 12 months
      from April 18, 2006 and will thereafter be automatically extended monthly until
      terminated by either party upon 30 days’ written notice to the other party. The
      agreement does not contain any specific termination provisions.




Effective
      April 21, 2006, Surgicount entered into an employment agreement with William
      M.
      Adams to employ Mr. Adams as Surgicount’s Chief Executive Officer. The term of
      the employment agreement will end effective at midnight on April 17, 2009 unless
      extended by the mutual written consent of Surgicount and Mr. Adams. Surgicount
      agreed to pay Mr. Adams an annual base salary of $300,000 during the term of
      the
      employment agreement. Pursuant to the employment agreement, the Company granted
      Mr. Adams options to purchase 300,000 shares of the Company’s common stock with
      an exercise price of $3.50 per share. One-third of such options will vest
      annually over three years. However, all of the options will vest immediately
      upon a sale or exchange of 50% or more of Surgicount’s outstanding capital stock
      or a joint venture by Surgicount with an unaffiliated entity involving 50%
      or
      more of Surgicount’s outstanding capital stock. Mr. Adams will also receive
      $10,000 of restricted stock of the Company annually on April 30, 2007, April
      18,
      2008 and April 18, 2009. Additionally, Mr. Adams will receive options to
      purchase an additional 100,000 shares of common stock of the Company with an
      exercise price of $3.50 per share which will vest upon either of the following
      events: (a) a sale or exchange of 50% or more of Surgicount’s outstanding
      capital stock or a joint venture by Surgicount with an unaffiliated entity;
      or
      (b) if on or prior to December 31, 2008, Surgicount’s cumulative sales from the
      inception of Surgicount equal or exceed $10 million.




20




**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.**





*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our financial statements and
      the
      related notes thereto contained elsewhere in this Form 10-Q. This
      discussion contains forward-looking statements that involve risks and
      uncertainties. All statements regarding future events, our future financial
      performance and operating results, our business strategy and our financing
      plans
      are forward-looking statements. In many cases, you can identify forward-looking
      statements by terminology, such as “may,” “should,” “expects,” “intends,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or
“continue” or the negative of such terms and other comparable terminology. These
      statements are only predictions. Known and unknown risks, uncertainties and
      other factors could cause our actual results to differ materially from those
      projected in any forward-looking statements. In evaluating these statements,
      you
      should specifically consider various factors, including, but not limited to,
      those set forth in Part II of this report under “Item 1A. Risk Factors” and
      elsewhere in this report on Form 10-Q.*





*The
      following “Overview” section is a brief summary of the significant issues
      addressed in Management’s Discussion and Analysis of Financial Condition and
      Results of Operations (* ***“MD&A”*** *).
      Investors should read the relevant sections of the MD&A for a complete
      discussion of the issues summarized below. The entire MD&A should be read in
      conjunction with Item 1 of Part I of this report, “Financial
      Statements.”*





**Overview**





Until
      March 31, 2005, Patient Safety Technologies, Inc., a Delaware corporation
      (referred to herein as the ***“Company,”
      “we,” “us,”*** and ***“our”*** ),
      elected to be a Business Development Company ( ***“BDC”*** )
      under
      the Investment Company Act of 1940, as amended (the ***“1940
      Act”*** ).
      On
      March 30, 2005, stockholder approval was obtained to withdraw our election
      to be
      treated as a BDC and on March 31, 2005 we filed an election to withdraw our
      election with the Securities and Exchange Commission. At March 31, 2006, 28.4%
      of our assets on a consolidated basis with subsidiaries were comprised of
“investment securities” within the meaning of the 1940 Act. If
      the
      value of our assets that consist of “investment securities” were to exceed 40%
      of our total assets (excluding government securities and cash items) on an
      unconsolidated basis we could be required to re-register as an investment
      company under the 1940 Act unless an exemption or exclusion applies.
      Registration as an investment company would subject us to restrictions that
      are
      inconsistent with our fundamental business strategy of equity growth through
      creating, building and operating companies
      in the patient safety medical products industry. Registration under the 1940
      Act
      would also subject us to increased regulatory and compliance costs, and other
      restrictions on the way we operate and would change the method of accounting
      for
      our assets under GAAP.





Our
      operations currently focus on the acquisition of controlling interests in
      companies and research and development of products and services in the health
      care and medical products field, particularly the patient safety markets. In
      the
      past we also focused on the financial services and real estate industries.
      On
      October 2005 our Board of Directors authorized us to evaluate alternative
      strategies for the divesture of our non-healthcare assets. As an extension
      on
      our prior focus on real estate, in March 2006 we acquired the remaining 50%
      equity interest in Automotive Services Group, LLC ( ***“ASG”*** )
      and
      upon doing so we entered the business of developing properties for the operation
      of automated express car wash sites. However, on March 29, 2006, our Board
      of
      Directors determined to focus our business exclusively on the patient safety
      medical products field. The Board of Directors is continuing to evaluate
      available alternatives to determine the most beneficial method to divest ASG
      and
      our other real estate assets.





SurgiCount
      Medical, Inc., developer of the Safety-Sponge TM System,
      Patient Safety Consulting Group, LLC, a healthcare consulting services company,
      Automotive Services Group, Inc. (formerly Ault Glazer Bodnar Merchant Capital,
      Inc.), a holding company for ASG, Ault Glazer Bodnar Capital Properties, LLC,
      a
      real estate development and management company, and ASG, a
      company formed to develop properties for the operation of automated car wash
      sites, are
      wholly-owned operating subsidiaries, which were either acquired or created
      to
      enhance our ability to focus our efforts in each targeted industry. Currently,
      we are evaluating ways in which to monetize our non-patient safety related
      assets (the “ ***non-core
      assets*** ”).
      However, the divesture of any assets will be dependent on a number of factors
      including: (1) lack of a liquid market to dispose of such assets; (2) potential
      adverse tax effects from a disposition; and/or (3) our Board of Directors and
      management may change their decision to dispose of certain of the assets.





21


Our
      principal executive offices are located at 1800 Century Park East, Suite 200,
      Los Angeles, California 90067. Our telephone number is (310) 895-7750. Our
      website is located at http://www.patientsafetytechnologies.com .





**Critical
      accounting policies and estimates**





The
      below
      discussion and analysis of our financial condition and results of operations
      is
      based upon the accompanying financial statements. The preparation of financial
      statements in conformity with accounting principles generally accepted in the
      United States of America requires management to make estimates and assumptions
      that affect the amounts reported in the financial statements. Critical
      accounting policies are those that are both important to the presentation of
      our
      financial condition and results of operations and require management's most
      difficult, complex, or subjective judgments. Our most critical accounting policy
      relates to the valuation of our investments in non-marketable equity securities.





In
      the
      past we invested in illiquid equity securities acquired directly from issuers
      in
      private transactions. Our investments are generally subject to restrictions
      on
      resale or otherwise are illiquid and generally have no established trading
      market. Additionally, many of the securities that we have invested in will
      not
      be eligible for sale to the public without registration under the Securities
      Act
      of 1933. Because of the type of investments that we made and the nature of
      our
      business, our valuation process requires an analysis of various factors.





Investments
      in non-marketable securities are inherently risky and a number of the companies
      we have invested in may fail. Their success (or lack thereof) is dependent
      upon
      product development, market acceptance, operational efficiency and other key
      business success factors. In addition, depending on their future prospects,
      they
      may not be able to raise additional funds when needed or they may receive lower
      valuations, with less favorable investment terms than in previous financings,
      likely causing our investments to become impaired.





We
      review
      all of our investments quarterly for indicators of impairment; however, for
      non-marketable equity securities, the impairment analysis requires significant
      judgment to identify events or circumstances that would likely have a material
      adverse effect on the fair value of the investment. The indicators that we
      use
      to identify those events or circumstances includes as relevant, the nature
      and
      value of any collateral, the portfolio company’s ability to make payments and
      its earnings, the markets in which the portfolio company does business,
      comparison to valuations of publicly traded companies, comparisons to recent
      sales of comparable companies, the discounted value of the cash flows of the
      portfolio company and other relevant factors. Because such valuations are
      inherently uncertain and may be based on estimates, our determinations of fair
      value may differ materially from the values that would be assessed if a liquid
      market for these securities existed.





Investments
      identified as having an indicator of impairment are subject to further analysis
      to determine if the investment is other than temporarily impaired, in which
      case
      we write the investment down to its impaired value. When a portfolio company
      is
      not considered viable from a financial or technological point of view, we write
      down the entire investment since we consider the estimated fair market value
      to
      be nominal. If a portfolio company obtains additional funding at a valuation
      lower than our carrying amount or requires a new round of equity funding to
      stay
      in operation and the new funding does not appear imminent, we presume that
      the
      investment is other than temporarily impaired, unless specific facts and
      circumstances indicate otherwise.





Security
      investments which are publicly traded on a national securities exchange or
      over-the-counter market are stated at the last reported sale price on the day
      of
      valuation or, if no sale was reported on that date, then the securities are
      stated at the last quoted bid price. Management may determine, if appropriate,
      to discount the value where there is an impediment to the marketability of
      the
      securities held.





22








**Accounting
      Developments**





In
      December 2004, Statement of Financial Accounting Standards ( ***"SFAS"*** )
      No.
      123(R), " *Share-Based
      Payment* ,"
      which
      addresses the accounting for employee stock options, was issued. SFAS 123(R)
      revises the disclosure provisions of SFAS 123, " *Accounting
      for Stock Based Compensation* "
      and
      supercedes Accounting Principles Board ( ***"APB"*** )
      Opinion
      No. 25, " *Accounting
      for Stock Issued to Employees* ."
      SFAS
      123(R) requires that the cost of all employee stock options, as well as other
      equity-based compensation arrangements, be reflected in the financial statements
      based on the estimated fair value of the awards. We elected early adoption
      of
      SFAS No. 123(R) as of January 1, 2005.




See
      Note
      2 to the condensed consolidated financial statements for a discussion of recent
      accounting pronouncements.





**Financial
      Condition, Liquidity and Capital Resources**





Our
      cash
      and marketable securities were $162,653 at March 31, 2006, versus $1,003,173
      at
      December 31, 2005. Total current liabilities were $5,059,141 at March 31, 2006,
      versus $3,953,040 at December 31, 2005. Included in current liabilities at
      March
      31, 2006 and December 31, 2005 is a note payable, and accrued interest on such
      note, payable to Winstar Communications, Inc. ( ***“Winstar”*** )
      in the
      amount of $934,808 and $938,573, respectively. As discussed in Note 6 in
      the notes to the accompanying condensed consolidated financial statements filed
      with this Form 10-Q, the due date on the note payable to Winstar was February
      28, 2002. However, as a result of the lawsuits filed against us by Jeffrey
      A.
      Leve and Jeffrey Leve Family Partnership, L.P. the due date of the note is
      extended until the lawsuit discussed in Note 11 is settled. The note payable
      has
      a right of offset against certain representations and warranties made by Winstar
      and we believe the amount of the offsets exceed the amount of the note payable.
      It is our contention that the initial lawsuit filed on October 15, 2001,
      impaired our ability to raise capital. This inability to raise capital
      ultimately resulted in the premature liquidation of our investment in Excelsior
      Radio Networks, Inc. ( ***“Excelsior”*** )
      at a
      price that was significantly less than what we would have realized had we been
      able to hold our investment until its subsequent sale to an unrelated third
      party. Winstar does not agree with this belief and on February 3, 2006 Winstar
      Global Media, Inc. ( ***“WGM”*** )
      filed a
      lawsuit claiming that we were in default under the terms of the note.
      Accordingly, the only offsets against the principal balance of the note
      reflected in the accompanying financial statements relate to legal fees
      attributed to our defense of the lawsuits filed against us. As of March 31,
      2006, we had incurred $214,333 in legal fees attributed to our defense of lawsuits
      filed by Jeffrey A. Leve and Jeffrey Leve Family Partnership, L.P. and the
      representations and warranties made by Winstar Radio Networks, Inc. These fees
      have been offset against the note with the remaining principal balance of
      $785,667 reflected as a note payable on the accompanying balance
      sheet.





At
      March
      31, 2006 and December 31, 2005, we had $57,863 and $79,373, respectively, in
      cash and cash equivalents. During 2005 our Board authorized us to invest our
      cash balances in the public equity and debt markets as appropriate to maximize
      the short-term return on such assets. Such investments are typically short-term
      and focus on what we believe to be mispriced domestic public equities and
      instruments.





In
      August
      2005, we entered into an agreement with the financial institution IXIS
      Derivatives Inc. to
      borrow against securities which we hold. The agreement, which extended for
      53
      weeks, was subject to a premium of up to 6% of the amount of the borrowings
      which is amortized on a straight line basis over the term of the agreement.
      At
      December 31, 2005, we terminated the August 2005 agreement with IXIS Derivatives
      Inc. To the extent the agreement was terminated early, we did not incur a
      premium for the amount of time that the agreement was terminated. The agreement
      also provided that in addition to the securities held by the financial
      institution, we pledge a total of 25% of the value of the securities in cash.
      The pledged cash was reduced daily by the amount of the earned premium and
      protected the financial institution from decreases in the market value of the
      securities. Any decrease in the market value of the pledged securities in excess
      of 5% over the securities notional value would require us to fund additional
      monies, such that 25% of the initial borrowing, as adjusted by the earned
      premium, was covered. If we failed to fund additional monies the financial
      institution had the right to liquidate the pledged securities. In the event
      the
      proceeds from liquidation were insufficient to cover the amount of the
      borrowings, the financial institution’s sole recourse was against the pledged
      cash. During January 2006, we renewed our August 2005 agreement with IXIS
      Derivatives Inc. to borrow against securities and during the three months ended
      March 31, 2006, we received proceeds from such borrowings of approximately
      $645,000, of which approximately $370,000 was repaid. Consequently we recorded
      a
      liability at March 31, 2006 of approximately $275,000 which is included in
      current liabilities under the heading “Due to broker.”





23


We
      had a
      working capital deficit of approximately $4,535,909 at March 31, 2006 and we
      continue to have recurring losses. In the past we have relied upon private
      placements of equity and debt securities and we plan to rely on private
      placements to fund our capital requirements in the future. We have received
      shareholder approval to sell equity and/or debt securities of the Company up
      to
      $10 million in any calendar year to our former Chairman and Chief Executive
      Officer, Milton “Todd” Ault, III, to the Company’s President and Secretary,
      Lynne Silverstein, to our current Chairman and Chief Executive Officer and
      the
      Chief Health and Science Officer of our subsidiary Patient Safety Consulting
      Group, LLC, Louis Glazer, and to the Manager of our subsidiary Ault Glazer
      Bodnar Capital Properties, LLC and Mr. Glazer’s spouse, Melanie Glazer. If we
      propose to sell more than $10 million of securities in a calendar year to such
      persons additional shareholder approval would be required. We do not currently
      anticipate selling equity or debt securities to these persons and, in the event
      we elected to pursue such an investment, we cannot guarantee that such persons
      would be willing to further invest in the Company. We have, however, received
      funding from Ault Glazer Bodnar Acquisition Fund, LLC ( ***"AGB
      Acquisition Fund*** ").
      Ault
      Glazer Bodnar & Company Investment Management, LLC ( ***“AGB
      & Company IM”*** )
      is the
      managing member of AGB Acquisition Fund. The managing member of AGB &
Company IM is Ault Glazer Bodnar & Company, Inc. ( ***“AGB
      & Company”*** ).
      The
      Company’s former Chairman and Chief Executive Officer, Milton “Todd” Ault, III,
      is Chairman, Chief Executive Officer and President of AGB &
Company.





On
      April
      7, 2005, we issued a $1,000,000 promissory note (the ***"Bodnar
      Note"*** )
      to
      Bodnar Capital Management, LLC, in consideration of a $1,000,000 loan from
      Bodnar Capital Management, LLC. Steven J. Bodnar is a managing member of Bodnar
      Capital Management, LLC. Mr. Bodnar, through Bodnar Capital Management, LLC,
      is
      one of our principal stockholders. The principal amount of the Bodnar Note
      and
      interest at the rate of 6% per annum is due on May 31, 2006. The obligations
      under the Bodnar Note are secured by all real property owned by us.





On
      January 12, 2006, Steven J. Caspi (“Caspi”) loaned $1,000,000 to ASG. As
      consideration for the loan, ASG issued Caspi a promissory note in the principal
      amount of $1,000,000 (the ***“Caspi
      Note”*** )
      and
      granted Caspi a mortgage on certain real estate owned by ASG and a security
      interest on all personal property and fixtures located on such real estate
      as
      security for the obligations under the Caspi Note. In addition, the Company
      entered into an agreement guaranteeing ASG’s obligations pursuant to the Caspi
      Note and Caspi received warrants to purchase 30,000 shares of the Company’s
      common stock at an exercise price of $4.50 per share. The Company recorded
      debt
      discount in the amount of approximately $92,000 as the estimated value of the
      warrants. The debt discount will be amortized as non-cash interest expense
      over
      the term of the debt using the effective interest method. Through March 31,
      2006, interest expense of approximately $46,000 has been recorded from the
      debt
      discount amortization, and as of March 31, 2006, the remaining debt discount
      balance of approximately $46,000 is reflected as a reduction of notes payable.
      The Caspi Note accrues interest at the rate of 10% per annum, which together
      with principal, is due to be repaid on July 13, 2006.





From
      January 11, 2006 through March 31, 2006 AGB Acquisition Fund, a related party,
      loaned the Company a total of approximately $443,000, of which approximately
      $401,000 was repaid in cash. As consideration for the outstanding balance of
      $42,000, the Company issued AGB Acquisition Fund secured promissory notes in
      the
      principal amount of $42,000 (the ***“AGB
      Acquisition Fund Notes”*** ),
      and
      entered into a security agreement granting AGB Acquisition Fund a security
      interest in the Company’s personal property and fixtures, inventory, products
      and proceeds as security for the Company’s obligations under the AGB Acquisition
      Fund Notes. The AGB Acquisition Fund Notes accrue interest at the rate of 7%
      per
      annum, which together with principal are due to be repaid sixty days from the
      dates the notes were issued and began to expire on April 24, 2006. At the option
      of the Company, payments of principal and interest may be paid by exchange
      of
      any securities owned by the Company valued on the day before the maturity date
      of the Note.





24


On
      February 8, 2006, AGB Acquisition Fund loaned approximately $687,000 to ASG.
      As
      consideration for the loan, ASG issued AGB Acquisition Fund a secured promissory
      note in the principal amount of approximately $687,000 (the “ASG Note”) and
      granted a real estate mortgage in favor of AGB Acquisition Fund relating to
      certain real property located in Jefferson County, Alabama (the “Property”). The
      Note bears interest at the rate of 10% per annum and is due on April 10, 2006,
      or within 30 days thereafter. AGB Acquisition Fund received warrants to purchase
      20,608 shares of the Company’s common stock at an exercise price of $3.86 per
      share as additional consideration for entering into the loan agreement. The
      Company recorded debt discount in the amount of approximately $44,000 as the
      estimated value of the warrants. The debt discount will be amortized as non-cash
      interest expense over the term of the debt using the effective interest method.
      Through March 31, 2006, interest expense of approximately $29,000 has been
      recorded from the debt discount amortization, and as of March 31, 2006, the
      remaining debt discount balance of approximately $15,000 is reflected as a
      reduction of notes payable. As security for the performance of ASG’s obligations
      pursuant to the Note, ASG granted AGB Acquisition Fund a security interest
      in
      all personal property and fixtures located at the ASG Property. During the
      three
      months ended March 31, 2006, the Company had incurred interest expense,
      excluding amortization of debt discount, of approximately $10,000 on the Note,
      all of which is accrued at March 31, 2006.





In
      addition, as of March 31, 2006, AGB Acquisition Fund had loaned an aggregate
      of
      approximately $1,423,036 to ASG pursuant to the terms of a Real Estate Note
      dated July 27, 2005, as amended (the ***"Real
      Estate Note"*** ).
      The
      Real Estate Note bears interest at the rate of 3% above the Prime Rate as
      published in the Wall Street Journal (7.75% at March 31, 2006). All unpaid
      principal, interest and charges under the Real Estate Note are due in full
      on
      July 31, 2010. The Real Estate Note is collateralized by a mortgage on certain
      real estate owned by ASG pursuant to the terms of a Future Advance Mortgage
      Assignment of Rents and Leases and Security Agreement dated July 27, 2005
      between ASG and AGB Acquisition Fund.





As
      of
      March 31, 2006, AGB Acquisition Fund had loaned an aggregate of approximately
      $30,000 to the Company. The loans were advanced to the Company pursuant to
      a
      Revolving Line of Credit Agreement (the ***“Revolving
      Line of Credit”*** )
      entered
      into with AGB Acquisition Fund on March 7, 2006. The Revolving Line of Credit
      allows the Company to request advances of up to $500,000 from AGB Acquisition
      Fund. The initial term of the Revolving Line of Credit is for a period of six
      months and may be extended for one or more additional six month periods upon
      mutual agreement of the parties. Each advance under the Revolving Line of Credit
      is evidenced by a secured promissory note and a security agreement. The secured
      promissory notes issued pursuant to the Revolving Line of Credit must be repaid
      with interest at the Prime Rate plus 1% within 60 days from issuance and are
      convertible into shares of the Company’s common stock at the option of AGB
      Acquisition Fund at a price of $3.10 per share. The obligations of the Company
      pursuant to such secured promissory notes are secured by the Company’s assets,
      personal property and fixtures, inventory, products and proceeds therefrom.





Management
      is currently seeking additional financing and believes that it will be
      successful. However, in the event management is not successful in obtaining
      additional financing, existing cash resources, together with proceeds from
      investments and anticipated revenues from operations, may not be adequate to
      fund our operations for the twelve months subsequent to December 31, 2005.
      However, ultimately long-term liquidity is dependent on our ability to attain
      future profitable operations. We intend to undertake additional debt or equity
      financings to better enable us to grow and meet future operating and capital
      requirements.





As
      of
      March 31, 2006, other than our office lease, we had no commitments not reflected
      in our condensed consolidated financial statements.





Cash
      and
      cash equivalents decreased by $21,510 to $57,863 during the three months ended
      March 31, 2006, compared to a decrease of $835,663 during the three months
      ended
      March 31, 2005.




Operating
      activities provided $6,579 of cash during the three months ended March 31,
      2006,
      compared to using $280,578 during the three months ended March 31,
      2005.




Operating
      activities for the three months ended March 31, 2006, exclusive of changes
      in
      operating assets and liabilities, used $1,024,452 of cash, as the Company's
      net
      cash provided by operating activities of $6,579 included non-cash charges for
      depreciation, amortization and interest of $164,999, realized losses of $136,262
      and stock based compensation of $2,353,979. For the three months ended March
      31,
      2005, operating activities, exclusive of changes in operating assets and
      liabilities, used $841,346 of cash, as the Company's net cash used in operating
      activities of $280,578 included non-cash charges for depreciation and
      amortization of $27,624, realized losses of $34,728 and stock based compensation
      of $1,224,101.




25


Changes
      in operating assets and liabilities produced cash of $1,031,031 during the
      three
      months ended March 31, 2006, principally due to net proceeds received from
      marketable securities, and decreases in our receivables from investments which
      were partially offset by decreases in the level of accounts payable and accrued
      liabilities and amounts due to our broker. The amount due to our broker is
      directly attributable to purchases of marketable investment securities that
      were
      purchased on margin or to securities that were margined subsequent to their
      purchase. During the three months ended March 31, 2006 and year ended December
      31, 2005, the Company invested its cash balances in the public equity and debt
      markets in an attempt to maximize the short-term return on such assets. The
      amount due to our broker varied throughout the year depending upon the aggregate
      amount of marketable investment securities held by us and the level of borrowing
      against our available-for-sale securities. The actual amount of marketable
      investment securities held was influenced by several factors, including but
      not
      limited to, our expectations of potential returns available from what we
      considered to be mispriced securities as well as the cash needs of our operating
      activities. During times when we were heavily invested in marketable investment
      securities our liquidity position was significantly reduced. To the extent
      we
      have a need for an excess cash balance to meet our financial obligations the
      amount of securities purchased on margin will either decrease or disappear
      altogether. However, if we are in a position where we have excess cash with
      no
      immediate need for liquidity, and we believe opportunities exist to maximize
      the
      short-term return on such assets then we may purchase marketable securities
      on
      margin **.** During
      the three months ended March 31, 2005, changes in operating assets and
      liabilities produced cash of $560,768 primarily due to an increase in the level
      of accounts payable and accrued expenses and amounts due broker which were
      partially offset by net purchases of marketable securities.




The
      principal factor in the $2,082,345 of cash used in investing activities during
      the three months ended March 31, 2006 was the purchase of land of $1,696,945
      and
      capitalized construction costs of $317,309 related to ASG. The principal factor
      in the $509,111 of cash used in investing activities during the three months
      ended March 31, 2005 was due to our investment in Surgicount of $432,398
      combined with purchases of long-term investments of $65,006.





Cash
      provided by financing activities during the three months ended March 31, 2006,
      of $2,054,256 resulted from the net proceeds from notes payable of $2,054,256.
      Cash used in financing activities for the three months ended March 31, 2005,
      of
      $45,974 resulted primarily from the exercise of stock options of $26,250 and
      payment of preferred dividends of $19,163. Additionally, as discussed above,
      during the three months ended March 31, 2006 and 2005 the note payable to
      Winstar was offset by certain payments made allowed for in the note
      payable.





**Investments**





Our
      financial condition is partially dependent on the success of our investments.
      Short selling was a component of the Company’s investment strategy in the past
      and these trades have ranged, in any particular month, from 0% to 20% of total
      trading activity. The making of such investments entails significant risk that
      the price of a security may increase resulting in the loss of or negative return
      on the investment. We have not engaged in the practice of short selling since
      the quarter ended September 30, 2005, and do not expect short selling to become
      a significant component of our strategy in the future. On March 29, 2006 our
      Board of Directors directed us to liquidate all of our investments and other
      assets that do not relate to the patient safety medical products business.
      Some
      of our investments are subject to restrictions on resale under federal
      securities laws and otherwise are illiquid, which will make it difficult to
      dispose of the securities quickly. Since we will be forced liquidate some or
      all
      of the investments on an accelerated timeline, the proceeds of such liquidation
      may be significantly less than the value at which we acquired the investments.
      The following is a discussion of our most significant investments at March
      31,
      2006.





A
      summary
      of our investment portfolio, which at March 31, 2006 was valued at $4,985,616
      and represented 31.3% of our total assets, is reflected below. Excluding our
      real estate investments, our investment portfolio represents 28.3% of our total
      assets. The investment portfolio is comprised of marketable securities of
      $104,790 and long-term investments of $4,880,826. Our investments in marketable
      securities that are bought and held principally for the purpose of selling
      them
      in the near-term are classified as trading securities. Our remaining investments
      are classified as long-term investments.





26




**March
                31,****2006**Alacra
                Corporation
            
            $
            1,000,000Digicorp
            
            
            2,772,793IPEX,
                Inc.
            
            
            689,700Real
                Estate
            
            
            481,033Other
            
            
            42,090$
            4,985,616





*Alacra
      Corporation*





At
      March
      31, 2006, we had an investment in Alacra Corporation ( ***“Alacra”*** ),
      valued
      at $1,000,000, which represents 6.3% of our total assets. On April 20, 2000,
      we
      purchased $1,000,000 worth of Alacra Series F Convertible Preferred Stock.
      Alacra has recorded revenue growth in every year since the Company’s original
      investment, further, 2005 revenues of approximately $16.5 million, were in
      excess of the prior year’s revenues by approximately 45%. At December 31, 2005,
      Alacra had total assets of approximately $3.5 million with total liabilities
      of
      approximately $6.0 million. Deferred revenue, which represents subscription
      revenues are amortized over the term of the contract, which is generally one
      year, and represented approximately $2.9 million of the total liabilities.
      The
      Company has the right to have the preferred stock redeemed by Alacra for face
      value plus accrued dividends beginning on December 31, 2006. In connection
      with
      this investment, the Company was granted observer rights on Alacra board of
      directors meetings.





Alacra,
      a
      privately held company based in New York, is a global provider of business
      and
      financial information. Alacra provides a diverse portfolio of fast,
      sophisticated online services that allow users to quickly find, analyze, package
      and present business information. Alacra’s customers include more than 750
      leading financial institutions, management consulting, law and accounting firms
      and other corporations throughout the world. Currently, Alacra’s largest
      customer segment is investment and commercial banking, followed closely by
      management consulting, law and multi-national corporations.





Alacra’s
      online service allows users to search via a set of tools designed to locate
      and
      extract business information from the Internet and from Alacra’s library of
      content. Alacra’s team of information professionals selects, categorizes and
      indexes more than 45,000 sites on the Web containing the most reliable and
      comprehensive business information. Simultaneously, users can search more than
      100 premium commercial databases that contain financial information, economic
      data, business news, and investment and market research. Alacra provides
      information in the required format, gleaned from such prestigious content
      partners as Thomson FinancialTM, Barra, The Economist Intelligence Unit, Factiva,
      Mergerstat® and many others.





The
      information services industry is intensely competitive and we expect it to
      remain so. Although Alacra has been in operation since 1996 they are
      significantly smaller in terms of revenue than a large number of companies
      offering similar services. Companies such as ChoicePoint, Inc. (NYSE: CPS),
      LexisNexis Group, and Dow Jones Reuters Business Interactive, LLC report
      revenues that range anywhere from $100 million to several billion dollars,
      as
      reported by Hoovers, Inc. As such, Alacra’s competitors can offer a far greater
      range of products and services, greater financial and marketing resources,
      larger customer bases, greater name recognition, greater global reach and more
      established relationships with potential customers than Alacra has. These larger
      and better capitalized competitors may be better able to respond to changes
      in
      the financial services industry, to compete for skilled professionals, to
      finance investment and acquisition opportunities, to fund internal growth and
      to
      compete for market share generally.





27


*Digicorp*





At
      March
      31, 2006, we had an investment in Digicorp valued at $2,772,793, which
      represents 17.4% of our total assets. On December 29, 2004, we entered into
      a
      Common Stock Purchase Agreement with certain shareholders of Digicorp (the ***"Digicorp
      Agreement"*** ),
      to
      purchase an aggregate of 3,453,527 shares of Digicorp common stock. We purchased
      2,229,527 of such shares on December 29, 2004 (2,128,740 shares at a price
      of
      $0.135 per share and 100,787 shares at a price of $0.145 per share). We were
      also required to purchase the remaining 1,224,000 shares from the selling
      shareholders at a price of $0.145 per share at such time that Digicorp registers
      the resale of the shares with the SEC. During December 2005 we amended the
      Digicorp Agreement and an unrelated third party assumed the obligation to
      purchase 1,000,000 of the remaining 1,224,000 shares from the selling
      shareholders. Additionally, we extended loans of approximately $32,500 to the
      selling shareholders from our working capital. Such loans represented the amount
      of the remaining obligation to purchase 224,000 shares of Digicorp common stock
      and are secured by the 224,000 shares of Digicorp common stock presently held
      by
      such selling shareholders. Digicorp’s common stock is traded on the OTC Bulletin
      Board, which reported a closing price, at March 31, 2006, of $1.35. In
      connection with the Digicorp Agreement, we were entitled to designate two
      members to the Board of Directors of Digicorp. Our first designee, Melanie
      Glazer, who is also manager of our subsidiary Ault Glazer Bodnar Capital
      Properties, LLC, was appointed on December 29, 2004. Milton “Todd” Ault, III,
      our former Chairman and Chief Executive Officer, was appointed Chief Executive
      Officer of Digicorp on April 26, 2005. On July 16, 2005, Alice M. Campbell,
      one
      of our directors, and Mr. Ault was appointed to the Board of Directors of
      Digicorp. On July 20, 2005, Lynne Silverstein, our President and Secretary,
      was
      appointed as a director of Digicorp, and William B. Horne, our Chief Financial
      Officer, was appointed as a director and as Chief Financial Officer of Digicorp.
      On September 30, 2005, Mr. Ault resigned from all positions with Digicorp and
      Mr. Horne was appointed as the interim Chief Executive Officer. On December
      29,
      2005, William B. Horne resigned as Chief Executive Officer and Lynne Silverstein
      and Melanie Glazer resigned as directors.





Since
      June 30, 1995, Digicorp was in the developmental stage and had no operations
      other than issuing shares of common stock for financing the preparation of
      financial statements and for preparing filings for the SEC. On May 18, 2005,
      Digicorp sold Bodnar Capital Management, LLC 2,941,176 shares of its common
      stock and warrants to purchase an additional 3,000,000 shares of its common
      stock with exercise prices ranging from $0.25 to $1.50 per share. Digicorp
      received gross proceeds of approximately $500,000 from the sale of stock and
      warrants to Bodnar Capital Management, LLC. As described above under “Financial
      Condition,” Bodnar Capital Management, LLC also is one of our principal
      stockholders. On October 27, 2005, Bodnar Capital Management, LLC canceled
      the
      warrants to purchase 3,000,000 shares of common stock in exchange for the
      issuance of a warrant to purchase 500,000 shares of Digicorp’s common stock with
      an exercise price of $0.01 per share.





On
      September 19, 2005, upon entering into an asset purchase agreement with Philip
      Gatch, who was appointed Digicorp’s Chief Technology Officer, Digicorp completed
      the initial transaction to transform itself from that of a development stage
      enterprise to a digital media and content delivery company. Digicorp issued
      Mr.
      Gatch 1,000,000 shares of its common stock as consideration for the assets
      purchased, which consisted of the iCodemedia suite of websites and internet
      properties and all related intellectual property (the ***“iCodemedia
      Assets”*** ).
      The
      iCodemedia suite of websites consists of the websites www.icodemedia.com,
      www.iplaylist.com, www.tunecast.com, www.tunebucks.com, www.podpresskit.com
      and
      www.tunespromo.com. Digicorp plans to use these websites and the related
      intellectual property to provide a suite of applications and services to enable
      content creators the ability to publish and deliver content to existing and
      next
      generation digital media devices, such as the Apple iPod and the Sony PSP,
      based
      upon the consumers’ expectation for broader and on-demand access to content and
      services.





On
      December 29, 2005, Digicorp acquired all of the issued and outstanding capital
      stock of Rebel Crew Films, Inc., a California corporation ( ***“Rebel
      Crew Films”*** ),
      in
      consideration for the issuance of 21,207,080 shares of Digicorp common stock
      (the ***“Purchase
      Price”*** )
      to the
      shareholders of Rebel Crew Films. From the Purchase Price, 4,000,000 shares
      are
      held in escrow pending satisfaction of certain performance milestones. In
      addition, from the Purchase Price, 16,666,667 shares are subject to lock up
      agreements as follows: (a) 3,333,333 shares are subject to lockup agreements
      for
      one year; (b) 6,666,667 shares are subject to lockup agreements for two years;
      and (c) 6,666,667 shares, of which the 4,000,000 escrowed shares are a
      component, are subject to lockup agreements for three years.





28


In
      connection with the acquisition of Rebel Crew Films, on December 29, 2005
      Digicorp entered into a Securities Purchase Agreement with one of the
      shareholders of Rebel Crew Films, Rebel Holdings, LLC, pursuant to which
      Digicorp purchased a $556,306.53 principal amount loan receivable owed by Rebel
      Crew Films to Rebel Holdings, LLC in exchange for the issuance of a $556,306.53
      principal amount secured convertible note to Rebel Holdings, LLC. The secured
      convertible note accrues simple interest at the rate of 4.5%, matures on
      December 29, 2010 and is secured by all of Digicorp’s assets now owned or
      hereafter acquired. The secured convertible note is convertible into 500,000
      shares of Digicorp common stock at the rate of $1.112614 per share. Jay Rifkin,
      Digicorp’s Chief Executive Officer and one of its directors, is the sole
      managing member of Rebel Holdings, LLC.





Rebel
      Crew Films was founded in 2001 as a film licensing and distribution company
      of
      Latino home entertainment products. Rebel Crew Films currently maintains
      approximately 300 Spanish language films and serves the some of the nation’s
      largest wholesale, retail, catalog, and e-commerce accounts. Rebel Crew’s titles
      can be found at Wal-Mart, Best Buy, Blockbuster, K-Mart, and hundreds of
      independent video outlets across the United States and Canada. We believe that
      the acquisition will allow Digicorp to leverage Rebel Crew Films’ Latino content
      and industry relationships with the iCodemedia Assets to create a compelling
      digital media and content delivery company.





*IPEX,
      Inc.*





At
      March
      31, 2006, we held 1,045,000 shares of common stock and warrants to purchase
      787,500 shares of common stock at $1.00 per share of IPEX, Inc. (“ ***IPEX”*** ),
      valued
      at $689,700, which represents 4.3% of our total assets. IPEX's common stock
      is
      traded on the OTC Bulletin Board, which reported a closing price, at March
      31,
      2006, of $0.88. The warrants are exercisable for a period of five years and
      are
      callable by IPEX in certain instances. IPEX operates a Voice over Internet
      Protocol ( ***"VoIP"*** )
      routing
      platform that directs telecommunication traffic. VoIP permits a user to send
      voice, fax and other information over the Internet, rather than through a
      regular telephone network system based on switches Pursuant to two separate
      asset purchase agreements entered into during 2005, in consideration for
      $6,000,000 of IPEX common stock and $275,000 cash, IPEX purchased certain
      intellectual property assets that may be used to enhance, compact, store,
      encrypt, stream and display digital image content over wireless networks and
      over the Internet and for image enhancement, compacting and content protection
      applications. On March 21, 2006 IPEX reported that it is in the process of
      transferring ownership of such assets to its subsidiary RGB Channel, Inc. On
      June 23, 2005, Alice M. Campbell, who is one of our directors, was appointed
      to
      the Board of Directors of IPEX. Ms. Campbell subsequently resigned from IPEX’s
      Board effective February 2, 2006. In addition, from May 26, 2005 until July
      20,
      2005, Milton “Todd” Ault, III, our former Chairman and Chief Executive Officer,
      served as interim Chief Executive Officer of IPEX and Mr. Ault has been a
      director of IPEX since May 26, 2005.





The
      Company’s initial investment into IPEX occurred On March 2, 2005 in the amount
      of $450,000. This investment was part of the private placement that IPEX
      completed on March 18, 2005. The total amount of IPEX’s private placement was
      for 3,500,000 shares of common stock, 1,750,000 Series A Warrants and 1,750,000
      Series B Warrants for aggregate proceeds of $3,500,000, less issuance costs
      of
      $259,980, resulting in net realized proceeds of $3,240,020. The common stock,
      Series A and Series B Warrants were sold as Units, with each Unit consisting
      of
      two shares of common stock, one series A Warrant and one Series B Warrant.
      Each
      Series A Warrant entitles the holder to purchase one share of common stock
      at
      $1.50 per share, exercisable for a period of five years. Each Series B Warrant
      entitles the holder to purchase one share of common stock at $2.00 per share,
      exercisable for a period of five years. Subsequent to the effectiveness of
      a
      registration statement covering the re-sale of shares underlying the warrants,
      the Series A and Series B Warrants are callable by IPEX, under certain
      circumstances, if IPEX's common stock trades at or above $2.00 and $2.50,
      respectively, for ten consecutive trading days. In such event IPEX must give
      us
      30 days prior written notice of its intention to call the warrants after which
      it has the right to repurchase the warrants at a purchase price of $0.01 per
      share of common stock then purchasable pursuant to the




29




warrants.
      During such 30 day notice period we would have the right to exercise the
      warrants. As of March 31, 2006 IPEX has not filed a registration statement
      covering the re-sale of the shares underlying the warrants and accordingly
      IPEX
      does not have a right to call them. However, in the event the warrants are
      called by IPEX, the warrants would be likely be in-the-money and we would likely
      exercise the warrants. To the extent we did not have a sufficient amount of
      cash
      available to exercise the warrants we would most likely liquidate a portion
      of
      our existing shares in IPEX common stock to satisfy the exercise amount. On
      March 21, 2006 IPEX sold $800,000 principal amount of 10% secured convertible
      notes to four accredited investors in a private placement transaction. The
      10%
      secured convertible notes are convertible into either IPEX common stock at
      a
      price of $1.00 per share or into common stock of IPEX’s subsidiary RGB Channel,
      Inc. at a conversion price equal to the lesser of (a) $0.50, or (b) the price
      at
      which, at any time while the 10% secured convertible notes are outstanding,
      RGB
      Channel, Inc. sells shares of its common stock or any other securities
      convertible into or exchangeable for RGB Channel, Inc. common stock. The sale
      by
      IPEX of the 10% secured convertible notes caused an adjustment to the exercise
      price of the Series A Warrants and the Series B Warrants to equal $1.00 per
      share and an increase in the number of shares of common stock purchasable under
      such Series A and B Warrants. Pursuant to such warrants that we own, we are
      now
      entitled to purchase a total of 787,500 shares of IPEX common stock at an
      exercise price of $1.00 per share.





As
      reflected in IPEX’s annual report on Form 10-KSB for the fiscal year ended
      December 31, 2005, sales for the year ended December 31, 2005 rose to
      $12,332,093 as compared to sales of $6,716,114 from the prior year ended
      December 31, 2004. Due to prior working capital constraints IPEX could only
      maintain selling to Tier 3 customers on a weekly net 5 basis. The additional
      working capital provided by the private placement completed in March 2005
      allowed IPEX to extend credit to Tier 2 carriers under net 15 terms and Tier
      1
      customers under net 30 terms therefore increasing the number of overall
      customers.





*Ault
      Glazer Bodnar Capital Properties, LLC*





At
      March
      31, 2006, we had several real estate investments, valued at $481,033, which
      represents 3.0% of our total assets. We hold our real estate investments in
      Ault
      Glazer Bodnar Capital Properties, LLC ***(“AGB
      Properties”)*** ,
      a
      Delaware limited liability company and a wholly owned subsidiary. AGB Properties
      is in the process of liquidating its real estate holdings. AGB Properties’
primary focus was on the acquisition and management of income producing real
      estate holdings. AGB Properties real estate holdings consist of approximately
      8.5 acres of undeveloped land in Heber Springs, Arkansas, 0.61 acres of
      undeveloped land in Springfield, Tennessee, and various loans secured by real
      estate in Heber Springs, Arkansas. We expect that any future gain or loss
      recognized on the liquidation of some or all of our real estate holdings would
      be insignificant primarily due to the short period of time that the properties
      were owned combined with the absence of any significant changes in property
      values in the real estate markets where the real estate holdings are located.





**Results
      of Operations**





We
      account for our operations under accounting principles generally accepted in
      the
      United States. The principal measure of our financial performance is captioned
      “Net loss attributable to common shareholders,” which is comprised of the
      following:





§
            "Revenues,"
                which is the amount we receive from sales of our
                products;





§
            “Operating
                expenses,” which are the related costs and expenses of operating our
                business;





§
            “Interest,
                dividend income and other, net,” which is the amount we receive from
                interest and dividends from our short term investments and money
                market
                accounts, and our proportionate share of income or losses from investments
                accounted for under the equity method of
                accounting;





§
            “Realized
                gains (losses) on investments, net,” which is the difference between the
                proceeds received from dispositions of investments and their stated
                cost;
                and





30


§
            “Unrealized
                gains (losses) on marketable securities, net,” which is the net change in
                the fair value of our marketable securities, net of any (decrease)
                increase in deferred income taxes that would become payable if the
                unrealized appreciation were realized through the sale or other
                disposition of the investment
                portfolio.





“Realized
      gains (losses) on investments, net” and “Unrealized gains (losses) on marketable
      securities, net” are directly related. When a security is sold to realize a
      gain, the net unrealized gain decreases and the net realized gain increases.
      When a security is sold to realize a loss, the net unrealized gain increases
      and
      the net realized gain decreases.





We
      generally earn interest income from loans, preferred stock, corporate bonds
      and
      other fixed income securities. The amount of interest income varies based upon
      the average balance of our fixed income portfolio and the average yield on
      this
      portfolio.





**Revenues**





We
      recognized revenues of $75,760 and $0 during the three months ended March 31,
      2006 and 2005, respectively. Although none of the revenues that we recognized
      during the three months ended March 31, 2006 related to sales of our
      Safety-Sponge TM System
      we
      expect to begin recognizing revenues from the Safety-Sponge TM System
      during the three month period ending June 30, 2006 based in part upon the
      results of initial usage of the Safety-Sponge TM System
      in
      hospital operating rooms. We expect these revenues will initially have an
      insignificant impact on our results of operations, however, during the three
      month period ending December 31, 2006 we expect that revenues from our
      Safety-Sponge TM System
      will start to become a source of funds to cover a portion of our operating
      costs.




Of
      the
      revenue earned during the three months ended March 31, 2006, $54,993 was the
      result of a consulting agreement, consented to by IPEX, whereby Wolfgang
      Grabher, the majority shareholder of IPEX, former President, former Chief
      Executive Officer and former director of IPEX, retained us to serve as a
      business consultant to IPEX. In consideration for the services, during December
      2005, Mr. Grabher personally transferred us 500,000 shares of common stock
      of
      IPEX as a non-refundable consulting fee. Mr. Grabher owned 18,855,900 shares
      of
      IPEX's 28,195,566 outstanding shares of common stock. On December 14, 2005
      Mr.
      Grabher agreed to surrender 14,855,900 of the shares of IPEX common stock owned
      by him to IPEX to be retired and returned to treasury. Such shares represented
      49.4% of IPEX’s outstanding shares of common stock at the time. At March 31,
      2006, we held 7.8% of IPEX’s outstanding shares of common stock. On June 30,
      2005, we agreed with IPEX as to the scope of the consulting services and the
      consideration for such services. At March 31, 2006, we had performed a
      significant amount of the services stipulated under the terms of the consulting
      agreement, including but not limited to: (i) a review of the business and
      operations (ii) advice in connection with IPEX’s purchase of certain
      intellectual property assets; (iii) the hiring by IPEX of a new Chief Executive
      Officer, Chief Operating Officer and a Vice President of Research &
Development, none of which would be deemed related parties; and (iv) IPEX’s
      appointment of two new members to its Board of Directors. We have deferred
      approximately $48,882 of revenue relating to this consulting agreement which
      management expects will be recognized during the three months ending June 30,
      2006. We do not expect to enter into any additional consulting agreements with
      IPEX or, other than the deferred revenue, expect to recognize any additional
      revenue from IPEX. Our former Chairman and former Chief Executive Officer,
      Mr.
      Ault, has been a director of IPEX since May 26, 2005 and Mr. Ault served as
      interim Chief Executive Officer of IPEX from May 26, 2005 until July 13, 2005.
      Darrell W. Grimsley, Jr., Chief Executive Officer of our indirect wholly owned
      subsidiary Automotive Services Group, LLC, served as a director of IPEX and
      a
      member of its Audit Committee from August 30, 2005 until February 2, 2006.
      Alice
      M. Campbell, a member of our Board of Directors and our audit and compensation
      committees, served as a director of IPEX and chairman of its audit committee
      from June 23, 2005 until February 2, 2006.





The
      remaining revenue of $20,767, was generated from car wash services by our
      wholly-owned operating subsidiary, ASG.  ASG
      was
      formed to develop and operate automated car wash sites under the trade name
      “Bubba’s Express Wash” . ASG’s
      first site, developed in Birmingham, Alabama, had its grand opening on March
      8,
      2006 .








31


**Expenses**





The
      increase in operating expenses for the three months ended March 31, 2006 when
      compared to March 31, 2005, was primarily the result of salaries and employee
      benefits, and to a lesser extent professional fees and amortization of our
      patents. Until October 22, 2004, the date our shareholders approved certain
      proposals relating to our restructuring plan to change from a business
      development company to an operating company, our principal activities involved
      the management of existing investments. As such, compensation expense was
      primarily the salaries of our Chief Executive Officer and to a lesser extent
      the
      Chief Financial Officer. Since the restructuring plan, we have aggressively
      focused on expanding into the health care and medical products field,
      particularly the patient safety markets, and up until October 2005, the
      financial services and real estate industries. We have hired personnel in order
      to meet the increased needs of our patient safety business focus and this has
      resulted in increases in almost every expense category.





A
      majority of our operating expenses consist of employee compensation, which
      increased by $1,239,934. Our Compensation Committee, which is comprised of
      three
      independent directors for purposes of AMEX rules, determines and recommends
      to
      our Board the cash and stock based compensation to be paid to our executive
      officers and also reviews the amount of salary and bonus for each of our other
      officers and employees. The most significant component of employee compensation
      is stock based compensation expense. For the three months ended March 31, 2006,
      we recorded $922,483 relating to grants of nonqualified stock options and
      $1,013,484 related to restricted stock awards to our employees and non-employee
      directors. During the three months ended March 31, 2005, we recorded $552,542
      relating to grants of nonqualified stock options and $574,975 related to
      restricted stock awards to our employees and non-employee directors. Thus,
      the
      increase in expenses related to the issuance of stock options and restricted
      stock awards to our employees and non-employee directors amounted to $808,450.
      The remaining increase in employee compensation of $431,484 is attributed to
      a
      non-recurring severance package paid to Milton “Todd” Ault III, our former
      Chairman and Chief Executive Officer, of $180,000 and an increase in salaries
      and benefits of $251,484 due to an increased number of employees. At March
      31,
      2006, we had 11 full time employees receiving compensation compared to 5 full
      time employees, none of which were highly compensated executive officers, at
      March 31, 2005.





At
      March
      31, 2006, three of our executives were covered under employment agreements.
      Our
      Chief Financial Officer, William B. Horne, is covered under a two year
      employment agreement with annual base compensation of $150,000; our President
      of
      Sales and Marketing of Surgicount Medical, Inc., Richard Bertran, is covered
      under a three year employment agreement with annual base compensation of
      $200,000 and; our Chief Operating Officer of Surgicount Medical, Inc., James
      Schafer, is covered under a two year employment agreement with annual base
      compensation of $100,000. None of our other executives our currently covered
      under an employment agreement, therefore, we are under no financial obligation,
      other than monthly salaries, for our other executive officers. Currently,
      monthly gross salaries for all of our employees are approximately $120,000.
      We
      believe, as with all our operating expenses, that our existing cash resources,
      together with proceeds from investments, anticipated financings and expected
      revenues from our operations, should be adequate to fund our salary obligations.





The
      second largest component of our operating expenses is professional fees, which
      increased by $55,336. As in the case of employee compensation, stock based
      compensation expense is the most significant component of professional fees
      for
      the three months ended March 31, 2006. We incurred $418,012 and $96,584 relating
      to the issuance of warrants during the three months ended March 31, 2006 and
      2005, respectively. A significant amount of the warrants issued during the
      three
      months ended March 31, 2006, relate to a consulting agreement that we entered
      into in February 2006 with Analog Ventures, LLC ( ***“Analog
      Ventures”*** )
      whereby
      Analog Ventures agreed to consult with us on matters relating primarily to
      the
      divestiture of our non-core assets and assist us in our efforts to focus our
      business exclusively on the patient safety medical products field. As an
      incentive for entering into the agreement, we agreed to issue Analog Ventures
      a
      warrant to purchase 175,000 shares of our common stock at an exercise price
      of
      $3.95, exercisable for 3 years. We recognized an expense of $404,917 related
      to
      these warrants.





32


The
      increase in stock based compensation expense to consultants of $321,428 was
      partially offset by a corresponding decrease in legal fees of $302,104. The
      decrease in legal fees is primarily attributable to either the absence of or
      significant reduction in the level of work during the three months ended March
      31, 2006 on our proxy statements, registration statements and annual report.
      These reports required significantly more time to prepare during the three
      months ended March 31, 2005 due to our change from a business development
      company to an operating company.





All
      of
      our stock based compensation issued to employees, non-employee directors and
      consultants were expensed in accordance with SFAS 123(R). We valued the
      nonqualified stock options and warrants using the Black-Scholes valuation model
      assuming expected dividend yield, risk-free interest rate, expected life and
      volatility of 0%, 3.75%, three to five years and 83% to 89%, respectively.
      The
      restricted stock awards were valued at the closing price on the date the
      restricted shares were granted.





The
      increase in amortization expense of our patents was caused by a full quarter
      of
      amortization during the three months ended March 31, 2006 as opposed to a
      partial quarter during the three months ended March 31, 2005. The entire
      capitalized costs of Surgicount’s patents, valued at $4,684,576, are being
      amortized over their approximate useful life of 14.4 years. Since the Surgicount
      patents were not acquired until the end of February 2005, amortization for
      the
      three months ended March 31, 2005 was only approximately $27,000 as opposed
      to
      approximately $81,000 during the three months ended March 31, 2006.





**Interest,
      dividend income and other, net**





We
      had
      interest income of $1,094 and $28,602 for the three months ended March 31,
      2006
      and 2005, respectively.





The
      decrease in interest income for the three months ended March 31, 2006 when
      compared to March 31, 2005 was primarily the result of a decreased amount of
      fixed income investments held throughout the period. At March 31, 2005, we
      held
      in marketable securities approximately $2.5 million in U.S. Treasuries as
      opposed to no investments in U.S. Treasuries during the three months ended
      March
      31, 2006.





**Realized
      gains (losses) on investments, net**





During
      the three months ended March 31, 2006, we realized net losses of $136,262
      primarily from the sale of 102,100 shares of Tuxis Corporation.





During
      the three months ended March 31, 2005, we realized net losses of $34,728 from
      the sale of our marketable securities.





We
      have
      relied and we continue to rely to a large extent upon proceeds from sales of
      investments rather than investment income to defray a significant portion of
      our
      operating expenses. Because such sales cannot be predicted with certainty,
      we
      attempt to maintain adequate working capital to provide for fiscal periods
      when
      there are no such sales.





**Unrealized
      gains (losses) on marketable securities, net**





Unrealized
      appreciation of investments increased by $76,915 during the three months ended
      March 31, 2006, primarily due to the sale of 102,100 shares of Tuxis Corporation
      common stock, which at December 31, 2005 had unrealized depreciation of
      approximately $134,000. When we exit an investment and realize a loss, we make
      an accounting entry to reverse any unrealized depreciation we had previously
      recorded to reflect the depreciated value of the investment. The increase in
      unrealized appreciation related to the sale of our shares of Tuxis common stock
      was partially offset by a decrease in the value of the 95,000 shares of IPEX
      common stock held as trading securities. IPEX common stock is traded on the
      OTC
      Bulletin Board, which reported a closing price, at December 31, 2005 of $2.38
      per share compared with $0.88 per share at March 31, 2006. We valued our
      holdings in IPEX at a discount to the closing prices, or $1.19 and $0.66 per
      share at December 31, 2005 and March 31, 2006, respectively, due primarily
      to
      the limited average number of shares traded on the OTC Bulletin Board.





33


Unrealized
      appreciation of investments increased by $343,587 during the three months ended
      March 31, 2005, primarily due to the price appreciation of our marketable
      securities





**Accumulated
      other comprehensive income**





Unrealized
      gains (losses) on our investments designated as available-for-sale are recorded
      in accumulated other comprehensive income. At March 31, 2006, we classified
      all
      of our restricted holdings in IPEX and Digicorp as available-for-sale. At March
      31, 2006, the unrealized gains (losses) on our restricted holdings in IPEX
      and
      Digicorp amounted to ($831,250) and $2,460,393, respectively, whereas at March
      31, 2005, the unrealized gains (losses) on our restricted holdings in IPEX
      and
      Digicorp amounted to ($327,749) and $2,702,607, respectively. The cumulative
      decrease in net unrealized gains amounts to $745,715.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk.**





Our
      business activities contain elements of market risk. We consider a principal
      type of market risk to be valuation risk. Investments and other assets are
      valued at fair value as determined in good faith by our Board of Directors.





We
      have
      invested a substantial portion of our assets in private development stage or
      start-up companies. These private businesses tend to be thinly capitalized,
      unproven, small companies that lack management depth and have not attained
      profitability or have no history of operations. Because of the speculative
      nature and the lack of public market for these investments, there is
      significantly greater risk of loss than is the case with traditional investment
      securities. We expect that some of our venture capital investments will be
      a
      complete loss or will be unprofitable and that some will appear to be likely
      to
      become successful but never realize their potential.





Because
      there is no public market for the equity interests of some of the small
      companies in which we have invested, the valuation of such the equity interests
      is subject to the estimate of our Board of Directors. In making its
      determination, the Board may consider valuation information provided by an
      independent third party or the portfolio company itself. In the absence of
      a
      readily ascertainable market value, the estimated value of our equity
      investments may differ significantly from the values that would be placed on
      them if a liquid market for the equity interests existed. Any changes in
      valuation are recorded in our consolidated statements of operations as either
      "Unrealized losses on marketable securities, net” or “Other comprehensive
      income."





**Item
      4. Controls and Procedures.**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective to ensure that all information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is: (1) accumulated and communicated to our management, including our chief executive
      officer and chief financial officer, as appropriate to allow timely decisions
      regarding required disclosure ;
      and (2)
      recorded, processed, summarized and reported, within the time periods specified
      in the Commission's rules and forms. There was no change in our internal
      controls or in other factors that could affect these controls during our last
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





As
      of the
      date this report was filed, there have been no material developments in the
      legal proceedings previously reported in our annual report on Form 10-K for
      the
      fiscal year ended December 31, 2005, which was filed with the Securities and
      Exchange Commission on April 17, 2006.





34


**Item
      1A. Risk Factors.**





An
      investment in our securities involves a high degree of risk. Before you invest
      in our securities you should carefully consider the risks and uncertainties
      described below and the other information in this prospectus. Each of the
      following risks may materially and adversely affect our business, results of
      operations and financial condition. These risks may cause the market price
      of
      our common stock to decline, which may cause you to lose all or a part of the
      money you paid to buy our securities. We provide the following cautionary
      discussion of risks, uncertainties and possible inaccurate assumptions relevant
      to our business and our products. These are factors that we think could cause
      our actual results to differ materially from expected results.





**RISKS
      RELATING TO OUR BUSINESS AND STRUCTURE**





**We
      have not made any sales or generated any revenue to date from our Safety-SpongeTM
System and a substantial amount of our revenue during the three months ended
      March 31, 2006 is from a related party. Because of this, you should not rely
      on
      our historical results of operations as an indication of our future performance.**





We
      have
      not made any sales or generated any revenue to date from our Safety-SpongeTM
System. Further, of our $75,760 of revenue during the three months ended March
      31, 2006, $54,993 was generated from a contract to provide management consulting
      services to one of our portfolio companies IPEX, Inc., which is considered
      a
      related party. Our future success is dependent on our ability to develop our
      patient-safety related assets into a successful business, which depends upon
      wide-spread acceptance of and commercializing our Safety-SpongeTM System. None of
      these factors is demonstrated by our historic performance to date and there
      is
      no assurance we will be able to accomplish them in order to sustain our
      operations. As a result, you should not rely on our historical results of
      operations as an indication of the future performance of our
      business.





**We
      recently restructured our business strategy and objective and have limited
      operating history under our new structure. If we cannot successfully implement
      our new business structure the value of your investment in our business could
      decline.**





Upon
      the
      change of control that occurred in October 2004, we restructured our business
      strategy and objective to focus on the medical products, healthcare solutions,
      financial services and real estate industries instead of the radio and
      telecommunications industries. Although we still own certain real estate assets,
      we are no longer focusing on the financial services and real estate industries.
      As of March 29, 2006, our Board of Directors determined to focus our business
      exclusively on the patient safety medical products field. We have a limited
      operating history under this new structure. Historically, we have not typically
      invested in these industries and therefore our historical results of operations
      should not be relied upon as an indication of our future financial performance.
      If we do not successfully implement our new business structure the value of
      your
      investment in our business could decline substantially.





**Withdrawal
      of our election to be treated as a BDC may increase the risks to our
      shareholders since we are no longer subject the regulatory restrictions or
      financial reporting benefits of the 1940 Act.**





Since
      we
      withdrew our election to be treated as a BDC, we are no longer subject to
      regulation under the 1940 Act, which is designed to protect the interests of
      investors in investment companies. As a non-BDC, we are no longer subject to
      many of the regulatory, financial reporting and other requirements and
      restrictions imposed by the 1940 Act including, but not limited to, limitations
      on the amounts, types and prices at which we may issue securities, participation
      in related party transactions, the payment of compensation to executives, and
      the scope of eligible investments.





35


The
      nature of our business has changed from investing in radio and
      telecommunications companies with the goal of achieving gains on appreciation
      and dividend income, to actively operating businesses in the medical products
      and health care solutions industries, with the goal of generating income from
      the operations of those businesses. No assurance can be given that our business
      strategy or investment objectives will be achieved by withdrawing our election
      to be treated as a BDC.





Further,
      our election to withdraw as a BDC under the 1940 Act has resulted in a
      significant change in our method of accounting. BDC financial statement
      presentation and accounting utilizes the value method of accounting used by
      investment companies, which allows BDCs to recognize income and value their
      investments at market value as opposed to historical cost. As an operating
      company, the required financial statement presentation and accounting for
      securities held is either fair value or historical cost methods of accounting,
      depending on the classification of the investment and our intent with respect
      to
      the period of time we intend to hold the investment.





A
      change
      in our method of accounting could reduce the market value of our investments
      in
      privately held companies by eliminating our ability to report an increase in
      the
      value of our holdings as they occur. Also, as an operating company, we have
      to
      consolidate our financial statements with subsidiaries, thus eliminating the
      portfolio company reporting benefits available to BDCs.





**Together
      with our subsidiaries, we may have to take actions that are disruptive to our
      business strategy to avoid registration under the 1940
      Act.**





The
      1940
      Act generally requires public companies that are engaged primarily in the
      business of investing, reinvesting, owning, holding or trading in securities
      to
      register as investment companies. A company may be deemed to be an investment
      company if it owns “investment securities” with a value exceeding 40% of the
      value of its total assets (excluding government securities and cash items)
      on an
      unconsolidated basis, unless an exemption or exclusion applies. Securities
      issued by companies other than majority-owned subsidiaries are generally counted
      as investment securities for purposes of the 1940 Act. While on an
      unconsolidated basis, our subsidiaries’ assets which constitute investment
      securities have not approached 40%, as of March 31, 2006, 28.4% of our assets
      on
      a consolidated basis with subsidiaries were comprised of investment securities.
      If Patient Safety Technologies, Inc. or any of its subsidiaries were to own
      investment securities with a value exceeding 40% of its total assets it could
      require the subsidiary and/or Patient Safety Technologies, Inc. to register
      as
      an investment company under the 1940 Act. Registration as an investment company
      would subject us to restrictions that are inconsistent with our fundamental
      business strategy of equity growth through creating, building and operating companies
      in the medical products and healthcare services industries, particularly the
      patient safety field. Moreover, registration under the 1940 Act would subject
      us
      to increased regulatory and compliance costs, and other restrictions on the
      way
      we operate. We
      may
      also have to take actions, including buying, refraining from buying, selling
      or
      refraining from selling securities, when we would otherwise not choose to do
      so
      in order to continue to avoid registration under the 1940 Act.





**We
      intend to undertake additional financings to meet our growth, operating and/or
      capital needs, which may result in dilution to your ownership and voting
      rights.**





We
      anticipate that revenue from our operations for the foreseeable future will
      not
      be sufficient to meet our growth, operating and/or capital requirements. We
      believe that in order to have the financial resources to meet our operating
      requirements for the next twelve months we will need to undertake additional
      equity or debt financings to allow us to meet our future growth, operating
      and/or capital requirements. We currently have no commitments for any such
      financings. Any equity financing may be dilutive to our stockholders, and debt
      financing, if available, may involve restrictive covenants or other adverse
      terms with respect to raising future capital and other financial and operational
      matters. We
      may
      not be able to obtain additional financing in sufficient amounts or on
      acceptable terms when needed, which could adversely affect our operating results
      and prospects. If we fail to arrange for sufficient capital in the future,
      we
      may be required to reduce the scope of our business activities until we can
      obtain adequate financing.





36


**We
      have received shareholder approval to sell up to $10 million of equity and/or
      debt securities to certain related parties** **which may result in dilution to your ownership and voting rights or may result
      in the incurrence of substantial debt.** ****





We
      have
      received shareholder approval to sell equity and/or debt securities up to $10
      million in any calendar year to Milton “Todd” Ault, III, Lynne Silverstein,
      Louis Glazer, M.D., Ph.G., and Melanie Glazer. Mr. Ault is our former Chairman
      and former Chief Executive Officer, Ms. Silverstein is our President and
      Secretary, Mr. Glazer is our present Chairman and Chief Executive Officer and
      the Chief Health and Science Officer of our subsidiary Patient Safety Consulting
      Group, LLC, and Mrs. Glazer is the Manager of our subsidiary Ault Glazer Bodnar
      Capital Properties, LLC and also is Mr. Glazer’s spouse. If we propose to sell
      more than $10 million of securities in a calendar year to such persons
      additional shareholder approval would be required. Although we do not currently
      anticipate selling equity or debt securities to these persons if we do sell
      any
      such securities it will result in dilution to your ownership and voting rights
      and/or possibly result in our incurring substantial debt. Any such e quity
      financing would result in dilution to existing stockholders and may involve
      securities that have rights, preferences, or privileges that are senior to
      our
      common stock. Any such debt financing may be convertible into common stock
      which
      would result in dilution to our stockholders and would have rights that are
      senior to our common stock. Further, any debt financing must be repaid
      regardless of whether or not we generate profits or cash flows from our business
      activities, which could strain our capital resources.





**Should
      the value of our patents be less than their purchase price, we could incur
      significant impairment charges.**





At
      March
      31, 2006, patents received in the acquisition of Surgicount Medical, Inc.,
      net
      of accumulated amortization, represented $4,332,556, or 27.2%, of our total
      assets. We
      perform an annual review in the fourth quarter of each year, or more frequently
      if indicators of potential impairment exist to determine if the recorded amount
      of our patents is impaired. This determination requires significant judgment
      and
      changes in our estimates
      and assumptions could materially affect the determination of fair value and/or
      impairment of patents. We may incur charges for the impairment of our patents
      in
      the future if sales of our patient safety products, in particular our
      Safety-SpongeTM System, fail to achieve our assumed revenue growth rates or
      assumed operating margin results.





**We
      may not be able to effectively integrate our acquisition targets, which would
      be
      detrimental to our business.**





On
      February 25, 2005, we purchased Surgicount Medical, Inc., a holding company
      for
      intellectual property rights relating to our Safety-SpongeTM System. We
      anticipate seeking other acquisitions in furtherance of our plan to acquire
      assets and businesses in the patient safety medical products industry.
      Acquisitions involve numerous risks, including potential difficulty in
      integrating operations, technologies, systems, and products and services of
      acquired companies, diversion of management’s attention and disruption of
      operations, increased expenses and working capital requirements and the
      potential loss of key employees and customers of acquired companies. In
      addition, acquisitions involve financial risks, such as the potential
      liabilities of the acquired businesses, the dilutive effect of the issuance
      of
      additional equity securities, the incurrence of additional debt, the financial
      impact of transaction expenses and the amortization of goodwill and other
      intangible assets involved in any transactions that are accounted for by using
      the purchase method of accounting, and possible adverse tax and accounting
      effects. Any of the foregoing could materially and adversely affect our
      business.





**Failure
      to properly manage our potential growth would be detrimental to our
      business.**





Any
      growth in our operations will place a significant strain on our resources and
      increase demands on our management and on our operational and administrative
      systems, controls and other resources. There can be no assurance that our
      existing personnel, systems, procedures or controls will be adequate to support
      our operations in the future or that we will be able to successfully implement
      appropriate measures consistent with our growth strategy. As part of this
      growth, we may have to implement new operational and financial systems,
      procedures and controls to expand, train and manage our employee base and
      maintain close coordination among our technical, accounting, finance, marketing,
      sales and editorial staffs. We cannot guarantee that we will be able to do
      so,
      or that if we are able to do so, we will be able to effectively integrate them
      into our existing staff and systems. We may fail to adequately manage our
      anticipated future growth. We will also need to continue to attract, retain
      and
      integrate personnel in all aspects of our operations. Failure to manage our
      growth effectively could hurt our business.





37


**If
      the protection of our intellectual property rights is inadequate, our ability
      to
      compete successfully could be impaired.**





In
      connection with our purchase of Surgicount Medical, Inc., we acquired one
      registered U.S. patent and one registered international patent of the Safety-SpongeTM
      System. We regard our patents, copyrights, trademarks, trade secrets and similar
      intellectual property as critical to our business. We rely on a combination
      of
      patent, trademark and copyright law and trade secret protection to protect
      our
      proprietary rights. Nevertheless, the steps we take to protect our proprietary
      rights may be inadequate. Detection and elimination of unauthorized use of
      our
      products is difficult. We may not have the means, financial or otherwise, to
      prosecute infringing uses of our intellectual property by third parties.
      Further, effective patent, trademark, service mark, copyright and trade secret
      protection may not be available in every country in which we will sell our
      products and offer our services. If we are unable to protect or preserve the
      value of our patents, trademarks, copyrights, trade secrets or other proprietary
      rights for any reason, our business, operating results and financial condition
      could be harmed.





Litigation
      may be necessary in the future to enforce our intellectual property rights,
      to
      protect our trade secrets, to determine the validity and scope of the
      proprietary rights of others, or to defend against claims that our products
      infringe upon the proprietary rights of others or that proprietary rights that
      we claim are invalid. Litigation could result in substantial costs and diversion
      of resources and could harm our business, operating results and financial
      condition regardless of the outcome of the litigation.





Other
      parties may assert infringement or unfair competition claims against us. We
      cannot predict whether third parties will assert claims of infringement against
      us, or whether any future claims will prevent us from operating our business
      as
      planned. If we are forced to defend against third-party infringement claims,
      whether they are with or without merit or are determined in our favor, we could
      face expensive and time-consuming litigation, which could distract technical
      and
      management personnel. If an infringement claim is determined against us, we
      may
      be required to pay monetary damages or ongoing royalties. Further, as a result
      of infringement claims, we may be required, or deem it advisable, to develop
      non-infringing intellectual property or enter into costly royalty or licensing
      agreements. Such royalty or licensing agreements, if required, may be
      unavailable on terms that are acceptable to us, or at all. If a third party
      successfully asserts an infringement claim against us and we are required to
      pay
      monetary damages or royalties or we are unable to develop suitable
      non-infringing alternatives or license the infringed or similar intellectual
      property on reasonable terms on a timely basis, it could significantly harm
      our
      business.





**There
      are significant potential conflicts of interest with our officers, directors
      and
      our affiliated entities which could adversely affect our results from
      operations.**





Certain
      of our officers, directors and/or their family members have existing
      responsibilities and, in the future, may have additional responsibilities,
      to
      act and/or provide services as executive officers, directors, owners and/or
      managers of Ault Glazer Bodnar & Company Investment Management LLC and/or
      some of the companies in which we invest. We currently share office space with
      Ault Glazer Bodnar & Company Investment Management LLC. William B. Horne,
      our Chief Financial Officer, and Melanie Glazer, Manager of our subsidiary
      Ault
      Glazer Bodnar Capital Properties, LLC, are principals of Ault Glazer Bodnar
      & Company Investment Management LLC. Mr. Horne devotes approximately 85% of
      his time to our business, based on a 60-hour, 6-day workweek. Mrs. Glazer works
      full time for Ault Glazer Bodnar Capital Properties, LLC. Mrs. Glazer is married
      to Louis Glazer, M.D., Ph.G., our current Chairman and Chief Executive Officer
      and Chief Health and Science Officer of Patient Safety Consulting Group, LLC.
      Our former Chairman and Chief Executive Officer, Milton “Todd” Ault, III, also
      is a principal of Ault Glazer Bodnar & Company Investment Management LLC.
      Accordingly, certain conflicts of interest may arise from time to time with
      our
      officers, directors and Ault Glazer Bodnar & Company Investment Management
      LLC.





38


Certain
      conflicts of interest may also arise from time to time with our officers,
      directors and the companies in which we invest. Of our $75,760 of revenue during
      the three months ended March 31, 2006, $54,993 was generated from a contract
      to
      provide management consulting services to our portfolio company IPEX, Inc.
      Mr.
      Ault is currently a director of IPEX, Inc. and he served as interim Chief
      Executive Officer of IPEX, Inc. from May 26, 2005 until July 13, 2005. From
      May
      28, 2005 until approximately December 14, 2005 Mr. Ault held an irrevocable
      proxy to vote 67% of the outstanding shares of IPEX, Inc. owned by the former
      Chief Executive Officer and a founder of IPEX, Inc. Darrell W. Grimsley, Jr.,
      Chief Executive Officer of Automotive Services Group, LLC, a subsidiary which
      is
      wholly owned by Ault Glazer Bodnar Merchant Capital, Inc., served as a director
      of IPEX, Inc. and a member of its Audit Committee from August 30, 2005 until
      January 30, 2006. Ms. Campbell served as a director of IPEX, Inc. and Chairman
      of its Audit Committee from June 23, 2005 until January 30, 2006. Mr. Horne
      is
      currently Chief Financial Officer and a director of our portfolio company
      Digicorp. From September 30, 2005 until December 29, 2005, Mr. Horne also served
      as Digicorp’s Chief Executive Officer and Chairman of Digicorp’s Board of
      Directors. One of our directors and Audit Committee Chairman, Alice Campbell,
      is
      currently a director of Digicorp. Mr. Ault served as Chief Executive Officer
      of
      Digicorp from April 26, 2005 until September 30, 2005 and Chairman of Digicorp’s
      Board of Directors from July 16, 2005 until September 30, 2005. Ms. Glazer
      served as a director of Digicorp from December 30, 2004 until December 29,
      2005
      and Chairman of Digicorp’s Board of Directors from December 30, 2004 until July
      16, 2005. Ms. Silverstein served as Secretary of Digicorp from April 26, 2005
      until December 29, 2005. Mr. Grimsley served as a director of Digicorp from
      July
      16, 2005 until December 29, 2005.





Because
      of these possible conflicts of interest, such individuals may direct potential
      business and investment opportunities to other entities rather than to us,
      which
      may not be in the best interest of our stockholders. We will attempt to resolve
      any such conflicts of interest in our favor. Our Board of Directors does not
      believe that we have experienced any losses due to any conflicts of interest
      with the business of Ault Glazer Bodnar & Company Investment Management LLC,
      other than certain of our officers’ responsibility to devote their time to
      provide management and administrative services to Ault Glazer Bodnar &
Company Investment Management LLC. and its clients from time-to-time. Similarly,
      our Board of Directors does not believe that we have experienced any losses
      due
      to any conflicts of interest with the companies in which we hold investments
      other than certain of our officers’ and directors’ responsibility to devote
      their time to provide management services to some of such companies. However,
      subject to applicable law, we may engage in transactions with Ault Glazer Bodnar
      & Company Investment Management LLC. and other related parties in the
      future. These related party transactions may raise conflicts of interest and,
      although we do not have a formal policy to address such conflicts of interest,
      our Audit Committee intends to evaluate relationships and transactions involving
      conflicts of interest on a case-by-case basis and the approval of our Audit
      Committee is required for all such transactions. The Audit Committee intends
      that any related party transactions will be on terms and conditions no less
      favorable to us than terms and conditions reasonably obtainable from third
      parties and in accordance with applicable law.





**Our
      management has limited experience in managing and operating a public company.
      Any failure to comply or adequately comply with federal securities laws, rules
      or regulations could subject us to fines or regulatory actions, which may
      materially adversely affect our business, results of operations and financial
      condition.**





Although
      our present Chairman and Chief Executive Officer, Louis Glazer, M.D., Ph.G.,
      has
      extensive experience in the medical field, he has limited experience managing
      and operating a public company. In addition, prior to the change in control
      that
      occurred in October 2004, other members of our current senior management were
      primarily engaged in operating a private investment management firm. In this
      capacity they developed a general understanding of the administrative and
      regulatory environment in which public companies operate. However, our senior
      management lacks practical experience operating a public company and relies
      in
      many instances on the professional experience and advice of third parties
      including its consultants, attorneys and accountants. Failure to comply or
      adequately comply with any laws, rules, or regulations applicable to our
      business may result in fines or regulatory actions, which may materially
      adversely affect our business, results of operation, or financial condition.





**We
      have experienced turnover in our Chief Executive Officer position in recent
      months and we are presently searching for a new Chief Executive Officer to
      replace Dr. Louis Glazer. If we are not able to retain a new Chief Executive
      Officer with significant professional experience in the patient safety or
      medical markets and pubic market experience, we may have difficulty implementing
      our business strategy.**





39


Milton
      “Todd” Ault, III resigned as our Chairman and Chief Executive Officer on January
      9, 2006. On January 7, 2006, our Board of Directors appointed Louis Glazer,
      M.D., Ph.G. as Chairman and Chief Executive Officer in anticipation of Mr.
      Ault’s resignation. During March 2005, Dr. Glazer has indicated his intent to
      resign as Chairman and Chief Executive Officer at such time that we retain
      a
      suitable candidate for the position of Chief Executive Officer. Our future
      success is dependent on our ability to attract and retain such a candidate.
      Although we do not believe we have experienced any losses or negative effects
      from Mr. Ault’s resignation and we do not expect any adverse consequences from
      the resignation of Dr. Glazer, if we are not able to retain a new Chief
      Executive Officer with significant professional experience in the patient safety
      or medical markets and public market experience, we may have difficulty
      implementing our business strategy.





**Our
      former Chief Executive Officer controls a significant portion of our outstanding
      common stock and his ownership interest may conflict with our other stockholders
      who may be unable to influence management and exercise control over our
      business.**





As
      of May
      1, 2006, Milton “Todd” Ault, III, our former Chief Executive Officer and
      Chairman, beneficially owned approximately 26.8% of our common stock. As a
      result, Mr. Ault may be able to exert significant influence over our management
      and policies to:





·
            elect
                or defeat the election of our directors;


·
            amend
                or prevent amendment of our certificate of incorporation or bylaws;


·
            effect
                or prevent a merger, sale of assets or other corporate transaction;
                and


·
            control
                the outcome of any other matter submitted to the shareholders for
                vote.





Accordingly,
      our other stockholders may be unable to influence management and exercise
      control over our business.





**RISKS
      RELATED TO OUR MEDICAL PRODUCTS AND HEALTHCARE-RELATED
      BUSINESS**





**We
      rely on a third party manufacturer and supplier to manufacture our
      Safety-SpongeTM System, the loss of which may interrupt our
      operations.**





On
      August
      17, 2005, Surgicount entered into an agreement for A Plus International Inc.
      to
      be the exclusive manufacturer and provider of Surgicount’s Safety-SpongeTM
products. In the event A Plus International Inc. does not meet the requirements
      of the agreement, Surgicount may seek additional providers of the Safety-SpongeTM
products. While our relationship with A Plus International Inc. is currently
      on
      good terms, we cannot assure you that we will be able to maintain our
      relationship with A Plus International Inc. or secure additional suppliers
      and
      manufacturers on favorable terms as needed. Although we believe the materials
      used in the manufacture of the Safety-SpongeTM System are readily available and
      can be purchased and/or produced by multiple vendors, the loss of our agreement
      with A Plus International Inc., the deterioration of our relationship with
      A
      Plus International Inc., changes in the specifications of components used in
      our
      products, or our failure to establish good relationships with major new
      suppliers or manufacturers as needed, could have a material adverse effect
      on
      our business, financial condition and results of operations.





**The
      unpredictable product cycles of the medical device and healthcare-related
      industries and uncertain demand for products could cause our revenues to
      fluctuate.**





Our
      target customer base includes hospitals, physicians, nurses and clinics. The
      medical device and healthcare-related industries are subject to rapid
      technological changes, short product life cycles, frequent new product
      introductions and evolving industry standards, as well as economic cycles.
      If
      the market for our products does not grow as rapidly as our management expects,
      our revenues could be less than expected. We also face the risk that changes
      in
      the medical device industry, for example, cost-cutting measures, changes to
      manufacturing




40




techniques
      or production standards, could cause our manufacturing, design and engineering
      capabilities to lose widespread market acceptance. If our products do not gain
      market acceptance or suffer because of competing products, unfavorable
      regulatory actions, alternative treatment methods or cures, product recalls
      or
      liability claims, they will no longer have the need for our products and we
      may
      experience a decline in revenues. Adverse economic conditions affecting the
      medical device and healthcare-related industries, in general, or the market
      for
      our products in particular, could result in diminished sales, reduced profit
      margins and a disruption in our business.





**We
      are subject to changes in the regulatory and economic environment in the
      healthcare industry, which could adversely affect our
      business.**





The
      healthcare industry in the United States continues to experience change. In
      recent years, the United States Congress and state legislatures have introduced
      and debated various healthcare reform proposals. Federal, state and local
      government representatives will, in all likelihood, continue to review and
      assess alternative healthcare delivery systems and payment methodologies, and
      ongoing public debate of these issues is expected. Cost containment initiatives,
      market pressures and proposed changes in applicable laws and regulations may
      have a dramatic effect on pricing or potential demand for medical devices,
      the
      relative costs associated with doing business and the amount of reimbursement
      by
      both government and third-party payors to persons providing medical services.
      In
      particular, the healthcare industry is experiencing market-driven reforms from
      forces within the industry that are exerting pressure on healthcare companies
      to
      reduce healthcare costs. Managed care and other healthcare provider
      organizations have grown substantially in terms of the percentage of the
      population in the United States that receives medical benefits through such
      organizations and in terms of the influence and control that they are able
      to
      exert over an increasingly large portion of the healthcare industry. Managed
      care organizations are continuing to consolidate and grow, increasing the
      ability of these organizations to influence the practices and pricing involved
      in the purchase of medical devices, including our products, which is expected
      to
      exert downward pressure on product margins. Both short-and long-term cost
      containment pressures, as well as the possibility of continued regulatory
      reform, may have an adverse impact on our business, financial condition and
      operating results.




**We
      are subject to government regulation in the United States and abroad, which
      can
      be time consuming and costly to our business.**





Our
      products and operations are subject to extensive regulation by numerous
      governmental authorities, including, but not limited to, the FDA and state
      and
      foreign governmental authorities. In particular, we must obtain specific
      clearance or approval from the FDA before we can market new products or certain
      modified products in the United States. The FDA administers the Food, Drug
      and
      Cosmetics Act (the ***“FDC
      Act”*** ).
      Under
      the FDC Act, most medical devices must receive FDA clearance through the
      Section 510(k) notification process ( ***“510(k)”*** )
      or the
      more lengthy premarket approval ( ***“PMA”*** )
      process
      before they can be sold in the United States. All of our products, currently
      consisting only of the Safety-SpongeTM System, must receive 510(k) clearance or
      PMA approval. The Safety-SpongeTM System has already received 501(k) exempt
      status from the FDA. To obtain 510(k) marketing clearance, a company must show
      that a new product is “substantially equivalent” in terms of safety and
      effectiveness to a product already legally marketed and which does not require
      a
      PMA. Therefore, it is not always necessary to prove the actual safety and
      effectiveness of the new product in order to obtain 510(k) clearance for such
      product. To obtain a PMA, we must submit extensive data, including clinical
      trial data, to prove the safety, effectiveness and clinical utility of our
      products. The process of obtaining such clearances or approvals can be
      time-consuming and expensive, and there can be no assurance that all clearances
      or approvals sought by us will be granted or that FDA review will not involve
      delays adversely affecting the marketing and sale of our products. FDA’s quality
      system regulations also require companies to adhere to certain good
      manufacturing practices requirements, which include testing, quality control,
      storage, and documentation procedures. Compliance with applicable regulatory
      requirements is monitored through periodic site inspections by the FDA. In
      addition, we are required to comply with FDA requirements for labeling and
      promotion. The Federal Trade Commission also regulates most device advertising.





In
      addition, international regulatory bodies often establish varying regulations
      governing product testing and licensing standards, manufacturing compliance,
      such as compliance with ISO 9001 standards, packaging requirements, labeling
      requirements, import restrictions, tariff regulations, duties and tax
      requirements and pricing and reimbursement levels. Our inability or failure
      to
      comply with the varying regulations or the imposition of new regulations could
      restrict our ability to sell our products internationally and thereby adversely
      affect our business, financial condition and operating results.





41


Failure
      to comply with applicable federal, state or foreign laws or regulations could
      subject us to enforcement actions, including, but not limited to, product
      seizures, injunctions, recalls, possible withdrawal of product clearances,
      civil
      penalties and criminal prosecutions, any one or more of which could have a
      material adverse effect on our business, financial condition and operating
      results. Federal, state and foreign laws and regulations regarding the
      manufacture and sale of medical devices are subject to future changes, as are
      administrative interpretations of regulatory requirements. Any such changes
      may
      have a material adverse effect on our business, financial condition and
      operating results.





**We
      are subject to intense competition in the medical products and health-care
      related markets, which could harm our business.**





The
      medical products and healthcare solutions industry is highly competitive. We
      compete against other medical products and healthcare solutions companies,
      some
      of which are much larger and have significantly greater financial resources,
      management resources, research and development staffs, sales and marketing
      organizations and experience in the medical products and healthcare solutions
      industries than us. In addition, these companies compete with us to acquire
      technologies from universities and research laboratories. We also compete
      against large companies that seek to license medical products and healthcare
      solutions technologies for themselves. We cannot assure you that we will be
      able
      to successfully compete against these competitors in the acquisition,
      development, or commercialization of any medical products and healthcare
      solutions, funding of medical products and healthcare solutions companies or
      marketing of our products and solutions. If we cannot compete effectively
      against our competitors, our business, financial condition and results of
      operations may be materially adversely affected.





**We
      may be subject to product liability claims and if our insurance is not
      sufficient to cover product liability claims our business and financial
      condition will be materially adversely affected.**





The
      nature of our business exposes us to potential product liability risks, which
      are inherent in the distribution of medical equipment and healthcare products.
      We may not be able to avoid product liability exposure, since third parties
      develop and manufacture our equipment and products. If a product liability
      claim
      is successfully brought against us or any third party manufacturer then we
      would
      experience adverse consequences to our reputation, we might be required to
      pay
      damages, our insurance, legal and other expenses would increase, we might lose
      customers and/or suppliers and there may be other adverse results.





Through
      our subsidiary Surgicount Medical, Inc. we have general liability insurance
      to
      cover claims up to $1,000,000. This insurance covers the clinical trial/time
      study relating to the bar coding of surgical sponges only. In addition, A Plus
      International, Inc., the manufacturer of our surgical sponges, maintains general
      liability insurance for claims up to $4,000,000 that covers product liability
      claims against Surgicount Medical, Inc. There can be no assurance that one
      or
      more liability claims will not exceed the coverage limits of any of such
      policies. If we or our manufacturer are subjected to product liability claims,
      the result of such claims could harm our reputation and lead to less acceptance
      of our products in the healthcare products market. In addition, if our insurance
      or our manufacturer’s insurance is not sufficient to cover product liability
      claims, our business and financial condition will be materially adversely
      affected.





**RISKS
      RELATED TO OUR INVESTMENTS**





**We
      may experience fluctuations in our quarterly results due to the success rate
      of
      investments we hold.**





We
      may
      experience fluctuations in our quarterly operating results due to a number
      of
      factors, including the success rate of our current investments, variations
      in
      and the timing of the recognition of realized and unrealized gains or losses,
      and general economic conditions. As a result of these factors, results for
      any
      period should not be relied upon as being indicative of performance in future
      periods.





42


**We
      have invested in non-marketable investment securities which may subject us
      to
      significant impairment charges.**





We
      have
      invested in illiquid equity securities acquired directly from issuers in private
      transactions. At March 31, 2006, 31.3% of our assets on a consolidated basis
      with subsidiaries was comprised of investment securities, the majority of which
      are illiquid investments. Investments in illiquid, or non-marketable, securities
      are inherently risky and a number of the companies we invest in are expected
      to
      fail. We review all of our investments quarterly for indicators of impairment;
      however, for non-marketable equity securities, the impairment analysis requires
      significant judgment to identify events or circumstances that would likely
      have
      a material adverse effect on the fair value of the investment. The indicators
      we
      use to identify those events or circumstances include as relevant, the nature
      and value of any collateral, the portfolio company’s ability to make payments
      and its earnings, the markets in which the portfolio company does business,
      comparison to valuations of publicly traded companies, comparisons to recent
      sales of comparable companies, the discounted cash flows of the portfolio
      company and other relevant factors. Because such valuations are inherently
      uncertain and may be based on estimates, our determinations of fair value may
      differ materially from the values that would be assessed if a ready market
      for
      these securities existed. Investments identified as having an indicator of
      impairment are subject to further analysis to determine if the investment is
      other than temporarily impaired, in which case we write the investment down
      to
      its impaired value. When a company in which we hold investments is not
      considered viable from a financial or technological point of view, we write
      down
      the entire investment since we consider the estimated fair market value to
      be
      nominal. Although we only recognized a $50,000 impairment charge for the fiscal
      year ended December 31, 2005, since a significant amount of our assets are
      comprised of non-marketable investment securities, any future impairment charges
      from the write down in value of these securities will most likely have a
      material adverse affect on our financial condition. ****








**Economic
      recessions or downturns could impair investments and harm our operating results.**





Many
      of
      the companies in which we have made investments may be susceptible to economic
      slowdowns or recessions. An economic slowdown may affect the ability of a
      company to engage in a liquidity event such as a sale, recapitalization, or
      initial public offering. Our nonperforming assets are likely to increase and
      the
      value of our investments is likely to decrease during these periods. These
      conditions could lead to financial losses in our investments and a decrease
      in
      our revenues, net income, and assets. Our investments also may be affected
      by
      current and future market conditions. Significant changes in the capital markets
      could have an effect on the valuations of private companies and on the potential
      for liquidity events involving such companies. This could affect the amount
      and
      timing of gains or losses realized on our investments.





**Investing
      in private companies involves a high degree of risk** .





Our
      assets include an investment in a private company, a 1.6% equity interest in
      Alacra Corporation. Investments in private businesses involve a high degree
      of
      business and financial risk, which can result in substantial losses and
      accordingly should be considered speculative. Because of the speculative nature
      and the lack of a public market for this investment, there is significantly
      greater risk of loss than is the case with traditional investment securities.
      We
      expect that some of our investments will be a complete loss or will be
      unprofitable and that some will appear to be likely to become successful but
      never realize their potential. During the year ended December 31, 2005, we
      wrote
      off our investment in the private company China Nurse LLC. The amount of the
      loss was $50,000. We have in the past relied, and we continue to rely to a
      large
      extent, upon proceeds from sales of investments rather than investment income
      or
      revenue generated from operating activities to defray a significant portion
      of
      our operating expenses.





**The
      lack of liquidity in our investments may adversely affect our business.**





A
      portion
      of our investments consist of securities acquired directly from the issuer
      in
      private transactions. Some of these investments are subject to restrictions
      on
      resale and/or otherwise are illiquid. While most of these




43


investments
      are in publicly traded companies, the trading volume in such companies’
securities is low which reduces the liquidity of the investment. Additionally,
      many of such securities are not eligible for sale to the public without
      registration under the Securities Act of 1933, which could prevent or delay
      any
      sale by us of such investments or reduce the amount of proceeds that might
      otherwise be realized therefrom. Restricted securities generally sell at a
      price
      lower than similar securities not subject to restrictions on resale. The
      illiquidity of our investments may adversely affect our ability to dispose
      of
      debt and equity securities at times when it may be otherwise advantageous for
      us
      to liquidate such investments. In addition, if we were forced to immediately
      liquidate some or all of our investments, the proceeds of such liquidation
      may
      be significantly less than the value at which we acquired those
      investments.





**We
      may not realize gains from our equity investments.**





Our
      investments are primarily in equity securities of other companies. These equity
      interests may not appreciate in value and, in fact, may decline in value.
      Accordingly, we may not be able to realize gains from our equity interests,
      and
      any gains that we do realize on the disposition of any equity interests may
      not
      be sufficient to offset any other losses we experience.





**There
      is uncertainty regarding the value of our investments that are not publicly
      trades securities, which could adversely affect the determination of our asset
      value.**





The
      fair
      value of investments that are not publicly traded securities is not readily
      determinable. Therefore, we value these securities at fair value as determined
      in good faith by our Board of Directors. The types of factors that our Board
      of
      Directors takes into account include, as relevant, the nature and value of
      any
      collateral, the portfolio company’s ability to make payments and its earnings,
      the markets in which the portfolio company does business, comparison to
      valuations of publicly traded companies, comparisons to recent sales of
      comparable companies, the discounted value of the cash flows of the portfolio
      company and other relevant factors. Because such valuations are inherently
      uncertain and may be based on estimates, our determinations of fair value may
      differ materially from the values that would be assessed if a ready market
      for
      these securities existed.





**We
      borrow money, which magnifies the potential for gain or loss on amounts invested
      and may increase the risk of investing in us.**





Borrowings,
      also known as leverage, magnify the potential for gain or loss on amounts
      invested and, therefore, increase the risks associated with investing in our
      securities. We may borrow from and issue senior debt securities to banks,
      insurance companies, and other lenders. Lenders of these senior securities
      have
      fixed dollar claims on our consolidated assets that are superior to the claims
      of our common shareholders. If the value of our consolidated assets increases,
      then leveraging would cause the value of our consolidated assets to increase
      more sharply than it would have had we not leveraged. Conversely, if the value
      of our consolidated assets decreases, leveraging would cause the value of our
      consolidated net assets to decline more sharply than it otherwise would have
      had
      we not leveraged. Similarly, any increase in our consolidated income in excess
      of consolidated interest payable on the borrowed funds would cause our net
      income to increase more than it would without the leverage, while any decrease
      in our consolidated income would cause net income to decline more sharply than
      it would have had we not borrowed.





**RISKS
      RELATED TO OUR REAL ESTATE HOLDINGS**





**The
      value of real estate fluctuates depending on conditions in the general economy
      and the real estate business. These conditions may limit revenues from our
      real
      estate properties and available cash.**





The
      value
      of our real estate holdings is affected by many factors including, but not
      limited to: national, regional and local economic conditions; consequences
      of
      any armed conflict involving or terrorist attacks against the United States;
      our
      ability to secure adequate insurance; local conditions such as an oversupply
      of
      space or a reduction in demand for real estate in a particular area; competition
      from other available space; whether tenants consider a property attractive;
      the
      financial condition of tenants, including the extent of tenant bankruptcies
      or




44


defaults;
      whether we are able to pass some or all of any increased operating costs through
      to tenants; how well we manage our properties; fluctuations in interest rates;
      changes in real estate taxes and other expenses; changes in market rental rates;
      the timing and costs associated with property improvements and rentals; changes
      in taxation or zoning laws; government regulation; potential liability under
      environmental or other laws or regulations; and general competitive factors.
      The
      rents we expect to receive and the occupancy levels at our properties may not
      materialize as a result of adverse changes in any of these factors. If our
      rental revenue fails to materialize, we generally would expect to have less
      cash
      available to pay our operating costs. In addition, some expenses, including
      mortgage payments, real estate taxes and maintenance costs, generally do not
      decline when the related rents decline.





**Our
      current real estate holdings are concentrated in Heber Springs, Arkansas and
      Springfield, Tennessee. Adverse circumstances affecting these areas generally
      could adversely affect our business.**




A
      significant proportion of our real estate investments are in Heber Springs,
      Arkansas and Springfield, Tennessee and are affected by the economic cycles
      and
      risks inherent to those regions. Like other real estate markets, the real estate
      markets in these areas have experienced economic downturns in the past, and
      we
      cannot predict how the current economic conditions will impact these markets
      in
      both the short and long term. Further declines in the economy or a decline
      in
      the real estate markets in these areas could hurt our financial performance
      and
      the value of our properties. The factors affecting economic conditions in these
      regions include: business layoffs or downsizing; industry slowdowns; relocations
      of businesses; changing demographics; and any oversupply of or reduced demand
      for real estate.





**RISKS
      RELATED TO OUR CAR WASH BUSINESS**





**If
      a competing car wash facility is opened within the service area of one of our
      express car wash sites our car wash business may lose
      revenue.**





Our
      indirect wholly owned subsidiary Automotive Services Group, LLC ( ***“ASG”*** )
      is in
      the business of operating express car wash facilities. ASG’s first express car
      wash site, developed in Birmingham, Alabama, had its grand opening on March
      8,
      2006. ASG chooses locations for its express car wash sites based on the
      locations’ high visibility and proximity to high automobile traffic. Competitors
      may develop facilities offering similar services within the service area of
      ASG’s express car wash facilities, which could cause ASG’s car wash facilities
      to lose revenue. ASG will attempt to mitigate this risk during site due
      diligence, conducting discussions with local permitting and zoning personnel
      to
      determine if competing facilities have been planned or requested within the
      relevant service area. However, such due diligence, no matter how extensive,
      may
      not always reveal any planned competing businesses in a particular service
      area.
      In addition, a competing car wash site may be developed after ASG begins
      operating a car wash in a particular service area. If competing facilities
      are
      developed in the same service area as one or more of ASG’s express car wash
      sites, it could cause ASG to lose a significant amount of revenue and may
      require ASG to close one or more express car wash sites.





**Adverse
      weather conditions may cause ASG’s express car was sites to lose revenue.**





Automobile
      owners generally do not wash their vehicles during extreme weather conditions.
      During rainy periods automobile owners do not generally wash their vehicles
      because rain and mud causes the vehicles to quickly become dirty again. During
      periods of severe drought automobile owners may not desire to wash their
      vehicles because they do not want to endure extreme outdoor temperatures.
      Further during severe drought conditions local governments tend to impose
      restrictions on when and in what amounts residents can use water. Any such
      adverse weather conditions may cause unpredictable business cycles for ASG
      and
      may cause ASG’s express car wash sites to lose a significant amount of revenue.





**RISKS
      RELATED TO OUR COMMON STOCK**





**Our
      historic stock price has been volatile and the future market price for our
      common stock may continue to be volatile. Further, the limited market for our
      shares will make our price more volatile. This may make it difficult for you
      to
      sell our common stock for a positive return on your investment.**





45


The
      public market for our common stock has historically been very volatile. Over
      the
      past two fiscal years and the subsequent interim quarterly periods, the market
      price for our common stock has ranged from $0.30 to $7.33 (as adjusted to
      reflect a
      3:1
      forward stock split effective April 5, 2005 ).
      Any
      future market price for our shares may continue to be very volatile. This price
      volatility may make it more difficult for you to sell shares when you want
      at
      prices you find attractive. We do not know of any one particular factor that
      has
      caused volatility in our stock price. However, the stock market in general
      has
      experienced extreme price and volume fluctuations that often are unrelated
      or
      disproportionate to the operating performance of companies. Broad market factors
      and the investing public’s negative perception of our business may reduce our
      stock price, regardless of our operating performance. Further, the market for
      our common stock is limited and we cannot assure you that a larger market will
      ever be developed or maintained. Our common stock is currently listed on the
      American Stock Exchange ( ***“AMEX”*** ).
      As of
      May 5, 2006, the average daily trading volume of our common stock over the
      past
      three months was approximately 8,700 shares. The last reported sales price
      for
      our common stock on May 5, 2006, was $3.18 per share. Market fluctuations and
      volatility, as well as general economic, market and political conditions, could
      reduce our market price. As a result, this may make it difficult or impossible
      for you to sell our common stock.





**If
      we fail to meet continued listing standards of AMEX, our common stock may be
      delisted which would have a material adverse effect on the price of our common
      stock.**





Our
      common stock is currently traded on the American Stock Exchange (“AMEX”) under
      the symbol “PST”. In order for our securities to be eligible for continued
      listing on AMEX, we must remain in compliance with certain listing standards.
      On
      June 24, 2004, we received a letter from AMEX inquiring as to our ability to
      remain listed. Specifically, AMEX indicated that our common stock was subject
      to
      delisting under sections 1003(a)(i) and 1003(a)(ii) of AMEX’s Company Guide
      because our stockholders’ equity was below the level required by AMEX’s
      continued listing standards. Our stockholders’ equity fell below the required
      standard due to years of continued losses. On September 15, 2004, AMEX notified
      us that it had accepted our proposed plan to comply with AMEX’s continued
      listing standards. Significant events which increased our stockholders’ equity
      in excess
      of
      AMEX’s continued listing standards were the completion of an approximately $4
      million equity financing combined with the acquisition of Surgicount Medical,
      Inc. which was done primarily through the issuance of common stock. AMEX will
      normally consider suspending dealings in, or removing from the listing of,
      securities of a company under Section 1003(a)(i) for a company that has
      stockholders' equity of less than $2,000,000 if such company has sustained
      losses from continuing operations and/or net losses in two of its three most
      recent fiscal years; or under Section 1003(a)(ii) for a company that has
      stockholders' equity of less than $4,000,000 if such company has sustained
      losses from continuing operations and/or net losses in three of its four most
      recent fiscal years. As of June 30, 2005, our second consecutive quarter in
      which our stockholders’ equity was in excess of $4,000,000, we believe we have
      re-gained compliance with AMEX’s continued listing requirements. As of March 31,
      2006, our stockholders’ equity was still in excess of that required
      under Section 1003(a)(ii) of AMEX’s Company Guide. During April 2006 AMEX
      notified us that we have been removed from AMEX’s continued listing standards
      deficiency list based on financial results reported in our Form 10-K for the
      year ended December 31, 2005. If we were to again become noncompliant with
      AMEX’s continued listing requirements, our common stock may be delisted which
      would have a material adverse affect on the price and liquidity of our common
      stock.





**If
      we are delisted from AMEX, our common stock may be subject to the “penny stock”
rules of the SEC, which would make transactions in our common stock cumbersome
      and may reduce the value of an investment in our stock.**





The
      SEC
      has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for
      the purposes relevant to us, as any equity security that has a market price
      of
      less than $5.00 per share or with an exercise price of less than $5.00 per
      share, subject to certain exceptions. For any transaction involving a penny
      stock, unless exempt, Rule 15g-9 require:





·
            that
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and


·
            the
                broker or dealer receive from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.





46


In
      order
      to approve a person’s account for transactions in penny stocks, the broker or
      dealer must:





·
            obtain
                financial information and investment experience objectives of the
                person;
                and


·
            make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.





The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:





·
            sets
                forth the basis on which the broker or dealer made the suitability
                determination; and


·
            that
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.





Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
“penny stock” rules. This may make it more difficult for investors to dispose of
      our common stock and cause a decline in the market value of our
      stock.





Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.





**Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds.**





On
      March
      15, 2006 the Company, Automotive Services Group, Inc. (formerly Ault Glazer
      Bodnar Merchant Capital, Inc.), a wholly owned subsidiary of the Company
      ( ***“Automotive
      Services Group”*** ),
      Automotive Services Group, LLC ( ***“ASG”*** )
      and
      Darell W. Grimsley, Jr. entered into a Unit Purchase Agreement (the ***“Agreement”*** )
      for AGB
      Merchant Capital to purchase a 50% equity interest (the ***“Membership
      Interest”*** )
      in ASG
      from Mr. Grimsley. As consideration for the Membership Interest the Company
      issued Mr. Grimsley 200,000 shares of the Company’s common stock. Mr. Grimsley
      will continue to act as Chairman and Chief Executive Officer of Automotive
      Services Group. The issuance of the above shares to Mr. Grimsley was exempt
      from
      registration requirements pursuant to Section 4(2) of the Securities Act of
      1933, as amended, and Rule 506 promulgated thereunder. No advertising or general
      solicitation was employed in offering the securities and Mr. Grimsley
      represented that he is an accredited investor and that he is able to bear the
      economic risk of his investment.





**Item
      3.   Defaults Upon Senior Securities.**





None.





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





None.





**Item
      5.   Other Information.**





None.








47








**Item
      6. Exhibits.**





**Exhibit
                Number**
            
            **Description**2.3
            
            Unit
                Purchase Agreement dated March 14, 2006 by and between Automotive
                Services
                Group, LLC, Darell W. Grimsley, Ault Glazer Bodnar Merchant Capital,
                Inc.
                and Patient Safety Technologies, Inc. (Incorporated by reference
                to the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on March 17, 2006)4.1
            
            Certificate
                of Designation of Series A Convertible Preferred Stock (Included
                in
                Amended and Restated Certificate of Incorporation (Exhibit 3.1
                hereto))4.2
            
            $1,000,000
                principal amount Promissory Note dated August 28, 2001 issued to
                Winstar
                Radio Networks, LLC, Winstar Global Media, Inc. or Winstar Radio
                Productions, LLC (Incorporated by reference to the Company’s annual report
                on Form 10-K for the fiscal year ended December 31, 2005, filed with
                the
                Securities and Exchange Commission on April 17, 2006)4.3
            
            $1,000,000
                principal amount Promissory Note dated April 7, 2005 issued to Bodnar
                Capital Management, LLC (Incorporated by reference to the Company’s
                current report on Form 8-K filed with the Securities and Exchange
                Commission on April 13, 2005)4.4
            
            Form
                of non-callable Warrant issued to James Colen (Incorporated by reference
                to the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on April 26, 2005)4.5
            
            Form
                of callable Warrant issued to James Colen (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on April 26, 2005)4.6
            
            Real
                Estate Note dated July 27, 2005 in the principal amount of $480,000
                issued
                by Automotive Services Group, LLC to Ault Glazer Bodnar Acquisition
                Fund,
                LLC (Incorporated by reference to the Company’s current report on Form 8-K
                filed with the Securities and Exchange Commission on September 29,
                2005)4.7
            
            Addendum
                I dated August 10, 2005 to Real Estate Note issued by Automotive
                Services
                Group, LLC to Ault Glazer Bodnar Acquisition Fund, LLC (Incorporated
                by
                reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on September 29,
                2005)4.8
            
            Addendum
                II to Real Estate Note issued by Automotive Services Group, LLC to
                Ault
                Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference to
                the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on September 29, 2005)4.9
            
            Addendum
                III to Real Estate Note issued by Automotive Services Group, LLC
                to Ault
                Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference to
                the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on December 23, 2005)4.10
            
            Addendum
                IV to Real Estate Note issued by Automotive Services Group, LLC to
                Ault
                Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference to
                the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on December 23, 2005)4.11
            
            Addendum
                V to Real Estate Note issued by Automotive Services Group, LLC to
                Ault
                Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference to
                the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on December 23, 2005)4.12
            
            Addendum
                VI dated January 10, 2006 to Real Estate Note issued by Automotive
                Services Group, LLC to Ault Glazer Bodnar Acquisition Fund, LLC
                (Incorporated by reference to the Company’s current report on Form 8-K
                filed with the Securities and Exchange Commission on February 6,
                2006)4.13
            
            Addendum
                VII dated February 1, 2006 to Real Estate Note issued by Automotive
                Services Group, LLC to Ault Glazer Bodnar Acquisition Fund, LLC
                (Incorporated by reference to the Company’s current report on Form 8-K
                filed with the Securities and Exchange Commission on February 6,
                2006)4.14
            
            Promissory
                Note in the principal amount of $130,000 issued January 5, 2006 to
                Glazer
                Family Partnership LP (Incorporated by reference to the Company’s current
                report on Form 8-K filed with the Securities and Exchange Commission on
                January 10, 2006)




48


4.15
            
            Secured
                Promissory Note in the principal amount of $150,000 issued January
                11,
                2006 to Ault Glazer Bodnar Acquisition Fund (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on January 18, 2006)4.16
            
            Promissory
                Note in the principal amount of $1,000,000 issued January 12, 2006
                by
                Automotive Services Group, LLC to Steven J. Caspi (Incorporated by
                reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on January 18, 2006)4.17
            
            Secured
                Promissory Note in the principal amount of $85,000 issued January
                19, 2006
                to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on January 24, 2006)4.18
            
            Secured
                Promissory Note in the principal amount of $25,000 issued January
                26 2006
                to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 1, 2006)4.19
            
            Secured
                Promissory Note in the principal amount of $35,000 issued January
                27, 2006
                to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 1, 2006)4.20
            
            Secured
                Promissory Note in the principal amount of $45,750 issued February
                1, 2006
                to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by reference
                to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 6, 2006)4.21
            
            Secured
                Promissory Note in the principal amount of $65,000 issued February
                2, 2006
                to Ault Glazer Bodnar & Company, Inc. (Incorporated by reference to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 6, 2006)4.22
            
            Promissory
                Note dated February 8, 2006 issued by Automotive Services Group,
                LLC to
                Ault Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference
                to the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 14, 2006)4.21
            
            Secured
                Promissory Note in the principal amount of $65,000 issued February
                2, 2006
                to Ault Glazer Bodnar & Company, Inc. (Incorporated by reference to
                the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 6, 2006)4.22
            
            Promissory
                Note dated February 8, 2006 issued by Automotive Services Group,
                LLC to
                Ault Glazer Bodnar Acquisition Fund, LLC (Incorporated by reference
                to the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on February 14, 2006)4.23
            
            Secured
                Promissory Note in the principal amount of $12,000 issued February
                23,
                2006 to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by
                reference
                to the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on March 1, 2006)4.24
            
            Secured
                Promissory Note in the principal amount of $60,000 issued February
                28,
                2006 to Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by
                reference
                to the Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on March 1, 2006)4.25
            
            Secured
                Promissory Note in the principal amount of $30,000 issued March 6,
                2006 to
                Ault Glazer Bodnar Acquisition Fund LLC (Incorporated by reference
                to the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on March 8, 2006)4.26
            
            Revolving
                Line of Credit Agreement dated and effective as of March 7, 2006
                by and
                between Ault Glazer Bodnar Acquisition Fund LLC and Patient Safety
                Technologies, Inc. (Incorporated by reference to the Company’s current
                report on Form 8-K filed with the Securities and Exchange Commission
                on
                March 8, 2006)10.7
            
            Amended
                Employment Agreement entered into as of January 30, 2006 between
                Automotive Services Group, LLC and D.W. Grimsley, Jr. (Incorporated
                by
                reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on February 1, 2006)10.20
            
            Security
                Agreement by and between Glazer Family Partnership LP and Patient
                Safety
                Technologies, Inc. (Incorporated by reference to the Company’s current
                report on Form 8-K filed with the Securities and Exchange Commission
                on
                January 10, 2006)10.21
            
            Security
                Agreement by and between Ault Glazer Bodnar Acquisition Fund and
                Patient
                Safety Technologies, Inc. (Incorporated by reference to the Company’s
                current report on Form 8-K filed with the Securities and Exchange
                Commission on January 18, 2006)10.22
            
            Real
                Estate Mortgage dated January 12, 2006 in favor of Steven J. Caspi
                (Incorporated by reference to the Company’s current report on Form 8-K
                filed with the Securities and Exchange Commission on January 18,
                2006)




49


10.23
            
            Continuing
                Guaranty dated January 12, 2006 of Patient Safety Technologies in
                connection with the $1,000,000 Promissory Note issued January 12,
                2006 by
                Automotive Services Group, LLC to Steven J. Caspi (Incorporated by
                reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on January 18, 2006)10.24
            
            Security
                Agreement by and between Ault Glazer Bodnar Acquisition Fund LLC
                and
                Patient Safety Technologies, Inc. (Incorporated by reference to the
                Company’s current report on Form 8-K filed with the Securities and
                Exchange Commission on January 24, 2006)10.25
            
            Security
                Agreement dated January 26, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on February 1, 2006)10.26
            
            Security
                Agreement dated January 27, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on February 1, 2006)10.27
            
            Security
                Agreement dated February 1, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on February 6, 2006)10.28
            
            Security
                Agreement dated February 2, 2006 by and between Ault Glazer Bodnar
&
                Company, Inc. and Patient Safety Technologies, Inc. (Incorporated
                by
                reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on February 6, 2006)10.29
            
            Real
                Estate Mortgage executed as of February 8, 2006 by Automotive Services
                Group, LLC in favor of Ault Glazer Bodnar Acquisition Fund, LLC
                (Incorporated by reference to the Company’s current report on Form 8-K
                filed with the Securities and Exchange Commission on February 14,
                2006)10.30
            
            Security
                Agreement dated February 23, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on March 1, 2006)10.31
            
            Security
                Agreement dated February 28, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on March 1, 2006)10.32
            
            Security
                Agreement dated March 6, 2006 by and between Ault Glazer Bodnar
                Acquisition Fund LLC and Patient Safety Technologies, Inc. (Incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                Securities and Exchange Commission on March 8, 2006)10.33
                *
            
            Engagement
                Letter dated February 10, 2006 between Analog Ventures, LLC and Patient
                Safety Technologies, Inc.31.1*
            
            Certification
                of Chief Executive Officer required by Rule 13a-14(a) or Rule
                15d-14(a)31.2*
            
            Certification
                of Chief Financial Officer required by Rule 13a-14(a) or Rule
                15d-14(a)32.1*
            
            Certification
                of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b)
                and Section 1350 of Chapter 63 of Title 18 of the United States
                Code32.2*
            
            Certification
                of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b)
                and Section 1350 of Chapter 63 of Title 18 of the United States
                Code




*
      Filed
      herewith.




50


**SIGNATURES**





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





PATIENT
                SAFETY TECHNOLOGIES, INC.Date:
                May 19, 2006
            By:
                /s/ Louis Glazer,
                M.D.Louis
                Glazer, M.D., Ph.G.Chief
                Executive Officer andChairman
                of the Board











Date:
                May 19, 2006
            By: /s/
                William
                B.
                HorneWilliam
                B. HorneChief
                Financial Officer









51