**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q/A**
 **Amendment
        No. 2**
  x
              
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
  FOR
        THE
        QUARTERLY PERIOD ENDED MARCH 31, 2005
  **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
                  of Incorporation)**
              
              **(I.R.S.
                  Employer Identification Number)****100
                  Wilshire Boulevard, Suite 1500**
                **Santa
                  Monica, California 90401****(Address
                  of principal executive offices)**
  **Registrant’s
        telephone number, including area code:** **(310)
        752-1442**
  **With
        Copies To:**
 Marc
        J.
        Ross, Esq.
 Sichenzia
        Ross Friedman Ference LLP
 1065
        Avenue of the Americas
 New
        York,
        New York 10018
 (212)
        930-9700
 
 Indicate
        by check mark whether the registrant (1) 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 an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act. Yes  ̈ No x
   **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        equity, as of the latest practicable date: On April 22, 2005, there
        were 5,404,783 shares outstanding of the Registrant’s common stock, $0.33
        par value.
 
  
 **PATIENT
        SAFETY TECHNOLOGIES, INC.**
  **FORM
        10-Q FOR THE THREE MONTHS**
 **ENDED
        MARCH 31, 2005**
  **TABLE
        OF CONTENTS**
  **Page****PART
                  I - FINANCIAL INFORMATION**Item
                  1. Condensed Consolidated Financial Statements
              1Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              13Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              31Item
                  4. Controls and Procedures
              31**PART
                  II - OTHER INFORMATION**Item
                  1. Legal Proceedings
              31Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              32Item
                  3. Defaults Upon Senior Securities
              32Item
                  4. Submission of Matters to a Vote of Security Holders
              32Item
                  5. Other Information
              35Item
                  6. Exhibits
              35**SIGNATURES**
              36
 
  
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1.**  **Financial
        Statements.**
 
 **PATIENT
                  SAFETY TECHNOLOGIES, INC. AND
                  SUBSIDIARIES****Condensed
                  Balance Sheets (Unaudited)****March
                  31,**
              
              **December
                  31,****2005**
              
              **2004*****ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              10,741
              
              $
              846,404Marketable
                  securities
              
              
              4,435,433
              
              
              3,487,719Other
                  current assets
              
              
              269,452
              
              
              255,510**TOTAL
                  CURRENT ASSETS**
              
              
              4,715,626
              
              
              4,589,633Property,
                  plant and equipment, net
              
              
              34,818
              
              
              23,657Intangible
                  assets, net
              
              
              4,657,497Long-term
                  investments
              
              
              2,385,959
              
              
              2,320,953**TOTAL
                  ASSETS**
              
              $
              11,793,900
              
              $$
              6,934,243**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Notes
                  payable
              
              $
              839,469
              
              $$
              892,530Accounts
                  payable and accrued liabilities
              
              
              1,137,833
              
              
              939,568Marketable
                  securities, sold short
              
              
              
              
              
              1,075,100Due
                  to broker
              
              
              2,564,749
              
              
              460,776**TOTAL
                  CURRENT LIABILITIES**
              
              
              4,542,051
              
              
              3,367,974**STOCKHOLDERS'
                  EQUITY**Convertible
                  preferred stock, $1 par value, cumulative 7% dividend:1,000,000
                  shares authorized; 10,950 issued and outstanding
                at
                  March 31, 2005 and December 31, 2004
                (Liquidation
                  preference $1,095,000)
              
              
              10,950
              
              
              10,950Common
                      stock, $0.33 par value: 25,000,000 shares authorized;
                    6,826,017
                      shares issued and 5,374,278 shares outstanding as of March
                      31, 2005;
                      6,128,067
                    shares
                        issued and 4,670,703 shares outstanding at December 31,
                        2004
              
              
              2,252,586
              
              
              2,022,262Paid-in
                  capital
              
              
              19,176,731
              
              
              13,950,775Accumulated
                  deficit
              
              
              (11,597,835
              )
              
              (9,800,885
              )9,842,432
              
              
              6,183,102Deduct:
                    1,451,739 and 1,457,364 shares of common stock held in treasury,
                  at
                      cost, at March 31, 2005 and December 31, 2004,
                      respectively
              
              
              (2,590,583
              )
              
              (2,616,833
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              7,251,849
              
              
              3,566,269**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              11,793,900
              
              $$
              6,934,243*
                  Restated to include the impact of share-based compensation
                  expenseThe
                  accompanying notes are an integral part of these condensed financial
                  statements.







-1-


**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND SUBSIDIARIES****Condensed
                  Statements of Operations (Unaudited)****Three
                  Months Ended****March 31,**
              
              **March 31,****2005**
              
              **2004****REVENUES**
              
              $
              —
              
              $
              —**EXPENSES**Salaries
                  and employee benefits
              
              
              1,210,950
              
              
              128,901Professional
                  fees
              
              
              556,971
              
              
              57,000Rent
              
              
              
              
              
              18,075Insurance
              
              
              19,551
              
              
              17,038Taxes
                  other than income taxes
              
              
              22,035
              
              
              12,764Interest
                  expense
              
              
              27,318
              
              
              8,926Amortization
                  of patents
              
              
              27,078General
                  and administrative
              
              
              257,770
              
              
              50,144**Operating
                  expenses**
              
              
              2,121,673
              
              
              292,848**Operating
                  loss**
              
              
              (2,121,673
              )
              
              (292,848
              )Interest,
                  dividend income and other, net
              
              
              28,602
              
              
              165Realized
                  gains (losses) on investments, net
              
              
              (34,728
              )
              
              49,478Unrealized
                  gains (losses) on marketable securities, net
              
              
              343,587
              
              
              102,759**Net
                  loss**
              
              
              (1,784,212
              )
              
              (140,446
              )**Preferred
                  dividends**
              
              
              (12,738
              )
              
              (19,164
              )**Net
                  loss attributable to common shareholders**
              
              $
              (1,796,950
              )
              $
              (159,610
              )**Basic
                  and diluted net loss per common share**
              
              $
              (0.37
              )
              $
              (0.05
              )**Weighted
                  average common shares outstanding**
              
              
              4,910,963
              
              
              3,060,300The
                  accompanying notes are an integral part of these condensed financial
                  statements.






-2-


**PATIENT
                  SAFETY TECHNOLOGIES, INC. AND
                  SUBSIDIARIES****Condensed
                  Statements of Cash Flows (Unaudited)****Three
                  Months Ended****March 31,**
              
              **March 31,****2005**
              
              **2004**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (1,784,212
              )
              $
              (140,446
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              546Amortization
                  of patents
              
              
              27,078Realized
                  (gains) losses on investments, net
              
              
              34,728
              
              
              (49,478
              )Unrealized
                  gain on marketable securities
              
              
              (343,587
              )
              
              (102,759
              )Stock
                  based compensation
              
              
              1,224,101Changes
                  in operating assets and liabilities:Purchases
                  of marketable investment securities, net
              
              
              (1,727,528
              )
              
              5,324Other
                  assets
              
              
              (13,942
              )
              
              5,543Accounts
                  payable and accrued liabilities
              
              
              198,265
              
              
              58,043Due
                  to broker
              
              
              2,103,973Total
                  adjustments
              
              
              1,503,634
              
              
              (83,327
              )Net
                  cash used in operating activities
              
              
              (280,578
              )
              
              (223,773
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (11,707
              )Purchase
                  of SurgiCount
              
              
              (432,398
              )Proceeds
                  from sale of long-term investments
              
              
              
              
              
              117,608Purchases
                  of long-term investments
              
              
              (65,006
              )Net
                  cash (used in) provided by investing activities
              
              
              (509,111
              )
              
              117,608Cash
                  flows from financing activities:Proceeds
                  from exercise of stock options
              
              
              26,250Payments
                  of preferred dividends
              
              
              (19,163
              )
              
              (19,164
              )Decrease
                  in note payable
              
              
              (53,061
              )Net
                  cash used in financing activities
              
              
              (45,974
              )
              
              (19,164
              )Net
                  decrease in cash and cash equivalents
              
              
              (835,663
              )
              
              (125,329
              )Cash
                  and cash equivalents at beginning of period
              
              
              846,404
              
              
              224,225Cash
                  and cash equivalents at end of period
              
              $
              10,741
              
              $
              98,896Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for interest
              
              $
              19,574
              
              $
              76Issuance
                  of common stock and warrants in connection with SurgiCount
                  acquisition
              
              $
              4,232,178
              
              $
              —Dividends
                  accrued
              
              $
              12,738
              
              $
              19,163The
                  accompanying notes are an integral part of these condensed financial
                  statements.





-3-


Patient
      Safety Technologies, Inc., and Subsidiaries


Notes
      to Condensed Consolidated Financial Statements – Unaudited


March
      31, 2005




**1.
        DESCRIPTION OF BUSINESS**
 
 Until
        March 31, 2005, Patient Safety Technologies, Inc. ( ***"PST"*** ,
        or the ***"Company"*** )
        (formerly known as Franklin Capital Corporation) was a Delaware corporation
        that
        elected to be a Business Development Company ( ***“BDC”*** )
        under
        the Investment Company Act of 1940, as amended. On March 30, 2005, stockholder
        approval was obtained to withdraw the Company’s election to be treated as a BDC
        and on March 31, 2005, the Company filed an election to withdraw its election
        with the Securities and Exchange Commission. Through its operating subsidiaries,
        the Company is currently involved in providing capital and managerial assistance
        to early stage companies in the medical products, health care solutions,
        financial services and real estate industries.
 
 Currently,
        the Company has three wholly-owned operating subsidiaries: (1) SurgiCount
        Medical, Inc., a California corporation; (2) Patient Safety Consulting Group,
        LLC, a Delaware Limited Liability Company; and (3) Franklin Capital Properties,
        LLC, a Delaware Limited Liability Company.
 
 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 on the health care and medical products field, particularly
        the
        patient safety markets, as well as the financial services and real estate
        industries. SurgiCount Medical, Inc., a provider of patient safety devices,
        Patient Safety Consulting Group, LLC, a healthcare consulting services company,
        and Franklin Capital Properties, LLC, a real estate development and management
        company, enhance the Company’s ability to focus its efforts in each targeted
        industry.
 
 **2.
        BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**
 
 **Basis
        of Presentation**
 
 The
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with the instructions to Form 10-Q 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 U.S. 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.
  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, 2004. Certain amounts reported
        in the
        previous period have been reclassified to conform to the current presentation
        reflecting the Company’s withdrawal of its election to be treated as a
        BDC.
 
 **Investments**
 
 *Marketable
        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.
 
 *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, net of tax, 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.
 
 *Equity
        Method.* Included
        in long-term investments are investments in companies in which the Company
        has a
        20% to 49% interest. These investments are carried at cost, adjusted for
        the
        Company’s proportionate share of their undistributed earnings or
        losses.
 
 -4-
 Patient
          Safety Technologies, Inc., and Subsidiaries
 Notes
          to Condensed Consolidated Financial Statements (continued)
  **Stock-Based
        Compensation**
 
 Prior
        to
        January 1, 2005, the Company accounted for stock-based compensation
        in
        accordance with Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related interpretations, as permitted by Statement of Financial Accounting
        Standards ( ***“SFAS”*** )
        No. 123, *Accounting
        for Stock-Based Compensation* .
        In
        December 2004, 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 and supercedes APB Opinion
        No. 25.
        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 over the vesting period based on the estimated fair value of the
        awards. This statement is effective for the Company as of the beginning of
        the
        first interim or annual reporting period that begins after January 1, 2006.
        The
        Company elected to adopt SFAS 123(R) as of January 1, 2005 using the modified
        retrospective application method as provided by SFAS 123(R) and accordingly,
        financial statement amounts for the prior periods in which the Company granted
        employee stock options have been restated to reflect the fair value method
        of
        expensing prescribed by SFAS 123(R). During the year ended December 31, 2004,
        the entire amount of equity compensation expense required to be recognized
        under
        the modified retrospective application method was $5,094 relating to stock
        option grants that occurred in the second quarter of 2004. During the three
        months ended March 31, 2005, the Company had stock-based compensation expense
        included in reported net loss of $552,542. All
        options that we granted in 2005 and 2004 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,****2005**
                
                **2004**Weighted
                    average risk free interest rates
                
                
                3.75
                %
                
                3.0
                %Weighted
                    average life (in years)
                
                
                3.0
                
                
                0.1Volatility
                
                
                83
                %
                
                102
                %Expected
                    dividend yield
                
                
                0
                %
                
                0
                %Weighted
                    average grant-date fair value per share of options granted
                
                $
                2.92
 
 **3.
        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 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 convertible preferred stock
        conversion are antidilutive in all periods presented it has been excluded
        from
        the computation of loss per common share.
 
 -5-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements
            (continued)
 **4.
        EQUITY TRANSACTIONS**
 
 On
        March
        30, 2005, stockholders’ approval was obtained to (i) decrease the authorized
        number of shares of Common Stock from 50,000,000 shares to 25,000,000 shares,
        (ii) decrease the authorized number of shares of Preferred Stock from 10,000,000
        shares to 1,000,000 shares and (iii) to reduce the par value of the Common
        Stock
        from $1.00 per share to $0.33 per share and effect a three-for-one split
        of the
        Common Stock.
 
 Stockholders’
        equity has been restated to give retroactive recognition to the stock split
        for
        all periods presented. In addition, all per share and weighted average share
        amounts have been restated to reflect this stock split.
 
 During
        the three months ended March 31, 2005, the Company issued 5,625 shares of
        common
        stock held in treasury upon exercise of options under the Company’s 1997 Stock
        Incentive Plan.
 
 **5.
        ACQUISITION**
 
 In
        February 2005, the Company invested $4,035,600, excluding acquisition costs,
        to
        acquire 100% of the common stock of SurgiCount Medical, Inc. ( ***”SurgiCount”*** ).
        SurgiCount’s operating results from the closing date of the acquisition,
        February 25, 2005, through March 31, 2005, are included in the condensed
        consolidated financial statements.
 
 At
        closing, the purchase price, including acquisition costs was determined to
        be
        $4,684,576, comprised of $340,000 in cash payments and 600,000 shares of
        the
        Company’s common stock valued at $3,695,600 issued to SurgiCount’s equity
        holders. Additionally, the Company incurred approximately $112,398 in direct
        costs and issued 150,000 warrants, valued at $536,578, to purchase the common
        stock of the Company to consultants providing advisory services for the Merger.
        The value assigned to the stock portion of the purchase price is $6.16 per
        share
        based on the average closing price of the Company’s common stock for the five
        days beginning two days prior to and ending two days after February 4, 2005,
        the
        date of the Agreement and Plan of Merger and Reorganization (the “Merger”). In
        addition, in the event that prior to the fifth anniversary of the closing
        of the
        Merger the cumulative gross revenues of SurgiCount exceed $500,000 the Company
        is obligated to issue an additional 50,001 shares of the Company’s common stock
        to certain SurgiCount shareholders. Should the cumulative gross revenues
        exceed
        $1,000,000 during the five-year period the additional shares would be increased
        by 50,001, for a total of 100,002 additional shares. Such amount is not included
        in the aggregate purchase price and will be recorded when and if issued.
  The
        entire purchase price, including acquisition costs, has been allocated to
        SurgiCount’s patents, with an approximate useful life of 14.4 years, on a
        preliminary basis and may change as additional information becomes available.
 
 The
        following pro forma data summarizes the results of operations for the periods
        indicated as if the SurgiCount acquisition had been completed as of the
        beginning of each period presented. The pro forma data gives effect to actual
        operating results prior to the acquisition, adjusted to include the pro forma
        effect of amortization of intangibles. These pro forma amounts do not purport
        to
        be indicative of the results that would have actually been obtained if the
        acquisition occurred as of the beginning of each period presented or that
        may be
        obtained in future periods:
  **Three
                    months ended March 31,****2005**
                
                **2004**Revenue
                
                
                —
                
                
                —Net
                    loss
                
                $
                (1,885,000
                )
                $
                (235,000
                )Basic
                    and diluted net loss per common share
                
                $
                (0.38
                )
                $
                (0.08
                )
 
 
 -6-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements
            (continued)
 **6.
        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**
 
 Accounts
        payable and accrued liabilities at March 31, 2005 and December 31, 2004 are
        comprised of the following:
 
 March
                  31,
              
              December
                  31,2005
              
              2004Professional
                  fees - legal
              
              $
              518,131
              
              $
              351,867Accrued
                  purchase price on investment
              
              
              165,240
              
              
              165,240Officer’s
                  severance
              
              
              83,283
              
              
              160,142Accrued
                  interest
              
              
              120,177
              
              
              112,432Professional
                  fees - other
              
              
              72,500
              
              
              52,950Accrued
                  - other
              
              
              178,502
              
              
              96,937$
              1,137,833
              
              $
              939,568
 
 **7.
        MARKETABLE SECURITIES**
 
 Marketable
        securities at March 31, 2005 and December 31, 2004 are comprised of the
        following:
 
 March
                  31,
              
              December
                  31,2005
              
              2004U.S.
                  Treasuries
              
              $
              2,476,718
              
              $
              2,016,406IPEX,
                  Inc.
              
              
              1,101,000Other
                  Equities
              
              
              857,715
              
              
              1,471,313$
              4,435,433
              
              $
              3,487,719
 
 *IPEX,
        Inc.*
 
 At
        March
        31, 2005, the Company held 575,000 shares of common stock and warrants to
        purchase 220,000 shares of common stock at $1.50 per share and warrants to
        purchase 220,000 shares of common stock at $2.00 per share of IPEX, Inc.
        ( ***“IPEX”*** ),
        formerly Administration for International Credit & Investments, Inc, valued
        at $1,101,000. IPEX's common stock is traded on the OTC Bulletin Board, which
        reported a closing price, at March 31, 2005, of $1.80. The Company valued
        its
        investment in IPEX based upon the March 31, 2005 closing price of $1.80 per
        share. Thus, the 575,000 shares of common stock were valued at $1,035,000
        and
        the 220,000 warrants with an exercise price of $1.50 per share were valued
        at
        $66,000. No value was attributed to the 220,000 warrants with an exercise
        price
        of $2.00 per share. 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.
 
 **8.
        LONG-TERM INVESTMENTS**
 
 Long-term
        investments is primarily comprised of the following:
 
 *Alacra
        Corporation*
 
 At
        March
        31, 2005, the Company had an investment in shares of Series F convertible
        preferred stock of Alacra Corporation, valued at $1,000,000. 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.
 
 -7-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements (continued)
 *DigiCorp.*
 
 At
        March
        31, 2005, the Company held 4,001,027 shares, or 41%, of the common stock
        of
        DigiCorp recorded at its cost of $563,211, or approximately $0.14 per share.
        Digicorp's common stock is traded on the OTC Bulletin Board, which reported
        a
        closing price, at March 31, 2005, of $0.25. The Company accounts for its
        investment in Digicorp under the equity method of accounting. The Company’s
        proportionate share of income or losses from this investment is recorded
        in
        interest, dividend income and other, net.
 
 *Excelsior
        Radio Networks, Inc.*
 
 During
        the period from August 12, 2003 through October 22, 2004, the Company liquidated
        its investment in Excelsior Radio Networks, Inc. ( ***“Excelsior”*** ).
        The
        Company sold a total of 1,476,804 shares and warrants to purchase 87,111
        shares
        of Excelsior common stock. Certain of these sales are subject to potential
        adjustment whereby the Company would receive additional proceeds in the event
        of
        certain circumstances. However, no value has been ascribed to this
        right.
 
 *Investments
        in Real Estate*
 
 At
        March
        31, 2005, the Company had several real estate investments, recorded at its
        cost
        of $772,748. These investments are included in long-term investments. The
        Company holds its real estate investments in Franklin Capital Properties,
        LLC
        ( ***“Franklin
        Properties”*** ).
        Franklin Properties primary focus is on the acquisition and management of
        income
        producing real estate holdings. Franklin Properties’ real estate holdings
        consist of eight vacant single family buildings and two multi-unit buildings
        in
        Baltimore, Maryland, approximately 8.5 acres of undeveloped land in Heber
        Springs, Arkansas, and various loans secured by real estate in Heber Springs,
        Arkansas. Franklin Properties intends to renovate the single family and
        multi-unit buildings and engage in an active rental program.
 
 **9.
        NOTE PAYABLE**
 
 The
        Company initially purchased Excelsior on August 28, 2001. 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 has a right of offset against certain representations
        and
        warranties made by Winstar. The due date of the note has been extended
        indefinitely until the lawsuit discussed in Note 13 is settled. During 2005,
        approximately $53,000 of legal expenses were offset against the amount
        due.
 
 **10.
        STOCK OPTION PLANS**
 
 On
        September 9, 1997, the Company’s stockholders approved two Stock Option Plans: a
        Stock Incentive Plan ( ***“SIP”*** )
        to be
        offered to the Company’s consultants, officers and employees (including any
        officer or employee who is also a director of the Company) and a Non-Statutory
        Stock Option Plan ( ***“SOP”*** )
        to be
        offered to the Company’s “outside” directors, (i.e., those directors who are not
        also officers or employees of The Company’). As of March 31, 2005, there were no
        outstanding options to purchase the Company’s Common Stock and no options
        available for future issuance under either the SIP or the SOP.
  -8-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements
            (continued)
  In
        December 2004, the Board of Directors of the Company approved the 2005 Stock
        Option and Restricted Stock Plan (the ***“2005
        SOP”*** )
        and the
        Company’s stockholders approved the Plan in March 2005. The Plan reserves
        1,319,082 shares of common stock for grants of incentive stock options,
        nonqualified stock options, and restricted stock awards to employees,
        non-employee directors and consultants performing services for the Company.
        Options granted under the Plan have an exercise price equal to or greater
        than
        the fair market value of the underlying common stock at the date of grant
        and
        become exercisable based on a vesting schedule determined at the date
        of
        grant. The options expire 10 years from the date of grant. Restricted
        stock
        awards granted under the Plan are subject to a vesting period determined
        at the
        date of grant. As of March 31, 2005, the Company has granted 266,490
        shares
        of restricted stock of which 97,950 are vested. For the three months ended
        March 31, 2005, the Company recorded compensation expense of approximately
        $579,189, related to these shares of restricted stock.
 
 The
        following is a summary of the status of the Stock Option Plans:
  **Shares**
                
                **Outstanding
                    Options****Available for**
                
                **Number of**
                
                **Weighted
                    Average****Grant**
                
                **Shares**
                
                **Exercise
                      Price****December
                    31, 2003**
                
                
                **22,500**
                
                
                **61,875**
                
                $
                3.80Grants
                
                
                (78,750
                )
                
                78,750
                
                $
                0.50Exercises
                
                
                
                
                
                (78,750
                )
                $
                0.50Cancellations
                
                
                56,250
                
                
                (56,250
                )
                $
                3.71**December
                    31, 2004**
                
                
                —
                
                
                **5,625**
                
                $
                4.67Adoption
                    of 2005 SOP
                
                
                1,319,082Exercises
                
                
                
                
                
                (5,625
                )
                $
                4.67Restricted
                    Stock Awards
                
                
                (266,490
                )Grants
                
                
                (621,000
                )
                
                621,000
                
                $
                5.27**March
                    31, 2005**
                
                
                **431,592**
                
                
                **621,000**
                
                $
                5.27
 
 Options
                  exercisable at:December
                  31, 2003
              
              
              61,875
              
              $
              3.80December
                  31, 2004
              
              
              5,625
              
              $
              4.67March
                  31, 2005
              
              
              189,250
              
              $
              5.27
 
 The
        outstanding options, all of which are issued under the 2005 SOP, have a
        remaining contractual life of approximately 10 years.
 
 **11.
        WARRANTS**
 
 On
        November 3, 2004, the Company entered into a Subscription Agreement with
        several
        accredited investors (the ***"Investors"*** ),
        relating to the issuance and sale by the Company of shares of its common
        stock
        (the ***"Shares"*** )
        and
        five-year warrants (the ***"Warrants"*** )
        to
        purchase additional shares of its common stock (the ***"Warrant
        Shares"*** )
        in one
        or more closings of a private placement (the ***"Private
        Placement"*** ).
 
 During
        the period November 3, 2004 through December 21, 2004, the Company held a
        series
        of four closings of the Private Placement. In conjunction with the closings
        the
        Company issued and sold to the Investors an aggregate of 1,517,700 Shares
        and
        Warrants to purchase an aggregate of up to 758,841 Warrant Shares pursuant
        to
        the terms of the Subscription Agreement. At March 31, 2005, the Warrants
        weighted average exercise price was $3.86 with a remaining contractual life
        of
        4.6 years.
  -9-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements (continued)
 In
        March
        2005, the Company issued 177,000 warrants (including 150,000 capitalized
        as part
        of the acquisition of the SurgiCount patents) to purchase shares of common
        stock
        at $5.27 per share to various consultants. The warrants are immediately
        exercisable and have a five-year life. The warrants were valued at $633,163
        and,
        depending on the nature of the consulting services received by the Company,
        were
        either capitalized or expensed. Warrants were valued using the Black-Scholes
        valuation model assuming expected dividend yield, risk-free interest rate,
        expected life and volatility of 0%, 3.75%, five years and 83%, respectively.
        As
        of March 31, 2005, all warrants issued to the consultants remain outstanding.
 
 **12.
        RELATED PARTY TRANSACTIONS**
 
 *Tuxis
        Corporation*
 
 On
        March
        16, 2005, Ault Glazer filed a Schedule 13D with the SEC relating to its holdings
        in Tuxis Corporation (“Tuxis”). Tuxis, a Maryland corporation, currently is
        registered under the 1940 Act as a closed-end management investment company.
        Tuxis previously received Board of Directors and shareholder approval to
        change
        the nature of its business so as to cease to be an investment company and
        on May
        3, 2004, filed an application with the SEC to de-register. At March 16, 2005,
        the Company directly held 36,000 shares and indirectly, by virtue of its
        relationship with Ault Glazer, held 98,000 shares of Tuxis common stock,
        which
        represented approximately 3.66% and 9.96%, respectively, of the total
        outstanding shares. At December 31, 2004, Tuxis had reportable net assets
        of
        approximately $9.1 million.
 
 **13.
        COMMITMENTS AND CONTINGENCIES**
 
 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
        alleges that the Company and Sunshine joined the alleged conspiracy. The
        plaintiffs seek recovery of damages in excess of $10,000,000, costs and
        attorneys' fees. An unfavorable outcome in an appeal, together with 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 condensed consolidated financial statements do not include any adjustments
        for the possible outcome of this uncertainty.
 
 **14.
        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, a provider of patient safety devices,
        health care solutions, which consists of Patient Safety Consulting Group,
        LLC,
        and financial services and real estate, which consists of Franklin Capital
        Properties, LLC. 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.
  -10-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements (continued)
 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”.
  Segment
        information for the three months ended March 31, 2005, and 2004 is as follows:
  **Three
                    Months Ended****March 31,**
                
                **March 31,****Medical
                    Products**
                
                **2005**
                
                **2004**Revenue
                
                
                —
                
                
                —Net
                    loss
                
                $
                (220,730
                )
                
                —Total
                    Assets
                
                $
                4,657,497
                
                
                —**Health
                    Care Solutions**Revenue
                
                
                —
                
                
                —Net
                    loss
                
                $
                (127,725
                )
                
                —Total
                    Assets
                
                
                —
                
                
                —**Financial
                    Services and Real Estate**Revenue
                
                
                —
                
                
                —Net
                    income
                
                $
                75,164
                
                $
                152,402Total
                    Assets
                
                $
                6,805,884
                
                $
                3,057,121**Corporate**Revenue
                
                
                —
                
                
                —Net
                    loss
                
                $
                (1,510,921
                )
                $
                (292,848
                )Total
                    Assets
                
                $
                330,519
                
                $
                99,344**Total**Revenue
                
                
                —
                
                
                —Net
                    loss
                
                $
                (1,784,212
                )
                $
                (140,446
                )Total
                    Assets
                
                $
                11,793,900
                
                $
                3,156,465
 
 **15.
        SUBSEQUENT EVENTS**
  On
        April
        5, 2005, the Company entered into a consulting agreement with Health West
        Marketing Incorporated, a California corporation ("Health West"). Under the
        agreement, Health West agreed to help the Company establish a comprehensive
        manufacturing and distribution strategy for the Company's
        Safety-Sponge TM System  worldwide.
        The initial term of the agreement is for a period of two years. After the
        initial two-year term, the agreement will terminate unless extended by the
        parties for one or more additional one-year periods.
 
 In
        consideration for Health West's services, the Company agreed to issue Health
        West 42,017 shares of the Company's common stock, to be issued as follows:
        (a)
        10,505 shares were issued upon signing the agreement; (b) if Health West
        helps
        the Company structure a comprehensive manufacturing agreement with A Plus
        Manufacturing by July 5, 2005, then the Company will issue Health West an
        additional 15,756 shares; and (c) if Health West helps the Company develop
        a
        regional distribution network to integrate the Safety-Sponge TM System  into
        the
        existing acute care supply chain by February 5, 2006, then the Company will
        issue Health West the remaining 15,756 shares. As incentive for entering
        into
        the agreement, the Company agreed to issue Health West a callable warrant
        to
        purchase 150,000 (post 3:1 forward stock split) shares of the Company's common
        stock at an exercise price of $5.95, exercisable for 5 years. In addition,
        the
        Company agreed to issue a callable warrant to purchase 25,000 (post 3:1 forward
        stock split) shares of the Company's common stock at an exercise price of
        $5.95,
        exercisable upon meeting specified milestones. In the event of the death
        of Bill
        Adams, who is Health West's Chief Executive Officer, the agreement will
        automatically terminate. The Company may terminate the agreement at any time
        upon delivery to Health West of notice of a good faith determination by the
        Company's Board of Directors that the agreement should be terminated for
        cause
        or as a result of disability of Mr. Adams. Health West may voluntarily terminate
        the agreement only after expiration of the initial two-year term upon providing
        30 days prior written notice to the Company.
  -11-
 Patient
            Safety Technologies, Inc., and Subsidiaries
 Notes
            to Condensed Consolidated Financial Statements (continued)
 On
        April
        7, 2005, the Company issued a $1,000,000 principal amount promissory note
        (the ***"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 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.
 
 On
        April
        22, 2005, the Company entered into a subscription agreement pursuant to which
        the Company sold to an investor 20,000 shares of the Company's common stock
        and
        warrants to purchase an additional 20,000 shares of the Company's common
        stock.
        The warrants are exercisable for a period of five years, have an exercise
        price
        equal to $6.05, and 50% of the warrants are callable. In the event the closing
        sale price of the Company's common stock equals or exceeds $7.50 for at least
        five consecutive trading days, the Company, upon 30 days prior written notice,
        may call the callable warrants at a redemption price equal to $0.01 per share
        of
        common stock then purchasable pursuant to such warrants. Notwithstanding,
        such
        notice, the warrant holder may exercise the callable warrant prior to the
        end of
        the 30-day notice period. The Company received gross proceeds of $100,000
        from
        the sale of stock and warrants. The sale was made in a private placement
        exempt
        from registration requirements pursuant to Section 4(2) of the Securities
        Act of
        1933, as amended, and Rule 506 promulgated thereunder.
 
 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.


-12-


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





*The
      following discussion should be read in conjunction with our condensed
      consolidated financial statements and the notes thereto included elsewhere
      in
      this form 10-Q. This form 10-Q contains forward-looking statements regarding
      the
      plans and objectives of management for future operations. This information
      may
      involve known and unknown risks, uncertainties and other factors which may
      cause
      our actual results, performance or achievements to be materially different
      from
      future results, performance or achievements expressed or implied by any
      forward-looking statements. Forward-looking statements, which involve
      assumptions and describe our future plans, strategies and expectations, are
      generally identifiable by use of the words "may," "will," "should," "expect,"
      "anticipate," "estimate," "believe," "intend" or "project" or the negative
      of
      these words or other variations on these words or comparable terminology. These
      forward-looking statements are based on assumptions that may be incorrect,
      and
      we cannot assure you that these projections included in these forward-looking
      statements will come to pass. Our actual results could differ materially from
      those expressed or implied by the forward-looking statements as a result of
      various factors. We undertake no obligation to revise these forward-looking
      statements to reflect events or circumstances occurring after the date hereof
      or
      to reflect the occurrence of unanticipated events.*





**Critical
      accounting policies and estimates**





The
      below
      discussion and analysis of Patient Safety Technologies’ financial condition and
      results of operations are based upon the Company's 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 non-marketable equity
      securities.





We
      invest
      in illiquid equity securities acquired directly from the issuer 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 may invest 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 make 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 these
      companies are expected to 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, and the investments would likely 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 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 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. We did not recognize any impairments for
      the
      three months ended March 31, 2005 and 2004.





-13-


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. Our Board may determine, if appropriate, to discount the
      value
      where there is an impediment to the marketability of the securities held.





**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. The Company elected early
      adoption of SFAS No. 123(R) as of January 1, 2005.





**Overview**





Until
      March 31, 2005, Patient Safety Technologies, Inc. ( **"PST"** ,
      or the **"Company"** )
      was a
      Delaware Corporation that elected to be a Business Development Company ( **“BDC”** )
      under
      the Investment Company Act of 1940, as amended. 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.





We
      are
      currently engaged in the acquisition of controlling interests in companies
      and
      research and development of products and services focused on the health care
      and
      medical products field, particularly the patient safety markets, as well as
      the
      financial services and real estate industries. SurgiCount Medical, Inc., a
      provider of patient safety devices, Patient Safety Consulting Group, LLC, a
      healthcare consulting services company, and Franklin Capital Properties, LLC,
      a
      real estate development and management company, are wholly-owned operating
      subsidiaries, which were either acquired or created to enhance our ability
      to
      focus our efforts in each targeted industry.





SurgiCount
      is our first acquisition in our plan to become a leader in the billion dollar
      patient safety field market. SurgiCount owns patents issued in the United States
      and Europe related to patient safety, among them, the Safety-Sponge TM System,
      an innovation which management believes will allow us to capture a significant
      portion of the $650 million in annual U.S. and European surgical sponge sales.





The
      Safety-Sponge TM System
      allows for faster and more accurate counting of surgical sponges. SurgiCount
      has
      obtained FDA 510k exempt status for the Safety-Sponge TM line.
      The
      Safety-Sponge TM line
      of
      sponges has passed required FDA biocompatibility tests including ISO
      sensitization, cytotoxicity and skin irritation tests.





The
      Company, including its subsidiaries, also provides capital and managerial
      assistance to early stage companies in the medical products, health care
      solutions, financial services and real estate industries.





Our
      principal executive offices are located at 100 Wilshire Boulevard, Suite 1500,
      Santa Monica, California 90401. Our telephone number is (310) 752-1416. Our
      website is located at http://www.patientsafetytechnologies.com .





**Financial
      Condition**





The
      Company's cash and marketable securities were $4,446,174, at March 31, 2005,
      versus $4,334,123 at December 31, 2004. Total current liabilities, were
      $4,542,051 at March 31, 2005 versus $3,367,974 at December 31, 2004. Included
      in
      current liabilities at March 31, 2005 and December 31, 2004 is a note payable,
      and accrued interest on such note, payable to Winstar Communications, Inc.
      in
      the amount of $959,646 and $1,004,962, respectively. As discussed in Note 9
      in the Company’s notes to its condensed consolidated financial statements filed
      with this Form 10-Q, the due date on the note payable to Winstar has been
      extended indefinitely pending settlement of the Leve Lawsuit.





-14-


At
      March
      31, 2005 and December 31, 2004, we had $10,741 and $846,404 in cash and cash
      equivalents. Our Board has given our Chairman and Chief Executive Officer,
      Milton "Todd" Ault III, the authority to invest our cash balances in the public
      equity and debt markets as appropriate to maximize the short-term return on
      such
      assets. The making of such investments entails risks related to the loss of
      investment and price volatility.





The
      Company has a working capital surplus of $173,575 at March 31, 2005. The Company
      continues to have recurring losses and has relied upon liquidating its portfolio
      companies to fund operations. On April 7, 2005, subsequent to the quarter end,
      the Company issued a $1,000,000 promissory note (the ***"Note"*** )
      to
      Bodnar Capital Management, LLC, in consideration of a $1,000,000 loan from
      Bodnar Capital Management, LLC to the Company. 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 Note and interest at the rate of 6% per annum is payable on May 31,
      2006,
      the maturity date of the Note. The obligations under the Note are secured by
      all
      real property owned by the Company. Management believes that existing cash
      resources, together with anticipated revenues from its operations, should be
      adequate to fund its operations for the twelve months subsequent to March 31,
      2005. However, long-term liquidity is dependent on the Company's ability to
      attain future profitable operations. Management may undertake additional debt
      or
      equity financings to better enable the Company to grow and meet its future
      operating and capital requirements.





On
      November 3, 2004, the Company entered into a Subscription Agreement and sold
      an
      aggregate of 405,625 shares (1,216,875 shares post 3:1 forward stock split)
      of
      its Common Stock and warrants to purchase an aggregate of up to 202,810 shares
      (608,430 shares post split) of its Common Stock in a private placement
      transaction to certain accredited investors. Pursuant to the terms of the
      Subscription Agreement, the Company held additional closings of the private
      placement on November 15, 2004, December 2, 2004, and on December 27, 2004,
      and
      sold an aggregate of 100,275 additional shares (300,825 shares post split)
      of
      its Common Stock and warrants to purchase an aggregate of up to 50,137 shares
      (150,411 shares post split) of its Common Stock. The Company received aggregate
      net proceeds from all the closings of $3,924,786. The Company is required to
      file a registration statement with the SEC on or before May 2, 2005, which
      is
      180 days after closing of the first sale transaction, registering the resale
      of
      the shares of our Common Stock (including the shares of common stock issuable
      upon exercise of the warrants) sold in the private placement transactions on
      a
      continuous or delayed basis under the Securities Act of 1933. We are required
      to
      use our reasonable best efforts to cause the registration statement to become
      effective within 90 days after the date we file such registration statement
      with
      the SEC. If the registration statement has not been filed on or prior to the
      180th day after the closing of the sale transaction, we will pay liquidated
      damages to the purchasers of the 505,900 shares (1,517,700 shares post split)
      of
      our Common Stock and the warrants to purchase 252,950 shares (758,841shares
      post
      split) of our Common Stock equal to 1.0% per month of the aggregate gross
      proceeds of $4,047,200. The registration statement was filed on May 3, 2005.
      We
      intend to use the net proceeds from the private placement transaction primarily
      for general corporate purposes and in buying controlling equity stakes in
      companies and/or assets in the medical products, health care solutions,
      financial services and real estate industries.





As
      of
      March 31, 2005, the Company had no commitments not reflected on its balance
      sheet. As in prior acquisitions, we intend to use a combination of common stock
      and warrants to purchase common stock as the primary means to acquire companies.
      Accordingly, the Company’s need to raise significant amounts of cash can be
      minimized, provided the companies we acquire are willing to accept non-cash
      forms of consideration.





**Investments**





The
      Company’s financial condition is dependent on the success of its investments.
      The Company intends to invest a substantial portion of its assets in private
      companies in the medical products, health care solutions and financial services
      industries. These private businesses may be thinly capitalized, unproven, small
      companies that lack management depth, are dependent on new, commercially
      unproven technologies and have little or no history of operations. The following
      is a discussion of our most significant investments at March 31, 2005.





-15-


*Alacra
      Corporation*





At
      March
      31, 2005, the Company had an investment in Alacra Corporation (“Alacra”), valued
      at $1,000,000, which represents 8.5% of the Company’s total assets. Alacra,
      based in New York, is a leading 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
      leading financial institutions, management consulting, law and accounting firms
      and other corporations throughout the world.





Alacra’s
      online service allows users to search via a set of robust, sophisticated tools
      designed to locate and extract business information from the Internet and from
      the Alacra library of premium content. The company’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 the requisite information in the appropriate
      format, gleaned from such prestigious content partners as Thomson FinancialTM,
      Barra, The Economist Intelligence Unit, Factiva, Mergerstat® and many
      others





On
      April
      20, 2000, the Company 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, 2004 revenues were in excess of the
      prior years revenues by greater than 20%. The Company has the right to have
      the
      preferred stock redeemed by Alacra for face value plus accrued dividends on
      December 31, 2006. In connection with this investment, the Company was granted
      observer rights on Alacra board of directors meetings.





*China
      Nurse*





On
      November 23, 2004, the Company entered into a strategic relationship with China
      Nurse LLC ("China Nurse"), a developmental stage international nurse-recruiting
      firm based in New York that focuses on recruiting and training qualified nurses
      from China and Taiwan for job placement with hospitals and other health care
      facilities in the United States. China Nurse creates an opportunity for
      hospitals and other health care providers to efficiently recruit skilled
      professionals from China and Taiwan. It maintains a customized approach
      to
      matching the qualifications of the nurses with the specific needs of U.S.
      clientsIn connection with this strategic relationship, the Company has agreed
      to
      provide referrals and other assistance and has also made a small capital
      investment in that company.





*Digicorp*





At
      March
      31, 2005, the Company had an investment in DigiCorp valued at its cost of
      $563,211, which represents 4.8% of the Company’s total assets. On December 29,
      2004, the Company entered into a Common Stock Purchase Agreement with certain
      shareholders of DigiCorp (the "Agreement"), to purchase an aggregate of
      3,453,527 shares of DigiCorp common stock. Of such shares, 1,224,000 shares
      of
      DigiCorp common stock will be purchased from the selling shareholders at such
      time as the shares are registered for resale with the SEC. The purchase price
      for such shares is $.135 or $.145 per share, depending on when the closing
      occurs. Digicorp’s common stock is traded on the OTC Bulletin Board, which
      reported a closing price, at March 31, 2005, of $0.25. In connection with the
      Agreement, the Company is entitled to designate two members to the Board of
      Directors of Digicorp. The Company’s first designee, Melanie Glazer, was
      appointed on December 29, 2004. The Company is currently evaluating several
      strategic alternatives for the use of the DigiCorp entity.





Since
      June 30, 1995, DigiCorp has been in the developmental stage and has 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 entered into a subscription agreement with Bodnar Capital
      Management, LLC ("Bodnar Capital"), pursuant to which the Company sold Bodnar
      Capital 2,941,176 shares (the "Shares") of the Company's common stock and
      warrants (the "Warrants") to purchase an additional 3,000,000 shares of the
      Company's common stock. The Company received gross proceeds of approximately
      $500,000 from the sale of stock and warrants to Bodnar Capital. The sale was
      made in a private placement exempt from registration requirements pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated
      thereunder.





On
      July
      15, 2005, DigiCorp entered into a binding letter of intent to acquire certain
      assets which include the iCodemedia suite of websites and internet properties
      and all related intellectual property (the “iCodemedia Assets”) from Philip
      Gatch, who was recently appointed DigiCorp’s Chief Technology Officer. We agreed
      to issue Mr. Gatch 1,000,000 shares of our common stock as consideration for
      the
      iCodemedia Assets. Consummation of the transaction is subject to the execution
      of a definitive purchase and sale contract.





-16-


*Excelsior
      Radio Networks, Inc.*





During
      the period from August 12, 2003 through October 22, 2004, the Company liquidated
      its investment in Excelsior Radio Networks, Inc. ( **“Excelsior”** ).
      The
      Company sold a total of 1,476,804 shares and warrants to purchase 87,111 shares
      of Excelsior common stock. The Company has stock appreciation rights on these
      shares that begin to expire on August 8, 2005.





*IPEX,
      Inc.*





At
      March
      31, 2005, the Company held 575,000 shares of common stock and warrants to
      purchase 220,000 shares of common stock at $1.50 per share and warrants to
      purchase 220,000 shares of common stock at $2.00 per share of IPEX, Inc.
      (“ ***IPEX”)*** ,
      formerly Administration for International Credit & Investments, Inc, valued
      at $1,101,000. IPEX's common stock is traded on the OTC Bulletin Board, which
      reported a closing price, at March 31, 2005, of $1.80. The warrants are
      exercisable for a period of five years and are callable by IPEX in certain
      instances. IPEX operates a fully automated, software-based, centralized Voice
      over Internet Protocol ( **"VoIP"** )
      routing
      platform that exchanges international telecommunication traffic. IPEX's exchange
      operates on a software-based switching platform which monitors and dynamically
      checks up to 256 different routes for one country code, optimizing margin and
      quality through real time traffic adjustments. The exchange delivers seamless
      access through an Internet Protocol ( **“IP”** )
      connection which significantly reduces the time to connect to the exchange.
      IPEX
      offers its service to international telecom carriers and Internet Service
      Providers and currently has contracts with approximately 120 international
      carriers. The Company is also a wholesale distributor of prepaid international
      phone cards. IPEX invoices and processes payments for its members’ transactions
      and offsets credit risk through its credit management programs with third
      parties.





As
      reflected in IPEX’s March 31, 2005 Form 10-Q, sales for the quarter ended March
      31, 2005 rose to $1,801,886 as compared to sales of $629,127 from the prior
      year's quarter ended March 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
      therefore increasing the number of overall customers. Management believes the
      Company is now in a position to increase sales in the future by moving up to
      Tier 1 customers, which require net 30 terms for payment.





Gross
      profit for IPEX was $67,203 for the three months ended March 31, 2005, as
      compared to a negative gross profit of $139,040 in the prior year quarter ending
      March 31, 2004. Net loss was $150,174 for the three months ended March 31,
      2005,
      as compared to a net loss of $248,047 in the prior year quarter ending March
      31,
      2004. The increase in gross profit and the decrease in net loss is due primarily
      to the inclusion of a full three months in the 2005 period and to overall
      increases in trading revenue activity.





*Tuxis
      Corporation*





On
      March
      16, 2005, Ault Glazer filed a Schedule 13D with the SEC relating to its holdings
      in Tuxis Corporation ("Tuxis"). Tuxis, a Maryland corporation, currently is
      registered under the 1940 Act, as a closed-end management investment company.
      Tuxis previously received Board of Directors and shareholder approval to change
      the nature of its business so as to cease to be an investment company and on
      May
      3, 2004, filed an application with the SEC to de-register. At March 31, 2005,
      the Company directly held 36,000 shares and indirectly, by virtue of its
      relationship with Ault Glazer, held 98,000 shares of Tuxis common stock, which
      represented approximately 3.66% and 9.96%, respectively, of the total
      outstanding shares. At December 31, 2004, Tuxis had reportable net assets of
      approximately $9.1 million.





*Franklin
      Capital Properties, LLC*





At
      March
      31, 2005, the Company had several real estate investments, valued at $772,748,
      which represents 6.6% of the Company’s total assets. The Company holds its real
      estate investments in Franklin Capital Properties, LLC ***(“Franklin
      Properties”)*** ,
      a
      Delaware limited liability company and a wholly owned subsidiary. Franklin
      Properties primary focus is on the acquisition and management of income
      producing real estate holdings. Franklin Properties real estate holdings consist
      of eight vacant single family buildings and two multi-unit buildings in
      Baltimore, Maryland, approximately 8.5 acres of undeveloped land in Heber
      Springs, Arkansas, and various loans secured by real estate in Heber Springs,
      Arkansas. Franklin Properties intends to renovate the single family and
      multi-unit buildings and engage in an active rental program. As of March 31,
      2005, the Company had not generated revenue from rental activities on any of
      its
      real estate investments.




-17-


**Results
      of Operations**





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





§
            "Revenues,"
                which is the amount the Company receives from sales of its
                products;





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





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





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





§
            “Unrealized
                gain (loss) on marketable securities, net,” which is the net change in the
                fair value of the Company’s 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
      gain (loss) on investments, net” and “Unrealized gain (loss) 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.





The
      Company generally earns interest income from loans, preferred stocks, corporate
      bonds and other fixed income securities. The amount of interest income varies
      based upon the average balance of the Company's fixed income portfolio and
      the
      average yield on this portfolio.





**Investment
      Income**





The
      Company had investment income of $28,602 and $165 for the three months ended
      March 31, 2005 and March 31, 2004, respectively.





The
      increase in investment income for the three months ended March 31, 2005 when
      compared to March 31, 2004, was primarily the result of an increased amount
      of
      fixed income investments. At March 31, 2005, the Company held in marketable
      securities approximately $2.5 million in U.S. Treasuries, whereas, at March
      31,
      2004, the Company’s primary contributing asset to investment income was its cash
      balance of $98,896.





**Expenses**





Operating
      expenses were $2,121,673 and $292,848 for the three months ended March 31,
      2005
      and March 31, 2004, respectively.





-18-


The
      increase in operating expenses for the three months ended March 31, 2005 when
      compared to March 31, 2004, was primarily the result of legal fees and stock
      based compensation expenses, and to a lesser extent printing and stock exchange
      fees. Until October 22, 2004, the date the Company’s shareholders approved
      certain proposals relating to the Restructuring Plan, the Company’s principal
      activities involved the management of existing investments. As such,
      compensation expense was primarily the salaries of the Company’s Chief Executive
      Officer and to a lesser extent the Chief Financial Officer. Since the
      Restructuring Plan, management has aggressively focused on expanding into the
      health care and medical products field, particularly the patient safety markets,
      as well as the financial services and real estate industries. A significant
      component of this strategy has resulted in the acquisition of assets. The
      Company has hired personnel in order to meet the needs of its current business
      focus which has resulted in increased expenses in almost every expense category.





Legal
      fees for the three months ended March 31, 2005 were $343,837, an increase of
      $313,837 over the three months ended March 31, 2004. The increase in legal
      fees
      is attributable to work performed on the Company’s proxy statement, registration
      statement and annual report, which required a significant amount of additional
      time to prepare due to the Company’s change from a business development company
      to an operating company, filed with the SEC, as well as other corporate matters.
      Other corporate matters typically include services performed in relation to
      areas such as attendance at meetings, federal securities law, stock option
      plans, press releases, and corporate agreements. Additionally, the Company
      experienced an increase in ancillary fees as a direct result of the proxy
      statement and the related annual meeting of shareholders. These ancillary fees
      included an increase in printing fees of $46,242 and AMEX stock exchange fees
      of
      $62,283 compared to the prior comparable period. Printing fees increased as
      a
      direct result of the greater number of printed documents, including business
      cards and stationary, as well as revisions to those documents. Amex stock
      exchange fees primarily increased as a result of a non-recurring fee associated
      with the Company’s 3 for 1 stock split





Printing
      fees and Amex stock exchange fees are a component of the $207,626 increase
      reflected in general and administrative expenses for the three months ended
      March 31, 2005. An increase in travel related expenses of $38,804, a component
      of general and administrative expenses, was attributed to expenses incurred
      in
      identifying and reviewing investment opportunities and attendance at trade
      shows
      and conventions to promote the Company’s patient safety products. The remaining
      increase in general and administrative expenses is a direct result of an overall
      increase in business activity associated with being an operating company with
      increased personnel. These expenses, which are not significant individually,
      include but are not limited to office supplies, transfer agent fees, postage,
      and marketing.





A
      majority of the Company's operating expenses consist of employee compensation
      and professional fees. Included in stock based compensation expense, which
      is a
      component of both employee compensation and professional fees, for the three
      months ended March 31, 2005, was approximately $96,584 relating to the issuance
      of warrants to a consultant of the Company, as well as $552,542 relating to
      grants of nonqualified stock options and $574,975 related to restricted stock
      awards to the Company’s employees, non-employee directors and consultants
      performing services for the Company, all of which were expensed in accordance
      with SFAS 123(R). The Company 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%, respectively. The restricted stock awards were valued at
      the
      closing price on the date the restricted shares were granted. During the three
      months ended March 31, 2004, the Company had no stock based compensation
      expense. Thus, the increase in expenses related to the issuance of stock
      options, warrants and restricted stock awards amounted to $1,224,101





The
      Company also issued 150,000 warrants, valued at $536,578, to a consultant
      providing advisory services for the acquisition of SurgiCount Medical, Inc.
      The
      services provided by the consultant included an evaluation of and oversight
      over
      completion of the transaction. The value of the warrants, along with the
      purchase price and direct costs incurred as a result of the transaction, were
      capitalized. The entire capitalized costs, valued at $4,684,576, have been
      allocated to SurgiCount’s patents, with an approximate useful life of 14.4
      years, on a preliminary basis and may change as additional information becomes
      available. Amortization expense related to the patents, for the three months
      ended March 31, 2005, was $27,078 as opposed to no expense during the three
      months ended March 31, 2004.





-19-


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





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





During
      the three months ended March 31, 2004, the Company realized net gains of $49,478
      primarily from the disposition of a portion of the Company's equity interest
      in
      Excelsior.





The
      Company has relied and continues to rely to a large extent upon proceeds from
      sales of investments rather than investment income to defray a significant
      portion of its operating expenses. Because such sales cannot be predicted with
      certainty, the Company attempts to maintain adequate working capital to provide
      for fiscal periods when there are no such sales.





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





Unrealized
      gains increased by $343,587 during the three months ended March 31, 2005,
      primarily due to the Company’s investment in IPEX, Inc. which had an unrealized
      gain of $418,000 for the period then ended.





Unrealized
      gains increased by $102,759 during the three months ended March 31, 2004
      primarily due to the receipt of shares in Principal Financial Group ( ***“PFG”*** ),
      offset
      by an unrealized loss due to the sale of a portion of the Company’s Excelsior
      holdings. In 2001, the Company maintained group life and dental insurance with
      PFG. Upon the demutualization of PFG in October 2001, the Company received
      4,338
      common shares of PFG. However, the Company did not receive any notification
      for
      the receipt of such shares. In the first quarter of 2004 the Company became
      aware of its ownership of PFG common shares, and recorded the fair market value
      of such shares within unrealized gains





**Taxes**





The
      Company is taxed under Title 26, Chapter 1, Subchapter C of the Internal Revenue
      Code of 2004, as amended, and therefore subject to federal income tax on the
      portion of its taxable income.





At
      December 31, 2004, the Company has a net operating loss carryforward of
      approximately $8.6 million to offset future taxable income for federal income
      tax purposes. The utilization of the loss carryforward to reduce any such future
      income taxes will depend on the Company’s ability to generate sufficient taxable
      income prior to the expiration of the net operating loss carryforwards. The
      carryforward expires beginning on 2011.





A
      change
      in the ownership of a majority of the fair market value of the Company’s common
      stock can delay or limit the utilization of existing net operating loss
      carryforwards pursuant to the Internal Revenue Code Section 382. The Company
      believes that such a change occurred during the year ended December 31, 2004.
      Based upon a detail analysis of purchase transactions of our equity securities,
      the Company believes that its net operating loss carryforward utilization is
      limited to approximately $755,000 per year.





**Risk
      Factors**





*An
      investment in our securities involves a high degree of risk relating to our
      business, strategy, structure and investment objectives. The risks set out
      below
      are not the only risks we face, and we face other risks which are not yet
      predictable or identifiable. If any of the following risks occur, our business,
      financial condition and results of operations could be materially adversely
      affected. In addition to the risk factors described below, other factors that
      could cause actual results to differ materially include:*





·
            *changes
                in the economy;*





·
            *risk
                associated with possible disruption in the Company’s operations due to
                terrorism;*





·
            *future
                regulatory actions and conditions in the Company’s operating areas or
                target industries for investments
                and*





·
            *other
                risks and uncertainties as may be detailed from time to time in the
                Company’s public announcements and SEC
                filings.*





-20-


**Risks
      Relating to our Business and Structure**





**We
      recently restructured our investment 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. 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 the Company’s election to be treated as a BDC may increase the risks to our
      shareholders since we are no longer subject to many of the regulatory
      restrictions imposed by, or receive the financial reporting benefits, of the
      1940 Act (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.




The
      nature of our business is changing 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,
      health care solutions, financial services and real estate 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 will result 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 will be either fair value, historical cost or equity methods
      of
      accounting, depending on the classification of the investment, our intent with
      respect to the period of time we intend to hold the investment and
      our ownership interest in 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 will
      have
      to consolidate our financial statements with subsidiaries, thus eliminating
      the
      portfolio company reporting benefits available to BDCs.





**We
      may need 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 may
      not
      be sufficient to meet our growth, operating and/or capital requirements. We
      believe that we currently have the financial resources to meet our operating
      requirements for the next twelve months. We may however undertake additional
      equity or debt financings to better enable 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.





-21-


**There
      are significant potential conflicts of interest, with our officers, directors,
      and our affiliated entities which could adversely affect our results of
      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 & Company Investment Management LLC. In particular,
      Milton "Todd" Ault, III, our Chairman and Chief Executive Officer, Melanie
      Glazer, Manager of our subsidiary Franklin Capital Properties, LLC, and Lynne
      Silverstein, our President and Secretary, are all principals of Ault Glazer
      & Company Investment Management LLC. Mr. Ault and Ms. Silverstein devote
      approximately 85% of their time to our business, based on a 60-hour, 6-day
      workweek. Ms. Glazer works full time for Franklin Capital Properties, LLC.
      Ms.
      Silverstein is the stepdaughter of Louis Glazer, one of our Directors and Chief
      Health and Science Officer of Patient Safety Consulting Group, LLC. Accordingly,
      certain conflicts of interest may arise from time to time with our officers,
      directors and Ault Glazer & Company Investment Management LLC. 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 currently have any conflicts of interest
      with the business of Ault Glazer & Company Investment Management LLC, other
      than certain of our officers' responsibility to provide management and
      administrative services to Ault Glazer & Company Investment Management LLC.
      and its clients from time-to-time. However, subject to applicable law, we may
      engage in transactions with Ault Glazer & 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.**





Prior
      to
      the change in control that occurred in October 2004, our current senior
      management was 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
      are dependent upon our Chief Executive Officer for our future success. The
      departure of our Chief Executive Officer could materially adversely affect
      our
      ability to run our business.**





Our
      future success is dependent on the personal efforts, performance and abilities
      of Milton "Todd" Ault, III, our Chairman and Chief Executive Officer. Mr. Ault
      is an integral part of our daily operations. Although Mr. Ault does not
      currently have any plans to retire or leave our company in the near future,
      he
      is not currently subject to an employment contract with us. The departure of
      Mr.
      Ault as our Chief Executive Officer could have a material adverse effect on
      our
      ability to implement our business strategy or achieve our investment objective.





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





As
      of
      April 26, 2005, Milton "Todd" Ault, III, our Chief Executive Officer and
      Chairman, beneficially owned approximately 27.2% 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.





-22-


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





**Provisions
      of the Delaware General Corporation Law and of our charter and bylaws could
      deter takeover attempts and have an adverse impact on the price of our common
      stock.**





Our
      charter and bylaws, as well as certain statutory and regulatory requirements,
      contain certain provisions that may have the effect of discouraging a third
      party from making an acquisition proposal for us. These anti-takeover provisions
      may inhibit a change of control in circumstances that could give the holders
      of
      our common stock the opportunity to realize a premium over the market price
      for
      our common stock.





**Our
      financial condition and results of operations will depend on our ability to
      manage our future growth effectively.**





As
      part
      of the Restructuring Plan, we changed our business strategy and objective and
      are currently recapitalizing our business. As such, our success in achieving
      our
      business objective will depend on our ability to grow effectively and
      efficiently. As we grow, we will need to hire, train, supervise and manage
      new
      employees. Our failure to manage our future growth effectively could have a
      material adverse effect on our business, financial condition and results of
      operations.





**Risks
      related to our medical products and healthcare-related business**





**We
      rely on third party manufacturers and suppliers, the loss of which may interrupt
      our operations.**





We
      rely
      on third parties to supply raw materials and components and to manufacture
      our
      products. We cannot assure you that we will be able to maintain our existing
      supplier and manufacturer relationships or secure additional suppliers and
      manufacturers as needed. The loss of a major supplier or manufacturer, the
      deterioration of our relationship with a major supplier or manufacturer, changes
      by in the specifications of components used in our products, or our failure
      to
      establish good relationships with major new suppliers or manufacturers 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 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 payers 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.





-23-


**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. 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.





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.





-24-


**Our
      patents are a key element to the success of our business. In the event we cannot
      adequately enforce our patents we may experience a material adverse affect
      to
      our business.**





We
      own
      patents issued in the United States and Europe related to patient safety, among
      them, the Safety-SpongeTM System. These patents are a key element to the success
      of SurgiCount and our Company as a whole could be materially impacted if the
      patent is compromised. Our ability to enforce our patents is subject to general
      litigation risks as well as uncertainty as to the enforceability in various
      countries We believe that the duration of the applicable patents are adequate
      relative to the expected life of the product.





**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 are in the process of obtaining
      general liability insurance to cover claims up to $1,000,000. This insurance,
      if
      obtained, will cover 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 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
      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.





-25-


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





A
      significant proportion of our real estate investments are in Baltimore, Maryland
      and Heber Springs, Arkansas 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 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.**





The
      public market for our common stock has historically been very volatile. Over
      the
      past two fiscal years and the interim quarterly periods, the market price for
      our common stock has ranged from $0.50 to $14.75. 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"). The average daily trading volume of our common
      stock over the past three months was approximately 16,909 shares. The last
      reported sales price for our common stock on April 26, 2005, was $4.51 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.





**There
      are a large number of shares of common stock and shares underlying outstanding
      warrants from our recent private placement that may be available for future
      sale
      and the sale of these shares may depress the market price of our common stock.**





As
      of
      April 26, 2005, we had 5,276,328 shares of common stock outstanding. There
      are
      1,517,700 outstanding shares of common stock and 758,841 shares of common stock
      issuable upon exercise of outstanding warrants from our recent private placement
      being offered pursuant to a Form S-3 filed with the SEC on May 3, 2005. All
      of
      these shares may be sold without restriction. The sale of these shares may
      adversely affect the market price of our common stock.





**The
      issuance of shares upon exercise of outstanding warrants may cause immediate
      and
      substantial dilution to our existing stockholders.**





The
      issuance of shares upon exercise of our outstanding warrants may result in
      substantial dilution to the interests of other stockholders since the selling
      stockholders may ultimately exercise and sell the full amount issuable on
      exercise.





**The
      sale or issuance of securities to interested stockholders may be dilutive to
      our
      existing shareholders**





The
      Company may from time to time issue common stock, warrants to purchase common
      stock, or other securities representing indebtedness to Milton “Todd” Ault III,
      Lynne Silverstein, Louis Glazer or Melanie Glazer. Any sale of equity securities
      may be dilutive to the Company’s stockholders, and debt financing, if available,
      may involve restrictive covenants with respect to raising future capital and
      other financial and operational matters. The securities which may be issued
      to
      Milton “Todd” Ault III, Lynne Silverstein, Louis Glazer or Melanie Glazer may
      have a material adverse effect on the market price of the Common Stock as a
      result of the potential for dilution created by the issuance of additional
      common stock, warrants to purchase common stock, or other securities
      representing indebtedness. In addition, resales by Milton “Todd” Ault III, Lynne
      Silverstein or Louis and Melanie Glazer may be made at times that are adverse
      to
      the interests of other stockholders. Such sales could further consolidate voting
      control in Milton “Todd” Ault III, Lynne Silverstein or Louis and Melanie
      Glazer.





-26-


**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.
      Among other things, these standards require that we remain current in our
      filings with the SEC and comply with certain provisions of the Sarbanes-Oxley
      Act of 2002. If we were to become noncompliant with AMEX's continued listing
      requirements, our common stock may be delisted which would have a material
      adverse affect on the price 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
      Securities and Exchange Commission 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 receives from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.





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.





-27-


**Risks
      related to our financial services business**





**We
      operate in a highly competitive market for investment opportunities.**





A
      large
      number of entities compete with us to make the types of investments that we
      make
      in technology-related companies. We compete with a large number of private
      equity and venture capital funds, other equity and non-equity based investment
      funds, investment banks and other sources of financing, including traditional
      financial services companies such as commercial banks and specialty finance
      companies. Many of our competitors are substantially larger and have
      considerably greater financial, technical and marketing resources than we do.
      For example, some competitors may have a lower cost of funds and access to
      funding sources that are not available to us. In addition, some of our
      competitors may have higher risk tolerances or different risk assessments,
      which
      could allow them to consider a wider variety of investments and establish more
      relationships than us. There can be no assurance that the competitive pressures
      we face will not have a material adverse effect on our business, financial
      condition and results of operations. Also, as a result of this competition,
      we
      may not be able to take advantage of attractive investment opportunities from
      time to time, and we can offer no assurance that we will be able to identify
      and
      make investments that are consistent with our investment objective.





**Our
      business model depends upon the development of strong referral relationships
      with private equity and venture capital funds and investment banking firms.**





If
      we
      fail to maintain our relationships with key firms, or if we fail to establish
      strong referral relationships with other firms or other sources of investment
      opportunities, we will not be able to grow our portfolio of private companies
      and achieve our investment objective. In addition, persons with whom we have
      informal relationships are not obligated to provide us with investment
      opportunities, and therefore there is no assurance that such relationships
      will
      lead to the origination of equity or other investments.





**We
      may experience fluctuations in our quarterly results.**





We
      may
      experience fluctuations in our quarterly operating results due to a number
      of
      factors, including the rate at which we identify and make new investments,
      the
      success rate of our new investments, the level of our expenses, variations
      in
      and the timing of the recognition of realized and unrealized gains or losses,
      the degree to which we encounter competition in our markets 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.





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





Many
      of
      the companies in which we have made or will make 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 portfolio is likely to decrease during these periods. These
      conditions could lead to financial losses in our portfolio and a decrease in
      our
      revenues, net income, and assets.




Our
      business of making private equity investments and positioning them for liquidity
      events also may be affected by current and future market conditions. The absence
      of an active senior lending environment may slow the amount of private equity
      investment activity generally. As a result, the pace of our investment activity
      may slow. In addition, 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 realized on our investments.





**The
      inability of our portfolio companies to successfully market their products
      would
      have a negative impact on our investment returns**





Even
      if
      our portfolio companies are able to develop commercially viable products and
      services, the market for new products and services is highly competitive and
      rapidly changing. Commercial success is difficult to predict and the marketing
      efforts of our portfolio companies may not be successful.





-28-


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





The
      Company’s portfolio may include investments in private companies. 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 these investments, there is significantly greater risk of loss than is
      the
      case with traditional investment securities. The Company has invested a
      substantial portion of its assets in small private companies or start-up
      companies. These private businesses tend to be thinly capitalized and unproven,
      with risky technologies that lack management depth and have not attained
      profitability or have no history of operations. There is generally no publicly
      available information about the companies in which we invest, and we rely
      significantly on the diligence of our employees and agents to obtain information
      in connection with our investment decisions. In addition, some smaller
      businesses have narrower product lines and market shares than their competition
      and may be more vulnerable to customer preferences, market conditions, loss
      of
      key personnel, or economic downturns, which may adversely affect the return
      on,
      or the recovery of, our investment in such businesses.





The
      Company expects that some of its 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. The Company has been risk seeking rather than
      risk averse in its approach to its investments. Neither the Company's
      investments nor an investment in the Company is intended to constitute a
      balanced investment program. The Company has in the past relied, and continues
      to rely to a large extent, upon proceeds from sales of investments rather than
      investment income or revenue generated from its operating activities to defray
      a
      significant portion of its operating expenses.




**Our
      investments in our portfolio companies may be concentrated in one or more
      industries and if these industries should decline or fail to develop as expected
      our investments will be lost.**





Our
      investments in our portfolio companies may be concentrated in one or more
      industries. This concentration will mean that our investments will be
      particularly dependent on the development and performance of those industries.
      Accordingly, our investments may not benefit from any advantages, which might
      be
      obtained with greater diversification of the industries in which our portfolio
      companies operate. If those industries should decline or fail to develop as
      expected, our investments in our portfolio companies in those industries will
      be
      subject to loss.





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





A
      portion
      of the Company's investments consist of securities acquired directly from the
      issuer in private transactions. They may be subject to restrictions on resale
      or
      otherwise be illiquid. We anticipate that there may not be an established
      trading market for such securities. Additionally, many of the securities that
      the Company may invest in will not be eligible for sale to the public without
      registration under the Securities Act of 1933, which could prevent or delay
      any
      sale by the Company 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.
      Further, even if a portfolio company registers its securities and becomes a
      reporting corporation under the Securities Exchange Act of 1934, the Company
      may
      be considered an insider by virtue of its board representation and would be
      restricted in sales of such corporation's securities.





We
      typically exit our investments when the portfolio company has a liquidity event
      such as a sale, recapitalization, or initial public offering of the company.
      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 the investments in the portfolio, the proceeds of
      such
      liquidation would be significantly less than the value at which we acquired
      those investments.





**Our
      failure to make follow-on investments in our portfolio companies could impair
      the value of our portfolio.**





Following
      its initial investments in portfolio companies, the Company may make additional
      investments in such portfolio companies as "follow-on" investments, in order
      to
      increase its investment in a portfolio company, and exercise warrants, options
      or convertible securities that may be acquired in the original financing. Such
      follow-on investments may be made for a variety of reasons including: 1) to
      increase the Company's exposure to a portfolio company, 2) to acquire securities
      issued as a result of exercising convertible securities that were purchased
      in a
      prior financing, 3) to preserve or reduce dilution of the Company's
      proportionate ownership in a subsequent financing, or 4) in an attempt to
      preserve or enhance the value of the Company's investment.





-29-


There
      can
      be no assurance that the Company will make follow-on investments or have
      sufficient funds to make such investments; the Company will have the discretion
      to make any follow-on investments as it determines, subject to the availability
      of capital resources. The failure to make such follow-on investments may, in
      certain circumstances, jeopardize the continued viability of a portfolio company
      and the Company's initial investment, or may result in a missed opportunity
      for
      the Company to increase its participation in a successful operation. Even if
      the
      Company has sufficient capital to make a follow-on investment, we may elect
      not
      to make the follow-on investment because we may not want to increase our
      concentration of risk or because we prefer other opportunities.





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





We
      primarily invest in the equity securities of other companies. However, 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 based upon the recommendation of its
      Valuation Committee. The types of factors that the Valuation Committee takes
      into account in providing its fair value recommendation to the Board of
      Directors 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 ready market for these securities existed.





**Our
      financial results could be negatively affected if a significant portfolio
      investment fails to perform as expected.**





We
      acquire controlling equity stakes in companies and our total debt and equity
      investment in controlled companies may be significant individually or in the
      aggregate. Investments in controlled portfolio companies are generally larger
      and in fewer companies than our investments in companies that we do not control.
      As a result, if a significant investment in one or more controlled companies
      fails to perform as expected, our financial results could be more negatively
      affected and the magnitude of the loss could be more significant than if we
      had
      made smaller investments in more companies.





**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. Leverage is generally considered a
      speculative investment technique.




-30-


**Changes
      in interest rates may affect our cost of capital and net investment income.**





Because
      we may borrow money to make investments, our net income is partially dependent
      upon the difference between the rate at which we borrow funds and the rate
      at
      which we invest these funds. As a result, there can be no assurance that a
      significant change in market interest rates will not have a material adverse
      effect on our net income. In periods of rising interest rates, our cost of
      funds
      would increase, which would reduce our net income. We may use a combination
      of
      long-term and short-term borrowings and equity capital to finance our investing
      activities. We may use interest rate risk management techniques in an effort
      to
      limit our exposure to interest rate fluctuations. Such techniques may include
      various interest rate hedging activities. Accordingly, no assurances can be
      given that such changes will not have a material adverse effect on the return
      on, or the recovery of, the Company’s investments.





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





The
      Company's business activities contain elements of risk. The Company considers
      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 the Board of Directors.





The
      Company has invested a substantial portion of its 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. The Company expects that some of its 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 typically no public market for the equity interests of the small
      companies in which the Company invests, the valuation of the equity interests
      in
      the Company's portfolio is subject to the estimate of the Company's 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 the Company's portfolio of equity interests may differ significantly
      from the values that would be placed on the portfolio if a ready market for
      the
      equity interests existed. Any changes in valuation are recorded in the Company's
      consolidated statements of operations as "Net increase (decrease) in unrealized
      appreciation on investments."





**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.**




On
      October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family Partnership, L.P.
      filed a lawsuit against Franklin Capital Corp. (n/k/a Patient Safety
      Technologies, Inc.), Sunshine Wireless, LLC, and four other defendants
      affiliated with Winstar Communications, Inc. On February 25, 2003, the case
      against Franklin Capital and Sunshine Wireless was dismissed. However, on
      October 19, 2004, the plaintiffs exercised their right to appeal. The initial
      lawsuit alleged that the Winstar Communications defendants conspired to commit
      fraud and breached their fiduciary duty to the plaintiffs in connection with
      the
      acquisition of the plaintiffs' radio production and distribution business.
      The
      complaint further alleged that Franklin Capital and Sunshine Wireless joined
      the
      alleged conspiracy in structuring a transaction in which the plaintiffs’
      business was transferred to a venture primarily composed of and operated by
      Franklin Capital and Sunshine Wireless and where the proceeds were retained
      by
      non-bankrupt affiliates of Winstar Communications. The plaintiffs seek recovery
      of damages in excess of $10,000,000, costs and attorneys' fees. An unfavorable
      outcome in an appeal, together with an unfavorable outcome in the lawsuit may
      have a material adverse effect on Franklin Capital's business, financial
      condition and results of operations. The Company believes the lawsuit is without
      merit and intends to vigorously defend itself.





-31-


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





On
      February 25, 2005, in connection with the acquisition of SurgiCount Medical,
      Inc., a California corporation, issued the former shareholders of SurgiCount
      Medical an aggregate of 190,000 shares (570,000 shares post 3:1 forward stock
      split) of common stock. An additional 10,000 shares (30,000 shares post 3:1
      forward stock split) of common stock otherwise issuable to the shareholders
      pursuant to the merger agreement were deposited into an escrow account to be
      held for a period of six months following the completion of the transaction
      to
      secure certain rights to indemnification from the shareholders based on breaches
      or inaccuracies of the representations and warranties made by the shareholders
      in connection with the acquisition.





In
      addition, in the event that, prior to the fifth anniversary of the closing
      of
      the acquisition of SurgiCount Medical, the cumulative gross revenues of
      SurgiCount Medical exceed $500,000, the shareholders are entitled to receive
      an
      additional 16,667 shares (50,000 shares post 3:1 forward stock split) (for
      a
      total of 216,667 shares, 650,000 shares post 3:1 forward stock split) of common
      stock. Likewise, in the event that, prior to the fifth anniversary of the
      closing of the transaction, the cumulative gross revenues of SurgiCount Medical
      exceed $1,000,000, the shareholders will be entitled to receive an additional
      16,667 shares (50,000 shares post 3:1 forward stock split) (for a total of
      233,334 shares, or 700,000 shares post 3:1 forward stock split) of common stock.





The
      foregoing issuances were made in reliance upon the exemption provided in Section
      4(2) of the Securities Act and the safe harbor of Rule 506 under Regulation
      D
      promulgated under the Securities Act. No form of general solicitation or general
      advertising was conducted in connection with the Private Placement. Each of
      the
      certificates representing shares of Common Stock sold and issued in connection
      with the Merger contains a restrictive legend preventing the sale, transfer
      or
      other disposition of such shares, unless registered under the Securities Act,
      and each Shareholder was informed by the Company of these restrictions prior
      to
      the issuance of the shares.





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





None.





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




The
      following proposals were submitted to shareholders at our annual meeting of
      stockholders held March 30, 2005 and were approved by a majority of the shares
      present at the meeting.




1.
      To
      elect Lytle Brown III as a Class I Director to hold office for a three-year
      term
      expiring in 2007, or until his successor has been duly elected and qualified
      or
      until his earlier death, resignation or removal, in accordance with the
      Company’s bylaws, as amended. This proposal was approved. Results of the voting
      were as follows:





**No.
                of Shares****Shares
                For**
            
            **Shares
                Withheld**
            
            **Broker
                non-votes**Common
                Stock
            
            
            1,661,164
            
            
            8,022
            
            
            N/APreferred
                Stock
            
            
            10,750
            
            
            0
            
            
            N/ACommon
                Stock and Preferred Stock
            
            
            1,671,914
            
            
            8,022





-32-
 2.
        To
        ratify the appointment by the Board of Directors of Rothstein, Kass &
        Company, P.C. to serve as independent auditors for the fiscal year ended
        December 31, 2004. This proposal was approved. Results of the voting were
        as
        follows:





**No.
                of Shares****Shares
                For**
            
            **Against**
            
            **Abstain**
            
            **Broker
                non-votes**Common
                Stock
            
            
            1,658,634
            
            
            9,858
            
            
            694
            
            
            0Preferred
                Stock
            
            
            10,750
            
            
            0
            
            
            0
            
            
            0Common
                Stock and Preferred Stock
            
            
            1,669,384
            
            
            9,858
            
            
            694
            
            
            0


3.
      The
      authorization and approval of the stock option component of the stock option
      and
      restricted stock plan. This proposal was approved. Results of the voting were
      as
      follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,404,218
              
              
              18,461
              
              
              26,131
              
              
              220,376Preferred
                  Stock
              
              
              10,750
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,414,968
              
              
              18,461
              
              
              26,131
              
              
              220,376
 4.
      The
      authorization and approval of the restricted stock component of the stock option
      and restricted stock plan. This proposal was approved. Results of the voting
      were as follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,428,791
              
              
              18,888
              
              
              1,131
              
              
              220,376Preferred
                  Stock
              
              
              10,750
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,439,541
              
              
              18,888
              
              
              1,131
              
              
              220,376
 5.
      To
      authorize and approve the payment of cash and equity compensation to Milton
      “Todd” Ault III, Lynne Silverstein, and Louis Glazer and Melanie Glazer, each of
      whom may be deemed to be an “interested stockholder” (as defined in Section 203
      of the Delaware General Corporate Law (“DGCL”)) of the Company. This proposal
      was approved. Results of the voting were as follows:





**No.
                of Shares****Shares
                For**
            
            **Against**
            
            **Abstain**
            
            **Broker
                non-votes**Common
                Stock
            
            
            1,062,547
            
            
            21,407
            
            
            1,429
            
            
            220,376Preferred
                Stock
            
            
            0
            
            
            0
            
            
            0
            
            
            0Common
                Stock and Preferred Stock
            
            
            1,062,547
            
            
            21,407
            
            
            1,429
            
            
            220,376




-33-


6.
      To
      authorize and approve the sale of common stock, warrants to purchase common
      stock and other securities representing indebtedness convertible into common
      stock to Mr. Ault, Ms. Silverstein and the Mr. and Ms. Glazer, on terms that
      are
      approved by the Board consistent with its fiduciary duties and market terms
      existing at the time of such offering, including those relating to price per
      share, interest rate, warrant coverage and registration rights for such
      issuances and the requirements of applicable law, including the Investment
      Company Act of 1940, as amended (the “Investment Company Act”). This proposal
      was approved. Results of the voting were as follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,063,659
              
              
              20,218
              
              
              1,506
              
              
              220,376Preferred
                  Stock
              
              
              0
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,063,659
              
              
              20,218
              
              
              1,506
              
              
              220,376
 7.
      To
      authorize and approve a certificate of amendment to the Amended and Restated
      Certificate of Incorporation of the Company to reduce the par value of the
      Common Stock from $1.00 per share to $0.33 per share and effect a three-for-one
      forward split of the common stock. This proposal was approved. Results of the
      voting were as follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,665,354
              
              
              2,853
              
              
              979
              
              
              0Preferred
                  Stock
              
              
              10,750
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,676,104
              
              
              2,853
              
              
              979
              
              
              0
 8.
      To
      authorize and approve the prospective issuance of bonds, notes or other
      evidences of indebtedness that are convertible into common stock in accordance
      with the requirements of the Investment Company Act. This proposal was approved.
      Results of the voting were as follows:





**No.
                of Shares****Shares
                For**
            
            **Against**
            
            **Abstain**
            
            **Broker
                non-votes**Common
                Stock
            
            
            1,438,999
            
            
            9,020
            
            
            791
            
            
            220,376Preferred
                Stock
            
            
            10,750
            
            
            0
            
            
            0
            
            
            0Common
                Stock and Preferred Stock
            
            
            1,449,749
            
            
            9,020
            
            
            791
            
            
            220,376




-34-
 9.
        To
        authorize and approve the Board to withdraw the Company’s election to be treated
        as a business development company (“BDC”) pursuant to Section 54(c) under the
        Investment Company Act. This proposal was approved. Results of the voting
        were
        as follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,433,357
              
              
              14,722
              
              
              731
              
              
              220,376Preferred
                  Stock
              
              
              10,750
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,444,107
              
              
              14,722
              
              
              731
              
              
              220,376
 10.
      To
      authorize and approve a Certificate of Amendment to change the name of the
      Company to “Patient Safety Technologies, Inc.” This proposal was approved.
      Results of the voting were as follows:





**No.
                  of Shares****Shares
                  For**
              
              **Against**
              
              **Abstain**
              
              **Broker
                  non-votes**Common
                  Stock
              
              
              1,440,603
              
              
              5,565
              
              
              2,642
              
              
              220,376Preferred
                  Stock
              
              
              10,750
              
              
              0
              
              
              0
              
              
              0Common
                  Stock and Preferred Stock
              
              
              1,451,353
              
              
              5,565
              
              
              2,642
              
              
              220,376
 11.
      To
      authorize and approve a Certificate of Amendment to decrease the authorized
      number of shares of common stock from 50,000,000 shares to 25,000,000 shares
      and
      decrease the authorized number of shares of preferred stock from 10,000,000
      shares to 1,000,000 shares. This proposal was approved. Results of the voting
      were as follows:





**No.
                of Shares****Shares
                For**
            
            **Against**
            
            **Abstain**
            
            **Broker
                non-votes**Common
                Stock
            
            
            1,661,508
            
            
            4,311
            
            
            3,367
            
            
            0Preferred
                Stock
            
            
            10,750
            
            
            0
            
            
            0
            
            
            0Common
                Stock and Preferred Stock
            
            
            1,672,258
            
            
            4,311
            
            
            3,367
            
            
            0


No
      other
      matters were submitted to a vote of security holders during the first quarter
      ended March 31, 2005.


**Item
      5.**  **Other
      Information.**





None.





**Item
                6.**
            **Exhibits.**





**Exhibit
                Number**
            
            **Description**31.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act, promulgated pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act, promulgated pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code, promulgated pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code, promulgated pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.








-35-


**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: September
                13, 2005
              By:
              /s/ Milton
                "Todd" Ault IIIMilton
                  "Todd" Ault III
                Chairman & Chief Executive
                  Officer


Date: September
              13, 2005
            By:
            /s/ William
              B. HorneWilliam
                B. Horne
              Chief Financial Officer and Principal Accounting
                Officer






-36-