UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K/A




(Amendment
No. 1)





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


FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008




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:            001-09727





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)





43460
Ridge Park Drive, Suite 140, Temecula, CA 92591


(Address
of principal executive offices) (Zip Code)





Registrant’s
telephone number, including area code: (951) 587-6201





Securities registered pursuant to
Section 12(b) of the Act:None





Securities
registered pursuant to Section 12(g) of the Act:





Title of each class
                  
                  Name of each exchange on which registeredCommon
      Stock, par value $0.33 per share
                  
                  OTC
      Bulletin Board





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes   ̈  No  x .





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  ̈





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.   Yes x
    No    ̈ .




Indicate
by check mark, if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈




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


Large accelerated filer   ̈
              Accelerated filer   ̈
              Non-accelerated filer   ̈
              Smaller Reporting Company  x





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




The
aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant (without admitting that any person whose shares are not
included in such calculation is an affiliate) based on the last reported sale
price of the common stock as reported on the OTC.BB on June 30, 2008 was
approximately $18.5 million.




The
number of outstanding shares of the registrant’s common stock, par value $0.33
per share, as of March 31, 2009 was 17,197,872.








PATIENT
SAFETY TECHNOLOGIES, INC.





FORM
10-K FOR THE FISCAL YEAR


ENDED
DECEMBER 31, 2008





TABLE
OF CONTENTS





PagePART
      IIIItem
      10.
                Directors
      and Executive Officers of the Registrant
                1Item
      11.
                Executive
      Compensation
                3Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                12Item
      13.
                Certain
      Relationship and Related Transactions
                14Item
      14.
                Principal
      Accounting Fees and Services
                15PART
      IVItem
      15.
                Exhibits,
      Financial Statement Schedules
                16SIGNATURES
                17


i


EXPLANATORY
NOTE





This
Amendment No. 1 on Form 10-K/A, or the "Amendment", amends Patient Safety
Technologies, Inc.’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, originally filed on April 16, 2009, or the "Original
Filing".  The purpose of this Amendment is to include certain
information required by Part III of Form 10-K that was omitted from Part III of
the Original Filing because it was to be incorporated by reference to our
definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders.  Because our definitive proxy Statement will not become
definitive within 120 days after the end of the fiscal year ended December 31,
2008, the information required by Part III of the Annual Report on Form 10-K
cannot be incorporated by reference and therefore must be included in the Annual
Report.  This Amendment contains the information that was previously
omitted from Part III of the Original Filing.  In addition, in
connection with the filing of this Amendment and pursuant to the rules of the
Securities and Exchange Commission, our Chief Executive Officer and Interim
Chief Financial Officer have reissued their certifications. Accordingly, Item 15
has also been amended to reflect the filing of such certifications.





Except as
described above no other changes have been made to the Original
Filing.  The Original Filing continues to speak as of the dates
described in the Original Filing, and we have not updated the disclosures
contained therein to reflect any events that occurred subsequent to such
dates.  Accordingly, the Amendment should be read in conjunction with
our filings made with the Securities and Exchange Commission subsequent to the
filing of the Original Filing, as information in such filings may update or
supersede certain information contained in this Amendment. In this Amendment,
unless the context indicates otherwise, the terms “we”, “us”, and “our” refer to
Patient Safety Technologies, Inc. and our subsidiary.


ii





PART
III





Item
10. Directors, Executive
Officers and Corporate Governance.





As of
March 31, 2009, our board of directors, or the Board, consisted of six
directors:  Steven H. Kane, David I. Bruce, John P. Francis, Wenchen
Lin, Herbert Langsam and Louis Glazer, M.D.





Set forth
below are the names of our directors, their ages, their offices with us, if any,
their principal occupations or employment for the past five years, the length of
their tenure as directors and the names of other public companies in which such
persons hold directorships.  Each director is appointed to serve until
our next annual meeting of stockholders or the sooner of his resignation or the
date when his successor is duly appointed and qualified.





Name
                
                Age
                
                Position (s)Steven
      H. Kane (1)(2)(3)
                
                56
                
                Chairman of the Board of DirectorsDavid I. Bruce
                
                49
                
                President, Chief Executive Officer and DirectorJohn
      Francis
                
                43
                
                DirectorLouis
      Glazer, M.D., Ph.G. (2)
                
                78
                
                DirectorHerbert
      Langsam (2)
                
                78
                
                DirectorWenchen
      Lin
                
                53
                
                Director




(1)
            Member
      of our Audit Committee


(2)
            Member
      of our Compensation Committee


(3)
            Member
      of our Nominating Committee





Steven H.
Kane, age 56,is
the Company’s Chairman and has served as a director of the Company since
November 26, 2007.  Mr. Kane is currently the President, Chief
Executive Officer and Director of Protalex, Inc. (OTCBB: PRTX) and has over 30
years experience in the health care industry. From April 1997 to August 2000,
Mr. Kane served as Vice President of North American Sales & Field Operations
for Aspect Medical. While at Aspect, he helped guide the company to a successful
initial public offering in January 2000. Prior to Aspect, Mr. Kane was Eastern
Area Vice President for Pyxis Corporation, where he was instrumental in
positioning the company for its successful initial public offering in 1992.
Pyxis later was acquired by Cardinal Health for $1 billion. Prior to that, Mr.
Kane worked in sales management with Eli-Lilly and Becton
Dickinson.





David
I. Bruce, age 49, has
served as a director of the Company since January 2009 and holds the position of
President and Chief Executive Officer.  Prior to joining the Company
Mr. Bruce was the Chief Executive Officer of EP MedSystems, Inc. a developer of
electrophysiology devices, which was acquired by St. Jude Medical in July
2008.  Mr. Bruce’s experience also includes nine years of increasing
responsibility at Acuson Corporation and the Ultrasound Division of Siemens,
including as General Manager of the intracardiac echo (ICE) catheter.  He
also served as Vice President, Marketing for EVL, a laser vision correction
company. Mr. Bruce received an MBA from the Wharton School and BS in
Mechanical Engineering from the University of California,
Berkeley.





John P. Francis,age 43, has served as a director of the Company since November 26,
2007.  Mr. Francis is President of Francis Capital Management, LLC, an
investment management firm specializing in small capitalization equities.
  Mr. Francis has over eighteen years of experience in investment
management, finance and accounting.




Louis
Glazer, M.D., Ph.G., age 78, has served as a director of the Company
since October 22, 2004. Since October 2004, Dr. Glazer has served in
various positions of the Company, including that of Director, Chairman of the
Board, CEO, Vice-Chairman and Chief Health and Science Officer, overseeing the
development of the Company’s Safety-SpongeTM retained
sponge incident reducing system. Until 2002, Dr. Glazer served as the chief
anesthesiologist and medical director for the Vitreo-Retinal Clinic in Memphis,
Tennessee for over 25 years. Prior to that, Dr. Glazer taught obstetrics
anesthesia at the University of Tennessee, while practicing anesthesiology at
numerous hospitals in Memphis, Tennessee. Dr. Glazer received his B.S. in
pharmacy from the University of Oklahoma and his M.D. from the University of
Bologna School of Medicine in Italy.  He presently serves on the
Executive Council of the Center for Patient Safety Research and Practice at
Harvard Medical School and the Brigham and Women’s Hospital in Boston,
MA.


1




Herbert Langsam,age 78,has
served as a director of the Company since October 22, 2004.
Mr. Langsam also currently serves as president of Medicare Recoveries,
Inc., a private company located in Oklahoma City, Oklahoma focused on providing
Medicare claims and recovery services. Mr. Langsam serves as a member of
the board of trustees for the Geriatric Research Drug Therapy Institute and as
an adjunct professor at the University of Oklahoma Pharmacy School. Previously,
Mr. Langsam was the founder, president and chief executive officer of
Langsam Health Services, a conglomerate of health care companies that serviced
17,000 long-term care residents, which was acquired by Omnicare, Inc. in 1991.
Mr. Langsam also served as the vice president of pharmacy services for
Omnicare, Inc. following its acquisition of Langsam Health Services.
Mr. Langsam received his B.S. in pharmacy from the University of
Oklahoma.




Wenchen Lin,age 53,has served as a director of the Company since March 28, 2007. Mr.
Lin has almost twenty years experience as the President and founder of A Plus
International, a successful manufacturer producing a variety of surgical
dressings, film and plastic products and servicing the custom procedural tray
industry on cotton textile products. A Plus has established relationships with
key market leaders in the industries A Plus services. Mr. Lin began his career
serving as Vice-President to large trade and shipping companies, such as Trade
Diversified, Inc. and Brother Trucking Co. and has vast knowledge and experience
in overseas factories, trade, transport and distribution. Mr. Lin received his
MBA from Ohio University and his accounting degree from Taiwan Suzhou
University.




Committees
of the Board and Meetings





Meeting
Attendance.  The Board met seven times during the fiscal year
ended December 31, 2007 and eleven times during the fiscal year ended December
31, 2008. Each Board member, with the exception of Mr. Lin attended 90% or more
of the aggregate number of meetings of the Board and of the committees on which
he or she served that was held during the period for which he or she was a
director or committee member, respectively.  Mr. Lin attended 73% of
the meeting held.





Audit
Committee.  The Audit Committee operates pursuant to an Amended
and Restated Charter of the Audit Committee, which sets forth the
responsibilities of the Audit Committee. The primary function of the Audit
Committee is to oversee and monitor the Company’s accounting and reporting
processes and the audits of the Company’s financial statements.  The
Audit Committee member is currently Steven H. Kane, who is considered
independent under Rule 10A-3 under the Exchange
Act.  Mr. Kane serves as the Chairman of the Audit
Committee.





Nominating
Committee.The Nominating Committee has the power and
authority to nominate qualified applicants to the Board when a vacancy
arises.  The Nominating Committee member currently is Steven H.
Kane.  Mr. Kane serves as the Chairman of the Nominating
Committee.





Compensation
Committee.The Compensation Committee operates pursuant to an
Amended and Restated Charter of the Compensation Committee. The Compensation
Committee determines and recommends to the Board the compensation to be paid the
Company’s executive officers and also reviews the amount of salary and bonus for
each of the Company’s other officers and employees. In addition, the
Compensation Committee determines and recommends to the Board the amount of
stock option grants to be issued to the Company’s officers and directors under
the Company’s existing Stock Incentive Plan and/or Non-Statutory Stock Option
Plan, respectively and will determine individual performance awards for such
participants.  The Compensation Committee members currently are
Messrs. Steven H. Kane and Louis Glazer, M.D. Ph.G.  Mr. Kane is
considered independent under Rule 10A-3 under the Exchange Act. Each member
of the Compensation Committee is a “non-employee director” for purposes of
Rule 16b-3 under Section 16 of the Exchange Act. Mr. Kane serves
as the Chairman of the Compensation Committee. Dr. Glazer is a former officer of
the Company.





Stockholder
Communications With The Board Of Directors





A
stockholder who wishes to communicate with the Board or with specific individual
directors may send written communications by mail addressed to the Board
generally, or to such specific director or directors individually, at:
c/o Corporate Secretary, Patient Safety Technologies, Inc., 43460 Ridge
Park Drive, Suite 140, Temecula, CA 92590. All communications so addressed will
be forwarded to the Board or the individual director or directors, as
applicable. Communications will be distributed to the Board, or to any
individual director or directors as appropriate, depending on the facts and
circumstances outlined in the communications.  Items that are
unrelated to the duties and responsibilities of the Board may be excluded, such
as:


2





·
            junk
      mail and mass mailings;




·
            resumes
      and other forms of job inquires;




·
            surveys;
      or




·
            solicitations
      or advertisement.





In
addition, any material that is unduly hostile, threatening, or illegal in nature
may be excluded, provided that any communication that is filtered out will be
made available to any outside director upon request.





Executive
Officers





Set forth
below is certain information regarding our principal executive officers who are
not also directors.  We currently do not have employment agreement
with any of our executive officers except David Bruce, our President and Chief
Executive Officer, all other executive officers are at-will
employees.





Name
                
                Age
                
                Position (s)Mary
      A. Lay
                
                52
                
                Interim Chief Financial Officer, Principal Accounting Officerand Corporate SecretaryBrian Stewart
                
                37
                
                Vice President, Business Development





Mary A.
Lay, age 52, has served as our Interim Chief Financial Officer and
Principal Accounting Officer since October 2008 and was appointed Corporate
Secretary, March 2009. Prior to joining the Company, from 2005 to 2008, Ms. Lay
served as the Chief Financial Officer of Meret Optical Communications, Inc. a
privately held manufacturer of RF Subsystems; from 2002 to 2004 as Vice
President of Finance and Acting Chief Financial Officer of Sorrento Networks
Corporation a mid-market manufacturer of intelligent optical networking
solutions listed on the NASDAQ Global Market; from 1999 to 2002 as Chief
Financial Officer for a dot.com development stage company and a golf publication
and manufacturing company.  Ms. Lay earned a MBA from the University
of Phoenix and a BA of Business with emphasis in Financial Accounting from
National University.  She received her CPA certification in
Maryland.





Brian E. Stewart,age 37, Co-Founder, has served as our Vice President Business Development
since January 2009.  Prior to returning to SurgiCount, Mr. Stewart
worked in the investment banking division of Credit Suisse and CIBC World
Markets.  In addition to his investment banking and entrepreneurial
experience, Mr. Stewart’s previous experience includes Strome Investment
Management, a hedge fund in Santa Monica, CA.  Mr. Stewart received his MBA
from The Anderson School at UCLA and his BA in Economics from UCLA where he
graduated Phi Beta Kappa and Summa Cum Laude.





Item
11. Executive
Compensation.





Compensation
Committee Interlocks and Insider Participation





During
the last fiscal year, no executive officer of the Company served either as:
(1) a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire Board of Directors) of another entity, one of whose executive officers
served on the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire Board
of Directors) of the Company; (2) a director of another entity, one of
whose executive officers served on the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of the Company; or (3) a member
of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire Board of
Directors) of another entity, one of whose executive officers served as a
director of the Company. Our Compensation Committee had no meetings in 2008. As
a result of this, our Board made all the compensation decisions for 2008 and
William Horne and William Adams were both executive officers of the
Company.


3





Our
Compensation Committee did not meet during 2008. Our Board has reviewed the
Compensation Discussion and Analysis and discussed that analysis with
management. Based on its review and discussions with management, our Board has
decided that the Compensation Discussion and Analysis will be included in the
company’s Annual Report on Form 10-K for 2008 and the company’s 2009 proxy
statement. This report is provided by the following directors:





Steven
      H. Kane
              David
      I. BruceJohn
      Francis
              Dr.
      Louis GlazerHerbert
      Langsam
              Wenchin
      Lin





COMPENSATION
DISCUSSION AND ANALYSIS





For 2009,
we have designed the compensation program for our named executive officers to
attract, motivate, and retain key executives who drive the Company’s success. We
seek to employ the best executive talent in our line of business. We want to
reward our executives for business achievements and satisfaction of corporate
objectives. Additionally, the overall executive compensation program, taken as a
whole, should align the interests of the executives with the stockholders’
interests.  We achieve these objectives through a compensation package
that:





·
            provides
      competitive total compensation consisting primarily of cash and
      stock,




·
            allows
      our officer’s to participate in the benefit programs that we offer to all
      full-time employees,




·
            provides
      certain officer’s to receive additional fringe
  benefits,




·
            differentiates
      rewards based on the officer’s contributions to company performance,
      and




·
            encourages
      our named executive officers to act as owners with an equity interest in
      Patient Safety.





We view,
for compensation purposes, our competitors for executive talent as companies in
the health care industry.




Determining
Executive Compensation




The
independent members of the Board approve the compensation of our named executive
officers.  The Compensation Committee makes a recommendation to the
independent directors for annual compensation (including salary, bonus and
stock-based compensation) of our named executive officers. These recommendations
are based on:




Chief executive
officer





·
            The
      chief executive officer’s historical
earnings,




·
            a
      market competitive assessment of similar roles at other
      companies,




·
            the
      earnings of other named executive officers,
and




·
            an
      evaluation of the chief executive officer’s performance for the fiscal
      year.




Named executive officers
(other than the chief executive officer).





·
            The
      executive’s historical earnings,




·
            a
      market competitive assessment of similar roles at other
      companies,




·
            internal
      comparisons to the compensation of other
  executives,




·
            evaluations
      of performance for the fiscal year,
and




·
            the
      chief executive officer’s recommendations for each named executive
      officer’s base pay, and bonus
amounts.




The
evaluation is based on the success of the named executive officer in achieving
his performance commitments, which include financial, strategic and company
culture/leadership goals. The Board approves the named executive officers
salary, bonus and stock-based compensation in the first quarter of the fiscal
year after the relevant performance information is available.


4





The
Components of our Executive Compensation Program





Our
executive compensation program consists of three elements: base pay; cash bonus
and grants of fair market value of either restricted stock or options to
purchase shares of our common stock. We use this mix of programs for a variety
of reasons:





·
            As
      a package, these types of programs are typically offered by the types of
      companies from which we would seek executive
  talent.




·
            As
      a package, these particular programs provide both a current and a long
      term incentive for the executive officers, thereby aligning the
      executives’ interests with
shareholders.




·
            These
      programs, as a package, provide the executives with short and long-term
      rewards; this serves as a retention, as well as a motivational, device for
      the executives.





We also
provide our named executive officers with a package of fringe benefits on the
same basis that is provided to all full-time benefits eligible employees. These
benefits include such items as health insurance and group term life insurance.
We provide certain executives with an additional benefit of an automobile
allowance, which is provided for in their employment contracts.





We
believe that the package of executive compensation programs that we offer is
competitive; we are able to attract and retain the executive talent that we need
to successfully run our business. We currently believe that the long term
incentive component of our executive compensation program, which uses fair
market value stock options and grants of restricted common stock, provides
executives with an incentive as well as putting a portion of their compensation
at risk if our share price declines.





We
believe that our named executive officers should have formalized employment
contracts. The existence of a contract gives the Company, and the named
executive officer structure as to the other’s expectations from the employment
relationship. We also believe that the level of security that an employment
contract provides to the executive is an important retention tool; we feel that
many of the companies with whom we compete for executive talent offer such
agreements and that we would be at a competitive disadvantage if we did not have
them. The salient terms of the employment agreements for the named executive
officers are discussed in the “Employment Agreements” section.





Our
Process for Setting Executive Pay





The
Compensation Committee’s focus is to determine the compensation of the chief
executive officer and to review the proposals of the chief executive officer
regarding the compensation for other named executive officers. In 2009, the
Compensation Committee will present recommendations to the entire Board of
Directors for their approval.





Our
executive compensation process begins with the chief executive officer’s
submission of each executive’s total pay package to the Compensation Committee
for its determination. We maintain a pay structure with ranges for each type of
compensation (base pay, bonus, equity grant) for the named executive officers.
We have developed this structure based on our knowledge of our
industry.





Our
process for determining the value of each component of executive pay has
functioned in the following manner for 2009:





Base pay: Base
compensation for all of our named executive officers is provided for in their
respective employment agreements, and the Company has the ability to make annual
increases to the base pay level. Looking at information from other reporting
companies, the chief executive officer makes a recommendation for executive base
pay increases to the Compensation Committee. The Compensation Committee reviews
the information provided by the chief executive officer and its supporting data,
and makes a determination of annual base pay increases.





Annual bonus: Our
annual bonus program for executives is administered in the following manner. Our
Compensation Committee determines the amount of bonuses, if any, for each of our
named executive officers.  To the extent bonuses are made they are on
a completely discretionary basis at the reasonable and good faith discretion of
the Compensation Committee, based upon the financial performance of the
Company.





Equity grants: In
certain circumstances, the Compensation Committee may award equity grants to
named executive officers.  The reasons for these grants
include:


5





·
            an
      incentive to join the Company, based on compensation that is being
      forfeited through the termination of previous
  employment,




·
            to
      encourage retention of critical
talent,




·
            as
      a strategic investment in someone deemed critical to the Company’s
      leadership, and




·
            to
      reward outstanding performance





The chief
executive officer recommends the equity grant, if any, to a named executive
officer. At the time as offer of employment is made, the chief executive officer
provides the Compensation Committee with a proposal for equity grants as part of
the employment contract process. In this case, in 2009, the amount of the grant
will be based on the equity grant ranges for the position, which the Company
maintains. In 2009, the Compensation Committee will consider the chief executive
officer’s recommendation and makes a final decision based on the factors listed
above. Equity grants that were made to named executive officers during 2008 were
in connection with a grant specifically authorized by our Board. All of the
options granted in 2008 were valued at fair market value as of the date of grant
(as further explained below).





We
establish the exercise price for our options in the following
manner.





For a new
hire, the Compensation Committee approves the grant and establishes the price
based on the Company’s closing price on the day of Compensation committee
approval; however, if the executive has not yet started employment as of the
date of Compensation Committee approval, the price is set as the Company’s
closing price on the executive’s first day of work.




For a new
contract for a current executive, the Compensation Committee approves the grant
and establishes the price based on the Company’s closing price on the day of
Compensation Committee approval.





We
believe that the grant of fair market value stock options, even though there is
now a financial statement impact before the options are exercised, continues to
provide substantial benefits to the Company and the executive. We benefit
because the options align the executive’s financial interest with the
shareholders’ interest:





The
executives benefit because:




·
            They
      can realize additional income if our shares increase in value,
      and




·
            They
      have no personal income tax impact until they exercise the
      options





We do not
maintain any equity ownership guidelines for our named executive officers. We
have adopted a corporate policy which expressly prohibits any named executive
officer from trading in derivative securities of our Company, short selling our
securities, or purchasing our securities on margin at any time. We do not time
the granting of our options with any favorable or unfavorable news relating to
our Company. Proximity of any awards to an earnings announcement, market event
or other event related to us is purely coincidental.




Because
we feel that each of our named executive officers provides unique services to
us, we do not use a fixed relationship between base pay, short term bonus and
equity awards. When the Compensation Committee makes the final decisions about a
named executive officers total compensation package for a year, the three
elements (base pay, bonus and equity award) are considered both individually and
as a complete package. We do not take into account amounts that a named
executive officer may have realized in a year as a result of short term bonus
awards or stock option exercises when we establish pay levels and goals for the
current year. Overall, we believe that our total compensation program for
executives is reasonable while being competitive with market peers.





In
2008, our Compensation Committee did not meet. Due to the financial position of
the Company, with the exception of Richard Bertran, our Board set the base
salaries of our named executive officers at the same level as 2007. In the case
of Mr. Bertran, our Board increased his base salary because of his increased
responsibilities with the Company.  Our Board also determined that in
order to conserve cash no annual bonuses were granted or paid in 2008 to our
named executive officers. Our Board did make several equity awards to our named
executive officers based on each individual’s performance during 2008. Our Board
did not document its analysis for any of these compensation
decisions.


6





The
following table sets forth information concerning the annual and long-term
compensation earned by or paid to our Chief Executive Officer and to other
persons who served as executive officers at and/or during the fiscal year ended
December 31, 2008, who earned compensation exceeding $100,000 during 2008 and
(the “named
executive officers”), for services as executive officers for the last two
fiscal years.





SUMMARY
COMPENSATION TABLE





Name and principal
                                                                  position
                                                                
                                                                Year
                                                                
                                                                Salary
                                                                  ($)
                                                                
                                                                
                                                                Bonus
                                                                  ($)
                                                                
                                                                
                                                                Stock
                                                                  Awards
                                                                  ($)(8)
                                                                
                                                                
                                                                Option
                                                                  &
                                                                  Warrant
                                                                  Awards
                                                                  ($)(8)
                                                                
                                                                
                                                                Non-Equity
                                                                  Incentive Plan
                                                                  Compensation
                                                                  ($)
                                                                
                                                                
                                                                Nonqualified
                                                                  Deferred
                                                                  Compensation
                                                                  Earnings ($)
                                                                
                                                                
                                                                All Other
                                                                  Compensation
                                                                  ($) (9)
                                                                
                                                                
                                                                Total
                                                                  ($)William
      B. Horne,Former
      Chief
                                                                
                                                                2008
                                                                
                                                                
                                                                131,429
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                469,653
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                601,082Executive
      & Chief
                                                                
                                                                2007
                                                                
                                                                
                                                                218,750
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                30,991
                                                                
                                                                
                                                                
                                                                30,896
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                280,637Financial Officer(1)Bill
      Adams,Former
      President &
                                                                
                                                                2008
                                                                
                                                                
                                                                312,500
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                646,381
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                11,480
                                                                
                                                                
                                                                
                                                                970,361Chief
      Executive
                                                                
                                                                2007
                                                                
                                                                
                                                                312,500
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                29,148
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                341,648Officer
      ofSurgiCount(2)Richard
      Bertran,Former
      President of
                                                                
                                                                2008
                                                                
                                                                
                                                                260.417
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                421,788
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                12.343
                                                                
                                                                
                                                                
                                                                694,548SurgiCount(3)
                                                                
                                                                2007
                                                                
                                                                
                                                                231,243
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                53,329
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                284,572Mary
      LayInterim
      Chief
                                                                
                                                                2008
                                                                
                                                                
                                                                77,903
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                77,903Financial Officer(4)Lynne
      Silverstein,Former
      Executive
                                                                
                                                                2007
                                                                
                                                                
                                                                105,000
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                25,000
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                130,000Vice President (5)James
      Schafer,Former
      Director of
                                                                
                                                                2007
                                                                
                                                                
                                                                67,051
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                37,500
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                104,551Manufacturing
      ofSurgiCount(6)Milton
      “Todd” AultIII,
      Former Chief
                                                                
                                                                2007
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                26,100
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                26,100Executive Officer(7)





(1)
            Mr.
      Horne resigned October 13, 2008.


(2)
            Mr.
      Adams resigned January 5, 2009.


(3)
            Mr.
      Bertran resigned January 6, 2009.


(4)
            Ms.
      Lay was appointed Interim Chief Financial Officer on October 13,
      2008


(5)
            Ms.
      Silverstein resigned October 15,
2007


(6)
            Mr.
      Schafer resigned August 8, 2007


(7)
            Mr.
      Ault resigned January 5, 2007


(8)
            Represents
      the dollar amount recognized for financial reporting purposes of
      restricted stock grants, warrant grants, and stock options awarded in 2008
      and 2007, respectively, computed in accordance with SFAS
      123(R).


(9)
            Primarily
      represents car payments paid by the
Company


7





The
following table sets forth information with respect to the named executive
officers concerning the grant of stock, warrants, stock options during the
fiscal year ended December 31, 2008. The Company did not have any outstanding
stock appreciation rights (“SARs”) as
of December 31, 2008.





GRANTS
OF PLAN-BASED AWARDS




Estimated Future Payouts
                                        Under Non-Equity Incentive
                                        Plan Awards
                                      
                                      
                                      Estimated Future Payouts
                                        Under Equity Incentive Plan
                                        Awards
                                      
                                      
                                      All
                                        Other
                                        StockName
                                      
                                      Grant Date
                                      
                                      Threshold
                                        ($)
                                      
                                      
                                      Target
                                        ($)
                                      
                                      
                                      Maximum
                                        ($)
                                      
                                      
                                      Threshold
                                        ($)
                                      
                                      
                                      Target
                                        ($)
                                      
                                      
                                      Maximum
                                        ($)
                                      
                                      
                                      Awards:
                                        Number
                                        of
                                        Shares
                                        of
                                        Stocks
                                        or
                                        Units(#)
                                      
                                      
                                      All Other
                                        Option
                                        Awards:
                                        Number of
                                        Securities
                                        Underlying
                                        Options(#)
                                      
                                      
                                      Exercise
                                        or Base
                                        Price of
                                        Option
                                        Awards
                                        ($/Sh)
                                      
                                      
                                      Grant
                                        Date
                                        Fair
                                        Value
                                        of Stock
                                        and
                                        Option
                                        AwardsMilton“Todd”
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      15,000
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      26,100AultJames
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      25,000
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      37,500SchaferWilliam
                                      
                                      2008
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      471,600
                                      
                                      
                                      $
                                      1.52
                                      
                                      
                                      
                                      469,653B.
      Horne
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      18,019
                                      
                                      
                                      
                                      24,000
                                      
                                      
                                      $
                                      2.00
                                      
                                      
                                      
                                      69,855Bill
                                      
                                      2008
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      650,000
                                      
                                      
                                      $
                                      1.25
                                      
                                      
                                      
                                      646,381Adams
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      24,000
                                      
                                      
                                      $
                                      2.00
                                      
                                      
                                      
                                      36,917Lynne
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      20,000
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      25,000SilversteinRichard
                                      
                                      2008
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      425,000
                                      
                                      
                                      
                                      1.25
                                      
                                      
                                      
                                      421,788Bertran
                                      
                                      2007
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      50,000
                                      
                                      
                                      
                                      1.39
                                      
                                      
                                      
                                      53,329





8





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




OPTION AWARDS
                                      
                                      
                                      STOCK AWARDSName
                                      
                                      Number of
                                        Securities
                                        Underlying
                                        Unexercised
                                        Options (#)
                                        Exercisable
                                      
                                      
                                      Option
                                        Exercise
                                        Price
                                        ($)
                                      
                                      
                                      Option
                                        Expiration
                                        Date
                                      
                                      
                                      Number of Shares or
                                        Units of Stock That Have
                                        Not Vested (#)
                                      
                                      
                                      Market Value of Shares or
                                        Units of Stock That Have Not
                                        Vested
                                        ($)300,000
                                      
                                      
                                      
                                      1.25
                                      
                                      
                                      06/12/2018Bill
      Adams
                                      
                                      
                                      87,500
                                      
                                      
                                      
                                      1.25
                                      
                                      
                                      04/24/2015
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —20,000
                                      
                                      
                                      
                                      2.00
                                      
                                      
                                      03/16/20124,000
                                      
                                      
                                      
                                      2.00
                                      
                                      
                                      11/26/2012Lynne
      Silverstein
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —175,000
                                      
                                      
                                      
                                      1.25
                                      
                                      
                                      06/12/2018Richard
      Bertran
                                      
                                      
                                      50,000
                                      
                                      
                                      
                                      1.39
                                      
                                      
                                      10/02/2017
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —62,500
                                      
                                      
                                      
                                      1.25
                                      
                                      
                                      04/24/2015
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —




Pension
Benefits





The
Company does not offer a pension benefit plan.





Non-Qualified
Deferred Compensation





The
Company does not offer a non-qualified deferred compensation plan.





Compensation
of Directors





As of
December 31, 2008, the cash compensation earned by each director of the Company
varies.  Steven H. Kane and David Augustine earned $150,000 and
$20,000 respectively in fees and Arnold Spangler received stock option grants
valued at $134,750.  The other directors were eligible to receive a
fee of $500 plus reimbursement of expenses incurred in attending each board
meeting.  During 2008, the Company did not compensate Messrs. Langsam,
Lin, Francis, Glazer and Adams for serving on the Board of
Directors.  All compensation paid to Messrs.  Kane and
Augustine is set forth in the “Summary Compensation Table.”


9


Director
Compensation




Name
                  
                  Fees Earned
                    or Paid in
                    Cash ($)
                  
                  
                  Stock
                    Awards
                    ($) (7)
                  
                  
                  Option
                    Awards
                    ($) (7)
                  
                  
                  Non-Equity
                    Incentive Plan
                    Compensation
                    ($)
                  
                  
                  Change in Pension
                    Value and
                    Nonqualified
                    Deferred
                    Compensation
                    Earnings ($)
                  
                  
                  All Other
                    Compensation
                    ($)
                  
                  
                  Total ($)ArnoldSpangler(1)
                  
                  
                  -
                  
                  
                  
                  134,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  134,750HerbertLangsam
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -DavidAugustine
      (2)
                  
                  
                  20,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000WenchenLin
      (3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -John Francis (4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Steven H. Kane (5)
                  
                  
                  125,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  125,000Louis
      Glazer, M.D., Ph.G.,
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -William Adams(6)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -





(1)
            Mr.
      Spangler resigned as a director on June 11, 2008 and does not currently
      serve on the Board or as an
Officer.


(2)
            Mr.
      Augustine was appointed as a director effective January 24, 2007 and
      resigned March 10, 2009.  The $20,000 in director’s fees were
      accrued but not paid.


(3)
            Mr.
      Lin was appointed as a director effective March 28,
  2007.


(4)
            Mr.
      Francis was appointed as a director effective November 26,
      2007.


(5)
            Mr.
      Kane was appointed as a director effective February 7,
      2008.  The $125,000 in director’s fees were accrued but not
      paid.


(6)
            Mr.
      Adams was appointed as a director effective June 11, 2008 and resigned
      January 5, 2009.


(7)
            Represents
      the dollar amount recognized for financial reporting purposes of
      restricted stock grants and stock options awarded, computed in accordance
      with SFAS 123(R).


10





Securities
Authorized for Issuance Under Equity Compensation Plans





On
December 31, 2008, there were 2,500,000 options to purchase shares of common
stock outstanding under the Amended and Restated Stock Option and Restricted
Stock Plan, with 24,000 options, warrants, or shares of common stock available
for future issuance under the Amended and Restated Stock Option and Restricted
Stock Plan. The following table shows information with respect to equity
compensation plans under which the Company's common stock is authorized for
issuance as of the fiscal year ended December 31, 2008.





Plan category
                
                Number of securities
                  to be issued upon
                  exercise of
                  outstanding options,
                  warrants and rights
                
                
                Number of shares of
                  restricted common
                  stock issued
                
                
                Weighted average
                  exercise price of
                  outstanding options,
                  warrants and rights
                
                
                Number of securities
                  remaining available for
                  future issuance under
                  equity compensation
                  plans (excluding
                  securities reflected in
                  column (a) and (b)(a)
                
                
                (b)
                
                
                (c)
                
                
                (d)Equity
      compensation plansapproved
      by securityholders
                
                
                1,627,000
                
                
                
                849,010
                
                
                $
                3.49
                
                
                
                23,990Equity
      compensation plansnot
      approved by securityholders
                
                
                -0-
                
                
                
                -0-
                
                
                
                -0-
                
                
                
                -0-Total
                
                
                1,627,000
                
                
                
                849,010
                
                
                
                -0-
                
                
                
                23,990





Employment
Contracts and Termination and Change of Control Arrangements





Effective
January 5, 2009, the Company entered into an employment agreement with David I.
Bruce as President and Chief Executive Officer. Mr. Bruce will receive an
initial annual base salary of $325,000 and he is eligible to receive an
incentive bonus each fiscal year in the amount of not less than 25% of his
annual base salary for such year, with the payment of such bonus based on Mr.
Bruce’s achievement of performance objectives established by the Company’s Board
of Directors each fiscal year.  The Agreement also provides for
certain severance arrangements for Mr. Bruce, beginning six months after the
effective date of the Agreement.  In the event that Mr. Bruce’s
employment is terminated without cause the Company is required to pay Mr. Bruce
(1) all accrued but unpaid compensation; (2) severance payments based on his
annual base salary for a period of twelve months; (3) a pro-rated bonus for the
year in which termination occurred; and (4) payment of, or reimbursement for,
the continuation of his health and welfare benefits coverage pursuant to COBRA
for a twelve-month period following such termination or resignation
date.





Pursuant
to the Agreement, the Company granted Mr. Bruce incentive stock options to
purchase 2,000,000 shares of the Company’ common stock.  The exercise
price of the option was set at the average closing trading of the Company’s
common stock to the effective date of the Agreement.  Upon the
six-month anniversary of the effective date of the Agreement, 250,000 Shares
subject to the Option shall vest and become exercisable and thereafter, the
remaining shares will vest over a forty-two month period at the rate of
1/48th of the
total shares per month.  In addition, upon a change of control of the
Company that occurs during his employment, any unvested options shall become
fully vested and Mr. Bruce will receive a cash payment of two times his current
base salary.


11





Effective
July 18, 2005, the Company’s subsidiary SurgiCount entered into an employment
agreement with Richard Bertran as Executive Vice President of SurgiCount. Mr.
Bertran’s title subsequently was changed to President of SurgiCount. Mr.
Bertran’s annual base compensation under the agreement was $200,000. Effective
May 1, 2007 Mr. Bertran’s base salary was increased to $250,000 per year. In
addition, Mr. Bertran is entitled to receive: (a) options to purchase 200,000
shares of the Company’s common stock with a strike price of $5.00 per share,
which options vested annually over three years; and (b) 10,000 restricted shares
of the Company’s common stock as a signing bonus.  Mr. Bertran
resigned from the Company January 6, 2009.





Effective
April 21, 2006, the Company’s subsidiary SurgiCount entered into an employment
agreement with William M. Adams to employ Mr. Adams as SurgiCount’s Chief
Executive Officer. The term of the employment agreement  ended
effective at midnight on April 17, 2009. SurgiCount agreed to pay Mr. Adams an
annual base salary of $300,000 during the term of the employment agreement. In
addition, Mr. Adams was eligible to receive annual bonuses in cash or stock as
determined by the Board of Directors of SurgiCount and/or the Company. Pursuant
to the employment agreement, the Company granted Mr. Adams options to purchase
300,000 shares of the Company’s common stock with an exercise price of $3.50 per
share. One-third of such options vested annually over three years beginning
April 18, 2007.   Mr. Adams resigned from the Company January 5,
2009.





There is
no current compensation plan or arrangement with respect to any current
executive officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such individual’s employment
with the Company. Further, there is no current plan or arrangement with respect
to any such persons, which will result from a change in control of the Company
or a change in the individual’s responsibilities following a change in control.
The Compensation Committee will consider, consistent with its duties, the terms
of any such agreements, plans or arrangements.





Indemnification
Agreements





There are
no indemnification agreements known to management which have been entered into
by the Company, except as set forth in the Company’s Amended and Restated
Certificate of Incorporation, which authorizes the Company to indemnify its
agents, and any other persons to whom Delaware law permits the Company to
provide indemnification, in excess of the indemnification otherwise permitted by
Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory) with respect to
actions for breach of duty to the Company, its stockholders and
others.





Policy
With Respect To Section 162(m)





Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, unless an appropriate exemption applies, a tax deduction for the
Company for compensation of certain executive officers named in the Summary
Compensation Table will not be allowed to the extent such compensation in any
taxable year exceeds $1 million. As no executive officer of the Company received
compensation during 2007 approaching $1 million, and the Company does not
believe that any executive officer's compensation is likely to exceed $1 million
in 2008, the Company has not developed an executive compensation policy with
respect to qualifying compensation paid to its executive officers for
deductibility under Section 162(m) of the Code.





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





The
following tables set forth certain information with respect to beneficial
ownership (as that term is defined in the rules and regulations of the SEC) of
the Company’s common stock and preferred stock as of March 31, 2009, by (1) each
person who is known by the Company to be the beneficial owner of more than five
percent of the outstanding common stock and preferred stock, (2) each director
of the Company, (3) each current executive officer listed in the Summary
Compensation Table and (4) all directors and named executive officers of the
Company as a group. Except as otherwise indicated, to the Company’s knowledge,
all shares are beneficially owned and investment and voting power is held as
stated by the persons named as owners. The address for all beneficial owners,
unless stated otherwise below, is c/o Patient Safety Technologies, Inc., 43460
Ridge Park Drive, Suite 140, Temecula, CA 92590.


12





Beneficial OwnershipName and Address of Beneficial Owner
                                    
                                    Number of Shares
                                      of Common Stock (1)
                                    
                                    
                                    Percent
                                      of Class
                                    
                                    
                                    Number of Shares
                                      of Preferred Stock (2)
                                    
                                    
                                    Percent
                                      of ClassGreater than 5% Beneficial
      Owners:Compass
      Management Limited
                                      795
      Ridge Lake Blvd., Suite 106
                                      Memphis,
      TN 38120
                                    
                                    
                                    2,600,000
                                    (3)
                                    
                                    
                                    14.3
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Francis
      Capital Management, LLC
                                      429
      Santa Monica Blvd., Suite 320
                                      Santa
      Monica, CA 90401
                                    
                                    
                                    2,590,200
                                    (4)
                                    
                                    
                                    14.0
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Radisson
      Trading Company
                                      No.
      87 Lang 58
                                      Rong
      Hua West Rd., Shanghai 201103 China
                                    
                                    
                                    1,280,000
                                    (5)
                                    
                                    
                                    7.2
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —DSAM
      Fund LP
                                      222
      Broadway, 6th
      Floor
                                      New
      York, NY 10038
                                    
                                    
                                    1,114,000
                                    (6)
                                    
                                    
                                    6.3
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —A
      Plus International, Inc.
                                      5138
      Eucalyptus Avenue
                                      Chino,
      California 91710
                                    
                                    
                                    1,100,000
                                    (7)
                                    
                                    
                                    6.3
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Alan
      E. Morelli
                                      225
      Mantua Road
                                      Pacific
      Palisades, California 90272
                                    
                                    
                                    976,351
                                    (8)
                                    
                                    
                                    5.4
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Charles
      J. Kalina III
                                      93
      Grove Street
                                      Summerville,
      NJ 08876
                                    
                                    
                                    910,497
                                    (9)
                                    
                                    
                                    5.2
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Melanie
      Glazer
                                      1800
      Century Park East, Ste. 200
                                      Los
      Angeles, California 90067
                                    
                                    
                                    345,293
                                    (10)
                                    
                                    
                                    2.0
                                    %
                                    
                                    
                                    8,150
                                    
                                    
                                    
                                    74.4
                                    %Zealous
      Partners LLC
                                      1800
      Century Park East, Ste. 200
                                      Los
      Angeles, California 90067
                                    
                                    
                                    58,500
                                    (11)
                                    
                                    
                                    
                                    *
                                    
                                    
                                    2,600
                                    
                                    
                                    
                                    23.7
                                    %Directors and Named Executive
      Officers:John
      P. Francis
                                    
                                    
                                    2,590,200
                                    (4)
                                    
                                    
                                    14.0
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Wenchen
      Lin
                                    
                                    
                                    1,100,000
                                    (7)
                                    
                                    
                                    6.3
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Brian
      Stewart
                                    
                                    
                                    538,000
                                    (12)
                                    
                                    
                                    3.1
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Herbert
      Langsam
                                    
                                    
                                    179,153
                                    (13)
                                    
                                    
                                    1.0
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Louis
      Glazer, M.D., Ph.G
                                    
                                    
                                    180,000
                                    (14)
                                    
                                    
                                    1.0
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Steven
      Kane
                                    
                                    
                                    158,333
                                    (15)
                                    
                                    
                                    
                                    *
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —All
      directors and named executiveofficers
      as a group (6 persons)
                                    
                                    
                                    4,745,686
                                    
                                    
                                    
                                    26.3
                                    %
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —





*
Represents less than 1%





(1)
            Applicable
      percentage ownership is based on 17,197,872 shares of common stock
      outstanding as of March 31, 2009, together with securities exercisable or
      convertible into shares of common stock within 60 days of March 31, 2009
      for each security holder. Beneficial ownership is determined in accordance
      with the rules of the Securities and Exchange Commission and generally
      includes voting or investment power with respect to securities. Shares of
      common stock that a person has the right to acquire beneficial ownership
      of upon the exercise or conversion of options, convertible stock, warrants
      or other securities that are currently exercisable or convertible or that
      will become exercisable or convertible within 60 days of March 31, 2009
      are deemed to be beneficially owned by the person holding such securities
      for the purpose of computing the percentage of ownership of such person,
      but are not treated as outstanding for the purpose of computing the
      percentage ownership of any other
person.


13





(2)
            Applicable
      percentage ownership is based on 10,950 shares of Series A Convertible
      Preferred Stock outstanding. Each share of Series A Convertible Preferred
      Stock is convertible into 22.5 shares of common stock. Except as otherwise
      required by law, each holder of Series A Convertible Preferred Stock is
      entitled to vote on all matters submitted to our stockholders, voting
      together with the holders of common stock as a single class, with each
      shares of Series A Convertible Preferred Stock entitled to one vote per
      share.


(3)
            Consists
      of: (a) 1,600,000 shares of common stock; and (b) warrants for purchase of
      1,000,000 shares of common stock.


(4)
            Consists
      of: (a) 1,272,000 shares of common stock; and (b) warrants for purchase of
      1,318,200 shares of common stock.  John Francis has voting and
      investment control over the securities held by Francis Capital Management,
      LLC.


(5)
            Consists
      of: (a) 800,000 shares of common stock; and (b) warrants for purchase of
      480,000 shares of common stock.


(6)
            Consists
      of: (a) 640,000 shares of common stock; and (b) warrants for purchase of
      474,000 shares of common stock.


(7)
            A
      Plus International, Inc. owns 800,000 shares of common stock and
      warrants to purchase 300,000 shares of common stock.
      Mr. Lin has the power to vote and direct the disposition of all
      securities owned by A Plus International,
Inc.


(8)
            Consists
      of warrants to purchase 976,351 shares of common
  stock.


(9)
            Consists
      of: (a) 460,936 shares of common stock; and (b) warrants to purchase
      449,561 shares of common stock.


(10)
            Consists
      of: (a) 275,072 shares of common stock; (b) warrants for purchase of
      70,221 shares of common stock; and (c) 183,375 shares of common stock
      issuable upon conversion of 8,150 shares of Series A Convertible
      Preferred Stock.


(11)
            Consists
      of: (a) 58,500 shares of common stock issuable upon conversion of 2,600
      shares of Series A Convertible Preferred
Stock.


(12)
            Consists
      of: (a) 130,000 shares of common stock; (b) warrants to purchase 348,000
      shares of common stock; and (c) 60,000 shares of common stock issuable
      upon exercise of stock options with an exercise price of $5.27 per share
      that expire March 30, 2015.


(13)
            Consists
      of: (a) 79,653 shares of common stock; (b) 15,000 shares of common stock
      issuable upon exercise of stock options with an exercise price of $4.30
      per share that expire on January 25, 2016; (c) 19,500 shares of common
      stock issuable upon exercise of stock options with an exercise price of
      $5.27 per share that expire on March 30, 2015; and (d) warrants for
      purchase of 65,000 shares of common
stock.


(14)
            Consists
      of: (a) 90,000 shares of common stock issuable upon exercise of stock
      options with an exercise price of $4.10 per share that expire on January
      31, 2016; and (b) 90,000 shares of common stock issuable upon exercise of
      stock options with an exercise price of $5.27 per share that expire on
      March 30, 2015.


(15)
            Consists
      of warrants for purchase of 158,333 shares of common
  stock.





Section 16(a)
Beneficial Ownership Reporting Compliance





Section 16(a)
of the Exchange Act requires the Company’s executive officers and directors, and
persons who beneficially own more than 10% of the Common Stock, to file initial
statements of beneficial ownership (Form 3), and statements of changes in
beneficial ownership (Form 4 or 5), of securities of the Company with the
SEC. Executive officers, directors and greater than 10% stockholders also are
required by the SEC to furnish the Company with copies of all forms that they
file pursuant to Section 16(a).





To the
Company’s knowledge, based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no additional forms were required for those persons, the Company believes that
its executive officers, directors and greater than 10% beneficial owners have
complied with the Section 16(a) filing requirements applicable to them for
the fiscal year ended December 31, 2008, except as follows: Mr. Horne did
not timely file one report covering one transaction, Mr. Langsam did not timely
file one report covering one transaction and Mr. Adams did not timely file one
report covering one transaction.





Item
13. Certain Relationships and
Related Transactions, and Director Independence.





A
Plus International, Inc.




On
January 29, 2007, we entered into an Exclusive License and Supply Agreement (the
“Supply
Agreement”) with A Plus.  Pursuant to the Supply Agreement, A
Plus was granted the exclusive, world-wide license to manufacture and import
SurgiCount's products, including the right to sublicense to the extent necessary
to carry out the grant.  The pricing schedule shall remain at its
current price for the first three (3) years of the Supply Agreement; thereafter,
the pricing schedule shall be based upon the Cotlook Index and the RMB exchange
rate.  The term of Supply Agreement is eight years.


14





During
the years ended December 31, 2008 and 2007, the Company recognized cost of goods
sold of $1.4 million and $467 thousand, respectively, in connection with
surgical sponges provided by A Plus.  On April 11, 2008 the Company
entered into a $100 thousand short term note payable to A Plus which was paid in
full on May 30, 2008, including $1 thousand in interest. As part of the May 2008
financing, the Company recorded $700 thousand in prepaid expenses to be used
against inventory ordered from A Plus.  As of December 31, 2008 the
entire $700 thousand had been applied to surgical sponge purchases, leaving a
balance of zero in prepaid expenses relating to this
transaction.  Wenchen Lin, a director and significant beneficial owner
of the Company is a founder and significant owner of A Plus.




Health
West Marketing Inc.





During
the years ended December 31, 2008 and 2007 Health West Marketing Incorporated
received payments for consulting services, of $240 thousand annually, from A
Plus International, Inc.  William Adams the Company’s former Chief
Executive Officer is the Chief Executive Officer and President of Health West
Marketing Inc.  The consulting arrangement between A Plus and Health
West has been an ongoing agreement between the respective
parties.  The Company does not recognize this income or expense on
their financial statements.





Code
of Conduct





We have
adopted a code of conduct that applies to all of our employees, including our
Chief Executive Officer and Chief Financial Officer.  The text of the
code of conduct is filed as an exhibit to our Annual Report on Form 10-K/A, and
is available to stockholders without charge, upon request, in writing to the
Corporate Secretary, Patient Safety Technologies, Inc., 43460 Ridge Park Drive,
Suite 140, Temecula, CA 92590.  Disclosure regarding any amendments
to, or waivers from, provision of the code of conduct that apply to our
directors, principal executive and financial officers will be included in a
Current Report on Form 8-K within four business days following the date of the
amendment or waiver.





Item
14. Principal Accountant Fees
and Services.





The
following table presents fees for professional audit services and other fees
billed by Squar Milner, Peterson, Miranda & Williamson, LLP for the fiscal
years ended December 31, 2008 and 2007, respectively.





Fiscal Year Ended
                        December 31, 2008
                      
                      
                      Fiscal Year Ended
                        December 31, 2007Audit
      Fees
                      
                      $
                      195,000
                      
                      
                      $
                      169,000Audit-Related
      Fees
                      
                      $
                      4,000
                      
                      
                      $
                      —Tax
      Fees
                      
                      $
                      13,000
                      
                      
                      $
                      9,000All
      Other Fees
                      
                      $
                      —
                      
                      
                      $
                      —Total
      Fees
                      
                      $
                      212,000
                      
                      
                      $
                      178,000





Audit Fees.Audit fees
consist of fees billed for professional services rendered for the audit of our
year-end consolidated financial statements and reviews of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by independent accountants in connection with
statutory and regulatory filings.





Audit-Related Fees.Audit-related fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under “Audit Fees.” These services
include attest services that are not required by statute or regulation and
consultations concerning financial accounting and reporting
standards.


15





Tax Fees.Tax fees consist of
fees billed for professional services for tax compliance. These services include
assistance regarding federal, state and local tax compliance.





All Other Fees.All other
fees would include fees for products and services other than the services
reported above.





Prior to
engagement, the Audit Committee pre-approves these services by category of
service.  The fees are budgeted and the Audit Committee requires the
independent auditor and management to report actual fees versus the budget
periodically throughout the year by category of service.  During the
year, circumstances may arise when it may become necessary to engage independent
auditor for additional services not contemplated in the original
pre-approval.  In those instances, the Audit Committee requires
specific pre-approval before engaging the independent auditor.





PART
IV





Item
15. Exhibits and Financial
Statement Schedules.





(3)
            Exhibits





The
following is a list of exhibits files as part of this Annual Report on Form
10-K/A.





10.1
            Code
      of Conduct31.1
            Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            Certification
      of the Chief Financial officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.


16




SIGNATURES
 
 Pursuant
to the requirements of Rule 12b-15 of the Securities exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to its Annual Report on Form
10-K for the year ended December 31, 2008 to be signed on its behalf by the
undersigned hereunto duly authorized.
  PATIENT
      SAFETY TECHNOLOGIES, INC.April
      30, 2009
                By:
                /s/
      Mary A. LayName:
                Mary
      A. LayTitle:
                Interim
      Chief Financial Officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
  Signature
              
              Title
              
              Date/s/
      Steven H. Kane
              
              Chairman
      of the Board
              
              April
      30, 2009Steven
      H. Kane/s/
      David I. Bruce
              
              Chief
      Executive Officer, Director
              
              April
      30, 2009David
      I. Bruce/s/
      Wenchen Lin
              
              Director
              
              April
      30, 2009Wenchen
      Lin/s/
      Louis Glazer, M.D., Ph.G.
              
              Director
              
              April
      30, 2009Louis
      Glazer, M.D., Ph.G./s/
      Herbert Langsam
              
              Director
              
              April
      30, 2009Herbert
      Langsam
  17