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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For The Fiscal Year Ended December 31, 2001

Commission File Number 1-5620

Safeguard Scientifics, Inc.

(Registrant’s telephone number, including area code):

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

Securities registered pursuant to Section 12(g) 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 preceding 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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant 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. o

      Aggregate market value of common stock held by non-affiliates (based on the closing price on the New York Stock Exchange) on March 20, 2002 was approximately $383 Million. For purposes of determining this amount only, Registrant has defined affiliates as including (a) the executive officers named in Part III of this 10-K report, (b) all directors of Registrant, and (c) each stockholder that has informed Registrant by March 20, 2002 that it is the beneficial owner of 10% or more of the outstanding common stock of Registrant.

      The number of shares outstanding of the Registrant’s Common Stock, as of March 20, 2002 was 119,380,668.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission for the Company’s 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

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SAFEGUARD SCIENTIFICS, INC.

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Part I.

Business Overview

      Safeguard is an operating company that seeks to create long-term value by acquiring technology-related companies that Safeguard develops by providing superior operations and management support. Safeguard acquires and develops companies in three principal areas: business and information technology services, software and emerging technologies.

      In the past, Safeguard developed and operated emerging technology companies through its extensive network of partner companies and private equity funds. Safeguard focused on early-stage, technology companies in software, communications and e-Services in the “time-to-market” stage of development. Time-to-market is the process of getting from an idea to a commercially viable product, and involves the conception and development of a technology or product.

      Safeguard has shifted its strategy to build on three specific paths to value creation for its shareholders. Safeguard first will focus on acquiring and developing business and IT services companies where positive and recurring cash flow opportunities exist, as well as the potential for growth and operational improvement. Safeguard’s goal in this sector is to become self-sustainable from internally generated cash flow. Safeguard will build on its base of existing companies in the business and IT services area and will seek to acquire controlling ownership in other service companies, which have the proper profile to allow Safeguard to leverage its operations and management expertise in order to maximize the companies’ cash generating potential. The second focus is to build software companies with compelling technology and market potential for growth in the “time-to-volume” stage of development. Time-to-volume is the process of taking a commercially viable product and building a viable company with distribution channels, sales and marketing organization, and a corporate infrastructure that has the capability to grow rapidly and achieve market success. Safeguard’s focus in software will be to provide capital, operating leadership and post-acquisition involvement to build the go-to-market model, and enhance the likelihood of success of these companies. Safeguard’s third focus is to continue to support entrepreneurs in creating new technologies and applications by acquiring interests in their companies. Safeguard’s goal in this area is to continue to allow Safeguard and its shareholders to participate in the rewards of value creation inherent in technology innovation. Although this strategy represents a shift in focus for Safeguard, the goal of providing long-term shareholder value through operating and managing promising companies to realize their full potential remains the same.

      Safeguard expects business and IT service companies to provide the operating cash flow for Safeguard, existing and to-be-acquired software companies to provide growth and value generation, and emerging technologies to allow our shareholders to participate in entrepreneurial new technologies. Safeguard’s strategy is to create long-term value as an operating company that focuses on technology-related asset acquisitions. These assets will be developed through superior operations and management.

      Safeguard has reviewed, and will continue to monitor, its existing partner companies against this strategy and the value creation potential of these companies and, as a result, has taken actions to sell or merge certain companies. During 2001, Safeguard completed the sale of ThinAirApps to Palm, merged Atlas Commerce into VerticalNet, merged Cambridge Technology Partners (Massachusetts) into Novell, sold its interests in OAO Technology Solutions, AgWeb, Buystream, Mi8, fob and Brandywine Realty Trust and liquidated TechSpace Ventures.

      During 2001, Safeguard acquired interests in Mantas and Agari Mediaware, and in January 2002, Protura Wireless. Mantas is the first spin-off of SRA Ventures, LLC, a joint venture company formed by Safeguard and SRA International, Inc., an information technology firm specializing in systems integration and consulting. Mantas provides business intelligence solutions for exchanges and the financial services industry. Agari Mediaware is a provider of media middleware software products that allow companies to unify disparate rich media applications and assets, such as audio, video and animation, digital files and applications. Protura Wireless has compelling proprietary technology in the wireless antenna space. Safeguard also continued to provide operational and management support and funding to existing partner companies that meet Safeguard’s

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      In order to focus capital resources on Safeguard’s strategy, Safeguard has reviewed its investing posture with respect to private equity funds, and has concluded that it likely will not enter into new investment commitments to off-campus funds in the immediate future. Safeguard also is evaluating its current participation in off-campus private equity funds. During 2001, Safeguard sold all or a portion of its interests in 2 private equity funds. Safeguard continues to participate in the management of 12 private equity funds, which have total capital committed of more than $2.6 billion. During 2001, Safeguard completed a total of $17 million in follow-on funding of private equity funds.

      Safeguard’s monetization events during 2001 generated $124 million in cash, $32 million in stock and approximately $2 million in notes, for a total consideration of $158 million. At year-end, our cash on hand was $174 million and the market capitalization of our publicly held partner companies was $274 million.

      Safeguard was incorporated in Pennsylvania in 1953.

      Safeguard’s business is subject to many risks. See “Factors That May Affect Results” in Item 7 of this Annual Report on Form 10-K.

Opportunities for Business and IT Services, Software and Emerging Technology Companies

      Safeguard will focus on three areas that we believe will provide value for our shareholders:

	•	Business and IT Services. Safeguard believes that small to mid-size companies will follow the lead of larger companies in outsourcing business and IT services to raise their own operating efficiencies by concentrating on their business objectives and core strengths. Safeguard will focus on developing and operating companies that provide such non-core services that are nonetheless essential and where positive and recurring cash flow opportunities exist. Safeguard will build on its base of existing companies and will seek to acquire controlling ownership in other service companies, which have the proper profile to allow Safeguard to leverage its operations and management expertise in order to maximize the companies’ cash generating potential.
	•	Software. Software companies develop and market software applications, tools and related services that support commerce and integrate business functions. These include procurement platforms, business analytics, digital asset management, fraud and crime prevention data, rich media mining, distributed content management, web-based customer relationship management and supply chain management applications, enterprise and Internet application integration, billing and payment systems and additional applications that enable electronic commerce and information management and communication. Safeguard will seek to acquire controlling ownership interests in companies with compelling technology and market potential for growth in the “time-to-volume” stage of development.
	•	Emerging Technologies. As opportunities arise, Safeguard will continue to support entrepreneurs in creating promising new technologies and applications.

Challenges Facing Such Companies

      Once a company has a viable product, often as evidenced by initial sales to key customers, the investment of capital, management and operational expertise will allow it to become a viable company capable of achieving market success and significant value for Safeguard. Safeguard will make such investments in its partner companies with the ultimate goal of making the company a market leader in its relevant industry sector by assisting the company in addressing the following challenges.

     Management Challenges

	•	The recruitment and retention of an experienced and effective senior management team capable of providing strategic direction.

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	•	The strategic assessment of technology market opportunities and trends, the design, development and commercialization of proprietary technology solutions, and access to complementary technologies and strategic partnerships.
	•	The development of appropriate corporate, legal and financial structures and the expertise to execute transactions.

     Operational Challenges

	•	The identification of the company’s strategic market position and the implementation of effective branding, intellectual property protection, licensing, pricing, distribution, launch and marketing strategies.
	•	The establishment of facilities and administrative and operational processes to support the growing enterprise.
	•	The creation of relationships that provide customers, external marketing channels and growth through strategic partnerships, joint ventures or acquisitions.

Our Solution and Strategy

      Safeguard provides the resources to address the challenges facing our partner companies and enables these companies to capitalize on their potential opportunities. We provide capital, management and operational expertise. We believe that our experience in developing and operating technology companies enables us to identify and attract companies with the greatest potential for success and to assist these companies to become market leaders and create value for Safeguard.

     Business and IT Services and Software Companies

      We provide a full range of operational and management services to each of our partner companies through dedicated teams of Safeguard professionals. Each team has expertise in the areas of business and technology strategy, sales and marketing, operations, finance and legal and transactional support and provide hands-on assistance to the management of the partner company in support of its growth. Each team is responsible for all elements of the acquisition and development of our partner companies, providing consistency to the relationship between Safeguard and the partner company. Safeguard also leverages its extensive network of resources to the benefit of a partner company as strategic partners, customers, test beds and sales channels.

      Our post-acquisition process for enhancing the value of our partner companies consists of planning, management and operational support.

     Planning

      Once we acquire a partner company, we take an active role in its strategic direction, providing management and operational support. Through our experience in developing and operating technology companies, we have developed a methodology for accelerating our partner companies’ successes. Prior to closing an acquisition, we begin to work with a prospective partner company to:

	•	define its near term strategic goals;
	•	identify the key milestones to reaching these goals;
	•	identify the challenges and operational improvements required to reach these goals;
	•	identify the business measurements that will be applied by Safeguard and the markets to measure its success; and
	•	identify potential synergies with Safeguard’s network of companies.

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      We conduct a needs assessment to determine the nature and timing of the resources required to help the company achieve its goals. We then either provide the company with appropriate services and support from within Safeguard and its network or help them identify and negotiate to obtain these services from third-party suppliers or strategic partners. We help our partner companies measure their progress and continually reassess their objectives and requirements. By helping our partner companies’ management teams remain focused on their critical objectives, we believe we are able to significantly accelerate their development and success.

      We engage in an ongoing planning and assessment process. Through our involvement and engagement in the developing activities of these companies, seasoned Safeguard executives provide mentoring, advise and guidance to develop the management strength of our partner companies. Safeguard executives serve on the board of directors of each of our partner companies and work with them to develop their annual strategic and operating plan. Achievement of the annual plan is monitored through monthly reporting of performance metrics and financial results.

     Management and Operational Support

      We provide management and operational support to our partner companies. These services provide our partner companies with significant competitive advantages in competing in their individual markets. The resources our partner companies draw upon to accelerate their development include the following:

      Management. Safeguard senior management provides active guidance to partner companies. In addition, through our network, we have access to entrepreneurial and operational talent that is frequently called upon to serve on the board of directors or advisory boards of our partner companies, or in temporary executive capacities during the rapid development of a new partner company. We also can assist a partner company to respond to temporary demands for additional highly qualified personnel through our consulting and service companies.

      Marketing. We provide our partner companies with strategic guidance regarding market positioning, product launch and marketing and public relations. Insights concerning market position are obtained from our internal research and trend analysis and the collective intelligence of the companies within our network.

      Business Development. Our business and professional partners offer assistance in identifying, evaluating, structuring and negotiating joint ventures, strategic alliances, joint marketing agreements, distribution channel arrangements, acquisitions and other corporate transactions. In addition, we offer our partner companies a variety of services designed to reduce their operating costs, enable them to focus on product development and marketing and accelerate their time-to-volume stage of development.

      Emerging Technology. Our history as a developer of technology companies provides us with ample resources to support the technology development of a new partner company. We and our partner companies may call upon our business and IT service providers to perform strategic and operational technology assessments and to provide support for the commercialization of technology solutions. Through our network, we are also able to identify and provide preferred access to complementary technologies and promote strategic partnerships with technology leaders.

      Legal and Financial. In addition to the business partner responsible for the acquisition and overall development of each partner company, we assign a financial and legal partner to each new partner company. These professional partners are involved in the due diligence preceding the acquisition and are responsible for assessing financial and legal issues, including the recommendation of best practices within their areas of expertise. The expertise of dedicated professional partners remains available to our partner companies when they are seeking to execute major corporate or other financial transactions.

      Facilities. Our corporate campus in suburban Philadelphia currently contains approximately 135,000 square feet of flexible office space that is home to Safeguard, Internet Capital Group, 13 private equity funds, the Eastern Technology Council, and from time to time, resident entrepreneurs.

     Emerging Technologies

      Safeguard will continue to support entrepreneurs in creating promising new technologies and applications. We believe the knowledge base of our management team, the sector expertise and relationships of our business

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      We focus on companies that we believe have the potential to be market leaders and whose technology or processes provide them with a competitive advantage that prevents competitors from easily entering their market. In addition, we look for companies with accomplished technical teams that we believe have the skills to bring their concepts to market quickly. We favor markets that are sufficiently developed for the company to start aggressively building its customer base, although we will also acquire companies whose market opportunity anticipates important trends that we have identified. We place an emphasis on companies with compelling, sustainable business models. We target entrepreneurs who we believe demonstrate the leadership skills required to guide the strategy and development of an early-stage company. Once we acquire an interest in a partner company, we will provide the planning, management and operational support necessary to accelerate our partner companies’ success. We anticipate that we will generally acquire minority interests in these companies.

Safeguard Partner Companies

      The following tables provide a summary of our partner companies in our three principal areas. Our ownership positions in the following tables have been calculated as of March 20, 2002, and reflect the percentage of the vote that we are entitled to cast based on the issued and outstanding voting securities of each partner company, excluding the effect of options, warrants and convertible debt. Our ownership percentages in certain of the partner companies described below include equity interests that have been acquired by our management subject to the restrictions and thresholds of our long-term incentive plan. Our ownership percentage assumes the purchase by Safeguard of equity securities upon satisfaction or waiver of all partner company funding conditions. These ownership percentages may reflect the impact of special voting rights held by Safeguard. Where a material difference exists between voting ownership positions and economic ownership positions as a result of special voting rights, the table indicates such differences. Safeguard’s ownership position may be entitled to, or may be subject to, preferential liquidation and dividend rights of outstanding preferential securities issued by the partner companies. Safeguard continually assesses its partner companies looking at the strategy of a company, its fit in Safeguard’s strategy and the opportunity for growth.

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Business and IT Services

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Software

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Emerging Technologies

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*	Reflects Safeguard’s ownership percentage excluding any supervoting provisions or the exercise of outstanding warrants and options.

Enabling Partner Companies and Private Equity Funds

      Internet Capital Group, Inc. (NASDAQ: ICGE) (www.internetcapital.com) is an Internet company actively engaged in business-to-business e-commerce through a network of partner companies. The company’s primary goal is to build companies that can obtain number one or number two positions in their respective markets by delivering software and services to help businesses increase efficiency and reduce costs. It provides operational assistance, capital support, industry expertise, and a strategic network of business relationships intended to maximize the long-term market potential of approximately 50 business-to-business e-commerce companies. Internet Capital Group is headquartered in Wayne, PA. Safeguard owns 14%.

      TechSpace exists to help young companies grow and established companies expand. An international network of technologically advanced, full-service office communities, TechSpace provides member companies with office infrastructure, a wide range of technology and business services, and access to venture capital funding. Recognizing the gap between executive office suites and business incubators, TechSpace has positioned itself to appeal to executives who have clear vision about their businesses and need access to office space, services and capital in order to execute that vision. Safeguard owns 42%.

      USDATA Corporation (NASDAQ: USDC) (www.usdata.com), headquartered in Richardson, Texas is a leading global provider of software and services that give enterprises the knowledge and control needed to perfect the products they produce and the processes they manage. Based upon a tradition of flexible service, innovation and integration, USDATA’s software currently operates in more than 60 countries around the globe, including seventeen of the top twenty-five manufacturers. USDATA’s software heritage is born out of manufacturing and process automation solutions and has grown to encompass the industry’s deepest product knowledge and control solutions. With an eye toward the future of e-business, USDATA continues to innovate solutions that will support the integration of enterprise production and automation information into the supply chain. The company has six offices worldwide and a global network of distribution and support partners. Safeguard owns 32%.

      Pac-West Telecomm, Inc. (NASDAQ: PACW) is a provider of integrated communications services throughout the western U.S. Pac-West supplies Internet infrastructure and broadband services to Internet service providers (ISPs), and integrated voice, data and Internet services to small and medium-sized businesses. The company currently has operations in California, Nevada, Washington, Colorado, Arizona and Oregon. Safeguard owns 7%.

      REALTIME MEDIA is a full-service online relationship marketing company that uses innovative promotional techniques to deliver awareness, acquisition, activation, and retention solutions for a wide variety of clients including members of the Fortune 100. REALTIME MEDIA was originally formed to be an

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     Private Equity Funds

      In order to focus capital resources on Safeguard’s strategy, Safeguard has reviewed its investing posture with respect to private equity funds, and has concluded that it likely will not enter into new investment commitments to off-campus funds in the immediate future. Safeguard also is evaluating its current participation in off-campus private equity funds. During 2001, Safeguard sold all or a portion of its interests in 2 private equity funds. Safeguard continues to participate in the management of 12 private equity funds, which have total capital committed or invested of more than $2.6 billion. Also, Safeguard is a limited partner in seven other private equity funds, which have total capital committed of approximately $1.4 billion. During 2001, Safeguard completed a total of $17 million in follow-on funding of private equity funds.

      The private equity funds help Safeguard to provide operational and management support to our partner companies. The private equity funds provide acquisition syndication opportunities, increase our capital base, facilitate strategic partner development and increase our geographic penetration. The personal relationships and expertise of the professionals employed by these funds are important resources for developing and evaluating acquisition opportunities. Safeguard frequently refers opportunities that do not fit Safeguard’s operating strategy to an appropriate fund. The funds may pursue broader investment strategies and may invest at earlier stages and at less significant ownership percentages than Safeguard. The diversification within the funds allows Safeguard to identify and take advantage of a broader range of emerging technologies, to maintain relationships with a greater number of promising entrepreneurs and to evaluate perceived shifts in technologies. The funds had over 200 companies in their portfolios as of December 31, 2001.

	Following is a list of the private equity funds, which we participate in managing:

TL Ventures (5 funds)

Mechanisms to Realize Shareholder Value

      Our principal mission is to create long-term shareholder value. Safeguard expects business and IT service companies to provide the operating cash flow for Safeguard, existing and to-be-acquired software companies to provide growth and value generation, and emerging technologies to allow our shareholders to participate in entrepreneurial new technologies. In general, Safeguard intends to own partner companies as long as it believes that it can leverage its resources to create superior growth opportunities for the partner company and create value for Safeguard. When the company has developed a stable market and corporate infrastructure and no longer requires Safeguard’s continuing support and expertise, Safeguard will consider exiting the partner company and redeploying the capital realized in other acquisition and development opportunities. Safeguard may achieve liquidity events from its partner companies by (i) sales of the company or Safeguard’s interest in the company, (ii) mergers or (iii) taking them public, either in a normal initial public offering or through a rights or subscription offering, and subsequently by liquidating Safeguard’s interest in the company over a period of time.

     Mergers and Acquisitions

      We assist our partner companies in considering and evaluating merger and acquisition opportunities to promote shareholder value. We help our partner companies identify acquisition partners or targets, evaluate these companies, negotiate terms and document the transactions. During 2001, Safeguard completed the sale

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     Safeguard Subscription Program and Rights Offerings

      Historically, we assisted our partner companies with their initial public offerings by offering subscription opportunities or rights to purchase all or a portion of a partner company’s stock to Safeguard shareholders in the “Safeguard Subscription Program” or through a “Rights Offering.” These programs permit our shareholders to participate in the initial public offering of a partner company by the exercise of subscription opportunities or rights that are obtained based upon the number of shares of Safeguard common stock held by the purchasing shareholder. One or more underwriters or Safeguard purchase the shares not purchased upon the exercise of subscription opportunities or rights. Internet Capital Group (in 1999), US Interactive (in 1999), Pac-West Telecomm (in 1999), eMerge Interactive (in 2000) and OPUS360 (in 2000) completed their initial public offerings under the Safeguard Subscription Program. We completed Rights Offerings for Novell, Inc. and CompuCom in 1985, Tangram Enterprise Solutions in 1987, Cambridge Technology Partners in 1993, Coherent Communications Systems Corporation in 1994, USDATA in 1995, Sanchez Computer Associates and Integrated Systems Consulting Group, Inc. in 1996, Diamond Technology Partners, ChromaVision Medical Systems and OAO Technology Solutions in 1997 and DocuCorp International in 1998.

     Market Transactions

      We have sold and expect to continue to sell shares of our public partner companies in open-market or privately negotiated transactions from time to time.

COMPUCOM

      CompuCom Systems, Inc. (Nasdaq: CMPC) is a leading single-source provider of information systems services and products designed to enhance the productivity of large and medium-sized organizations throughout the United States. CompuCom provides information technology outsourcing and system integration services that help clients reduce the costs, complexities, obstacles and risks associated with new technology adoption, operational transition and on-going management of their information systems.

      These services include application design, development and maintenance, delivery of complex multi-vendor solutions, a full range of multi-vendor hardware and software support, help desk, network management and security services. Combining these services with CompuCom’s ability to provide technology products and product acquisition services, CompuCom simplifies the selection, acquisition, deployment, implementation and ongoing management processes of clients’ information systems.

      In 2001 CompuCom completed its 15th consecutive profitable year. Revenue declined when compared to 2000, primarily as a result of economic conditions and competitive pressure in CompuCom’s product business. However, CompuCom achieved revenue growth in its services business as a result of acquisitions completed during the year. During 2001, CompuCom completed four acquisitions including MicroAge Technology Services, L.L.C. (“MTS”), a division of MicroAge, Inc. in January, Excell Data Corporation (“Excell”) in July, the applications development division of E-Certify, Inc. (“ClientLink”) in November and Northern NEF, Inc. (“NNEF”) in November. These acquisitions expanded CompuCom’s desktop outsourcing business (MTS), augmented the services business with the addition of application design and development offerings (Excell and ClientLink) and broadened CompuCom’s customer base to include the Federal government (NNEF). During 2001, CompuCom also focused on streamlining its operations and processes, reducing its operating expense by almost $32 million when compared to 2000 and strengthening its balance sheet, ending the year with $123 million in cash.

      CompuCom believes the key to improving its earnings performance is the expansion of its higher margin services business and continued focus on operating expense control and effective balance sheet management. CompuCom’s strategy is to focus on the growth of its services business organically as well as through strategic

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      CompuCom defines its operations as two distinct businesses — 1) sales of personal computer-related products, which includes desktop, networking, storage and mobile computing products, as well as peripherals and software products and licenses and 2) services, which is primarily derived from all aspects of desktop outsourcing, including field engineering, as well as help desk and LAN/WAN network outsourcing, configuration, asset tracking, software management, mobile computing services, IT consulting, application development, training and services provided in support of certain manufacturers’ direct fulfillment initiatives.

      CompuCom’s product sales accounted for 80% of Safeguard’s total net sales in 2001, compared to 88% in 2000 and 88% in 1999. CompuCom’s services sales accounted for 15% of Safeguard’s total net sales in 2001, compared to 10% in 2000 and 10% in 1999. CompuCom’s business tends to be subject to seasonal fluctuations, with the highest revenue levels generally occurring in the fourth quarter. Backlog is not considered to be a meaningful indicator of CompuCom’s future business prospects due to the short order fulfillment cycle. Large corporate businesses accounted for the majority of CompuCom’s net sales in 2000. However, no one customer accounted for more than 10% sales in either products or services. Sales of Compaq, HP and IBM products accounted for approximately 23%, 22% and 20%, respectively, of CompuCom’s 2001 product revenues compared to 30%, 20% and 26%, respectively, in 2000 and 30%, 16% and 21%, respectively, in 1999.

      CompuCom has agreements with these vendors that have been regularly renewed. These agreements are generally terminable by the vendor without cause on 30 to 90 days notice. However, CompuCom believes its relationships with these vendors are good but a material adverse effect on CompuCom’s business would occur if a supply agreement with a key vendor was materially revised, was not renewed or was terminated or the supply of products was insufficient or interrupted.

      CompuCom’s industry, in both its computer products and services segment, is characterized by intense competition: primarily in the areas of price, product availability and breadth of services and product line with respect to its computer products segment and consolidation in its services segment. CompuCom’s marketing network competes for potential clients with numerous IT service providers, corporate resellers, distributors and manufacturers. Many established original equipment manufacturers (including some of CompuCom’s vendors), direct marketers, systems integrators and resellers of distributed desktop or networking products compete with CompuCom in the configuration and distribution of computer systems and equipment. In the highly fragmented computer services business, CompuCom competes with several larger IT service providers (including some of CompuCom’s vendors) in addition to other smaller computer services companies. In the services segment, CompuCom faces fewer, but larger and better-financed competitors as a consequence of such consolidation. In addition, several computer manufacturers have expanded their channels of distribution and now actively compete for CompuCom’s clients with their direct fulfillment initiatives. In the highly fragmented computer services business, CompuCom competes with several larger competitors, corporate resellers pursuing services opportunities, as well as many smaller computer services companies. As CompuCom continues to focus on the growth of its services business, it also competes with service providers that have marketed and delivered the services CompuCom provides on a much larger scale and for a longer period of time. In addition, the computer products and services industry is characterized by intense price competition, which may adversely affect CompuCom’s results of operations. As a result of these factors, in both its computer products and services sector, CompuCom may face fewer but larger and better-financed competi-

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      If CompuCom uses its stock for acquisitions or if some other dilutive event were to occur, Safeguard’s voting interest in CompuCom could be diluted below 50%, in which event Safeguard would no longer consolidate CompuCom’s financial results under current generally accepted accounting principles. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — General.”

      CompuCom employed approximately 3,800 full-time employees as of December 31, 2001.

FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS

      Information on net sales, net income and assets employed for each operating segment of Safeguard’s business for the three-year period ended December 31, 2001 is contained in Note 21 to the Consolidated Financial Statements.

OTHER INFORMATION

      Export sales in each segment for the three-year period ended December 31, 2001 were less than 5% of the segment’s total sales in each of those years. Backlog is not considered to be a meaningful indication of future business prospects for any of the Company’s operating segments.

      The operations of Safeguard and its partnership companies are subject to environmental laws and regulations. Safeguard does not believe that expenditures relating to those laws and regulations will have a material adverse effect on the business, financial condition or results of operations of Safeguard.

EMPLOYEES

      At December 31, 2001, Safeguard and its consolidated subsidiaries have approximately 4,538 employees, of which CompuCom employs approximately 84%. Safeguard believes relations with employees are good.

EXECUTIVE OFFICERS

      Information about Safeguard’s executive officers can be found in Part III of this report under “Item 10. Directors and Executive Officers of Registrant.”

      We own the office park in which our corporate headquarters and administrative offices are located in Wayne, Pennsylvania. The office park currently contains approximately 135,000 square feet, most of which we lease to our affiliated private equity funds, certain partner companies including Internet Capital Group, and other tenants. Our headquarters building is subject to a $3.6 million mortgage bearing interest at 9.75%, which amortizes over a 30-year term ending 2022 and is prepayable by us at any time beginning in January 2002. The remaining portion of the office is subject to a $10 million mortgage bearing interest at 7.75%, which amortizes over 22 1/2 years ending in 2023 and is prepayable by us beginning in November 2010. We believe the properties are in good condition and repair and are adequate for the particular operations for which they are used. Additionally, we lease approximately 2,400 square feet of office space in Palo Alto, California. Our partner companies have various facilities throughout the United States, and they believe they can readily obtain additional facilities as needed to support their anticipated needs.

      CompuCom’s executive and administrative facility in Dallas, Texas contains approximately 250,000 square feet of office space in two buildings on 20 acres. In 1999, CompuCom sold this facility and leased it back for a 20-year term with two five-year renewal options. In 2000, CompuCom opened a facility in Tempe, Arizona to house members of its second enterprise help desk team. CompuCom also leases two floors totaling 42,500 square feet of office space in Mason, Ohio, which houses one of its two client assistance centers. The lease expires July 2005 with a five-year renewal option. As part of the first quarter 2000 restructuring plan, CompuCom consolidated operations to one floor. CompuCom leases distribution, integration and configura-

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      Beginning in April 2001, the Company, CompuCom Systems, Inc., a Company affiliate, and a former officer of Safeguard who served as a Director of Opus360 Corporation, were named in putative class actions filed in federal court in New York. The plaintiffs allege material misrepresentations and/or omissions in connection with the initial public offering of Opus360 Corporation stock on April 7, 2000.

      The cases are brought against Opus360, its officers and directors (including the former Safeguard officer), Safeguard, CompuCom, and Opus360’s underwriters. In these cases, the plaintiffs allege, among other things, that the prospectus and registration statement for Opus360’s initial public offering contained misrepresentations and/or omissions regarding: (1) Opus360’s products, including Opus Xchange; (2) Opus360’s cash flow and liquidity, including its need for additional financing in the 12 month period following the initial public offering; and (3) Opus360’s relationships with its customers. Plaintiffs assert claims under Sections 11, 12 and 15 of the Securities Act of 1933. Plaintiffs seek damages in an amount in excess of $70 million. The cases have been consolidated into a single proceeding and the court has approved the designation of a lead plaintiff and the retention of lead plaintiffs’ counsel. Plaintiffs have filed a consolidated and amended complaint. Safeguard and the other defendants have moved to dismiss this complaint for failure to state a claim upon which relief may be granted. While the outcome of this litigation is uncertain, the Company believes that it has valid defenses to plaintiffs’ claims and intends to defend the lawsuits vigorously.

      On June 26, 2001, the Company and Warren V. Musser, the Company’s former Chairman, were named as defendants in a putative class action filed in federal court in Philadelphia. Plaintiffs allege that defendants failed to disclose that Mr. Musser had pledged some or all of his Safeguard stock as collateral to secure margin trading in his personal brokerage accounts. Plaintiffs allege that defendants’ failure to disclose the pledge, along with their failure to disclose several margin calls and the consequences thereof on Safeguard’s stock price, violated the federal securities laws. Plaintiffs allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

      On August 17, 2001, a second putative class action was filed against the Company and Mr. Musser asserting claims similar to those brought in the first proceeding. In addition, plaintiffs in the second case allege that the defendants failed to disclose possible or actual manipulative aftermarket trading in the securities of the Company’s partner companies, the impact of competition on prospects for one or more of the Company’s partner companies and the Company’s lack of a superior business plan.

      These two cases have been consolidated for further proceedings under the name “In Re: Safeguard Scientifics Securities Litigation” and the Court has approved the designation of a lead plaintiff and the retention of lead plaintiffs’ counsel. The Company will respond to the amended and consolidated complaint that the Court has directed plaintiffs to file. While the outcome of this litigation is uncertain, the Company believes that it has valid defenses to plaintiffs’ claims and intends to defend the lawsuit vigorously.

     General

      The Company and its subsidiaries are involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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      No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2001.

PART II.

      The Company’s common stock is listed on the New York Stock Exchange (Symbol: SFE). The high and low sale prices reported within each quarter of 2001 and 2000 are as follows:

      The high and low sale prices reported in 2002 through March 20 were $4.47 and $2.60, respectively, and the last sale price reported on March 20, 2002, was $3.30. No cash dividends have been declared in any of the years presented, and the Company has no present intention to declare cash dividends.

      As of March 20, 2002, there were approximately 91,300 beneficial holders of the Company’s common stock.

     Sale of Unregistered Securities

      On January 19, 2001, we acquired all of the outstanding capital stock of Palarco, Inc. and Palarco International, Inc. (collectively, “Palarco”). Pursuant to the terms of the stock purchase agreement, among other things, we issued 316,702 shares of our common stock, with a market value of approximately $2.9 million on the date of acquisition to Steven Siegfried, the sole stockholder of Palarco, and paid cash in exchange for all of the outstanding shares of Palarco. We believe the shares of common stock were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, since the sale was made to an individual who we believed to have been a sophisticated investor who was acquiring the shares for investment without a view to further distribution. No underwriters were involved with the issuance and sale of the shares of common stock.

Item 6.     Selected Consolidated Financial Data

      The following table sets forth our selected consolidated financial information for the five years in the period ended December 31, 2001. The selected consolidated financial data presented below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations

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