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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, 2002

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

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

     The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2002 was $232,786,266. For purposes of determining this amount only, Registrant has defined affiliates as including (a) the executive officers and directors of Registrant on June 30, 2002, and (b) each stockholder that has informed Registrant by June 30, 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 12, 2003 was 119,314,372.

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 2003 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 taking controlling interests in and developing its companies through superior operations and management. Currently, Safeguard has acquired and operates businesses that provide business decision and life science software-based product and service solutions that have reached the “time-to-volume” stage of development. Time-to-volume is the process of building an efficient company around a commercially viable product with distribution channels, sales and marketing organization, and a corporate infrastructure that has the capability to grow rapidly and achieve market success. Safeguard’s existing strategic subsidiaries focus on one or more of the following vertical markets: financial services, healthcare and pharmaceutical, manufacturing, retail and distribution, and telecommunications. Safeguard may acquire other time-to-volume technology companies complementary to its existing companies and markets. Safeguard also owns a number of legacy companies. 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.

      During 2002, Safeguard focused on acquiring and developing business and IT services companies, which possess positive and recurring cash flow opportunities, as well as the potential for growth and operational improvement. In December 2002, Safeguard acquired 100% of Alliance Consulting, an IT consulting firm that architects and implements digital enterprise strategies for its clients by building and integrating information technology across every line of business. Safeguard merged two of its existing wholly owned IT services firms, aligne Strategy and Lever8 Solutions, into Alliance to create a business that generated, in the aggregate, $109 million of revenues in 2002. Alliance has a unique “assemble-to-order” business model that leverages its talent base efficiently while being directly responsive to its customers’ complex needs. Alliance’s high-value digital intelligence capability complements and enhances our existing software companies and will complement and enhance software companies that will be acquired in the future.

      During 2002, Safeguard also focused on acquiring additional equity interests in each of its operating companies with compelling technology and growth potential in the time-to-volume stage of development. Safeguard obtained majority ownership positions in ChromaVision and Mantas and increased its majority positions in SOTAS and Agari Mediaware.

	•	ChromaVision provides a patented software-based microscope imaging system, ACIS® or automated cellular imaging system, which aids pathologists in the analysis of various diseases and conditions. ACIS® uses a proprietary integrated, analytic software solution based on complex algorithms. Many of the top clinical laboratories, hospitals, university medical centers and biopharmaceutical companies in the United States and Europe have adopted ChromaVision’s technology.
	•	Mantas provides behavior detection software that banks, brokerage firms and other financial services firms currently use to detect potentially suspicious behavior in anti-money laundering and compliance management. The Mantas platform can analyze billions of accounts and transactions, all in context of one another, in order to identify suspicious activities that need further review.
	•	SOTAS provides solutions to wireline and mobile communications service providers. SOTAS combines enabling core technology, that mines and offers universal access to proprietary data from communications networks and other data sources, with applications in three product lines: (1) Operations Management, such as Quality of Service, Traffic Management and Best Value Routing; (2) Revenue Management, which includes Billing Verification, Margin Analysis and Customer Management; and (3) Security Management, such as Fraud Management and VPN Management.

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	•	Agari Mediaware provides content application integration (CAI) software that helps media and entertainment, broadcast, publishing and government organizations leverage the use of their digitally encoded rich media content investments. Agari has recently signed a strategic partnership agreement with IBM. Agari’s Media Bus software integrates the legacy applications that create, manage, and distribute content. Integration enables Agari’s customers to access and use content across departments, divisions, or companies regardless of repository.

      During 2002, Safeguard disposed of certain non-strategic or slow growth assets. These dispositions included companies and private equity funds, as well as the real estate and improvements comprising the Safeguard corporate campus. During 2002, Safeguard also reduced its commitments to certain private equity funds.

      In 2003, Safeguard intends to focus its resources on the operations of its majority owned strategic subsidiaries, Alliance Consulting, ChromaVision, Mantas, Sotas and Agari, to pursue additional market penetration, revenue growth, cash flow improvement, and long-term value growth. In addition, Safeguard will continue to seek to acquire companies in their time-to-volume stage of development, particularly in the diagnostic and decision solutions for business and life sciences, that focus on one or more of the vertical markets served by Safeguard’s existing strategic subsidiaries (financial services, healthcare and pharmaceutical, manufacturing, retail and distribution, and telecommunications). Diagnostic and decision solutions can be defined as complex software-based systems and services that deliver specialized information, which is the basis for decisions by domain experts in addressing critical business issues. Safeguard anticipates that any new acquisitions will involve majority interests in companies that are either in the business decision or life sciences solutions sectors or are complementary to Safeguard’s existing strategic subsidiaries. Safeguard has no intention of investing in additional private equity funds and may seek to reduce its ownership interest in, and its commitments to, the funds it currently holds.

      In general, Safeguard intends to own companies as long as it believes that it can leverage its resources to create superior growth opportunities for the company and create value for Safeguard and its shareholders. Safeguard will then consider divesting the company and redeploying the capital realized to fund its other business activities or to pursue other acquisition and development opportunities. To the extent Safeguard believes a company does not fit in its strategy and/or is under performing, Safeguard will consider continuing to provide operation and management support and possibly funding to achieve an appropriate value prior to pursuing a monetization transaction. Consistent with that strategy, during 2003, Safeguard will continue to assess its companies, looking at the strategy of each company, its fit within Safeguard’s strategic focus and its opportunity for growth and may during the course of the year dispose of additional companies and funds.

      Safeguard sees a growing market for companies that offer diagnostic and decision solutions in business and life sciences in a variety of vertical markets. Currently, Safeguard is strategically and operationally engaged in growing the following businesses: Alliance Consulting, Agari Mediaware, ChromaVision, Mantas and SOTAS. Alliance Consulting has a proven track record in architecting, building, and delivering solutions for the Fortune 2000 market using an advanced project delivery methodology. Alliance has deep domain expertise in the pharmaceutical, financial services and manufacturing, retail and distribution industries. ChromaVision, Mantas and SOTAS all use complex algorithms to provide comprehensive, specialized information yielding the basis of actionable decisions for domain experts. These companies are focused in the healthcare and pharmaceutical, financial services, manufacturing, retail and distribution, and telecommunication industries. Safeguard believes focusing on diagnostic and decision solutions will provide value for our shareholders and during 2003, Safeguard intends to pursue other acquisition opportunities in this area.

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Development of Time-to-Volume 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 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.

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

	•	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.

      Safeguard provides the resources to address the challenges facing our 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 and its shareholders.

      We provide a full range of operational and management services to each of our 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 provides hands-on assistance to the management of the company in support of its growth. Each team is responsible for all elements of the acquisition and development of our companies, providing consistency to the relationship between Safeguard and the company.

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

      Planning. Once we acquire a 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 companies’ successes. Prior to closing an acquisition, we begin to work with a prospective company to:

	•	define its near term strategic goals;
	•	identify the key milestones to reaching these goals;

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	•	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.

      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 companies measure their progress and continually reassess their objectives and requirements. By helping our 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, advice and guidance to develop the management strength of our companies. Safeguard executives serve on the board of directors of each of our 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 measurements and financial results.

     Management and Operational Support

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

      Management. Safeguard senior management provides active guidance to 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 companies, or in temporary executive capacities during the development of a company. We also can assist a company to respond to temporary demands for additional highly qualified personnel through our consulting and service companies.

      Marketing. We provide our 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 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 company. We and our companies may call upon our 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 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 companies when they are seeking to execute major corporate or other financial transactions.

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Safeguard Companies

      The following tables provide a summary of our companies in our three principal areas. Our ownership positions in the following tables have been calculated as of March 12, 2003 and reflect the percentage of the vote that we are entitled to cast based on the issued and outstanding voting securities of each company, excluding the effect of options, warrants and convertible debt. Our ownership percentage assumes the purchase by Safeguard of equity securities upon satisfaction or waiver of all 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 companies. Safeguard continually assesses its companies looking at the strategy of a company, its fit in Safeguard’s strategy and the opportunity for growth.

Strategic Initiative Companies

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Legacy

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

**	Includes the acquisition of 4,646,408 shares of ChromaVision common stock in February 2003.

Creation of Shareholder Value

      Our principal mission is to create long-term shareholder value. In general, Safeguard intends to own companies as long as it believes that the business of the company is within Safeguard’s strategic focus and Safeguard can leverage its resources to achieve superior revenue, cash-flow and value growth from the company’s activities. If Safeguard believes that a company fits Safeguard’s strategic focus and is capable of generating significant cash flow, Safeguard may seek to acquire at least 80% of the equity interests in the company to allow Safeguard efficient access to the cash flow. When a company no longer meets Safeguard’s criteria for value creation, Safeguard will consider divesting the company and redeploying the capital realized in other acquisition and development opportunities. Safeguard may achieve liquidity events from its companies through a number of means, including sales of the entire company, sales of Safeguard’s interest in the company, which in the case of Safeguard’s public companies may include sales in the open market or in privately negotiated sales, and public offerings of the company’s securities.

COMPUCOM

      CompuCom Systems, Inc. (Nasdaq: CMPC) is a leading provider of full life-cycle information technology (“IT”) solutions to large and medium-sized organizations throughout the United States. CompuCom offers its clients a single-source for procuring, deploying, managing and supporting complex computing environments. Through its comprehensive portfolio of service and products offerings, CompuCom helps clients reduce the costs, complexities, obstacles and risks associated with new technology adoption and acquisition, operational transition and on-going management of their information systems.

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      These services include: platform, system, and application design, development and integration; desktop, help desk, application, and network operations outsourcing; and other IT solutions such as mobile and wireless services, enterprise and network security, enterprise storage, engineering services, and event technical management. Combining these services with CompuCom’s ability to provide technology products, including complex imaging and configuration, and product acquisition services, CompuCom simplifies the selection, acquisition, deployment, implementation and ongoing management processes of clients’ information systems.

      In 2002 CompuCom completed its 16th consecutive profitable year. Revenue declined when compared to 2001, primarily as a result of economic conditions and competitive pressure in CompuCom’s product business. However, CompuCom achieved revenue growth in its services business and service gross margin dollars accounted for approximately half of total gross margin dollars, the highest level in CompuCom’s history. CompuCom also continued its ongoing focus on streamlining its operations and processes, reducing its operating and financing expense by almost $57 million when compared to 2001 and further strengthening its balance sheet, ending the year with $128 million in cash.

      CompuCom’s strategy incorporates an emphasis on four key components: increasing IT services revenues; improving service delivery quality; strengthening balance sheet performance; and improving operating expense management. CompuCom’s strategy to increase IT services revenues is to focus on the growth of its services business internally as well as through strategic acquisitions and alliances. CompuCom expects to experience continued pressure in its product business, as major manufacturers expand their plans to market and distribute products directly to CompuCom’s clients and as direct marketers’ efforts to sell to the Fortune 1000 companies intensify. In addition, general economic conditions remain soft. CompuCom believes these factors may result in lower product revenue and product gross margin dollars in the future. CompuCom believes that future profitability will depend on a number of factors, including CompuCom’s ability to: focus on and grow its service business profitably; attract and retain quality services personnel while effectively managing the utilization of those personnel; respond to increased competition from its suppliers’ direct selling initiatives; and control operating expense. In addition, future profitability will also depend on overall improvement in the economy, CompuCom’s ability to effectively manage inventory levels in response to changes in major suppliers’ price protection and return programs, product demand, competition, manufacturer product availability and pricing strategies, and effective utilization of vendor programs.

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

      CompuCom’s product sales accounted for 75% of Safeguard’s total net sales in 2002, compared to 80% in 2001 and 88% in 2000. CompuCom’s services sales accounted for 18% of Safeguard’s total net sales in 2002, compared to 15% in 2001 and 10% in 2000. 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 2002. However, no one customer accounted for more than 10% sales in either products or services. Sales of HP and IBM products accounted for approximately 38% and 21%, respectively, of CompuCom’s 2002 product revenues compared to 45% and 20%, respectively, in 2001 and 50% and 26%, respectively, in 2000. Sales of HP products include sales of Companq, whose acquisition by HP was completed in May 2002.

      CompuCom’s business depends on its relationship with key vendors. A substantial portion of CompuCom’s revenues is derived from sales of hardware and software, including HP and IBM personal computer products. During 2002, sales of products from these two suppliers represented 59% of CompuCom’s total revenues. In addition, a portion of the services CompuCom provides is directly related to the sales of these products. CompuCom’s agreements with these vendors contain provisions that provide for periodic renewals and permit termination by the vendor without cause, generally upon 30 to 90 days notice. In addition,

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      CompuCom’s industry is characterized by intense competition, primarily in the areas of price, product availability and breadth of services and product line. Many established original equipment manufacturers (including some of CompuCom’s vendors), direct marketers, distributors, systems integrators and resellers of desktop or networking products compete with CompuCom in the configuration and distribution of computer systems and equipment. Some of these competitors have a pricing advantage over companies such as CompuCom. In response to this increased competition, some of CompuCom’s competitors have sought to increase market share through acquisitions. CompuCom expects this consolidation will continue in 2003. CompuCom also expects the major manufacturers of the products CompuCom sells will continue to pursue a more direct selling model. In the highly fragmented IT services business, CompuCom competes with several larger IT service providers (including some of CompuCom’s vendors) in addition to other smaller computer services companies. Some of these competitors have financial, technical, sales, marketing and other resources that are substantially greater than CompuCom’s. As a result of these factors, CompuCom may face fewer but larger and better-financed competitors, possibly resulting in a reduction of both revenue and gross margin dollars.

      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 in the United States. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — General.”

      CompuCom employed approximately 3,437 full-time employees as of December 31, 2002.

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, 2002 is contained in Note 19 to the Consolidated Financial Statements.

OTHER INFORMATION

      Export sales in each segment for the three-year period ended December 31, 2002 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 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, 2002, Safeguard and its consolidated subsidiaries have approximately 4,614 employees, of which CompuCom employs approximately 74%. 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.”

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AVAILABLE INFORMATION

      All periodic and current reports, registration statements, and other filings that the Company is required to file with the Securities and Exchange Commission (“SEC”), including the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, are available through the Company’s Internet website at http://www.safeguard.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. The Company’s Form 10-Q for the third quarter of 2002 and its Form 8-K filed in November 2002 were timely filed with the SEC and posted to the Company’s website on December 6, 2002. The Company’s Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

      The public may also read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC; the address of that site is http://www.sec.gov.

      Safeguard’s corporate headquarters and administrative offices in Wayne, Pennsylvania contain approximately 31,000 square feet of office space in one building. In October 2002, Safeguard sold this facility along with the office park in which our corporate headquarters and administrative offices are located. Safeguard leased back its corporate headquarters for a seven-year term with one five-year renewal option. Additionally, we lease approximately 3,300 square feet of office space in Boston, Massachusetts. The lease expires in June 2005 with two six-month renewal options. In June 2002, we closed our office facility in Palo Alto, California. Our 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. CompuCom 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 configuration services in New Jersey. Effective August 1, 2001 CompuCom exercised its option to extend the term of the lease for an additional three years, until July 31, 2004. In September 2002, CompuCom terminated its lease for its second facility in New Jersey and in July 2001, CompuCom closed its warehouse space in North Carolina and exercised its early termination right effective March 2003.

      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 alleged material misrepresentations and/or omissions in connection with the initial public offering of Opus360 Corporation stock on April 7, 2000.

      On October 2, 2002, the court granted the motion to dismiss filed by Safeguard and CompuCom with respect to the claims under Section 11 and 12 of the Securities Act of 1933. The court also granted the motion to dismiss filed by all defendants due to the absence of any material misstatement or omission in the prospectus and registration statement (without prejudice to repleading within 30 days). On October 30, 2002, plaintiffs served their second amended consolidated class action complaint. The amended complaint does not name Safeguard or CompuCom as defendants and thus there are no pending actions against Safeguard or

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      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, a loan to Mr. Musser, the guarantee of certain margin debt 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 Safeguard’s companies, the impact of competition on prospects for one or more of Safeguard’s 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 plaintiffs have filed a consolidated and amended complaint. On May 23, 2002, the defendants filed a motion to dismiss the consolidated and amended complaint for failure to state claim upon which relief may be granted. On October 24, 2002, the Court denied the defendants’ motions to dismiss, holding that, based on the allegations of plaintiffs’ consolidated and amended complaint, dismissal would be inappropriate at this juncture. 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.

      The Company and its subsidiaries are involved in various 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.

      No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2002.

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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 2002 and 2001 are as follows:

      The high and low sale prices reported in 2003 through March 12 were $1.80 and $1.16, respectively, and the last sale price reported on March 12, 2003, was $1.21. 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 12, 2003 there were approximately 77,400 beneficial holders of the Company’s common stock.

      NONE

      The following table sets forth our selected consolidated financial information for the five years in the period ended December 31, 2002. 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 and our Consolidated Financial Statements and Notes thereto included in this report. The historical results presented herein may not be indicative of future results.