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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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 1-5620
  Safeguard Scientifics, Inc.
(Exact name of registrant as specified in its charter)

	
			
Pennsylvania	 	23-1609753	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer Identification No.)	
435 Devon Park Drive
Building 800
Wayne, PA	 	19087	
(Address of principal executive offices)	 	(Zip Code)	
(610) 293-0600
(Registrant’s telephone number, including area code)

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

			
Title of each class	 	Name of each exchange on which registered	
Common Stock ($.10 par value)	 	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý
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   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.   ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

						
Large accelerated filer	 	¨	Accelerated filer	 	ý	
Non-accelerated filer	 	¨   (Do not check if a smaller reporting company)	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý
As of June 30, 2014 , the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $421,013,883 based on the closing sale price as reported on the New York Stock Exchange.
The number of shares outstanding of the registrant’s common stock as of March 4, 2015 was 20,693,432.
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 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

Table of Contents

SAFEGUARD SCIENTIFICS, INC.
FORM 10-K
December 31, 2014

	
		
 	Page	
PART I	 	
Item 1. Business	3	
Item 1A. Risk Factors	11	
Item 1B. Unresolved Staff Comments	17	
Item 2. Properties	17	
Item 3. Legal Proceedings	17	
Item 4. Mine Safety Disclosures	17	
PART II	 	
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19	
Item 6. Selected Consolidated Financial Data	20	
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21	
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	33	
Item 8. Financial Statements and Supplementary Data	34	
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	65	
Item 9A. Controls and Procedures	65	
Item 9B. Other Information	65	
PART III	 	
Item 10. Directors, Executive Officers and Corporate Governance	66	
Item 11. Executive Compensation	66	
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66	
Item 13. Certain Relationships and Related Transactions, and Director Independence	67	
Item 14. Principal Accountant Fees and Services	67	
PART IV	 	
Item 15. Exhibits and Financial Statement Schedules	68	

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PART I
Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Safeguard Scientifics, Inc. (“Safeguard” or “we”), the industries in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially include, among others, our ability to make good decisions about the deployment of capital, the fact that our partner companies may vary from period to period, our substantial capital requirements and absence of liquidity from our partner company holdings, fluctuations in the market prices of our publicly traded partner company holdings, competition, our inability to obtain maximum value for our partner company holdings, our ability to attract and retain qualified employees, our ability to execute our strategy, market valuations in sectors in which our partner companies operate, our inability to control our partner companies, our need to manage our assets to avoid registration under the Investment Company Act of 1940, and risks associated with our partner companies and their performance, including the fact that most of our partner companies have a limited history and a history of operating losses, face intense competition and may never be profitable, the effect of economic conditions in the business sectors in which our partner companies operate, compliance with government regulation and legal liabilities, all of which are discussed in Item 1A. “Risk Factors.” Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.
Item 1.  Business
Business Overview
Safeguard’s charter is to build value in early- and growth-stage businesses by providing capital as well as strategic, operational and management resources. Safeguard participates principally in growth and expansion financings and early-stage financings. Our vision is to be the preferred capital source for entrepreneurs and management teams in well-defined industry sectors. Throughout this document, we use the term “partner company” to generally refer to those companies in which we have an equity interest and in which we are actively involved, influencing development through board representation and management support, in addition to the influence we exert through our equity ownership. From time to time, in addition to these partner companies, we also hold relatively small equity interests in other enterprises where we do not exert significant influence and do not participate in management activities. In some cases, these interests relate to former partner companies and in some cases they relate to entities which may later become partner companies.
We strive to create long-term value for our shareholders by helping our partner companies increase their market penetration, grow revenue and improve cash flow. Safeguard focuses principally on companies with initial capital requirements between $5 million and $15 million, and follow-on financing needs of between $5 million and $10 million, with a total anticipated deployment of up to $25 million from Safeguard. We will occasionally provide certain early-stage financing in amounts generally up to $1 million to promising young companies with the goal to provide more capital once certain development milestones are achieved. Safeguard principally targets companies that operate in two sectors:
Healthcare  — companies focused principally on medical technology (“MedTech”), including diagnostics and devices; and healthcare technology (“HealthTech”). Within these areas, Safeguard targets companies that have lesser regulatory risk and have achieved or are near commercialization; and
Technology  — companies focused principally on digital media; financial technology (“FinTech”); and Enterprise 3.0, which includes mobile technology, cloud, the “Internet of Things” and big data. Within these areas, Safeguard targets companies that have transaction-enabling applications with a recurring revenue stream.
In 2014 , our management team continued to focus on the following objectives:
		
•	Deploy capital in companies within our strategic focus;	
		
•	Build value in partner companies by developing strong management teams, growing the companies organically and through acquisitions, and positioning the companies for liquidity at premium valuations;	

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•	Realize the value of partner companies through selective, well-timed exits to maximize risk-adjusted value; and	
		
•	Provide the tools needed for investors to fully recognize the shareholder value that has been created by our efforts.	

To meet our strategic objectives during 2015 , Safeguard will continue to focus on:
		
•	Finding opportunities to deploy our capital in additional partner companies within our target sectors;	
		
•	Helping partner companies to achieve additional market penetration, revenue growth, cash flow improvement and growth in long-term value; and	
		
•	Realizing value in our partner companies if and when we believe doing so will maximize value for our shareholders.	
We incorporated in the Commonwealth of Pennsylvania in 1953. Our corporate headquarters are located at 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087.
Significant 2014 Highlights
Here are some of our key developments from 2014 :

•	During 2014, we deployed an aggregate of $43.3 million of capital into six new partner companies. In addition, we deployed $26.6 million of additional capital to support the growth of partner companies in which we already had an interest at December 31, 2013.	
		
•	In January 2014, we received $15.7 million in cash proceeds from the sale of partner company Alverix, Inc. to Becton, Dickinson and Company. This excludes $1.7 million, which will be held in escrow until approximately July 2015.	
		
•	In February 2014, we received $38.4 million in cash proceeds from the sale of partner company Crescendo Bioscience, Inc. to Myriad Genetics, Inc. This excludes $2.9 million which will be held in escrow until approximately May 2015.	
		
•	In February 2014, we received $23.1 million in cash proceeds from the sale of partner company NuPathe Inc. to Teva Pharmaceutical Industries Ltd. Depending on the achievement of certain milestones achieved over time, Safeguard may receive up to an additional $24.2 million.	
		
•	In April 2014, we received $4.2 million in cash proceeds from the sale of our ownership interests in partner company Sotera Wireless, Inc.	
		
•	In April 2014 and November 2014, we deployed an aggregate of $8.0 million as part of a $17.0 million Series B financing for InfoBionic, Inc. InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. InfoBionic’s MoMe™ System is the first cloud-based, multi-pass analysis universal remote patient monitoring platform that provides unprecedented analytics with seamless transition between holter, event, and mobile cardiac telemetry monitoring modes in one device.	
		
•	In June 2014, we deployed $5.8 million as part of a $10.0 million Series B financing for Syapse, Inc. Syapse is a software company that enables healthcare providers to deploy precision medicine platforms. Syapse’s Precision Medicine Data platform integrates complex genomic and clinical data with care pathways and medical knowledge bases, providing clinicians with actionable insights to enable diagnosis and treatment.	
		
•	In July and September 2014, we deployed an aggregate of $5.0 million as part of an $11.6 million Series B financing for Trice Medical™. Trice Medical is a diagnostics company focused on micro invasive technologies. Trice Medical has pioneered fully integrated camera-enabled needle technologies that provide a clinical solution that is optimized for use in the physician’s office.	
		
•	In August 2014, we deployed $6.0 million in a Series A financing for WebLinc, Inc. WebLinc is a commerce platform provider for fast growing online retailers.	
		
•	In August 2014, we deployed $9.5 million as part of an $11.0 million Series D financing for Transactis, Inc. Transactis is a leading provider of electronic billing and payment solutions. Transactis’ cloud-based electronic bill presentment and payment platform, BillerIQ, is a white-labeled solution that is offered "as-a-service", enabling businesses to rapidly and securely deliver electronic bills, invoices and documents, as well as accept payments online, by phone, and via mobile device.	
		
•	In August 2014, we deployed $9.0 million as part of a $14.5 million Series B financing for Propeller Health, Inc. Propeller Health provides digital solutions to measurably improve respiratory health. One of the first mobile platforms with 510(k) clearance from the U.S. Food and Drug Administration ("FDA"), Propeller Health combines sensors, mobile apps and predictive analytics to monitor and engage patients, increase adherence and encourage effective self-management.	
		
•	In October 2014, we appointed Mara G. Aspinall to our board of directors. Ms. Aspinall has a track record of success as an entrepreneur and healthcare industry visionary. She is the former President and CEO of Ventana Medical Systems and Global Head of Roche Tissue Diagnostics; founder and former CEO of On-Q-ity; and President of Genzyme Genetics.	

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•	During the year ended December 31, 2014, we repurchased 1,194,313 shares of the Company's common stock in open market transactions at prices ranging from $19.54 to $22.18 per share for an aggregate cost of $25.0 million.	
Our Strategy
Founded in 1953, Safeguard has a distinguished record of building market leaders by providing capital and operational support to entrepreneurs across an evolving and innovative spectrum of industries. Today, Safeguard principally targets healthcare companies focusing on medical technology and healthcare technology; and technology companies focusing on financial technology, digital media, and Enterprise 3.0.
As a visionary for the development of early- and growth-stage healthcare and technology companies, Safeguard is a proven partner for entrepreneurs looking to accelerate growth and build long-term value in their businesses. Leveraging Safeguard’s rich and colorful history of building market leaders, along with our team’s collective operational expertise and successful entrepreneurial endeavors, Safeguard has built a powerful - and actionable - platform of resources to support our partner companies with the strategies and relationships that are most vital for success. We provide value that extends beyond capital and work as a team to foster growth.
Our corporate staff of 30 employees is dedicated to creating long-term value for our shareholders by helping our partner companies build value and pursuing selective, well-timed exits of our partner companies.
Identifying Partner Company Opportunities
Safeguard’s go-to-market strategy, marketing and sourcing activities within our sectors of focus (Healthcare and Technology) are designed to generate a large volume of high-quality opportunities to acquire significant shareholder positions in partner companies. Our principal focus is to acquire positions in early- and growth-stage companies with attractive growth prospects in the technology and healthcare sectors. Generally, we prefer to deploy capital into companies:
		
•	operating in large and/or growing markets;	
		
•	with barriers to entry by competitors, such as proprietary technology and intellectual property, or other competitive advantages;	
		
•	with initial capital requirements between of $5 million and $15 million, and follow-on financing needs of between $5 million and $10 million, with the total anticipated deployment of up to $25 million from Safeguard; and	
		
•	with a compelling growth strategy.	
Our sourcing efforts are targeted primarily in the eastern United States. However, in-bound deal leads generate opportunities throughout the United States, and we do not limit our sourcing to a particular geographic area within the United States. Leads come from a variety of sources, including investment bankers, syndication partners, existing partner companies and advisory board members.
In Healthcare, we currently target companies principally in MedTech, including diagnostics and devices and HealthTech that have lesser regulatory risk and have achieved or are near commercialization.
In Technology, we currently target companies principally in digital media, FinTech, and Enterprise 3.0, which includes mobile technology, cloud, “Internet of Things” and big data that have transaction-enabling applications with a recurring revenue stream.

We believe there are many opportunities within these business models and vertical markets, and our sourcing activities are focused on finding candidate companies and evaluating how well they align with our criteria. However, we recognize we may have difficulty identifying candidate companies and completing transactions on terms we believe appropriate. As a result, we cannot be certain how frequently we will enter into transactions with new or existing partner companies.
Competition.  We face intense competition from other companies that acquire or provide capital to healthcare and technology businesses. Competitors include venture capital and, occasionally, private equity investors, as well as companies seeking to make strategic acquisitions. Many providers of growth capital also offer strategic guidance, networking access for recruiting and general advice. Nonetheless, we believe we are an attractive capital provider to potential partner companies because our strategy and capabilities offer:
		
•	responsive operational assistance, including strategy design and execution, business development, corporate development, sales, marketing, finance, risk management, talent recruitment and legal support;	
		
•	the flexibility to structure transactions, with or without debt;	
		
•	occasional liquidity opportunities for founders and existing investors;	
		
•	a focus on maximizing risk-adjusted value growth, rather than absolute value growth within a narrow or predetermined time frame;	

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•	interim C-level management support, as needed; and	
		
•	opportunities to leverage Safeguard’s balance sheet for borrowing and stability.	
Helping Our Partner Companies Build Value
We offer operational and management support to each of our partner companies through our deep domain expertise from our management team's careers as entrepreneurs, board members, financiers and operators. Our employees have expertise in business strategy, sales and marketing, operations, finance, legal and transactional support. We provide hands-on assistance to the management teams of our partner companies to support their growth. We believe our strengths include:
		
•	applying our expertise to support a partner company’s introduction of new products and services;	
		
•	leveraging our market knowledge to generate additional growth opportunities;	
		
•	leveraging our business contacts and relationships; and	
		
•	identifying and evaluating potential acquisitions and providing capital to pursue potential acquisitions to accelerate growth.	
Strategic Support.  By helping our partner companies’ management teams remain focused on critical objectives through the provision of human, financial and strategic resources, we believe we are able to accelerate their development and success. We play an active role in developing the strategic direction of our partner companies, including:
		
•	defining short and long-term strategic goals;	
		
•	identifying and planning for the critical success factors to reach these goals;	
		
•	identifying and addressing the challenges and operational improvements required to achieve the critical success factors and, ultimately, the strategic goals;	
		
•	identifying and implementing the business measurements that we and others will apply to measure a company’s success; and	
		
•	providing capital to drive growth.	
Management and Operational Support.  We provide management and operational support, as well as ongoing planning and development assessment. Our executives and advisory board members provide mentoring, advice and guidance to develop partner company management. Our executives serve on the boards of directors of our partner companies, working with them to develop and implement strategic and operating plans. We measure and monitor achievement of these plans through regular review of operational and financial performance measurements. We believe these services provide our partner companies with significant competitive advantages within their respective markets.
Realizing Value
In general, we will hold our position in a partner company as long as we believe the risk-adjusted value of that position is maximized by our continued ownership and effort. From time to time, we engage in discussions with other companies interested in our partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders’ best interests, we may sell some or all of our position in the partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. In the past, we have taken partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or similar) programs to maximize partner company value for our shareholders. We expect to use proceeds from these sales (and sales of other assets) primarily to pursue opportunities to deploy capital in new and existing partner companies, or for working capital purposes, either with existing partner companies or at Safeguard.

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Our Partner Companies
An understanding of our partner companies is important to understanding Safeguard and its value-building strategy. Following are descriptions of our partner companies in which we owned interests at December 31, 2014 . The indicated ownership percentage is presented as of December 31, 2014 and reflects the percentage of the vote we were entitled to cast at that date based on issued and outstanding voting securities (on a common stock equivalent basis), excluding the effect of options, warrants and convertible debt (primary ownership).
HEALTHCARE PARTNER COMPANIES

	
			
AdvantEdge Healthcare Solutions, Inc.	  	(Safeguard Ownership: 40.1%)	
Headquartered in Warren, New Jersey, AdvantEdge Healthcare Solutions (“AdvantEdge”) is a technology-enabled provider of healthcare revenue cycle and business management solutions that improve decision-making, maximize financial performance, streamline operations and mitigate compliance risks for healthcare providers. AdvantEdge continues to pursue scale through organic growth and strategic acquisitions, having completed eight acquisitions since 2009. AdvantEdge has more than 625 employees in seven regional offices in the U.S. and one office in Bangalore, India. www.ahsrcm.com

	
			
Dabo Health, Inc.	  	(Safeguard Ownership: 15.3%)	
Headquartered in Philadelphia, Pennsylvania, Dabo Health provides the healthcare community with an online visualization platform to view and track improvement in key performance metrics, collaborate across hospitals and healthcare systems, and identify and share learnings. Dabo Health delivers a solution that enables providers to improve patient care, reduce per capita cost and maximize reimbursements. www.dabohealth.com

	
			
Good Start Genetics, Inc.	  	(Safeguard Ownership: 29.9%)	
Headquartered in Cambridge, Massachusetts, Good Start Genetics is a commercial-stage molecular genetic information company focused on fundamentally transforming the standard of care in reproductive medicine by providing physicians and their patients with clinically relevant and actionable information concerning inherited genetic disorders. Through GoodStart Select ™, the company provides a comprehensive and clinically actionable menu of genetic carrier screening tests for known and novel mutations that cause inherited genetic disorders. www.goodstartgenetics.com

	
			
InfoBionic, Inc.	  	(Safeguard Ownership: 27.8%)	
Headquartered in Lowell, Massachusetts, InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. InfoBionic’s MoMe™ System is the first cloud-based, multi-pass analysis universal remote patient monitoring platform that provides unprecedented analytics with seamless transition between holter, event, and mobile cardiac telemetry monitoring modes in one device. www.infobionic.com

	
			
Medivo, Inc.	  	(Safeguard Ownership: 34.5%)	
Headquartered in New York, New York, Medivo's mission is to improve the health of patients by using lab data and analytics to enable better treatment decisions. Medivo enables life science companies to build clinical intelligence to optimize their sales and marketing initiatives, while enabling its lab partners to realize the full value of their data assets and to gain value with their customers through Medivo's Lab Solutions. www.medivo.com

	
			
NovaSom, Inc.	  	(Safeguard Ownership: 31.7%)	
Headquartered in Glen Burnie, Maryland, NovaSom is a medical device company that has developed an FDA-cleared wireless home sleep test for Obstructive Sleep Apnea (“OSA”) called AccuSom ® Home Sleep Test. The NovaSom home sleep test has been shown to provide in-home, clinically equivalent diagnosis of OSA at a significantly reduced cost compared to in-facility testing for uncomplicated adult OSA. www.novasom.com

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Propeller Health, Inc.	  	(Safeguard Ownership: 24.6%)	

Headquartered in Madison, Wisconsin, Propeller Health provides digital solutions to measurably improve respiratory health. One of the first mobile platforms with 510(k) clearance from the FDA, Propeller Health combines sensors, mobile apps and predictive analytics to monitor and engage patients, increase adherence and encourage effective self-management. www.propellerhealth.com

	
			
Putney, Inc.	  	(Safeguard Ownership: 28.3%)	
Headquartered in Portland, Maine, Putney is a pet pharmaceutical company focused on developing high-quality, generic prescription medicines for pets. Putney’s mission is to provide veterinary practices with FDA-approved veterinary generic medicines that meet pet medical needs and offer cost-effective alternatives for pet owners. www.putneyvet.com

	
			
Quantia, Inc.	  	(Safeguard Ownership: 42.3%)	
Headquartered in Waltham, Massachusetts, Quantia is a leader in physician engagement. Quantia's web-based and mobile platform, called QuantiaMD, enables principal participants in healthcare to reach and engage high-value physicians in ways that ultimately reduce costs, save time, and improve quality of care. The platform blends expert content, social networking and game mechanics to help its clients, including large health systems and life sciences companies, collaborate with physicians. www.quantia-inc.com

	
			
Syapse, Inc.	  	(Safeguard Ownership: 27.0%)	
Headquartered in Palo Alto, California, Syapse is a software company that enables healthcare providers to deploy precision medicine programs. Syapse's Precision Medicine Data Platform integrates complex genomic and clinical data with care pathways and medical knowledge bases, providing clinicians with actionable insights to enable diagnosis and treatment. www.syapse.com

	
			
Trice Medical TM	  	(Safeguard Ownership: 31.9%)	
Headquartered in King of Prussia, Pennsylvania, Trice Medical is a diagnostics company focused on micro invasive technologies. Trice Medical has pioneered fully integrated camera-enabled needle technologies that provide a clinical solution that is optimized for use in the physician’s office. The company's first FDA-approved product is mi-eye™, a fully-disposable, single-use, streamlined visualization device that uses a standard 14-gauge needle with an integrated camera and light source to perform a diagnostic arthroscopy. www.tricemedical.com
TECHNOLOGY PARTNER COMPANIES

	
			
AppFirst, Inc.	  	(Safeguard Ownership: 34.3%)	
Headquartered in New York, New York, AppFirst's technology provides global organizations the ability to achieve unmatched visibility into the real-time relationships between distributed applications and the global assets which support their execution. By delivering unmatched visibility, AppFirst enables a business to experience real time and complete systems integrity. www.appfirst.com

	
			
Apprenda, Inc.	  	(Safeguard Ownership: 21.6%)	
Headquartered in Troy, New York, Apprenda powers the next generation of enterprise software development in public, private and hybrid clouds. As a foundational software layer and application run-time environment, Apprenda abstracts away the complexities of building and delivering modern software applications, enabling enterprises to turn ideas into innovations more quickly. With Apprenda, enterprises can securely deliver an entire ecosystem of data, services, applications and application programming interfaces to both internal and external customers across any infrastructure. www.apprenda.com

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Beyond.com, Inc.	  	(Safeguard Ownership: 38.2%)	
Headquartered in King of Prussia, Pennsylvania, Beyond, The Career Network, helps millions of professionals find jobs and advance their careers while also serving as the premier destination for companies in need of top talent. This is achieved through more than 500 talent communities that use integrated social features to help members discover relevant jobs, career news, career advice, and resources. www.beyond.com

	
			
Bridgevine, Inc.	  	(Safeguard Ownership: 17.2%)	
Headquartered in Vero Beach, Florida, Bridgevine provides customer acquisition and retention solutions for enterprise customers. Bridgevine’s software-as-a-service (“SaaS”)-based platform is used by leading companies in communications, entertainment, home security, and energy resulting in more than 50 million consumer interactions annually. www.bridgevine.com

	
			
Clutch Holdings, Inc.	  	(Safeguard Ownership: 29.6%)	
Headquartered in Ambler, Pennsylvania, Clutch is a leading provider of advanced Consumer Management technology that delivers customer intelligence and customer engagement solutions to premium brands. Clutch empowers customer-focused businesses to identify, target and engage their most valuable customers. The company’s Consumer Management platform integrates a brand's customer data across traditional point-of-sale systems, ecommerce platforms, mobile applications and social networks to deliver the highest value from existing customers. www.clutch.com

	
			
DriveFactor, Inc.	  	(Safeguard Ownership: 40.6%)	
Headquartered in Richmond, Virginia, DriveFactor provides auto insurance companies and original equipment manufacturers with a SaaS platform for telematics-driven usage based insurance (“UBI”) and rewards programs. The DriveFactor platform is live in market on three continents and enables UBI and rewards programs that drive profitable acquisition and retention. DriveFactor’s smartphone telematics apps, which are fully integrated into the DriveFactor telematics platform, are available for download on iOS and Android. www.drivefactor.com

	
			
Hoopla Software, Inc.	  	(Safeguard Ownership: 25.6%)	
Headquartered in San Jose, California, Hoopla provides cloud-based software that helps sales organizations inspire and motivate sales team performance. Hoopla's Sales Motivation Platform combines modern game mechanics, data analytics and broadcast-quality video in a cloud application that makes it easy for managers to motivate team performance and score more wins. www.hoopla.net

	
			
Lumesis, Inc.	  	(Safeguard Ownership: 45.7%)	
Headquartered in Stamford, Connecticut, Lumesis is a financial technology company focused on providing business efficiency, data and regulatory solutions to the municipal bond marketplace. Lumesis’ DIVER platform helps over 100 firms with more than 30,000 users efficiently meet credit, regulatory and risk needs. www.lumesis.com

	
			
MediaMath, Inc.	  	(Safeguard Ownership: 20.7%)	
Headquartered in New York, New York, MediaMath is a global technology company that is leading the movement to revolutionize traditional marketing and drive transformative results for marketers through its TerminalOne Marketing Operating System™. MediaMath empowers marketers with an extensible, open platform that activates data, automates execution and optimizes interactions across all addressable media, delivering superior performance, transparency and control to all marketers and better, more individualized experiences for consumers. www.mediamath.com

 

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Pneuron Corporation	  	(Safeguard Ownership: 27.6%)	

Headquartered in Woburn, Massachusetts, Pneuron enables organizations to rapidly solve business problems through a distributed approach that cuts across data, applications and processes. By targeting the right information at the data source, companies are no longer faced with the complex integration and infrastructure requirements of traditional approaches. Pneuron’s innovative Distributed Solutions Platform enables customers to accelerate business value and develop reports, products and applications in half the time and cost of traditional methods. www.pneuron.com

	
			
Spongecell, Inc.	  	(Safeguard Ownership: 23.0%)	
Headquartered in New York, New York, Spongecell is a programmatic creative solution that leverages data-driven technology to automate the production and delivery of high-quality ads at scale across display, mobile and video. Spongecell’s technology helps brands and their creative and media agencies create more meaningful consumer engagement, without sacrificing speed or quality. www.spongecell.com

	
			
Transactis, Inc.	  	(Safeguard Ownership: 24.8%)	
Headquartered in New York, New York, Transactis is a leading provider of electronic billing and payment solutions. Transactis’ cloud-based electronic bill presentment and payment platform, BillerIQ, is a white-labeled solution that is offered “as-a-service”, enabling businesses to rapidly and securely deliver electronic bills, invoices and documents, as well as accept payments online, by phone, and via mobile device. www.transactis.com

	
			
WebLinc, Inc.	  	(Safeguard Ownership: 29.2%)	
Headquartered in Philadelphia, Pennsylvania, WebLinc is a commerce platform provider for fast growing online retailers. WebLinc tailors its commerce platform to the needs and scale of mid to large retailers by leveraging extensive experience and success supporting clients’ need for fast growth and system flexibility. www.weblinc.com

FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS

Effective December 31, 2014, we operate in two reportable segments: Healthcare and Technology. We no longer present the operations of Penn Mezzanine as a separate reportable operating segment because we do not separately evaluate Penn Mezzanine financial results for purposes of making operating decisions and assessing performance. The results of Penn Mezzanine are now reported within corporate operations under Other items. The amounts, discussion, and presentation of our reportable segments reflect this restatement for all years presented in this Annual Report on Form 10-K.
Information on operating income (loss), equity income (loss) and net income (loss) for each operating segment of Safeguard’s business for each of the three years in the period ended December 31, 2014 and assets as of December 31, 2014 and 2013 is contained in Note 14 to the Consolidated Financial Statements.
OTHER INFORMATION
The operations of Safeguard and its partner 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.
AVAILABLE INFORMATION
Safeguard is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. Therefore, we file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with, and furnish other reports to, the Securities and Exchange Commission (“SEC”). You can read and copy such documents at the SEC’s public reference facilities in Washington, D.C., New York, New York and Chicago, Illinois. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. Such material may also be accessed electronically by means of the SEC’s home page on the Internet at www.sec.gov or through Safeguard’s website at www.safeguard.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. Copies of these reports (excluding exhibits) also may be obtained free of charge, upon written request to: Investor Relations, Safeguard Scientifics, Inc., 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087.

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The Internet website addresses for Safeguard and its partner companies are included in this report for identification purposes. The information contained therein or connected thereto is not intended to be incorporated into this Annual Report on Form 10-K.
The following corporate governance documents are available free of charge on Safeguard’s website: the charters of our Audit, Compensation and Nominating & Corporate Governance Committees, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics. We also will post on our website any amendments to or waivers of our Code of Business Conduct and Ethics that relate to our directors and executive officers.
Item 1A.  Risk Factors
You should carefully consider the information set forth below. The following risk factors describe situations in which our business, financial condition and/or results of operations could be materially harmed, and the value of our securities may be adversely affected. You should also refer to other information included or incorporated by reference in this report.
Our principal business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, ultimately, the performance of our partner companies, which is uncertain.
If we make poor decisions regarding the deployment of capital into new or existing partner companies, our business model will not succeed. Our success as a company ultimately depends on our ability to choose the right partner companies. If our partner companies do not succeed, the value of our assets could be significantly reduced and require substantial impairments or write-offs and our results of operations and the price of our common stock would be adversely affected. The risks relating to our partner companies include:
		
•	most of our partner companies have a history of operating losses and/or limited operating history;	
		
•	the intense competition affecting the products and services our partner companies offer could adversely affect their businesses, financial condition, results of operations and prospects for growth;	
		
•	the inability to adapt to changing marketplaces;	
		
•	the inability to manage growth;	
		
•	the need for additional capital to fund their operations, which we may not be able to fund or which may not be available from third parties on acceptable terms, if at all;	
		
•	the inability to protect their proprietary rights and/or infringing on the proprietary rights of others;	
		
•	that our partner companies could face legal liabilities from claims made against them based upon their operations, products or work;	
		
•	the impact of economic downturns on their operations, results and growth prospects;	
		
•	the inability to attract and retain qualified personnel;	
		
•	the existence of government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies; and	
		
•	the inability to plan for and manage catastrophic events.	
These and other risks are discussed in detail under the caption “Risks Related to Our Partner Companies” below.
Our partner companies (and the nature of our interests in them) could vary widely from period to period.
As part of our strategy, we continually assess the value to our shareholders of our interests in our partner companies. We also regularly evaluate alternative uses for our capital resources. As a result, depending on market conditions, growth prospects and other key factors, we may at any time:
		
•	change the individual and/or types of partner companies on which we focus;	
		
•	sell some or all of our interests in any of our partner companies; or	
		
•	otherwise change the nature of our interests in our partner companies.	
Therefore, the nature of our holdings could vary significantly from period to period.
Our consolidated financial results also may vary significantly based upon which, if any, of our partner companies are included in our Consolidated Financial Statements.
Our business model does not rely upon, or plan for, the receipt of operating cash flows from our partner companies. Our partner companies generally provide us with no cash flow from their operations. We rely on cash on hand, liquidity events and our ability to generate cash from capital raising activities to finance our operations.
We need capital to develop new partner company relationships and to fund the capital needs of our existing partner companies. We also need cash to service and repay our outstanding debt, finance our corporate overhead and meet our existing funding commitments. As a result, we have substantial cash requirements. Our partner companies generally provide us with no

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cash flow from their operations. To the extent our partner companies generate any cash from operations, they generally retain the funds to develop their own businesses. As a result, we must rely on cash on hand, partner company liquidity events and new capital raising activities to meet our cash needs. If we are unable to find ways of monetizing our holdings or raising additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business efforts, constrain our ability to execute our business strategy and limit our ability to provide financial support to our existing partner companies.
Fluctuations in the price of the common stock of our publicly traded holdings may affect the price of our common stock.
From time to time, we may hold equity interests in companies that are publicly traded. Fluctuations in the market prices of the common stock of publicly traded holdings may affect the price of our common stock. Historically, the market prices of our publicly traded holdings have been highly volatile and subject to fluctuations unrelated or disproportionate to operating performance.
Intense competition from other capital providers for interests in companies could adversely affect our ability to deploy capital and result in higher valuations of partner company interests which could result in lower gains or possibly losses on our partner companies.
We face intense competition from other capital providers as we acquire and develop interests in our partner companies. Some of our competitors have more experience identifying, acquiring and selling companies and have greater financial and management resources, brand name recognition or industry contacts than we have. Competition from other capital providers could adversely affect our ability to deploy capital. In addition, despite making most of our acquisitions at a stage when our partner companies are not publicly traded, we may still pay higher prices for those equity interests because of higher valuations of similar public companies and competition from other acquirers and capital providers, which could result in lower gains or possibly losses.

We may be unable to obtain maximum value for our holdings or to sell our holdings on a timely basis.
We hold significant positions in our partner companies. Consequently, if we were to divest all or part of our holdings in a partner company, we may have to sell our interests at a relative discount to a price which may be received by a seller of a smaller portion. For partner companies with publicly traded stock, we may be unable to sell our holdings at then-quoted market prices. The trading volume and public float in the common stock of a publicly traded partner company may be small relative to our holdings. As a result, any significant open-market divestiture by us of our holdings in such a partner company, if possible at all, would likely have a material adverse effect on the market price of its common stock and on our proceeds from such a divestiture. Additionally, we may not be able to take our partner companies public as a means of monetizing our position or creating shareholder value.
Registration and other requirements under applicable securities laws and contractual restrictions also may adversely affect our ability to dispose of our holdings on a timely basis.
Our success is dependent on our senior management.
Our success is dependent on our senior management team’s ability to execute our strategy. A loss of one or more of the members of our senior management team without adequate replacement could have a material adverse effect on us.
Our business strategy may not be successful if valuations in the market sectors in which our partner companies participate decline.
Our strategy involves creating value for our shareholders by helping our partner companies build value and, if appropriate, accessing the public and private capital markets. Therefore, our success is dependent on the value of our partner companies as determined by the public and private capital markets. Many factors, including reduced market interest, may cause the market value of our partner companies to decline. If valuations in the market sectors in which our partner companies participate decline, their access to the public and private capital markets on terms acceptable to them may be limited.
Our partner companies could make business decisions that are not in our best interests or with which we do not agree, which could impair the value of our holdings.
Although we may seek a controlling or influential equity interest and participation in the management of our partner companies, we may not be able to control the significant business decisions of our partner companies. We may have shared control or no control over some of our partner companies. In addition, although we currently own a significant, influential interest in some of our partner companies, we do not maintain a controlling interest in any of our partner companies. Acquisitions of interests in partner companies in which we share or have no control, and the dilution of our interests in or loss

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of control of partner companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:
		
•	the management of a partner company having economic or business interests or objectives that are different from ours; and	
		
•	the partner companies not taking our advice with respect to the financial or operating issues they may encounter.	
Our inability to control our partner companies also could prevent us from assisting them, financially or otherwise, or could prevent us from liquidating our interests in them at a time or at a price that is favorable to us. Additionally, our partner companies may not act in ways that are consistent with our business strategy. These factors could hamper our ability to maximize returns on our interests and cause us to incur losses on our interests in these partner companies.
We may have to buy, sell or retain assets when we would otherwise not wish to do so in order to avoid registration under the Investment Company Act.
The Investment Company Act of 1940 regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than consolidated partner companies are generally considered “investment securities” for purposes of the Investment Company Act, unless other circumstances exist which actively involve the company holding such interests in the management of the underlying company. We are a company that partners with growth-stage companies to build value; we are not engaged primarily in the business of investing, reinvesting or trading in securities. We are in compliance with the 40% Test. Consequently, we do not believe that we are an investment company under the Investment Company Act.
We monitor our compliance with the 40% Test and seek to conduct our business activities to comply with this test. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. In order to continue to comply with the 40% Test, we may need to take various actions which we would otherwise not pursue. For example, we may need to retain a controlling interest in a partner company that we no longer consider strategic, we may not be able to acquire an interest in a company unless we are able to obtain a controlling ownership interest in the company, or we may be limited in the manner or timing in which we sell our interests in a partner company. Our ownership levels also may be affected if our partner companies are acquired by third parties or if our partner companies issue stock which dilutes our ownership interest. The actions we may need to take to address these issues while maintaining compliance with the 40% Test could adversely affect our ability to create and realize value at our partner companies.

Economic disruptions and downturns may have negative repercussions for us.
Events in the United States and international capital markets, debt markets and economies may negatively impact our ability to pursue certain tactical and strategic initiatives, such as accessing additional public or private equity or debt financing for us or for our partner companies and selling our interests in partner companies on terms acceptable to us and in time frames consistent with our expectations.
We cannot provide assurance that material weaknesses in our internal control over financial reporting will not be identified in the future.
We cannot assure you that material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in a material weakness, or could result in material misstatements in our Consolidated Financial Statements. These misstatements could result in a restatement of our Consolidated Financial Statements, cause us to fail to meet our reporting obligations and/or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Risks Related to Our Partner Companies
Most of our partner companies have a history of operating losses and/or limited operating history and may never be profitable.
Most of our partner companies have a history of operating losses and/or limited operating history, have significant historical losses and may never be profitable. Many have incurred substantial costs to develop and market their products, have incurred net losses and cannot fund their cash needs from operations. We expect that the operating expenses of certain of our

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partner companies will increase substantially in the foreseeable future as they continue to develop products and services, increase sales and marketing efforts, and expand operations.
Our partner companies face intense competition, which could adversely affect their business, financial condition, results of operations and prospects for growth.
There is intense competition in the technology and healthcare marketplaces, and we expect competition to intensify in the future. Our business, financial condition, results of operations and prospects for growth will be materially adversely affected if our partner companies are not able to compete successfully. Many of the present and potential competitors may have greater financial, technical, marketing and other resources than those of our partner companies. This may place our partner companies at a disadvantage in responding to the offerings of their competitors, technological changes or changes in client requirements. Also, our partner companies may be at a competitive disadvantage because many of their competitors have greater name recognition, more extensive client bases and a broader range of product offerings. In addition, our partner companies may compete against one another.
The success or failure of many of our partner companies is dependent upon the ultimate effectiveness of newly-created information technologies, medical devices, healthcare diagnostics, etc.
Our partner companies’ business strategies are often highly dependent upon the successful launch and commercialization of an innovative information technology, medical device, healthcare diagnostic, or similar device or technology. Despite all of our efforts to understand the research and development underlying the innovation or creation of such technologies before we deploy capital into a partner company, sometimes the performance of the technology or device does not match our expectations or those of our partner company. In those situations, it is likely that we will incur a partial or total loss of the capital which we deployed in such partner company.
Our partner companies may fail if they do not adapt to changing marketplaces.
If our partner companies fail to adapt to changes in technology and customer and supplier demands, they may not become or remain profitable. There is no assurance that the products and services of our partner companies will achieve or maintain market penetration or commercial success, or that the businesses of our partner companies will be successful.

The healthcare and technology marketplaces are characterized by:
		
•	rapidly changing technology;	
		
•	evolving industry standards;	
		
•	frequently introducing new products and services;	
		
•	shifting distribution channels;	
		
•	evolving government regulation;	
		
•	frequently changing intellectual property landscapes; and	
		
•	changing customer demands.	
Our future success will depend on our partner companies’ ability to adapt to these evolving marketplaces. They may not be able to adequately or economically adapt their products and services, develop new products and services or establish and maintain effective distribution channels for their products and services. If our partner companies are unable to offer competitive products and services or maintain effective distribution channels, they will sell fewer products and services and forego potential revenue, possibly causing them to lose money. In addition, we and our partner companies may not be able to respond to the marketplace changes in an economically efficient manner, and our partner companies may become or remain unprofitable.
Our partner companies may grow rapidly and may be unable to manage their growth.
We expect some of our partner companies to grow rapidly. Rapid growth often places considerable operational, managerial and financial strain on a business. To successfully manage rapid growth, our partner companies must, among other things:
		
•	improve, upgrade and expand their business infrastructures;	
		
•	scale up production operations;	
		
•	develop appropriate financial reporting controls;	
		
•	attract and maintain qualified personnel; and	
		
•	maintain appropriate levels of liquidity.	
If our partner companies are unable to manage their growth successfully, their ability to respond effectively to competition and to achieve or maintain profitability will be adversely affected.

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Based on our business model, some or all of our partner companies will need to raise additional capital to fund their operations at any given time. We may not be able to fund some or all of such amounts and such amounts may not be available from third parties on acceptable terms, if at all.
We cannot be certain that our partner companies will be able to obtain additional financing on favorable terms when needed, if at all. Because our resources and our ability to raise capital are not unlimited, we may not be able to provide partner companies with sufficient capital resources to enable them to reach a cash-flow positive position, even if we wish to do so. General economic disruptions and downturns may also negatively affect the ability of some of our partner companies to fund their operations from other stockholders and capital sources. We also may fail to accurately project the capital needs of partner companies. If partner companies need capital but are not able to raise capital from us or other outside sources, then they may need to cease or scale back operations. In such event, our interest in any such partner company will become less valuable.
Economic disruptions and downturns may negatively affect our partner companies’ plans and their results of operations.
Many of our partner companies are largely dependent upon outside sources of capital to fund their operations. Disruptions in the availability of capital from such sources will negatively affect the ability of such partner companies to pursue their business models and will force such companies to revise their growth and development plans accordingly. Any such changes will, in turn, negatively affect our ability to realize the value of our capital deployments in such partner companies.

In addition, downturns in the economy as well as possible governmental responses to such downturns and/or to specific situations in the economy could affect the business prospects of certain of our partner companies, including, but not limited to, in the following ways: weaknesses in the financial services industries; reduced business and/or consumer spending; and/or systemic changes in the ways the healthcare system operates in the United States.
Some of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others.
Our partner companies assert various forms of intellectual property protection. Intellectual property may constitute an important part of partner company assets and competitive strengths. Federal law, most typically copyright, patent, trademark and trade secret laws, generally protects intellectual property rights. Although we expect that our partner companies will take reasonable efforts to protect the rights to their intellectual property, third parties may develop similar intellectual property independently. Moreover, the complexity of international trade secret, copyright, trademark and patent law, coupled with the limited resources of our partner companies and the demands of quick delivery of products and services to market, create a risk that partner company efforts to prevent misappropriation of their technology will prove inadequate.
Some of our partner companies also license intellectual property from third parties and it is possible that they could become subject to infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally obtain representations as to the origin and ownership of such licensed intellectual property. However, this may not adequately protect them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject the companies to costly litigation and divert their technical and management personnel from other business concerns. If our partner companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will increase and their profits, if any, will decrease.
Third parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or other intellectual property claims. Even though we believe our partner companies’ products do not infringe any third party’s patents, they may have to pay substantial damages, possibly including treble damages, if it is ultimately determined that they do. They may have to obtain a license to sell their products if it is determined that their products infringe on another person’s intellectual property. Our partner companies might be prohibited from selling their products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement claims against our partner companies are without merit, defending these types of lawsuits takes significant time, is expensive and may divert management attention from other business concerns.
Certain of our partner companies could face legal liabilities from claims made against their operations, products or work.
Because manufacture and sale of certain partner company products entail an inherent risk of product liability, certain partner companies maintain product liability insurance. Although none of our current partner companies have experienced any material losses in this regard, there can be no assurance that they will be able to maintain or acquire adequate product liability insurance in the future and any product liability claim could have a material adverse effect on a partner company’s financial stability, revenues and results of operations. In addition, many of the engagements of our partner companies involve projects that are critical to the operation of their clients’ businesses. If our partner companies fail to meet their contractual obligations, they could be subject to legal liability, which could adversely affect their business, operating results and financial condition.

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Partner company contracts typically include provisions designed to limit their exposure to legal claims relating to their services and products. However, these provisions may not protect our partner companies or may not be enforceable. Also, some of our partner companies depend on their relationships with their clients and their reputation for high-quality services and integrity to retain and attract clients. As a result, claims made against our partner companies’ work may damage their reputation, which in turn could impact their ability to compete for new work and negatively impact their revenue and profitability.
Our partner companies’ success depends on their ability to attract and retain qualified personnel.
Our partner companies depend upon their ability to attract and retain senior management and key personnel, including trained technical and marketing personnel. Our partner companies also will need to continue to hire additional personnel as they expand. Although our partner companies have not been the subject of a work stoppage, any future work stoppage could have a material adverse effect on their respective operations. A shortage in the availability of the requisite qualified personnel or work stoppage would limit the ability of our partner companies to grow, to increase sales of their existing products and services, and to launch new products and services.

Government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies.
Failure to comply with applicable requirements of the FDA or comparable regulation in foreign countries can result in fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances, refusal to approve or clear new applications or notices and criminal prosecution. Manufacturers of pharmaceuticals and medical diagnostic devices and operators of laboratory facilities are subject to strict federal and state regulation regarding validation and the quality of manufacturing and laboratory facilities. Failure to comply with these quality regulation systems requirements could result in civil or criminal penalties or enforcement proceedings, including the recall of a product or a “cease distribution” order. The enactment of any additional laws or regulations that affect healthcare insurance policy and reimbursement (including Medicare reimbursement) could negatively affect some of our partner companies. If Medicare or private payers change the rates at which our partner companies or their customers are reimbursed by insurance providers for their products, such changes could adversely impact our partner companies.
Some of our partner companies may be subject to significant environmental, health and safety regulation.
Some of our partner companies may be subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as to the safety and health of manufacturing and laboratory employees. In addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety. Compliance with such regulations could increase operating costs at certain of our partner companies, and the failure to comply could negatively affect the operations and results of some of our partner companies.
Catastrophic events may disrupt our partner companies’ businesses.
Some of our partner companies are highly automated businesses and rely on their network infrastructure, various software applications and many internal technology systems and data networks for their customer support, development, sales and marketing and accounting and finance functions. Further, some of our partner companies provide services to their customers from data center facilities in multiple locations. Some of these data centers are operated by third parties, and the partner companies have limited control over those facilities. A disruption or failure of these systems or data centers in the event of a natural disaster, telecommunications failure, power outage, cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in product development, breaches of data security and loss of critical data. Such an event could also prevent the partner companies from fulfilling customer orders or maintaining certain service level requirements, particularly in respect of their SaaS offerings. While certain of our partner companies have developed certain disaster recovery plans and maintain backup systems to reduce the potentially adverse effect of such events, a catastrophic event that resulted in the destruction or disruption of any of their data centers or their critical business or information technology systems could severely affect their ability to conduct normal business operations and, as a result, their business, operating results and financial condition could be adversely affected.
We cannot provide assurance that our partner companies’ disaster recovery plans will address all of the issues they may encounter in the event of a disaster or other unanticipated issue, and their business interruption insurance may not adequately compensate them for losses that may occur from any of the foregoing. In the event that a natural disaster, terrorist attack or other catastrophic event were to destroy any part of their facilities or interrupt their operations for any extended period of time, or if harsh weather or health conditions prevent them from delivering products in a timely manner, their business, financial condition and operating results could be adversely affected.

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Risks Related to Initiatives Outside Our Core Business
Our involvement in the mezzanine lending industry through our relationship with Penn Mezzanine could expose us to risks that differ from, and may be in addition to, to the risks that otherwise relate to our other business initiatives.
Borrowers may default on their payments, which may have a negative effect on our financial performance.
Through our relationship with Penn Mezzanine, we participate in a limited number of loans and in equity securities in private middle-market companies, which involve a high degree of repayment risk. These borrowers have limited financial resources, are relatively highly leveraged and may be unable to obtain financing from other sources. Numerous factors may affect a borrower’s ability to repay its loan, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. A borrower’s failure to satisfy financial or operating covenants imposed by Penn Mezzanine or other lenders could lead to defaults and, potentially, termination of its loans or foreclosure on its secured assets, which could trigger cross defaults under other agreements and jeopardize such borrower’s ability to meet its obligations under the participations in loans or debt interests that we hold. In addition, such borrowers may have, or may be permitted to incur, other debt that ranks senior to or equally with our interests. This means that payments on such senior-ranking securities may have to be made before we receive any payments on our interests in subordinated loans or other debt securities. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in any related collateral and may have a negative effect on our financial results.
Item 1B.  Unresolved Staff Comments
None.
Item 2.  Properties
Our corporate headquarters and administrative offices in Wayne, Pennsylvania contain approximately 20,000 square feet of office space in one building. We currently lease our corporate headquarters under a lease expiring in October 2015. In February 2015, we entered into an agreement for the lease of our new principal executive offices to be located at 170 Radnor Chester Road, Radnor, Pennsylvania beginning in November 2015.
Item 3.  Legal Proceedings
We, as well as our partner companies, are involved in various claims and legal actions arising in the ordinary course of business. While in the current opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position or results of operations, no assurance can be given as to the outcome of these lawsuits, and one or more adverse dispositions could have a material adverse effect on our consolidated financial position and results of operations, or that of our partner companies. See Note 12 to the Consolidated Financial Statements for a discussion of ongoing claims and legal actions.

Item 4.  Mine Safety Disclosures
Not applicable.
ANNEX TO PART I — EXECUTIVE OFFICERS OF THE REGISTRANT

	
						
Name	Age	 	Position	 	Executive Officer Since	
Stephen T. Zarrilli	53	 	President, Chief Executive Officer and Director	 	2008	
Jeffrey B. McGroarty	45	 	Senior Vice President and Chief Financial Officer	 	2012	
Brian J. Sisko	54	 	Chief Operating Officer, Executive Vice President and Managing Director	 	2007	
Mr. Zarrilli joined Safeguard as Senior Vice President and Chief Financial Officer in June 2008 and became President and Chief Executive Officer in November 2012. Prior to joining Safeguard, Mr. Zarrilli co-founded, in 2004, the Penn Valley Group, a middle-market management advisory and private equity firm, and served as a Managing Director there until June 2008. Mr. Zarrilli also served as Acting Senior Vice President, Acting Chief Administrative Officer and Acting Chief Financial Officer of Safeguard from December 2006 to June 2007. Mr. Zarrilli also served as the Chief Financial Officer, from 2001 to 2004, of Fiberlink Communications Corporation, a provider of mobile access solutions for large enterprises; as the Chief Executive Officer, from 2000 to 2001, of Concellera Software, Inc., a developer of content management software; as the Chief

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Executive Officer, from 1999 to 2000, and Chief Financial Officer, from 1994 to 1998, of US Interactive, Inc. (at the time a public company), a provider of Internet strategy consulting, marketing and technology services; and, previously, with Deloitte & Touche from 1983 to 1994. Mr. Zarrilli is a director and Chairman of the Audit Committee of NutriSystem, Inc. and a director of Virtus Investment Partners, Inc.
Mr. McGroarty joined Safeguard as Vice President and Corporate Controller in December 2005, subsequently became Vice President – Finance and Corporate Controller, and served as Senior Vice President – Finance from November 2012 until his promotion to Senior Vice President and Chief Financial Officer in April 2013. Prior to joining Safeguard, Mr. McGroarty served as Interim Controller of Cephalon, Inc. from October 2005 to December 2005; Vice President-Financial Planning & Analysis and previously Assistant Controller at Exide Technologies from March 2002 to September 2005; and, previously, with PricewaterhouseCoopers from 1991 to 2001.
Mr. Sisko joined Safeguard as Senior Vice President and General Counsel in August 2007 and served as Executive Vice President and Managing Director from November 2012 until his promotion to Chief Operating Officer, Executive Vice President and Managing Director in January 2014. Prior to joining Safeguard, Mr. Sisko served as Chief Legal Officer, Senior Vice President and General Counsel of Traffic.com (at the time, a public company), a former partner company of Safeguard, from February 2006 until June 2007 (following its acquisition by NAVTEQ Corporation in March 2007); Chief Operating Officer from February 2005 to January 2006 of Halo Technology Holdings, Inc., a public holding company for enterprise software businesses (Halo Technology Holdings filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in August 2007); ran B/T Business and Technology, an advisor and strategic management consultant to a variety of public and private companies, from January 2002 to February 2005; and was a Managing Director from April 2000 to January 2002, of Katalyst, LLC, a venture capital and consulting firm. Mr. Sisko also previously served as Senior Vice President—Corporate Development and General Counsel of National Media Corporation, at the time a New York Stock Exchange-listed multi-media marketing company with operations in 70 countries, and as a partner in the corporate finance, mergers and acquisitions practice group of the Philadelphia-based law firm, Klehr, Harrison, Harvey, Branzburg & Ellers LLP.

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PART II
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Safeguard’s common stock is listed on the New York Stock Exchange (Symbol: SFE). The high and low sale prices reported within each quarter of 2014 and 2013 were as follows:

	
								
 	High	 	Low	
Fiscal year 2014:	 	 	 	
First quarter	$	22.43		 	$	17.58		
Second quarter	22.43		 	18.54		
Third quarter	20.92		 	18.40		
Fourth quarter	20.20		 	17.83		
Fiscal year 2013:	 	 	 	
First quarter	$	16.24		 	$	14.51		
Second quarter	18.00		 	15.20		
Third quarter	16.95		 	14.14		
Fourth quarter	20.12		 	14.92		
The high and low sale prices reported in the first quarter of 2015 through March 4, 2015 were $20.09 and $18.02 respectively, and the last sale price reported on March 4, 2015, was $18.46. No cash dividends have been declared in any of the years presented, and Safeguard has no present intention to declare cash dividends.
As of March 5, 2015 , there were approximately 17,000 beneficial holders of Safeguard’s common stock.
The following graph compares the cumulative total return on $100 invested in our common stock for the period from December 31, 2009 through December 31, 2014 with the cumulative total return on $100 invested for the same period in the Russell 2000 Index and the Wilshire 4500 Index. In light of the diverse nature of Safeguard’s business and based on our assessment of available published industry or line-of-business indexes, we determined that no single industry or line-of-business index would provide a meaningful comparison to Safeguard. Further, we did not believe that we could readily identify an appropriate group of industry peer companies for this comparison. Accordingly, under SEC rules, we selected the Wilshire 4500 Index, a published market index in which the median market capitalization of the included companies is similar to our own. Safeguard’s common stock is included as a component of the Russell 2000 and Wilshire 4500 indexes.

•	Assumes reinvestment of dividends. We have not distributed cash dividends during this period.	
		
•	Assumes an investment of $100 on December 31, 2009 .	

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Item 6.  Selected Consolidated Financial Data
The following table sets forth our selected consolidated financial data for the five-year period ended December 31, 2014 . The selected consolidated financial data presented below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data included in this report. The historical results presented herein may not be indicative of future results.  

																				
 	December 31,	
 	2014		2013		2012		2011		2010	
 	(In thousands)	
Consolidated Balance Sheet Data:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	$	111,897		 	$	139,318		 	$	66,029		 	$	83,187		 	$	183,419		
Short-term marketable securities	25,263		 	38,250		 	110,957		 	158,098		 	42,411		
Long-term marketable securities	19,365		 	6,088		 	29,059		 	16,287		 	—		
Restricted marketable securities	—		 	5		 	10		 	12,265		 	16,774		
Cash held in escrow	—		 	—		 	6,434		 	6,433		 	6,434		
Working capital	132,287		 	170,956		 	178,577		 	245,420		 	197,769		
Total assets	318,454		 	345,996		 	374,144		 	406,636		 	336,545		
Convertible senior debentures	50,563		 	49,948		 	48,991		 	45,694		 	75,919		
Other long-term liabilities	3,507		 	3,683		 	3,921		 	4,146		 	5,311		
Total equity	257,827		 	284,661		 	313,971		 	348,280		 	246,431		

	
																				
 	Year Ended December 31,	
 	2014	 	2013	 	2012	 	2011	 	2010	
 	(In thousands, except per share amounts)	
Consolidated Statements of Operations Data:	 	 	 	 	 	 	 	 	 	
General and administrative expense	$	18,970		 	$	21,644		 	$	19,473		 	$	21,168		 	$	20,847		
Operating loss	(18,970	)	 	(21,644	)	 	(19,473	)	 	(21,168	)	 	(20,847	)	
Other income (loss), net	31,657		 	383		 	9,338		 	(6,145	)	 	74,809		
Interest income	1,901		 	2,646		 	2,926		 	1,424		 	718		
Interest expense	(4,402	)	 	(4,303	)	 	(5,636	)	 	(5,971	)	 	(5,737	)	
Equity income (loss)	(15,335	)	 	(12,607	)	 	(26,517	)	 	142,457		 	(22,334	)	
Net income (loss) before income taxes	(5,149	)	 	(35,525	)	 	(39,362	)	 	110,597		 	26,609		
Income tax benefit (expense)	—		 	—		 	—		 	—		 	—		
Net income (loss)	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	 	$	110,597		 	$	26,609		
 	 	 	 	 	 	 	 	 	 	
Net income (loss) per share:	 	 	 	 	 	 	 	 	 	
Basic	$	(0.25	)	 	$	(1.66	)	 	$	(1.88	)	 	$	5.33		 	$	1.30		
Diluted	$	(0.25	)	 	$	(1.66	)	 	$	(1.88	)	 	$	4.74		 	$	1.24		
Weighted average shares used in computing net income (loss) per share:	 	 	 	 	 	 	 	 	 	
Basic	20,975		 	21,362		 	20,974		 	20,764		 	20,535		
Diluted	20,975		 	21,362		 	20,974		 	24,522		 	21,507		

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Safeguard Scientifics, Inc. (“Safeguard” or “we”), the industries in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially include, among others, our ability to make good decisions about the deployment of capital, the fact that our partner companies may vary from period to period, our substantial capital requirements and absence of liquidity from our partner company holdings, fluctuations in the market prices of our publicly traded partner company holdings, competition, our inability to obtain maximum value for our partner company holdings, our ability to attract and retain qualified employees, our ability to execute our strategy, market valuations in sectors in which our partner companies operate, our inability to control our partner companies, our need to manage our assets to avoid registration under the Investment Company Act of 1940, and risks associated with our partner companies and their performance, including the fact that most of our partner companies have a limited history and a history of operating losses, face intense competition and may never be profitable, the effect of economic conditions in the business sectors in which our partner companies operate, compliance with government regulation and legal liabilities, all of which are discussed in Item 1A. “Risk Factors.” Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.
Overview
Safeguard’s charter is to build value in growth-stage businesses by providing capital as well as strategic, operational and management resources. Safeguard participates principally in growth and expansion financings, and early-stage financings. Our vision is to be the preferred capital source for entrepreneurs and management teams in well-defined industry sectors. Throughout this document, we use the term “partner company” to generally refer to those companies in which we have an equity interest and in which we are actively involved, influencing development through board representation and management support, in addition to the influence we exert through our equity ownership. From time to time, in addition to these partner companies, we also hold relatively small equity interests in other enterprises where we do not exert significant influence and do not participate in management activities. In some cases, these interests relate to former partner companies and in some cases they relate to entities which may later become partner companies.
We strive to create long-term value for our shareholders by helping our partner companies increase their market penetration, grow revenue and improve cash flow. Safeguard focuses principally on companies with initial capital requirements of between $5 million and $15 million, and follow-on financing needs of between $5 million and $10 million, with a total anticipated deployment of up to $25 million from Safeguard. Safeguard principally targets companies that operate in two sectors:
Healthcare  — companies focused principally on medical technology (“MedTech”), including diagnostics and devices; and healthcare technology (“HealthTech”). Within these areas, Safeguard targets companies that have lesser regulatory risk and have achieved or are near commercialization; and
Technology  — companies focused principally on digital media; financial technology (“FinTech”); and Enterprise 3.0, which includes mobile technology, cloud, the “Internet of Things” and big data. Within these areas, Safeguard targets companies that have transaction-enabling applications with a recurring revenue stream.
Principles of Accounting for Ownership Interests in Partner Companies
We account for our interests in our partner companies using one of the following methods: consolidation, fair value, equity, or cost. The accounting method applied is generally determined by the degree of our influence over the entity, primarily determined by our voting interest in the entity.

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Consolidation Method.  We account for partner companies in which we maintain a controlling financial interest, generally those in which we directly or indirectly own more than 50% of the outstanding voting securities, using the consolidation method of accounting. Upon consolidation of our partner companies, we reflect the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to the parent company as a non-controlling interest in the Consolidated Balance Sheet. The non-controlling interest is presented within equity, separately from the equity of the parent company. Losses attributable to the parent company and the non-controlling interest may exceed their interest in the subsidiary’s equity. As a result, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance as of each balance sheet date. Revenue, expenses, gains, losses, net income or loss are reported in the Consolidated Statements of Operations at the consolidated amounts, which include the amounts attributable to the parent company’s common shareholders and the non-controlling interest. As of December 31, 2014 and for each of the three years in the period then ended, we did not hold a controlling interest in any of our partner companies.

Fair Value Method.  Unrealized gains and losses on the mark-to-market of our holdings in fair value method companies and realized gains and losses on the sale of any holdings in fair value method companies are recognized in Other income (loss), net in the Consolidated Statements of Operations. We accounted for our holdings in NuPathe Inc., a former publicly traded partner company, under the fair value method of accounting. As of December 31, 2014, we did not account for any of our partner companies under the fair value method.
Equity Method.  We account for partner companies whose results are not consolidated, but over whom we exercise significant influence, using the equity method of accounting. We also account for our interests in some private equity funds under the equity method of accounting, based on our non-controlling general and limited partner interests. Under the equity method of accounting, our share of the income or loss of the partner company is reflected in Equity income (loss) in the Consolidated Statements of Operations. We report our share of the income or loss of the equity method partner companies on a one quarter lag. We include the carrying value of equity method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets.
When the carrying value of our holdings in an equity method partner company is reduced to zero, no further losses are recorded in our Consolidated Statements of Operations unless we have outstanding guarantee obligations or have committed additional funding to the equity method partner company. When the equity method partner company subsequently reports income, we will not record our share of such income until it equals the amount of our share of losses not previously recognized.
Cost Method.  We account for partner companies which are not consolidated or accounted for under the equity method or fair value method under the cost method of accounting. Under the cost method, our share of the income or losses of such partner companies is not included in our Consolidated Statements of Operations. We include the carrying value of cost method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets.
Critical Accounting Policies and Estimates
Accounting policies, methods and estimates are an integral part of the Consolidated Financial Statements prepared by management and are based upon management’s current judgments. These judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our financial statements as described in Note 1 to our Consolidated Financial Statements, areas that are particularly significant include the following:

•	Impairment of ownership interests in and advances to partner companies;	
		
•	Income taxes;	
		
•	Commitments and contingencies; and	
		
•	Stock-based compensation.	
Impairment of Ownership Interests In and Advances to Partner Companies
On a periodic basis, but no less frequently than at the end of each quarter, we evaluate the carrying value of our equity and cost method partner companies for possible impairment based on achievement of business plan objectives and milestones, the financial condition and prospects of the company, market conditions and other relevant factors. The business plan objectives and milestones we consider include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. We then determine whether there has been an other than temporary decline in the value of our ownership interest in the company. For our equity and cost method partner companies,

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impairment to be recognized is measured as the amount by which the carrying value of an asset exceeds its fair value. The adjusted carrying value of a partner company is not increased if circumstances suggest the value of the partner company has subsequently recovered.

The fair value of privately held partner companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies, or based on other valuation methods including discounted cash flows, valuations of comparable public companies and valuations of acquisitions of comparable companies.
Our partner companies operate in industries which are rapidly evolving and extremely competitive. It is reasonably possible that our accounting estimates with respect to the ultimate recoverability of the carrying value of ownership interests in and advances to partner companies could change in the near term and that the effect of such changes on our Consolidated Financial Statements could be material. While we believe that the current recorded carrying values of our equity and cost method companies are not impaired, there can be no assurance that our future results will confirm this assessment or that a significant write-down or write-off will not be required in the future.
Total impairment charges related to ownership interests in and advances to our equity and cost method partner companies and legacy private equity funds were as follows:  

													
 	 	Year Ended December 31,	
Accounting Method	 	2014	 	2013	 	2012	
 	 	(In millions)	
Equity	 	$	—		 	$	12.9		 	$	5.0		
Cost	 	0.1		 	0.3		 	0.4		
Total	 	$	0.1		 	$	13.2		 	$	5.4		

Impairment charges related to equity method partner companies are included in Equity income (loss) in the Consolidated Statements of Operations. Impairment charges related to cost method partner companies are included in Other income (loss), net in the Consolidated Statements of Operations.
Income Taxes
We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent that we believe recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Operations. We have recorded a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized in future years. If we determine in the future that it is more likely than not that the net deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.
Commitments and Contingencies
From time to time, we are a defendant or plaintiff in various legal actions which arise in the normal course of business. Additionally, we have received distributions as both a general partner and a limited partner from private equity funds. In certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a fund for a further distribution to such fund’s limited partners (“clawback”). We are also a guarantor of various third-party obligations and commitments and are subject to the possibility of various loss contingencies arising in the ordinary course of business (see Note 12 to our Consolidated Financial Statements). We are required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease our earnings in the period the changes are made.
Stock-Based Compensation
We measure all employee stock-based compensation awards using a fair value method and record such expense in our Consolidated Statements of Operations.

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We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model which requires the input of various assumptions. These assumptions include estimating the expected term of the award and the estimated volatility of our stock price over the expected term. Changes in these assumptions and in the estimated forfeitures of stock option awards can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations. The requisite service periods for performance-based awards are based on our best estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Changes in the requisite service period or the estimated probability of achievement of performance conditions can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations in any one period.

Results of Operations

Effective December 31, 2014, we operate in two reportable segments: Healthcare and Technology. We no longer present the operations of Penn Mezzanine as a separate reportable operating segment because we do not separately evaluate Penn Mezzanine financial results for purposes of making operating decisions and assessing performance. The results of Penn Mezzanine are now reported within corporate operations under Other items. The amounts, discussion, and presentation of our reportable segments reflect this restatement for all years presented in this Annual Report on Form 10-K.
The results of operations of all of our partner companies are reported in our Healthcare and Technology segments. The Healthcare and Technology segments also include the gain or loss on the sale of interests in our respective partner companies.
Our management evaluates the Healthcare and Technology segments’ performance based on equity income (loss) which is based on the number of partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies, and Other income or loss associated with cost method partner companies.
Other items include certain expenses which are not identifiable to the operations of our operating segments. Other items primarily consist of general and administrative expenses related to corporate operations, including employee compensation, insurance and professional fees, interest income, interest expense, other income (loss), equity income (loss) related to our private equity holdings and income taxes. Other items also include interest earned on mezzanine loans, gain (loss) on the mark-to-market of our warrant participations, and impairment on debt and equity interests in which we participate with Penn Mezzanine as well as equity income (loss) associated with our interest in the management company and general partner of Penn Mezzanine.
The following table reflects our consolidated operating data by reportable segment. Segment results include our share of income or losses for entities accounted for under the equity method, when applicable. Segment results also include impairment charges and gains or losses related to the disposition of interests in partner companies. Our operating results, including net income (loss) before income taxes by segment, were as follows:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Healthcare	$	27,876		 	$	(32,563	)	 	$	(6,660	)	
Technology	(10,831	)	 	20,899		 	(119	)	
Total segments	17,045		 	(11,664	)	 	(6,779	)	
Other items:	 	 	 	 	 	
Corporate operations	(22,194	)	 	(23,861	)	 	(32,583	)	
Income tax benefit (expense)	—		 	—		 	—		
Total other items	(22,194	)	 	(23,861	)	 	(32,583	)	
Net loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	

There is intense competition in the markets in which our partner companies operate. Additionally, the markets in which these companies operate are characterized by rapidly changing technology, evolving industry standards, frequent introduction of new products and services, shifting distribution channels, evolving government regulation, frequently changing intellectual property landscapes and changing customer demands. Their future success depends on each company’s ability to execute its business plan and to adapt to its respective rapidly changing market.

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As previously stated, throughout this document, we use the term “partner company” to generally refer to those companies in which we have an economic interest and in which we are actively involved influencing development, usually through board representation in addition to our equity ownership.
The following listings of our Healthcare and Technology partner companies only include entities which were considered partner companies as of December 31, 2014 . Certain entities which may have been partner companies in previous periods are omitted if, as of December 31, 2014 , they had been sold or are no longer considered a partner company.
Healthcare
The following active partner companies as of December 31, 2014 were included in Healthcare:  

								
 	Safeguard Primary Ownership
as of December 31,	 	 	
Partner Company	2014	 	2013	 	2012	 	Accounting Method	
AdvantEdge Healthcare Solutions, Inc.	40.1%	 	40.1%	 	40.2%	 	Equity	
Dabo Health, Inc.	15.3%	 	8.0%	 	NA	 	Cost	
Good Start Genetics, Inc.	29.9%	 	30.0%	 	30.0%	 	Equity	
InfoBionic, Inc.	27.8%	 	NA	 	NA	 	Equity	
Medivo, Inc.	34.5%	 	34.5%	 	30.0%	 	Equity	
NovaSom, Inc.	31.7%	 	30.3%	 	30.3%	 	Equity	
Propeller Health, Inc.	24.6%	 	NA	 	NA	 	Equity	
Putney, Inc.	28.3%	 	27.6%	 	27.6%	 	Equity	
Quantia, Inc.	42.3%	 	35.1%	 	NA	 	Equity	
Syapse, Inc.	27.0%	 	NA	 	NA	 	Equity	
Trice Medical™	31.9%	 	NA	 	NA	 	Equity	
Results for the Healthcare segment were as follows:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Other income (loss), net	$	31,820		 	$	(857	)	 	$	19,884		
Equity loss	(3,944	)	 	(31,706	)	 	(26,544	)	
Net income (loss)	$	27,876		 	$	(32,563	)	 	$	(6,660	)	

Year ended December 31, 2014 versus year ended December 31, 2013
Other Income (Loss), Net. Other income (loss), net increased $32.7 million for the year ended December 31, 2014, compared to the prior year. The increase was primarily due to the recognition of gains of $27.4 million and $3.0 million on the sales of former cost method partner company Crescendo Bioscience, Inc. and former fair value method partner company NuPathe, respectively, in February 2014. The increase also related to the recognition of a gain of $1.5 million on the sale of our interests in former cost method partner company Sotera Wireless in April 2014. Other income (loss), net for the year ended December 31, 2013 reflected an unrealized loss of $0.9 million on the mark-to-market of our holdings in NuPathe.
Equity Loss. Equity loss fluctuates with the number of Healthcare partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies. We recognize our share of losses to the extent we have cost basis in the equity of the partner company or we have outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our partner companies accounted for under the equity method are based on estimates and on unaudited results of operations of those partner companies and may require adjustments in the future when audits of these entities are made final. We report our share of the results of our equity method partner companies on a one quarter lag basis.
Equity loss for the Healthcare segment decreased $27.8 million for the year ended December 31, 2014 compared to the prior year.  The decrease was primarily due to the recognition of a gain of $15.7 million on the sale of former equity method partner company Alverix, Inc. in January 2014 and an impairment charge for the year ended December 31, 2013 of $11.2 million related to PixelOptics, a former equity method partner company. The decrease in equity loss was also due to smaller

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losses incurred by partner companies included in the Healthcare segment partially offset by a $1.7 million adjustment related to the change in revenue recognition accounting at a partner company as discussed below.
    
Our share of the earnings or losses of partner companies, as well as any adjustments resulting from prior period finalizations of equity income or loss, are reflected in Equity loss in the Consolidated Statements of Operations.  In the year ended December 31, 2014, the amount related to prior periods for a specific partner company was $1.7 million, of which $1.4 million related to 2013 and $0.3 million related to 2012. The adjustments are primarily related to a change in revenue recognition accounting at the partner company. We evaluated the quantitative and qualitative impact of the corrections on previously reported periods as well as on the year ended December 31, 2014.  Based on this evaluation, we concluded that these adjustments were not material to our Consolidated Financial Statements.

Year ended December 31, 2013 versus year ended December 31, 2012
Other Income (Loss), Net. Other income (loss), net decreased $20.7 million for the year ended December 31, 2013, compared to the prior year. Other income (loss), net for the year ended December 31, 2013 reflected a $0.9 million unrealized loss on the mark-to-market of our holdings in NuPathe. Other income (loss), net for the year ended December 31, 2012 reflected an $11.0 million unrealized gain on the mark-to-market of our holdings in NuPathe, a $3.4 million gain recorded in connection with the expiration of the escrow period associated with the sale of former partner company Avid Radiopharmaceuticals, Inc. (“Avid”) to Eli Lilly and Company in December 2010, as well as a $5.6 million gain related to the achievement of the initial milestone associated with the Avid transaction. These gains were partially offset by an impairment charge of $0.3 million on available-for-sale holdings.
Equity Loss. Equity loss for the Healthcare segment increased $5.2 million for the year ended December 31, 2013, compared to the prior year. We recognized impairment charges of $11.2 million and $5.0 million related to PixelOptics in the years ended December 31, 2013 and 2012, respectively. The net increase in impairment charges was partially offset by smaller losses incurred by partner companies in the Healthcare segment in the year ended December 31, 2013 as compared to the year ended December 31, 2012.
Technology
The following active partner companies as of December 31, 2014 were included in Technology:  

								
 	Safeguard Primary Ownership
as of December 31,	 	 	
Partner Company	2014	 	2013	 	2012	 	Accounting Method	
AppFirst, Inc.	34.3%	 	34.3%	 	35.0%	 	Equity	
Apprenda, Inc.	21.6%	 	22.0%	 	NA	 	Equity	
Beyond.com, Inc.	38.2%	 	38.2%	 	38.3%	 	Equity	
Bridgevine, Inc.	17.2%	 	22.7%	 	21.7%	 	Cost (1)	
Clutch Holdings, Inc.	29.6%	 	24.0%	 	NA	 	Equity	
DriveFactor, Inc.	40.6%	 	40.6%	 	35.4%	 	Equity	
Hoopla Software, Inc.	25.6%	 	25.3%	 	25.3%	 	Equity	
Lumesis, Inc.	45.7%	 	44.2%	 	31.6%	 	Equity	
MediaMath, Inc.	20.7%	 	22.5%	 	22.2%	 	Equity	
Pneuron Corporation	27.6%	 	27.6%	 	NA	 	Equity	
Spongecell, Inc.	23.0%	 	23.0%	 	23.1%	 	Equity	
Transactis, Inc.	24.8%	 	NA	 	NA	 	Equity	
WebLinc, Inc.	29.2%	 	NA	 	NA	 	Equity	

(1) In the second quarter of 2014, our ownership interest in Bridgevine decreased from 22.7% to 17.3% , below the
threshold at which we believe we exercise significant influence. Accordingly, we changed our method of accounting for Bridgevine from the equity method to the cost method.

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Results for the Technology segment were as follows:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Equity income (loss)	$	(10,831	)	 	$	20,899		 	$	(119	)	
Net income (loss)	$	(10,831	)	 	$	20,899		 	$	(119	)	
Year ended December 31, 2014 versus year ended December 31, 2013
Equity Income (Loss). Equity income (loss) fluctuates with the number of Technology partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies. We recognize our share of losses to the extent we have cost basis in the equity partner company or we have outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our partner companies accounted for under the equity method are based on estimates and on unaudited results of operations of those partner companies and may require adjustments in the future when audits of these entities are made final. We report our share of the results of our equity method partner companies on a one quarter lag.
Equity income (loss) for the Technology segment decreased $31.7 million for the year ended December 31, 2014, compared to the prior year. Equity income (loss) for the year ended December 31, 2013 included the recognition of a gain of $32.7 million on the sale of former partner company ThingWorx, Inc. to PTC, Inc. in December 2013. The decrease was also due to an increase in losses incurred by partner companies included in the Technology segment partially offset by a $7.0 million unrealized gain on the decrease of our percentage ownership interest in MediaMath in the year ended December 31, 2014.
Year ended December 31, 2013 versus year ended December 31, 2012
Equity Income (Loss). Equity income (loss) for the Technology segment increased $21.0 million for the year ended December 31, 2013, compared to the prior year. The increase primarily related to the recognition of a gain of $32.7 million on the sale of former partner company ThingWorx to PTC in December 2013. The year ended December 31, 2012 included gains of $3.4 million and $1.9 million associated with the receipt of the escrowed proceeds and the achievement of performance milestones related to the sale of former partner company, Portico Systems, Inc., respectively. The year ended December 31, 2012 also included a gain of $0.6 million related to a payment received upon the liquidation of former partner company SafeCentral, Inc. The increase was partially offset by an increase in the number of partner companies included within the Technology segment, all of which incurred net losses.
Corporate Operations  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
General and administrative expense	$	(16,961	)	 	$	(19,731	)	 	$	(17,351	)	
Stock-based compensation	(1,935	)	 	(1,821	)	 	(2,014	)	
Depreciation	(74	)	 	(92	)	 	(108	)	
Interest income	1,901		 	2,646		 	2,926		
Interest expense	(4,402	)	 	(4,303	)	 	(5,636	)	
Other income (loss), net	(163	)	 	1,240		 	(10,546	)	
Equity income (loss)	(560	)	 	(1,800	)	 	146		
Net loss	$	(22,194	)	 	$	(23,861	)	 	$	(32,583	)	
Corporate Operations includes interest earned on mezzanine loans, gain (loss) on the mark-to-market of our warrant participations, and impairment on debt and equity interests in which we participate with Penn Mezzanine as well as equity income (loss) associated with our interest in the management company and general partner of Penn Mezzanine. We have determined that we will not be making any further new capital deployments in connection with Penn Mezzanine lending activities. We will continue to collect principal and interest payments from our existing participating interests in Penn Mezzanine loans.

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Year ended December 31, 2014 versus year ended December 31, 2013
General and Administrative Expense.  Our general and administrative expenses consist primarily of employee compensation, insurance, travel-related costs, office rent and professional services such as consulting, legal and accounting. General and administrative expenses decreased $2.8 million for the year ended December 31, 2014 compared to the prior year primarily due to a decrease of $1.6 million in costs associated with a transitional services agreement with our previous Chief Executive Officer, a decrease in severance expense of $0.9 million related to another former executive and a decrease of $0.6 million in professional fees. These decreases were partially offset by an increase in employee costs of $0.3 million.
Stock-Based Compensation.  Stock-based compensation consists primarily of expense related to grants of stock options, restricted stock and deferred stock units to our employees and directors. Stock-based compensation increased $0.1 million for the year ended December 31, 2014, compared to the prior year due to a $0.2 million increase in expense related to performance-based awards and a $0.1 million increase in expense related to service-based awards, which were partially offset by a $0.2 million decrease in expense related to market-based awards.
Interest Income.  Interest income includes all interest earned on cash and marketable securities balances, interest earned on note receivable balances from our partner companies as well as mezzanine loans in which we participate with Penn Mezzanine. Interest income decreased $0.7 million for the year ended December 31, 2014, compared to the prior year. The decrease was primarily attributable to lower average cash and marketable securities balances, lower average note receivable balances with our partner companies and the repayment of mezzanine loans in which we participate with Penn Mezzanine.

Interest Expense.  Interest expense is primarily related to our convertible senior debentures. Interest expense remained relatively consistent compared to the prior year.
Other Income (Loss), Net. Other income (loss), net for the year ended December 31, 2014 included a loss on the sale of one of our Penn Mezzanine equity interests of $0.3 million. Other income (loss), net for the year ended December 31, 2013 included a gain of $1.1 million on the mark-to-market of our Penn Mezzanine warrant participations and a gain on the sale of one of our Penn Mezzanine equity interest participations of $0.5 million, partially offset by an impairment charge associated with our Penn Mezzanine equity and loan participations of $0.3 million and an impairment charge of $0.3 million related to our interest in a legacy private equity fund.
Equity Income (Loss).  Equity income (loss) consists of our private equity holdings accounted for under the equity method. Equity income (loss) for the year ended December 31, 2014 included losses of $0.6 million associated with our interest in the management company of Penn Mezzanine. Equity income (loss) for the year ended December 31, 2013 included an impairment charge of $1.8 million and losses of $0.3 million associated with our interest in the management company of Penn Mezzanine, partially offset by a $0.3 million gain upon distribution from one of our private equity holdings.
Year ended December 31, 2013 versus year ended December 31, 2012
General and Administrative Expense.  General and administrative expenses increased $2.4 million for the year ended December 31, 2013 compared to the prior year primarily due to an increase of $1.6 million in costs associated with a transitional services agreement with our previous Chief Executive Officer and severance expense of $0.9 million related to another former executive.
Stock-Based Compensation.  Stock-based compensation decreased $0.2 million for the year ended December 31, 2013, compared to the prior year due to a $0.2 million decrease in expense related to market-based awards and a $0.2 million decrease in expense related to performance-based awards, which were partially offset by a $0.2 million increase in expense related to service-based awards.
Interest Income.  Interest income decreased $0.3 million for the year ended December 31, 2013, compared to the prior year. The decrease was primarily attributable to lower average cash and marketable securities balances, lower average note receivable balances with our partner companies and the repayment of mezzanine loans in which we participate with Penn Mezzanine.

Interest Expense.  The decrease in interest expense of $1.3 million in the year ended December 31, 2013 compared to the prior year was due to a lower coupon rate of 5.25% payable on our 2018 Debentures compared to a coupon rate of 10.125% payable on our 2014 Debentures, which were substantially repaid in November 2012.
Other Income (Loss), Net.   Other income (loss), net for the year ended December 31, 2013 included a gain of $1.1 million on the mark-to-market of our Penn Mezzanine warrant participations and a gain on the sale of one of our Penn Mezzanine

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equity interest participations of $0.5 million, partially offset by an impairment charge associated with our Penn Mezzanine equity and loan participations of $0.3 million and an impairment charge of $0.3 million related to our interest in a legacy private equity fund. Other income (loss), net for the year ended December 31, 2012 included a $7.9 million loss on the repurchase of substantially all of our 2014 Debentures, an impairment charge of $2.5 million associated with our Penn Mezzanine equity, warrant and loan participations, and an impairment charge of $0.4 million related to our interest in a legacy private equity fund, partially offset by a gain of $0.2 million on the mark-to-market of our Penn Mezzanine warrant participations.
Equity Income (Loss).  Equity income (loss) for the year ended December 31, 2013 included an impairment charge of $1.8 million and losses of $0.3 million associated with our interest in the management company of Penn Mezzanine, partially offset by a $0.3 million gain upon distribution from one of our private equity holdings. Equity income (loss) for the year ended December 31, 2012 included a $0.5 million gain upon distribution from one of our private equity holdings, partially offset by a loss of $0.3 million associated with our interest in the management company of Penn Mezzanine.
Income Tax Benefit (Expense)
Our consolidated net income tax (expense) benefit for 2014 , 2013 and 2012 was $0.0 million in each year. We have recorded a valuation allowance to reduce our net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the income tax (expense) benefit that would have been recognized in each year was offset by changes in the valuation allowance.
Liquidity And Capital Resources
We fund our operations with cash on hand as well as proceeds from sales of and distributions from partner companies, private equity funds and marketable securities. In prior periods, we have also used sales of our equity and the issuance of debt as sources of liquidity and may do so in the future. Our ability to generate liquidity from sales of partner companies, sales of marketable securities and from equity and debt issuances has been adversely affected from time to time by adverse circumstances in the U.S. capital markets and other factors.
As of December 31, 2014 , we had $111.9 million of cash and cash equivalents and $44.6 million of marketable securities for a total of $156.5 million.
In April 2014, we sold our ownership interest in Sotera Wireless for approximately $4.2 million in cash proceeds.
In February 2014, Crescendo Bioscience was acquired by Myriad Genetics, Inc. We received $38.4 million in cash proceeds in connection with the transaction, excluding $2.9 million, net of claims paid through December 31, 2014, which will be held in escrow until approximately May 2015.
In February 2014, NuPathe was acquired by Teva Pharmaceutical Industries Ltd. for $3.65 per share in cash. In addition to the upfront cash payment, NuPathe shareholders received rights to receive additional cash payments of up to $3.15 per share if specified milestones are achieved over time. We received initial net cash proceeds of $23.1 million as a result of the transaction. Depending on the achievement of the milestones, we may receive up to an additional $24.2 million.
In January 2014, Alverix was acquired by Becton, Dickinson and Company. We received cash proceeds of $15.7 million, excluding $1.7 million which will be held in escrow until approximately July 2015.

For the year ended December 31, 2014 , we received cash proceeds of $4.7 million from the repayment of loan participations receivable and $1.3 million from the sale of equity interests initiated by Penn Mezzanine.
In December 2013, ThingWorx was acquired by PTC. We received cash proceeds of $36.4 million, excluding $4.1 million which will be held in escrow until December 2015. Depending on the achievement of certain milestones, we may receive up to an additional $6.5 million in connection with the transaction.
In June 2011, Advanced BioHealing, Inc. was acquired by Shire plc. Prior to the expiration of the escrow period in March 2012, Shire plc filed a claim against $7.6 million held in escrow related to the sale. No further proceeds will be distributed to us or other former owners until the validity of such claims is determined. We presently view it as unlikely that we will receive any portion of such amount in the short or long-term.
Depending on the achievement of certain difficult commercial and regulatory milestones, we could receive additional proceeds of up to $54.0 million by the end of 2018 related to the December 2010 sale of our former partner company Avid. We presently view it as unlikely that we will receive any significant portion of such amount in the short or long-term.

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We have outstanding $55.0 million in face amount of our 5.25% convertible senior debentures due 2018 (the "2018 Debentures"). Interest on the 2018 Debentures is payable semi-annually. At the debentures holders’ option, the 2018 Debentures are convertible into our common stock prior to November 15, 2017 subject to certain conditions, and at any time after November 15, 2017. The conversion rate of the 2018 Debentures is 55.17 shares of common stock per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $18.13 per share of common stock. The closing price per share of our common stock at December 31, 2014 was $19.82. The 2018 Debentures holders have the right to require us to repurchase the 2018 Debentures if we undergo a fundamental change as defined in the debenture agreement, including the sale of all or substantially all of our common stock or assets, liquidation, or dissolution; a change in control, the delisting of our common stock from the New York Stock Exchange or the NASDAQ Global Market (or any of their respective successors); or a substantial change in the composition of our board of directors as defined in the agreement. On or after November 15, 2016, we may redeem for cash some or all of the debentures, subject to certain conditions. Upon any redemption of the 2018 Debentures, we will pay a redemption price of 100% of their principal amount, plus accrued and unpaid interest. Upon the conversion of the 2018 Debentures we have the right to settle the conversion in stock, cash or a combination thereof.
In February 2014, our Board of Directors authorized us, from time to time and depending on market conditions, to repurchase up to $25.0 million of our outstanding common stock. During the year ended December 31, 2014 , we repurchased 1.2 million shares at an aggregate cost of $25.0 million. This share repurchase program was completed in May 2014.
We are party to a loan agreement with a commercial bank which provides us with a revolving credit facility in the maximum aggregate amount of $25.0 million in the form of borrowings, guarantees and issuances of letters of credit, subject to a $20.0 million sublimit. Actual availability under the credit facility is based on the amount of cash maintained at the bank as well as the value of our public and private partner company interests. This credit facility bears interest at the prime rate for outstanding borrowings, subject to an increase in certain circumstances. Other than for limited exceptions,we are required to maintain all of our depository and operating accounts at the bank. The credit facility, as amended December 22, 2014, matures on December 21, 2015. Under the credit facility, we provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters which has been required in connection with the sale of CompuCom Systems in 2004. Availability under our revolving credit facility at December 31, 2014 was $18.7 million.
At December 31, 2014 , we had committed capital of approximately $0.2 million to private equity funds. These commitments are expected to be funded in the next 12 months.
In May 2001, we entered into a $26.5 million loan agreement with Warren V. Musser, a former Chairman and Chief Executive Officer of the Company. Since 2001 and through December 31, 2014 , we have received a total of $17.0 million in payments on the loan. The carrying value of the loan at December 31, 2014 was zero. We received payments of $0.1 million on this loan agreement in 2014 and did not receive any payments in 2013 or 2012.
Under certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a private equity fund for further distribution to such fund’s limited partners (“clawback”). The maximum clawback we could be required to return related to our general partner interest is $1.3 million, of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheets at December 31, 2014 . Our ownership in the fund is 19%. The clawback liability is joint and several, such that we may be required to fund the clawback for other general partners should they default. We believe our potential liability due to the possibility of default by other general partners is remote.
The transactions we enter into in pursuit of our strategy could increase or decrease our liquidity at any point in time. As we seek to acquire interests in new partner companies, provide additional funding to existing partner companies, or commit capital to other initiatives, we may be required to expend our cash or incur debt, which will decrease our liquidity. Conversely, as we dispose of our interests in partner companies from time to time, we may receive proceeds from such sales, which could increase our liquidity. From time to time, we are engaged in discussions concerning acquisitions and dispositions which, if consummated, could impact our liquidity, perhaps significantly.
For the reasons we have presented above, we believe our cash and cash equivalents at December 31, 2014 , availability under our revolving credit facility and other internal sources of cash flow will be sufficient to fund our cash requirements for at least the next 12 months, including interest payments, commitments to our existing partner companies and funds, possible additional funding of existing partner companies and our general corporate requirements. Our acquisition of new partner company interests is always contingent upon our availability of cash to fund such deployments, and our timing of monetization events directly affects our availability of cash.

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Analysis of Consolidated Cash Flows
Cash flow activity was as follows:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Net cash used in operating activities	$	(20,189	)	 	$	(21,221	)	 	$	(16,525	)	
Net cash provided by investing activities	16,956		 	90,258		 	3,116		
Net cash provided by (used in) financing activities	(24,188	)	 	4,252		 	(3,749	)	
 	$	(27,421	)	 	$	73,289		 	$	(17,158	)	
Net Cash Used In Operating Activities

Year ended December 31, 2014 versus year ended December 31, 2013. Net cash used in operating activities decreased $1.0 million in 2014 compared to the prior year. The decrease was primarily related to a decrease in cash used for professional fees of $1.4 million and a decrease in cash severance payments of $0.9 million. These decreases were partially offset by an increase of $1.1 million related to final payments associated with a transitional services agreement with our previous Chief Executive Officer and an increase of $0.4 million in cash used for management incentive plan payments.

Year ended December 31, 2013 versus year ended December 31, 2012. Net cash used in operating activities increased $4.7 million in 2013 compared to the prior year. The increase primarily related to $2.9 million in cash interest payments on our 2018 Debentures. In the prior year, interest payments related to the 2014 Debentures were funded from a restricted escrow account. Interest payments made out of the restricted escrow account on the 2014 Debentures were considered non-cash investing activities. The change also related to an increase in cash severance payments of $0.9 million and an increase of $0.6 million in cash used for professional fees. These increases were partially offset by a $0.7 million decrease in cash used for management incentive plan payments.
Net Cash Provided by Investing Activities

Year ended December 31, 2014 versus year ended December 31, 2013. Net cash provided by investing activities decreased by $73.3 million for the year ended December 31, 2014 compared to the prior year. The decrease primarily related to a $95.7 million decrease in cash proceeds from the net change in marketable securities, a $17.6 million increase in acquisitions of ownership interests in companies and a decrease in proceeds from the sale of discontinued operations of $6.4 million which related to the release of escrow funds in June 2013. These decreases were partially offset by a $43.8 million increase in proceeds from the sales of and distributions from companies and funds, primarily related to the 2014 sales of our interests in Crescendo Bioscience, Alverix, NuPathe and Sotera Wireless, and an increase of $3.0 million in repayments of advances and loans to companies.

Year ended December 31, 2013 versus year ended December 31, 2012. Net cash provided by investing activities increased $87.1 million in 2013 compared to the prior year. The increase primarily related to a $61.1 million increase in cash received from the net change in marketable securities, an increase of $21.4 million in proceeds from sales of and distributions from companies and funds, primarily related to the 2013 sale of our interests in ThingWorx, an increase in proceeds from the sale of discontinued operations of $6.4 million which related to the release of escrow funds in June 2013, a decrease in acquisitions of ownership interests in companies of $4.3 million and a decrease in advances and loans to companies of $3.2 million. These increases were partially offset by a $7.7 million decrease from the release in 2012 of cash from escrow as a result of the repurchase of the 2014 Debentures and a decrease of $1.6 million related to repayments of advances to partner companies.
Net Cash Provided by (Used In) Financing Activities

Year ended December 31, 2014 versus year ended December 31, 2013. Net cash provided by (used in) financing activities decreased $28.4 million in 2014 compared to the prior year. The decrease primarily related to $25.0 million in repurchases of our common stock, the repurchase of $0.4 million of our 2024 Debentures and a $3.1 million decrease in the proceeds received from the exercise of stock options.

Year ended December 31, 2013 versus year ended December 31, 2012. Net cash provided by (used in) financing activities increased $8.0 million in 2013 compared to the prior year. The increase related to the cash outflow of $58.7 million

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associated with the repurchase of the 2014 Debentures in 2012 as well as $1.8 million in costs associated with the issuance of our 2018 Debentures in 2012 partially offset by the issuance of $55.0 million in the face amount of our 2018 Debentures. The increase also related to a $2.7 million increase in the proceeds received from the exercise of stock options.

Contractual Cash Obligations and Other Commercial Commitments
The following table summarizes our contractual obligations and other commercial commitments as of December 31, 2014 , by period due or expiration of the commitment.

	
																				
 	Payments Due by Period	
 	Total	 	2015	 	2016 and
2017	 	2018 and
2019	 	After
2019	
 	(In millions)	
Contractual Cash Obligations:	 	 	 	 	 	 	 	 	 	
Convertible senior debentures (a)	$	55.0		 	$	—		 	$	—		 	$	55.0		 	$	—		
Interest payments on long-term debt	10.1		 	2.9		 	5.8		 	1.4		 	—		
Operating leases	0.4		 	0.4		 	—		 	—		 	—		
Funding commitments (b)	0.2		 	0.2		 	—		 	—		 	—		
Potential clawback liabilities (c)	1.3		 	1.0		 	—		 	0.3		 	—		
Other long-term obligations (d)	3.3		 	0.8		 	1.6		 	0.9		 	—		
Total Contractual Cash Obligations	$	70.3		 	$	5.3		 	$	7.4			$	57.6		 	$	—		
 	 	 	 	 	 	 	 	 	 	
 	Amount of Commitment Expiration by Period	
 	Total	 	2015	 	2016 and
2017	 	2018 and
2019	 	After
2019	
 	(In millions)	
Other Commitments:	 	 	 	 	 	 	 	 	 	
Letters of credit (e)	$	6.3		 	$	—		 	$	—		 	$	6.3		 	$	—		

(a)	We have outstanding $55.0 million of our 5.25% convertible senior debentures due May 15, 2018.	

(b)	This represents funding commitments to private equity funds based on estimated timing of capital calls provided to us by the funds' management.	

(c)	Under certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a private equity fund for a further distribution to such fund’s limited partners (“clawback”). The maximum clawback we could be required to return is approximately $1.3 million, of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheet as of December 31, 2014 .	

(d)	Reflects the estimated amount payable to a former Chairman and CEO under an ongoing agreement.	

(e)	A $6.3 million letter of credit is provided to the landlord of CompuCom’s Dallas headquarters lease as required in connection with our sale of CompuCom in 2004.	
We have agreements with certain employees that provide for severance payments to the employee in the event the employee is terminated without cause or if the employee terminates his employment for “good reason.” The maximum aggregate cash exposure under the agreements was approximately $3.0 million at December 31, 2014 .
We 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 consolidated financial position or results of operations.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
At December 31, 2014 , we had $55.0 million outstanding of our 5.25% convertible senior debentures due May 15, 2018.

																																	
Liabilities	 	2015	 	2016	 	2017	 	2018	 	2019	 	Thereafter	 	Total	 	Fair
Value at December 31, 2014	
2018 Debentures due by year (in millions)	 	$	—		 	$	—		 	$	—		 	$	55.0		 	$	—		 	$	—		 	$	55.0		 	$	70.8		
Fixed interest rate	 	5.25	%	 	5.25	%	 	5.25	%	 	5.25	%	 	 	 	 	 	5.25	%	 	 	

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Item 8.  Financial Statements and Supplementary Data
The following Consolidated Financial Statements, and the related Notes thereto, of Safeguard Scientifics, Inc. and the Reports of Independent Registered Public Accounting Firm are filed as a part of this Form 10-K.

	

 	Page	
Report of Independent Registered Public Accounting Firm	35	
Report of Independent Registered Public Accounting Firm	36	
Consolidated Balance Sheets as of December 31, 2014 and 2013	37	
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012	38	
Consolidated Statements of Comprehensive Loss for the years ended December  31, 2014, 2013 and 2012	39	
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and  2012	40	
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	41	
Notes to Consolidated Financial Statements	42	

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Safeguard Scientifics, Inc.:
We have audited Safeguard Scientifics, Inc.’s (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Safeguard Scientifics, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A.(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Safeguard Scientifics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated March 6, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 6, 2015

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Safeguard Scientifics, Inc.:
We have audited the accompanying consolidated balance sheets of Safeguard Scientifics, Inc. (the Company) and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Safeguard Scientifics, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 6, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 6, 2015

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SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

	
								
 	As of December 31,	
 	2014	 	2013	
ASSETS				
Current Assets:				
Cash and cash equivalents	$	111,897			$	139,318		
Marketable securities	25,263			38,250		
Prepaid expenses and other current assets	1,684			1,562		
Total current assets	138,844			179,130		
Property and equipment, net	123			138		
Ownership interests in and advances to partner companies (of which $0 and $20,057 are measured at fair value at December 31, 2014 and 2013, respectively)	154,192			148,579		
Loan participations receivable	3,855			8,135		
Long-term marketable securities	19,365			6,088		
Other assets	2,075			3,926		
Total Assets	$	318,454			$	345,996		
LIABILITIES AND EQUITY				
Current Liabilities:				
Convertible senior debentures—current	$	—			$	470		
Accounts payable	226			245		
Accrued compensation and benefits	3,997			5,028		
Accrued expenses and other current liabilities	2,334			2,431		
Total current liabilities	6,557			8,174		
Other long-term liabilities	3,507			3,683		
Convertible senior debentures—non-current	50,563			49,478		
Total Liabilities	60,627			61,335		
Commitments and contingencies				
Equity:				
Preferred stock, $0.10 par value; 1,000 shares authorized	—			—		
Common stock, $0.10 par value; 83,333 shares authorized; 21,573 and 21,553 shares issued at December 31, 2014 and 2013, respectively	2,157			2,155		
Additional paid-in capital	819,757			822,103		
Treasury stock, at cost; 921 and 4 shares at December 31, 2014 and 2013, respectively	(19,341	)		—		
Accumulated deficit	(544,746	)		(539,597	)	
Total Equity	257,827			284,661		
Total Liabilities and Equity	$	318,454			$	345,996		
See Notes to Consolidated Financial Statements.

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SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	
												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
General and administrative expense	$	18,970			$	21,644		 	$	19,473		
Operating loss	(18,970	)		(21,644	)	 	(19,473	)	
Other income (loss), net	31,657			383		 	9,338		
Interest income	1,901			2,646		 	2,926		
Interest expense	(4,402	)		(4,303	)	 	(5,636	)	
Equity loss	(15,335	)		(12,607	)	 	(26,517	)	
Net loss before income taxes	(5,149	)		(35,525	)	 	(39,362	)	
Income tax benefit (expense)	—			—		 	—		
Net loss	$	(5,149	)		$	(35,525	)	 	$	(39,362	)	
Net loss per share:				 	 	
Basic	$	(0.25	)		$	(1.66	)	 	$	(1.88	)	
Diluted	$	(0.25	)		$	(1.66	)	 	$	(1.88	)	
Weighted average shares used in computing net loss per share:				 	 	
Basic	20,975			21,362		 	20,974		
Diluted	20,975			21,362		 	20,974		
See Notes to Consolidated Financial Statements.

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SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)

	
												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
Net loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	
Other comprehensive income (loss), before taxes:	 	 	 	 	 	
Unrealized net gain (loss) on available-for-sale securities	(14	)	 	(43	)	 	4,388		
Reclassification adjustment for gain from available-for-sale securities changed to fair value	—		 	—		 	(4,607	)	
Reclassification adjustment for other than temporary impairment of available-for-sale securities included in net loss	14		 	43		 	260		
Total comprehensive loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,321	)	
See Notes to Consolidated Financial Statements.

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SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)

	
																														
 	 	 	 	 	Accumulated
Other Comprehensive
 Income
(Loss)	 	 	 	 	
 	 	 	Accumulated
Deficit	 		 	Common Stock	 	Additional
Paid-In
Capital	 	Treasury Stock	
 	Total	 		 		 	Shares	 	Amount	 		 	Shares	 	Amount	
Balance — December 31, 2011	$	348,280		 	$	(464,710	)	 	$	(41	)	 	20,752		 	$	2,075		 	$	810,956		 	—		 	$	—		
Net loss	(39,362	)	 	(39,362	)	 	—		 	—		 	—		 	—		 	—		 	—		
Stock options exercised, net	1,741		 	—		 	—		 	181		 	19		 	1,722		 	—		 	—		
Issuance of restricted stock, net	94		 	—		 	—		 	35		 	3		 	91		 	—		 	—		
Stock-based compensation expense	2,014		 	—		 	—		 	—		 	—		 	2,014		 	—		 	—		
Repurchase of equity component of convertible senior debentures	(5,283	)	 	—		 	—		 	—		 	—		 	(5,283	)	 	—		 	—		
Equity component of convertible senior debentures issued, net of issuance costs	6,446		 	—		 	—		 	—		 	—		 	6,446		 	—		 	—		
Other comprehensive income	41		 	—		 	41		 	—		 	—		 	—		 	—		 	—		
Balance — December 31, 2012	313,971		 	(504,072	)	 	—		 	20,968		 	2,097		 	815,946		 	—		 	—		
Net loss	(35,525	)	 	(35,525	)	 	—		 	—		 	—		 	—		 	—		 	—		
Stock options exercised, net	4,417		 	—		 	—		 	559		 	55		 	4,261		 	(7	)	 	101		
Issuance of restricted stock, net	99		 	—		 	—		 	26		 	3		 	75		 	3		 	21		
Stock-based compensation expense	1,821		 	—		 	—		 	—		 	—		 	1,821		 	—		 	—		
Repurchase of common stock	(122	)	 	—		 	—		 	—		 	—		 	—		 	8		 	(122	)	
Balance — December 31, 2013	284,661		 	(539,597	)	 	—		 	21,553		 	2,155		 	822,103		 	4		 	—		
Net loss	(5,149	)	 	(5,149	)	 	—		 	—		 	—		 	—		 	—		 	—		
Stock options exercised, net	1,289		 	—		 	—		 	18		 	2		 	(2,716	)	 	(198	)	 	4,003		
Issuance of restricted stock, net	98		 	—		 	—		 	—		 	—		 	(1,594	)	 	(79	)	 	1,692		
Stock-based compensation expense	1,935		 	—		 	—		 	—		 	—		 	1,935		 	—		 	—		
Repurchase of common stock	(25,036	)	 	—		 	—		 	—		 	—		 	—		 	1,194		 	(25,036	)	
Conversion of convertible senior debentures to common stock	29		 	—		 	—		 	2		 	—		 	29		 	—		 	—		
Balance — December 31, 2014	$	257,827		 	$	(544,746	)	 	$	—		 	21,573		 	$	2,157		 	$	819,757		 	921		 	$	(19,341	)	
See Notes to Consolidated Financial Statements.

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SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	
												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
Cash Flows from Operating Activities:	 	 	 	 	 	
Net loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	
Adjustments to reconcile to net cash used in operating activities:	 	 	 	 	 	
Depreciation	74		 	92		 	108		
Amortization of debt discount	1,085		 	995		 	726		
Equity loss	15,335		 	12,607		 	26,517		
Other (income) loss, net	(31,657	)	 	(383	)	 	(9,338	)	
Stock-based compensation expense	1,935		 	1,821		 	2,014		
Changes in assets and liabilities:	 	 	 	 	 	
Accounts receivable, net	(369	)	 	(1,194	)	 	(418	)	
Accounts payable, accrued expenses, and other	(1,443	)	 	366		 	3,228		
Net cash used in operating activities	(20,189	)	 	(21,221	)	 	(16,525	)	
Cash Flows from Investing Activities:	 	 	 	 	 	
Acquisitions of ownership interests in companies	(59,476	)	 	(41,838	)	 	(46,100	)	
Proceeds from sales of and distributions from companies	82,822		 	38,974		 	17,596		
Advances and loans to companies	(10,968	)	 	(10,464	)	 	(13,665	)	
Repayment of advances and loans to companies	4,684		 	1,651		 	3,214		
Increase in marketable securities	(55,594	)	 	(69,883	)	 	(242,023	)	
Decrease in marketable securities	55,410		 	165,379		 	276,392		
Release of restricted cash equivalents for interest on convertible senior debentures	5		 	—		 	7,701		
Capital expenditures	(59	)	 	(37	)	 	(73	)	
Proceeds from sale of discontinued operations, net	—		 	6,434		 	—		
Other, net	132		 	42		 	74		
Net cash provided by investing activities	16,956		 	90,258		 	3,116		
Cash Flows from Financing Activities:	 	 	 	 	 	
Proceeds from issuance of convertible senior debentures	—		 	—		 	55,000		
Repurchase of convertible senior debentures	(441	)	 	(43	)	 	(58,703	)	
Costs of issuance of convertible senior debentures	—		 	—		 	(1,790	)	
Issuance of Company common stock, net	1,289		 	4,417		 	1,744		
Repurchase of Company common stock	(25,036	)	 	(122	)	 	—		
Net cash provided by (used in) financing activities	(24,188	)	 	4,252		 	(3,749	)	
Net change in cash and cash equivalents	(27,421	)	 	73,289		 	(17,158	)	
Cash and cash equivalents at beginning of period	139,318		 	66,029		 	83,187		
Cash and cash equivalents at end of period	$	111,897		 	$	139,318		 	$	66,029		
See Notes to Consolidated Financial Statements.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Safeguard (the "Company") and all of its subsidiaries in which a controlling financial interest is maintained. All intercompany accounts and transactions are eliminated in consolidation.
Principles of Accounting for Ownership Interests in Companies
The Company accounts for its interests in its partner companies using one of the following methods: consolidation, fair value, equity, or cost. The accounting method applied is generally determined by the degree of the Company's influence over the entity, primarily determined by our voting interest in the entity.
In addition to holding voting and non-voting equity and debt securities, the Company also periodically makes advances to its partner companies in the form of promissory notes which are included in the Ownership interests in and advances to partner companies line item in the Consolidated Balance Sheets.
Consolidation Method. The Company generally accounts for partner companies in which it directly or indirectly owns more than 50% of the outstanding voting securities under the consolidation method of accounting. Under this method, the Company includes the partner companies’ financial statements within the Company’s Consolidated Financial Statements, and all significant intercompany accounts and transactions are eliminated. The Company reflects participation of other stockholders in the net assets and in the income or losses of these consolidated partner companies in Equity in the Consolidated Balance Sheets and in Net income (loss) attributable to non-controlling interest in the Statements of Operations. Net income (loss) attributable to non-controlling interest adjusts the Company’s consolidated operating results to reflect only the Company’s share of the earnings or losses of the consolidated partner company. The Company accounts for results of operations and cash flows of a consolidated partner company through the latest date in which it holds a controlling interest. If the Company subsequently relinquishes control but retains an interest in the partner company, the accounting method is adjusted to the equity, cost or fair value method of accounting, as appropriate. As of December 31, 2014 and for each of the three years in the period then ended, the Company did not hold a controlling interest in any of its partner companies.
Fair Value Method. Unrealized gains and losses on the mark-to-market of the Company's holdings in fair value method companies and realized gains and losses on the sale of any holdings in fair value method companies are recognized in Other income (loss), net in the Consolidated Statements of Operations. The Company accounted for its holdings in NuPathe Inc., a former publicly traded partner company, under the fair value method of accounting. As of December 31, 2014, the Company did not account for any of its partner companies under the fair value method.
Equity Method.  The Company accounts for partner companies whose results are not consolidated, but over which it exercises significant influence, under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation of the Company on the partner company’s board of directors and the Company’s ownership level, which is generally a 20% to 50% interest in the voting securities of a partner company, including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. Under the equity method of accounting, the Company does not reflect a partner company’s financial statements within the Company’s Consolidated Financial Statements; however, the Company’s share of the income or loss of such partner company is reflected in Equity income (loss) in the Consolidated Statements of Operations. The Company includes the carrying value of equity method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets. Any excess of the Company’s cost over its underlying interest in the net assets of equity method partner companies that is allocated to intangible assets is amortized over the estimated useful lives of the related intangible assets. The Company reflects its share of the income or loss of the equity method partner companies on a one quarter lag. This reporting lag could result in a delay in recognition of the impact of changes in the business or operations of these partner companies.
When the Company’s carrying value in an equity method partner company is reduced to zero, the Company records no further losses in its Consolidated Statements of Operations unless the Company has an outstanding guarantee obligation or has committed additional funding to such equity method partner company. When such equity method partner company subsequently reports income, the Company will not record its share of such income until it exceeds the amount of the Company’s share of losses not previously recognized.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Cost Method.  The Company accounts for partner companies not consolidated or accounted for under the equity method or fair value method under the cost method of accounting. Under the cost method, the Company does not include its share of the income or losses of partner companies in the Company’s Consolidated Statements of Operations. The Company includes the carrying value of cost method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets.
Accounting Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. These estimates include the evaluation of the recoverability of the Company’s ownership interests in and advances to partner companies and investments in marketable securities, income taxes, stock-based compensation and commitments and contingencies. Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.
 
Certain amounts recorded to reflect the Company’s share of income or losses of partner companies accounted for under the equity method are based on unaudited results of operations of those companies and may require adjustments in the future when audits of these entities’ financial statements are completed.
It is reasonably possible that the Company’s accounting estimates with respect to the ultimate recoverability of the carrying value of the Company’s ownership interests in and advances to partner companies could change in the near term and that the effect of such changes on the financial statements could be material. At December 31, 2014 , the Company believes the carrying value of the Company’s ownership interests in and advances to partner companies is not impaired, although there can be no assurance that the Company’s future results will confirm this assessment, that a significant write-down or write-off will not be required in the future, or that a significant loss will not be recorded in the future upon the sale of a company.
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits that are readily convertible into cash. The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity securities are carried at amortized cost, which approximates fair value. Marketable securities consist of held-to-maturity securities, primarily consisting of government agency bonds, commercial paper and certificates of deposits. Marketable securities with a maturity date greater than one year from the balance sheet date are considered long-term. The Company has not experienced any significant losses on cash equivalents and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
Financial Instruments
The Company’s financial instruments (principally cash and cash equivalents, marketable securities, accounts receivable, notes receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The Company’s long-term debt is carried at cost.
Accounting for Participating Interests in Mezzanine Loans Receivable and Related Equity Interests
The Company’s participating interests in Penn Mezzanine loans are included in Loan participations receivable on the Consolidated Balance Sheets. On a periodic basis, but no less frequently than at the end of each quarter, the Company evaluates the carrying value of each loan participation receivable for impairment. A loan participation receivable is considered impaired when it is probable that the Company will be unable to collect all amounts (principal and interest) due according to the contractual terms of the participation agreement and related agreements with the borrowers. The Company maintains an allowance to provide for estimated loan losses based on evaluating known and inherent risks in the loans. The allowance is provided based upon management’s analysis of the pertinent factors underlying the quality of the loans. These factors include an analysis of the financial condition of the individual borrowers, delinquency levels, actual loan loss experience, current economic conditions and other relevant factors. The Company’s analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The Company does not accrue interest when a loan is considered impaired. All cash receipts from an impaired loan are applied to reduce the original principal amount of such loan until the principal has been fully recovered and would be recognized as interest income thereafter.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s participation in equity interests acquired by Penn Mezzanine is accounted for under the cost method of accounting. On a periodic basis, but no less frequently than at the end of each quarter, the Company evaluates the carrying value of its participation in these equity interests for possible impairment based on achievement of business plan objectives and milestones, the fair value of the equity interest relative to its carrying value, the financial condition and prospects of the underlying company and other relevant factors. The Company’s participating interests in equity interests acquired by Penn Mezzanine are included in Other assets on the Consolidated Balance Sheets.
Impairment of Ownership Interests In and Advances to Partner Companies
On a periodic basis, but no less frequently than quarterly, the Company evaluates the carrying value of its equity and cost method partner companies for possible impairment based on achievement of business plan objectives and milestones, the fair value of each partner company relative to its carrying value, the financial condition and prospects of the partner company and other relevant factors. The business plan objectives and milestones the Company considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. Management then determines whether there has been an other than temporary decline in the value of its ownership interest in the company. Impairment is measured as the amount by which the carrying value of an asset exceeds its fair value.
The fair value of privately held companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies or based on other valuation methods, including discounted cash flows, valuation of comparable public companies and the valuation of acquisitions of similar companies.
Impairment charges related to equity method partner companies are included in Equity income (loss) in the Consolidated Statements of Operations. Impairment charges related to cost method partner companies and funds are included in Other income (loss), net in the Consolidated Statements of Operations.
The reduced cost basis of a previously impaired partner company is not written-up if circumstances suggest the value of the company has subsequently recovered.
Income Taxes
The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company measures deferred tax assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period of the enactment date. The Company provides a valuation allowance against the net deferred tax asset for amounts which are not considered more likely than not to be realized.
Net Income (Loss) Per Share
The Company computes net income (loss) per share using the weighted average number of common shares outstanding during each year. The Company includes in diluted net income (loss) per share common stock equivalents (unless anti-dilutive) which would arise from the exercise of stock options and conversion of other convertible securities and adjusted, if applicable, for the effect on net income (loss) of such transactions. Diluted net income (loss) per share calculations adjust net income (loss) for the dilutive effect of common stock equivalents and convertible securities issued by the Company’s consolidated or equity method partner companies.
Segment Information
The Company reports segment data based on the management approach which designates the internal reporting used by management for making operating decisions and assessing performance as the source of the Company’s reportable operating segments.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2. Ownership Interests in and Advances to Partner Companies
The following summarizes the carrying value of the Company’s ownership interests in and advances to partner companies.

								
 	December 31, 2014	 	December 31, 2013	
 	(In thousands)	
Fair value	$	—		 	$	20,057		
Equity Method:	 	 	 	
Partner companies	134,861		 	108,872		
Private equity funds	1,128		 	1,766		
 	135,989		 	110,638		
Cost Method:	 	 	 	
Partner companies	6,774		 	13,480		
Private equity funds	2,364		 	2,418		
 	9,138		 	15,898		
Advances to partner companies	9,065		 	1,986		
 	$	154,192		 	$	148,579		
Loan participations receivable	$	3,855		 	$	8,135		

The Company’s share of the earnings or losses of partner companies, as well as any adjustments resulting from prior period finalizations of equity income or loss, are reflected in Equity income (loss) on the Consolidated Statements of Operations.  For the year ended December 31, 2014, adjustments at a partner company primarily related to revenue recognition amounted to $1.7 million , of which $1.4 million related to 2013 and $0.3 million related to 2012. Management evaluated the quantitative and qualitative impact of the corrections on previously reported periods as well as on the year ended December 31, 2014.  Based on this evaluation, management concluded that these adjustments were not material to the Company’s Consolidated Financial Statements.
The Company recognized impairment charges of $11.2 million and $5.0 million related to PixelOptics, Inc., formerly an equity method partner company, for the years ended December 31, 2013 and 2012, respectively, which are reflected in Equity income (loss) in the Consolidated Statements of Operations. The impairments were based on PixelOptics' inability to raise additional capital to continue its operations. On November 4, 2013, PixelOptics filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The adjusted carrying value of PixelOptics is  $0  and the Company believes it will not recover any of its capital.

The Company recognized an impairment charge of $1.8 million for the year ended December 31, 2013 related to its interest in the management company of Penn Mezzanine which is reflected in Equity income (loss) in the Consolidated Statements of Operations. The Company has determined that it will not be making any further new capital deployments in connection with Penn Mezzanine lending activities.
For the years ended December 31, 2014, 2013 and 2012, the Company received cash proceeds of $4.7 million , $1.3 million and $2.5 million , respectively, from the repayment of loan participations receivable initiated by Penn Mezzanine. For the years ended December 31, 2014 and 2013, the Company received cash proceeds of $1.3 million and $0.8 million , respectively, from the sale of equity interests initiated by Penn Mezzanine. The Company recognized impairment charges of $0.3 million and $2.5 million related to its Penn Mezzanine debt and equity participations for the years ended December 31, 2013 and 2012, respectively, which are reflected in Other income (loss), net in the Consolidated Statements of Operations.
The Company recognized impairment charges of $0.1 million , $0.3 million and $0.4 million related to its interest in a legacy private equity fund for the years ended December 31, 2014, 2013 and 2012, respectively, which are reflected in Other income (loss), net in the Consolidated Statement of Operations.

In April 2014, the Company sold its ownership interests in Sotera Wireless, Inc., formerly a cost method partner company. The Company received $4.2 million in cash proceeds in connection with the transaction and recognized a gain of $1.5 million , which is included in Other income (loss), net in the Consolidated Statements of Operations for the year ended December 31, 2014.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In February 2014, Crescendo Bioscience, Inc., formerly a cost method partner company, was acquired by Myriad Genetics, Inc. The Company received $38.4 million in cash proceeds in connection with the transaction, excluding $2.9 million , net of claims paid through December 31, 2014, which will be held in escrow until approximately May 2015. The Company recognized a gain of $27.4 million on the transaction, which is included in Other income (loss), net in the Consolidated Statements of Operations for the year ended December 31, 2014.
In February 2014, NuPathe, formerly a fair value method partner company, was acquired by Teva Pharmaceutical Industries Ltd. for $3.65 per share in cash. In addition to the upfront cash payment, NuPathe shareholders received rights to receive additional cash payments of up to $3.15 per share if specified milestones are achieved over time. The Company received initial net cash proceeds of $23.1 million as a result of the transaction. Depending on the achievement of certain milestones, the Company may receive up to an additional $24.2 million . The Company recognized a gain of $3.0 million , which is included in Other income (loss), net in the Consolidated Statements of Operations for the year ended December 31, 2014. For the years ended December 31, 2013 and 2012, the Company recognized an unrealized loss of $0.9 million and an unrealized gain of $11.0 million , respectively, on the mark-to-market of its holdings in NuPathe, which are included in Other income (loss), net in the Consolidated Statements of Operations.

In January 2014, Alverix, Inc., formerly an equity method partner company, was acquired by Becton, Dickinson and Company. The Company received cash proceeds of $15.7 million , excluding $1.7 million which will be held in escrow until approximately July 2015. The Company recognized a gain of $15.7 million on the transaction, which is included in Equity income (loss) in the Consolidated Statements of Operations for the year ended December 31, 2014.

In the second quarter of 2014, the Company’s primary ownership interest in Bridgevine, Inc. decreased from 22.7% to 17.3% .  As a result, the Company recognized an unrealized loss of $0.1 million which is reflected in Equity income (loss) in the Consolidated Statements of Operations for the year ended December 31, 2014.

In December 2013, ThingWorx, Inc., formerly an equity method partner company, was acquired by PTC, Inc. The Company received cash proceeds of $36.4 million , excluding $4.1 million which will be held in escrow until December 2015. Depending on the achievement of certain milestones, the Company may receive up to an additional $6.5 million in connection with the transaction. The Company recognized a gain of $32.7 million on the transaction which is recorded in Equity income (loss) in the Consolidated Statement of Operations for the year ended December 31, 2013.

The following unaudited summarized balance sheets for PixelOptics at June 30, 2013 and December 31, 2012 and the results of operations for the six months ended June 30, 2013 and 2012, have been compiled from the financial statements of PixelOptics.  The results of PixelOptics are reported on a one quarter lag basis.  

								
 	As of June 30,	 	As of December 31,	
 	2013	 	2012	
 	(In thousands)	
Balance Sheets:	 	 	 	
Current assets	$	285		 	$	323		
Non-current assets	4,588		 	5,259		
Total assets	$	4,873		 	$	5,582		
Current liabilities	$	56,721		 	$	34,184		
Non-current liabilities	1,818		 	10,228		
Shareholders’ equity	(53,666	)	 	(38,830	)	
Total liabilities and shareholders’ equity	$	4,873		 	$	5,582		

								
 	Six Months Ended June 30,	 	Year Ended December 31,
	
 	2013	 	2012	
 	(In thousands)	
Results of Operations:	 	 	 	
Revenue	$	800		 	$	1,092		
Operating loss	$	(12,219	)	 	$	(32,225	)	
Net loss	$	(14,838	)	 	$	(35,472	)	

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The following summarized balance sheets for NuPathe at September 30, 2013 and December 31, 2012 and the results of operations for the nine months ended September 30, 2013 and the year ended December 31, 2012, have been compiled from the financial statements of NuPathe. 

								
 	As of September 30,	 	As of December 31,	
 	2013	 	2012	
 	(In thousands)	
Balance Sheets:	 	 	 	
Current assets	$	11,281		 	$	23,020		
Non-current assets	10,140		 	7,587		
Total assets	$	21,421		 	$	30,607		
Current liabilities	$	8,411		 	$	3,173		
Non-current liabilities	5,802		 	24,421		
Shareholders’ equity	7,208		 	3,013		
Total liabilities and shareholders’ equity	$	21,421		 	$	30,607		

								
 	Nine Months Ended September 30,	 	Year Ended December 31,
	
 	2013	 	2012	
 	(In thousands)	
Results of Operations:	 	 	 	
Revenue	$	—		 	$	—		
Operating loss	$	(17,238	)	 	$	(21,033	)	
Net loss	$	(30,417	)	 	$	(37,784	)	

The following summarized financial information for partner companies and funds accounted for under the equity method at December 31, 2014 and 2013 and for each of the three years ended December 31, 2014 , 2013 and 2012 has been compiled from the financial statements of our respective partner companies and funds and reflects certain historical adjustments. Results of operations of the partner companies and funds are excluded for periods prior to their acquisition and subsequent to their disposition. The financial information below does not include information pertaining to PixelOptics or NuPathe.  

								
 	As of December 31,	
 	2014	 	2013	
 	(In thousands)	
Balance Sheets:	 	 	 	
Current assets	$	312,621		 	$	221,001		
Non-current assets	90,469		 	90,042		
Total assets	$	403,090		 	$	311,043		
Current liabilities	$	163,016		 	$	153,398		
Non-current liabilities	80,050		 	75,324		
Shareholders’ equity	160,024		 	82,321		
Total liabilities and shareholders’ equity	$	403,090		 	$	311,043		
As of December 31, 2014 , the Company’s carrying value in equity method partner companies, in the aggregate, exceeded the Company’s share of the net assets of such companies by approximately $94.0 million . Of this excess, $70.7 million was allocated to goodwill and $23.3 million was allocated to intangible assets.

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 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Results of Operations:	 	 	 	 	 	
Revenue	$	320,702		 	$	273,764		 	$	191,928		
Gross profit	$	102,803		 	$	123,234		 	$	90,876		
Net loss	$	(108,458	)	 	$	(63,452	)	 	$	(79,662	)	
3. Acquisitions of Ownership Interests in Partner Companies
In December 2014, the Company funded $0.3 million of a convertible bridge loan to Noble Medical, LLC ("Noble"). The Company had previously deployed $0.5 million in Noble. Noble has developed a platform to change patient behaviors through digital health interventions at the point of care. The Company accounts for its interest in Noble under the cost method.
In November and May 2014, the Company deployed an aggregate of $1.3 million into Dabo Health, Inc. The Company had previously deployed $0.8 million in Dabo Health. Dabo Health provides the healthcare community with an online visualization platform to view and track improvement in key performance metrics, collaborate across hospitals and healthcare systems, and identify and share learnings. The Company accounts for its interest in Dabo Health under the cost method.
In November and March 2014, the Company acquired a 27.8% interest in InfoBionic, Inc. for an aggregate of $8.0 million . InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. The Company accounts for its interest in InfoBionic under the equity method.
During 2014, the Company funded an aggregate of $5.1 million of convertible bridge loans to Quantia, Inc. The Company had previously deployed an aggregate of $7.5 million in Quantia. Quantia provides a mobile and web-based physician relationship management platform, QuantiaMD, which enables principal participants in healthcare to reach and engage high-value physicians in ways that ultimately reduce costs, save time, and improve quality of care. The Company accounts for its interest in Quantia under the equity method.
In September and July 2014, the Company acquired a 31.9% interest in Trice Medical™ for an aggregate of $5.0 million . Trice Medical is a diagnostics company focused on micro invasive technologies. The Company accounts for its interest in Trice Medical under the equity method.
In August 2014, the Company acquired a 24.6% interest in Propeller Health, Inc. for $9.0 million . Propeller Health provides digital solutions to improve respiratory health. The Company accounts for its interest in Propeller Health under the equity method.
In August 2014, the Company acquired a 24.8% interest in Transactis, Inc. for $9.5 million . Transactis is a provider of electronic billing and payment solutions. The Company accounts for its interest in Transactis under the equity method.
In August 2014, the Company acquired a 29.2% interest in WebLinc, Inc. for $6.0 million . WebLinc is a commerce platform provider for fast growing online retailers. The Company accounts for its interest in WebLinc under the equity method.
In June 2014, the Company acquired a 27.0% interest in Syapse, Inc. for $5.8 million . Syapse is a software company that enables healthcare providers to deploy precision medicine programs. The Company accounts for its interest in Syapse under the equity method.
In June and April 2014, the Company deployed an aggregate of $5.0 million into Putney, Inc. The Company had previously deployed $10.0 million in Putney. Putney is a pet pharmaceutical company focused on developing high-quality generic prescription medicines for pets. The Company accounts for its interest in Putney under the equity method.
In May and January 2014, the Company deployed an aggregate of $1.7 million into Lumesis, Inc. The Company had previously deployed an aggregate of $3.9 million in Lumesis. Lumesis is a technology company focused on providing business efficiency, data and regulatory solutions to the municipal bond marketplace. The Company accounts for its interest in Lumesis under the equity method.
In May 2014, the Company funded $0.1 million into New York Digital Health Accelerator II in exchange for a 12.5% limited partnership interest in the fund which is run by the New York eHealth Collaborative and the New York City Investment Fund for early- and growth-stage digital health companies that are developing technology products in care coordination, patient

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engagement, analytics and message alerts for healthcare providers. The Company accounts for its interest in New York Digital Health Accelerator II under the equity method.
In May 2014, the Company deployed an additional $2.0 million into Clutch Holdings, Inc. ("Clutch"). The Company had previously deployed an aggregate of $5.5 million in Clutch. Clutch is a leading provider of Consumer Management technology that delivers customer intelligence and customer engagement solutions to premium brands. The Company accounts for its interest in Clutch under the equity method.
In May 2014, the Company funded $1.1 million of a convertible bridge loan to NovaSom, Inc. The Company had previously deployed $20.0 million in NovaSom. NovaSom is a medical device company that has developed an FDA-cleared wireless home sleep test for Obstructive Sleep Apnea called AccuSom ® home sleep test. The Company accounts for its interest in NovaSom under the equity method.
In May 2014, the Company deployed an additional $7.0 million into MediaMath, Inc. In connection with the May 2014 financing, the Company’s primary ownership interest decreased from 22.5% to 20.6% .  As a result, the Company recognized an unrealized gain of $7.0 million which is reflected in Equity income (loss) in the Consolidated Statements of Operations. The Company had previously deployed an aggregate of $18.6 million in MediaMath. MediaMath is a global technology company that is leading the movement to revolutionize traditional marketing and drive transformative results for marketers through its TerminalOne Marketing Operating System™. The Company accounts for its interest in MediaMath under the equity method.
In May 2014, the Company funded $2.1 million of a convertible bridge loan to AppFirst, Inc. The Company had previously deployed $6.5 million in AppFirst. AppFirst's technology provides global organizations the ability to achieve unmatched visibility into the real-time relationships between distributed applications and the global assets which support their execution. The Company accounts for its interest in AppFirst under the equity method.
In March 2014, the Company funded $0.2 million of a convertible bridge loan to Sotera Wireless, Inc. The Company previously deployed $1.3 million into Sotera Wireless and acquired additional shares from a previous investor for $1.2 million . In April 2014, the Company sold its equity and debt interests in Sotera Wireless for $4.2 million . The Company accounted for its interest in Sotera Wireless under the cost method.
In January 2014, the Company deployed an additional $1.4 million into Hoopla Software, Inc. ("Hoopla"). The Company had previously deployed an aggregate of $1.8 million in Hoopla. Hoopla provides cloud-based software that helps sales organizations inspire and motivate sales team performance. The Company accounts for its interest in Hoopla under the equity method.
In November 2013, the Company acquired a 22.0% interest in Apprenda, Inc. for $12.1 million . Apprenda is an enterprise platform-as-a-service company powering the next generation of enterprise software development in public, private and hybrid clouds. The Company accounts for its ownership interest in Apprenda under the equity method.
In September and June 2013, the Company funded an aggregate of $0.6 million of convertible bridge loans to Alverix, Inc. The Company had previously deployed an aggregate of $8.8 million in Alverix. In January 2014, the Company sold its equity and debt interests in Alverix for $15.7 million . The Company accounted for its interest in Alverix under the equity method.
In August 2013, the Company deployed an additional $1.1 million in DriveFactor, Inc. The Company previously deployed an aggregate of $3.5 million in DriveFactor. DriveFactor provides auto insurance companies and original equipment manufacturers with a SaaS platform for telematics-driven usage based insurance and rewards programs. The Company accounts for its interest in DriveFactor under the equity method.
In July 2013, the Company funded $1.0 million of a convertible bridge loan to Crescendo Bioscience, Inc. The Company previously had acquired an interest in Crescendo Bioscience in December 2012 for $10.0 million . In February 2014, the Company sold its equity interest in Crescendo Bioscience for $38.4 million . The Company accounted for its interest in Crescendo Bioscience under the cost method.
During the year ended December 31, 2013, the Company funded $2.3 million for participations in loan and equity interests initiated by Penn Mezzanine. Included in this funding were $2.2 million for participations in loans and $0.1 million for participations in equity of the borrower acquired by Penn Mezzanine. During the year ended December 31, 2012, the Company funded $4.2 million for participations in loan and equity interests initiated by Penn Mezzanine. Included in this funding was $3.8 million for participations in loans, $0.3 million for participations in equity of the borrowers, and $0.1 million for participations in warrants to acquire common stock of the borrowers.
During the year ended December 31, 2013, the Company funded an aggregate of $5.3 million of a convertible bridge loan to PixelOptics. The Company previously deployed an aggregate of $31.6 million in PixelOptics. The Company fully impaired

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its ownership interest in PixelOptics in 2013 based on PixelOptics' inability to raise additional capital to continue its operations. The adjusted carrying value of PixelOptics at December 31, 2014 was $0 . The Company accounted for its interest in PixelOptics under the equity method.
In June 2013, the Company deployed an additional $5.3 million in Medivo, Inc. The Company had previously deployed $6.3 million in Medivo. Medivo's mission is to improve the health of patients by using lab data and analytics to enable better treatment decisions. The Company accounts for its interest in Medivo under the equity method.
In February 2013, the Company acquired a 27.6% interest in Pneuron Corporation for $5.0 million . Pneuron enables organizations to rapidly solve business problems through a distributed approach that cuts across data, applications and processes. The Company accounts for its ownership interest in Pneuron under the equity method.
  In October and March 2012, the Company deployed an additional $5.2 million in Good Start Genetics, Inc. The Company had previously deployed $6.8 million in Good Start Genetics. Good Start Genetics is a commercial-stage molecular genetic information company focused on transforming the standard of care in reproductive medicine by providing physicians and their patients with clinically relevant and actionable information concerning inherited genetic disorders. The Company accounts for its interest in Good Start Genetics under the equity method.
In October 2012, the Company purchased 2,500 preferred stock units and warrants to purchase 2.5 million shares of common stock from NuPathe for $5.0 million . The preferred stock was converted into 2.5 million shares of common stock of NuPathe in February 2013. The Company previously deployed $18.3 million in NuPathe. In February 2014, the Company sold its equity interest in NuPathe for $23.1 million . The Company accounted for its ownership interest in NuPathe under the fair value method.
In September 2012, the Company deployed an additional $5.0 million in ThingWorx. The Company previously deployed $5.0 million in ThingWorx in February 2011. In December 2013, the Company sold its equity interest in ThingWorx for $36.4 million . The Company accounted for its interest in ThingWorx under the equity method.

In August 2012, the Company funded $0.4 million into New York Digital Health Accelerator in exchange for a 9.4% limited partnership interest in the fund which is run by the New York eHealth Collaborative and the New York City Investment Fund for early- and growth-stage digital health companies that are developing technology products in care coordination, patient engagement, analytics and message alerts for healthcare providers. The Company accounts for its interest in New York Digital Health Accelerator under the equity method.
In February 2012, the Company acquired a 23.1% ownership interest in Spongecell, Inc. for $10.0 million . Spongecell is a programmatic creative solution that leverages data-driven technology to automate the production and delivery of high-quality ads at scale across display, mobile and video. The Company accounts for its ownership interest in Spongecell under the equity method.
4. Fair Value Measurements
The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on the Company’s Consolidated Balance Sheets are categorized as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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The following table provides the carrying value and fair value of certain financial assets of the Company measured at fair value on a recurring basis as of December 31, 2014 and 2013 : 

																
 	Carrying
Value	 	Fair Value Measurement at December 31, 2014	
 		 	Level 1	 	Level 2	 	Level 3	
 	(in thousands)	
Cash and cash equivalents	$	111,897		 	$	111,897		 	$	—		 	$	—		
Warrant participations	61		 	—		 	—		 	61		
Marketable securities—held-to-maturity:	 	 	 	 	 	 	 	
Commercial paper	$	6,596		 	$	6,596		 	$	—		 	$	—		
U.S. Treasury Bills	1,503		 	1,503		 	—		 	—		
Government agency bonds	503		 	503		 	—		 	—		
Certificates of deposit	36,026		 	36,026		 	—		 	—		
Total marketable securities	$	44,628		 	$	44,628		 	$	—		 	$	—		

	
																
 	Carrying
Value	 	Fair Value Measurement at December 31, 2013	
 		 	Level 1	 	Level 2	 	Level 3	
 	(In thousands)	
Cash and cash equivalents	$	139,318		 	$	139,318		 	$	—		 	$	—		
Ownership interest in common stock of NuPathe	16,874		 	16,874		 	—		 	—		
Ownership interest in warrants and options of NuPathe	3,183		 	—		 	—		 	3,183		
Warrant participations	1,563		 	—		 	—		 	1,563		
Marketable securities—held-to-maturity:		 		 	 	 	 	
Commercial paper	$	13,599		 	$	13,599		 	$	—		 	$	—		
U.S. Treasury Bills	8,014		 	8,014		 	—		 	—		
Government agency bonds	9,945		 	9,945		 	—		 	—		
Certificates of deposit	12,780		 	12,780		 	—		 	—		
Total marketable securities	$	44,338		 	$	44,338		 	$	—		 	$	—		
As of December 31, 2014 , $25.3 million of marketable securities had contractual maturities which were less than one year and $19.4 million of marketable securities had contractual maturities greater than one year. Held-to-maturity securities are carried at amortized cost, which, due to the short-term maturity of these instruments, approximates fair value using quoted prices in active markets for identical assets or liabilities defined as Level 1 inputs under the fair value hierarchy.
The Company recorded an impairment charge of $11.2 million related to PixelOptics, formerly an equity method partner company, for the year ended December 31, 2013 measured as the amount by which PixelOptics’ carrying value exceeded its estimated fair value.  On November 4, 2013, PixelOptics filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The carrying value of the Company’s equity ownership in PixelOptics is  $0 and the Company believes it will not recover any of its capital.
The Company’s Penn Mezzanine warrant participations are carried at fair value. The value of the Company’s holdings in warrant participations is measured by reference to Level 3 inputs. The inputs and valuation techniques used include discounted cash flows and valuation of comparable public companies. The Company recognized a gain of $1.1 million associated with mark-to-market adjustment related to its warrant participations with Penn Mezzanine for the year ended December 31, 2013 , which is reflected in Other income (loss), net in the Consolidated Statements of Operations.
The Company recognized an impairment charge of $1.8 million related to its ownership interest in the management company of Penn Mezzanine for the year ended December 31, 2013. The inputs and valuation techniques used were primarily an evaluation of the future cash flows associated with the Company's interest in the management company of Penn Mezzanine.
The Company recorded an impairment charge of $0.3 million related to its Penn Mezzanine debt and equity participations for the year ended December 31, 2013 measured as the amount by which the carrying value of the Company’s participation in the debt and equity interests acquired by Penn Mezzanine exceeded their estimated fair values. The fair market values of the Company's participating interests in debt and equity acquired by Penn Mezzanine were determined based on Level

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3 inputs as defined above. The inputs and valuation techniques used included discounted cash flows and valuations of comparable public companies.
The Company recognized impairment charges of $0.1 million and $0.3 million related to a legacy private equity fund for the years ended December 31, 2014 and 2013, respectively, measured as the amount by which the carrying value of the Company’s interest in the fund exceeded its estimated fair value. The fair market value of the Company’s interest in the fund was determined to be $1.6 million at December 31, 2014 based on the fair value of the Company’s pro rata portion of the fund’s net assets, which is a Level 3 input under the fair value hierarchy.
5. Convertible Debentures and Credit Arrangements
The carrying values of the Company’s convertible senior debentures were as follows:  

								
 	As of December 31,	
 	2014	 	2013	
 	(In thousands)	
Convertible senior debentures due 2018	$	50,563		 	$	49,478		
Convertible senior debentures due 2024	—		 	441		
Convertible senior debentures due 2014	—		 	29		
 	50,563		 	49,948		
Less: current portion	—		 	(470	)	
Convertible senior debentures — non-current	$	50,563		 	$	49,478		
Convertible Senior Debentures due 2018
In November 2012, Safeguard issued $55.0 million principal amount of its 5.25% convertible senior debentures due 2018 (the “2018 Debentures”). Proceeds from the offering were used to repurchase substantially all of the Company's then outstanding 10.125% convertible senior debentures due 2014 (the “2014 Debentures”). The repurchase of the 2014 Debentures resulted in a loss on repurchase of $7.9 million which is reflected in Other income (loss), net in the Consolidated Statement of Operations for the year ended December 31, 2012. Interest on the 2018 Debentures is payable semi-annually on May 15 and November 15.

Holders of the 2018 Debentures may convert their notes prior to November 15, 2017 at their option only under the following circumstances:

•	during any calendar quarter commencing after the calendar quarter ending on December 31, 2012, if the last reported sale price of the common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;	

•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day;	

•	if the notes have been called for redemption; or	

•	upon the occurrence of specified corporate events.	
 
On or after November 15, 2017 until the close of business on the second business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of whether any of the foregoing conditions have been met. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company’s election.
The conversion rate of the 2018 Debentures is 55.17 shares of common stock per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $18.13 per share of common stock. The closing price of the Company’s common stock at December 31, 2014 was $19.82 .

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On or after November 15, 2016, the Company may redeem for cash any of the 2018 Debentures if the last reported sale price of the Company’s common stock exceeds 140% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on the trading day before the date that notice of redemption is given, including the last trading day of such period. Upon any redemption of the 2018 Debentures, the Company will pay a redemption price of 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, and additional interest, if any.
The 2018 Debentures holders have the right to require the Company to repurchase the 2018 Debentures if the Company undergoes a fundamental change, which includes the sale of all or substantially all of the Company’s common stock or assets; liquidation; dissolution; a greater than 50% change in control; the delisting of the Company’s common stock from the New York Stock Exchange or the NASDAQ Global Market (or any of their respective successors); or a substantial change in the composition of the Company’s board of directors as defined in the governing agreement. Holders may require that the Company repurchase for cash all or part of their debentures at a fundamental change repurchase price equal to 100% of the principal amount of the debentures to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Because the 2018 Debentures may be settled in cash or partially in cash upon conversion, the Company separately accounts for the liability and equity components of the 2018 Debentures. The carrying amount of the liability component was determined at the transaction date by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component represented by the embedded conversion option was determined by deducting the fair value of the liability component from the initial proceeds of the 2018 Debentures as a whole. At December 31, 2014 , the fair value of the $55.0 million outstanding 2018 Debentures was approximately $70.8 million , based on the midpoint of the bid and ask prices as of such date. At December 31, 2014 , the carrying amount of the equity component was $6.4 million , the principal amount of the liability component was $55.0 million , the unamortized discount was $4.4 million and the net carrying value of the liability component was $50.6 million . The Company is amortizing the excess of the face value of the 2018 Debentures over their carrying value over their term as additional interest expense using the effective interest method and recorded $1.1 million and $1.0 million of such expense for the years ended December 31, 2014 and 2013 , respectively. The effective interest rate on the 2018 Debentures is 8.7% .
Convertible Senior Debentures due 2024
In 2004, the Company issued an aggregate of $150.0 million in face value of convertible senior debentures with a stated maturity date of March 15, 2024 (the "2024 Debentures"). The Company repurchased or redeemed all of the remaining 2024 Debentures in the second quarter of 2014.
Convertible Senior Debentures due 2014
In 2010, the Company issued an aggregate of $46.9 million of the 2014 Debentures. In November 2012, the Company repurchased substantially all of the 2014 Debentures for $58.7 million plus accrued interest. The remaining $29 thousand outstanding principal amount of the 2014 Debentures was converted into the Company's common stock in March 2014.

Credit Arrangements
The Company is party to a loan agreement with a commercial bank which provides it with a revolving credit facility in the maximum aggregate amount of $25.0 million in the form of borrowings, guarantees and issuances of letters of credit, subject to a $20.0 million sublimit. Actual availability under the credit facility is based on the amount of cash maintained at the bank as well as the value of the Company’s public and private partner company interests. This credit facility bears interest at the prime rate for outstanding borrowings, subject to an increase in certain circumstances. Other than for limited exceptions, the Company is required to maintain all of its depository and operating accounts at the bank. The credit facility, as amended December 22, 2014, matures on December 21, 2015 . Under the credit facility, the Company provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters which has been required in connection with the sale of CompuCom Systems in 2004. Availability under the Company’s revolving credit facility at December 31, 2014 was $18.7 million .
6. Equity
In February 2014, the Company's Board of Directors authorized the Company, from time to time and depending on market conditions, to repurchase up to $25.0 million of the Company's outstanding common stock. During the year ended December 31, 2014, the Company repurchased 1.2 million shares at an aggregate cost of $25.0 million . This share repurchase program was completed in May 2014.  

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7. Stock-Based Compensation
Equity Compensation Plans
In May 2014, the Company’s shareholders approved an amendment and restatement of the 2004 Equity Compensation Plan to increase the number of shares of common stock reserved for issuance by  2.2 million  shares, to rename the plan the 2014 Equity Compensation Plan, and to make certain other clarifying changes and updates to the plan. The 2014 Equity Compensation Plan has 4.1 million shares authorized for issuance. During 2013, the Company issued 70 thousand options outside of existing plans as inducement awards in accordance with New York Stock Exchange rules. To the extent allowable, service-based options are incentive stock options. Options granted under the plans are at prices equal to or greater than the fair market value at the date of grant. Upon exercise of stock options, the Company issues shares first from treasury stock, if available, then from authorized but unissued shares. At December 31, 2014 , the Company had reserved 4.6 million shares of common stock for possible future issuance under its 2014 Equity Compensation Plan, and other previously expired equity compensation plans.
Classification of Stock-Based Compensation Expense
Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
General and administrative expense	$	1,935		 	$	1,821		 	$	2,014		
 	$	1,935		 	$	1,821		 	$	2,014		
At December 31, 2014 , the Company had outstanding options that vest based on three different types of vesting schedules:
1) market-based;
2) performance-based; and
3) service-based.
Market-based awards entitle participants to vest in a number of options determined by achievement by the Company of certain target market capitalization increases (measured by reference to stock price increases on a specified number of outstanding shares) over an eight -year period. The requisite service periods for the market-based awards are based on the Company’s estimate of the dates on which the market conditions will be met as determined using a Monte Carlo simulation model. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if market capitalization targets are achieved earlier than estimated. During the years ended December 31, 2014 , 2013 and 2012 , the Company did not issue any market-based awards to employees. During the year ended December 31, 2014, 22 thousand market-based awards vested. No market-based awards vested during 2013 or 2012. During the years ended December 31, 2014 , 2013 and 2012 , respectively, 155 thousand , 554 thousand and 6 thousand market-based awards were canceled or forfeited. The Company recorded compensation expense related to market-based awards of $0.0 million , $0.2 million and $0.4 million during the years ended December 31, 2014 , 2013 and 2012 , respectively. There is no further expense to be recognized related to market-based awards. Depending on the Company’s stock performance, the maximum number of unvested shares at December 31, 2014 attainable under these grants was 226 thousand shares.
Performance-based awards entitle participants to vest in a number of awards determined by achievement by the Company of target capital returns based on net cash proceeds received by the Company upon the sale, merger or other exit transaction of certain identified partner companies. Vesting may occur, if at all, once per year. The requisite service periods for the performance-based awards are based on the Company’s estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if capital return targets are achieved earlier than estimated. During the years ended December 31, 2014 , 2013 and 2012 , respectively, the Company issued 8 thousand , 67 thousand and 180 thousand performance-based awards to employees. During the years ended December 31, 2014, 2013 and 2012, 7 thousand , 0 thousand and 14 thousand performance-based awards vested. During the years ended December 31, 2014 , 2013 and 2012 , respectively, 16 thousand , 398 thousand and 6 thousand performance-based awards were canceled or forfeited. The Company recorded compensation expense related to performance-based awards of $0.1 million , $0.0 million and $0.2 million for the years ended December 31, 2014 , 2013 and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2012 , respectively. The maximum number of unvested shares at December 31, 2014 attainable under these grants was 462 thousand shares.
All other outstanding options are service-based awards that generally vest over four years after the date of grant and expire eight years after the date of grant. Compensation expense is recognized over the requisite service period using the straight-line method. The requisite service period for service-based awards is the period over which the award vests. During the years ended December 31, 2014 , 2013 and 2012 , respectively, the Company issued 23 thousand , 52 thousand and 113 thousand service-based awards to employees. During the years ended December 31, 2014 , 2013 and 2012 , respectively, 8 thousand , 14 thousand and 1 thousand service-based awards were canceled or forfeited. The Company recorded compensation expense related to these awards of $0.3 million , $0.5 million and $0.7 million during the years ended December 31, 2014 , 2013 and 2012 , respectively.
The fair value of the Company’s stock-based awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate is based on the U.S. Treasury yield curve in effect at the end of the quarter in which the grant occurred. The expected term of stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on historical volatility measured using weekly price observations of the Company’s common stock for a period equal to the stock option’s expected term. Assumptions used in the valuation of options granted in each period were as follows:  

									
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
Service-Based Awards	 	 	 	 	 	
Dividend yield	0	%	 	0	%	 	0	%	
Expected volatility	32	%	 	52	%	 	56	%	
Average expected option life	5 years		 	5 years		 	5 years		
Risk-free interest rate	1.7	%	 	1.3	%	 	0.8	%	
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
Performance-Based Awards	 	 	 	 	 	
Dividend yield	0	%	 	0	%	 	0	%	
Expected volatility	32	%	 	46	%	 	55	%	
Average expected option life	4.8 years		 	4.7 years		 	5.5 years		
Risk-free interest rate	1.7	%	 	1.8	%	 	0.8	%	
The weighted-average grant date fair value of options issued by the Company during the years ended December 31, 2014 , 2013 and 2012 was $7.02 , $6.83 and $7.45 per share, respectively.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Option activity of the Company is summarized below:  

													
 	Shares	 	Weighted
Average
Exercise Price	 	Weighted Average
Remaining
Contractual Life	 	Aggregate
Intrinsic
Value	
 	(In thousands)	 	 	 	(In years)	 	(In thousands)	
Outstanding at December 31, 2011	3,218		 	$	10.32		 	 	 	 	
Options granted	293		 	14.91		 	 	 	 	
Options exercised	(211	)	 	10.22		 	 	 	 	
Options canceled/forfeited	(13	)	 	13.48		 	 	 	 	
Outstanding at December 31, 2012	3,287		 	10.72		 	 	 	 	
Options granted	120		 	15.61		 	 	 	 	
Options exercised	(612	)	 	8.44		 	 	 	 	
Options canceled/forfeited	(967	)	 	9.38		 	 	 	 	
Outstanding at December 31, 2013	1,828		 	12.51		 	 	 	 	
Options granted	31		 	19.38		 	 	 	 	
Options exercised	(365	)	 	11.48		 	 	 	 	
Options canceled/forfeited	(178	)	 	13.58		 	 	 	 	
Outstanding at December 31, 2014	1,316		 	12.81		 	3.99	 	$	9,402		
Options exercisable at December 31, 2014	537		 	12.13		 	2.54	 	4,201		
Options vested and expected to vest at December 31, 2014	964		 	12.33		 	2.65	 	7,350		
Shares available for future grant	2,638		 	 	 	 	 	 	
The total intrinsic value of options exercised for the years ended December 31, 2014 , 2013 and 2012 was $2.4 million , $3.9 million and $1.2 million , respectively.
At December 31, 2014 , total unrecognized compensation cost related to non-vested service-based stock options was $0.6 million . That cost is expected to be recognized over a weighted-average period of 2.6  years.
At December 31, 2014 , the Company had recognized all compensation cost related to market-based stock options.
At December 31, 2014 , total unrecognized compensation cost related to non-vested performance-based stock options was $0.5 million . That cost is expected to be recognized over a weighted-average period of 3.2 years but would be accelerated if stock price targets are achieved earlier than estimated.
During the years ended December 31, 2014 , 2013 and 2012 , respectively, the Company issued 119 thousand , 83 thousand and 90 thousand performance-based stock units to employees which vest based on achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies, as described above related to performance-based option awards. Performance-based stock units represent the right to receive shares of the Company’s common stock, on a one-for-one basis. During the years ended December 31, 2014 , 2013 and 2012 , respectively, the Company issued 59 thousand , 28 thousand and 30 thousand restricted shares to employees. The 2013 and 2012 restricted shares issued vest 25% on the first anniversary of grant and the remaining 75% thereafter in equal monthly installments over the next three years. The 2014 restricted shares vest 25% on March 1, 2016 and in twelve quarterly installments thereafter, commencing on March 15, 2016.
Under the 2014 performance-based award plan, once performance-based awards are fully vested, participants are entitled to receive cash payments equal to their performance grant values in excess of target capital returns described above.
During the years ended December 31, 2014 , 2013 , and 2012 , respectively, the Company issued 46 thousand , 48 thousand and 25 thousand deferred stock units to non-employee directors for annual service grants or fees earned during the preceding quarter. Deferred stock units issued to directors in lieu of directors fees are 100% vested at the grant date; matching deferred stock units equal to 25% of directors’ fees deferred vest one year following the grant date or, if earlier, upon reaching age 65. Deferred stock units are payable in stock on a one-for-one basis. Payments related to the deferred stock units are generally distributable following termination of employment or service, death or permanent disability.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the years ended December 31, 2014, 2013 and 2012, the Company granted 8 thousand , 8 thousand and 5 thousand shares, respectively, to members of its advisory boards, and recorded compensation expense of $0.1 million in each year related to these awards.
Total compensation expense for deferred stock units, performance-based stock units and restricted stock was approximately $1.5 million , $1.1 million and $0.7 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. Unrecognized compensation expense related to deferred stock units, performance stock units and restricted stock at December 31, 2014 was $4.1 million . The total fair value of deferred stock units, performance stock units and restricted stock vested during the years ended December 31, 2014 , 2013 and 2012 was $1.4 million , $1.1 million and $0.9 million , respectively.
Deferred stock unit, performance-based stock unit and restricted stock activity are summarized below:  

							
 	Shares	 	Weighted Average
Grant Date Fair
Value	
 	(In thousands)	 	 	
Unvested at December 31, 2012	347		 	$	13.85		
Granted	167		 	17.45		
Vested	(67	)	 	16.73		
Forfeited	(130	)	 	13.35		
Unvested at December 31, 2013	317		 	15.34		
Granted	231		 	19.67		
Vested	(78	)	 	17.91		
Forfeited	(15	)	 	15.61		
Unvested at December 31, 2014	455		 	17.09		
8. Other Income (Loss), Net  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Loss on repurchase of convertible debentures	$	—		 	$	—		 	$	(7,895	)	
Gain on sale of ownership interests in companies and funds, net	31,835		 	—		 	9,004		
Gain (loss) on mark-to-market of holdings in fair value method partner companies	—		 	(915	)	 	11,035		
Impairment charges on cost method partner companies and private equity funds	(54	)	 	(250	)	 	(350	)	
Gain on mark-to-market of Penn Mezzanine warrants	—		 	1,146		 	264		
Impairment charges on Penn Mezzanine loan and equity participations	—		 	(295	)	 	(2,489	)	
Other than temporary impairment on available-for-sale securities	(14	)	 	(43	)	 	(260	)	
Other	(110	)	 	740		 	29		
 	$	31,657		 	$	383		 	$	9,338		

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. Income Taxes
The federal and state provision (benefit) for income taxes was $0.0 million for the years ended December 31, 2014 , 2013 and 2012 .
The total income tax provision (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 35% to net income (loss) before income taxes as a result of the following:

									
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
Statutory tax (benefit) expense	(35.0	)%	 	(35.0	)%	 	(35.0	)%	
Increase (decrease) in taxes resulting from:	 	 	 	 	 	
Stock-based compensation	1.5		 	0.2		 	0.2		
Nondeductible expenses	2.9		 	0.1		 	0.1		
Valuation allowance	30.6		 	34.7		 	34.7		
 	0.0	 %	 	0.0	 %	 	0.0	 %	
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:  

								
 	As of December 31,	
 	2014	 	2013	
 	(In thousands)	
Deferred tax asset:	 	 	 	
Carrying values of partner companies and other holdings	$	68,557		 	$	59,045		
Tax loss and credit carryforwards	76,766		 	82,403		
Accrued expenses	1,484		 	2,043		
Stock-based compensation	4,761		 	5,005		
Other	1,353		 	1,560		
 	152,921		 	150,056		
Valuation allowance	(152,921	)	 	(150,056	)	
Net deferred tax asset	$	—		 	$	—		
As of December 31, 2014 , the Company and its subsidiaries consolidated for tax purposes had federal net operating loss carryforwards of approximately $208.2 million . These carryforwards expire as follows:  

				
 	 	
 	Total	
 	(In thousands)	
2015	$	—		
2016	—		
2017	—		
2018	—		
2019 and thereafter	208,201		
 	$	208,201		
In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that it is more likely than not that certain future tax benefits may not be realized as a result of current and future income. Accordingly, a valuation allowance has been recorded against substantially all of the Company’s deferred tax assets.

The Company recognizes in its Consolidated Financial Statements the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position. All uncertain tax positions relate to unrecognized tax benefits that would impact the effective tax rate when recognized.

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company does not expect any material increase or decrease in its income tax expense, in the next twelve months, related to examinations or changes in uncertain tax positions.
 
There were no changes in the Company’s uncertain tax positions for the years ended December 31, 2014 , 2013 and 2012 .
The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Tax years 2011 and forward remain open for examination for federal tax purposes and the Company’s more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2014 will remain subject to examination until the respective tax year is closed. The Company recognizes penalties and interest accrued related to income tax liabilities in income tax benefit (expense) in the Consolidated Statements of Operations.
10. Net Loss Per Share
The calculations of net loss per share were:  

												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands, except per share data)	
Basic:	 	 	 	 	 	
Net loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	
Weighted average common shares outstanding	20,975		 	21,362		 	20,974		
Net loss per share	$	(0.25	)	 	$	(1.66	)	 	$	(1.88	)	
Diluted:	 	 	 	 	 	
Net loss	$	(5,149	)	 	$	(35,525	)	 	$	(39,362	)	
Weighted average common shares outstanding	20,975		 	21,362		 	20,974		
Net loss per share	$	(0.25	)	 	$	(1.66	)	 	$	(1.88	)	
Basic and diluted average common shares outstanding for purposes of computing net income (loss) per share includes outstanding common shares and vested deferred stock units (DSUs).
If a consolidated or equity method partner company has dilutive stock options, unvested restricted stock, DSUs, or warrants, diluted net income (loss) per share is computed by first deducting from net income (loss) the income attributable to the potential exercise of the dilutive securities of the partner company from net income (loss). Any impact is shown as an adjustment to net income (loss) for purposes of calculating diluted net income (loss) per share.
Diluted loss per share for the years ended December 31, 2014, 2013 and 2012 do not reflect the following potential shares of common stock that would have an anti-dilutive effect or have unsatisfied performance or market conditions:

•	At December 31, 2014 , 2013 and 2012 , options to purchase 1.3 million , 1.8 million and 3.3 million shares of common stock, respectively, at prices ranging from $7.14 to $19.95 per share, $3.93 to $18.80 per share and $3.93 to $18.80 per share, respectively, were excluded from the calculation.	

•	At December 31, 2014 , unvested restricted stock units, performance-based stock units and DSUs convertible into 0.5 million shares of stock were excluded from the calculations. At December 31, 2013 and 2012, unvested restricted stock units, performance-based stock units and DSUs convertible into 0.3 million shares of stock were excluded from the calculations.	

•	For the years ended December 31, 2014 , 2013 , and 2012, 3.0 million shares of common stock representing the effect of assumed conversion of the 2018 Debentures were excluded from the calculations.	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. Related Party Transactions
In May 2001, the Company entered into a $26.5 million loan agreement with Warren V. Musser, a former Chairman and Chief Executive Officer of the Company. Through December 31, 2014 , the Company recognized impairment charges against the loan of $15.7 million . Since 2001 and through December 31, 2014 , the Company has received a total of $17.0 million in payments on the loan. The carrying value of the loan at December 31, 2014 was zero . The Company received payments of $0.1 million on this loan agreement in 2014 and did not receive any payments on this loan agreement in 2013 or 2012.
In the normal course of business, the Company’s directors, officers and employees hold board positions with partner and other companies in which the Company has a direct or indirect ownership interest.
12. Commitments and Contingencies
The Company and its partner companies are involved in various claims and legal actions arising in the ordinary course of business. In the current opinion of the Company, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations, however, no assurance can be given as to the outcome of these actions, and one or more adverse rulings could have a material adverse effect on the Company’s consolidated financial position and results of operations or that of its partner companies. The Company records costs associated with legal fees as such services are rendered.
The Company leases its corporate headquarters under a lease expiring in 2015 and office equipment under leases expiring at various dates to 2017. Total rental expense under operating leases was $0.6 million for each of the years ended December 31, 2014 , 2013 and 2012 . At December 31, 2014 , the Company has future minimum lease payments of $0.4 million for the year ending December 31, 2015 under non-cancelable operating leases with initial or remaining terms of one year or more.
The Company had outstanding guarantees of $3.8 million at December 31, 2014 which related to one of the Company's private equity holdings.
The Company also has committed capital of approximately $0.2 million to other private equity funds. These commitments are expected to be funded during the next 12 months .
Under certain circumstances, the Company may be required to return a portion or all the distributions it received as a general partner of a private equity fund (“clawback”). The maximum clawback the Company could be required to return due to our general partner interest is approximately $1.3 million , of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheets at December 31, 2014 . The Company’s ownership in the fund is 19% . The clawback liability is joint and several; therefore the Company may be required to fund the clawback for other general partners should they default. The Company believes its potential liability due to the possibility of default by other general partners is remote.
 
In October 2001, the Company entered into an agreement with a former Chairman and Chief Executive Officer of the Company, to provide for annual payments of $0.65 million per year and certain health care and other benefits for life. The related current liability of $0.8 million was included in Accrued expenses and other current liabilities and the long-term portion of $2.5 million was included in Other long-term liabilities on the Consolidated Balance Sheet at December 31, 2014 .
The Company provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters as required in connection with the sale of CompuCom Systems in 2004.
The Company has agreements with certain employees that provide for severance payments to the employee in the event the employee is terminated without cause or an employee terminates his employment for “good reason.” The maximum aggregate exposure under the agreements was approximately $3.0 million at December 31, 2014 .
13. Supplemental Cash Flow Information
During the years ended December 31, 2014 and 2013, the Company converted $2.7 million and $1.8 million , respectively, of advances to partner companies into ownership interests in partner companies. Cash paid for interest in the years ended December 31, 2014 and 2013 was $2.9 million . Cash paid for interest in the year ended December 31, 2012 was $0.8 million . In addition, during the year ended December 31, 2012 , interest payments of $4.8 million on the 2014 Debentures were made using restricted cash equivalents. Cash paid for taxes in the years ended December 31, 2014 , 2013 and 2012 was $0.0 million in each year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. Operating Segments

Effective December 31, 2014, the Company operates in two reportable segments: Healthcare and Technology. The Company no longer presents the operations of Penn Mezzanine as a separate reportable operating segment because management of the Company does not separately evaluate Penn Mezzanine financial results for purposes of making operating decisions and assessing performance. The results of Penn Mezzanine are now reported within corporate operations under Other Items. The amounts, discussion, and presentation of the Company's reportable segments reflect this restatement for all years presented.
As of December 31, 2014 , the Company held interests in 24 non-consolidated partner companies which are included in the Healthcare and Technology segments. The Company’s active partner companies as of December 31, 2014 by segment were as follows for the years ended December 31, 2014 , 2013 and 2012 :
 
Healthcare  

								
 	Safeguard Primary Ownership as of December 31,	 	 	
Partner Company	2014	 	2013	 	2012	 	Accounting Method	
AdvantEdge Healthcare Solutions, Inc.	40.1%	 	40.1%	 	40.2%	 	Equity	
Dabo Health, Inc.	15.3%	 	8.0%	 	NA	 	Cost	
Good Start Genetics, Inc.	29.9%	 	30.0%	 	30.0%	 	Equity	
InfoBionic, Inc.	27.8%	 	NA	 	NA	 	Equity	
Medivo, Inc.	34.5%	 	34.5%	 	30.0%	 	Equity	
NovaSom, Inc.	31.7%	 	30.3%	 	30.3%	 	Equity	
Propeller Health, Inc.	24.6%	 	NA	 	NA	 	Equity	
Putney, Inc.	28.3%	 	27.6%	 	27.6%	 	Equity	
Quantia, Inc.	42.3%	 	35.1%	 	NA	 	Equity	
Syapse, Inc.	27.0%	 	NA	 	NA	 	Equity	
Trice Medical™	31.9%	 	NA	 	NA	 	Equity	
 
Technology  

								
 	Safeguard Primary Ownership as of December 31,	 	 	
Partner Company	2014	 	2013	 	2012	 	Accounting Method	
AppFirst, Inc.	34.3%	 	34.3%	 	35.0%	 	Equity	
Apprenda, Inc.	21.6%	 	22.0%	 	NA	 	Equity	
Beyond.com, Inc.	38.2%	 	38.2%	 	38.3%	 	Equity	
Bridgevine, Inc.	17.2%	 	22.7%	 	21.7%	 	Cost (1)	
Clutch Holdings, Inc.	29.6%	 	24.0%	 	NA	 	Equity	
DriveFactor, Inc.	40.6%	 	40.6%	 	35.4%	 	Equity	
Hoopla Software, Inc.	25.6%	 	25.3%	 	25.3%	 	Equity	
Lumesis, Inc.	45.7%	 	44.2%	 	31.6%	 	Equity	
MediaMath, Inc.	20.7%	 	22.5%	 	22.2%	 	Equity	
Pneuron Corporation	27.6%	 	27.6%	 	NA	 	Equity	
Spongecell, Inc.	23.0%	 	23.0%	 	23.1%	 	Equity	
Transactis, Inc.	24.8%	 	NA	 	NA	 	Equity	
WebLinc, Inc.	29.2%	 	NA	 	NA	 	Equity	

(1) In the second quarter of 2014, the Company’s ownership interest in Bridgevine decreased from 22.7% to 17.3% , below the
threshold at which the Company believes it exercises significant influence. Accordingly, the Company changed its method of
accounting for Bridgevine from the equity method to the cost method.
 
Results of the Healthcare and Technology segments reflect the equity income (loss) of their respective equity method partner companies, other income (loss) associated with fair value method and cost method partner companies and the gains or losses on the sale of the interests in their respective partner companies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Management evaluates the Healthcare and Technology segments’ performance based on net income (loss) which is impacted by the number of partner companies accounted for under the equity method, the Company’s voting ownership percentage in these partner companies and the net results of operations of these partner companies, any impairment charges and gain (loss) on the sale of the interests in equity and cost method partner companies.
Other Items include certain expenses which are not identifiable to the operations of the Company’s operating segments. Other Items primarily consist of general and administrative expenses related to corporate operations, including employee compensation, insurance and professional fees, including legal and finance, interest income, interest expense and other income (loss), equity income (loss) related to certain private equity fund ownership interests and income taxes. Other items also include interest earned on mezzanine loans, gain (loss) on the mark-to-market of our warrant participations, and impairment on debt and equity participation interests in which the Company participates with Penn Mezzanine as well as equity income (loss) associated with the Company's interest in the management company and general partner of Penn Mezzanine.
As of December 31, 2014 and 2013 , all of the Company’s assets were located in the United States.
Segment assets in Other Items included primarily cash, cash equivalents, and marketable securities of $156.5 million and $183.7 million at December 31, 2014 and 2013 , respectively.
The following represents segment data from operations:

	
																				
 	For the Year Ended December 31, 2014	
	Healthcare		Technology		Total
Segments		Other
Items		Total	
 	(In thousands)	
Operating loss	$	—		 	$	—		 	$	—		 	$	(18,970	)	 	$	(18,970	)	
Other income (loss), net	31,820		 	—		 	31,820		 	(163	)	 	31,657		
Interest income	—		 	—		 	—		 	1,901		 	1,901		
Equity loss	(3,944	)	 	(10,831	)	 	(14,775	)	 	(560	)	 	(15,335	)	
Net income (loss)	27,876		 	(10,831	)	 	17,045		 	(22,194	)	 	(5,149	)	
Segment Assets:	 	 	 	 	 	 	 	 	 	
December 31, 2014	62,292		 	88,408		 	150,700		 	167,754		 	318,454		
 	 	 	 	 	 	 	 	 	 	
 	For the Year Ended December 31, 2013	
 	Healthcare	 	Technology	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)	
Operating loss	$	—		 	$	—		 	$	—		 	$	(21,644	)	 	$	(21,644	)	
Other income (loss), net	(857	)	 	—		 	(857	)	 	1,240		 	383		
Interest income	—		 	—		 	—		 	2,646		 	2,646		
Equity income (loss)	(31,706	)	 	20,899		 	(10,807	)	 	(1,800	)	 	(12,607	)	
Net income (loss)	(32,563	)	 	20,899		 	(11,664	)	 	(23,861	)	 	(35,525	)	
Segment Assets:	 	 	 	 	 	 	 	 	 	
December 31, 2013	74,939		 	69,471		 	144,410		 	201,586		 	345,996		
 	 	 	 	 	 	 	 	 	 	
 	For the Year Ended December 31, 2012	
 	Healthcare	 	Technology	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)	
Operating loss	$	—		 	$	—		 	$	—		 	$	(19,473	)	 	$	(19,473	)	
Other income (loss), net	19,884		 	—		 	19,884		 	(10,546	)	 	9,338		
Interest income	—		 	—		 	—		 	2,926		 	2,926		
Equity income (loss)	(26,544	)	 	(119	)	 	(26,663	)	 	146		 	(26,517	)	
Net loss	(6,660	)	 	(119	)	 	(6,779	)	 	(32,583	)	 	(39,362	)	

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

   
Net loss from Other Items was as follows:

	
												
 	Year Ended December 31,	
 	2014	 	2013	 	2012	
 	(In thousands)	
Corporate operations	$	(22,194	)	 	$	(23,861	)	 	$	(32,583	)	
Income tax benefit (expense)	—		 	—		 	—		
 	$	(22,194	)	 	$	(23,861	)	 	$	(32,583	)	
15. Selected Quarterly Financial Information (Unaudited)  

																
 	Three Months Ended	
 	March 31	 	June 30	 	September 30	 	December 31	
 	(In thousands, except per share data)	
2014:	 	 	 	 	 	 	 	
General and administrative expense	$	5,239		 	$	5,069		 	$	4,177		 	$	4,485		
Operating loss	(5,239	)	 	(5,069	)	 	(4,177	)	 	(4,485	)	
Other income (loss), net	30,374		 	1,452		 	(246	)	 	77		
Interest income	470		 	542		 	482		 	407		
Interest expense	(1,094	)	 	(1,098	)	 	(1,103	)	 	(1,107	)	
Equity income (loss)	6,808		 	(3,175	)	 	(8,962	)	 	(10,006	)	
Net income (loss) before income taxes	31,319		 	(7,348	)	 	(14,006	)	 	(15,114	)	
Income tax benefit (expense)	—		 	—		 	—		 	—		
Net income (loss)	$	31,319		 	$	(7,348	)	 	$	(14,006	)	 	$	(15,114	)	
Net income (loss) per share (a)	 	 	 	 	 	 		
Basic	$	1.44		 	$	(0.35	)	 	$	(0.68	)	 	$	(0.73	)	
Diluted	$	1.29		 	$	(0.35	)	 	$	(0.68	)	 	$	(0.73	)	
2013:	 	 	 	 	 	 	 	
General and administrative expense	$	5,374		 	$	6,715		 	$	4,835		 	$	4,720		
Operating loss	(5,374	)	 	(6,715	)	 	(4,835	)	 	(4,720	)	
Other income (loss), net	757		 	(2,724	)	 	(4,224	)	 	6,574		
Interest income	734		 	790		 	572		 	550		
Interest expense	(1,069	)	 	(1,074	)	 	(1,077	)	 	(1,083	)	
Equity income (loss)	(6,987	)	 	(18,400	)	 	(9,866	)	 	22,646		
Net income (loss) before income taxes	(11,939	)	 	(28,123	)	 	(19,430	)	 	23,967		
Income tax benefit (expense)	—		 	—		 	—		 	—		
Net income (loss)	$	(11,939	)	 	$	(28,123	)	 	$	(19,430	)	 	$	23,967		
Net income (loss) per share (a)	 	 	 	 	 	 		
Basic	$	(0.57	)	 	$	(1.33	)	 	$	(0.90	)	 	$	1.10		
Diluted	$	(0.57	)	 	$	(1.33	)	 	$	(0.90	)	 	$	0.99		

(a)	Per share amounts for the quarters have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period. Additionally, in regard to diluted per share amounts only, quarterly amounts may not add to the annual amounts because of the inclusion of the effect of potentially dilutive securities only in the periods in which such effect would have been dilutive, and because of the adjustments to net income (loss) for the dilutive effect of partner company common stock equivalents and convertible securities.	

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SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

16. Subsequent Events

On February 11, 2015, the Company entered into an agreement effective as of February 2, 2015 for the lease of the Company’s new principal executive offices to be located at 170 Radnor Chester Road, Radnor, Pennsylvania. The term of the lease is estimated to commence on November 1, 2015, the date the Company expects to take possession of the leased property, and will extend through April 30, 2026.     

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Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.  Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014 . Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2014 are functioning effectively.
Our business strategy involves the acquisition of new businesses on an ongoing basis, most of which are young, growing companies. Typically, these companies historically have not had all of the controls and procedures they would need to comply with the requirements of the Exchange Act and the rules promulgated thereunder. These companies also frequently develop new products and services. Following an acquisition, or the launch of a new product or service, we work with the company’s management to implement all necessary controls and procedures.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 . In making this assessment, management used the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2014 , the Company’s internal control over financial reporting was effective.
Our independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2014 . Their opinion on the effectiveness of our internal control over financial reporting and their opinion on our Consolidated Financial Statements are included in Item 8 in this Form 10-K.
(c) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.  Other Information
None

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PART III
Item 10.  Directors, Executive Officers and Corporate Governance
Incorporated by reference to the portions of our Definitive Proxy Statement entitled “Election of Directors,” “Corporate Governance and Board Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Information about our Executive Officers is included in Annex to Part I above.
Item 11. Executive Compensation
Incorporated by reference to the portions of our Definitive Proxy Statement entitled “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Our equity compensation plans provide a broad-based program designed to attract and retain talent while creating alignment with the long-term interests of our shareholders. Employees at all levels participate in our equity compensation plans. In addition, members of our Board and members of our Advisory Board receive equity grants for their service on our Board and Advisory Board, respectively. Members of our Board also receive deferred stock unit ("DSU") awards and are eligible to defer directors’ fees and receive DSUs with a value equal to the directors’ fees deferred and matching DSUs equal to 25% of the directors’ fees deferred.
Our 2001 Associates Equity Compensation Plan (“2001 Plan”) provided for the grant of nonqualified stock options, stock appreciation rights, restricted stock, performance units, and other stock-based awards to employees, consultants or advisors of Safeguard and its subsidiaries, provided that no grants could be made under this plan to executive officers or directors of Safeguard. Under the NYSE rules that were in effect at the time this plan was adopted in 2001, shareholder approval of the plan was not required. Except for the persons eligible to participate in the 2001 Plan and the inability to grant incentive stock options under the 2001 Plan, the terms of the 2001 Plan are substantially the same as the other equity compensation plans approved by our shareholders (which are described herein or have been described in previous filings).
A total of 900,000 shares of our common stock were authorized for issuance under the 2001 Plan. At December 31, 2014, 171,224 shares were subject to outstanding options and performance stock units ("PSUs"), no shares were available for future issuance, and 543,707 shares had been issued under the 2001 Plan. The 2001 Plan expired by its terms on February 21, 2011. Equity grants previously awarded under this plan that have not yet expired or otherwise become unexercisable continue to be administered in accordance with the terms of the grants. Any portions of outstanding equity grants under the 2001 Plan that expire or become unexercisable for any reason shall be canceled and shall be unavailable for future issuance.
During 2007, 2008, 2011 and 2013, the Compensation Committee granted “employee inducement” awards to four newly hired executives. The awards were granted outside of Safeguard’s existing equity compensation plans in accordance with NYSE rules and consisted of options to purchase up to an aggregate of 571,666 shares of Safeguard common stock. All of these “employee inducement” awards were granted with a per share exercise price equal to the average of the high and low prices of Safeguard common stock on the grant date. 455,416 of such awards were granted with an eight-year term and 116,250 of such awards were granted with a 10-year term. Of the shares underlying the “employee inducement” awards that were outstanding at December 31, 2014, 142,916 shares are subject to time-based vesting, with an aggregate of 33,543 shares vesting on the first anniversary of the grant date and 100,623 shares vesting in 36 equal monthly installments thereafter, and 2,188 shares vesting on the second anniversary of the grant date and 6,562 shares vesting in 36 equal monthly installments thereafter. Of the remaining shares underlying the “employee inducement” awards that were outstanding at December 31, 2014, 312,500 vest incrementally based upon the achievement of certain specified levels of increase in Safeguard’s stock price and 116,250 vest based on the aggregate cash produced as a result of monetizations involving certain of our partner companies relative to the amount of cash deployed in connection with such partner companies. With the exception of the market-based vesting or capital-return based vesting provisions, the terms and provisions of the employee inducement awards are substantially the same as options previously awarded to other executives under Safeguard’s equity compensation plans.
The following table provides information as of December 31, 2014 about the securities authorized for issuance under our equity compensation plans. The material features of our equity compensation plans are described in Note 7 to the Consolidated Financial Statements filed as part of our Annual Report on Form 10-K for the year ended December 31, 2014.

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Equity Compensation Plan Information	
Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)(a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2)(b)	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(c)	
Equity compensation plans approved by security holders (3)	1,201,933			$13.9482		2,637,940		
Equity compensation plans not approved by security holders (4)	742,890			$11.7935		—		
Total	1,944,823			$12.8049		2,637,940		

(1)	Includes a total of 529,337 shares underlying PSUs and DSUs awarded for no consideration and 99,633 shares underlying DSUs awarded to directors in lieu of all or a portion of directors’ fees.	
		
(2)	The weighted average exercise price calculation excludes 628,970 shares underlying outstanding DSUs and PSUs included in column (a) which are payable in stock, on a one-for-one basis.	
		
(3)	Represents awards granted under the 1999 Equity Compensation Plan and the 2014 Plan and shares available for issuance under the 2014 Plan.	
		
(4)	Includes awards granted under the 2001 Plan and 571,666 “employee inducement” awards.	
Item 13.  Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Corporate Governance Principles and Board Matters – ‘Board Independence’ and “Review and Approval of Transactions with Related Persons.”
Item 14.  Principal Accountant Fees and Services
Incorporated by reference to the portion of the Definitive Proxy Statement entitled “Independent Public Accountant – Audit Fees.”

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PART IV
Item 15.  Exhibits and Financial Statement Schedules
(a) Consolidated Financial Statements and Schedules
Incorporated by reference to Item 8 of this Report on Form 10-K.
(b) Exhibits
The exhibits required to be filed as part of this Report are listed in the exhibit index below.

(c) Financial Statement Schedules

The financial statements as of and for the years ended December 31, 2012 and 2011 and as of and for the six months ended June 30, 2013 of PixelOptics, Inc., a former equity method partner company, are included in this Form 10-K pursuant to Rule 3-09 of Regulation S-X.
The financial statements of PixelOptics for periods subsequent to June 30, 2013 are not being filed with this Form 10-K because they are not available.  PixelOptics filed for Chapter 7 bankruptcy on November 4, 2013 and released all employees. The financial statements of PixelOptics as of and for the year ended December 31, 2012 are unaudited because PixelOptics does not have any employees to provide necessary representations and respond to inquiries from PixelOptics' auditor.
Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of this Report. For exhibits that previously have been filed, the Registrant incorporates those exhibits herein by reference. The exhibit table below includes the Form Type and Filing Date of the previous filing and the location of the exhibit in the previous filing which is being incorporated by reference herein. Documents which are incorporated by reference to filings by parties other than the Registrant are identified in footnotes to this table.

	

 	  	 	Incorporated Filing Reference	
Exhibit
Number	  	Description	Form Type & Filing
Date	  	Original
Exhibit Number	
3.1.1	  	Seconded Amended and Restated Articles of Incorporation of Safeguard Scientifics, Inc.	Form 8-K
10/25/07	  	3.1	
3.1.2	  	Amendment to Seconded Amended and Restated Articles of Incorporation of Safeguard Scientifics, Inc.	Form 8-K
8/27/09	  	3.1	
3.1.3	  	Statement with Respect to Shares	Form 10-Q
4/25/2014	 	3.1	
3.2	  	Amended and Restated By-laws of Safeguard Scientifics, Inc.	Form 8-K
10/25/07	 	3.2	
4.1	  	Indenture, dated as of November 19, 2012, between Safeguard Scientifics, Inc. and U.S. Bank National Association, as trustee	Form 8-K
11/20/12	 	4.1	
10.1*	  	Safeguard Scientifics, Inc. 1999 Equity Compensation Plan, as amended and restated on October 21, 2008	Form 10-Q
11/6/08	 	10.4	
10.2	  	Safeguard Scientifics, Inc. 2001 Associates Equity Compensation Plan, as amended and restated on October 21, 2008	Form 10-Q
11/6/08	 	10.5	
10.3*	  	Safeguard Scientifics, Inc. 2014 Equity Compensation Plan, as amended and restated on March 5, 2014	Form 10-Q
7/25/14	 	10.1	
10.4*	  	Safeguard Scientifics, Inc. Executive Deferred Compensation Plan (amended and restated as of January 1, 2009)	Form 10-K
3/19/09	 	10.4	
10.5*	  	Management Incentive Plan	Form 8-K
4/25/08	 	10.1	
10.6*	  	Compensation Summary — Non-employee Directors	Form 10-K
3/7/14	 	10.6	
10.7.1*	  	Agreement by and between Safeguard Scientifics, Inc. and Stephen Zarrilli dated as of May 28, 2008	Form 8-K
5/29/08	 	10.1	
10.7.2*	  	Letter Amendment dated December 9, 2008, to Agreement by and between Safeguard Scientifics, Inc. and Stephen Zarrilli dated as of May 28, 2008	Form 10-K
3/19/09	 	10.9.2	
10.7.3*	  	Compensation Agreement by and between Safeguard Scientifics, Inc. and Stephen T. Zarrilli dated December 28, 2012	Form 10-K
3/11/13	 	10.9.3	

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10.8.1*	 	Amended and Restated Letter Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 3, 2008	Form 10-K
3/19/09	 	10.12	
10.8.2*	 	Compensation Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 14, 2009	Form 10-K
3/16/10	 	10.11.2	
10.8.3*	 	Compensation Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 28, 2012	Form 10-K
3/11/13	 	10.10.3	
10.9.1*	 	Compensation Agreement by and between Safeguard Scientifics, Inc. and Jeffrey B. McGroarty dated January 6, 2014	Form 8-K
1/7/14	 	10.1	
10.10.1*	 	Key Employee Compensation Recoupment Policy	Form 10-Q
7/26/13	 	10.2	
10.11.1	 	Amended and Restated Loan and Security Agreement dated as of May 27, 2009, by and among Silicon Valley Bank, Safeguard Scientifics, Inc., Safeguard Delaware, Inc. and Safeguard Scientifics (Delaware), Inc.	Form 8-K
5/28/09	 	10.1	
10.11.2	 	Joinder and First Loan Modification Agreement dated as of December 31, 2010, by and among Silicon Valley Bank, Safeguard Scientifics, Inc., Safeguard Delaware, Inc., Safeguard Scientifics (Delaware), Inc. and Safeguard Delaware II, Inc.	Form 8-K
1/4/11	 	10.1	
10.11.3	 	Second Loan Modification Agreement dated as of April 29, 2011, by and among Silicon Valley Bank, Safeguard Scientifics, Inc., Safeguard Delaware, Inc., Safeguard Scientifics (Delaware), Inc. and Safeguard Delaware II, Inc.	Form 10-Q
7/28/11	 	10.2	
10.11.4	 	Third Loan Modification Agreement dated as of December 21, 2012, by and among Silicon Valley Bank, Safeguard Scientifics, Inc., Safeguard Delaware, Inc., Safeguard Delaware II, Inc. and Safeguard Scientifics (Delaware), Inc.	Form 8-K
12/27/12	 	10.1	
10.11.5	 	Fourth Loan Modification Agreement dated as of December 22, 2014, by and among Silicon Valley Bank, Safeguard Scientifics, Inc., Safeguard Delaware, Inc., Safeguard Delaware II, Inc. and Safeguard Scientifics (Delaware), Inc.	Form 8-K
12/23/14	 	10.1	
10.12	 	Purchase and Sale Agreement dated as of December 9, 2005 by and among HarbourVest VII Venture Ltd., Dover Street VI L.P. and several subsidiaries and affiliated limited partnerships of Safeguard Scientifics, Inc.	Form 10-K
3/13/06	 	10.36	
10.13	 	Consent Agreement, dated as of May 17, 2011, by and among Shire Pharmaceuticals, Inc. and certain stockholders of Advanced BioHealing, Inc.	Form 8-K
5/18/11	 	10.1	
14.1 †	 	Code of Business Conduct and Ethics	—  	 	—  	
21.1 †	 	List of Subsidiaries	—  	 	—  	
23.1 †	 	Consent of Independent Registered Public Accounting Firm — KPMG LLP	—  	 	—  	
31.1 †	 	Certification of Stephen T. Zarrilli pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934	—  	 	—  	
31.2 †	 	Certification of Jeffrey B. McGroarty pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934	—  	 	—  	
32.1 ‡	 	Certification of Stephen T. Zarrilli pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—  	 	—  	
32.2 ‡	 	Certification of Jeffrey B. McGroarty pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—  	 	—  	
99.1 †	 	Unaudited Financial Statements of PixelOptics	—  	 	—  	
99.2 †	 	Unaudited Condensed Financial Statements of PixelOptics	—  	 	—  	
101	 	The following materials from Safeguard Scientifics, Inc. Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets - December 31, 2014 and 2013; (ii) Consolidated Statements of Operations - Years ended December 31, 2014, 2013 and 2012; (iii) Consolidated Statements of Comprehensive Loss - Years ended December 31, 2014, 2013 and 2012; (iv) Consolidated Statements of Changes in Equity - Years ended December 31, 2014, 2013 and 2012; (v) Consolidated Statements of Cash Flows - Years ended December 31, 2014, 2013 and 2012; and (vi) Notes to Consolidated Financial Statements.	—  	 	—  	

	
		
†	Filed herewith	

		
‡	Furnished herewith	

		
*	These exhibits relate to management contracts or compensatory plans, contracts or arrangements in which directors and/or executive officers of the Registrant may participate.	

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	
					
 	 	S AFEGUARD  S CIENTIFICS , I NC .	
 	 	
 	 	By:	 	S TEPHEN  T. Z ARRILLI	
 	 	 	 	S TEPHEN  T. Z ARRILLI	
 	 	 	 	President and Chief Executive Officer	
Dated: March 6, 2015
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 TEPHEN  T. Z ARRILLI	  President and Chief Executive Officer and Director
(Principal Executive Officer)	  	March 6, 2015	
Stephen T. Zarrilli		 	
J EFFREY  B. M C G ROARTY	Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  	  	March 6, 2015	
Jeffrey B. McGroarty		 	
M ARA  G. A SPINALL	  	Director	  	March 6, 2015	
Mara G. Aspinall	 	 	
J ULIE  A. D OBSON	  	Director	  	March 6, 2015	
Julie A. Dobson	 	 	
A NDREW  E. L IETZ	  	Chairman of the Board of Directors	  	March 6, 2015	
Andrew E. Lietz	 	 	
G EORGE  M AC K ENZIE	  	Director	  	March 6, 2015	
George MacKenzie	 	 	
J ACK  L. M ESSMAN	  	Director	  	March 6, 2015	
Jack L. Messman	 	 	
J OHN  J. R OBERTS	  	Director	  	March 6, 2015	
John J. Roberts	 	 	
R OBERT  J. R OSENTHAL	  	Director	  	March 6, 2015	
Robert J. Rosenthal	 	 	 	 	

70

EXHIBIT 14.1
SAFEGUARD SCIENTIFICS, INC.
CODE OF BUSINESS CONDUCT AND ETHICS

I.	Background - Administration	

The reputation and integrity of Safeguard Scientifics, Inc. (“Company”) is a valuable asset that is vital to our success.

Each Company employee, including each of the Company’s officers, and each Company director is responsible for conducting the Company’s business in a manner that demonstrates a commitment to the highest standards of integrity. This Code of Business Conduct and Ethics (“Code”), which applies to all directors, officers and employees of the Company (collectively referred to as “Company Personnel”), has been adopted to help Company Personnel meet these standards. Specifically, the purpose of this Code is to:

•	encourage among Company Personnel a culture of honesty, accountability and mutual respect;	
		
•	provide guidance to help Company Personnel recognize and deal with ethical issues; and	
		
•	provide mechanisms for Company Personnel to report unethical conduct.	

While this Code is designed to provide helpful guidelines, it is not intended to address every specific situation. Nevertheless, in every instance, we require that Company Personnel act honestly, fairly and with a view towards “doing the right thing.”

The Safeguard Scientifics, Inc. Board of Directors (“Safeguard Board”) is ultimately responsible for the implementation of the Code. The Safeguard Board has designated Brian J. Sisko, or his successor, to be the compliance officer (the “Compliance Officer”) for the implementation and administration of the Code. Company Personnel should feel free to direct questions concerning this Code to the Compliance Officer:

Safeguard Scientifics, Inc.
Attention: Compliance Officer
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
e-mail address: complianceofficer@safeguard.com

II.	Overview	

It is the policy of the Company to: (a) comply with all applicable governmental laws, rules and regulations; (b) expect that all Company Personnel at all times observe honest and ethical conduct in the performance of their responsibilities, including the avoidance of conflicts of interest; (c) expect all Company Personnel to treat others with dignity, including other employees, shareholders, customers and vendors; and (d) encourage and support internal disclosure of any violation of this Code for appropriate action.

The Code governs the business-related conduct of all Company Personnel, including, but not limited to, the chief executive officer, chief financial officer and all other officers of Safeguard. Directors of the Company who are not employees are subject to this Code only as it relates to their capacities as directors.

		
III.	Compliance With Law	

A variety of laws apply to the Company and its operations. Company Personnel are expected to comply with all such laws, as well as rules and regulations adopted under such laws. Examples of criminal violations under these laws include:

•	stealing, embezzling or misapplying corporate or bank funds;	
		
•	using threats, physical force or other unauthorized means to collect money;	
		
•	making false entries in the books and records of the Company, or engaging in any conduct that results in the making of such false entries;	
		
•	making a payment for an expressed purpose on the Company’s behalf to an individual who intends to use it for a different purpose;	
		
•	utilizing the Company’s funds or other assets or services to make a political contribution or expenditure; and	
		
•	making payments, whether corporate or personal, of cash or other items of value that are intended to influence the judgment or actions of political candidates, government officials or businesses in connection with any of the Company’s activities.	

The Company must and will report all suspected criminal violations to the appropriate authorities for possible prosecution and will investigate, address and report to governmental or other authorities, as appropriate, non-criminal violations.

IV.	Conflicts of Interest	

Company Personnel are expected to make or participate in business decisions and actions in the course of their employment with the Company based on the best interests of the Company as a whole, and not based on personal relationships or personal benefits. A conflict of interest, which can occur or appear to occur in a wide variety of situations, can compromise the business ethics of Company Personnel. Generally speaking, a conflict of interest occurs when the personal interest of Company Personnel or members of their immediate family interferes with, or has the potential to interfere with, the interests or business of the Company. For example, a conflict of interest may occur where an employee or a family member receives a gift, a unique advantage, or an improper personal benefit as a result of the employee’s position at the Company. A conflict of interest could make it difficult for such person to perform corporate duties objectively and effectively because he or she is involved in a competing interest. The following is a discussion of certain common areas that raise conflict of interest issues. However, a conflict of interest can occur in a variety of situations. Company Personnel must be alert to recognize any situation that may raise conflict of interest issues and must disclose to the Compliance Officer any material transaction or relationship that reasonably could be expected to give rise to actual or apparent conflicts of interest with the Company.

Outside Activities/Employment – Any outside activity must not significantly encroach on the time and attention Company Personnel devote to their corporate duties and should not adversely affect the quality or quantity of their work. In addition, Company Personnel may not make use of corporate equipment, facilities or supplies, or imply (without the Company’s approval) the Company’s sponsorship or endorsement of any outside activity, and under no circumstances are Company Personnel permitted to take for themselves or their family members business opportunities that are discovered or made available

by virtue of their positions at the Company. Moreover, unless the Audit Committee of the Company’s Board of Directors shall have approved or ratified a particular transaction or situation in accordance with the Company’s Statement of Policy with Respect to Related Party Transactions, Company Personnel may not (i) have any financial or economic interest in (a) any entity that is, or to such person’s knowledge may become, a vendor to, or customer or competitor of, the Company or any of its partner companies; or (b) any entity that otherwise has or may have a relationship with, or might expect financial or other support from, the Company (including, but not limited to, any of its partner companies) or a partner company; or (ii) provide services to or perform services for the benefit of any such entity, other than services performed at the request of or on behalf of the Company. For purposes of clarity and consistency, the preceding sentence shall be interpreted to include the purchase or other acquisition by any Company Personnel of any financial or economic interest in a partner company or proposed partner company of the Company, whether directly or through a public market transaction, or otherwise. Company employees are prohibited from taking part in any outside employment without Safeguard’s prior written approval.

Notwithstanding the foregoing, other than relating to a partner company of the Company, Company Personnel generally may have (i) a passive investment in up to five percent of the total outstanding shares of an entity that is listed on a national or international exchange, the OTC Bulletin Board or a similar quotation service or (ii) a limited partnership interest in a private equity, venture capital or similar fund constituting less than five percent of such fund’s committed capital, provided that the investment is not so large financially either in absolute dollars or as a percentage of the person’s total net worth that it creates the appearance of a conflict of interest.

Directors of the Company who are not employees of the Company must be sensitive to situations in which they may be associated with, or have business or financial interests in, corporations or other business entities that, from time to time, have business dealings with the Company or which may compete with the Company. While these relationships and interests are not prohibited, they should be avoided where reasonably practicable. Any Company director who becomes engaged in such a relationship or interest must promptly bring it to the attention of the Chairperson of the Safeguard Board. The Chairperson shall promptly refer such matter to the full Safeguard Board or an appropriately authorized committee of the Safeguard Board for consideration and appropriate disposition. If a conflict cannot be avoided, it must be managed in an ethical and responsible manner.

Civic/Political Activities – Company Personnel are encouraged to participate in civic, charitable or political activities so long as such participation does not encroach on the time and attention they are expected to devote to their Company-related duties. Such activities are to be conducted in a manner that does not involve the Company or its assets or facilities and does not create an appearance of the Company’s sponsorship or endorsement.

Inventions, Books and Publications – Company employees must receive written permission from the Compliance Officer before developing, outside of the Company, any products, software or intellectual property that may be related to the Company’s current or potential business.

Proper Payments – Company Personnel should pay for and receive only that which is proper. Company Personnel should not make or promise payments to influence another’s acts or decisions, and Company employees must not give gifts beyond those extended in normal business.

Gifts – Company Personnel and members of their families must not give or receive valuable gifts (including gifts of equipment or money, discounts, or favored personal treatment) to or from any person associated with Safeguard’s vendors or customers. Acceptance of a gift in the nature of a memento, such as a conference gift or other inconsequential gift valued at less than five hundred dollars ($500), is permitted. Engaging in normal, occasional business-related entertainment, such as meals or the use of sporting, theatrical or other public event tickets, is permissible with the understanding that it is expected that Company Personnel will exercise sound judgment in reliance on this exception so as to avoid any situation that may otherwise be subject to question.

Loans to Directors and Employees – The Company will not make loans or extend credit guarantees to or for the personal benefit of directors and executive officers except as permitted by law and the listing standards of any exchange or quotation system on which the Company’s common stock is listed. Loans or guarantees may be extended to other employees only with the Company’s approval.

Insider Trading – Company Personnel are prohibited from trading in securities while in possession of material, nonpublic information. Among other things, trading while in possession of material, nonpublic information can subject the person to criminal or civil penalties. The Company has adopted a Statement of Company Policy for Insider Trading and Disclosure (the “Insider Trading Policy”) and requires all Company Personnel to sign a statement acknowledging that they have read, understand and will comply with the policies set forth therein.

V.	Fair Dealing	

Company Personnel should deal fairly and in good faith with each other and the Company’s customers, suppliers, regulators, business partners and others. Company Personnel may not take unfair advantage of anyone through manipulation, misrepresentation, inappropriate threats, fraud, abuse of confidential information or other related conduct.

VI.	Proper Use of Company Assets	

As a general rule, Company assets, including facilities, equipment, materials, supplies, time, information, intellectual property, software, and other assets owned or leased by the Company, or that are otherwise in the Company’s possession, may be used only for legitimate business purposes. However, the Company makes an exception for incidental personal use (e.g., telephone calls to a friend or family member, sending a personal e-mail message, accessing the Web, etc.) provided that such incidental personal use is legal, ethical, appropriate and does not interfere with the conscientious performance of an employee's duties.

VII.	Delegation of Authority	

Company Personnel, and particularly each of the Company’s officers and other managerial employees, must exercise due care to ensure that any delegation of authority is reasonable and appropriate in scope and includes appropriate and continuous monitoring.

		
VIII.	Handling Confidential Information	

Company Personnel have an obligation to protect and keep confidential all nonpublic information related to the Company (“Confidential Information”) unless and until its disclosure is approved by the Company and one full business day has passed following its disclosure by the Company in publicly filed SEC reports, press releases, external website, other institutionalized methods of electronic communication, or where disclosure is otherwise mandated by law or regulation. Confidential Information includes all nonpublic information entrusted to or obtained by Company Personnel by virtue of their affiliation with or employment by the Company or their service on the Company’s Board of Directors. Confidential Information includes but is not limited to information relating to:

•	the Company’s strategy, business, finances, prospects, plans, and operations;	

•	proposed mergers, acquisitions, divestitures, new business ventures, opportunities, partnerships or agreements;	

•	news of a pending initial or secondary public offering of securities, other public or private sales of securities, stock splits or tender offers;	

•	products, orders, contracts, customers, vendors or competitors;	

•	employee records;	

•	the proceedings, discussions and deliberations of the Board and its committees;	

•	discussions relating to the Company by and among employees, officers and directors; and	

•	third party confidential and proprietary information that has been provided to the Company and which the Company is under an obligation to maintain as confidential.	

In addition, Company Personnel must safeguard proprietary information, which includes information that is not generally known to the public and has commercial value in the Company’s business. Proprietary information includes, among other things, software programs, source and object codes, trade secrets, ideas, techniques, inventions (whether patentable or not) and other information relating to designs, algorithms and research. It also includes information relating to marketing, pricing, customers, and terms of compensation for Company Personnel. The obligation to safeguard proprietary information continues even after employment or service with the Company ends.

Please keep in mind the following guidelines in order to protect Confidential Information:

•	Do not discuss Confidential Information in public places.	

•	Do not forward Confidential Information or proprietary information to non-Company email accounts.	

		
•	Beware of informal telephone or email requests from outsiders requesting information (including but not limited to requests for comments on expected financial performance, information about current or former employees, or requests from the media).	

The Company’s Statement of Company Policy on Insider Trading and Disclosure contains additional information concerning confidentiality obligations for Company Personnel.

IX.	Public Disclosures	

As a public company, the Company must ensure that its filings and submissions with the SEC and other public communications provide full, fair, timely, accurate and understandable disclosure. Company Personnel engaged in the preparation of these filings, submissions and communications (“Public Disclosure Personnel”) must endeavor to ensure that the Company’s filings, submissions, and communications meet these objectives. Depending on their duties and responsibilities, other employees may be called upon to provide information to assure that the Company’s reports are complete, fair and understandable. To this end, all transactions affecting assets, liabilities, stockholders’ equity, revenues and expenses must be recorded on a timely basis in detailed journals and must be traceable through the general ledger and resulting financial statements. Accounting and financial reporting practices must be fair and proper, in accordance with generally accepted accounting principles.

Company Personnel are expected to take this responsibility very seriously. Company Personnel are prohibited from (i) directly or indirectly taking any action to influence, coerce, manipulate or mislead the Company’s independent public accounting firm in the performance of an audit of the Company’s financial statements for the purpose of rendering the Company’s financial statements materially misleading; (ii) altering, mutilating or concealing a record, document or other object, or attempting to do so with intent to impair the object’s integrity or availability for use in an official proceeding; and (iii) using Company funds for any purpose other than as described in the documents supporting the disbursement.

If requested by Public Disclosure Personnel to provide information for use in such filings, submissions or communications, Company Personnel will provide, as promptly as practicable, accurate, understandable and complete information on a timely basis.

Complaints or concerns regarding accounting, internal accounting controls or auditing matters should be reported either to the Compliance Officer or to the Audit Committee of the Safeguard Board as indicated in Article X of this Code. You may choose to submit such complaints or concerns anonymously.

Special Ethics Guidelines for Employees with Financial Reporting Responsibilities

The Finance Department bears a special responsibility for promoting integrity throughout the organization, with responsibilities to Company stockholders. The Chief Executive Officer and Finance Department personnel have a special role both to adhere to these principles themselves and also to ensure that a culture exists throughout the Company as a whole that ensures the fair and timely reporting of Company financial results and condition, as well as other information required by SEC regulations. Because of this special role, the Chief Executive Officer and all members of Company’s Finance Department are bound by the following Special Ethics Guidelines for Employees with Financial Reporting Responsibilities.

The Chief Executive Officer and each member of the Finance Department will:

•	Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships.	

•	Provide to the Company’s other employees, consultants and advisors who are engaged in filing reports and documents with the SEC (“SEC Reports”) or in disseminating other public communications such as press releases, information that is accurate, complete, relevant, timely and understandable.	

•	Endeavor to ensure full, fair, timely, accurate and understandable disclosure in SEC Reports.	

•	Comply with laws, rules and regulations of federal, state and local governments, and appropriate self-regulatory organizations.	

•	Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated.	

•	Respect the confidentiality of information acquired in the course of one’s work except when authorized or otherwise legally obligated to disclose.	

•	Refrain from using Confidential Information acquired in the course of employment for personal advantage.	

•	Proactively promote and be an example of ethical behavior as a responsible partner among peers in the work environment.	

•	Achieve responsible use of and control over all assets and resources employed or entrusted.	

•	Record or participate in the recording of entries in the Company’s books and records that are accurate to the best of his or her knowledge.	

•	Promptly report to the Compliance Officer and/or the Chair of the Audit Committee any conduct that he or she believes to be a violation of law or business ethics or of any provision of this Code, including any transaction or relationship that reasonably could be expected to give rise to such a conflict.	

Violations of these Special Ethics Guidelines for Employees with Financial Reporting Responsibilities, including failures to report potential violations by others, will be viewed as a severe disciplinary matter that may result in personnel action, including termination of employment. If you believe that a violation of the Special Ethics Guidelines for Employees with Financial Reporting Responsibilities has occurred, please contact the Chair of the Audit Committee.

X.	Report of Violations	

Administration – General Policy Regarding Report of Violations – Company Personnel who observe, learn of, or, in good faith, suspect a violation of the Code must immediately report the violation either to

his or her immediate supervisor (who in turn is responsible for informing the Compliance Officer of such report) or to the Compliance Officer (or, in connection with complaints or concerns regarding accounting, internal accounting controls or audit matters, may report the violation to the Audit Committee of the Safeguard Board). You may be subject to disciplinary action, including termination of employment, for failure to do so.

Complaint Procedure

•	Notification of Complaint	

•	To report a violation or a suspected violation to the Compliance Officer, provide the report to the following address or e-mail address:	

Safeguard Scientifics, Inc.
Attention: Compliance Officer
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
e-mail: complianceofficer@safeguard.com

•	Complaints or concerns regarding accounting, internal accounting controls or auditing matters may also be submitted anonymously to the Audit Committee of the Safeguard Board in writing at the following address:	

Safeguard Scientifics, Inc.
Attention: Chair, Audit Committee - CONFIDENTIAL
c/o Corporate Secretary
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945

•	Whenever practical, the complaint should be made in writing. It is unacceptable to submit a complaint knowing it is false.	

•	Company Personnel who are not comfortable using the procedures and protocols outlined above can make an anonymous report via our third party provider, MySafeWorkplace. This anonymous and confidential reporting system is not affiliated with the Company and is accessible 24/7 through the Internet (www.MySafeWorkplace.com) or by calling the toll free number (800-461-9330).	

•	Investigation and Corrective Action	

Reports of violations will promptly be investigated under the supervision of the Compliance Officer or, if appropriate, the Audit Committee. Company Personnel are required to cooperate fully in the investigation of reported violations and to provide truthful, complete and accurate information. The investigation will be handled as discreetly as reasonably possible, allowing for a fair investigation and any necessary corrective action. Appropriate corrective action will be taken whenever a violation of this policy is determined to have occurred. Depending on the nature of the violation, the offending individual can be subject to disciplinary action which may

include termination. In addition, anyone who interferes with an investigation, or provides information in an investigation that the individual knows to be untrue or inaccurate, will be subject to disciplinary action, which may include termination of employment. Any employee who submits a complaint relating to the handling of accounting, internal accounting controls or audit matters in good faith should have no fear of dismissal or retaliation of any kind. Retaliation against employees who, for lawful purposes, file a complaint or participate in an investigation is strictly prohibited.

The Audit Committee will be responsible for the acceptance, investigation and management of reports of suspected violations of this Code by the Chief Executive Officer, the Compliance Officer and employees with financial reporting responsibilities and reports of questionable or improper accounting or audit matters.

The Company’s Compliance Officer will be responsible for the acceptance, investigation and management of reports by attorneys regarding material violations of securities laws, fiduciary duties or similar laws.

•	Confidentiality	

Except as may be required by law or by the requirements of the resulting investigation or the corrective action, all notices, reports and information received under this process will be treated in a confidential manner. Every reasonable effort will be made to handle the matter with discretion and to protect the identity of those who make reports as well as those who are being investigated. However, the Compliance Officer regularly will report to the Audit Committee any violations that have been reported. Further, if necessary to conduct a proper review or to comply with legal requirements, our Audit Committee, independent accountants or others may become involved in the review process. Also, as noted above, the Company must and will report all suspected criminal violations to the appropriate authorities for possible prosecution and will investigate, address and report to governmental or other authorities, as appropriate, non-criminal violations.

XI.	Protection Against Retaliation	

Policy - The Company prohibits any form of retaliation against employees who, for lawful purposes, report to the Company any conduct or activity that may violate this Code, any law or regulation applicable to the Company, or any other suspected improper, unethical or illegal conduct or activities by anyone at the Company. The Company also prohibits any form of retaliation against employees who provide information, cause information to be provided, or assist in an investigation conducted by the Company or any governmental body regarding a possible violation of any law or regulation relating to fraud, any labor law, or any rule or regulation of the SEC, or who file, cause to be filed, or assist, participate or give testimony in any proceeding relating to an alleged violation of any such law, rule or regulation.

Management Responsibility - All Company officers and other managerial employees are responsible for ensuring adherence to this policy. In addition, each Company officer and managerial employee is responsible for communicating this policy to employees under his or her supervision and for supporting programs and practices designed to develop understanding of, commitment to and compliance with this

policy. In the event that any Company officer, other managerial employee or supervisor believes that a violation of this policy has occurred or receives a report of a violation, he or she must immediately contact the Compliance Officer.

Procedures for Reporting Policy Violations - If an employee believes that he or she has been retaliated against (including threatened or harassed) in violation of this policy, he or she should immediately report the retaliation either to his or her immediate supervisor (who in turn is responsible for informing the Compliance Officer of such report) or to the Compliance Officer in accordance with the contact procedures for the Compliance Officer set forth above (or, in connection with retaliation related to complaints or concerns regarding accounting, internal accounting controls or audit matters, may report the violation to the Audit Committee of the Safeguard Board in accordance with the contact procedures for the Audit Committee set forth above). Any employee who is not comfortable using the procedures and protocols outlined above can make an anonymous report via our third party provider, MySafeWorkplace. This anonymous and confidential reporting system is not affiliated with the Company and is accessible 24/7 through the Internet (www.MySafeWorkplace.com) or by calling the toll free number (800.461.9330). Once an employee reports retaliation prohibited by this policy, the Company will promptly investigate the matter in accordance with the procedures described in Article X of this Code.

XII.	Waivers	

Requests for a waiver of a provision of the Code must be submitted in writing to the Compliance Officer for appropriate review, and an executive officer of Safeguard Scientifics, Inc., the Safeguard Board or an appropriate Safeguard Board committee will decide the outcome. For conduct involving directors and executive officers, only the Audit Committee of the Safeguard Board has the authority to waive a provision of the Code. The Audit Committee of the Safeguard Board must review and approve any “related party” transaction as defined in Item 404 of Regulation S-K, promulgated by the SEC, before it is consummated. In the event of an approved waiver involving the conduct of a director or executive officer, appropriate and prompt disclosure must be made to the Company’s shareholders as required by the SEC or other regulation or by applicable listing standards of the principal exchange or interdealer quotation system on which the Company’s common stock is listed.

Statements in the Code to the effect that certain actions may be taken only with “the Company’s approval” or that certain items will be “designated by the Company” will be interpreted to mean that appropriate executive officers of Safeguard Scientifics, Inc. or members of the Safeguard Board must give prior written approval or make such designation before the proposed action may be undertaken or the proposed designation may be made.

Violations of the Special Ethics Guidelines for Employees with Financial Reporting Responsibilities contained in this Code that go unaddressed are treated by the SEC as implicit waivers of this Code. Accordingly, any violation that is discovered and not addressed will have to be disclosed in accordance with the rules and regulations of the SEC and applicable listing standards with respect to a waiver of this Code. In such cases, the applicable SEC rules will require disclosure of the nature of any violation, the date of the violation and the name of the person who committed the violation. Such disclosure would not only be harmful to the Company but also to you either as one who is responsible for monitoring the enforcing compliance with this Code or as one who has violated it. In either case, depending on the nature of the violation, you may be dismissed or your duties and responsibilities with the Company may be changed.

		
XIII.	Compliance	

Adherence to Code; Disciplinary Action – All Company Personnel have a responsibility to understand and follow this Code. In addition, all Company Personnel are expected to perform their work with honesty and integrity in all areas not specifically addressed in this Code. A violation of this policy or the Code may result in appropriate disciplinary action, including the possible termination from employment with the Company.

Communications; Training; Annual Certification – The Company strongly encourages dialogue among employees and their supervisors to make everyone aware of situations that give rise to ethical questions and to articulate acceptable ways of handling those situations. Company employees will receive periodic training on the contents and importance of the Code and related policies and the manner in which violations must be reported and waivers must be requested. All Company Personnel must certify that they have read this Code and to the best of their knowledge are in compliance with all its provisions. In addition, each director, officer and other managerial employee of the Company, as may be designated by the Company from time to time, has an obligation to annually certify that he or she has read and reviewed this Code with his or her subordinates. Forms of these certifications are attached to this Code as Appendices I and II.

Responsibility of Senior Employees – All Company officers and other managerial employees will be responsible for the enforcement of, and compliance with, this Code, including necessary distribution to assure Company employee knowledge and compliance. Directors, officers and other managerial employees are expected to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. Managerial employees may be disciplined if they condone misconduct, do not report misconduct, do not take reasonable measures to detect misconduct, or do not demonstrate the appropriate leadership to insure compliance.

XIV.	Related Policies; Enforceable by Company Only	

This Code should be read in conjunction with Safeguard’s other policy statements, including but not limited to the Statement of Company Policy on Insider Trading and Disclosure. This Code is for the benefit of the Company, and no other person or entity is entitled to enforce this Code. This Code does not, and should not be interpreted to, create any private cause of action or remedy in any other person or entity for a violation of the Code. In addition, this Code should not be construed as a contract of employment and does not change any person's employment status.

Adopted:     April 8, 2004
Last Approved: October 23, 2014

APPENDIX I

INITIAL CODE OF BUSINESS CONDUCT AND ETHICS DISCLOSURE STATEMENT

As a director, officer or other employee of Safeguard Scientifics, Inc. (“Company”), I have read and understand the Company’s Code of Business Conduct and Ethics (“Code”), and I hereby affirm my agreement to comply with its terms. I hereby certify as follows:

1.	I have received a copy of the Code.	

2.	I have read, understand and agree to comply with the Code.	

3.	I am currently in compliance and, as applicable, members of my family are in compliance, with the terms of the Code and all obligations imposed by it, except as disclosed to the Compliance Officer or as otherwise disclosed in accordance with the procedures contained in Article X of the Code.	

4.	I am not aware of any conduct on the part of any person associated with the Company that may constitute a violation of the Code, except with respect to any matters that I may have disclosed to the Compliance Officer or otherwise disclosed in accordance with the procedures contained in Article X of the Code.	

5.	I understand that none of the benefits, policies, programs, procedures or statements in the Code are intended to confer any rights or privileges upon me or entitle me to be or remain an employee of the Company. I am aware that the Code is not a contract and is subject to change at any time, without notice, at the sole discretion of the Company.	

I understand that all Disclosure Statements may be available to the Compliance Officer, the Company’s Board of Directors, and internal and external legal counsel. Such information shall otherwise be held in confidence in accordance with Article X of the Code.

Each person signing a Disclosure Statement is responsible for keeping his/her Disclosure Statement current.  These statements will be kept in Safeguard’s Legal Department.

____________________________
Signature

____________________________
Name

____________________________
Date

12

APPENDIX II

ANNUAL CODE OF BUSINESS CONDUCT AND ETHICS DISCLOSURE STATEMENT

As a director, officer or other employee of Safeguard Scientifics, Inc. (“Company”), I have read and understand the Company’s Code of Business Conduct and Ethics (“Code”), and I hereby reaffirm my agreement to comply with its terms. With respect to the last 12 months, I hereby certify as follows:

1.	I have complied and, as applicable, members of my family have complied, with the terms of the Code and all obligations imposed by it, except as disclosed to the Compliance Officer or as otherwise disclosed in accordance with the procedures contained in Article X of the Code.	

2.	I have read and reviewed the Code with my subordinates and I am not aware of any conduct on the part of any person associated with the Company that may constitute a violation of the Code of Conduct, except with respect to any matters that I may have disclosed to the Compliance Officer or otherwise disclosed in accordance with the procedures contained in Article X of the Code.	

3.	I understand that none of the benefits, policies, programs, procedures or statements in the Code are intended to confer any rights or privileges upon me or entitle me to be or remain an employee of the Company. I am aware that the Code is not a contract and is subject to change at any time, without notice, at the sole discretion of the Company.	

I understand that all Disclosure Statements may be available to the Compliance Officer, the Company’s Board of Directors, and internal and external legal counsel. Such information shall otherwise be held in confidence except in accordance with Article X of the Code.

Each person signing a Disclosure Statement is responsible for keeping his/her Disclosure Statement current. These statements will be kept in Safeguard’s Legal Department.

_____________________________
Signature

_____________________________
Name

_____________________________
Date

13

EXHIBIT 21.1

SUBSIDIARIES OF SAFEGUARD SCIENTIFICS, INC.

Exclusive of immaterial subsidiaries and companies in which the Registrant holds a minority interest, as of March 6, 2015 , the Registrant had the following subsidiaries:

	
		
NAME	PLACE OF INCORPORATION	
Bonfield VII, Ltd.	British Virgin Islands	
Novitas Capital Management, L.P.	Delaware	
Novitas Capital II Management, L.P.	Pennsylvania	
Safeguard Capital Management, Inc.	Delaware	
Safeguard Delaware, Inc.	Delaware	
Safeguard Delaware II, Inc.	Delaware	
Safeguard Fund Management, Inc.	Delaware	
Safeguard PM SPV, Inc.	Delaware	
Safeguard Scientifics (Delaware), Inc.	Delaware	
Safeguard Technologies, Inc.	Delaware	
SFE Properties, Inc.	Delaware	
SSI Management Company, Inc.	Delaware	
SSI Partnership Holdings (Pennsylvania), Inc.	Pennsylvania	

Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Safeguard Scientifics, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos.  333-65092, 333-73284, 333-86777, 333-103976, 333-118046, 333-147174, 333-171225, 333-171226, 333-175845, 333-191911 and 333-198783), in the registration statement on Form S-3 (No. 333-198781) and in the registration statement on Form S-4 (No. 333-198785) of Safeguard Scientifics, Inc. of our reports dated March 6, 2015, with respect to the consolidated balance sheets of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 10-K of Safeguard Scientifics, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 6, 2015

Exhibit 31.1
   
CERTIFICATION
   
I, Stephen T. Zarrilli, certify that:

	
			
1.	I have reviewed this Annual Report on Form 10-K of Safeguard Scientifics, Inc.;	
   	   	   	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
   	   	   	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
   	   	   	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
   	   	   	
   	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
   	   	   	
   	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
   	   	   	
   	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
   	   	   	
   	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
   	   	   	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
   	   	   	
   	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
   	   	   	
   	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	March 6, 2015	/s/ Stephen T. Zarrilli	
   	 	Stephen T. Zarrilli	
   	 	President and Chief Executive Officer	
 	 	(Principal Executive Officer)	

Exhibit 31.2
   
CERTIFICATION
   
I, Jeffrey B. McGroarty, certify that:

	
			
1.	I have reviewed this Annual Report on Form 10-K of Safeguard Scientifics, Inc.;	
   	   	   	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
   	   	   	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
   	   	   	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
   	   	   	
   	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
   	   	   	
   	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
   	   	   	
   	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
   	   	   	
   	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
   	   	   	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
   	   	   	
   	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
   	   	   	
   	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date	March 6, 2015	/s/ Jeffrey B. McGroarty	
   	 	Jeffrey B. McGroarty	
   	 	Senior Vice President and Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)	

Exhibit 32.1
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
   
In connection with the Annual Report of Safeguard Scientifics, Inc. (“Safeguard”) on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen T. Zarrilli, President and Chief Executive Officer of Safeguard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	
		
1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, (15 U.S.C. 78m(a)); and	
   	   	
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Safeguard.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	March 6, 2015	/s/ Stephen T. Zarrilli	
   	 	Stephen T. Zarrilli	
   	 	President and Chief Executive Officer	
 	 	(Principal Executive Officer)	

Exhibit 32.2
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
   
In connection with the Annual Report of Safeguard Scientifics, Inc. (“Safeguard”) on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey B. McGroarty, Senior Vice President and Chief Financial Officer of Safeguard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	
		
1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, (15 U.S.C. 78m(a)); and	
   	   	
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Safeguard.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	March 6, 2015	/s/ Jeffrey B. McGroarty	
   	 	Jeffrey B. McGroarty	
   	 	Senior Vice President and Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)	

Exhibit 99.1

PixelOptics, Inc.
(A Development Stage Company)

Unaudited Financial Statements

Years Ended December 31, 2012 and 2011 and
For the Period August 13, 2005 (date of inception) to December 31, 2012

Contents

	

 	 	
Balance Sheets	2		
Statements of Operations	3		
Statements of Changes in Equity	4		
Statements of Cash Flows	5		
Notes to Financial Statements	6		

1

	
									
PixelOptics, Inc.	
(A Development Stage Company)	
Unaudited Balance Sheets	
(In Thousands, Except Share and per Share Data)	
 	 	December 31,	
 	 	2012	 	2011	
Assets	 	 	 	 	
Current assets:	 	 	 	 	
Cash and cash equivalents	 	$	211		 	$	9,474		
Accounts receivable – net	 	7		 	581		
Inventory	 	—		 	1,702		
Prepaid expenses	 	105		 	1,505		
Total current assets	 	323		 	13,262		
Property and equipment – net	 	3,042		 	2,562		
Intangible assets	 	2,007		 	2,249		
Other assets	 	210		 	255		
Total assets	 	$	5,582		 	$	18,328		
Liabilities and stockholders’ equity	 	 	 	 	
Current liabilities:	 	 	 	 	
Accounts payable	 	$	1,521		 	$	1,827		
Accrued expenses	 	3,528		 	1,909		
Current portion of long-term debt and capital lease obligation	 	25,825		 	2,371		
Warrant liability	 	1,971		 	—		
Deferred revenue	 	1,339		 	1,090		
Total current liabilities	 	34,184		 	7,197		
Long-term debt – less current portion	 	3,944		 	7,519		
Deferred revenue	 	6,284		 	7,461		
Total long-term liabilities	 	10,228		 	14,980		
Total liabilities	 	44,412		 	22,177		
Stockholders’ equity:	 	 	 	 	
8% noncumulative preferred stock:	 	 	 	 	
Series D ($35,048 aggregate liquidation preference)	 	3		 	3		
Series C ($30,000 aggregate liquidation preference)	 	2		 	2		
Series B ($23,835 aggregate liquidation preference)	 	1		 	1		
Series A-1 ($6,750 aggregate liquidation preference)	 	1		 	1		
Series A ($8,951 aggregate liquidation preference)	 	1		 	1		
Common stock ($0.0001 par value, 120,000,000 shares authorized,	 	 	 	 	
7,731,719 and 7,673,803 shares issued and outstanding at	 	 	 	 	
December 31, 2012 and 2011, respectively)	 	1		 	1		
Additional paid-in capital	 	107,299		 	106,808		
Accumulated deficit during the development stage	 	(146,138	)	 	(110,666	)	
 	 	(38,830	)	 	(3,849	)	
Total liabilities and stockholders’ equity	 	$	5,582		 	$	18,328		
See accompanying notes.	 	 	 	 	

2

	
													
PixelOptics, Inc.	
(A Development Stage Company)	
Unaudited Statements of Operations	
(In Thousands)	
 	 	 	 	 	 	August 13, 2005	
 	 	 	 	 	 	(Inception)	
    	 	 	 	 	 	Through	
    	 	Year Ended December 31,	 	December 31,	
    	 	2012	 	2011	 	2012	
Revenue	 	 	 	 	 	 	
Lenses	 	$	45		 	$	583		 	$	2,789		
License fee revenue	 	1,047		 	1,047		 	2,668		
Government projects	 	—		 	—		 	2,977		
Total revenue	 	1,092		 	1,630		 	8,434		
Operating expenses	 	 	 	 	 	 	
Cost of sales - lenses	 	3,614		 	4,963		 	10,477		
Cost of sales - government projects	 	—		 	—		 	2,826		
Quality assurance and warehouse	 	4,277		 	1,478		 	8,640		
Research and development	 	6,813		 	9,484		 	58,162		
Sales and marketing	 	6,947		 	11,151		 	31,887		
General and administrative	 	7,865		 	5,856		 	31,943		
Other operating expenses	 	3,801		 	1,664		 	6,160		
Total operating expenses	 	33,317		 	34,596		 	150,095		
Operating loss	 	(32,225	)	 	(32,966	)	 	(141,661	)	
Interest expense	 	(2,683	)	 	(1,809	)	 	(5,475	)	
Change in fair value of warrants	 	(566	)	 	—		 	(566	)	
Other income	 	2		 	6		 	1,564		
Provision for income taxes	 	—		 	—		 	—		
Net loss	 	$	(35,472	)	 	$	(34,769	)	 	$	(146,138	)	
See accompanying notes.	 	 	 	 	 	 	

3

	
																									
PixelOptics, Inc.	
(A Development Stage Company)	
Unaudited Statements of Changes in Equity	
(In Thousands)	
 	 	 	 	Additional	 	 	 	Additional	 	Accumulated	 	 	
 	 	 	 	Paid-In	 	 	 	Paid-In	 	Deficit During	 	 	
 	 	 	 	Capital	 	 	 	Capital	 	The	 	 	
 	 	Common	 	Common	 	Preferred	 	Preferred	 	Development	 	 	
 	 	Stock	 	Stock	 	Stock	 	Stock	 	Stage	 	Total	
Balance (deficit) at August 13, 2005	 	$ –		 	$ –		 	$ –		 	$ –		 	$ –		 	$ –		
Contributed capital	 	1		 	5		 	—		 	—		 	—		 	6		
Stock option compensation	 	—		 	4		 	—		 	—		 	—		 	4		
Net loss	 	—		 	—		 	—		 	—		 	(1,424	)	 	(1,424	)	
Balance (deficit) at December 31, 2005	 	1		 	9		 	—		 	—		 	(1,424	)	 	(1,414	)	
Contributed capital	 	—		 	985		 	2		 	15,610		 	—		 	16,597		
Stock issuance costs	 	—		 	—		 	—		 	(665	)	 	—		 	(665	)	
Stock option compensation	 	—		 	71		 	—		 	—		 	—		 	71		
Net loss	 	—		 	—		 	—		 	—		 	(5,225	)	 	(5,225	)	
Balance (deficit) at December 31, 2006	 	1		 	1,065		 	2		 	14,945		 	(6,649	)	 	9,364		
Contributed capital	 	—		 	—		 	1		 	23,834		 	—		 	23,835		
Stock issuance costs	 	—		 	—		 	—		 	(37	)	 	—		 	(37	)	
Stock option compensation	 	—		 	46		 	—		 	—		 	—		 	46		
Net loss	 	—		 	—		 	—		 	—		 	(9,525	)	 	(9,525	)	
Balance (deficit) at December 31, 2007	 	1		 	1,111		 	3		 	38,742		 	(16,174	)	 	23,683		
Contributed capital	 	—		 	—		 	2		 	29,998		 	—		 	30,000		
Stock issuance costs	 	—		 	—		 	—		 	(106	)	 	—		 	(106	)	
Stock option compensation	 	—		 	239		 	—		 	—		 	—		 	239		
Net loss	 	—		 	—		 	—		 	—		 	(20,260	)	 	(20,260	)	
Balance (deficit) at December 31, 2008	 	1		 	1,350		 	5		 	68,634		 	(36,434	)	 	33,556		
Stock options exercised	 	—		 	11		 	—		 	—		 	—		 	11		
Stock issuance costs	 	—		 	—		 	—		 	(100	)	 	—		 	(100	)	
Stock option compensation	 	—		 	464		 	—		 	—		 	—		 	464		
Warrants issued	 	—		 	—		 	—		 	226		 	—		 	226		
Net loss (as restated)	 	—		 	—		 	—		 	—		 	(20,071	)	 	(20,071	)	
Balance (deficit) at December 31, 2009	 	1		 	1,825		 	5		 	68,760		 	(56,505	)	 	14,086		
Stock option compensation	 	—		 	374		 	—		 	—		 	—		 	374		
Common stock repurchase	 	—		 	(190	)	 	—		 	—		 	—		 	(190	)	
Warrants exercised	 	—		 	—		 	—		 	93		 	—		 	93		
Net loss (as restated)	 	—		 	—		 	—		 	—		 	(19,392	)	 	(19,392	)	
Balance (deficit) at December 31, 2010	 	1		 	2,009		 	5		 	68,853		 	(75,897	)	 	(5,029	)	
Preferred stock issuance	 	—		 	—		 	3		 	35,045		 	—		 	35,048		
Stock issuance costs	 	—		 	—		 	—		 	(221	)	 	—		 	(221	)	
Stock option compensation	 	—		 	531		 	—		 	—		 	—		 	531		
Warrants issued	 	—		 	—		 	—		 	591		 	—		 	591		
Net loss	 	—		 	—		 	—		 	—		 	(34,769	)	 	(34,769	)	
Balance (deficit) at December 31, 2011	 	1		 	2,540		 	8		 	104,268		 	(110,666	)	 	(3,849	)	
Stock option compensation	 	—		 	491		 	—		 	—		 	—		 	491		
Net loss	 	—		 	—		 	—		 	—		 	(35,472	)	 	(35,472	)	
Balance (deficit) at December 31, 2012	 	$	1		 	$	3,031		 	$	8		 	$	104,268		 	$	(146,138	)	 	$	(38,830	)	
See accompanying notes.	 	 	 	 	 	 	 	 	 	 	 	 	

4

	
													
PixelOptics, Inc.	
(A Development Stage Company)	
Unaudited Statements of Cash Flows	
(In Thousands)	
 	 	 	 	 	 	August 13, 2005	
 	 	 	 	 	 	(Inception)	
 	 	 	 	 	 	Through	
 	 	Year Ended December 31,	 	December 31,	
 	 	2012	 	2011	 	2012	
Operating activities	 	 	 	 	 	 	
Net loss	 	$	(35,472	)	 	$	(34,769	)	 	$	(146,138	)	
Adjustments to reconcile to net cash from operating activities:	 	 	 	 	 	 	
Change in fair value of warrants	 	566		 	—		 	$	566		
Depreciation and amortization	 	1,213		 	$	1,090		 	$	4,209		
Stock option compensation	 	491		 	$	531		 	$	2,219		
Loss on sale of property and equipment	 	145		 	—		 	$	267		
Bad debt (recovery) expense	 	4		 	—		 	$	8		
Inventory valuation reserves	 	2,439		 	$	1,140		 	$	3,578		
Amortization of debt discount	 	774		 	$	639		 	$	1,481		
Changes in operating assets and liabilities:	 	 	 	 	 	 	
Accounts receivable	 	570		 	$	(306	)	 	$	(14	)	
Inventory	 	(736	)	 	(2,295	)	 	(3,578	)	
Prepaid expenses and other assets	 	1,445		 	(449	)	 	(220	)	
Rent deposit	 	—		 	—		 	(21	)	
Accounts payable	 	(306	)	 	(108	)	 	1,521		
Accrued expenses	 	1,618		 	921		 	3,527		
Deferred revenue	 	(929	)	 	(875	)	 	7,625		
Net cash used in operating activities	 	(28,178	)	 	(34,481	)	 	(124,970	)	
Investing activities	 	 	 	 	 	 	
Proceeds from sales of marketable securities	 	—		 	—		 	3,000		
Investment in marketable securities	 	—		 	—		 	(3,000	)	
Purchase of property and equipment	 	(1,595	)	 	(710	)	 	(6,830	)	
Proceeds from sale of property and equipment	 	—		 	—		 	80		
Purchase of intangibles	 	—		 	—		 	(2,775	)	
Net cash used in investing activities	 	(1,595	)	 	(710	)	 	(9,525	)	
Financing activities	 	 	 	 	 	 	
Proceeds from debt	 	22,610		 	10,000		 	37,610		
Proceeds from capital lease	 	—		 	—		 	17		
Payments on capital lease	 	—		 	(5	)	 	(17	)	
Payments on debt	 	(2,100	)	 	(4,290	)	 	(7,100	)	
Debt issuance costs	 	—		 	(75	)	 	(75	)	
Issuance of common stock	 	—		 	—		 	1,002		
Repurchase of common stock	 	—		 	—		 	(190	)	
Issuance of preferred stock	 	—		 	35,048		 	104,588		
Stock issuance costs	 	—		 	(221	)	 	(1,129	)	
Net cash provided by financing activities	 	20,510		 	40,457		 	134,706		
Net (decrease) increase in cash and cash equivalents	 	(9,263	)	 	5,266		 	211		
Cash and cash equivalents at beginning of period	 	9,474		 	4,208		 	—		
Cash and cash equivalents at end of period	 	$	211		 	$	9,474		 	$	211		
Supplemental disclosure of cash flow information:	 	 	 	 	 	 	
Cash paid for interest	 	$	1,000		 	$	1,092		 	$	2,092		
Supplemental disclosure of noncash financing activities:	 	 	 	 	 	 	
Warrants issued	 	$	1,405		 	$	591		 	$	1,996		
See accompanying notes.	 	 	 	 	 	 	

5

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

December 31, 2012

1. Organization and Nature of Business
PixelOptics, Inc. (Company), a Delaware corporation, formed and began operations on August 13, 2005. The Company is engaged in the development stage of creating electronic dynamic spectacle lenses used to correct presbyopia, a condition which requires most people over the age of 45 to wear bifocals, trifocals or progressive addition lenses. The Company is headquartered in Roanoke, Virginia.
2. Going Concern
The financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s limited available capital, financial position and operating results as of and for the period ended December 31, 2012, and for the period from August 13, 2005 (date of inception) to December 31, 2012 raise substantial doubt about the Company’s ability to continue as a going concern. As of December 31, 2012, the Company’s stockholders’ deficit was $(38,830) and available cash and cash equivalents was $211. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon commencing operations, developing sales and obtaining additional capital and financing.
The Company is currently seeking additional capital to allow it to continue operations and achieve its financing and operating objectives. In the first quarter of 2013, the Company received approximately $8,000 of bridge loan financing from its current investors and anticipates receiving an additional $12,000 of funding in late March 2013. In February 2013, the Company signed a term sheet for an aggregate amount of $18,000 with Hercules Technology Growth Capital. The initial $12,000 of debt funding will be available upon the loan closing date and the remaining $6,000 will be available upon the Company completing a future capital funding round. The cash provided by this venture debt will be used to pay down the Horizon Loan and to fund ongoing operations. Finally, the Company is seeking additional capital of approximately $35,000 - $50,000 via a Series E financing round. This financing, once completed, is expected to allow the Company to continue to operate through the end of 2014 and provide for sufficient capital to sustain operations.
The Company has incurred significant losses in the past, and will continue to incur losses in the future. Management believes additional financing will be required to provide sufficient funds to enable the Company to reach profitability and sustain its operations. There can, however, be no assurance that the Company will be profitable in the future, nor that additional future financing can be obtained on terms acceptable to the Company.
3. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements were prepared in conformity with U.S. generally accepted accounting principles applied on a basis consistent with that of the preceding periods. Certain prior year amounts have been reclassified to conform to 2012 presentation.

6

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost which approximates fair value.
Accounts Receivable  
Accounts receivable are recorded net of the allowance for doubtful accounts. The Company regularly evaluates the collectibility of accounts receivable based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer and historical experience. Based on this evaluation, the Company records reserves to reduce the related receivables to amounts reasonably believed to be collectible. The reserve for uncollectible accounts receivable was not significant as of December 31, 2012 and 2011. Actual write-offs have approximated management’s estimates.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value. The Company periodically reviews its inventory for slow-moving or obsolete items and writes down the related products to estimated net realizable value.
During 2012 and 2011, the Company recorded reserves of $2,439 and $1,140, respectively related to certain product inventory that will not be sold due to obsolescence or quality issues.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred, while expenditures for additions or improvements that extend the life of an asset are capitalized. Depreciation of property and equipment is calculated principally using the straight-line method over the estimated useful lives as follows:

		

Leasehold improvements	6 to 8 years	
Furniture and fixtures	7 to 12 years	
Machinery and equipment	2 to 5 years	

Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of interest-bearing transaction accounts and money market deposit accounts. The Company maintains its interest-bearing transaction accounts in high credit quality commercial bank and investment accounts. The Company has not experienced any losses in these accounts. At December 31, 2012 and 2011, the Company had on deposit $0 and $9,556, respectively, in excess of the amount insured by the Federal Deposit Insurance Corporation (FDIC).

7

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

Research and Development
Research and development costs, including new product development programs, regulatory compliance and clinical research are expensed as incurred.
Stock-Based Compensation
The Company recognizes share-based compensation at the grant date of the award based on the fair value, and is recognized on a straight-line basis as expense in the accompanying statements of operations over the vesting period of the award, net of estimated forfeitures. The Company estimates forfeitures based on historical experience with further consideration given to the class of employees to whom the equity awards were granted. As of December 31, 2012, the Company expects that all outstanding options will vest.
Intangible Assets
The Company records intangible assets at historical cost and amortizes them over their estimated useful life. Amortization is generally computed by the straight-line method over the estimated useful lives of the assets. The estimated useful life of the license intangible is approximately 12 years.
The Company reviews its intangible assets subject to amortization annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. As of December 31, 2012 and 2011, the Company determined that none of its intangible assets were impaired.
Revenue Recognition
The Company generates revenue primarily from the sale of lenses, modules, and chargers to its distribution partners. Revenue is considered realized or realizable and earned when all of the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectibility is reasonably assured. Revenue is recognized upon passage of title and risk of loss to customers. The Company generally allows its customers to return defective or damaged products for credit or repair. Estimates for sales returns are based upon historical trends and are recorded as a reduction to revenue when the product is sold. The Company records all shipping and handling fees in revenue and records all of the related costs in Lenses - cost of sales.
During 2011, the Company began to sell emPower!, the world’s first and only electronic focusing eyewear, through its typical distribution channels. The Company is in the initial launch period of emPower!. During this period, customers may return previously purchased products for credit to satisfy consumer preference as well as to cover errors made in cutting the final prescription into the lens. The Company has determined that it is unable to make a reasonable estimate of product returns during this period due to the lack of sufficient history with sales of the emPower! product and the relatively wide range of reasons for accepted returns. In addition, the Company has established a one-year warranty to cover material defects in the operation of the

8

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

emPower! product. The Company has determined that the limited history of the new emPower! product precludes the Company from making a reasonable estimate of warranty claims against sales.
As a result of its inability to make a reasonable estimate of product returns, the Company recognizes revenue for emPower! on the “sell-through” method. Under the “sell-through” method, the Company does not recognize revenue upon sale to an optical lab, its primary customer, but defers recognition of revenue until the optical lab sells the product to an eye care professional. However, as the Company is unable to make a reasonable estimate of warranty claims related to the emPower! product, the Company further defers the recognition of revenue related to emPower! until the end of the product’s warranty period. The Company will reassess its ability to make estimates of product returns and warranty claims at each reporting period in accordance with applicable guidance. During the years ended December 31, 2012 and 2011, sales of emPower! totaling approximately $162 and $129, respectively, were deferred and have been recorded as Deferred revenue in the December 31, 2012 and 2011 balance sheets.
During the year ended December 31, 2010, the Company received approximately $10,000 related to its arrangement with Aspex Eyewear, Inc. (Aspex). The cash payment will be recognized into income over the term of the related license agreement. During each of the years ended December 31, 2012 and 2011, the Company recognized $1,047 of license fee revenue.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are based on differences between the financial reporting and tax bases of the assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that the Company will not realize some portion or all of its deferred tax assets. The Company considers relevant evidence, both positive and negative, to determine the need for a valuation allowance. Information evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and tax carrybacks, as well as an evaluation of currently available information about future years.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense.
Years ending on or after December 31, 2008 remain subject to examination by federal and state tax authorities.

9

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are not materially different than their carrying amounts, as reported, since they approximate the amount for which the assets could be sold or the liabilities could be settled.
The fair value of debt instruments are estimated to approximate carrying amounts since interest rates approximate rates at which the Company could obtain similar financing at December 31, 2012. Derivative financial instruments are recorded at fair value at December 31, 2012.
Fair value guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
		
•	Level 1 - Quoted market prices in active markets for identical assets or liabilities.	
		
•	Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.	
		
•	Level 3 - Unobservable inputs that are not corroborated by market data.	
The following are the assets and liabilities measured at fair value as of December 31, 2012:

																	
 	 	Level 1	 	Level 2	 	Level 3	 	Total	
Liabilities:	 	 	 	 	 	 	 	 	
Warrant liability	 	$	—		 	$	—		 	$	1,971		 	$	1,971		

The reconciliation of the warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

				

 	Warrant Liability	
 	 	
Balance at December 31, 2011	$	—		
Issuance of new warrants with Bridge Loan	1,405		
Change in fair value of warrants	566		
Balance at December 31, 2012	$	1,971		

The fair value of the warrants is determined using a scenario-based option pricing model. The valuation of warrants is subjective and is affected by significant inputs, including product launch timing, cost of product sales, and ultimate market penetration, as well as other changes in inputs to the valuation model including the price per share of the Company’s common stock, assumptions regarding the expected amounts and dates of future equity financing activities, the historical volatility of the stock prices of the Company’s peer group, and risk-free rates. Changes in these assumptions can materially affect the fair value estimate, and the warrant liability could at any future point in time, be significantly different that the carrying value at December 31, 2012.

10

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and may affect future periods.
4. Accounts Receivable
Accounts receivable consist of the following as of December 31:

									
 	 	2012	 	2011	
Trade receivables	 	$	13		 	$	250		
Other receivables	 	—		 	333		
Less - allowance for doubtful accounts	 	(6	)	 	(2	)	
 	 	$	7		 	$	581		

5. Prepaid Expenses

Prepaid expenses consist of the following as of December 31: 

									
 	 	2012	 	2011	
Manufacturing supplies	 	$	—		 	$	673		
Prepayments to suppliers	 	—		 	730		
Other prepaid expenses	 	105		 	102		
 	 	$	105		 	$	1,505		

11

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

6. Property and Equipment
Property and equipment consist of the following as of December 31:

									
 	 	2012	 	2011	
Leasehold improvements	 	$	637		 	$	637		
Machinery and equipment	 	4,190		 	4,146		
Furniture and fixtures	 	78		 	77		
Capital assets in process	 	1,175		 	33		
 	 	6,080		 	4,893		
Less - accumulated depreciation	 	(3,038	)	 	(2,331	)	
 	 	$	3,042		 	$	2,562		

Depreciation expense was $970 and $847 during 2012 and 2011, respectively.
7. Intangibles
The Company has capitalized its payments to Johnson & Johnson Vision Care, Inc., as co-obligator with E­Vision, LLC (see Notes 12 and 15), for the right to use certain intellectual property. The Company has also capitalized its payments to High Performance Optics, Inc. (see Note 12) for the right to manufacture certain products using intellectual property. The total cash paid for these intangibles was $2,775. The net balance of intangible assets at December 31, 2012 and 2011 was $2,007 and $2,249, respectively. Amortization expense for intangible assets was $243 during each of 2012 and 2011. As of December 31, 2012, the estimated amortization expense associated with our intangible assets for each of the next five fiscal years is expected to be $243.
8. Bridge Loans and Long-Term Debt
On April 12, 2012, July 5, 2012, and September 27, 2012, the Company entered into a note and warrant purchase agreement (“Bridge Loan”) with certain of its existing investors for the purchase of approximately $7,210, $6,800, and $8,600, respectively, of 8% convertible notes due June 30, 2013. The Bridge Loan is subordinated to the Company’s currently outstanding $10,000 loan with Horizon Technology entered into on April 6, 2011. Interest on the Bridge Loan is payable at maturity. The Bridge Loan will automatically convert into the Company’s preferred shares if a qualified equity financing, defined as the issuance of preferred stock of at least $20,000, occurs. At conversion, all outstanding principal and accrued interest will convert at a price determined in the subsequent equity financing.
The Bridge Loan provides for the issuance of 5,137,585 warrants (issued at the various funding dates) to purchase the Company’s preferred stock as determined in the next qualified equity financing. The warrants are exercisable for a period of 10 years. The number of warrants issued under this arrangement will be determined by dividing 25% of the value received in the bridge financing by the lowest price per share issued in the next qualified financing.

12

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

On April 6, 2011, the Company closed a $10,000 aggregate principal amount debt financing with Horizon Technology Finance (“Horizon Note”). The Horizon Note has an interest rate of 10.75% and is secured by substantially all of the Company’s assets, except for intellectual property. The Horizon note requires interest only payments for the first 12 months; the remaining balance will be paid over 30 monthly installments. In connection with the issuance of the Horizon Note, the Company issued 181,818 warrants to purchase Series D preferred shares. The warrants have an exercise price equal to the Series D preferred stock price of $1.10.
On February 25, 2011, the Company closed a $5,500 aggregate principal bridge financing from certain existing investors of the Company. The loan had an interest rate of 8% and was convertible into the Company’s preferred shares. In connection with the issuance of this bridge financing, the Company issued 582,565 warrants to purchase Series D preferred shares. The warrants have an exercise price equal to the Series D preferred stock price of $1.10. The notes were converted to Series D preferred stock on April 6, 2011.
Debt consists of the following as of December 31:

									
 	 	2012	 	2011	
Horizon Note	 	$	7,900		 	$	10,000		
Bridge Loan	 	22,610		 	—		
Less - unamortized debt discount	 	(741	)	 	(110	)	
 	 	29,769		 	9,890		
Less - current portion	 	(25,825	)	 	(2,371	)	
 	 	$	3,944		 	$	7,519		

Estimated principal repayments on long-term debt for future years ending December 31 are as follows:

				

2013	$	26,530		
2014	3,980		
2015	—		
2016	—		
2017	—		
Thereafter	—		
 	$	30,510		

9. Capital
As of December 31, 2012, the authorized capital stock of the Company consists of 120,000,000 shares of common stock and 86,707,758 shares of preferred stock, each having a par value of $0.0001 per share. Preferred stock is issued in series, subject to terms established by the Board of Directors. On April 6, 2011, the Company closed on a Series D preferred stock equity financing. The capital raised was approximately $35,048. The following table describes the key features of the Company’s outstanding preferred stock.

13

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

	

 	 	
Issue Date/Shares outstanding/ Conversion Price	Series A - On September 5, 2006, the Company authorized and issued 13,841,791 shares (12,972,321 currently outstanding) of Series A preferred stock with a conversion price per share of $0.69.
Series A-1 - On December 22, 2006, the Company authorized and issued 8,437,499 shares (8,437,499 currently outstanding) of Series A-1 preferred stock with a conversion price per share of $0.80.
Series B - On June 29, 2007, the Company authorized and issued 14,103,524 shares (14,103,524 currently outstanding) of Series B preferred stock with a conversion price per share of $1.69.
Series C - On September 26, 2008, the Company authorized and issued 17,324,944 shares (17,125,150 currently outstanding) of Series C preferred stock with a conversion price per share of $1.7518.	
Issue Date/Shares outstanding/ Conversion Price	Series D - On April 6, 2011, the Company authorized and issued 33,000,000 shares (31,861,909 currently outstanding) of Series D preferred stock with a conversion price per share of $1.10.	
Dividend and liquidation preferences	All the preferred stock is senior to the rights, benefits, obligations, and restrictions of all other equity securities of the Company. The holders of each outstanding series of preferred stock shall be entitled to a noncumulative 8% dividend per annum, if declared, payable in cash or in-kind at the option of the holder, in preference to any distribution on any other equity securities. The preferred stockholders are also entitled to certain liquidation preferences upon any liquidation, dissolution or winding up of the Company as further defined in the stock agreement. Each share of Series A and A-1, B, C and D preferred stock is initially convertible into one share of common stock, subject to adjustment as provided in the anti-dilution features.	
Participation rights	Each share of Series A, A-1, B, C and D preferred stock participates fully with common once any liquidation preferences are satisfied.	
Voting rights	All outstanding series of preferred stock have the right to vote together with common stock holders on an as-converted basis on all matters submitted for vote of the holders of common stock. Each share of preferred stock is initially convertible into one share of common stock, subject to adjustment as provided in the anti-dilution features more fully explained in the stock agreement.	
Changes in preferred shares	There have been no other changes in the number of issued shares in any class of the Company’s outstanding preferred stock in the periods ended 2012.	

14

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

10. Warrants
The Company accounts for preferred stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Preferred stock warrants are accounted for as derivative liabilities if the warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of preferred or common stock are at a lower price per share than the then-current warrant exercise price. Derivative warrant liabilities are classified on the balance sheet as a current liability, which is remeasured to fair value at each balance sheet date.
As of December 31, 2012, the following stock warrants were outstanding:
Equity-classified warrants

																
 	 	Number	 	Issuance
Date	 	Date Exercisable	 	Expiration Date	 	Underlying Security	 	Exercise Price Per Share	
2006 Warrants	 	869,470		 	May 2006	 	Sept. 2006	 	May 2014	 	Series A Preferred	 	$	0.69		
2009 Warrants	 	199,794		 	Dec. 2009	 	Dec. 2009	 	Dec. 2019	 	Series C Preferred	 	$	1.7518		
Bridge Loan Warrants	 	582,565		 	April 2011	 	April 2011	 	April 2021	 	Series D Preferred	 	$	1.10		
2011 Warrants	 	181,818		 	April 2011	 	April 2011	 	April 2021	 	Series D Preferred	 	$	1.10		
 	 	1,833,647		 	 	 	 	 	 	 	 	 	 	

Equity-classified warrants: The Company has recorded the preferred stock warrant awards from 2006 through 2011 within stockholders’ equity on the balance sheet as the Company concluded that each issuance was determined to be indexed to the Company’s stock and the warrant provisions did not embody an obligation of the Company. The proceeds of the February 25, 2011 bridge loan and the Horizon Note were allocated between the debt issuances and the related preferred stock warrants based upon their relative fair values, which resulted in the recording of a discount on the debt upon issuance that reflects the value allocated to the warrants. The discounts are being accreted as additional interest expense over the term of the related debt instruments using the effective interest method. The assigned consideration received at the date of grant for each tranche of warrants issued in 2006 through 2011 was not significant.

15

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

Liability-classified warrants

										
 	 	Number	 	Issuance
Date	 	Date Exercisable	 	Expiration Date	
Bridge Loan Warrants	 	1,637,585		 	April 2012	 	June 2013	 	April 2022	
Bridge Loan Warrants	 	1,545,455		 	July 2012	 	June 2013	 	April 2022	
Bridge Loan Warrants	 	1,954,545		 	Sept. 2012	 	June 2013	 	April 2022	
 	 	5,137,585		 	 	 	 	 	 	

Liability-classified warrants: The Company has recorded the 2012 preferred stock warrants awards as a liability on the balance sheet as the Company concluded that the issuances were determined not to be indexed to the Company’s stock and therefore the warrant provisions embodied an obligation of the Company. Each warrant is exercisable in whole or in part at any time until June 30, 2013 at a per share exercise price of $1.10, subject to certain adjustments as specified in the warrant agreement. Additionally, the warrants contain provisions that require the modification of the exercise price and shares to be issued under certain circumstances, including in the event the Company completes subsequent equity financing at a price per share lower than the then-current warrant exercise price. The Company valued the warrants as derivative financial instruments as of the dates of issuance of $282, $503 and $620, respectively, and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statement of Operations. During the year ended December 31, 2012, the Company recorded a loss of $566 due to an increase in the estimated fair value of these warrants. The warrant liability was $1,971 as of December 31, 2012. The Company will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability.
The proceeds of the 2012 bridge loans were allocated between the debt issuances and the related preferred stock warrants based upon their relative fair values, which resulted in the recording of a discount on the debt upon issuance of $1,405 that reflects the value allocated to the warrants. The discounts are being accreted as additional interest expense over the term of the related debt instruments using the effective interest method.

16

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

The following table details warrant activity during the periods ended December 31, 2012 and 2011.

							
 	 	2012	 	2011	
Outstanding at beginning of period	 	1,833,647		 	1,069,264		
Granted	 	5,137,585		 	764,383		
Exercised	 	—		 	—		
Expired or forfeited	 	—		 	—		
Outstanding at end of period	 	6,971,232		 	1,833,647		
Exercisable at end of year	 	1,833,647		 	1,833,647		
Range of exercise prices	 	$0.69 - $1.75		 	$0.69 - $1.75		
Weighted-average remaining contractual life in years	 	8.2		 	4.9		

11. Stock-Based Compensation
The Company has one stock-based compensation plan adopted in 2005, (the “2005 Plan”). The 2005 Plan is administered by the Company’s Board of Directors. Stock-based compensation is granted to officers and certain key employees in accordance with the provisions of the 2005 Plan. The 2005 Plan provides for grants of nonstatutory stock options, stock purchase rights and incentive stock options. These awards have ten-year contractual terms and vest based on the terms of the individual awards. The options are generally forfeitable upon termination of a holder’s service as an employee or director, unless the individual’s service is terminated due to retirement, death or permanent disability. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award. The total aggregate number of shares of the Company’s common stock that may be issued under the 2005 Plan is 20,078,486 shares.
During 2012 and 2011, stock compensation expense related to awards under the 2005 Plan was $491 and $531, respectively. This expense is included in “other operating expenses” in the accompanying statements of operations.
As of December 31, 2012, there was $821 of unrecognized compensation cost related to outstanding stock options expected to be recognized over a weighted-average period of approximately 2.7 years. The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option-pricing model. Significant inputs in the option-pricing model are determined using publicly available information or with assistance from an external valuation firm. The external valuation firm also assists the Company in determining the fair value of its outstanding equity instruments. For stock options issued in the years ended December 31, 2012 and 2011, the assumptions shown in the following table were used:

17

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

	
							
 	 	Year Ended December 31	
 	 	2012	 	2011	
Dividend yield	 	—	%	 	—	%	
Risk-free interest rate	 	1.8	%	 	2.3	%	
Expected term (years)	 	7		 	7		
Volatility	 	77.0	%	 	77.0	%	

Expected Volatility. Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has used the historical volatility of a group of guideline public companies over the average expected term of the options granted as the expected volatility.
Risk-Free Interest Rate. This is the U.S. Treasury rate having a term that most closely resembles the expected term of the option.
Expected Term. The expected term is the period of time that the stock option granted is expected to remain unexercised. Stock options granted during the years ended December 31, 2012 and 2011 had a maximum term of ten years. The Company does not have sufficient historical experience to provide a reasonable basis upon which to estimate the expected term of its awards. Accordingly, the Company estimates the expected term using the “simplified” method which represents the mid-point between the vesting date of its outstanding awards and the contractual term.
The weighted-average grant date fair value of stock options granted during 2012 and 2011 was $0.09 and $0.24 per share, respectively.
Stock option activity under the 2005 Plan is as follows:

											
 	 	Options	 	Weighted-Average Exercise Price Per Share	 	Weighted-Average Remaining Contractual
Life	
Outstanding December 31, 2011	 	12,709,746		 	$	0.20		 	7.2		
Granted	 	5,358,512		 	$	0.23		 	 	
Exercised	 	(57,916	)	 	$	0.29		 	 	
Expired or forfeited	 	(1,451,515	)	 	$	0.29		 	 	
Outstanding December 31, 2012	 	16,558,827		 	$	0.25		 	7.1		
Exercisable at December 31, 2012	 	10,662,314		 	$	0.25		 	6.2		

18

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

12. Related-Party Transactions
On January 1, 2010, the Company paid High Performance Optics, Inc. (HPO) $25 pursuant to an agreement which allowed the Company to exclusively offer sublicenses of certain technology rights controlled by HPO for seven months. This has been expensed on the statement of operations in 2010. Additionally, on March 2, 2010, the Company entered into a new license agreement with HPO in which the Company licensed certain technology rights for use in some of the Company’s products. The Company paid HPO $25 for the license, which has been capitalized as an intangible asset on the balance sheet. There are no future royalties payable to HPO under this license. See Note 15 for a separate license agreement with HPO that was updated in 2010.
In November 2010, the Company received an offer from another corporation to provide services for products not related to the Company’s core business. A new entity, Opti-Cool LLC was created, with essentially the same ownership as the Company. A development contract with potential revenues of approximately $100, and estimated potential expenses of approximately $100 was entered into between the Company and the other corporation and then assigned to Opti-Cool, LLC. The development project did not move forward and Opti-Cool LLC will be dissolved.
E-Vision, LLC (E-Vision), a common stockholder of the Company, has a License and Development Agreement dated September 2, 2005 with Johnson & Johnson Vision Care, Inc. (Johnson & Johnson) for intellectual property. E-Vision has licensed this intellectual property to the Company. As disclosed in Note 7 and 15, the Company is a co-obligor with E-Vision for amounts due to Johnson & Johnson. The Company paid $275 and $158 in licensing agreement fees, which have been expensed on the statements of operations in 2012 and 2011, respectively. Payments in 2005 through 2012 were $2,750 for the right to use the intellectual property according to the License and Development Agreement, and have been capitalized as intangible assets on the balance sheet. The Company also paid royalties to E-Vision of $0 and $17 during 2012 and 2011, respectively.
On June 29, 2007, the Company entered into a license agreement with E-A Ophthalmics, LLC (E-A), in which the Company licensed certain rights related to the Company’s intellectual property, in exchange for 21,275,073 of the series A units of E-A. The Company concurrently declared a dividend of the E-A series A units, to the holders of the Company’s Series A preferred stock and series A-1 preferred stock. On June 13, 2008, E-A entered into a sublicense agreement with a newly formed entity, Ocular Optics, Inc. (d/b/a Elenza, Inc.), in which E-A sublicensed those rights, in exchange for 1,063,735 units of common stock of Elenza, Inc. The Company and Elenza, Inc. share some common management and stockholders. The parties entered into the Amendment No. 3 to License Agreement and Amendment No. 2 to the Clarifying Agreement on October 1, 2012, whereby the Company paid $100 and then is obligated to pay Elenza another $50 on October 1, 2013. Further, a Elenza will receive a $200 credit against royalties, and the credits shall be applied in increments of up to $50 per year until the entire $200 credit is satisfied, provided that during any period where royalties are due to E-Vision by the Company before any credit is applied, Elenza shall pay the Company the amount equal to the royalty payable to E-Vision by the Company.

19

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

13. Leases
The Company leases office space under two operating leases expiring on May 31, 2013 and July 31, 2014. Rental expense was $327 and $279 during 2012 and 2011, respectively.
Future minimum lease payments to be paid under existing noncancelable operating leases are as follows:

				

2013	$	304		
2014	159		
2015	—		
2016	—		
2017	—		
Thereafter	—		
 	$	463		

14. Income Tax
Significant components of the Company’s deferred tax assets and liabilities are as follows as of December 31:

									
 	 	2012	 	2011	
Deferred tax assets:	 	 	 	 	
Net operating loss carryforward	 	$	51,053		 	$	38,717		
General business credit carryforward	 	1,271		 	1,571		
Deferred revenue	 	2,973		 	3,268		
Inventory reserves	 	951		 	—		
Other deferred tax assets	 	410		 	129		
 	 	56,658		 	43,685		
Deferred tax liabilities:	 	 	 	 	
Other deferred tax liabilities	 	(506	)	 	(493	)	
Net deferred tax assets	 	56,152		 	43,192		
Less - deferred tax asset valuation allowance	 	(55,961	)	 	(42,956	)	
 	 	$	191		 	$	236		

Management makes an assessment to determine if its deferred tax assets are more likely than not to be realized. Valuation allowances are established in the event that management believes the related tax benefits will not be realized. The Company has determined that the deferred tax assets do not satisfy the realizability criteria and, accordingly, has recorded a full valuation allowance against the deferred tax assets at December 31, 2012 and 2011. During fiscal 2012, the valuation allowance increased by $13,005 resulting primarily from the additional net operating losses generated during the period.

20

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

The income tax provision for 2012 and 2011 differs from the income tax expense (benefit) that would result from applying federal statutory rates to loss before income tax (benefit) and extraordinary items mainly due to the change in the valuation allowance.
The Company has net operating loss carryforwards of approximately $130,904 at December 31, 2012, available to offset future federal and state taxable income to the extent allowable. These net operating losses will expire between the years 2025 and 2030. The Company has a general business credit carryforward of approximately $1,271 at December 31, 2012, resulting from credits for research and development costs incurred. These credits are available to offset future federal income taxes to the extent allowable. These general business credits will expire between the years 2025 and 2030.
As of December 31, 2012 and 2011, the Company’s accrual for uncertain tax positions was $191 and $236, respectively. There were no payments made against the accrual during 2012 and 2011.
15. Commitments and Contingencies
Commitments
As co-obligor with E-Vision on the License and Development Agreement with Johnson & Johnson (see Note 12), the Company may be obligated to pay Johnson & Johnson up to $10,000 based on a present value calculation in 2005 dollars. The annual discount rate per the agreement is 3%. The Company has already paid $2,750 of this obligation. After those payments, the remaining obligation payable to Johnson & Johnson will be in the form of a royalty fee of 3% of net sales of licensed ophthalmic products. The Company paid $1 and $17 in royalty fees during 2012 and 2011, respectively. These amounts have been expensed on the statement of operations. On December 8, 2010, the Company entered into a memorandum of understanding with E-Vision to secure E­Vision’s participation in a development agreement with an unrelated party for $250. The Company paid $50 and $200 during 2012 and 2011, respectively, which has been expensed on the statement of operations.
North American Frame Agreement
On March 13, 2012, the Company notified its North American frame licensee that it believed that the licensee was in default of the Manufacture, Supply, Marketing and Sales Agreement dated July 6, 2010 by and between the Company and the licesee (the “Agreement”) for, among other reasons, failure to pay approximately $15,000 due to the Company under the Agreement. At that time, the Company notified the licensee that it had until June 11, 2012 to cure the default by paying the amounts owed under the Agreement to the Company, and, if the breach remained uncured, the Company was terminating the Agreement according to its terms. In response, the licensee denied that it had breached its obligation to pay the $15,000 and also asserted that the Company is not entitled to the $9,000 it previously paid to the Company under the Agreement and demanded repayment of such amount plus accrued interest. The parties agreed that the cure period would be extended until June 30, 2012 to permit additional time for negotiations.
On June 26, 2012, the licensee notified the Company of its demand for mediation as to the matter. On June 28, 2012, the licensee obtained a temporary restraining order prohibiting the Company from terminating the Agreement and entering into a relationship with an alternative vendor that would conflict with the licensee’s

21

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

rights under the Agreement until at least August 7, 2012, at which time the parties were to argue a motion for preliminary injunction filed by the licensee. On July 20, 2012 the licensee filed a request for arbitration, to which the Company agreed. The court deferred ruling on the injunction pending a decision from the arbitration panel.
The parties participated in an arbitration hearing in November 2012 and submitted post-hearing closing briefs to the arbitration panel during the week of December 17, 2012. The parties received a partial final award from the panel on January 14, 2013 finding that (i) the Company was not entitled to payment of the $15,000 as additional license fees as of the date claimed by the Company and that the 10-year term commencing on the date of Second Commercial Availability (as defined in the Agreement) had not yet begun on the dates claimed by the Company, (ii) the Agreement remains in full force and effect. The panel deferred ruling on remaining claims and asked the parties to report back after 30 days as to any remaining disputes.
The parties reported back to the panel on February 13, 2013 that there were remaining unresolved disputes. The parties discussed those reports with the panel on February 22, 2013, at which time the panel requested a supplemental submission from the licensee as to the bases for its stated claims for relief, including whether each is properly before the panel, and from the Company the bases for any remaining claims and the requested relief. The parties submitted the requested submissions to the panel on February 27, 2013. In its submission, the licensee stated that its remaining claims consisted of a claim for injunctive relief, a claim for declaratory relief and a claim for award of attorneys’ fees. In its submission, the Company set forth the bases for counterclaims for anticipatory repudiation and breach of the duty to pay royalties. Each party submitted a response to the other’s submission on March 6, 2013. On March 12, 2013, the panel issued a Procedural Order stating (1) that the licensee’s remaining claims for relief were in the nature of additional remedy to be ruled on in the Final Award; and (2) that, in its discretion, the panel would permit the Company to assert its counterclaims for anticipatory repudiation and breach for failure to pay royalties. The panel directed the Company to submit by March 18, 2013, a Supplemental Statement setting forth its counterclaims, along with any exhibits, written testimony or memorandum of law deemed appropriate. The Company submitted is Supplemental Statement and accompanying materials on March 18, 2013. The licensee is to submit a response on March 25, 2013. The panel has requested that the parties submit dates in early April for a one-day oral hearing on the counterclaims or consent to waive such oral hearing.
The Company currently does not believe a loss is probable as of the date of this report. The Company intends to vigorously defend against its partner’s remaining claims and to aggressively pursue its own remaining claims with respect to the Agreement. Given the inherent uncertainty of the outcome for this claim, it is possible that the total costs incurred related to this claim could be material. The Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for this contingency. The Company will continue to review the amount of any necessary accruals or other related expenses and record charges in the period in which the determination is made that an adjustment is required.
Sublicense Settlement
On January 12, 2012, the Company received a demand letter from Elenza, Inc. (a related party), alleging that PixelOptics wrongfully caused Elenza to pay $589 for intellectual property that should have been paid for by PixelOptics. In June 2012, the Company negotiated a settlement agreement related to this matter for

22

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

approximately $200 and paid $150 of the settlement during the year ended December 31, 2012. The remainder of this settlement has been accrued as of December 31, 2012.
Vendor Complaint
On June 22, 2012, the Company received a demand letter from a Canadian module assembly vendor, alleging that the Company, (1) has not met its obligations to fulfill material supply obligations, (2) has made misrepresentations that caused damages to the vendor, and (3) that the Company does not have rights to use certain intellectual property. The vendor further notified the Company that it was terminating the Purchase Order that both parties had entered into in 2011 for the supply of electronic modules. In December 2012, the Company negotiated a settlement agreement related to this matter for approximately $280 and has accrued this settlement at December 31, 2012.
16. Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through March 25, 2013, the date the financial statements were available to be issued.
2013 Bridge Loan
On January 4, 2013, February 4, 2013, and March 13, 2013, the Company entered into a note and warrant agreement (“2013 Bridge Loan”) with certain of its existing investors for the purchase of approximately $3,500,$2,500, and $2,000 respectively of 14% convertible notes due June 30, 2013. The 2013 Bridge Loan will be subordinate to the Company’s currently outstanding $10,000 Horizon Note entered into on April 6, 2011. Interest on the 2013 Bridge Loan is payable at maturity. The 2013 Bridge Loan is immediately exercisable into Series D preferred shares or will automatically convert into the Company’s preferred shares if a qualified equity financing, defined as the issuance of preferred stock of at least $20,000 occurs. At conversion, all outstanding principle and accrued interest will convert at a price determined in the subsequent equity financing. The 2013 Bridge Loan also provides for the issuance of warrants that are immediately exercisable into the Company’s Series D preferred stock or will automatically convert into the Company’s preferred shares if a qualified equity financing, defined as the issuance of preferred stock of at least $20,000, occurs. The warrants are exercisable for a period of 10 years. The number of warrants issued under this arrangement is equal to 100% of the value received in the bridge financing.
The Company anticipates an incremental $12,000 of bridge loan funding to occur in late March 2013 under similar terms to those listed above. The final terms and conditions of this funding are currently being negotiated.
Venture Debt Term Sheet
On February 13, 2013, the Company signed a term sheet for an aggregate amount of $18,000 with Hercules Technology Growth Capital. The initial $12,000 of debt funding will be available upon the loan closing date and the remaining $6,000 will be available upon the Company completing a future capital funding round. The debt has an interest rate of 11.75% and is secured by a perfected first position lien on all of the Company’s

23

PixelOptics, Inc.
(A Development Stage Company)

Notes to Unaudited Financial Statements (continued)
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

assets including intellectual property. The loan will require interest only payments for the first six months; the remaining balance will be paid over 30 monthly installments. In connection with the issuance of these notes the Company will issue 11% of the aggregate loan amount in warrants to purchase Series D preferred shares or shares of a subsequent round of funding. The warrants have an exercise price of $1.10 to purchase Series D warrants or at the price per share of a subsequent round.

24

Exhibit 99.2

								
 PixelOptics, Inc.	
(A Development Stage Company)	
 Unaudited Balance Sheet	
 (In Thousands)	
 	 	
 	 June 30,	 	 December 31,	
 	2013	 	2012	
Assets	 	 	 	
Cash and cash equivalents	$	51		 	$	211		
Accounts receivable	2		 	7		
Prepaid expenses	231		 	105		
 Total current assets	285		 	323		
    	 	 	 	
Intangible assets	1,885		 	2,007		
Property & equipment, net	2,493		 	3,042		
Other assets	210		 	210		
 	 	 	 	
 Total assets	$	4,873		 	$	5,582		
 	 	 	 	
Liabilities and stockholders' equity:	 	 	 	
Accounts payable	1,950		 	1,521		
Accrued expenses	4,514		 	3,528		
Current portion of long term debt and capital lease obligation	41,478		 	25,825		
Deferred revenue	6,808		 	1,339		
Warrant liability	1,971		 	1,971		
 Total current liabilities	56,721		 	34,184		
 	 	 	 	
Long-term debt - less current portion	1,818		 	3,944		
Deferred revenue	—		 	6,284		
 Total liabilities	58,539		 	44,412		
 	 	 	 	
Stockholders’ equity:	 	 	 	
Preferred stock	9		 	9		
Additional paid in capital	107,300		 	107,299		
Accumulated deficit during the development stage	(160,975	)	 	(146,138	)	
 Total stockholders' equity	(53,666	)	 	(38,830	)	
 	 	 	 	
 Total liabilities and stockholders' equity	$	4,873		 	$	5,582		

	
								
 PixelOptics, Inc.	
(A Development Stage Company)	
 Unaudited Statements of Operations	
 (In Thousands)	
 	 	 	 	
 	Six Months Ended	
 	 June 30,	 	 June 30,	
 	2013	 	2012	
Revenue:	 	 	 	
Revenue net	$	800		 	$	569		
 	 	 	 	
Cost of goods sold	812		 	3,628		
 	 	 	 	
Gross profit	(12	)	 	(3,059	)	
 	 	 	 	
Operating expenses:	 	 	 	
Operations	2,309		 	1,788		
Research and development	3,508		 	3,261		
Sales & marketing	2,403		 	4,692		
General and administrative	3,987		 	3,370		
Royalties	—		 	2		
Total operating expenses	12,207		 	13,113		
 	 	 	 	
Operating loss	(12,219	)	 	(16,172	)	
 	 	 	 	
Interest expense	(2,610	)	 	(737	)	
Other expense	(9	)	 	(14	)	

Net loss	$	(14,838	)	 	$	(16,923	)	

	
								
 PixelOptics, Inc.	
(A Development Stage Company)	
 Unaudited Statements of Cash Flows	
 (In Thousands)	
 	 	 	 	
 	Six Months Ended	
 	 June 30,	 	 June 30,	
 	2013	 	2012	
Net loss	$	(14,838	)	 	$	(16,923	)	
 	 	 	 	
Adjustments to reconcile net loss to net cash used in operating activities	 	 	 	
Depreciation / amortization	666		 	692		
(Increase) decrease in assets:	 	 	 	
 	 	 	 	
Accounts receivable	4		 	549		
Inventory	                  –		 	(590	)	
Prepaid expenses	(127	)	 	268		
 	 	 	 	
Increase (decrease) in liabilities:	 	 	 	
Accounts payable	430		 	(173	)	
Deferred revenue	(815	)	 	(370	)	
Accrued expense	988		 	482		
Net cash used in operating activities	(13,692	)	 	(16,067	)	
    	 	 	 	
Cash flows used investing activities	 	 	 	
Purchase of fixed assets	5		 	(165	)	
Net cash used in investing activities	5		 	(165	)	
 	 	 	 	
Cash flows from financing activities	 	 	 	
Bridge loan	14,750		 	9,472		
Venture debt	(1,907	)	 	(295	)	
Discount on venture debt	20		 	20		
Discount on warrant debt	664		 	                  –		
Common stock	                  –		 	15		
Preferred stock / financing cost	                  –		 	1		
Net cash from financing activities	13,527		 	9,213		
 	 	 	 	
Net increase (decrease) in cash	(160	)	 	(7,019	)	
 	 	 	 	
Cash & cash equivalents, beginning of period	211		 	9,474		
 	 	 	 	
Cash & cash equivalents, end of period	$	51		 	$	2,455