sfe20220630_10q.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________________________________________________________________________________

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2022

☐ 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
(State or other jurisdiction of	23-1609753
incorporation or organization)	(I.R.S. Employer ID No.)

150 N. Radnor Chester Road
Suite F-200
Radnor, 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	Trading Symbol(s)	Name of each exchange on which registered
common stock, par value $0.10	SFE	New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☐	Smaller reporting company ☑
Non-accelerated filer ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares outstanding as of August 8, 2022

Common Stock 16,387,126

SAFEGUARD SCIENTIFICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
	Page
Item 1 – Financial Statements:

Consolidated Balance Sheets – June 30, 2022 (unaudited) and December 31, 2021	3

Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2022 and 2021	4

Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2022 and 2021	5

Consolidated Statements of Changes in Equity (unaudited) – Three and Six Months Ended June 30, 2022 and 2021	6

Notes to Consolidated Financial Statements (unaudited)	8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	28

Item 4 – Controls and Procedures	28

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	29

Item 1A – Risk Factors	29

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3 – Defaults Upon Senior Securities	29

Item 4 – Mine Safety Disclosures	29

Item 5 – Other Information	29

Item 6 – Exhibits	30

Signatures	31

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

		(Unaudited)
	*June 30, 2022*			*December 31, 2021*
ASSETS
Current Assets:
Cash and cash equivalents	$	17,510		$	24,739
Restricted cash		25			25
Ownership interests		2,407			4,549
Prepaid expenses and other current assets		1,126			965
Total current assets		21,068			30,278
Right-of-use asset, net		1,431			1,561
Ownership interests and advances		23,192			21,972
Other assets		267			217
Total Assets	$	45,958		$	54,028
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	56		$	41
Accrued compensation and benefits		167			794
Accrued expenses and other current liabilities		518			524
Lease liability - current		401			375
Total current liabilities		1,142			1,734
Lease liability - non-current		1,471			1,678
Other long-term liabilities		50			50
Total Liabilities		2,663			3,462
Commitments and contingencies (Note 9)
Equity:
Preferred stock, $0.10 par value; 1,000 shares authorized		—			—
Common stock, $0.10 par value; 83,333 shares authorized; 21,573 shares issued and outstanding at June 30, 2022 and December 31, 2021		2,157			2,157
Additional paid-in capital		805,441			806,638
Treasury stock, at cost; 5,261 and 5,068 shares at June 30, 2022 and December 31, 2021, respectively		(48,417	)		(48,569	)
Accumulated deficit		(715,861	)		(709,635	)
Accumulated other comprehensive loss		(25	)		(25	)
Total Equity		43,295			50,566
Total Liabilities and Equity	$	45,958		$	54,028

See Notes to Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - In thousands, except share and per share data)

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2022*			*2021*			*2022*			*2021*
General and administrative expense	$	1,146		$	1,991		$	2,380		$	4,454
Operating loss		(1,146	)		(1,991	)		(2,380	)		(4,454	)
Other income (loss), net		30			6,733			(1,967	)		7,439
Interest income		145			74			246			127
Equity income (loss), net		1,454			(5,136	)		(2,125	)		14,193
Net income (loss) before income taxes		483			(320	)		(6,226	)		17,305
Income tax benefit (expense)		—			—			—			—
Net income (loss)	$	483		$	(320	)	$	(6,226	)	$	17,305

Net income (loss) per share:
Basic	$	0.03		$	(0.02	)	$	(0.38	)	$	0.83
Diluted	$	0.03		$	(0.02	)	$	(0.38	)	$	0.83
Weighted average shares used in computing income (loss) per share:
Basic		16,356			20,856			16,468			20,879
Diluted		16,356			20,856			16,468			20,879

See Notes to Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – In thousands)

	*Six Months Ended June 30,*
	*2022*			*2021*
Cash Flows from Operating Activities:
Net cash used in operating activities	$	(2,099	)	$	(4,734	)
Cash Flows from Investing Activities:
Proceeds from sales of ownership interests		485			13,151
Advances and loans to ownership interests		(3,400	)		(1,000	)
Net cash (used in) provided by investing activities		(2,915	)		12,151
Cash Flows from Financing Activities:
Repurchases of Company common stock		(1,723	)		(1,588	)
Tax withholdings related to equity-based awards		(492	)		(100	)
Net cash used in financing activities		(2,215	)		(1,688	)
Net change in cash, cash equivalents and restricted cash		(7,229	)		5,729
Cash, cash equivalents and restricted cash at beginning of period		24,764			15,601
Cash, cash equivalents and restricted cash at end of period	$	17,535		$	21,330

See Notes to Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited – In thousands, except share data)

				*Accumulated*			*Accumulated Other*			*Common Stock*				*Additional Paid-in*			*Treasury Stock*
	*Total*			*Deficit*			*Comprehensive Loss*			*Shares*		*Amount*		*Capital*			*Shares*			*Amount*
Balance - December 31, 2021	$	50,566		$	(709,635	)	$	(25	)		21,573	$	2,157	$	806,638			5,068		$	(48,569	)
Net loss		(6,709	)		(6,709	)		—			—		—		—			—			—
Repurchases of common stock		(779	)		—			—			—		—		—			148			(779	)
Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net		303			—			—			—		—		(1,019	)		(122	)		1,322
Stock-based compensation expense		168			—			—			—		—		168			—			—
Balance - March 31, 2022	$	43,549		$	(716,344	)	$	(25	)		21,573	$	2,157	$	805,787			5,094		$	(48,026	)
Net income		483			483			—			—		—		—			—			—
Repurchases of common stock		(945	)		—			—			—		—		—			221			(945	)
Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net		65			—			—			—		—		(489	)		(54	)		554
Stock-based compensation expense		143			—			—			—		—		143			—			—
Balance - June 30, 2022	$	43,295		$	(715,861	)	$	(25	)		21,573	$	2,157	$	805,441			5,261		$	(48,417	)

See Notes to Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited – In thousands)

				*Accumulated*			*Accumulated Other*			*Common Stock*				*Additional Paid-in*			*Treasury Stock*
	*Total*			*Deficit*			*Comprehensive Loss*			*Shares*		*Amount*		*Capital*			*Shares*			*Amount*
Balance - December 31, 2020	$	62,875		$	(736,639	)	$	(25	)		21,573	$	2,157	$	807,582			688		$	(10,200	)
Net income		17,625			17,625			—			—		—		—			—			—
Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net		370			—			—			—		—		(593	)		(58	)		963
Stock-based compensation expense		122			—			—			—		—		122			—			—
Balance - March 31, 2021	$	80,992		$	(719,014	)	$	(25	)		21,573	$	2,157	$	807,111			630		$	(9,237	)
Net loss		(320	)		(320	)		—			—		—		—			—			—
Repurchases of common stock		(1,588	)		—			—			—		—		—			229			(1,588	)
Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net		137			—			—			—		—		(839	)		(73	)		976
Stock-based compensation expense		175			—			—			—		—		175			—			—
Balance - June 30, 2021	$	79,396		$	(719,334	)	$	(25	)		21,573	$	2,157	$	806,447			786		$	(9,849	)

See Notes to Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. General

The accompanying unaudited interim Consolidated Financial Statements of Safeguard Scientifics, Inc. (“Safeguard” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America and the interim financial statement rules and regulations of the SEC. In the opinion of management, these statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Consolidated Financial Statements. The interim operating results are not necessarily indicative of the results for a full year or for any interim period. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The Consolidated Financial Statements included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-Q and with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s 2021 Annual Report on Form 10-K.

Liquidity

As of June 30, 2022 the Company had $17.5 million of cash and cash equivalents.

In January 2018, Safeguard ceased deploying capital into new opportunities in order to focus on supporting the existing ownership interests and maximizing monetization opportunities to enable returning value to shareholders. We have considered and taken action on various initiatives including the sale of individual ownership interests, the sale of certain or all ownership interests in secondary market transactions as well as other opportunities to maximize shareholder value. As we seek to provide additional funding to existing companies where we have an ownership interest, we may be required to expend our cash or incur debt, which will decrease our liquidity. From time to time, we are engaged in discussions concerning acquisitions and dispositions which, if consummated, could impact our liquidity, perhaps significantly. Accordingly, the Company could also pursue other sources of capital in order to maintain its liquidity.

The Company believes that its cash and cash equivalents at June 30, 2022 will be sufficient to fund operations past one year from the issuance of these Consolidated Financial Statements.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Principles of Accounting for Ownership Interests

The Company accounts for its ownership interests using one of the following methods: Equity or Other. 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 securities, the Company also periodically makes advances to its companies in the form of promissory notes which are included in the Ownership interests and advances on the Consolidated Balance Sheets.

Equity Method. The Company accounts for ownership interests 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 an ownership interest depends on the evaluation of several factors including, among others, representation on the board of directors and our ownership level, which is generally a 20% to 50% interest in the voting securities of a company, including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. The Company records the initial ownership interest at cost. Under the equity method of accounting, the Company does not reflect a company’s financial statements within our Consolidated Financial Statements; however, our share of the income or loss of such company is reflected in Equity income (loss), net in the Consolidated Statements of Operations. The Company also adjusts the carrying value to reflect third party investments in the ownership interests, which typically result in a dilution gain. The Company includes the carrying value of equity method companies in Ownership interests and advances on the Consolidated Balance Sheets. Any excess of the Company’s cost over its underlying interest in the net assets of equity method 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 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 companies.

When the Company’s carrying value in an equity method 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 company. If such equity method 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.

Other Method. We account for ownership interests in companies that are not accounted for under the equity method that do not have a readily determinable fair value under the fair value measurement alternative. Under the fair value measurement alternative, these ownership interests are based on our original cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar interest of the same issuer. Under this method, our share of the income or losses of such companies is not included in our Consolidated Statements of Operations, however, the result of observable price changes, if any, are reflected in Other income (loss), net. We include the carrying value of these interests in Ownership interests and advances on the Consolidated Balance Sheets.

The Company accounts for ownership interests that are not accounted for under the equity method and have a readily determinable fair value at fair value based on the closing stock price on the last trading day of the reporting period. As of June 30, 2022 those ownership interests consist of approximately 1.3 million shares of Bright Health Group ("Bright Health") common shares valued at $2.4 million.

Comprehensive Income (loss)

During the quarter and six month periods ended June 30, 2022 and 2021, there were no items of comprehensive income (loss).

Impairment of Ownership Interests and Advances

On a periodic basis, but no less frequently than quarterly, the Company evaluates the carrying value of its ownership interests and advances for possible impairment based on achievement of business plan objectives and milestones, the estimated fair value of each company relative to its carrying value, the financial condition and prospects of the 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 estimated fair value.

The estimated 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 companies are included in Equity income (loss), net in the Consolidated Statements of Operations. Impairment charges related to non-equity method companies are included in Other income (loss), net in the Consolidated Statements of Operations.

The reduced cost basis of a previously impaired company accounted for using the Equity method is not written-up even if circumstances suggest the value of the company has subsequently recovered.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Ownership Interests and Advances

The following summarizes the carrying value of the Company’s ownership interests and advances.

	*June 30, 2022*		*December 31, 2021*
	(Unaudited - In thousands)
Equity Method:
Companies	$	18,738	$	21,091
Private equity funds		117		117
		18,855		21,208
Other Method:
Companies, fair value		2,407		4,549
Companies, fair value measurement alternative		687		514
Private equity funds, fair value measurement alternative		250		250
		3,344		5,313
Advances to companies		3,400		—
	$	25,599	$	26,521

There were no impairments recorded during the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, the Company recorded impairment of $2.5 million related to reduced expectations for certain Other ownership interests, which is reflected in Other income (loss) in the consolidated Statement of Operations.

As of June 30, 2022, the Company held ownership interests accounted for using the equity method in 9 non-consolidated companies. Certain of the Company's ownership interests as of June 30, 2022 included the following:

Company Name	*Safeguard Primary Ownership as of June 30, 2022*	*Accounting Method*
Aktana, Inc.	13.4%	Equity
Clutch Holdings, Inc.	41.7%	Equity
InfoBionic, Inc.	25.2%	Equity
Lumesis, Inc.	43.2%	Equity
meQuilibrium	31.5%	Equity
Moxe Health Corporation	19.4%	Equity
Prognos Health Inc.	28.5%	Equity
Syapse, Inc.	11.0%	Equity
Trice Medical, Inc.	12.6%	Equity

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summarized Financial Information

The following table summarizes the statement of operations data for the companies accounted for under the equity method for the three and six months ended June 30, 2022 and 2021, respectively. These results have been compiled from the respective companies' financial statements, reflect certain historical adjustments, and are reported on a one quarter lag basis. Results of operations of the companies are excluded for periods prior to their acquisition, subsequent to their disposition and subsequent to the discontinuation of the equity method of accounting. Historical results are not adjusted when the Company exits, writes-off or discontinues the equity method of accounting.

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2022*			*2021*			*2022*			*2021*
	(Unaudited - In thousands)
Results of Operations:
Revenue	$	36,479		$	30,482		$	75,290		$	70,650
Gross profit	$	22,653		$	17,873		$	47,573		$	46,101
Net loss	$	(34,325	)	$	(28,681	)	$	(65,187	)	$	(51,702	)

3. Acquisitions of Ownership Interests

The following is a summary of additional deployments during the six month period ended June 30, 2022:

The Company funded $2.0 million of convertible loans to Prognos Health Inc. The Company had previously deployed an aggregate of $12.6 million. Prognos is a healthcare platform company transforming the ability to access, manage and analyze healthcare data in partnership with Life Sciences brands, payers, and clinical diagnostics organizations. Prognos' innovations enhance the value of laboratory results and clinical diagnostic data through advanced analytics and artificial intelligence techniques.

The Company funded $1.4 million of convertible loans to Clutch Holdings, Inc. The Company had previously deployed an aggregate of $16.9 million. Clutch provides customer intelligence and personalized engagements that empower consumer-focused businesses to identify, understand and motivate each segment of their customer base.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 or liabilities (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.

Cash, cash equivalents and restricted cash approximate fair value due to their short term nature. The Company did not have any Level 2 or Level 3 financial assets or liabilities measured at fair value on a recurring basis as of June 30, 2022 or December 31, 2021.

	*Carrying*		*Fair Value Measurement at June 30, 2022*
	*Value*		*Level 1*		*Level 2*		*Level 3*
	(Unaudited - In thousands)
Cash and cash equivalents	$	17,510	$	17,510	$	—	$	—

Restricted cash	$	25	$	25	$	—	$	—

Ownership interests	$	2,407	$	2,407	$	—	$	—

	*Carrying*		*Fair Value Measurement at December 31, 2021*
	*Value*		*Level 1*		*Level 2*		*Level 3*
	(Unaudited - In thousands)
Cash and cash equivalents	$	24,739	$	24,739	$	—	$	—

Restricted cash	$	25	$	25	$	—	$	—

Ownership interests	$	4,549	$	4,549	$	—	$	—

Ownership interests accounted for at fair value as of June 30, 2022 consist of approximately 1.3 million common shares of Bright Health. The securities are carried at fair value based on the closing stock price on the last trading day of the reporting period.

5. Stock-Based Compensation

Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows:

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2022*		*2021*		*2022*		*2021*
	(Unaudited - In thousands)
General and administrative expense	$	262	$	740	$	576	$	985
	$	262	$	740	$	576	$	985

Stock-based compensation consists of time based awards to employees, liability based awards to employees to be settled in stock, performance based awards to employees, other non-employee grants and liability based awards to Directors for quarterly and annual services. During the six months ended June 30, 2022 and 2021, the Company awarded 25 thousand and 64 thousand restricted stock awards, respectively to non-employee directors for compensation. The Company also issued 162 thousand shares for employee services and 15 thousand shares for non-employee services during the three months ended June 30, 2022, respectively, based on the terms of service agreements.

6. Income Taxes

The Company recorded no consolidated income tax benefit (expense) for the three and six months ended June 30, 2022 and 2021. The Company has recorded a valuation allowance to reduce its net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the tax provision that would have been recognized in the three and six months ended June 30, 2022 was offset by changes in the valuation allowance. During the three and six months ended June 30, 2022, the Company had no material changes in uncertain tax positions.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Net Income (Loss) Per Share

The calculations of net income (loss) per share were as follows:

	*Three Months Ended June 30,*					*Six Months Ended June 30,*
	*2022*		*2021*			*2022*			*2021*
	(Unaudited - In thousands, except per share data)
Basic:
Net income (loss)	$	483	$	(320	)	$	(6,226	)	$	17,305
Weighted average common shares outstanding		16,356		20,856			16,468			20,879
Net income (loss) per share	$	0.03	$	(0.02	)	$	(0.38	)	$	0.83

Diluted:
Net income (loss) for dilutive share computation	$	483	$	(320	)	$	(6,226	)	$	17,305

Number of shares used in basic per share computation		16,356		20,856			16,468			20,879
Unvested restricted stock and DSU's		—		—			—			—
Employee stock options		—		—			—			—
Weighted average common shares outstanding		16,356		20,856			16,468			20,879

Net income (loss) per dilutive share	$	0.03	$	(0.02	)	$	(0.38	)	$	0.83

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 an equity method company has dilutive stock options, unvested restricted stock, DSUs or warrants, diluted net income (loss) per share is computed by first deducting the income attributable to the potential exercise of the dilutive securities of the 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 earnings per share 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 June 30, 2022 and 2021, options to purchase 18 thousand and 43 thousand shares of common stock, respectively, at prices ranging from $10.37 to $17.11 and $10.37 to $17.11, respectively, were excluded from the calculations.


	•	At June 30, 2022 and 2021, unvested restricted stock and performance-based stock units convertible into 0.1 million and 0.3 million shares of stock, respectively, were excluded from the calculations.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Segment Reporting

The Company operates as one operating segment based upon the similar nature of its technology-driven companies, the functional alignment of the organizational structure, and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.

As of June 30, 2022 and December 31, 2021, all of the Company’s assets were located in the United States.

SAFEGUARD SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Commitments and Contingencies

In March 2019, the Company entered into a sublease of its prior corporate headquarters office space beginning in June 2019. The term of the sublease is through April 2026, the same as the Company's underlying lease. Fixed sublease payments to the Company are escalating over the term of the sublease and are reported as a component of general and administrative expenses.

A summary of the Company's operating lease cash flows at June 30, 2022 follows:

	*Operating lease payments*			*Expected sublease receipts*
	(Unaudited - In thousands)
2022 (six months ending December 31)	$	302		$	273
2023		607			557
2024		613			573
2025		619			590
2026		207			199
2027		—			—
Thereafter		—			—
Total future minimum lease payments		2,348		$	2,192
Less imputed interest		(476	)
Total operating lease liabilities	$	1,872

The Company and the companies in which it holds ownership interests are involved in various claims and legal actions arising in the ordinary course of business. In the current opinion of the Company, it is not reasonably possible that the ultimate disposition of these matters will 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 companies. The Company records costs associated with legal fees as such services are rendered.

The Company has provided a guarantee, which is fully funded by escrowed funds held by a third party, of $3.8 million at June 30, 2022 which related to one of the Company's private equity fund interests.

In 2018, the Board of Directors (the “Board”) of the Company adopted a long-term incentive plan, which was amended in February 2019 and June 2020, known as the Amended and Restated Safeguard Scientifics Transaction Bonus Plan, (the “LTIP”). The purpose of the LTIP is to promote the interests of the Company and its shareholders by providing an additional incentive to employees to maximize the value of the Company in connection with the execution of the business strategy that the Company adopted and announced in January 2018. The June 2020 amendment lowered the level of the first threshold and the resulting bonus pool percentage as an incentive to employees to accelerate actions consisent with the business strategy. Under the LTIP, participants, which include certain current and former employees, have received awards that may result in cash payments in connection with sales of the Company’s ownership interests (“Sale Transaction(s)”). The LTIP provides for a bonus pool corresponding to certain specified vesting thresholds (some of which have already been met and paid) or specified events. The remaining bonus pool will range from an amount equal to 1.0% of incremental proceeds received at the next threshold to 1.3% at higher thresholds. A minimum pool will also be created and paid under specified events. The bonus pool will be allocated and paid to participants in the LTIP based on the product of (i) the participant’s applicable bonus pool percentage and (ii) the bonus pool calculated as of the vesting date, minus any previously paid portion of the bonus pool. Any portion of the bonus pool available as of the applicable vesting date that is reserved will be allocated in connection with each vesting date so that the entire bonus pool available as of such vesting date is allocated and payable to participants. Subject to the terms of the LTIP, payments under the LTIP will be paid in cash within 60 days of the applicable vesting date. All current officers and employees of the Company are eligible to participate in the LTIP. The Board, in its sole discretion, will determine the participants to whom awards are granted under the LTIP. The Company did not make any payments during the six months ended June 30, 2022 and has no amounts accrued as of June 30, 2022.

The Company has agreements with certain remaining 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 employment and severance agreements for remaining employees was approximately $0.8 million at June 30, 2022.

In June 2011, the Company's former ownership interest, Advanced BioHealing, Inc. (“ABH”) was acquired by Shire plc (“Shire”). Prior to the expiration of the escrow period in March 2012, Shire filed a claim against all amounts held in escrow related to the sale based principally upon a United States Department of Justice (“DOJ”) false claims act investigation relating to ABH (the “Investigation”). In connection with the Investigation, in July 2015 the Company received a Civil Investigation Demand-Documentary Material (“CID”) from the DOJ regarding ABH and Safeguard’s relationship with ABH. Pursuant to the CID, the Company provided the requested materials and information. To the Company’s knowledge, the CID was related to multiple qui tam (“whistleblower”) actions, one of which was filed in 2014 by an ex-employee of ABH that named the Company and one of the Company’s employees along with other entities and individuals as defendants. At this time, the DOJ has declined to pursue the qui tam action as it relates to the Company and such Company employee.

10. Equity

In July 2015, 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. The Company has not repurchased any shares under such authorization during 2021 or the six months ended June 30, 2022.

In March 2022, the Company's Board of Directors replaced a previously existing share repurchase plan that was authorized in May 2021 with a newly authorized $3.0 million share repurchase plan using existing funds in accordance with the requirements of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the six months ended June 30, 2022, the Company repurchased 369,274 shares for an aggregate price of $1.7 million at an average cost at $4.67 per share pursuant to this plan.

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

Cautionary Note Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 ownership interests may vary from period to period, our substantial capital requirements and absence of liquidity from our holdings, fluctuations in the market prices of our publicly traded holdings, competition, our inability to obtain maximum value for our ownership interests, or at all, and the return of value to our shareholders, our ability to attract and retain qualified employees, our ability to execute our strategy, market valuations in sectors in which our ownership interests operate, our inability to control our ownership interests, our need to manage our assets to avoid registration under the Investment Company Act of 1940, and risks associated with our ownership interests and their performance, including the fact that most of our ownership interests 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 Safeguard's ownership interests operate, including the impact of COVID-19, compliance with government regulation and legal liabilities, all of which are discussed in Item 1A. “Risk Factors” in Safeguard's Annual Report on Form 10-K and updated, as applicable, in “Factors that May Affect Future Results” and Item 1A. “Risk Factors” below. 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.

Business Overview

Over the recent past, Safeguard has provided capital and relevant expertise to fuel the growth of technology-driven businesses. In many, but not all cases, we are actively involved, influencing development through board representation and management support, in addition to the influence we exert through our equity ownership. We also continue to 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, those ownership interests relate to residual interests from prior larger interests or from companies that acquired companies in which we had ownership interests.

In January 2018, Safeguard ceased deploying capital into new opportunities in order to focus on supporting the existing ownership interests and maximizing monetization opportunities to enable returning value to shareholders. We have considered and taken action on various initiatives including the sale of individual ownership interests, the sale of certain or all ownership interests in secondary market transactions as well as other opportunities to maximize shareholder value. In December 2019, we declared and paid a $1.00 per share special dividend. In 2021, we repurchased 4.5 million shares through a combination of open market purchases and a tender offer for an aggregate of $40.7 million resulting in an average price of $8.95 per share. We will continue to actively work with our ownership interests to seek monetization opportunities while we also evaluate additional strategic alternatives. These strategic alternatives could include the sale of all of our ownership interests in a single transaction or a series of transactions, merger, business combinations or other strategic transactions.

Results of Operations

We operate as one operating segment based upon the similar nature of our technology-driven companies, the functional alignment of the organizational structure, and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.

There is intense competition in the markets in which our 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.

The following is a listing of certain of our ownership interests as of June 30, 2022 and 2021, respectively. The ownership percentages indicated below are presented as of June 30, 2022 for certain companies in which we held ownership interests 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).

	Safeguard Primary Ownership as of June 30,
Company Name	2022	2021	Accounting Method
Aktana, Inc.	13.4%	15.0%	Equity
Clutch Holdings, Inc.	41.7%	41.8%	Equity
InfoBionic, Inc.	25.2%	25.2%	Equity
Lumesis, Inc.	43.2%	43.4%	Equity
meQuilibrium	31.5%	32.0%	Equity
Moxe Health Corporation	19.4%	27.6%	Equity
Prognos Health Inc.	28.5%	28.5%	Equity
Syapse, Inc.	11.0%	11.1%	Equity
Trice Medical, Inc.	12.6%	16.6%	Equity

Three months ended June 30, 2022 versus the three months ended June 30, 2021

	Three Months Ended June 30,
	2022			2021			Variance
	(In thousands)
General and administrative expense	$	(1,146	)	$	(1,991	)	$	845
Other income (loss), net		30			6,733			(6,703	)
Interest income		145			74			71
Equity income (loss), net		1,454			(5,136	)		6,590
	$	483		$	(320	)	$	803

General and Administrative Expense. Our general and administrative expenses consist primarily of employee compensation, stock based compensation, insurance, office costs, and professional services. General and administrative expense decreased for the three months ended June 30, 2022 as compared to the prior year quarter due to lower employee compensation of $0.3 million, lower insurance costs of $0.1 million and various other lower costs. General and administrative expense includes stock based compensation of $0.3 million for the three months ended June 30, 2022 as compared to $0.7 million in the comparable prior year quarter. General and administrative expenses for the three months ended June 30, 2021 included $0.3 million estimated for the Transaction Bonus Plan (the "LTIP"), which is a component of employee compensation. There was no expense recognized pursuant to the LTIP for the three month period ended June 30, 2022. The Company did not make any payments during the quarter.

Other Income (loss), net. Other income (loss), net decreased $6.7 million for the three months ended June 30, 2022 compared to the prior year quarter. During the three months ended June 30, 2022, the Company recorded an unrealized loss of $0.1 million related to the decline in the fair value of Bright Health common stock that was offset by a non-cash gain at an Other ownership interest. During the three months ended June 30, 2021, the Company recorded an unrealized gain of $7.4 million related to the observable price change and additional price movements in Bright Health common stock resulting from the initial public offering and subsequent trading activity. The Company also recorded a $1.8 million gain resulting from the acquisition of Velano Vascular by another entity during the quarter. During the period ended June 30, 2021, the Company recorded an impairment of $2.5 million related to reduced expectation for certain Other ownership interests.

Interest Income. Interest income increased during the three months ended June 30, 2022 as compared to the prior year period primarily attributable to a higher average balance of advances to ownership interests.

Equity Income (loss), net. Equity income (loss), net increased $6.6 million for the three months ended June 30, 2022 compared to the prior year period. The components of equity income (loss), net for the three months ended June 30, 2022 and 2021 were as follows:

	Three Months Ended June 30,
	2022			2021			Variance
	(In thousands)
Gains on sales of ownership interests, net	$	88		$	280		$	(192	)
Unrealized dilution gains		5,285			—			5,285
Share of loss of our equity method companies, net		(3,919	)		(5,416	)		1,497
	$	1,454		$	(5,136	)	$	6,590

There were no material gains on sales of ownership interests, net, from ownership interests accounted for under the equity method during the three months ended June 30, 2022 and 2021. The unrealized dilution gains for the three months ended June 30, 2022 was the result of Moxe Health, who raised additional equity capital that diluted the Company's interest. The change in our share of loss of our equity method companies for the three months ended June 30, 2022 compared to the prior year period of $1.5 million was due to less companies in 2022 and a decrease in losses associated with our ownership interests.

Six months ended June 30, 2022 versus the six months ended June 30, 2021

	Six Months Ended June 30,
	2022			2021			Variance
	(In thousands)
General and administrative expense	$	(2,380	)	$	(4,454	)	$	2,074
Other income (loss), net		(1,967	)		7,439			(9,406	)
Interest income		246			127			119
Equity income (loss), net		(2,125	)		14,193			(16,318	)
	$	(6,226	)	$	17,305		$	(23,531	)

General and Administrative Expense. Our general and administrative expenses consist primarily of employee compensation, stock based compensation, insurance, office costs, and professional services. General and administrative expense decreased for the six months ended June 30, 2022 as compared to the prior year quarter due to lower severance costs of $0.8 million, lower employee compensation of $0.8 million, lower insurance costs of $0.2 million and various other lower costs. General and administrative expense includes stock based compensation of $0.6 million for the six months ended June 30, 2022 as compared to $1.0 million in the comparable prior year quarter. General and administrative expenses for the six months ended June 30, 2021 included $0.5 million estimated for the Transaction Bonus Plan (the "LTIP"), which is a component of employee compensation. There was no expense recognized pursuant to the LTIP for the six month period ended June 30, 2022. The Company did not make any payments during the quarter.

Other Income (loss), net. Other income (loss), net decreased $9.4 million for the six months ended June 30, 2022 compared to the prior year quarter. During the six months ended June 30, 2022, the Company recorded an unrealized loss of $2.1 million related to the decline in the fair value of Bright Health common stock. During the six months ended June 30, 2021, the Company recorded an unrealized gain of $7.4 million related to the observable price change and additional price movements in Bright Health common stock resulting from the initial public offering and subsequent trading activity. The Company also recorded a $1.8 million gain resulting from the acquisition of Velano Vascular and $0.7 million from the acquisition of T-Rex by other entities. During the six months ended June 30, 2021, the Company recorded an impairment of $2.5 million related to reduced expectations for certain Other ownership interests.

Interest Income. Interest income increased during the six months ended June 30, 2022 as compared to the prior year period primarily attributable to a higher average balance of advances to ownership interests.

Equity Income (loss), net. Equity income (loss), net decreased $16.3.million for the six months ended June 30, 2022 compared to the prior year period. The components of equity income (loss), net for the six months ended June 30, 2022 and 2021 were as follows:

	Six Months Ended June 30,
	2022			2021			Variance
	(In thousands)
Gains on sales of ownership interests	$	386		$	16,788		$	(16,402	)
Unrealized dilution gains		5,285			7,302			(2,017	)
Share of loss of our equity method companies, net		(7,796	)		(9,897	)		2,101
	$	(2,125	)	$	14,193		$	(16,318	)

There were no material gains on sales of ownership interests, net, or impairments from ownership interests accounted for under the equity method during the six months ended June 30, 2022 and 2021 The Company recorded a gain of $17.0 million during the six months ended June 30, 2021 with respect to the Zipnosis transaction where the Company received $3.3 million in cash proceeds and $15.3 million in preferred equity in Bright Health. The unrealized dilution gains for the six months ended June 30, 2022 was the result of Moxe Health, who raised additional equity capital that diluted the Company's interest. The unrealized dilution gains for the six months ended June 30, 2021 was the result of Syapse, who raised additional equity capital that diluted the Company's interest. The change in our share of loss of our equity method companies for the six months ended June 30, 2022 compared to the prior year period of $2.1 million was due to less companies in 2022 and a decrease in losses associated with our ownership interests.

Income Tax Benefit (Expense)

Income tax benefit (expense) was $0.0 million for the three and six months ended June 30, 2022 and 2021. 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 provision that would have been recognized in the six months ended June 30, 2022 and 2021 was offset by changes in the valuation allowance.

Liquidity and Capital Resources

As of June 30, 2022, we had $17.5 million of cash and cash equivalents.

In January 2018, Safeguard announced that we will not deploy any capital into new opportunities and will focus on supporting our existing ownership interests and maximizing monetization opportunities to return value to shareholders. In that context, we have, are and will consider initiatives including, among others: the sale of individual ownership interests, the sale of certain ownership interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value.

In 2015, the Company's Board of Directors authorized us, 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, 2021 and the six months ended June 30, 2022, we did not repurchase any shares under this authorization. In March 2022, the Company's Board of Directors replaced a previously existing share repurchase plan that was authorized in May 2021 with a newly authorized $3.0 million share repurchase plan using existing funds in accordance with the requirements of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company purchased 369,274 shares for an aggregate price of $1.7 million at an average cost at $4.67 per share pursuant to this plan.

Our ability to generate liquidity from transactions involving our ownership interests has been adversely affected from time to time by adverse circumstances in the U.S. capital markets and other factors, including the impact of COVID-19. We may be requested to provide additional capital to our companies, which may cause us to face liquidity issues that will constrain our ability to execute our business strategy and limit our ability to provide financial support to all of our existing companies in the amounts that we desire. 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 provide additional funding to existing companies where we have an ownership interest 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 our ownership interests, 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. Accordingly, the Company could also pursue other sources of capital in order to maintain its liquidity. The Company believes that its cash and cash equivalents at June 30, 2022 will be sufficient to fund operations past one year from the issuance of these financial statements.

Analysis of Consolidated Cash Flows

Cash flow activity was as follows:

	Six Months Ended June 30,
	2022			2021			Variance
	(In thousands)
Net cash used in operating activities	$	(2,099	)	$	(4,734	)	$	2,635
Net cash (used in) provided by investing activities		(2,915	)		12,151			(15,066	)
Net cash used in financing activities		(2,215	)		(1,688	)		(527	)
	$	(7,229	)	$	5,729		$	(12,958	)

Net Cash Used In Operating Activities

Net cash used in operating activities decreased by $2.6 million for the six months ended June 30, 2022 compared to the prior year period. The activity during the six months ended June 30, 2022 was primarily the result of various non-cash adjustments to net loss, including $2.1 million of equity loss and a $2.1 million unrealized loss on the decrease in fair value of Bright Health common stock. The activity during the six months ended June 30, 2021 was primarily the result of various non-cash adjustments to net income, including $14.2 million of equity income.

Net Cash (Used in) Provided by Investing Activities

Net cash (used in) provided by investing activities decreased by $15.1 million for the six months ended June 30, 2022 compared to the prior year period. During the six months ended June 30, 2022, the Company funded an aggregate of $3.4 million to Prognos Health and Clutch Holdings as compared $1.0 million funded to Trice Medical during the six months ended June 30, 2021. The Company also received an aggregate of $13.2 million of cash proceeds from the WebLinc, Zipnosis, T-REX and Velano Vascular transactions during the six months ended June 30, 2021.

Net Cash Used In Financing Activities

Net cash used in financing activities increased by $0.5 million for the six months ended June 30, 2022 compared to the prior year. The increase was primarily the result of $1.7 million in repurchases of our common stock.

Contractual Cash Obligations and Other Commercial Commitments

The following table summarizes our contractual obligations and other commercial commitments as of June 30, 2022, by period due or expiration of the commitment.

	Payments Due by Period
	Total		2022 (remainder)		2023 and 2024		2025 and 2026		After 2026
	(In millions)
Contractual Cash Obligations:
Operating leases (a)	$	2.3		0.3		1.2		0.8		—
Total Contractual Cash Obligations (b)	$	2.3	$	0.3	$	1.2	$	0.8	$	—

(a)

In 2015, we entered into an agreement for the lease of our former principal executive offices which expires in April 2026. In March 2019, we entered into a sublease for these offices which is expected to result in future aggregate sublease receipts of $2.2 million through April 2026.

(b)

The maximum aggregate exposure under employment and severance agreements for remaining employees was approximately $0.8 million at June 30, 2022 (not reflected in the table above).

Factors That May Affect Future Results

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 ability to obtain value from our companies and the return of such value to our shareholders are subject to factors beyond our control.

In January 2018, we announced that we will not deploy any capital into new companies. We will instead focus on supporting, and maximizing monetization opportunities for, our existing company interests to return value to shareholders. In that context, we have considered and continue to consider monetization initiatives including, among others: the sale of our ownership interests, the sale of certain or all ownership interests in secondary market transactions, or a combination thereof, the sale of all of our ownership interests in a single transaction or a series of transactions, business combinations and other strategic transactions as well as other opportunities to maximize shareholder value. However, this strategic plan may require providing additional capital and operational support to such existing companies and we may not be able to complete any such transaction during any specific time frame or otherwise on desirable terms, if at all, and there can be no assurance as to how long this process will take or the results that this process will yield. In addition, there can be no assurance that any exploration of a strategic transaction will result in any strategic change or outcome and disclosure of any developments related to such exploration may not be disclosed until required. Further, if one or more transactions are completed, there can be no assurance as to whether we will realize the value of escrowed proceeds, holdbacks or other contingent consideration, if any, associated with such transaction. Additionally, there can be no assurance that we will be able to satisfy our liabilities during this process. The method, timing and amount of any return of value resulting from such a transaction will also be at the discretion of our Board of Directors and may depend on market and business conditions and our overall liabilities, capital structure and liquidity position.

A disposition of one or more of our company interests may occur at a time that will yield less value than if we held such interests for a longer period of time.

Our companies are at various stages in their lifecycles. The value of our interests in our companies at any point in time is highly dependent on the progress and success such companies have made at such time with respect to the development and marketing of their products and services and that value may fluctuate significantly. In order to effect our strategy of monetizing our interests in our companies, we may dispose of such interests at a time prior to the applicable company reaching its maximum value. Doing so will result in a return of value to shareholders that is less than that which may have been returned if we retained our interests in such company for a longer period of time.

The effects of the COVID-19 pandemic may adversely affect the businesses, financial conditions and operating results of the companies in which we have an ownership interest, as well as our ability to monetize such interests, and it may also cause us to increase the amount of additional capital we will need to provide to such companies.

To varying degrees, the economic and market conditions caused by the COVID-19 pandemic have negatively impacted, and continue to negatively impact, the companies in which we have ownership interests, including, without limitation, their operations, supply chains, sales infrastructures and the demand for their products and services. This is negatively affecting their businesses, financial conditions and operating results. As a result, we may be required to provide additional capital to certain companies, which may cause us to face liquidity issues that will constrain our ability to execute our business strategy and limit our ability to provide financial support to all of our existing companies in the amounts that we desire. The COVID-19 pandemic is also impacting the mergers and acquisitions market for certain companies, which in some cases has resulted in lower valuation expectations and extended exit timelines for such companies. This, in turn, could negatively affect the amount and timing of the monetization opportunities for such companies and our ability to return value to shareholders.

Our principal business strategy depends upon our ability to make good decisions regarding the deployment of capital into, and subsequent disposition of, our existing company interests and, ultimately, the performance of such companies, which is uncertain.

If we make poor decisions regarding the deployment of capital into, and subsequent disposition of, our existing companies, our business strategy will not succeed. If such 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 companies include:

•	most of our companies have a history of operating losses and/or limited operating history;

•	the intense competition affecting the products and services our 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 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;

SEC Form 10-Q filed by Safeguard Scientifics Inc. New