SFES

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 In addition, the formal strategic process that we undertook through 2023 is no longer in effect and there can be no assurance that any future exploration of a strategic transaction will result in any strategic change or outcome and disclosure of any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 strategic or other transactions are identified and completed, we may be required to retain or reinvest additional amounts of our capital as part of such transaction. There can also be no assurance as to whether we will realize the value of escrowed proceeds, holdbacks or other contingent consideration, if any, associated with any transaction. Additionally, there can be no assurance that we will be able to satisfy our liabilities during this process of supporting, and maximizing monetization opportunities for, our existing company interests to return value to shareholders. The method, timing and amount of any return of value to our shareholders 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. This could result in lower exit valuations and/or 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; • 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 companies; and • the inability to plan for and manage catastrophic events. 7 Table of Contents These and other risks are discussed in detail under the caption “Risks Related to Our Companies” below. As we execute against our strategy, a significant amount of our deployed capital may be concentrated in fewer companies. These remaining companies may also operate in the same or similar industries. This will limit our diversification and make us more susceptible to a single negative event. As we execute against our strategy, our capital deployments will be deployed in a decreasing number of companies. Further, our remaining companies could be concentrated in the same or similar industries. Fewer companies, as well as potential industry concentration, may cause us to be more susceptible to any single economic, regulatory or other occurrence affecting a single company or a particular industry than we would have otherwise been if we had a larger number of companies and our companies operated in more diversified industries. Our business model does not rely upon, or plan for, the receipt of operating cash flows from our companies. Our companies do not provide us with 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 fund the capital needs of our existing companies. We also need cash to finance our corporate overhead and meet our existing funding commitments. As a result, we have substantial cash requirements. Our companies do not provide us with cash flow from their operations. To the extent our 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, company liquidity events and new capital raising activities to meet our cash needs. If we are unable to find ways of monetizing our holdings of company interests or raising additional capital on attractive terms, we may face liquidity issues that will require us to constrain our ability to execute our business strategy and limit our ability to provide financial support to our existing companies. 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 most of our companies. If we were to divest all or part of our holdings in a company, we may have to sell our interests at a relative discount to intrinsic value. For 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 company in which we have an interest may be small relative to our holdings. As a result, any significant open-market divestiture by us of our holdings in such a 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 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 company holdings on a timely basis. We are managed by a third-party service provider and our success in executing our strategy is dependent on such service provider. As of December 31, 2023, our then serving Chief Executive Officer and Chief Financial Officer ceased serving us in such capacities, and we engaged Rock Creek Advisors, LLC (“Rock Creek”) to perform certain consulting and advisory services related to our financial and operational functions effective January 1, 2024. An employee of Rock Creek has been serving as our Chief Executive Officer, Chief Financial Officer and Secretary since January 1, 2024. Our success is dependent on Rock Creek’s ability to execute our strategy. If Rock Creek is unable to execute the strategy or elects to terminate the services agreement it entered into with us, which it may do with a 30-day notice to us, our business could experience a material adverse effect. Our business strategy may not be successful if valuations in the market sectors in which our companies participate decline. Our strategy involves creating value for our shareholders by helping our companies build value and, if appropriate, access the public and private capital markets. Therefore, our success is dependent on the value of our companies as determined by the public and private capital markets. Many factors, including reduced market interest, may cause the market value of our companies to decline. If valuations in the market sectors in which our companies participate decline, their access to the public and private capital markets on terms acceptable to them may be limited. Our 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 currently own a significant, influential interest in some of our companies, we do not maintain a controlling interest in any of our companies. Acquisitions of interests in companies in which we share or have no control, and the dilution of our interests in or a further reduction of our control of companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including: • the management teams or other equity or debt holders of our companies having economic or business interests or objectives that are different from ours; and • the companies not taking our advice with respect to the financial or operating issues they may encounter. Our inability to control our 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 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 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 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 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 be limited in the manner or timing in which we sell our interests in a company. Our ownership levels also may be affected if our companies are acquired by third parties or if our 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 companies. 8 Table of Contents Non-performance by the subtenant of our previous office space could adversely affect us. In March 2019, we entered into a sublease of our prior corporate headquarters office space beginning in June 2019. The term of the sublease is through April 2026, the same as our underlying lease. Fixed sublease payments to us are escalating over the term of the sublease. We remain obligated under the original lease for such office space and, in the event the subtenant of such office space fails to satisfy its obligations under the sublease, we would be required to satisfy our obligations directly to the landlord under such original lease. Risks Related to Our Companies Most of our companies have a history of operating losses and/or limited operating history and may never be profitable. Most of our 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 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 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 marketplaces, and we expect competition to intensify in the future. Our business, financial condition, and results of operations will be materially adversely affected if our 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 companies. This may place our companies at a disadvantage in responding to the offerings of their competitors, technological changes or changes in client requirements. Also, our 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 companies may compete against one another. The success or failure of many of our companies is dependent upon the ultimate effectiveness of newly-created technologies, medical devices, healthcare diagnostics, etc. Our companies’ business strategies are often highly dependent upon the successful launch and commercialization of an innovative technology or device, including, without limitation, technologies or devices used in healthcare or digital media. Despite all of our efforts to understand the research and development underlying the innovation or creation of such technologies and devices before we deploy capital into a company, sometimes the performance of the technology or device does not match our expectations or those of such company. In those situations, it is likely that we will incur a partial or total loss of the capital which we deployed in such company. Our companies may fail if they do not adapt to changing marketplaces. If our 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 companies will achieve or maintain market penetration or commercial success, or that the businesses of our companies will be successful. The technology marketplaces 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. Our future success will depend on our 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 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 companies may not be able to respond to the marketplace changes in an economically efficient manner, and our companies may become or remain unprofitable. 9 Table of Contents Our companies may grow rapidly, including through acquisitions of other businesses, and may be unable to manage their growth. We expect some of our companies to grow rapidly, including through acquisitions of other businesses. Such growth often places considerable operational, managerial, integration and financial strain on a business. To successfully manage such growth, our companies must, among other things: • improve, upgrade and expand their business infrastructures; • successfully integrate and operate any newly acquired businesses; • scale up production operations; • develop appropriate financial reporting controls; • attract and retain qualified personnel; and • maintain appropriate levels of liquidity. If our 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. Further, a material weakness in any of our companies’ internal controls over their financial reporting 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. Based on our business model, some or all of our companies will need to raise additional capital to fund their operations at any given time. We may not be able to, or decline to, fund some or all of such amounts and such amounts may not be available from third parties on acceptable terms, if at all. Further, if our companies do raise additional capital from third parties, either debt or equity, such capital may rank senior to, or dilute, our interests in such companies. We cannot be certain that our companies will be able to obtain additional financing on favorable terms when needed, if at all. We may not be able to, or decline to, provide our companies with sufficient capital resources to enable them to reach a cash-flow positive position or a sale of the company. General economic disruptions and downturns may also negatively affect the ability of some of our companies to fund their operations from other stockholders and capital sources. We also may fail to accurately project the capital needs of companies. If our companies need capital, but are not able to raise capital from us or other outside sources, or our companies are unable to service their debt obligations, they may need to, or be forced to, cease or scale back operations. In such event, our interest in any such company will become less valuable. If our companies raise additional capital from third parties, either debt or equity, such capital may be dilutive, making our interests less valuable or if such capital ranks senior to the capital we have deployed, such capital may entitle its holders to receive returns of capital before we are entitled to receive any return of our deployed capital. Also, in the event of any insolvency, liquidation, dissolution, reorganization or bankruptcy of one or more our companies, holders of such company’s instruments that rank senior to our deployed capital will typically be entitled to receive payment in full before we receive any return of our deployed capital. After returning such senior capital, such company may not have any remaining assets to use for returning capital to us, causing us to lose some or all of our deployed capital in such company. Economic disruptions and downturns may negatively affect our companies’ plans and their results of operations. Many of our 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 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 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 companies, including, but not limited to, in the following ways: reduced business and/or consumer spending; and/or systemic changes in the ways the healthcare system operates in the United States. Some of our companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others. Our companies assert various forms of intellectual property protection. Intellectual property may constitute an important part of our companies’ 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 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 companies and the demands of quick delivery of products and services to market, create a risk that our companies’ efforts to prevent misappropriation of their technology will prove inadequate. Some of our 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 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 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 companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our companies will increase and their profits, if any, will decrease. Third parties have and may assert infringement or other intellectual property claims against our companies based on their patents or other intellectual property claims. Even though we believe our 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 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 companies are without merit, defending these types of lawsuits takes significant time, is expensive and may divert management attention from other business concerns. 10 Table of Contents Certain of our companies could face legal liabilities from claims made against their operations, products or work. Because the manufacture and sale of certain company products entail an inherent risk of product liability, certain of our companies maintain product liability insurance. Although none of our current 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 company’s financial stability, revenues and results of operations. In addition, many of the engagements of our companies involve projects that are critical to the operation of their clients’ businesses. If our 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. Our companies’ 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 companies or may not be enforceable. Also, some of our 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 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 companies’ success depends on their ability to attract and retain qualified personnel. Our companies depend upon their ability to attract and retain senior management and key personnel, including trained technical and marketing personnel. Our companies also will need to continue to hire additional personnel as they expand. Although our current 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 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 companies. Manufacturers of 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 companies. If Medicare or private payers change the rates at which our companies or their customers are reimbursed by insurance providers for their products, such changes could adversely impact our companies. Some of our companies may be subject to significant environmental, health, data security and safety regulation. Some of our 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, some of our companies are subject to federal, state and local financial securities and data security regulations, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended, the California Consumer Privacy Act and the European General Data Protection Regulation, which impose varying degrees of additional obligations, costs and risks upon such companies, including the imposition of significant penalties in the event of any non-compliance. Further, 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 companies, and the failure to comply could negatively affect the operations and results of some of our companies. Catastrophic events may disrupt our companies’ businesses. Some of our 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 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 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 companies from fulfilling customer orders or maintaining certain service level requirements, particularly in respect of their SaaS offerings. While certain of our 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 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. Risks Related to an Investment in our Securities 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. 11 Table of Contents We have undertaken actions to effect a “going dark” transaction, including delisting our common stock from trading on The Nasdaq Stock Market LLC (“Nasdaq”), terminating the registration of our common stock under Sections 12(b) and 12(g) of the Exchange Act and suspending our reporting obligations under Section 15(d) of the Exchange Act. On December 15, 2023, our Board approved the voluntarily delisting of our common stock from trading on Nasdaq and the deregistering of our common stock under Section 12(b) of the Exchange Act by filing Form 25 (Notification of Removal From Listing and/or Registration under Section 12(b) of the Exchange Act) with the SEC. We filed Form 25 on February 2, 2024 and our common stock was delisted from trading on Nasdaq effective as of the end of business on February 9, 2024. On February 20, 2024, we filed Form 15 with the SEC certifying that we had less than 300 shareholders of record, in order to terminate the registration of our common stock under Section 12(g) of the Exchange Act and suspend our reporting obligations under Section 15(d) of the Exchange Act. These actions have the following effects: ● Except for filing this Form 10-K, we have ceased filing annual, quarterly, current, and other reports and documents with the SEC, and our shareholders will have significantly less information about us and our business, operations, and financial performance than they previously had. While we currently intend to make financial information available to our shareholders on a voluntary basis, there is no assurance that we will continue to do so in the future. We will continue to hold shareholder meetings as required under Pennsylvania law, including annual meetings, or to take actions by written consent of our shareholders in lieu of meetings as permitted under and in conformity with applicable Pennsylvania law, but we will no longer have to comply with proxy solicitation rules and related disclosure requirements under the Exchange Act. ● We are no longer listed on Nasdaq, which may have an adverse effect on the liquidity of our common stock. Effective February 12, 2024, our common stock qualified to trade on the OTCQX Best Market (the “OTC”). Any trading in our common stock will only occur in privately negotiated sales and on the OTC, but only if one or more brokers chooses to make a market for our common stock on the OTC and complies with applicable regulatory requirements, which may adversely affect the liquidity of our common stock and result in a significantly increased spread between the bid and asked prices of our common stock, and there is no guarantee that a broker will continue to make a market in our common stock and that trading of our common stock will continue on the OTC or otherwise. Additionally, the overall price of our stock may be significantly reduced due to the potential that investors may view the investment as inherently riskier given the fact that publicly available information about us will be significantly more limited, as well as due to possible limited liquidity of our common stock. ● We will no longer be subject to the reporting requirements under the Exchange Act or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act and the listing standards of any national securities exchange. ● Our executive officers, directors and 10% shareholders will no longer be required to file reports relating to their transactions in our common stock with the SEC. In addition, our executive officers, directors and 10% shareholders will no longer be subject to the recovery of profits provision of the Exchange Act, and persons acquiring 5% of our common stock will no longer be required to report their beneficial ownership under the Exchange Act. ● We will have no ability to access the public capital markets or to use public securities in attracting and retaining executives and other employees, and we will have a decreased ability to use stock to acquire other 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 stock price and 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 companies and selling our interests in 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.

Our current corporate headquarters and administrative offices in Radnor, Pennsylvania is approximately 100 square feet of office space in one building. The lease term is month to month. Additionally, we have additional administrative offices located in Radnor, Pennsylvania comprising approximately 15,600 square feet, that have been sublet to an unaffiliated party through April, 2026, the remainder of the lease term.

On June 21, 2023, Hilary Musser filed a complaint in the Court of Common Pleas in Delaware County, Pennsylvania. The lawsuit names the Company, Bonfield VII, Ltd. and Robert E. Keith, a former director of the Company, as defendants.  The lawsuit alleges, among other things, that in the early 2000s, in the midst of divorce proceedings between the claimant and Warren Musser and other litigation involving the Mussers and the Company, the defendants and Mr. Musser acted together to deprive the claimant of certain assets. The claimant is seeking compensatory damages, including interest, costs and punitive and delay damages. We believe that the claims set forth in the complaint are without merit. The final outcome of this matter, however, cannot be predicted with complete certainty, and our failure to successfully defend against these allegations could have a material adverse effect on our business, financial condition and results of operation. We, as well as our companies in which we hold ownership interests, are from time to time 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 any of these matters which are currently pending 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 situations, 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 companies. See Note 11 to the Consolidated Financial Statements for a discussion of ongoing claims and legal actions.

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 ownership interests may vary from period to period, our substantial capital requirements and absence of liquidity from our ownership interests, fluctuations in the market prices of our publicly traded ownership interests, competition, our inability to obtain maximum value for our ownership interests, our ability to attract and retain qualified employees or external managers, our ability to execute our strategy, market valuations in sectors in which our ownership interests operate, our inability to control our ownership interests, the uncertainty of the outcomes of corporate strategic transactions, if any, 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 the companies in which we have an ownership interest 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 they 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 Historically, Safeguard has provided capital and relevant expertise to fuel the growth of technology-driven businesses. Typically, we are actively involved in strategic and operational decisions through our board representation 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 our ownership interests, the sale of certain or all of our 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. In 2022, we repurchased 711,481 shares for $2.9 million at an average price of $4.13 per share through subsequent open market repurchase plans. In December 2023, we declared and paid a $0.35 per share special dividend. On December 15, 2023, Safeguard held a Special Meeting of Shareholders (the "Special Meeting") at which shareholders adopted amendments (the “Amendments”) to the Company's Second Amended and Restated Article of Incorporation, as amended (“Articles of Incorporation”), to effect a reverse stock split, followed immediately by a forward stock split, of the Company's common stock at a ratio (i) not less than 1-for-50 and not greater than 1-for-100, in the case of the reverse stock split, and (ii) not less than 50-for-1 and not greater than 100-for-1, in the case of the forward stock split. Upon the adoption of the Amendments to the Articles of Incorporation at the Special Meeting, on December 15, 2023, the Company’s Board of Directors (the “Board”) determined to effectuate the reverse stock split at the reverse stock split ratio of 1-for-100 and the forward stock split at the forward stock split ratio of 100-for-1 (collectively, “Stock Split Ratios”), which were within the ranges approved by the Company’s shareholders at the Special Meeting. The Company subsequently filed the Amendments to the Articles of Incorporation with the Pennsylvania Department of State to effectuate the stock splits with such Stock Split Ratios. The stock splits had the effect of reducing the number of record holders of the Company’s common stock to a number below 300 (i.e., the level at or above which the Company is required to file reports with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The actions the Company has taken to suspend, and events that occur as a result of such actions that have the effect of suspending, the Company’s reporting obligations under the Exchange Act, including effectuating the stock splits, delisting the Company’s common stock from trading on The Nasdaq Stock Market LLC (“Nasdaq”), as described below, terminating the registration of the Company’s common stock under Sections 12(b) and 12(g) of the Exchange Act and suspending the Company’s reporting obligations under Section 15(d) of the Exchange Act, are collectively referred to as the “Transaction.” The stock splits were undertaken as part of the Company’s plan to give effect to the Transaction. As a result of the Transaction, the Company will no longer be subject to the reporting requirements under the Exchange Act or other requirements applicable to a public company, including requirements under the Sarbanes-Oxley Act of 2002 and the listing standards of any national securities exchange. Safeguard will continue to actively work with our ownership interests to seek monetization opportunities. Principles of Accounting for Ownership Interests We account for our ownership interests using one of the following methods: Equity or Other. 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. 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 an 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. 14 Table of Contents 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 interests 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. Under this method, the changes in fair value are reflected in Other income (loss), net. As of December 31, 2023 there were no ownership interests remaining following this accounting method. 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, the most significant relate to impairment of ownership interests and advances. 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 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. Management then determines whether there has been an other than temporary decline in the company. Impairment is measured as the amount by which the carrying value of an asset exceeds its estimated fair value. The reduced carrying value a previously impaired company accounted for using the Equity method is not increased even if circumstances suggest the value of the company has subsequently recovered. 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, valuations of comparable public companies and valuations of acquisitions of comparable companies. Our 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 and advances 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 other 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 our Ownership interests and advances were as follows: Year Ended December 31, Accounting Method 2023 2022 (In thousands) Equity $ 1,000 $ — Other 173 — Total $ 1,173 $ — Impairment charges related to equity method companies are included in Equity income (loss), net in the Consolidated Statements of Operations. Impairment charges related to other ownership interests are included in Other income (loss), net in the Consolidated Statements of Operations. 15 Table of Contents 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 December 31, 2023 and 2022. The ownership percentages indicated below are presented for certain companies in which we held ownership interests and reflect 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 December 31, Accounting Method as of December 31, Company Name 2023 2022 2023 Clutch Holdings, Inc. 41.7 % 41.7 % Equity InfoBionic, Inc. * 25.2 % Other MedCrypt, Inc. * * Other meQuilibrium 30.2 % 31.3 % Equity Moxe Health Corporation 19.3 % 19.3 % Equity Prognos Health Inc. 19.0 % 28.4 % Equity *minimal ownership interest Year ended December 31, 2023 versus year ended December 31, 2022 Year Ended December 31, 2023 2022 Variance (In thousands) General and administrative expense $ (5,683 ) $ (4,775 ) $ (908 ) Other income (loss), net 2,037 (3,297 ) 5,334 Interest income 903 794 109 Equity income (loss), net (7,085 ) (6,985 ) (100 ) Net (loss) $ (9,828 ) $ (14,263 ) $ 4,435 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 increased $0.9 million, or 19%, for the year ended December 31, 2023 compared to the prior year due to severance expenses of $0.7 million and higher legal and other professional fees of $0.6 million. These increases were partially offset by lower stock based compensation costs of $0.3 million and various other lower costs. General and administrative expense includes stock based compensation expense of $1.1 million and $1.4 million for the years ended December 31, 2023 and 2022, respectively. Stock based compensation continues to include a significant proportion of management's overall compensation, including the settlement of amounts due pursuant to the annual management incentive plan, and Director compensation, which aggregated to $0.3 million and $0.7 million for the years ended December 31, 2023 and 2022, respectively. 16 Table of Contents Other income (loss), net. Other income (loss), net increased by $5.3 million for the year ended December 31, 2023, compared to the prior year. During the year ended December 31, 2023, the primary component was an observable price change of $1.7 million at InfoBionic upon their recapitalization event. The Company also recorded $0.6 million of gains from the collection of uncertain escrow amounts and $0.2 million of impairment related to an Other ownership interest. During the year ended December 31, 2022, the primary component was unrealized losses resulting from the decline in the fair value of BHG common stock of $3.7 million. Interest Income. Interest income increased $0.1 million for the year ended December 31, 2023 compared to the prior year due primarily to higher market interest rates on marketable securities during 2023. Equity Income (Loss), net. Equity income (loss), net fluctuates with the number of companies accounted for under the equity method, our voting ownership percentage in those companies and the net results of operations of those companies. We recognize our share of losses to the extent we have cost basis in the equity of the company or we have outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our companies accounted for under the equity method are based on estimates and on unaudited results of operations of those 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 companies on a one quarter lag basis. Equity income (loss), net decreased $0.1 million for the year ended December 31, 2023 compared to the prior year. The components of equity income (loss), net for the years ended December 31, 2023 and 2022 were as follows: Year Ended December 31, 2023 2022 Variance (In thousands) Gains on sales of ownership interests $ 610 $ 5,627 $ (5,017 ) Unrealized dilution gains 584 5,285 (4,701 ) Loss on impairments (1,000 ) — (1,000 ) Share of losses of our equity method companies, net (7,279 ) (17,897 ) 10,618 $ (7,085 ) $ (6,985 ) $ (100 ) During the year ended December 31, 2023, the gains on sales of ownership interests related entirely to miscellaneous escrow collections. During the year ended December 31, 2022, the gains on sales of ownership interests are primarily related to Lumesis of $4.9 million. The unrealized dilution gains for the year ended December 31, 2023 were a result of Prognos Health, who raised additional equity capital that diluted the Company's interest. The unrealized dilution gains for the year ended December 31, 2022 were related to Moxe, who raised additional equity capital that diluted the Company's interest in those entities. 17 Table of Contents During the year ended December 31, 2023, the Company recorded an impairment of $1.0 million related to the Moxe ownership interest, which is accounted for under the equity method. The impairment was determined based on the decline in the fair value of our ownership interest resulting from lower forward looking revenue expectations. There were no impairments during the year ended December 31, 2022. The decrease in our share of losses of our equity method companies for the 2023 year compared to the prior year period was primarily due to three ownership interests (Trice Medical, Syapse and meQuilibrium) whose equity method loss for the year ended December 31, 2023 decreased $8.0 million due to their carrying value being reduced to zero during 2022 or 2023, which results in the cessation of recording of our share of their operating losses. Income Tax Benefit (Expense) There was no income tax benefit (expense) for the years ended December 31, 2023 and 2022. 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 benefit of the net operating loss that would have been recognized in each year was offset by changes in the valuation allowance. Liquidity And Capital Resources As of December 31, 2023, the Company had $9.5 million of cash and cash equivalents. 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 years ended December 31, 2023 and 2022, we did not repurchase any shares under this authorization. In May 2021, the Company's Board of Directors authorized a $6.0 million share repurchase program (the "2021 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 year ended December 31, 2021, the Company purchased 236,159 shares under the 2021 Plan at an aggregate cost of $1.6 million, or $6.94 per share. During October 2021, the Company suspended the 2021 Plan and completed a modified Dutch auction self-tender that resulted in the repurchase of 4.3 million common shares for an aggregate price of $38.7 million, or $9.00 per share. In March 2022, the Company's Board of Directors replaced the 2021 Plan and authorized a separate $3.0 million share repurchase program (the "2022 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 year ended December 31, 2022, the Company purchased 711,481 shares under the 2022 Plan at an aggregate cost of $2.9 million, or $4.13 per share. The Company completed the 2022 Plan in January 2023 by purchasing an additional 25,096 shares, resulting in an average price of $4.09 for the 2022 Plan. We may consider additional stock repurchases or dividends in the future based on prevailing market conditions and other factors when and if additional liquidity becomes available. 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. 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 December 31, 2023 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: Year Ended December 31, 2023 2022 Variance (In thousands) Net cash used in operating activities $ (3,308 ) $ (3,258 ) $ (50 ) Net cash provided by (used in) investing activities 5,721 (4,662 ) 10,383 Net cash used in financing activities (6,252 ) (3,488 ) (2,764 ) $ (3,839 ) $ (11,408 ) $ 7,569 18 Table of Contents Net Cash Used In Operating Activities Year ended December 31, 2023 versus year ended December 31, 2022. Net cash used in operating activities increased for the year ended December 31, 2023 compared to the prior year. The activity during the year ended December 31, 2023 was primarily the result of various non-cash adjustments to net loss, including $6.1 million of equity loss and $1.2 million of impairment losses. The activity during the year ended December 31, 2022 was primarily the result of various non-cash adjustments to net loss, including $7.0 million of equity loss and a $3.7 million unrealized loss on the decrease in fair value of Bright Health common stock. Net Cash (Used in) provided by Investing Activities Year ended December 31, 2023 versus year ended December 31, 2022. Net cash (used in) provided by investing activities increased by $10.4 million for the year ended December 31, 2023 compared to the prior year. During the year ended December 31, 2023, the Company deployed an aggregate of $3.3 million to Prognos Health and Trice Medical, Inc. as compared to aggregate of $5.7 million to Syapse, Inc, Prognos Health, Clutch Holdings, meQuilibrium and Trice Medical, Inc. During the year ended December 31, 2023, the Company received $0.9 million from the collection of escrowed amounts related to the 2022 Lumesis transaction, $0.8 million from the sale of its ownership interest in BHG, $0.5 million from the resolution of escrow contingencies resulting from the 2021 Flashtalking transaction, $0.4 million from the secondary sale of a subordinated promissory note issued by Aktana and additional amounts from other earn-outs or contingencies. Net Cash Used In Financing Activities Year ended December 31, 2023 versus year ended December 31, 2022. Net cash used in financing activities increased by $2.8 million for the year ended December 31, 2023 compared to the prior year. The increase was primarily the $5.8 million special dividend offset by lower share repurchases in 2023 as the Company completed the 2022 Plan. Contractual Cash Obligations and Other Commercial Commitments Payments Due by Period Total 2024 2025 and 2026 2027 and 2028 After 2028 (In millions) Contractual Cash Obligations: Operating leases (a) $ 1.4 $ 0.6 $ 0.8 $ — $ — Total Contractual Cash Obligations (b) $ 1.4 $ 0.6 $ 0.8 $ — $ — (a) In 2015, we entered into an agreement for the lease of our former principal executive offices which expires in April 2026. Payments pursuant to this lease are approximately $1.4 million through expiration, however, in March 2019 we entered into a sublease for this office space which is expected to result in future aggregate sublease receipts of $1.4 million through April 2026. (b) We are involved from time to time in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of any of these matters which are currently pending will not have a material adverse effect on our consolidated financial position or results of operation.

Not applicable for a smaller reporting company. 19 Table of Contents

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 (PCAOB ID Number 248) 21 Consolidated Balance Sheets as of December 31, 2023 and 2022 22 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 23 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2023 and 2022 24 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 25 Notes to Consolidated Financial Statements 26 20 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Safeguard Scientifics, Inc Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Safeguard Scientifics, Inc. (a Pennsylvania corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of ownership interests and advances The Company evaluates the carrying value of its ownership interests and advances for possible impairment. This evaluation requires management to apply significant judgment particularly related to the achievement of business plan objectives and milestones, the financial condition and prospects of the portfolio company, market conditions and other relevant factors. Based on the above, management then determines whether there has been an other-than-temporary decline in the value of its ownership interest in or advance to the portfolio company. If the Company identifies an other-than-temporary decline in value, management may use valuation methods such as discounted cash flows and the market approach including valuation of comparable public companies and evaluation of recent acquisitions of similar companies. During the year ended December 31, 2023, the Company recorded $1.0M of other than temporary impairment charges. The identification and valuation of other than temporary impairment of ownership interests and advances was determined to be a critical audit matter. The principal consideration for our determination that the identification and valuation of other-than-temporary impairment of ownership interests and advances is a critical audit matter is due to it being an area of the financial statements requiring significant auditor judgment and subjectivity in assessing the results of management’s impairment analysis. Ownership interests and advances held by the Company are primarily comprised of early-stage privately-held companies in industries that are rapidly evolving, where evaluation of other than temporary declines in value requires significant judgment by management. Our audit procedures related to identification and valuation of other than temporary impairment of ownership interests and advances included the following, among others: ● We evaluated the design of certain internal controls related to the Company’s impairment assessment. This included controls over the identification and valuation of other than temporary declines in value and the impairment analysis. ● We held discussions with those outside of accounting with intimate knowledge of the portfolio companies, including those with board positions and those employed by the portfolio companies, to gain an understanding of operational performance, milestones achieved, and potential indicators of other than temporary declines in value. ● For a selection of portfolio companies, we reviewed the financial performance, relevant third-party information with indications of company values, board materials, press releases and other public information for potential indicators of other than temporary declines in value. ● For one ownership interest where an other than temporary impairment was recorded, we tested the completeness and accuracy of the source information used to value the ownership interest. ● For one ownership interest where an other than temporary impairment was recorded, we utilized personnel with specialized knowledge and skill in valuation techniques to assist in (i) evaluating the appropriateness of management's valuation methodologies, and (ii) evaluating the reasonableness of the fair value of the ownership interest. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2021. Philadelphia, Pennsylvania March 26, 2024 21 Table of Contents SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) As of December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 9,498 $ 13,331 Restricted cash 19 25 Marketable securities — 5,956 Ownership interests — 860 Prepaid expenses and other current assets 394 1,251 Total current assets 9,911 21,423 Right-of-use asset, net 971 1,290 Ownership interests and advances 11,691 14,545 Other assets 263 434 Total Assets $ 22,836 $ 37,692 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 107 $ 16 Accrued compensation and benefits 854 507 Accrued expenses and other current liabilities 596 865 Lease liability - current 489 429 Total current liabilities 2,046 1,817 Lease liability - non-current 760 1,249 Other long-term liabilities 50 50 Total Liabilities 2,856 3,116 Commitments and contingencies (Note 11) Equity: Preferred stock, $0.10 par value; 1,000 shares authorized — — Common stock, $0.10 par value; 83,333 shares authorized; 21,573 issued at December 31, 2023 and 2022, respectively 2,157 2,157 Additional paid-in capital 793,992 804,752 Treasury stock, at cost; 4,947 and 5,478 shares at December 31, 2023 and 2022, respectively (42,418 ) (48,410 ) Accumulated deficit (733,726 ) (723,898 ) Accumulated other comprehensive loss (25 ) (25 ) Total Equity 19,980 34,576 Total Liabilities and Equity $ 22,836 $ 37,692 See Notes to Consolidated Financial Statements. 22 Table of Contents SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2023 2022 General and administrative expense $ 5,683 $ 4,775 Operating loss (5,683 ) (4,775 ) Other income (loss), net 2,037 (3,297 ) Interest income 903 794 Equity (loss), net (7,085 ) (6,985 ) Net (loss) before income taxes (9,828 ) (14,263 ) Income tax benefit (expense) — — Net (loss) $ (9,828 ) $ (14,263 ) Net (loss) per share: Basic $ (0.61 ) $ (0.87 ) Diluted $ (0.61 ) $ (0.87 ) Weighted average shares used in computing net (loss) per share: Basic 16,221 16,337 Diluted 16,221 16,337 See Notes to Consolidated Financial Statements. 23 Table of Contents SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands) Accumulated Accumulated Other Comprehensive Common Stock Additional Paid-In Treasury Stock Total Deficit 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 (14,263 ) (14,263 ) — — — — — — Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net 477 — — — — (2,622 ) (302 ) 3,099 Stock-based compensation 736 — — — — 736 — — Repurchases of common stock (2,940 ) — — — — — 712 (2,940 ) Balance — December 31, 2022 $ 34,576 $ (723,898 ) $ (25 ) 21,573 $ 2,157 $ 804,752 5,478 $ (48,410 ) Net loss (9,828 ) (9,828 ) — — — — — — Restricted stock awards, forfeitures and shares repurchased for tax withholdings, net 446 — — — — (5,621 ) (556 ) 6,067 Stock-based compensation 680 — — — — 680 — — Repurchases of common stock (75 ) — — — — — 25 (75 ) Dividends paid (5,819 ) — — — — (5,819 ) — — Balance — December 31, 2023 $ 19,980 $ (733,726 ) $ (25 ) 21,573 $ 2,157 $ 793,992 4,947 $ (42,418 ) See Notes to Consolidated Financial Statements. 24 Table of Contents SAFEGUARD SCIENTIFICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 Cash Flows from Operating Activities: Net (loss) $ (9,828 ) $ (14,263 ) Adjustments to reconcile to net cash used in operating activities: Amortization of right of use asset 319 271 Equity (income) loss, net 6,085 6,985 Impairments of ownership interests and advances 1,173 — Gain from observable price changes (1,661 ) (553 ) Gain from sales of ownership interests (542 ) — Change in fair value of ownership interests — 3,689 Other, net (7 ) 76 Stock-based compensation, including liability classified awards 1,121 1,445 Changes in assets and liabilities: Prepaid expenses and other current assets (146 ) (534 ) Accounts payable, accrued expenses, and other current liabilities 178 (374 ) Net cash used in operating activities (3,308 ) (3,258 ) Cash Flows from Investing Activities: Acquisitions of ownership interests (3,000 ) — Proceeds from sales and distributions from ownership interests 2,851 6,879 Advances and loans to ownership interests (250 ) (5,670 ) Purchase of marketable securities (8,530 ) (11,871 ) Proceeds from sales and maturities in marketable securities 14,650 6,000 Net cash provided by (used in) investing activities 5,721 (4,662 ) Cash Flows from Financing Activities: Payment of dividend (5,819 ) — Repurchases of common stock (75 ) (2,939 ) Tax withholdings related to equity-based awards (358 ) (549 ) Net cash used in financing activities (6,252 ) (3,488 ) Net change in cash, cash equivalents and restricted cash (3,839 ) (11,408 ) Cash, cash equivalents and restricted cash equivalents at beginning of year 13,356 24,764 Cash, cash equivalents and restricted cash at end of year $ 9,517 $ 13,356 See Notes to Consolidated Financial Statements. 25 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General Liquidity And Capital Resources As of December 31, 2023, Safeguard Scientifics, Inc. ("the Company" or "Safeguard") had $9.5 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 our ownership interests, the sale of certain or all of our 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 December 31, 2023 will be sufficient to fund operations past one year from the issuance of these consolidated financial statements. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Safeguard and all of its wholly-owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. Principles of Accounting for Ownership Interests in Companies 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 and debt securities, the Company also periodically makes advances to its companies in the form of promissory notes which are included in 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 an 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 adjust 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 interests 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. Under this method, the changes in fair value are reflected in Other income (loss), net. As of December 31, 2023 there were no remaining ownership interests following this accounting method. Comprehensive Income (loss) During the years ended December 31, 2023 or 2022, there were no items of comprehensive income (loss). 26 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 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 and advances, the recoverability of deferred tax assets, 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 for 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 and advances could change in the near term and that the effect of such changes on the consolidated financial statements could be material. At December 31, 2023, the Company believes the carrying value of the Company’s ownership interests and advances 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 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 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. Restricted Cash Restricted cash represents cash required to be set aside by a contractual agreement as a shareholder representative. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements of Cash Flows: December 31, 2023 December 31, 2022 (In thousands) Cash and cash equivalents $ 9,498 $ 13,331 Restricted cash 19 25 Total cash, cash equivalents and restricted cash $ 9,517 $ 13,356 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. Right-of-use asset Right-of-use assets represent an operating lease for office facilities. The right-of-use assets are reduced over the remaining term of the applicable lease ( April 2026) in a manner that results in a straight-line lease expense, when combined with the interest factor on the lease liability. 27 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Lease liability The initial lease liability represents the present value of the fixed escalating lease payments through April 2026 associated with the Company's prior corporate headquarters operating office lease. The discount rate used to calculate the lease liability was based on the Company's incremental borrowing rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease, which was approximately 12%, at the transition to the guidance of ASU No. 2016-02, Leases. Subsequent values of the lease liability reflect the reduction in the lease liability for operating lease payments less an amount representing interest, which is included in the straight-line lease expense. There is no residual value guarantee associated with this operating lease arrangement. The Company has incurred operating lease expenses and operating cash outflows of $0.5 million for each of the years ended December 31, 2023 and 2022, respectively, and $0.6 million for each of the years ended December 31, 2023 and 2022. In March 2019, the Company entered into a sublease of its prior corporate headquarters office space. 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 expected operating lease cash flows at December 31, 2023 follows: Operating lease payments Expected sublease receipts (In thousands) 2024 $ 613 $ 573 2025 619 590 2026 207 199 2027 — — 2028 — — Thereafter — — Total future minimum lease payments 1,439 1,362 Less imputed interest (190 ) Total operating lease liabilities $ 1,249 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 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. 28 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 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 and funds 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 are 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 companies. Segment Information 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. 29 Table of Contents 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. December 31, 2023 December 31, 2022 (In thousands) Equity Method: Companies $ 8,400 $ 8,749 Private equity funds 97 97 8,497 8,846 Other Method: Companies, fair value — 860 Companies, fair value measurement alternative 2,555 1,067 Private equity funds, fair value measurement alternative 250 250 2,805 2,177 Advances to companies 389 4,382 $ 11,691 $ 15,405 During the year ended December 31, 2023, the Company recorded an impairment of $1.0 million related to the Moxe ownership interest, which is accounted for under the equity method. The impairment was determined based on declines in the fair value of our ownership interest resulting from lower forward looking revenue expectations. There were no impairments during the year ended December 31, 2022. The measurement of fair value for the impairment was estimated based on evaluating several valuation inputs available, primarily including the valuation of comparable public companies, the valuation of acquisitions of similar companies and the present value of our expected outcomes. Assumptions considered within these methods include determining which public companies are comparable, projecting forward revenues for the measured ownership interest, discounts to apply for the lack of marketability or lack of comparability, other factors and the relative weight to apply to each valuation input available. Due to the unobservable nature of some of these inputs, we have determined these fair value estimates to be non-recurring Level 3 fair value measurements. During 2023, the Company has received $0.9 million from the collection of escrowed amounts related to the 2022 Lumesis transaction, $0.8 million from the sale of its ownership interest in BHG, $0.5 million from the resolution of escrow contingencies resulting from the 2021 Flashtalking transaction, $0.4 million from the secondary sale of a subordinated promissory note issued by Aktana and additional amounts from other earn-outs or contingencies. In September 2022, Lumesis, Inc. was acquired by another entity for cash. The Company received $5.5 million in cash proceeds in connection with this transaction, excluding holdbacks and escrows. This transaction resulted in a gain of $4.9 million, including $0.8 million other receivable related to an indemnification escrow during the year ended December 31, 2022. During the year ended December 31, 2022, the Company recognized $0.5 million as gain on sale as the result of the 2021 WebLinc transaction from the collection of additional amounts and as contingencies were resolved, those amounts were recorded as gain on the sale and included within Equity income (loss). 30 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) As of December 31, 2023, the Company held ownership interests accounted for using the equity method in 4 non-consolidated companies. Certain of the Company’s ownership interests as of December 31, 2023 and 2022 included the following: Safeguard Primary Ownership as of December 31, Company Name 2023 2022 Accounting Method as of December 31, 2023 Clutch Holdings, Inc. 41.7 % 41.7 % Equity InfoBionic, Inc. * 25.2 % Other MedCrypt, Inc. * * Other meQuilibrium 30.2 % 31.3 % Equity Moxe Health Corporation 19.3 % 19.3 % Equity Prognos Health Inc. 19.0 % 28.4 % Equity *minimal ownership interest Summarized Financial Information The following table provides summarized financial information for ownership interests accounted for under the equity method for the periods presented and has been compiled from respective company financial statements, reflect certain historical adjustments, and are reported on a one quarter lag. Results of operations are excluded for periods prior to their acquisition and subsequent to their disposition. Historical results are not adjusted when the Company exits or writes-off a company. As of December 31, 2023 2022 (In thousands) Balance Sheets: Current assets $ 49,546 $ 126,042 Non-current assets 9,892 55,073 Total assets $ 59,438 $ 181,115 Current liabilities $ 32,461 $ 92,990 Non-current liabilities 42,370 220,681 Shareholders’ deficit (15,393 ) (132,556 ) Total liabilities and shareholders’ deficit $ 59,438 $ 181,115 Number of equity method ownership interests 4 8 Year Ended December 31, 2023 2022 (In thousands) Results of Operations: Revenue $ 101,021 $ 144,771 Gross profit $ 71,529 $ 88,666 Net loss $ (73,913 ) $ (152,936 ) As of December 31, 2023, the Company’s carrying value in equity method companies, in the aggregate, exceeded the Company’s share of the net assets of such companies by approximately $1.1 million. Of this excess, $1.0 million was allocated to goodwill and $0.1 million was allocated to intangible assets. 3. Acquisitions of Ownership Interests 2023 Transactions The Company deployed $3.0 million to Prognos Health during the three months ended June 30, 2023. The Company had previously deployed an aggregate of $14.6 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. The Company funded $0.3 million of convertible loans to Trice Medical during the three months ended March, 31 2023. During the three months ended September 30, 2023, Trice Medical completed a recapitalization transaction in which Safeguard declined to participate that resulted in Safeguard retaining a small, subordinated debt position and a de minimis ownership interest. The Company had previously deployed an aggregate of $12.0 million. Trice Medical is focused on orthopedic diagnostics using fully integrated camera-enabled technologies to provide clinical solutions to physicians. During the three months ended September 30, 2023, InfoBionic completed a recapitalization transaction, in which Safeguard declined to participate, that reduced our ownership position to approximately 5% and resulted in a $1.7 million observable price change gain to reflect the fair value of the ownership interest. InfoBionic provides a remote patient monitoring platform delivering on-demand, actionable monitoring data and analytics directly to physicians. 2022 Transactions The Company funded $1.6 million of convertible loans to Syapse, Inc. The Company had previously deployed an aggregate of $25.0 million. Syapse drives healthcare transformation through precision medicine, enabling provider systems to improve clinical outcomes, streamline operations, and shift to new payment models. The Company funded $2.0 million of convertible loans to Prognos Health Inc. The Company had previously deployed an aggregate of $12.6 million. 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. The Company funded $0.5 million of convertible loans to meQuilibrium. The Company had previously deployed an aggregate of $14.0 million. meQuilibrium is a digital coaching platform that delivers clinically validated and highly personalized resilience solutions to employers, health plans, wellness providers, and consumers increasing engagement, productivity and performance, as well as improving outcomes in managing stress, health and well-being. The Company funded $0.1 million of convertible loans to Trice Medical. The Company had previously deployed an aggregate of $11.8 million. The Company also committed to provide another $0.3 million under certain conditions pursuant to a subordinated line of credit. At December 31, 2022, the Company's obligation under this line of credit is included in accrued expenses. During the year ended December 31, 2023, the Company funded $0.3 million in accordance with this line of credit. 31 Table of Contents 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 (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 and liabilities measured at fair value on a recurring basis as of December 31, 2023. Carrying Fair Value Measurement at December 31, 2023 Value Level 1 Level 2 Level 3 (in thousands) Cash and cash equivalents $ 9,498 $ 9,498 $ — $ — Restricted cash $ 19 $ 19 $ — $ — Carrying Fair Value Measurement at December 31, 2022 Value Level 1 Level 2 Level 3 (In thousands) Cash and cash equivalents $ 13,331 $ 13,331 $ — $ — Restricted cash $ 25 $ 25 $ — $ — Marketable securities—held-to-maturity: U.S. Government securities $ 5,956 $ 5,956 $ — $ — Ownership interests $ 860 $ 860 $ — $ — Ownership interests accounted for at fair value as of December 31, 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. 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. During the years ended December 31, 2023 and 2022, the Company did not repurchase any shares under the existing authorization. In May 2021, the Company's Board of Directors authorized a $6.0 million share repurchase program (the "2021 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 year ended December 31, 2021, the Company purchased 236,159 shares under the 2021 Plan at an aggregate cost of $1.6 million, or $6.94 per share. During October 2021, the Company suspended the 2021 Plan and completed a modified Dutch auction self-tender that resulted in the repurchase of 4.3 million common shares for an aggregate price of $38.7 million, or $9.00 per share. In March 2022, the Company's Board of Directors replaced the 2021 Plan and authorized a separate $3.0 million share repurchase program (the "2022 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 year ended December 31, 2022, the Company purchased 711,481 shares under the 2022 Plan at an aggregate cost of $2.9 million, or $4.13 per share. The Company completed the 2022 Plan in January 2023 by purchasing an additional 25,096 shares, resulting in an average price of $4.09 for the 2022 Plan. 32 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 6. Stock-Based Compensation Equity Compensation Plans The 2014 Equity Compensation Plan has 4.1 million shares authorized for issuance. During 2023 and 2022, the Company issued no stock-based awards outside of existing plans. 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, 2023, the Company had reserved 1.5 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 consists of time based awards to employees, financial liability based awards to employees and non-employees to be settled in stock, performance based awards to employees, and financial liability based awards to Directors for quarterly and annual services. Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows: Year Ended December 31, 2023 2022 (In thousands) General and administrative expense $ 1,121 $ 1,445 $ 1,121 $ 1,445 Stock-based compensation expense of $1.1 million and $1.4 million was recognized during the years ended December 31, 2023 and 2022, respectively, related to annual and quarterly Board fees, time based management awards and management bonuses earned during the year that were subsequently settled in stock. For the years ended December 31, 2023 and 2022, the Company issued 377 thousand and 165 thousand, respectively, of restricted shares to Directors for their annual and quarterly services. The annual grants vest over a one year period, or are vested at issuance for directors 65 or older, while quarterly amounts are paid in arrears. The Company vested 275 thousand and 110 thousand shares during the years ended December 31, 2023 and 2022. The Company vested 125 thousand and 22 thousand shares during the years ended December 31, 2023 and 2022, respectively, for time based management compensation. The Company settled in stock other management bonuses resulting in the issuance of 51 thousand and 82 thousand vested shares for the years ended December 31, 2023 and 2022, respectively. The Company issued 0 thousand and 15 thousand vested shares to a non-employee for services during the years ended December 31, 2023 and 2022. The Company had liabilities of $0.1 million and $0.4 million as of December 31, 2023 and 2022, respectively, that were settled through the issuance of common stock in the subsequent period. The Company has previously granted certain performance-based stock units that vest based on the achievement of targeted capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified companies. The requisite service periods for these performance-based awards were based on the Company’s estimate of when the performance conditions will be met. Compensation expense was recognized for performance-based awards for which the performance condition is considered probable of achievement. During the years ended December 31, 2023 and 2022, respectively, zero and 92 thousand performance-based stock units pursuant to these targeted capital return pools were canceled or forfeited. In January 2022, the Company granted the CEO restricted stock units that may vest based on certain performance targets and criteria determined by the Board of Directors. Such performance-based stock units represent the right to receive shares of the Company’s common stock, on a one-for-one basis at target for certain specified thresholds. For the year ended December 31, 2022, the Company recognized stock based compensation expense of $0.2 million and vested 64 thousand shares pursuant to this arrangements. Unrecognized compensation expense related to performance stock units and restricted stock at December 31, 2023 was immaterial. While there were no stock options granted during 2023 and 2022, the Company had outstanding options that vest based on two different types of vesting schedules: 1) performance-based; and 2) service-based. Performance-based option awards also entitled 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 companies. 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. The Company did not issue any performance-based units during the years ended December 31, 2023 and 2022. During the years ended December 31, 2023 and 2022, respectively, there were no performance-based options vested and no compensation cost was recognized. During the years ended December 31, 2023 and 2022, respectively, 0 thousand and 11 thousand performance-based options were canceled or forfeited. The maximum number of unvested options at December 31, 2023 attainable under these grants was zero shares. Service-based awards 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, 2023 and 2022, respectively, the Company issued no service-based options to employees and recorded zero compensation expense from the vesting of previously issued awards. During the years ended December 31, 2023 and 2022, respectively, 10 thousand and 0 thousand service-based options were canceled or forfeited. 33 Table of Contents 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 January 1, 2022 29 14.20 Options granted — — Options exercised — — Options canceled/forfeited (11 ) 14.48 Outstanding at December 31, 2022 18 14.05 Options granted — — Options exercised — — Options canceled/forfeited (10 ) 17.11 Outstanding at December 31, 2023 8 10.37 0.39 $ — Options exercisable at December 31, 2023 8 10.37 0.39 — Shares available for future grant 1,482 At December 31, 2023, total unrecognized compensation cost related to non-vested service-based options was immaterial. At December 31, 2023, total unrecognized compensation cost related to non-vested performance-based options was immaterial. 34 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 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 January 1, 2022 202 $ 9.70 Granted 343 5.60 Vested (293 ) 5.77 Forfeited (92 ) 13.90 Unvested at December 31, 2022 160 5.70 Granted 678 2.30 Vested (640 ) 2.90 Forfeited (16 ) 7.10 Unvested at December 31, 2023 182 1.89 7. Employee Benefit Plan The Company maintains a qualified 401(k) retirement plan for eligible employees. The Plan’s matching formula is 100% of the first 5% of participants’ qualified compensation. Compensation expense related to our matching contributions to the Plan for the years ended December 31, 2023 and 2022, were $0.1 million and $0.1 million, respectively. 8. Income Taxes The federal and state provision (benefit) for income taxes was $0.0 million for the years ended December 31, 2023 and 2022. The total income tax provision (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 21.0% for the years ended December 31, 2023 and 2022 to net income (loss) before income taxes as a result of the following: Year Ended December 31, 2023 2022 Statutory tax expense (benefit) (21.0 )% (21.0 )% Increase (decrease) in taxes resulting from: Nondeductible expenses (0.4 ) (2.6 ) Valuation allowance 21.4 23.6 0.0 % 0.0 % 35 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows: As of December 31, 2023 2022 (In thousands) Deferred tax asset: Carrying values of ownership interests and other holdings $ 24,370 $ 33,222 Tax loss and credit carryforwards 69,638 68,492 Disallowed interest carryforwards 6,613 6,891 Accrued expenses 13 47 Stock-based compensation (3 ) 180 Other 66 (106 ) 100,697 108,726 Valuation allowance (100,697 ) (108,726 ) Net deferred tax asset $ — $ — As of December 31, 2023, the Company and its subsidiaries had federal net operating and capital loss carryforwards for tax purposes of approximately $332 million, of which approximately $59 million have an indefinite life. These carryforwards expire as follows: Total (In thousands) 2024 $ 50,140 2025 17,408 2026 7,648 2027 15,100 2028 and thereafter 182,520 $ 272,816 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. 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, 2023 and 2022. The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Tax years 2019 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, 2023 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. 36 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 9. Net Income (Loss) Per Share The calculations of net income (loss) per share were: Year Ended December 31, 2023 2022 (In thousands, except per share data) Basic: Net (loss) $ (9,828 ) $ (14,263 ) Weighted average common shares outstanding 16,221 16,337 Net (loss) per share $ (0.61 ) $ (0.87 ) Diluted: Net (loss) $ (9,828 ) $ (14,263 ) Weighted average common shares outstanding 16,221 16,337 Net (loss) per share $ (0.61 ) $ (0.87 ) 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 from net income (loss) 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 income (loss) per share for the years ended December 31, 2023 and 2022 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, 2023 and 2022, options to purchase 8 thousand and 18 thousand shares of common stock, respectively, at a price of $10.37 per share for 2023, and $10.37 to $17.11 per share per share for 2022 were excluded from the calculation. • At December 31, 2023 and 2022, unvested restricted stock, performance-based stock units and DSUs convertible into 0.2 million and 0.2 million shares of stock, respectively, were excluded from the calculations. 10. Related Party Transactions In the normal course of business, the Company’s officers and employees hold board positions with companies in which the Company has a direct or indirect ownership interest. 11. Commitments and Contingencies 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, 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 companies. The Company records costs associated with legal fees as such services are rendered. 37 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The Company has provided a guarantee, which is fully funded by escrowed funds held by a third party, of $3.8 million at December 31, 2023 which related to one of the Company's private equity holdings. 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 Company has recorded severance expenses of $0.7 million during the year ended December 31, 2023, which is expected to be paid during 2024. 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 consistent with the business strategy. Under the LTIP, participants, which includes 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: (i) specified vesting thresholds or (ii) specified events. In the first case, the bonus pool will range from an amount equal to 0.2% (previously 1.0%) of received proceeds at the first threshold to 1.3% at higher thresholds. In the second case, a minimum pool will be created and paid under specified circumstances. 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 recorded no compensation expense during each of the years ended December 31, 2023 and 2022, respectively. The Company has not paid any amounts during the years ended December 31, 2023 and 2022 and has no amounts accrued under the LTIP as of December 31, 2023. In June 2011, 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. In addition, in connection with the above matters, the Company and other former equity holders in ABH entered into a settlement and release with Shire during 2017, which resulted in the release to Shire of all amounts held in escrow related to the sale of ABH. 12. Supplemental Cash Flow Information During the years ended December 31, 2023 and 2022, the Company converted $1.5 million and zero, respectively, of advances into ownership interests. 38 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 13. 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 December 31, 2023 and 2022, all of the Company’s assets were located in the United States. 39 Table of Contents SAFEGUARD SCIENTIFICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 14. Selected Quarterly Financial Information (Unaudited) Three Months Ended March 31 June 30 September 30 December 31 (In thousands, except per share data) 2023: General and administrative expense $ 1,185 $ 1,186 $ 1,313 $ 1,999 Operating loss (1,185 ) (1,186 ) (1,313 ) (1,999 ) Other income (loss), net (9 ) (166 ) 1,661 551 Interest income 274 249 198 182 Equity income (loss), net (2,564 ) (1,759 ) 386 (3,148 ) Net income (loss) before income taxes (3,484 ) (2,862 ) 932 (4,414 ) Income tax benefit (expense) — — — — Net income (loss) $ (3,484 ) $ (2,862 ) $ 932 $ (4,414 ) Net income (loss) per share (a) Basic $ (0.22 ) $ (0.18 ) $ 0.06 $ (0.27 ) Diluted $ (0.22 ) $ (0.18 ) $ 0.06 $ (0.27 ) 2022: General and administrative expense $ 1,234 $ 1,146 $ 1,360 $ 1,035 Operating loss (1,234 ) (1,146 ) (1,360 ) (1,035 ) Other income (loss), net (1,997 ) 30 (1,012 ) (318 ) Interest income 101 145 230 318 Equity income (loss), net (3,579 ) 1,454 (1,022 ) (3,838 ) Net income (loss) before income taxes (6,709 ) 483 (3,164 ) (4,873 ) Income tax benefit (expense) — — — — Net income (loss) $ (6,709 ) $ 483 $ (3,164 ) $ (4,873 ) Net income (loss) per share (a) Basic $ (0.40 ) $ 0.03 $ (0.19 ) $ (0.30 ) Diluted $ (0.40 ) $ 0.03 $ (0.19 ) $ (0.30 ) (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 common stock equivalents and convertible securities at our ownership interests. 15. Subsequent Events On January 12, 2024, the Company completed a reverse stock split at a ratio of 1-for-100, followed by a forward stock split at a ratio of 100-for-1 (collectively referred to as "stock splits"). In conjunction with the stock splits, certain fractional shareholders aggregating to approximately 6,000 shares for $9 thousand were repurchased for cash resulting in a reduction in the Company's shareholders of record. 40 Table of Contents