SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

Safeguard Scientifics, Inc.

Pennsylvania (State or other jurisdiction of incorporation or organization)		23-1609753 (I.R.S. Employer ID No.)
435 Devon Park Drive Building 800 Wayne, PA (Address of principal executive offices)		19087 (Zip Code)

(610) 293-0600
(Registrant’s telephone number, including area code)

Title of Each Class Common Stock ($.10 par value)		Name of each exchange on which registered New York Stock Exchange

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o                              No þ

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o                              No þ

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                              No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                              No þ

     As of June 30, 2007, the aggregate market value of the Registrant’s common stock held by non-affiliates of the registrant was $338,086,524 based on the closing sale price as reported on the New York Stock Exchange.

     The number of shares outstanding of the Registrant’s Common Stock, as of March 28, 2008 was 121,564,111.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission for the Company’s 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

 

 

SAFEGUARD SCIENTIFICS, INC.

FORM 10-K
DECEMBER 31, 2007

PART I
Item 1.		Business			3
Item 1A.		Risk Factors			20
Item 2.		Properties			26
Item 3.		Legal Proceedings			27
Item 4.		Submission of Matters to a Vote of Security Holders			27
Annex to  Part I		Executive Officers of the Registrant			27
PART II
Item 5.		Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			28
Item 6.		Selected Consolidated Financial Data			30
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			57
Item 8.		Financial Statements and Supplementary Data			58
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosures			110
Item 9A.		Controls and Procedures			110
Item 9B.		Other Information			111
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			112
Item 11.		Executive Compensation			112
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			112
Item 13.		Certain Relationships and Related Transactions, and Director Independence			113
Item 14.		Principal Accountant Fees and Services			113
PART IV
Item 15.		Exhibits and Financial Statement Schedules			114
Form of director's stock option grant certificate
Form of officer's stock option grant certificate
Code of Business Conduct and Ethics
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Certification of Peter J. Boni pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
Certification of Raymond J. Land pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
Certification of Peter J. Boni pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Raymond J. Land pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

PART I

Cautionary Note concerning Forward-Looking Statements

     This Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Safeguard Scientifics, Inc. (“Safeguard” or “we”), the industries in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially, include, among others, managing rapidly changing technologies, limited access to capital, competition, the ability to attract and retain qualified employees, the ability to execute our strategy, the uncertainty of the future performance of our partner companies, acquisitions and dispositions of companies, the inability to manage growth, compliance with government regulation and legal liabilities, additional financing requirements, labor disputes and the effect of economic conditions in the business sectors in which our partner companies operate, all of which are discussed in Item 1A. “Risk Factors.” Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.

Item 1. Business

Business Overview

     Safeguard’s charter is to build value in growth-stage technology and life sciences businesses. We provide capital as well as a range of strategic, operational and management resources to our partner companies. Safeguard participates in expansion financings, corporate spin-outs, management buy-outs, recapitalizations, industry consolidations and early-stage financings. Our vision is to be the preferred catalyst for creating great technology and life sciences companies.

     We strive to create long-term value for our shareholders through building value in our partner companies. We help our partner companies in their efforts to increase market penetration, grow revenue and improve cash flow in order to create long-term value. We concentrate on companies that operate in two categories:

     Technology — including companies focused on providing software as a service (SaaS), technology-enabled services and vertical software solutions for the financial services sector, internet-based businesses and healthcare information technology; and

     Life Sciences — including companies focused on molecular and point-of-care diagnostics, medical devices and specialty pharmaceuticals.

     In 2007, our management team established and then executed the following objectives:

	•		Deploy capital in companies within our strategic focus;
	•		Build value in our partner companies with strong management teams using organic and acquisitive growth to position our partner companies for liquidity at premium valuations;
	•		Realize the value of select partner companies through selective, well-timed exits to maximize risk-adjusted value; and
	•		Provide the tools needed for investors to fully recognize the shareholder value that has been created by our efforts.

     To meet these strategic objectives during 2007, Safeguard focused on, and will continue to focus on:

	•		finding opportunities to deploy our capital in additional partner company holdings;
	•		helping to achieve additional market penetration, revenue growth, cash flow improvement and growth in the long-term value of our partner companies; and
	•		realizing value in our partner companies if and when we believe doing so will maximize value for our shareholders.

     We incorporated in the Commonwealth of Pennsylvania in 1953. Our corporate headquarters is located at 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087.

Significant 2007 Highlights

     We are proud of our key accomplishments in 2007:

	•		We led a financing of Advanced BioHealing, Inc., a leader in regenerative medicine, providing over $10.7 million of growth capital. The $28.2 million financing has and will allow ABH to pursue the launch and expansion of the market for its FDA-approved diabetic foot ulcer treatment, as well as clinical trials for its next-generation products.
	•		We co-led the spin-out of Alverix, Inc. from Avago Technologies and contributed half of its initial $4.7 million financing. We have committed to contribute half of an additional $3.0 million financing that is expected to be provided in the second half of 2008. Alverix provides a point-of-care (POC) diagnostics technology and is using this growth capital to fund key hires, product development and commercialization of its POC assay devices.
	•		We led a $6.0 million financing of Authentium, Inc., providing an additional $3.0 million to this developer of security software as a service (SaaS) technologies and systems. Authentium is using these proceeds to develop new offerings and additional extensions of its current offerings.
	•		We co-led a $26.0 million financing of Avid Radiopharmaceuticals, Inc., whose molecular imaging products for neurodegenerative disease and diabetes are currently in clinical testing. We provided $7.3 million of the round, with which Avid is further developing its current and additional novel molecular imaging agents.
	•		We provided $13.5 million of capital to Beyond.com, Inc., an online provider of career services and technology to job seekers and employers. Beyond.com is utilizing this funding to fuel key executive hires, marketing and strategic acquisitions, as well as augmenting and expanding its service-oriented platform and its network of 15,000 niche and local websites.
	•		We provided strategic and operational guidance and corporate development resources to Beyond.com in its acquisitions of JobAnimal.com and techcareers.com. These acquisitions will allow Beyond.com to leverage additional resources across its expanded network.
	•		We secured an $8.0 million stake in Bridgevine, Inc. (formerly Broadband National, Inc.), an internet-based business that operates a network of shopping websites focused on digital services and products such as high speed internet, digital phone, VoIP, digital TV and music. Bridgevine is utilizing most of its $7.1 million in proceeds from this $9.7 million round of financing to expand into new vertical markets, continue development of its technology platform and pursue selective acquisitions.
	•		We provided $6.0 million of an $8.7 million financing of Cellumen, Inc., whose proprietary services and products support drug discovery and development for pharmaceutical companies. This financing is allowing Cellumen to make key management hires, develop additional products, continue its

platform development and commercialize its cellular models of disease and cytotoxicity profiling services and products.

	•		We provided operational and strategic support to Clarient, Inc. in connection with its sale of its technology group (which developed, manufactured and marketed the ACIS® Automated Image Analysis System) and related intellectual property to Carl Zeiss MicroImaging, Inc. (the “ACIS Sale”). Clarient received cash proceeds of $11.0 million (excluding $1.5 million in contingent purchase price) and recorded a pre-tax gain of $3.5 million from the divestiture of this legacy business. The divestiture allowed Clarient to refocus corporate efforts on its fast-growing lab services offerings.
	•		We helped Clarient address its short-term capital needs in March 2007 by providing a $12.0 million subordinated revolving credit line. On March 14, 2008 we extended this facility and expanded it to $21.0 million, allowing Clarient to meet certain capital needs as it expands its laboratory services business.
	•		We provided one of our life science executives from our management team to Clarient to act as its Chief Operating Officer from September 2007 through the present.
	•		We provided strategic advice to NexTone Communications, Inc. in connection with its January 2008 merger with ReefPoint Networks, Inc. to form NextPoint Networks, Inc. We also provided NexTone Communications, Inc. with $4.3 million of additional capital, increasing our ownership to 16.5%, prior to the merger.
	•		We sold Pacific Title & Art Studio, Inc. for $21.9 million, resulting in a pre-tax gain of $2.7 million. This sale allowed us to redeploy capital from a legacy partner company that was no longer in a core area of interest to businesses that are consistent with our current market and strategic focus.
	•		We added Robert J. Rosenthal, Ph.D. to our board of directors. Dr. Rosenthal has more than 20 years of experience building value for customers, shareholders and employees in companies of all stages serving the biomedical research and diagnostics industries.
	•		We augmented our Technology and Life Sciences Advisory Boards with key new members, and leveraged these boards to provide critical and timely analysis and guidance regarding Safeguard, its partner companies and a variety of deal opportunities.
	•		We facilitated senior management search initiatives for certain of our partner companies throughout the year, resulting in the augmentation of management capabilities at such partner companies.

Our Strategy

     We focus on companies that address the strategic challenges facing businesses today and the opportunities they present. We believe these challenges have five general themes:

	•		Maturity—many existing technologies, solutions and therapies are reaching the end of their designed life or patent protection; the population of the U.S. is aging; many businesses based on once-novel technologies are now facing consolidation and other competitive pressures.
	•		Migration—many technology platforms are migrating to newer technologies and facing changing cost structures; many medical treatments are moving toward earlier stage intervention; and many business models are migrating toward different revenue-generation models integrating technologies and services.
	•		Convergence—many technology and life sciences are intersecting in fields like medical devices and targeted diagnostics for targeted therapies.
	•		Compliance—business spending is being driven by new or increased regulation in both technology and life sciences.

•

Cost containment—both technology and life sciences are facing increasing pressure for cheaper, yet better solutions.

     These themes tend to attract entrepreneurs who need capital support and strategic guidance. Safeguard deploys capital along with management expertise, process excellence and marketplace insight designed to provide tangible benefits to our partner companies.

     Our corporate staff (34 employees at December 31, 2007) is dedicated to creating long-term value for our shareholders by helping our partner companies build value and by finding additional acquisition opportunities.

     Identifying Opportunities

     Safeguard’s marketing and sourcing activities are designed to generate a large volume of high-quality opportunities. Our primary focus is on acquiring majority or minority stakes in growth-stage companies that have attractive growth prospects within the technology and life sciences industries. Generally, we prefer candidates:

	•		operating in large and/or growing markets;
	•		with barriers to entry by competitors, such as proprietary technology and intellectual property, or other competitive advantages;
	•		with capital requirements between $5 million and $50 million; and
	•		with a compelling strategy for achieving growth.

     We target our sourcing efforts on the Northeast/Mid-Atlantic region of the U.S.—although we evaluate candidate companies opportunistically throughout the U.S. and southern Canada.

     Our Technology Group currently targets companies with the following business models and vertical markets:

     Our Life Sciences Group currently targets companies with the following business models and vertical markets:

     We believe there are many opportunities within these business models and vertical markets, and our sourcing activities are focused on finding candidate companies and evaluating how well they align with our criteria. However, we recognize we may have difficulty identifying candidate companies and completing transactions on terms we believe appropriate. As a result, we cannot be certain how frequently we will enter into transactions with new, or for that matter, existing partner companies.

     Competition. We face intense competition from other companies that acquire, or provide capital to, technology and life sciences businesses. Competitors include venture capital and, occasionally, private equity investors, as well as companies seeking to make strategic acquisitions. Many providers of growth capital also offer strategic guidance, networking access for recruiting and general advice. Nonetheless, we believe we are a preferable capital provider to potential partner companies because our strategy and capabilities offer:

	•		responsive operational assistance, including strategy design and execution, business development, corporate development, sales, marketing, finance, facilities, human resources and legal support;
	•		the flexibility to structure minority or majority transactions with or without debt;
	•		liquidity opportunities for founders and investors;
	•		a focus on maximizing risk-adjusted value growth, rather than absolute value growth within a narrow or predetermined time frame;
	•		interim c-level management support, as needed;
	•		opportunities to leverage Safeguard’s balance sheet for borrowing and stability; and
	•		a record of building revenue growth in our partner companies.

     Helping Our Partner Companies To Build Value

     We offer operational and management support to each of our partner companies through our experienced professionals. Our employees have expertise in business and technology strategy, sales and marketing, operations, finance, legal and transactional support. We provide hands-on assistance to the management teams of our partner companies to support their growth. We believe our strengths include:

	•		applying our expertise to support the company’s introduction of new products and services;
	•		leveraging our market knowledge to generate additional growth opportunities;
	•		leveraging our business contacts and relationships; and
	•		identifying and evaluating potential acquisitions and providing capital to pursue potential acquisitions to accelerate growth.

     Strategic Support. By helping our partner companies’ management teams remain focused on critical objectives through provision of human, financial and strategic resources, we believe we are able to accelerate their development and success. We play an active role in determining the strategic direction of our partner companies, including:

	•		defining short- and long-term strategic goals;
	•		identifying and planning for the critical success factors to reach these goals;
	•		identifying and addressing the challenges and operational improvements required to achieve the critical success factors and, ultimately, the strategic goals;
	•		identifying and implementing the business measurements that we and others will apply to measure the company’s success; and
	•		providing capital to drive growth.

     Management and Operational Support. We provide management and operational support to our partner companies in order to accelerate their growth. We engage in ongoing planning and assessment of the development

of our partner companies and their management teams. Our executives and our Advisory Board members provide mentoring, advice and guidance to develop the management of our partner companies. Our executives serve on the boards of directors of our partner companies, working with them to develop and implement strategic and operating plans. We measure and monitor achievement of these plans through regular operational and financial performance measurements. We believe these services provide our partner companies with significant competitive advantages within their respective markets.

     Realizing Value

     In general, we will hold our stake in a partner company as long as we believe the risk-adjusted value of that stake is maximized by our continued ownership and effort. From time to time, we engage in discussions with other companies interested in our partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders’ best interests, we may sell some or all of our stake in the partner company. These sales may take the form of privately negotiated sales of securities or assets, public offerings of the partner company’s securities and, in the case of our publicly traded partner companies, sales of their securities in the open market. We have in the past taken partner companies public through rights offerings and direct share subscription programs, and we will continue to consider these (or similar) programs to maximize the value of our partner companies to our shareholders. We expect to use the proceeds from these sales (and sales of other assets) primarily to pursue opportunities to create new partner company relationships or for other working capital purposes, either with existing partner companies or at Safeguard.

Our Partner Companies

     An understanding of our partner companies is important to understanding Safeguard and its value-building strategy. Following are more detailed descriptions of the partner companies in which we owned a majority stake at December 31, 2007. The indicated ownership percentage is presented as of December 31, 2007 and reflects the percentage of the vote we are entitled to cast based on issued and outstanding voting securities, excluding the effect of options, warrants and convertible debt.

     On March 3, 2008 we announced that we had entered into a definitive agreement to sell our interests in Acsis, Inc., Alliance Consulting Group Associates, Inc., Laureate Pharma, Inc., Neuronyx, Inc., NextPoint Networks, Inc. and ProModel Corporation (the “Bundle Transaction”) which is expected to be consummated during the second quarter of 2008.

Acsis, Inc.		(Safeguard Ownership: 96.2%)

     Opportunity. We acquired Acsis in December 2005. Acsis’ products and services are aimed at the migration of existing supply-chain management systems to real-time track-and-trace applications that leverage newer technologies such as radio-frequency identification (RFID). Acsis’ packaged applications facilitate the track-and-trace of goods on manufacturing floors and in the distribution centers and integrate this data into Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) systems. Many Fortune 1000 clients leverage Acsis’ solutions to obtain labor efficiencies and improved supply chain visibility. Industry trends (such as business process automation, RFID compliance mandates, and compliance with regulations mandating tracking of food and drug products) provide a large market and growth opportunity for Acsis. Recent mandates from major national retailers as well as government agencies have prompted manufacturers to upgrade their existing data collection infrastructure with RFID.

     General. Acsis (www.acsisinc.com) is a provider of software and service solutions that assist businesses and government entities in making their supply chains safe, secure and efficient. Its solutions enable customers to implement real-time track-and-trace solutions to automate plant floor and distribution operations, and to take advantage of emerging data collection technologies (such as RFID and barcode). Acsis’ solutions provide the critical data links between activities or material movements that take place on the shop floor and ERP systems. They improve visibility of goods throughout supply chains, ultimately resulting in increased revenue, improved

customer service and reduced costs. Founded in 1996, Acsis offered one of the first solutions to facilitate the control and integration of plant floor and warehouse devices with SAP’s ERP software.

     Strategy. Acsis’ strategy is to leverage its deep experience in a variety of vertical industries, such as pharmaceutical, chemical and consumer packaged goods, to provide real-time supply chain solutions for SAP™ R/3^® as well as other enterprise systems. Acsis’ knowledge of the business processes and typical transactions in these industries allows it to deliver tailored solutions. Acsis couples this with broad expertise in SAP R/3 implementations, automated data-collection and integration solutions, and a proven track record. Acsis also has strategic partnerships with leading technology providers and consultants including SAP, Intermec, Motorola, SupplyScape and Systech. As an example, Acsis was the first to successfully complete the integration testing between its xDDi software and SAP’s Auto-ID Infrastructure component of the SAP NetWeaver™ open integration and application platform.

     Manufacturers and government entities are upgrading their existing infrastructure to improve security and efficiencies by implementing new technologies such as RFID. Manufacturers are making these investments not only in response to governmental and retailer mandates, but also to maximize the benefits of just-in-time inventory practices. Acsis believes its solutions provide its customers with better ways to:

	•		constantly view and manage every link in their supply chain in real time;
	•		communicate and control changes in their supply chain;
	•		automate the collection and integration of critical data from any source; and
	•		protect their processes from interruption.

     Solutions. Acsis draws from a variety of technologies and service offerings to create a solution that matches the client’s business, budget and IT environment. Solutions range from implementing Acsis’ packaged applications such as PharmaTrak to implementing solutions using SAP’s SAPConsole data collection toolkit. If requested, Acsis also will procure all necessary hardware and software to deliver a turnkey data collection system.

     Acsis’ key internally-developed software products include:

	•		Acsis PharmaTrak - A proven first-of-its-kind serialized distribution application designed for the warehousing and distribution operations of pharmaceutical manufacturers, co-manufacturers and repackers running SAP.
	•		Acsis ProducTrak - Taps into the business automation and data collection power of Acsis xDDI to intelligently integrate with SAP and automate and monitor the movement of finished goods into the retail environment.
	•		Acsis Enterprise Label Management - Enables the dynamic creation and printing of custom format labels from enterprise application data (from SAP and other core business applications), facilitating the management of the function from a centralized location.
	•		Acsis xDDI - A fully integrated and automated business process automation and data collection platform that orchestrates activities at the execution level for real-time, bi-directional exchange between disparate systems and SAP.

Acsis works with its clients to develop manufacturing, warehousing, RFID and mobile solutions tailored to the client’s needs and budget. Acsis also maintains a highly experienced and trained professional services group to provide consulting and technical services. Solutions offered by Acsis’ services group include:

	•		Pharmaceutical Serialization
	•		Serialized Product Track-and-Trace
	•		Label Management

	•		Automated Data Collection
	•		Manufacturing Efficiency
	•		Supply-Chain Efficiency

     Offices and Employees. At December 31, 2007, Acsis had 93 employees at its Marlton, New Jersey facility.

     Sales and Marketing; Customers. Acsis has a track record including more than 650 implementations in 28 countries. Acsis’ typical customers are large manufacturing, pharmaceutical or consumer packaged goods businesses with more than $1 billion in revenue and substantial international operations. In 2007, three customers each represented more than 10% of Acsis’ revenue.

     Sales are typically made in warehouse, logistics, fulfillment or other operations units of its clients with a customary sales cycle of three to six months. At the end of a sales cycle, Acsis provides consulting, blueprinting and implementation services, go-live support and ongoing help desk support. Acsis then works with customers on a regular and ongoing basis to support their operations and provide further benefits with additional solutions or by implementing solutions at additional sites. Approximately half of Acsis’ customer base utilizes multiple solutions provided by Acsis, and many customers are using Acsis’ solutions in multiple sites across the world.

     Competition. Acsis’ competition generally comes from large, diversified consulting businesses or niche providers with a variety of individual solutions for barcode, RFID or other data collection systems. Acsis seeks to differentiate itself by proving packaged applications (as opposed to hand-crafted solutions) via a single, integrated platform which can be used across the enterprise to increase efficiencies and reduce operational costs.

Alliance Consulting Group Associates, Inc.		(Safeguard Ownership: 99.3%)

     Opportunity. We acquired Alliance Consulting in December 2002 because we saw a growing and highly fragmented market in which we believed Alliance Consulting could achieve profitable growth. Capitalizing on its domain expertise in the pharmaceutical, healthcare, financial services, manufacturing and high tech industries, we believe that Alliance Consulting can use its staff resources and customer relationships to continue to grow its profitability.

     General. Alliance Consulting (www.alliance-consulting.com) is a national business intelligence solutions consultancy providing services primarily to Fortune 2000 clients in the pharmaceutical, financial services, manufacturing and high tech industries. Alliance Consulting specializes in two practice areas:

	•		Information Management, which is comprised of a full range of business intelligence solutions from data acquisition and warehousing to master data management, analytics and reporting; and
	•		Application Services, which includes software development, integration, testing and application support, delivered through a high-quality and cost-effective hybrid global delivery model.

     Strategy. Alliance Consulting has developed a strategy focused on enabling business intelligence through the application of domain experience and custom-tailored project teams to deliver software solutions and consulting services. Alliance Consulting believes that its growth opportunities benefit from the following industry trends:

	•		The volume of data being processed by businesses is increasing at an exponential rate, making businesses dependent upon the effective and efficient processing of this data and requiring significant and ongoing investment in technology infrastructure and resources, but with continuing decreases in the cost of computing power, storage and communication systems.
	•		The complexity of this data is increasing, with multiple and diverse inflow sources containing a wide variety of structured and unstructured information.

•

The value to the business of this data is increasing, driven in part by regulatory and compliance requirements and strategic and competitive pressures, yet businesses are facing continuing budget constraints, prompting the need to maximize cost-effective solutions.

     Services. Through an integrated network of local branch offices in North America, and its offshore development centers located in Hyderabad and Bangalore, India, Alliance Consulting provides a flexible engagement approach to its clients, using fixed bid or time and materials pricing models; teams or individual consultants; on-site, off-site or offshore delivery; and short- or long-term support.

     Alliance Consulting’s services are targeted to:

	•		Business intelligence and data management — using data warehousing technologies to develop complete business intelligence infrastructures, applications and processes to enhance the competitiveness of clients.
	•		Corporate performance management — using enterprise-wide reporting and analysis, forecasting and budgeting and other tools to provide real-time information, enabling corporate managers to better monitor critical operating performance metrics and implement rapid, targeted adjustments to increase effectiveness, efficiency and profitability.
	•		Application development — using assessment tools, architecture design and implementation of advanced, scalable and flexible, customized software solutions to leverage existing software assets through the integration of state-of-the-art web-based technologies.
	•		Outsourcing — working with clients to understand the IT support needs of the business, costs and internal/external service capabilities and then implementing outsourcing solutions for data center operations, applications development and maintenance, distributed and desktop processing, voice and data networks, internet and web hosting and help/service desk functions.

     Alliance Consulting maintains a full-time core staff complemented by a flexible combination of hourly employees and independent contractors, providing clients with specialized engagement teams tailored to their specific business requirements. This approach enables Alliance Consulting to offer a precise combination of technical, industry and process knowledge to support each engagement while maximizing utilization of its staff and contracting consultants. Alliance Consulting’s employee and independent contractor resources are supported on an ongoing basis through internal and external recruiting targeted at high-quality, experienced professionals with significant product and industry expertise.

     Offices and Employees. Alliance Consulting is headquartered in Conshohocken, Pennsylvania, and it operates four other regional offices and three satellite locations throughout the United States and two primary locations in India. Alliance Consulting supplements its full-time employees by utilizing subcontractors. At December 31, 2007, Alliance Consulting had 593 full-time employees and approximately 185 active subcontractors. Alliance Consulting believes its relationship with its employees and subcontractors is good.

     Sales and Marketing; Customers. Alliance Consulting uses a customer relationship-based approach to generating new clients and new engagements with existing clients. Some of Alliance Consulting’s clients include Wyeth Pharmaceuticals, Pfizer Pharmaceuticals and Johnson & Johnson. Alliance Consulting markets its services through a direct sales force, which is based in regional and satellite offices. Account executives are assigned to a limited number of accounts so they can develop an in-depth understanding of each client’s individual needs and form strong client relationships. In 2007, two customers each represented more than 10% of Alliance Consulting’s revenue.

     Following common industry practice, many of Alliance Consulting’s orders are terminable by either the client or Alliance Consulting on short notice. Because many clients can cancel or reduce the scope of their engagements on short notice, Alliance Consulting does not believe that backlog is a reliable indication of future business.

     Competition. Alliance Consulting’s revenue potential is largely dependent upon target customers’ spending for IT services and its own ability to compete with local, national and offshore providers of consulting services. Many

of these competitors (such as major IT consulting firms) have greater financial and human resources than Alliance Consulting. Alliance Consulting believes that the basis for competition in its industry includes the ability to create an integrated solution that best meets the needs of an individual customer, provide competitive cost pricing models, develop strong client relationships, provide high-quality consultants with industry and process specific technical expertise, and offer flexible client-service delivery options.

Clarient, Inc.		(Safeguard Ownership: 58.7%)

     Opportunity. Safeguard first took an ownership interest in Clarient in 1996, and we have increased our ownership position over time. Shares of Clarient’s common stock trade on the Nasdaq Capital Market under the symbol “CLRT.”

     We believe that increasingly specific targeted cancer therapies will need more specialized and complex diagnostic tests in order to improve cancer therapy outcomes. The continued aging of the U.S. and European populations, coupled with the higher incidence of cancer among seniors, support an expanding market for Clarient’s services. Clarient is now leveraging its technical expertise, access to proprietary technology and capital investment to provide its diagnostic services to a larger customer base.

     General. Clarient (www.clarientinc.com) is a comprehensive cancer diagnostics company providing cellular assessment and cancer characterization to community pathologists.

     Clarient’s goal is to be positioned to capture a substantially greater portion of the cancer diagnostics market by serving the needs of the market from drug discovery through clinical practice through a technology-empowered laboratory, deploying the best available testing platforms and leveraging the internet to deliver this information to the community pathologist.

     Strategy. Clarient’s mission is to be the leader in cancer diagnostics by building collaborative relationships with the health care community in order to translate cancer discovery and information into better patient care. To accomplish this, Clarient focuses on identifying high-quality opportunities to increase profitability and differentiate its service offerings in its highly-competitive market. An important aspect of Clarient’s strategy is to combine its medical expertise with proprietary technologies to develop novel diagnostic tests and analytical capabilities. In particular, Clarient is seeking to deploy novel markers, or biomarkers, such as the Clarient Insight™ Dx Breast Cancer Profile, which was announced in January 2008. Novel markers are characteristics of an individual’s tumor or disease that, once identified and qualified, allow for more accurate prognosis, diagnosis and treatment. Broader discovery and use of novel markers is hoped to clarify and simplify decisions for healthcare providers and the biopharmaceutical industry. The growing demand for personalized medicine has generated a need for these novel diagnostics.

     Services. Clarient provides a wide variety of cancer diagnostics and consultative services, ranging from technical laboratory services to professional interpretation. By combining core competencies in image analysis and data quantification with its knowledge of virtual environments, Clarient has created valuable service offerings for pathologists in practice and research. Clarient believes that the growing need for precise diagnosis combined with the ability to put comprehensive information into a single, coherent computer-accessible platform for clinicians presents development opportunities for new directed diagnostic services using the image analysis platform. Clarient offers a broad menu of specialized technologies such as image analysis, fluorescent in situ hybridization (FISH), flow cytometry, cytogenetics and molecular diagnostics. Within anatomic pathology, Clarient focuses on the top four solid tumors (breast, prostate, lung and colon), which represent 60% of all new cases.

     Clarient also provides hematopathology testing for leukemia and lymphoma, and expects to expand service offerings as new assays emerge. For biopharmaceutical companies and other research organizations, Clarient offers a complete compliment of commercial services to assist their efforts, ranging from drug discovery to the development of directed diagnostics through clinical trials.

     Sale of Technology Group. On March 8, 2007, Clarient sold its technology group (which developed, manufactured and marketed the ACIS Automated Image Analysis System) and related intellectual property to Carl

Zeiss MicroImaging, Inc. (the “ACIS Sale”) for an aggregate purchase price of $12.5 million (including $1.5 million in contingent purchase price). As part of the ACIS Sale, Clarient entered into a license agreement with Carl Zeiss MicroImaging, Inc. (“Zeiss”) pursuant to which Zeiss granted the Company a non-exclusive, perpetual and royalty-free license to certain of the transferred intellectual property for use in connection with imaging applications and the Company’s laboratory services business. Clarient and Zeiss also committed to pursue a strategic joint development arrangement to develop novel markers and new menu applications for the ACIS product line.

     Sales and Marketing. Clarient’s sales resources are dedicated to the growing diagnostic services business. Targeting community pathology practices and hospitals, the sales process is designed to understand the customer’s needs and develop appropriate solutions from its range of laboratory service options. Clarient’s sales approach focuses on expanding organic sales within its current customer base as well as potential customers. Marketing efforts focus on establishing a strong and distinctive brand identity for Clarient’s diagnostic services within the targeted segment of community pathologists. Clarient uses its CONTiNUUM™ national and regional seminar and webinar programs designed to provide a one-on-one collaborative environment for its advisory board and medical staff to interact directly with potential customers.

     Patents and Proprietary Technology. Clarient seeks to broaden the scope of its intellectual property portfolio for laboratory services methodologies, using automated cellular instrumentation, rare event identification, and proteomic mathematic capabilities. As part of the ACIS Sale, Clarient transferred its patent portfolio and related intellectual property to Zeiss. However, Clarient retained a license to use certain of that intellectual property, which Clarient plans to use in the development of new tests, applications, unique analytical capabilities and other service offerings, including novel markers. Clarient also relies on trade secrets and proprietary know-how that it seeks to protect, in part, through confidentiality agreements with employees and consultants. If Clarient is unable to protect its patents and proprietary rights, its reputation and competitiveness in the marketplace could be materially damaged.

     Competition. The clinical laboratory business is highly competitive and dominated by national laboratories, as well as many smaller niche and regional organizations. Clarient’s primary competitors include two large independent laboratories (Laboratory Corporation of America Holdings (LabCorp) and Quest Diagnostics) that offer a wide test and product menu on a national scale. These large national laboratories have significantly greater financial, sales and logistical resources than Clarient and may be able to achieve greater economies of scale, or establish contracts with payer groups on more favorable terms. Clarient also competes with smaller laboratories or businesses that address a narrow segment of the esoteric market by offering very specific assay menus. Finally, institutions that are affiliated with large medical centers or universities compete with Clarient on the limited basis of perceived quality of service.

     Companies within the diagnostic testing industry are also responding to new technologies, products and services. We believe some of Clarient’s current competitors—as well as other potential competitors—are actively conducting research and development activities in areas where Clarient currently operates. The products and services these companies develop may directly compete with Clarient’s current or potential services, or may address other areas of diagnostic evaluation, making those companies compete more effectively against Clarient. Furthermore, because the diagnostic testing market is sensitive to the timing of product and service availability, quickly developing and achieving clinical study and regulatory success may provide an advantage.

     Governmental Regulation. Because Clarient operates a clinical laboratory, many aspects of its business are subject to the complex federal, state and local regulations applicable to laboratory operations. In particular, the federal Clinical Laboratory Improvement Amendments (CLIA) specify the quality standards for proficiency testing, patient test management, quality control, personnel qualifications and quality assurance for Clarient’s laboratory. Clarient received its CLIA certification in late 2004. In addition, Clarient’s facilities have been issued licenses to provide laboratory diagnostic services in California. The State of California could prohibit provision of laboratory services if Clarient fails to maintain or renew these licenses. Additionally, requirements of states where laboratory

services may be provided have various application and provisional requirements that must be satisfied. Laws and regulations pertaining to the services provided by Clarient are subject to change and depend heavily on administrative interpretations by federal and state agencies.

     Facilities. Clarient houses all of its operations in a 78,000 square foot facility in Aliso Viejo, California Clarient currently occupies approximately 43,000 square feet of the facility, and has subleased the remaining 34,000 square feet.

     Employees. At December 31, 2007, Clarient had 208 employees: 130 in laboratory diagnostics positions (including product development); 48 in finance, executive and administrative positions; and 30 in sales and marketing positions. Clarient believes that its relationship with its employees is good.

Laureate Pharma, Inc.		(Safeguard Ownership: 100%)

     Opportunity. We acquired the business and assets operated by Laureate Pharma in December 2004. We made this acquisition because we recognized that the substantial growth in sales of biotechnology products has spurred a significant investment by large pharmaceutical companies and smaller biotechnology companies in the development of new biotechnology products for human therapeutics. Few of these companies, particularly biotechnology companies have the resources or expertise to manufacture the quantities of drug product needed to conduct clinical trials and commercialize approved products. Laureate Pharma provides its customers with a cost-effective, lower-risk alternative, which also improves the quality of their products and processes and reduces time-to-market.

     General. Laureate Pharma (www.laureatepharma.com) is a full-service contract manufacturing organization (CMO) providing critical development and current Good Manufacturing Practices (cGMP) manufacturing services. Laureate Pharma manufactures small- and medium-scale quantities of biopharmaceutical products in its FDA-registered facility. Laureate Pharma’s clients use these supplies (depending on their regulatory status) for preclinical studies, clinical trials or commercial sales. Laureate Pharma seeks to become a leader in this segment of the biopharmaceutical industry by delivering superior development and manufacturing services to its customers. Laureate Pharma’s headquarters, manufacturing and warehouse facilities are in Princeton, New Jersey, where it leases 76,000 square feet in three locations.

     Strategy. Laureate Pharma’s strategy is to build on its customer relationships and generate new customers, to increase its new services and products, and to maintain its reputation for high quality in the use of state-of-the-art technology to deliver products and services that meet applicable regulatory, environmental and safety requirements, including cGMPs.

     Laureate Pharma believes its growth opportunities are driven by the following industry trends:

	•		Substantial growth in the development of biotechnology products for human therapeutics, representing an increasing percentage of the total pharma pipeline.
	•		Demand for manufacturing capacity, along with the significant capital required to build capacity, creating increased opportunities for outsourced services.
	•		Need for product development support, equipment and facilities by biotechnology companies without existing capabilities.

     We believe Laureate Pharma’s broad range of services and deep development expertise position it to benefit from these trends.

     Services. Laureate Pharma’s services include:

•

Bioprocessing, which focuses on clinical stage and small- to medium-scale commercial biopharmaceutical products and comprises the essential steps to support the development and commercialization of customers’ products, including:

	•		Cell Line Development and Optimization — to improve and maximize protein productivity of production cell lines in optimal growth media; the cell lines in turn produce the product protein.
	•		Process Development — to bring the product from clinical laboratory scale to pilot production and on to clinical- and commercial-scale production; essential to make sufficient product to support clinical trials and small-scale commercial production.
	•		Purification Development — to design and validate procedures for removal of impurities and purification of products that comply with regulatory requirements.
	•		Bioreactor Production — using stirred-tank, disposable bag and hollow-fiber mammalian cell culture bioreactors ranging from 5 to 2,500 liters to produce biopharmaceutical protein products.
	•		Downstream Processing — to develop and operate robust purification processes for cGMP manufacture of clients’ products; Laureate Pharma also performs process validation studies as may be required for clients’ products.
	•		Aseptic Filling — aseptic vial filling of biopharmaceutical and drug products in batch sizes up to 20,000 vials or 200 liters of bulk volume.

	•		Quality Control, which includes analytical and microbiology testing of raw materials, in-process and finished products.
	•		Quality Assurance, which includes preparation, control and review of documentation, including standard operating procedures (SOPs), master batch records, test procedures and specifications. Laureate Pharma reviews and releases all controlled materials, including raw materials, intermediates and products.

     Research and Development. Laureate Pharma’s research and development efforts are focused on improving its technology and developing processes for the manufacture of new products to meet customer requirements. The primary goals are to improve manufacturing processes to reduce costs, improve quality and increase capacity.

     Intellectual Property. Laureate Pharma relies primarily on know-how in its manufacturing processes and techniques not generally known to other life sciences companies to develop and maintain its market position.

     Sales and Marketing; Customers. Laureate Pharma provides process development and manufacturing services on a contract basis to biopharmaceutical companies. Laureate Pharma’s customers generally include small to mid-sized biotechnology and pharmaceutical companies seeking outsourced bioprocessing manufacturing and development services. Laureate Pharma’s customers are often dependent on the availability of funding to pursue drugs that are in early stages of clinical trials and thus have high failure rates. The loss of one or more customers can result in significant swings in profitability from quarter to quarter and year to year. Although there has been a trend among biopharmaceutical companies to outsource drug production functions, this trend may not continue. Although clients tend to maintain one manufacturer through clinical trial phases and even early commercial production, many of Laureate Pharma’s contracts are of short duration. As a result, Laureate Pharma seeks new contracts to sustain its revenue. In 2007, five customers each represented more than 10% of Laureate Pharma’s revenue.

     Competition. Laureate Pharma’s primary competitors focus on supplying clinical scale contract biopharmaceutical development and manufacturing services to biotechnology companies. Generally, the larger of these competitors focus on larger quantities and scale of manufacturing capacity. Laureate Pharma focuses on process development and manufacturing services for clinical and small- and medium-scale commercial production and maintains a reputation for regulatory compliance, a commitment to quality and excellent early process development services. Laureate Pharma believes that customers in its target markets display loyalty to their initial

services provider. Therefore, it may be difficult to generate sales to potential customers who have purchased development and manufacturing services from competitors. To the extent Laureate Pharma is unable to be the first to develop and supply new biopharmaceutical products for its clients, its competitive position may suffer.

     Employees. At December 31, 2007, Laureate Pharma had 114 full-time employees and believes its employee relations are good.

     Other Partner Companies and Funds

     Following are six of the new partner companies we added in 2007; these partner companies are not consolidated based on the level of our voting interests, which are shown as of December 31, 2007.

Advanced BioHealing, Inc.		(Safeguard Ownership: 28.3%)

     General. ABH (www.advancedbiohealing.com), a leader in the science of regenerative medicine, develops and markets cell-based and tissue-engineered products for wound healing. In 2007 ABH launched commercial sales of Dermagraft®, an artificial skin tissue that speeds the healing of foot ulcers, a common affliction of persons with diabetes.

     Opportunity. As the U.S. population ages, the payers in our healthcare system are applying pressure to increase treatment effectiveness while reducing costs. ABH helps healthcare providers meet these constraints for wound patients by providing an innovative and value-oriented healthcare product. We believe the market for ABH’s products will continue to grow as its treatments are adopted and approved for other indications.

Alverix, Inc.		(Safeguard Ownership: 50.0%)

     General. Alverix (www.alverix.com), a point-of-care (“POC”) diagnostic technology provider, is building on 30 years of expertise in optical sensors, image processing, software and signal enhancement algorithms to develop proprietary technologies for low-cost, portable detection devices for medical diagnostics and other applications. When combined with existing diagnostics tests, or with assays currently being developed, Alverix’s POC devices enable central laboratory quality results to be done where test information is critical to patient care. Previously, this level of performance required expensive bench-top instrumentation. Current applications include testing for drugs of abuse (“DOA”), cardiac, cancer and infectious disease.

     Opportunity. As we focus our efforts on companies bringing advanced diagnostic technologies to the market, Alverix presents an opportunity to capitalize on two macro trends: first, the demand for improved cost and efficiency of healthcare delivery; and second, greater consumer control of personal healthcare. Both of these trends are increasing demand for rapid POC tests. Alverix’s detection devices provide immediate, accurate results in POC venues (such as physicians’ offices, clinics, retail environments, the workplace, or in the home), with the potential for greater functionality and sensitivity. Because of its disruptive technologies, we believe Alverix will be able to exploit significant portions of the fragmented multi-billion dollar POC central laboratory market. Additionally, Alverix’s flexible technology platform will permit future product expansions that increase access to new and existing diagnostic tests, as well as promoting next-generation diagnostics designed for broad use by physicians and patients.

Avid Radiopharmaceuticals, Inc.		(Safeguard Ownership: 14.2%)

     General. Avid (www.avidrp.com) is a leader in the development of radiopharmaceutical imaging agents for neurodegenerative diseases, a fast-growing, underserved market. Avid is developing and testing molecular imaging products for diabetes and a variety of neurodegenerative diseases such as Alzheimer’s disease (“AD”), Parkinson’s disease (“PD”) and Dementia with Lewy Bodies (“DLB”). Avid’s innovative molecular imaging products are in Phase I clinical testing and have the potential to revolutionize early detection, diagnosis and monitoring of these disorders.

     Opportunity. Avid is developing a new technology that targets the increasing demand for diagnostics for an aging population. We believe that this demand for effective and value-oriented healthcare products will only increase in the future, and Avid is well-positioned to address the critical need to improve diagnosis and characterization of AD, PD and other chronic neurological disorders. The World Health Organization reports that nearly one billion people worldwide are affected by neurological disorders, and an estimated 6.8 million people die every year as a result of neurological disorders. As the global population ages, there is an increasing demand for innovative, accurate solutions to diagnose these diseases. Avid’s vision is to develop novel diagnostic imaging agents to enable earlier and more accurate diagnosis, treatment selection and therapeutic monitoring for these significant medical disorders.

Beyond.com, Inc.		(Safeguard Ownership: 37.1%)

     General. Beyond.com (www.beyond.com) is an online provider of career services and technology to job seekers and employers throughout the United States and Canada. Beyond.com supports the largest niche and local career network, comprised of more than 15,000 online communities, monetizing its go-local model via job posting and career services, online lead generation and online advertising. The Beyond.com network of websites attracts an average of more than three million unique visitors per month and powers career portals for some of the internet’s best known career brands, media publishers and well-established career portals.

     Opportunity. Beyond.com has capitalized on go-local and niche online recruitment advertising to build an internet-based business with real competitive advantages. Its multi-tenant and multi-site, customizable platform allows niche, channel and local Web properties to rapidly offer career services to job seekers and employers, while simultaneously driving advertising sales. Beyond.com is also a leader in the transition from print to online recruitment, a field where online job listings are projected to hit $11 billion by 2011. Already one of the industry’s leading career platforms, Beyond.com is well positioned for growth by expanding its partner network and generating more revenue opportunities from targeted, local job advertisements.

Bridgevine, Inc. (formerly Broadband National, Inc.)		(Safeguard Ownership: 20.9%)

     General. Bridgevine (www.bridgevine.com) is an internet media company that uses its unique marketing platform to power a variety of online customer acquisition programs, such as shopping websites, email campaigns, search engine marketing and kiosks. Bridgevine simplifies the online experience, enabling end-users to purchase services such as high speed internet, digital phone, VoIP, digital TV, home security, internet security and music. Bridgevine is expanding into new vertical markets and continuing development of its technology platform (which is also licensed by merchandisers, call centers, and big box retailers). Founded to capitalize on a fragmented and confusing online services marketplace, Bridgevine supplies a simplified shopping experience coupled with unique content and promotions, education and comparison services to end-users. Residential and small business customers can use Bridgevine’s website (powered by its technology platform) to compare thousands of digital services offerings from more than 100 key advertisers. Bridgevine’s advertising partners include an impressive list of market leaders including Comcast, AT&T, Charter, Real Networks, Dlink, Vonage, Netflix, Qwest, Time Warner and Verizon.

     Opportunity. Bridgevine’s technology platform provides a single point of contact for consumers, exposing them to a wide range of digital service providers with a single interface. Consistent with our strategic focus, Bridgevine has developed an internet-based business solution to a business and consumer need. Bridgevine participates in the large and growing customer generation segment of market for digital services in the U.S., which has been projected to grow to $10 billion by 2014. Bridgevine’s technology platform facilitates the rapid adoption of emerging digital services such as VoIP, digital music downloads and satellite radio by allowing efficient and effective consumer comparison. As additional services migrate to the digital domain, Bridgevine will be well positioned to take advantage of broader market opportunities.

Cellumen, Inc.		(Safeguard Ownership: 40.3%)

     General. Cellumen (www.cellumen.com) delivers proprietary services and products to support drug discovery and development. By leveraging their cellular systems biology (“CSB”) technology, Cellumen’s objective is to

improve the efficacy, decrease the toxicity and optimize patient stratification and treatment for pharmaceutical companies’ new and existing drugs. The company’s functional biology approach tags a variety of bio sensors and cell manipulation reagents within various cell types to examine their response to drugs and biologics. The goal of this approach is to obtain accurate measures of efficacy and potential toxicity of these drugs and biologics well before entering expensive clinical testing. Another goal is to improve clinical trial enrollment and increase new drug efficacy by conducting theranostic (predicting response to therapeutics) patient profiling. Cellumen is continuing to develop and commercialize its product catalog and CSB platform.

     Opportunity. Through CSB, Cellumen is striving to be the leading provider of proprietary solutions for pharmaceutical companies, thereby driving down costs and increasing the efficacy of drug development and clinical trials. Cellumen’s breakthrough technology is positioned to tap into a $2 billion market opportunity by focusing on the pharmaceutical industry’s continuous push to improve product development timelines. With the current failure rate in drug development surpassing 90%, the pharmaceutical industry has shown that it values more efficient drug discovery methods and technologies. Cellumen has positioned itself to address this need for a lucrative and expanding market.

     Other Partner Companies and Funds. We hold minority interests in a number of other companies and funds. Following are summary descriptions of some of these companies, none of which are consolidated based on the level of our voting interests.

				% Owned By
				Safeguard at
Company		Description of Business		December 31, 2007
Advantedge Healthcare Solutions, Inc. (www.ahsrcm.com)		Advanced medical billing software and services provider, operating both as a business process outsourcer (BPO) and an applications services provider (ASP). AHS employs proprietary, web-based technology and continuous business process improvement methods to increase the operating efficiencies of medical billing and to improve results for its physician customers.			35.2	%
Authentium, Inc. (www.authentium.com)		Developer of security software as a service (SaaS) technologies and systems. Its Extensible Security Platform (ESP) allows users to customize security technologies from Authentium and others into their products and services. Authentium’s customers—ISPs, cable companies, carriers and other service providers—in turn distribute these bundled solutions to residential and enterprise customers. Authentium also offers SafeCentral, a web service providing protection against identity theft in web transactions.			19.9	%
Neuronyx, Inc. (www.neuronyx.com)		Development-stage biopharmaceutical company, developing cell based therapeutic products. Neuronyx leverages the ability of adult bone marrow-derived cells to repair, regenerate and remodel tissue in acute and chronic disease settings.			6.8	%
NextPoint Networks, Inc. (formerly NexTone Communications, Inc.) (www.nextpointnetworks.com)		Developer of carrier-grade interconnect, access and fixed-mobile connectivity (FMC) solutions that enable operators to navigate the borders among growing and evolving fixed and mobile networks. These solutions are provided through NextPoint’s IntelliConnect System, which includes six products and three hardware platforms built to deliver intelligent, secure and scalable session management among fixed, mobile and blended IP networks. NextPoint products, as standalone devices or in combination with other members of the IntelliConnect System, make increasingly complex networks easier to manage.			16.5	%

				% Owned By
				Safeguard at
Company		Description of Business		December 31, 2007
NuPathe, Inc. (www.nupathe.com)		Specialty pharmaceutical company focused on acquiring and developing innovative therapeutic products for the treatment of neurological or psychiatric disease. NuPathe’s lead product is a transdermal patch that delivers the drug, sumatriptan, for the treatment of migraines. The ability to deliver migraine medication through a fast and long-acting transdermal patch may provide an alternative for the large percentage of migraine patients who suffer from nausea, vomiting or migraine recurrence. NuPathe has an additional product in preclinical development for Parkinson’s disease.			26.2	%
Portico Systems, Inc. (www.porticosys.com)		Software solutions provider for regional and national health plans looking to optimize provider network operations and streamline business processes. The Portico Provider Platform is a suite of solutions that helps health plans address challenges such as growing healthcare costs, quality, consumerism, competition and regulatory changes while creating an agile infrastructure that lays a foundation for efficiency and flexibility. The Portico Provider Platform streamlines provider network processes and accelerates new revenue streams, enhancing employee effectiveness and optimizing provider relationships.			46.9	%
ProModel Corporation (www.promodel.com)		Combines professional services and innovative technology to deliver business process optimization and decision support solutions to the military as well as pharmaceutical, healthcare and manufacturing and logistics industries.			49.7	%
Rubicor Medical, Inc. (www.rubicor.com)		Developer of technologically-advanced, disposable, minimally-invasive breast biopsy and tumor removal devices. Rubicor’s three FDA-cleared devices represent attractive alternatives to existing procedures and technology for breast lesion biopsy and removal, resulting in a more accurate assessment of the sample.			35.7	%

     We also participate in earlier stage technology and life sciences development through our interests in several private equity funds. During 2007, we provided a total of $1.4 million in funding of previously committed capital to these funds.

FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS

     Information on revenue, operating income (loss) and net income (loss) from continuing operations for each operating segment of Safeguard’s business for each of the three years in the period ended December 31, 2007 and assets as of December 31, 2007 and 2006 is contained in Note 21 to the Consolidated Financial Statements.

OTHER INFORMATION

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

AVAILABLE INFORMATION

     All periodic and current reports, registration statements, and other filings that Safeguard is required to file with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, are available free of charge from the SEC’s website (http://www.sec.gov) or public reference room at 450 Fifth Street N.W., Washington, DC 20549 (1-800-SEC-0330) or through Safeguard’s internet website (http://www.safeguard.com). Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. Copies of these reports (excluding exhibits) also may be obtained free of charge, upon written request to: Investor Relations, Safeguard Scientifics, Inc., 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087.

     The internet website addresses for Safeguard and its companies are included in this report for identification purposes. The information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

     The following corporate governance documents are available free of charge on Safeguard’s website: the charters of our Audit, Compensation and Nominating & Corporate Governance Committees, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics. Copies of these corporate governance documents also may be obtained by any shareholder, free of charge, upon written request to: Corporate Secretary, Safeguard Scientifics, Inc., 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087. We also will post on our website any amendments to or waivers of our Code of Business Conduct and Ethics that relate to our directors and executive officers.

Item 1A. Risk Factors

     You should carefully consider the information set forth below. The following risk factors describe situations in which our business, financial condition or results of operations could be materially harmed, and the value of our securities may decline. You should also refer to other information included or incorporated by reference in this report.

Risks Related to our Business

Our business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, ultimately, the performance of our partner companies, which is uncertain.

     If we make poor decisions regarding the deployment of capital into new or existing partner companies our business model will not succeed. Our success as a company ultimately depends on our ability to choose the right partner companies. If our partner companies do not succeed, the value of our assets could be significantly reduced and require substantial impairments or write-offs, and our results of operations and the price of our common stock could decline. The risks relating to our partner companies include:

	•		most of our partner companies have a history of operating losses or a limited operating history;
	•		intensifying competition affecting the products and services our partner companies offer could adversely affect their businesses, financial condition, results of operations and prospects for growth;
	•		inability to adapt to the rapidly changing marketplaces;
	•		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;
	•		inability to protect their proprietary rights and/or infringing on the proprietary rights of others;
	•		certain of our partner companies could face legal liabilities from claims made against them based upon their operations, products or work;
	•		the impact of economic downturns on their operations, results and growth prospects;
	•		inability to attract and retain qualified personnel; and

•

government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies.

     These risks are discussed in greater detail under the caption “— Risks Related to Our Partner Companies” below.

Our partner companies (and the nature of our interests in them) could vary widely from period to period.

     As part of our strategy, we continually assess the value to our shareholders of our interests in our partner companies. We also regularly evaluate alternative uses for our capital resources. As a result, depending on market conditions, growth prospects and other key factors, we may at any time:

	•		change the partner companies on which we focus;
	•		sell some or all of our interests in any of our partner companies; or
	•		otherwise change the nature of our interests in our partner companies.

     Therefore, the nature of our holdings could vary significantly from period to period.

     Our consolidated financial results also may vary significantly based upon which partner companies are included in our financial statements. For example:

	•		For the twelve months ended December 31, 2007, we consolidated the results of operations of Acsis, Alliance Consulting, Clarient and Laureate Pharma.
	•		We completed the sale of Mantas, Inc. and Pacific Title & Art Studio, Inc. (in October 2006 and March 2007, respectively), and their respective results of operations for the periods prior to such sales are presented as discontinued operations in the consolidated financial statements.

     The Bundle Transaction, expected to be consummated during the second quarter of 2008, will include the sale of three of our consolidated partner companies — Acsis, Alliance Consulting, and Laureate Pharma. See Note 24 for unaudited pro forma condensed consolidated financial information as of December 31, 2007 and for the years ended December 31, 2007, 2006 and 2005, giving effect to the Bundle Transaction.

Our business model does not rely, or plan, upon the receipt of operating cash flows from our partner companies. Our partner companies currently provide us with no cash flow from their operations. We rely on cash on hand, liquidity events and our ability to generate cash from capital raising activities to finance our operations.

     We need capital to develop new partner company relationships and to fund the capital needs of our existing partner companies. We also need cash to service and repay our outstanding debt, finance our corporate overhead and meet our existing funding commitments. As a result, we have substantial cash requirements. Our partner companies currently provide us with no cash flow from their operations. To the extent our partner companies generate any cash from operations, they generally retain the funds to develop their own businesses. As a result, we must rely on cash on hand, liquidity events and new capital raising activities to meet our cash needs. If we are unable to find ways of monetizing our holdings or to raise additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business efforts, constrain our ability to execute our business strategy and limit our ability to provide financial support to our existing partner companies.

Fluctuations in the price of the common stock of our publicly traded holdings may affect the price of our common stock.

     Fluctuations in the market prices of the common stock of our publicly traded holdings are likely to affect the price of our common stock. The market prices of our publicly traded holdings have been highly volatile and subject to fluctuations unrelated or disproportionate to operating performance. For example, the aggregate market value of our holdings in Clarient (Nasdaq: CLRT), our only public company holding, at December 31, 2007 was approximately $86.8 million, and at December 31, 2006 was approximately $72.8 million.

Intense competition from other acquirers of interests in companies could result in lower gains or possibly losses on our partner companies.

     We face intense competition from other capital providers as we acquire and develop interests in our partner companies. Some of our competitors have more experience identifying and acquiring companies and have greater financial and management resources, brand name recognition or industry contacts than we have. Despite making most of our acquisitions at a stage when our partner companies are not publicly traded, we may still pay higher prices for those equity interests because of higher valuations of similar public companies and competition from other acquirers and capital providers, which could result in lower gains or possibly losses.

We may be unable to obtain maximum value for our holdings or sell our holdings on a timely basis.

     We hold significant positions in our partner companies. Consequently, if we were to divest all or part of our holdings in a partner company, we may have to sell our interests at a relative discount to a price which may be received by a seller of a smaller portion. For partner companies with publicly traded stock, we may be unable to sell our holdings at then-quoted market prices. The trading volume and public float in the common stock of our publicly traded partner companies are small relative to our holdings. As a result, any significant open-market divestiture by us of our holdings in these partner companies, if possible at all, would likely have a material adverse effect on the market price of their common stock and on our proceeds from such a divestiture. Additionally, we may not be able to take our partner companies public as a means of monetizing our position or creating shareholder value.

     Registration and other requirements under applicable securities laws may adversely affect our ability to dispose of our holdings on a timely basis.

Our success is dependent on our executive management.

     Our success is dependent on our executive management team’s ability to execute our strategy. A loss of one or more of the members of our executive management team without adequate replacement could have a material adverse effect on us.

Our business strategy may not be successful if valuations in the market sectors in which our partner companies participate decline.

     Our strategy involves creating value for our shareholders by helping our partner companies build value and, if appropriate, accessing the public and private capital markets. Therefore, our success is dependent on the value of our partner companies as determined by the public and private capital markets. Many factors, including reduced market interest, may cause the market value of our publicly traded partner companies to decline. If valuations in the market sectors in which our partner companies participate decline, their access to the public and private capital markets on terms acceptable to them may be limited.

Our partner companies could make business decisions that are not in our best interests or with which we do not agree, which could impair the value of our holdings.

     Although we may seek a controlling equity interest and participation in the management of our partner companies, we may not be able to control the significant business decisions of our partner companies. We may have shared control or no control over some of our partner companies. In addition, although we currently own a controlling interest in some of our partner companies, we may not maintain this controlling interest. Acquisitions of interests in partner companies in which we share or have no control, and the dilution of our interests in or loss of control of partner companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:

	•		the management of a partner company having economic or business interests or objectives that are different than ours; and
	•		partner companies not taking our advice with respect to the financial or operating difficulties they may encounter.

     Our inability to control our partner companies also could prevent us from assisting them, financially or otherwise, or could prevent us from liquidating our interests in them at a time or at a price that is favorable to us. Additionally, our partner companies may not act in ways that are consistent with our business strategy. These factors could hamper our ability to maximize returns on our interests and cause us to recognize losses on our interests in these partner companies.

We may have to buy, sell or retain assets when we would otherwise not wish to do so in order to avoid registration under the Investment Company Act.

     The Investment Company Act of 1940 regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than majority-owned partner companies are generally considered “investment securities” for purpose 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 technology and life sciences companies to build value; we are not engaged primarily in the business of investing, reinvesting or trading in securities. We are in compliance with the 40% Test. Consequently, we do not believe that we are an investment company under the Investment Company Act.

     We monitor our compliance with the 40% Test and seek to conduct our business activities to comply with this test. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. In order to continue to comply with the 40% Test, we may need to take various actions which we would otherwise not pursue. For example, we may need to retain a majority interest in a partner company that we no longer consider strategic, we may not be able to acquire an interest in a company unless we are able to obtain majority ownership interest in the company, or we may be limited in the manner or timing in which we sell our interests in a partner company. Our ownership levels also may be affected if our partner companies are acquired by third parties or if our partner companies issue stock which dilutes our majority ownership. The actions we may need to take to address these issues while maintaining compliance with the 40% Test could adversely affect our ability to create and realize value at our partner companies.

Risks Related to our Partner Companies

Most of our partner companies have a history of operating losses or limited operating history and may never be profitable.

     Most of our partner companies have a history of operating losses 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 partner companies will increase substantially in the foreseeable future as they continue to develop products and services, increase sales and marketing efforts, and expand operations.

Our partner companies face intense competition, which could adversely affect their business, financial condition, results of operations and prospects for growth.

     There is intense competition in the technology and life sciences marketplaces, and we expect competition to intensify in the future. Our business, financial condition, results of operations and prospects for growth will be materially adversely affected if our partner companies are not able to compete successfully. Many of the present and potential competitors may have greater financial, technical, marketing and other resources than those of our partner companies. This may place our partner companies at a disadvantage in responding to the offerings of their competitors, technological changes or changes in client requirements. Also, our partner companies may be at a competitive disadvantage because many of their competitors have greater name recognition, more extensive client bases and a broader range of product offerings. In addition, our partner companies may compete against one another.

Our partner companies may fail if they do not adapt to the rapidly changing technology and life sciences marketplaces.

     If our partner companies fail to adapt to rapid changes in technology and customer and supplier demands, they may not become or remain profitable. There is no assurance that the products and services of our partner companies will achieve or maintain market penetration or commercial success, or that the businesses of our partner companies will be successful.

The technology and life sciences marketplaces are characterized by:

	•		rapidly changing technology;
	•		evolving industry standards;
	•		frequent new products and services;
	•		shifting distribution channels;
	•		evolving government regulation;
	•		frequently changing intellectual property landscapes; and
	•		changing customer demands.

     Our future success will depend on our partner companies’ ability to adapt to these rapidly evolving marketplaces. They may not be able to adequately or economically adapt their products and services, develop new products and services or establish and maintain effective distribution channels for their products and services. If our partner companies are unable to offer competitive products and services or maintain effective distribution channels, they will sell fewer products and services and forego potential revenue, possibly causing them to lose money. In addition, we and our partner companies may not be able to respond to the rapid technology changes in an economically efficient manner, and our partner companies may become or remain unprofitable.

Many of our partner companies may grow rapidly and may be unable to manage their growth.

     We expect some of our partner companies to grow rapidly. Rapid growth often places considerable operational, managerial and financial strain on a business. To successfully manage rapid growth, our partner companies must, among other things:

	•		rapidly improve, upgrade and expand their business infrastructures;
	•		scale up production operations;
	•		develop appropriate financial reporting controls;
	•		attract and maintain qualified personnel; and
	•		maintain appropriate levels of liquidity.

     If our partner companies are unable to manage their growth successfully, their ability to respond effectively to competition and to achieve or maintain profitability will be adversely affected.

Based on our business model, some or all of our partner companies will need to raise additional capital to fund their operations at any given time. We may not be able to fund some or all of such amounts, and such amounts may not be available from third parties on acceptable terms, if at all.

     We cannot be certain that our partner companies will be able to obtain additional financing on favorable terms, if at all. Because our resources and our ability to raise capital are limited, we may not be able to provide our partner companies with sufficient capital resources to enable them to reach a cash flow positive position. We also may fail to accurately project the capital needs of our partner companies for purposes of our cash flow planning. If our

partner companies need to but are not able to raise capital from us or other outside sources, then they may need to cease or scale back operations. In such event, our interest in any such partner company will become less valuable.

Our partner companies are subject to independent audits and the results of such independent audits could adversely impact our partner companies.

     As reported in its Form 10-K for the year ended December 31, 2007, Clarient’s independent auditors have determined that there is substantial doubt about Clarient’s ability to continue as a going concern. The going concern explanatory paragraph in Clarient’s audit opinion could have a negative impact on:

	•		Clarient’s ability to extend, renew or refinance its bank credit facility or to secure additional debt or equity financing in order to fund anticipated working capital needs and capital expenditures and to execute its strategy;
	•		Clarient’s relationships with existing customers or potential new customers; and
	•		Clarient’s stock price.

     If any of such events were to occur, the value of our holdings in Clarient could be adversely impacted.

Some of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others.

     Our partner companies assert various forms of intellectual property protection. Intellectual property may constitute an important part of our partner 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 partner companies will take reasonable efforts to protect the rights to their intellectual property, the complexity of international trade secret, copyright, trademark and patent law, coupled with the limited resources of these partner companies and the demands of quick delivery of products and services to market, create a risk that their efforts will prove inadequate to prevent misappropriation of our partner companies’ technology, or third parties may develop similar technology independently.

     Some of our partner companies also license intellectual property from third parties, and it is possible that they could become subject to infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally obtain representations as to the origin and ownership of such licensed intellectual property; however, this may not adequately protect them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject our partner companies to costly litigation and the diversion of their technical and management personnel from other business concerns. If our partner companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will increase and their profits, if any, will decrease.

     Third parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or other intellectual property claims. Even though we believe our partner companies’ products do not infringe any third-party’s patents, they may have to pay substantial damages, possibly including treble damages, if it is ultimately determined that they do. They may have to obtain a license to sell their products if it is determined that their products infringe another person’s intellectual property. Our partner companies might be prohibited from selling their products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement claims against our partner companies are without merit, defending these types of lawsuits takes significant time, may be expensive and may divert management attention from other business concerns.

Certain of our partner companies could face legal liabilities from claims made against their operations, products or work.

     The manufacture and sale of certain of our partner companies’ products entails an inherent risk of product liability. Certain of our partner companies maintain product liability insurance. Although none of our partner companies to date have experienced any material losses, 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 our partner companies’ revenue and income. In addition, many of the engagements of our partner companies involve projects that are critical to the operation of their clients’ businesses. If our partner companies fail to meet their contractual obligations, they could be subject to legal liability, which could adversely affect their business, operating results and financial condition. The provisions our partner companies typically include in their contracts, which are designed to limit their exposure to legal claims relating to their services and the applications they develop, may not protect our partner companies or may not be enforceable. Also, as consultants, some of our partner companies depend on their relationships with their clients and their reputation for high-quality services and integrity to retain and attract clients. As a result, claims made against our partner companies’ work may damage their reputation, which in turn could impact their ability to compete for new work and negatively impact their revenue and profitability.

Our partner companies’ success depends on their ability to attract and retain qualified personnel.

     Our partner companies are dependent upon their ability to attract and retain senior management and key personnel, including trained technical and marketing personnel. Our partner companies also will need to continue to

hire additional personnel as they expand. Some of our partner companies have employees represented by labor unions. Although these partner companies have not been the subject of a work stoppage, any future work stoppage could have a material adverse effect on their respective operations. A shortage in the availability of the requisite qualified personnel or work stoppage would limit the ability of our partner companies to grow, to increase sales of their existing products and services, and to launch new products and services.

Government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies.

     Failure to comply with applicable requirements of the FDA or comparable regulation in foreign countries can result in fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances, refusal to approve or clear new applications or notices and criminal prosecution. Manufacturers of pharmaceuticals and medical diagnostic devices and operators of laboratory facilities are subject to strict federal and state regulation regarding validation and the quality of manufacturing and laboratory facilities. Failure to comply with these quality regulation systems requirements could result in civil or criminal penalties or enforcement proceedings, including the recall of a product or a “cease distribution” order. The enactment of any additional laws or regulations that affect healthcare insurance policy and reimbursement (including Medicare reimbursement) could negatively affect our partner companies. If Medicare or private payors change the rates at which our partner companies or their customers are reimbursed by insurance providers for their products, such changes could adversely impact our partner companies.

Some of our partner companies are subject to significant environmental, health and safety regulation.

     Some of our partner companies are subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as to the safety and health of manufacturing and laboratory employees. In addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety.

Item 2. Properties

     Safeguard’s corporate headquarters and administrative offices in Wayne, Pennsylvania contain approximately 31,000 square feet of office space in one building. In October 2002, Safeguard sold this facility along with the office park in which our corporate headquarters and administrative offices are located. Safeguard leased back its corporate headquarters for a seven-year term with one five-year renewal option.

     Safeguard’s consolidated partner companies (as of December 31, 2007) lease various facilities throughout the United States and in certain non-U.S. locations. The physical properties occupied by each of our consolidated partner companies, under leases expiring between 2008 and 2015, are summarized below:

						Approximate
Company		Locations		Use		Square Footage
Acsis		New Jersey		Office/Sales/Development			38,000
Alliance Consulting		Pennsylvania and other locations in the U.S. and India (10 facilities)		Office/Sales/Development			83,000
Clarient		California		Office/Manufacturing/Laboratory Services			78,000
Laureate Pharma		New Jersey (three facilities)		Office/Manufacturing			76,000

     We believe that all of the existing facilities are suitable and adequate to meet the current needs of the respective partner companies. If new or additional space is needed, we believe each of the partner companies can readily obtain suitable replacement properties to support their needs on commercially reasonable terms. However, we note that Clarient’s and Laureate Pharma’s facilities are operated under and subject to various federal, state and local permits, rules and regulations. As a result, any extended interruption in the availability of these facilities could have a material adverse effect on the results of operations of the respective companies.

Item 3. Legal Proceedings

     We, as well as our partner companies, are involved in various claims and legal actions arising in the ordinary course of business. While in the current opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position or results of operations, no assurance can be given as to the outcome of these lawsuits, and one or more adverse rulings could have a material adverse effect on our consolidated financial position and results of operations, or that of our partner companies. See Note 17 for a discussion of ongoing claims and legal actions.

Item 4. Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2007.

ANNEX TO PART I — EXECUTIVE OFFICERS OF THE REGISTRANT

Name		Age				Position		Executive Officer Since
Peter J. Boni			62			President, Chief Executive Officer and Director			2005
James A. Datin			45			Executive Vice President and Managing Director, Life Sciences			2005
Raymond J. Land			63			Senior Vice President and Chief Financial Officer			2007
John A. Loftus			46			Executive Vice President and Managing Director, Technology			2004
Brian J. Sisko			47			Senior Vice President and General Counsel			2007

     Mr. Boni joined Safeguard as President and Chief Executive Officer in August 2005. Prior to joining Safeguard, Mr. Boni was an Operating Partner for Advent International, a global private equity firm with $10 billion under management, from April 2004 to August 2005; Chairman and Chief Executive Officer of Surebridge, Inc., an applications outsourcer serving the mid-market, from March 2002 to April 2004; Managing Principal of Vested Interest LLC, a management consulting firm, from January 2001 to March 2002; and President and Chief Executive Officer of Prime Response, Inc., an enterprise applications software provider, from February 1999 to January 2001. Mr. Boni is a director of Clarient, Inc.

     Mr. Datin joined Safeguard as Executive Vice President and Managing Director, Life Sciences Group in September 2005. Mr. Datin served as Chief Executive Officer of Touchpoint Solutions, Inc., a provider of software that enables customers to develop and deploy applications, content and media on multi-user interactive devices, from December 2004 to June 2005; Group President in 2004, and as Group President, International, from 2001 to 2003, of Dendrite International, a provider of sales, marketing, clinical and compliance solutions and services to global pharmaceutical and other life sciences companies; and Group Director, Corporate Business Strategy and Planning at GlaxoSmithKline, from 1999 to 2001, where he also was a member of the company’s Predictive Medicine Board of Directors that evaluated acquisitions and alliances. His prior experience also includes international assignments with and identifying strategic growth opportunities for E Merck and Baxter. Mr. Datin is a director of Clarient, Inc.

     Mr. Land joined Safeguard as Senior Vice President and Chief Financial Officer in June 2007. Prior to joining Safeguard, Mr. Land served as Executive Vice President and Chief Financial Officer from August 2006 through May 2007 of Medcenter Solutions, Inc., a global pharmaceutical marketing company specializing in online solutions for physicians, patients and sales representatives; Senior Vice President and Chief Financial Officer from June 2005 to July 2006 of Orchid Cellmark, Inc., a publicly traded DNA profiling company; Senior Vice President and Chief Financial Officer from 1997 to June 2005, of Genencor International, Inc., a biotechnology company; Senior Vice President, Chief Financial Officer of West Pharmaceutical Services, Inc., a publicly traded global manufacturer of packing and drug delivery products; multiple financial and managerial roles at Campbell Soup Company; and audit manager at Coopers & Lybrand (now PricewaterhouseCoopers). Mr. Land is a director of Anika Therapeutics, Inc., a publicly traded manufacturer of therapeutic products.

     Mr. Loftus joined Safeguard in May 2002, became Senior Vice President and Chief Technology Officer in December 2003 and Executive Vice President and Managing Director, Technology Group in September 2005. Mr. Loftus is a founder of Gestalt LLC where he served as Chief Technology Officer from September 2001 to May 2002. Mr. Loftus served as Senior Vice President, e-Solutions (and in other executive roles) at Breakaway Solutions from May 1999 until August 2001 (Breakaway Solutions filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in September 2001); and served as Senior Vice President and Chief Technology Officer of WPL Laboratories from February 1997 to May 1999. Mr. Loftus spent the first 14 years of his career in a variety of executive, management and engineering positions at GE and PECO Energy.

     Mr. Sisko joined Safeguard as Senior Vice President and General Counsel in August 2007. Prior to joining Safeguard, Mr. Sisko served as Chief Legal Officer, Senior Vice President and General Counsel of Traffic.com (at the time, a public company), a former partner company of Safeguard that is a leading provider of accurate, real-time traffic information in the United States, from February 2006 until June 2007 (following its acquisition by NAVTEQ Corporation in March 2007); Chief Operating Officer from February 2005 to January 2006 of Halo Technology Holdings, Inc., a public holding company for enterprise software businesses (Halo Technology Holdings filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in August 2007); ran B/T Business and Technology, an advisor and strategic management consultant to a variety of public and private companies, from January 2002 to February 2005; and was a Managing Director from April 2000 to January 2002, of Katalyst, LLC, a venture capital and consulting firm. Mr. Sisko also previously served as Senior Vice President—Corporate Development and General Counsel of National Media Corporation, at the time a New York Stock Exchange-listed multi-media marketing company with operations in 70 countries, and as a partner in the corporate finance, mergers and acquisitions practice group of the Philadelphia-based law firm, Klehr, Harrison, Harvey, Branzburg & Ellers LLP.

PART II.

     Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Safeguard’s common stock is listed on the New York Stock Exchange (Symbol: SFE). The high and low sale prices reported within each quarter of 2007 and 2006 are as follows:

		High				Low
Fiscal year 2007:
First quarter		$	3.15			$	2.31
Second quarter			3.28				2.40
Third quarter			2.77				1.87
Fourth quarter			2.55				1.74
Fiscal year 2006:
First quarter		$	2.57			$	1.77
Second quarter			2.90				1.91
Third quarter			2.30				1.71
Fourth quarter			2.55				1.92

     The high and low sale prices reported in the first quarter of 2008 through March 28, 2008 were $1.92 and $1.42, respectively, and the last sale price reported on March 28, 2008, was $1.53. No cash dividends have been declared in any of the years presented, and Safeguard has no present intention to declare cash dividends.

     As of March 28, 2008, there were approximately 37,800 beneficial holders of Safeguard’s common stock.

     The following graph compares the cumulative total return on $100 invested in our common stock for the period from December 31, 2002 through December 31, 2007 with the cumulative total return on $100 invested for the same period in the Russell 2000 Index and the Dow Jones Wilshire 4500 Index. In light of the diverse nature of Safeguard’s business and based on our assessment of available published industry or line-of-business indices, we determined that no single industry or line-of-business index would provide a meaningful comparison to Safeguard. Further, we did not believe that we could readily identify an appropriate group of industry peer companies for this comparison. Accordingly, under SEC rules, we selected the Dow Jones Wilshire 4500 Index, a published market index in which the median market capitalization of the included companies is similar to our own. Safeguard’s common stock is included as a component of the Russell 2000 and Dow Jones Wilshire 4500 indices.

Comparison of Cumulative Total Returns

	•		Assumes reinvestment of dividends. We have not distributed cash dividends during this period.
	•		Assumes an investment of $100 on December 31, 2002.

Item 6. Selected Consolidated Financial Data

     The following table sets forth our selected consolidated financial data for the five-year period ended December 31, 2007. The selected consolidated financial data presented below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Consolidated Financial Statements and Notes thereto included in this report. The historical results presented herein may not be indicative of future results. During the five-year period ended December 31, 2007, certain consolidated partner companies, or components thereof, were sold. These businesses are reflected in discontinued operations through their respective disposal dates: Pacific Title & Art Studio (March 2007), Clarient’s technology group (March 2007), Mantas (October 2006), Alliance Consulting’s Southwest region business (July 2006), Laureate Pharma’s Totowa, New Jersey operation (December 2005) and CompuCom (October 2004).

		December 31,
		2007				2006				2005				2004				2003
		(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	99,965			$	67,012			$	122,069			$	142,074			$	126,014
Short-term investments			590				94,155				31,770				33,555				7,081
Restricted cash			—				—				1,098				1,069				1,019
Cash held in escrow			22,686				19,398				—				—				—
Working capital of continuing operations			78,472				128,562				140,117				167,322				127,310
Total assets of continuing operations			391,862				414,142				354,037				381,543				312,446
Long-term debt, net of current portion			4,746				4,010				5,170				9,572				2,089
Other long-term liabilities			9,765				10,319				13,369				11,123				12,448
Convertible subordinated notes			—				—				—				—				200,000
Convertible senior debentures-non-current			129,000				129,000				145,000				150,000				—
Total shareholders’ equity			154,639				211,759				164,975				201,230				236,171

     Certain amount for prior periods in the Consolidated Financial Statements have been reclassified to conform with current period presentations.

Consolidated Statements of Operations Data

		Year Ended December 31,
		2007				2006				2005				2004				2003
		(In thousands except per share amounts)
Revenue		$	176,119			$	162,642			$	103,775			$	76,214			$	87,848
Operating Expenses:
Cost of sales			124,739				118,749				81,437				55,060				59,075
Selling, general and administrative			97,108				93,016				66,309				64,830				60,544
Research and development			2,407				2,501				125				599				2,091
Purchased in-process research and development			—				—				1,974				—				—
Amortization of intangible assets			2,024				2,498				1,092				1,189				637
Goodwill impairment			5,438				—				—				—				15,968
Total operating expenses			231,716				216,764				150,937				121,678				138,315
Operating loss			(55,597	)			(54,122	)			(47,162	)			(45,464	)			(50,467	)
Other income (loss), net			(4,866	)			5,559				7,066				38,722				48,838
Recovery (impairment) — related party			12				360				28				(3,400	)			(659	)
Interest income			7,539				6,907				4,974				2,592				2,156
Interest expense			(7,660	)			(6,630	)			(6,365	)			(9,525	)			(11,784	)
Equity loss			(14,143	)			(3,267	)			(6,597	)			(14,534	)			(17,179	)
Minority interest			5,829				6,112				6,922				7,709				297
Net loss from continuing operations before income taxes			(68,886	)			(45,081	)			(41,134	)			(23,900	)			(28,798	)
Income tax benefit (expense)			781				1,186				230				159				(251	)
Net loss from continuing operations			(68,105	)			(43,895	)			(40,904	)			(23,741	)			(29,049	)
Income (loss) from discontinued operations, net of tax			3,272				89,803				8,834				(31,079	)			(4,282	)
Net income (loss)		$	(64,833	)		$	45,908			$	(32,070	)		$	(54,820	)		$	(33,331	)
Basic Income (Loss) Per Share:
Net loss from continuing operations		$	(0.56	)		$	(0.36	)		$	(0.34	)		$	(0.20	)		$	(0.25	)
Net income (loss) from discontinued operations			0.03				0.74				0.07				(0.26	)			(0.03	)
Net income (loss)		$	(0.53	)		$	0.38			$	(0.27	)		$	(0.46	)		$	(0.28	)
Diluted Income (Loss) Per Share:
Net loss from continuing operations		$	(0.56	)		$	(0.36	)		$	(0.34	)		$	(0.20	)		$	(0.25	)
Net income (loss) from discontinued operations			0.03				0.74				0.07				(0.26	)			(0.05	)
Net income (loss)		$	(0.53	)		$	0.38			$	(0.27	)		$	(0.46	)		$	(0.30	)
Shares used in computing:
Basic and diluted income (loss) per share			122,352				121,476				120,845				119,965				118,486

     Certain amounts for prior periods in the Consolidated Financial Statements have been reclassified to conform with current period presentations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note concerning Forward-Looking Statements

     This Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Safeguard Scientifics, Inc. (“Safeguard” or “we”), the industries in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially, include, among others, managing rapidly changing technologies, limited access to capital, competition, the ability to attract and retain qualified employees, the ability to execute our strategy, the uncertainty of the future performance of our partner companies, acquisitions and dispositions of companies, the inability to manage growth, compliance with government regulation and legal liabilities, additional financing requirements, labor disputes and the effect of economic conditions in the business sectors in which our partner companies operate, all of which are discussed in Item 1A. “Risk Factors.” Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.

Overview

     Safeguard’s charter is to build value in growth-stage technology and life sciences businesses. We provide capital as well as a range of strategic, operational and management resources to our partner companies. Safeguard participates in expansion financings, corporate spin-outs, management buy-outs, recapitalizations, industry consolidations and early-stage financings. Our vision is to be the preferred catalyst for creating great technology and life sciences companies.

     We strive to create long-term value for our shareholders through building value in our partner companies. We help our partner companies in their efforts to increase market penetration, grow revenue and improve cash flow in order to create long-term value. We concentrate on companies that operate in two categories:

     Technology — including companies focused on providing software as a service (SaaS), technology-enabled services and vertical software solutions for the financial services sector, internet-based businesses, healthcare information technology; and

     Life Sciences — including companies focused on molecular and point-of-care diagnostics, medical devices and specialty pharmaceuticals.

Principles of Accounting for Ownership Interests in Partner Companies

     We account for our interests in our partner companies and private equity funds using three methods: consolidation, equity or cost. The accounting method applied is generally determined by the degree of our influence over the entity, primarily determined by on our voting interest in the entity.

     Consolidation Method. We account for our partner companies in which we directly or indirectly own more than 50% of the outstanding voting securities using the consolidation method of accounting. We reflect the participation of other partner company stockholders in the income or losses of our consolidated partner companies as Minority Interest in the Consolidated Statements of Operations. Minority interest adjusts our consolidated operating results to reflect only our share of the earnings or losses of the consolidated partner companies. If there is no minority interest

balance remaining on the Consolidated Balance Sheets related to the respective partner company, we record 100% of the consolidated partner company’s losses; we record 100% of subsequent earnings of the partner company to the extent of such previously recognized losses in excess of our proportionate share.

     Equity Method. We account for partner companies whose results are not consolidated, but over whom we exercise significant influence, using the equity method of accounting. We also account for our interests in some private equity funds under the equity method of accounting, depending on our respective general and limited partner interests. Under the equity method of accounting, our share of the income or loss of the company is reflected in Equity Loss in the Consolidated Statements of Operations. We report our share of the income or loss of the equity method partner companies on a one quarter lag.

     When the carrying value of our holding in an equity method partner company is reduced to zero, no further losses are recorded in our Consolidated Statements of Operations unless we have outstanding guarantee obligations or have committed additional funding to the equity method partner company. When the equity method partner company subsequently reports income, we will not record our share of such income until it equals the amount of our share of losses not previously recognized.

     Cost Method. We account for partner companies which are not consolidated or accounted for under the equity method using the cost method of accounting. Under the cost method, our share of the income or losses of such partner companies is not included in our Consolidated Statements of Operations. However, the effect of the change in market value of cost method partner company holdings classified as trading securities is reflected in Other income (loss), net in the Consolidated Statements of Operations.

Critical Accounting Policies and Estimates

     Accounting policies, methods and estimates are an integral part of the Consolidated Financial Statements prepared by management and are based upon management’s current judgments. These judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our financial statements as described in Note 1 to our Consolidated Financial Statements, areas that are particularly significant include the following:

	•		Revenue recognition;
	•		Impairment of long-lived assets;
	•		Goodwill impairment;
	•		Impairment of ownership interests in and advances to companies;
	•		Income taxes;
	•		Commitments and contingencies; and
	•		Stock-based compensation.

Revenue Recognition

     During 2007, 2006 and 2005, our revenue from continuing operations was primarily attributable to Acsis (since December 2005), Alliance Consulting, Clarient and Laureate Pharma.

     Acsis generates revenue from (i) software fees, which consist of revenue from the licensing of software, (ii) services revenue, which consist of fees from consulting, implementation and training services, plus customer support services, and (iii) hardware and reimbursed project expenses. Acsis recognizes software fees in accordance with Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended. Acsis recognizes software license revenue when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the products has occurred; (3) the license fee is fixed or determinable; and (4) collectibility is probable. Acsis generally recognizes license revenue using the “residual method” when there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting. For those contracts that contain significant customization or modifications, license revenue is recognized using the percentage-of-completion method. Acsis recognizes revenue from professional consulting services under fixed-price arrangements, using the proportional-performance method based on direct labor costs incurred to date as a percentage of total estimated labor costs required to complete the project. Project losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. Acsis recognizes hardware revenue upon shipment by the vendor to the customer unless the hardware is an element of an arrangement that includes services involving significant customization or modifications to software, in which case, hardware revenue is bundled with the software and services, and recognized on a percentage-of-completion basis.

     Alliance Consulting generates revenue primarily from consulting services. Alliance Consulting generally recognizes revenue when persuasive evidence of an arrangement exists, services are performed, the service fee is fixed or determinable and collectibility is probable. Revenue from services is recognized as services are performed. Alliance Consulting also performs certain services under fixed-price service contracts related to discrete projects. Alliance Consulting recognizes revenue from these contracts using the percentage-of-completion method, primarily based on the actual labor hours incurred to date compared to the estimated total hours of the project. Any losses expected to be incurred on jobs in process are charged to income in the period such losses become known. Changes in estimates of total costs could result in changes in the amount of revenue recognized.

     Clarient generates revenue from diagnostic services and recognizes such revenue at the time of completion of services at amounts equal to the contractual rates allowed from third parties including Medicare, insurance companies and, to a small degree, private-pay patients. These expected amounts are based both on Medicare allowable rates and Clarient’s collection experience with other third-party payors.

     Laureate Pharma’s revenue is primarily derived from contract manufacturing work, process development services, and formulation and filling. Laureate Pharma may enter into revenue arrangements with multiple deliverables in order to meet its customers’ needs. Multiple element revenue agreements are evaluated under Emerging Issues Task Force (“EITF”) Issue Number 00-21, “Revenue Arrangements with Multiple Deliverables,” to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists. Deliverables in an arrangement that do not meet the separation criteria in EITF 00-21 are treated as one unit of accounting for purposes of revenue recognition. Revenue is generally recognized upon the performance of services. Certain services are performed under fixed price contracts. Revenue from these contracts is recognized on a percentage—of-completion basis. When current cost estimates indicate a loss is expected to be incurred, the entire loss is recorded in the period in which it is identified. Changes in estimates of total costs could result in changes in the amount of revenue recognized.

Impairment of Long-Lived Assets

     We test long-lived assets, including property and equipment and amortizable intangible assets, for recoverability whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount. We evaluate the recoverability of an asset by comparing its carrying amount to the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If the undiscounted cash flows are not sufficient to recover the carrying amount, we measure any impairment loss as the excess of the carrying amount of the asset over its fair value.

     The carrying value of net intangible assets at December 31, 2007 was $10.0 million. The carrying value of net property and equipment at December 31, 2007 was $35.6 million.

Impairment of Goodwill

     We conduct an annual review for impairment of goodwill as of December 1^st and as otherwise required by circumstances or events. Additionally, on an interim basis, we assess the impairment of goodwill whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Factors that we consider important which could trigger an impairment review include significant underperformance relative to historical or expected future operating results, significant changes in the manner or use of the acquired assets or the strategy for the overall business, significant negative industry or economic trends or a decline in a company’s stock price for a sustained period.

     We test for impairment at a “reporting unit” level (same as or one level below an operating segment as defined in SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information”). If we determine that the fair value of a reporting unit is less than its carrying value, we assess whether goodwill of the reporting unit is impaired. To determine fair value, we use a number of valuation methods including quoted market prices, discounted cash flows and revenue and acquisition multiples. Depending on the complexity of the valuation and the significance of the carrying value of the goodwill to the Consolidated Financial Statements, we may engage an outside valuation firm to assist us in determining fair value. As an overall check on the reasonableness of the fair values attributed to our reporting units, we will consider comparing the aggregate fair values for all reporting units with our average total market capitalization for a reasonable period of time.

     In 2007, the Company conducted a goodwill impairment review related to its Alliance Consulting segment, due to underperformance relative to historical and expected operating results. The Company engaged an outside valuation firm to assist in determining the fair value of Alliance Consulting using valuation methods which included discounted cash flows and revenue and acquisition multiples for comparable public companies. The Company determined that the carrying value of Alliance Consulting exceeded its fair value, indicating a potential impairment of goodwill. The Company then estimated the implied fair value of the Alliance Consulting goodwill. The excess of the carrying value of goodwill over the implied fair value of goodwill was $5.4 million, which amount was recognized as an impairment loss within Goodwill impairment in the Consolidated Statements of Operations.

     The carrying value of goodwill at December 31, 2007 was $76.8 million.

     Our partner companies operate in industries which are rapidly evolving and extremely competitive. It is reasonably possible that our accounting estimates with respect to the ultimate recoverability of the carrying value of goodwill 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 value of our goodwill is not impaired, there can be no assurance that a significant write-down or write-off will not be required in the future.

Impairment of Ownership Interests In and Advances to Companies

     On a periodic basis (but no less frequently than at the end of each quarter) we evaluate the carrying value of our equity and cost method partner companies for possible impairment based on achievement of business plan objectives and milestones, the financial condition and prospects of the company and other relevant factors. The business plan objectives and milestones we consider include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. We then determine whether there has been an other than temporary decline in the value of our ownership interest in the company. Impairment to be recognized is measured as the amount by which the carrying value of an asset exceeds its fair value.

     The fair value of privately held partner companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies or based on other valuation methods including discounted cash flows, valuation of comparable public companies and the valuation of acquisitions of similar companies. The fair value of our ownership interests in private equity funds is generally

determined based on the value of our pro rata portion of the funds’ net assets and estimated future proceeds from sales of investments provided by the funds’ managers.

     The new carrying value of a partner company is not increased if circumstances suggest the value of the partner company has subsequently recovered.

     Our partner companies operate in industries which are rapidly evolving and extremely competitive. It is reasonably possible that our accounting estimates with respect to the ultimate recoverability of the carrying value of ownership interests in and advances to companies could change in the near term and that the effect of such changes on our Consolidated Financial Statements could be material. While we believe that the current recorded carrying values of our equity and cost method companies are not impaired, there can be no assurance that our future results will confirm this assessment or that a significant write-down or write-off will not be required in the future.

     Total impairment charges related to ownership interests in and advances to our equity and cost method partner companies are included in the following table:

		Year Ended December 31,
Accounting Method		2007				2006				2005
		(in millions)
Equity		$	—			$	—			$	—
Cost			5.3				—				1.4
Total		$	5.3			$	—			$	1.4

     Impairment charges related to equity method partner companies are included in Equity loss in the Consolidated Statements of Operations. Impairment charges related to cost method partner companies are included in Other income, net in the Consolidated Statements of Operations.

Income Taxes

     We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent that we believe recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Operations. We have recorded a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized in future years. If we determine in the future that it is more likely than not that the net deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.

Commitments and Contingencies

     From time to time, we are a defendant or plaintiff in various legal actions which arise in the normal course of business. Additionally, we have received distributions as both a general partner and a limited partner from certain private equity funds. In certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a fund for a further distribution to such fund’s limited partners (the “clawback”). We are also a guarantor of various third-party obligations and commitments and are subject to the possibility of various loss contingencies arising in the ordinary course of business. We are required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease our earnings in the period the changes are made.

Stock-Based Compensation

     As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” prior to January 1, 2006, we accounted for employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, we recorded no compensation expense for stock options issued to employees at fair market value.

     On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. We adopted SFAS No. 123(R) using the modified prospective method. Accordingly, we have not restated prior period amounts. Under this application, we are required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

     We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model which requires the input of highly subjective assumptions. These assumptions include estimating the expected term of the award and the estimated volatility of our stock price over the expected term. Changes in these assumptions and in the estimated forfeitures of stock option awards can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations. In addition, the requisite service periods for market-based stock option awards are based on our estimate of the dates on which the market conditions will be met as determined using a Monte Carlo simulation model. Changes in the derived requisite service period or achievement of market capitalization targets earlier than estimated can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations.

Results of Operations

     We present our four consolidated partner companies as separate segments — Acsis, Alliance Consulting, Clarient and Laureate Pharma. We report results of operations of our other partner companies in which we hold less than a majority interest and our ownership in private equity funds in a segment called “Other Companies”; this segment also includes the gain or loss on the sale of partner companies and funds, except for gains and losses included in discontinued operations.

     Our management evaluates segment performance based on segment revenue, operating income (loss) and income (loss) before income taxes, which reflects the portion of income (loss) allocated to minority stockholders.

     “Other items” include certain expenses which are not identifiable to the operations of our operating segments. Other items primarily consist of general and administrative expenses related to our corporate operations, including employee compensation, insurance and professional fees (including legal, finance and consulting). Other items also include interest income, interest expense and income taxes, which are reviewed by management independent of segment results.

     The following tables reflect our consolidated operating data by reportable segment. Segment results include our consolidated partner companies, our share of income or losses of partner companies accounted for under the equity method, impairment charges, gains or losses related to the disposition of partner companies and the mark-to-market of trading securities. All significant inter-segment activity has been eliminated in consolidation. Accordingly, segment results reported by us exclude the effect of transactions between us and our consolidated partner companies and among our consolidated partner companies. Each of Alliance Consulting, Acsis and Laureate Pharma are expected to be sold in the second quarter of 2008 in connection with the Bundle Transaction.

     Our operating results, including net income (loss) before income taxes by segment, were as follows:

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Acsis		$	(8,284	)		$	(8,264	)		$	(2,556	)
Alliance Consulting			(10,732	)			127				(1,194	)
Clarient			(7,379	)			(7,481	)			(8,912	)
Laureate Pharma			(3,728	)			(9,737	)			(10,870	)
Other companies			(19,499	)			(2,455	)			(791	)
Total segments			(49,622	)			(27,810	)			(24,323	)
Other items:
Corporate operations			(19,264	)			(17,271	)			(16,811	)
Income tax benefit			781				1,186				230
Total other items			(18,483	)			(16,085	)			(16,581	)
Net loss from continuing operations			(68,105	)			(43,895	)			(40,904	)
Income from discontinued operations, net of taxes			3,272				89,803				8,834
Net income (loss)		$	(64,833	)		$	45,908			$	(32,070	)

     Included in the above was stock-based compensation expense, which for the years ended December 31, 2007 and 2006 reflected the adoption of SFAS No. 123(R) as follows:

		Stock-Based Compensation
		Year Ended December 31,
		2007				2006				2005
						(In thousands)
Acsis		$	463			$	208			$	—
Alliance Consulting			585				1,016				329
Clarient			1,820				1,211				440
Laureate Pharma			205				165				—
Total segment results			3,073				2,600				769
Other items (corporate operations)			3,530				4,037				1,265
		$	6,603			$	6,637			$	2,034

     There is intense competition in the markets in which these companies operate, and we expect competition to intensify in the future. 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 markets.

Acsis

     Results for the year ended December 31, 2005 include only the period from acquisition, December 2, 2005, through December 31, 2005.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Revenue		$	20,344			$	18,634			$	2,022
Operating expenses:
Cost of sales			15,087				13,239				1,689
Selling, general and administrative			9,981				10,182				688
Research and development			2,407				2,501				124
Purchased in-process research and development			—				—				1,974
Amortization of intangibles			1,053				1,488				126
Total operating expenses			28,528				27,410				4,601
Operating loss			(8,184	)			(8,776	)			(2,579	)
Interest, net			(100	)			101				2
Minority interest			—				411				21
Net loss before income taxes		$	(8,284	)		$	(8,264	)		$	(2,556	)

     Acsis is a provider of software and service solutions that assist businesses and governmental entities in making their supply chains safe, secure and efficient. Acsis’ solutions facilitate track-and-trace, automate data collection, streamline processes and provide real-time access to supply chain information.

     Acsis’ solutions include process-automation platforms, pre-built processes and workflows appliances, automated SAP integration and serialization technologies.

     Acsis’ competition generally comes from large, diversified software or consulting businesses or niche providers with a variety of individual solutions. Acsis differentiates itself by proving a single, integrated platform which can be used across the entire supply chain to increase efficiencies and reduce operational costs.

     Acsis’ revenue is derived from (i) software fees, which consist of revenue from the licensing of software, (ii) services revenue, which consist of fees from consulting, implementation and training services, plus customer support services; and (iii) hardware and reimbursed project expenses.

     At December 31, 2007, we owned a 96.2% voting interest in Acsis.

Year ended December 31, 2007 versus year ended December 31, 2006

     Revenue. Revenue increased $1.7 million or 9.2% in 2007 as compared to 2006. The increase was primarily due to a $1.0 million increase in hardware revenue and a $0.5 million increase in software fees, partially offset by a $0.2 million decline in services revenue. The software fees increase was driven by certain license agreements signed during 2007. Hardware sales fluctuate significantly from period to period due to the timing of customer orders. In 2007, three customers each represented more than 10% of Acsis’ revenue.

     Cost of Sales. Cost of sales increased $1.8 million or 14.0% in 2007 as compared to 2006. The increase was primarily due to an increase in service costs of $0.6 million and hardware costs of $0.9 million. The increase in hardware costs was driven by the increase in hardware sales volume, while the increase in service costs was a result of additional resources related to the implementation of several projects. Gross margins were 25.8% and 29.0% for 2007 and 2006, respectively. Gross margins declined 3.2% in 2007 as compared to 2006 due to additional resources required in 2007 for the implementation of several projects. Gross margins are expected to modestly improve in 2008 as compared to 2007 due to expected operating efficiencies.

     Selling, General and Administrative. Selling, general and administrative expenses declined $0.2 million or 2.0% in 2007 as compared to 2006. The decline was attributable to several cost savings initiatives during 2007, including a reduction in headcount. Selling, general and administrative expenses were 49.0% of revenue in 2007 and 54.6% of revenue in 2006.

     Research and Development. Research and development expenses declined $0.1 million or 3.8% in 2007 as compared to 2006. The decrease was a result of reduced use of outside contractors in 2007.

     Amortization of Intangibles. Amortization of intangibles decreased $0.4 million or 29.2% in 2007 as compared to 2006. The decrease was due to an intangible asset with a life of one year that was fully amortized in 2006.

     Net Loss Before Income Taxes. Net loss in 2007 was consistent with 2006. Increases in revenue and reductions in selling, general and administrative costs, and research and development costs were partially offset by increases in cost of sales and net interest expense.

Year ended December 31, 2006 versus year ended December 31, 2005

     Results for the year ended December 31, 2005 include only the period from acquisition, December 2, 2005, through December 31, 2005. Accordingly, revenue, cost of sales, selling, general and administrative expense, research and development and amortization of intangibles were all higher in 2006 compared to the reported 2005 period.

     Gross margins were 29.0% and 16.5% for 2006 and 2005, respectively. Gross margins increased 12.5% in 2006 as compared to 2005 due to a shift in sales mix from predominantly hardware to a majority of software and services. The purchased in-process research and development charge of $2.0 million in 2005 represents the value assigned in the Acsis purchase price allocation as of the acquisition date.

Alliance Consulting

     The financial information presented below does not include the results of operations of Alliance Consulting’s Southwest region business, which is reported in discontinued operations for periods through its sale during the second quarter of 2006. For the years ended December 31, 2006 and 2005, the Southwest region business generated revenue of $3.1 million and $11.2 million and net income of $1.6 million (including a gain on the sale of $1.6 million) and $0.9 million, respectively.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Revenue		$	85,673			$	104,571			$	82,604
Operating expenses:
Cost of sales			63,335				73,837				57,030
Selling, general and administrative			25,952				28,916				25,030
Amortization of intangibles			971				1,010				966
Goodwill impairment			5,438				—				—
Total operating expenses			95,696				103,763				83,026
Operating income (loss)			(10,023	)			808				(422	)
Other income (loss), net			223				157				(7	)
Interest, net			(1,012	)			(818	)			(771	)
Minority interest			80				(20	)			6
Net income (loss) from continuing operations before income taxes		$	(10,732	)		$	127			$	(1,194	)

     Alliance Consulting is a national business intelligence consultancy providing services primarily to Fortune 2000 clients in the pharmaceutical, financial services, manufacturing industries and high tech. Alliance Consulting

specializes in information management (which is comprised of a full range of business intelligence solutions from data acquisition and warehousing to master data management, analytics and reporting) and application services (which includes software development, integration, testing and application support delivered through a high-quality and cost effective hybrid global delivery model). Alliance Consulting has developed a strategy focused on enabling business intelligence through the application of domain experience and custom-tailored project teams to deliver software solutions and consulting services.

     Alliance Consulting’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period because its fiscal year ends on the Saturday closest to December 31. Fiscal years 2007, 2006 and 2005 ended on December 29, 2007, December 30, 2006 and December 31, 2005, respectively References to a year included in this section refer to a fiscal year rather than a calendar year.

     Global economic conditions continue to cause companies to be cautious about increasing their use of consulting and IT services. Alliance Consulting continues to experience pricing pressure from competitors as well as from clients facing pressure to control costs. Alliance Consulting competes with larger IT services companies with greater resources and more developed offshore delivery organizations. In addition, the growing use of offshore resources to provide lower cost service delivery capabilities within the industry continues to place pressure on pricing and revenue. Alliance Consulting expects to continue to focus on maintaining and growing its blue chip client base and providing high-quality solutions and services to its clients.

     In July 2006, Alliance Consulting completed the purchase of specific assets and assumed certain liabilities of Fusion Technologies, Inc. (“Fusion”), a provider of strategic information technology solutions to rapidly growing organizations within the United States. In October 2004, Alliance Consulting acquired Mensamind, Inc. (“Mensamind”), a software development company based in Hyderabad, India. These acquisitions provided Alliance Consulting substantial offshore capabilities for new and existing clients.

     In the third quarter of 2007, we conducted a goodwill impairment review related to the Alliance Consulting segment due to underperformance relative to historical and expected operating results. We engaged an outside valuation firm to assist in determining the fair value of Alliance Consulting using valuation methods which included discounted cash flows and revenue and acquisition multiples for comparable public companies. We determined that the carrying value of Alliance Consulting exceeded its fair value, indicating a potential impairment of goodwill. We then estimated the implied fair value of the Alliance Consulting goodwill. The excess of the carrying value of goodwill over the implied fair value of goodwill was $5.4 million, which amount was recognized as an impairment loss within Goodwill impairment in the Consolidated Statements of Operations.

     At December 31, 2007, we owned 99.3% of Alliance Consulting.

Year ended December 31, 2007 versus year ended December 31, 2006

     Revenue. Revenue, including reimbursement of expenses, decreased $18.9 million, or 18.1% in 2007 as compared to 2006. The decrease can be attributed principally to the early termination of a significant customer contract as a result of the acquisition of the client by another party and the completion of other larger contracts which were not replaced with new engagements. Alliance Consulting has restructured its organization and is continuing to implement an improvement plan, which provides for improving sales team productivity, implementing delivery management efficiencies and discontinuing lower margin projects. In 2007, two customers each represented more than 10% of Alliance Consulting’s revenue.

     Alliance Consulting will continue to leverage its Outsourcing, Master Data Management and Global Delivery capabilities to facilitate growth in all of its vertical market sectors. Clients continue to award projects in multiple phases resulting in extended sales cycles and gaps between phases.

     Cost of Sales. Cost of sales decreased $10.5 million, or 14.2% in 2007 as compared to 2006. This decrease was primarily a result of the decline in revenue. Gross margins were 26.1% and 29.4% for the years 2007 and 2006, respectively. Gross margins declined 3.3% in 2007 as compared to 2006 due to the decline in revenue and the fixed nature of certain costs.

     Selling, General and Administrative. Selling, general and administrative expenses decreased $3.0 million, or 10.3% in 2007 as compared to 2006. Primarily contributing to the decrease was a $1.8 million decline in variable compensation as a result of lower revenue and operating results in 2007 compared to 2006. Professional fees decreased $0.4 million in 2007 as compared to 2006. Also, travel and entertainment related expenses declined $0.4 million in 2007 as compared to 2006 due to decreased consulting project activity during the current year. Selling, general and administrative expenses were 30.3% of revenue in 2007 versus 27.7% of revenue in 2006.

     Interest, Net. Interest expense increased $0.2 million or 23.7% in 2007 as compared to 2006 primarily as a result of higher average outstanding borrowings under the credit facility and an increase in interest rates.

     Net Income (Loss) Before Income Taxes. Net loss increased $10.9 million in 2007 as compared to 2006. The increase was related primarily to a $5.4 million goodwill impairment charge and a $18.9 million revenue decrease, partially offset by decreases in cost of sales and selling, general and administrative expenses.

Year ended December 31, 2006 versus year ended December 31, 2005

     Revenue. Revenue, including reimbursement of expenses, increased $22.0 million, or 26.6% in 2006 as compared to 2005. This increase was due to the Fusion acquisition in July 2006, contributing approximately $7.8 million of revenue, growth in existing accounts as well as the development of new key accounts; plus the expansion of Alliance Consulting’s Outsourcing, Master Data Management and Global Delivery services. In Outsourcing engagements, Alliance Consulting assumes responsibility for managing a client’s business applications with the goal of improving reliability and performance of those applications while reducing costs. Master Data Management includes business intelligence and data management as well as corporate performance management. Global Delivery is Alliance Consulting’s high-quality, lower-priced offshore delivery and support service. Revenue from these services was $32.4 million for 2006 as compared to $24.8 million for 2005.

     Cost of Sales. Cost of sales increased $16.8 million, or 29.5% in 2006 as compared to 2005. This increase was primarily a result of growth in revenue. Gross margin declined from 31.0% in 2005 to 29.4% in 2006, primarily due to an increase in reimbursable expenses, cost over-runs on certain fixed fee engagements and higher staffing costs, partially offset by the addition of higher-margin engagements from the Fusion acquisition.

     Selling, General and Administrative. Selling, general and administrative expenses increased $3.9 million, or 15.5% in 2006 as compared to 2005. Selling, general and administrative expenses were 27.7% of revenue in 2006 as compared to 30.3% of revenue in 2005. The increase in dollars was primarily from the additional general and administrative expenses of approximately $2.0 million as a result of the Fusion acquisition, incremental stock-based compensation charges of approximately $0.7 million due to the adoption of SFAS No. 123(R), an increase in variable compensation due to growth in revenue, a restructuring charge of $0.5 million related to the consolidation of multiple facilities, recruitment fees of $0.2 million associated with expanding the sales organization and $0.2 million associated with expanding existing facilities, primarily in India. The decrease as a percentage of revenue was due to the company’s fixed costs and benefits from cost-savings initiatives during the year.

     Interest, Net. Interest expense remained relatively flat in 2006 as compared to 2005 as a result of higher interest rates partially offset by lower outstanding debt balances during the year.

     Net Income (Loss) Before Income Taxes. Net income for the year ended December 31, 2006 was $0.1 million compared to net loss of $1.2 million in 2005 due to growth in revenue, benefits from cost-saving initiatives and the Fusion acquisition, partially offset by the decline in gross margins, restructuring expenses incurred and incremental stock-based compensation expense due to the adoption of SFAS No. 123(R).

Clarient

     As reported in its Form 10-K for the year ended December 31, 2007, Clarient’s independent auditors have determined that there is substantial doubt about Clarient’s ability to continue as a going concern. Clarient’s bank credit facility matures in February 2009, at which time, Clarient will need to extend, renew or refinance such debt and possibly secure additional debt or equity financing in order to fund anticipated working capital needs and capital expenditures and to execute its strategy. There can be no assurance Clarient will be able to maintain compliance with financial covenants in its credit facility which could result in the lender requiring repayment of the debt earlier than the scheduled maturity. Clarient has not had a history of complying with such covenants. This facility is guaranteed by the Company. Should Clarient’s sources of funding be inadequate, Clarient management’s plans would include seeking waivers from existing lenders, pursuing additional sources of funding or curtailment of expenses. As discussed in Note 24, we have provided Clarient a $21.0 million subordinated revolving credit facility through April 15, 2009.

     The financial information presented below does not include the results of operations of Clarient’s technology group, which is included in discontinued operations for all periods presented. Clarient sold this business (which developed, manufactured and marketed the ACIS Automated Image Analysis System) and related intellectual property to Carl Zeiss MicroImaging, Inc. (the “ACIS Sale”) for cash proceeds of $11.0 million, excluding contingent purchase price of $1.5 million. In 2007, 2006 and 2005, prior to its sale, the technology group generated revenue of $0.8 million, $5.7 million and $8.7 million, and net loss from operations of $0.6 million, $8.7 million and $1.0 million, respectively.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Revenue		$	42,996			$	27,723			$	11,440
Operating expenses:
Cost of sales			22,386				15,613				8,799
Selling, general and administrative			32,528				24,789				18,268
Total operating expenses			54,914				40,402				27,067
Operating loss			(11,918	)			(12,679	)			(15,627	)
Other loss			—				(39	)			—
Interest, net			(1,210	)			(484	)			(180	)
Minority interest			5,749				5,721				6,895
Net loss from continuing operations before income taxes		$	(7,379	)		$	(7,481	)		$	(8,912	)

     Clarient is a comprehensive cancer diagnostics company providing cellular assessment and cancer characterization to community pathologists, academic researchers, university hospitals and biopharmaceutical companies.

     The decision to provide in-house laboratory services was made in 2004 to give Clarient an opportunity to capture a significant service-related revenue stream over the much broader and expanding cancer diagnostic testing marketplace. Clarient believes it is well positioned to participate in this growth due to its strength as a cancer diagnostics laboratory, deep domain expertise and access to intellectual property which can contribute to the development of additional tests, unique analytical capabilities and other service offerings.

     Clarient operates primarily in one business, the delivery of critical oncology testing services to community pathologists, biopharmaceutical companies and other researchers.

     As of December 31, 2007, we owned a 58.7% voting interest in Clarient.

Year ended December 31, 2007 versus year ended December 31, 2006

     Revenue. Revenue increased 55.1% or $15.3 million from $27.7 million in 2006 to $43.0 million in 2007. This increase resulted from the execution of Clarient’s marketing and sales strategy to increase sales to new and existing customers. Clarient added 153 new customers in 2007 and increased its penetration to existing customers during the year. In addition Clarient increased its breadth of offerings to include multiple cancer types, including expanding its lymphoma/leukemia business, and performing testing in other solid tumors such as colon, prostate and lung. This testing was performed using expanded capabilities in immunohistochemistry, flow cytometry, fluorescent in-situ hybridization (FISH) and polymerase chain reaction (PCR). Clarient also increased its depth of offerings within each cancer type. Clarient anticipates that revenue will continue to increase as a result of increased revenue from existing customers, additions of new customers and providing a more comprehensive suite of advanced and/or proprietary cancer diagnostic tests.

     Cost of Sales. Cost of sales was $22.4 million in 2007 compared to $15.6 million in 2006, an increase of 43.4%. These costs included laboratory personnel, lab-related depreciation expense, laboratory reagents and supplies and other direct costs such as shipping. Gross margin in 2007 was 47.9% compared to 43.7% in 2006. The increase in gross margin in 2007 was attributable to realizing economies of scale in operations and a shift to more profitable tests. Clarient anticipates that gross margins will continue to increase as the company more effectively utilizes its capacity and expands its breadth of test offerings.

     Selling, General and Administrative. Selling, general and administrative expenses increased approximately $7.7 million, or 31.2%, to $32.5 million in 2007 compared to $24.8 million in 2006. As a percentage of revenue, these costs decreased from 89.4% in 2006 to 75.7% in 2007. The increase in expenses in 2007 was due primarily to expenses to generate and support revenue growth and to improve infrastructure, including selling and marketing expenses, billing and collection costs and bad debt expenses. In addition, Clarient has increased the number of employees and consultants it uses in information technology to support its expanded offering. Clarient also incurred incremental stock-based compensation expense for options issued in 2007, higher professional fees and severance costs. Clarient anticipates that selling expenses will continue to grow to support expected revenue growth, and expects general and administrative expenses to decline as a percentage of revenue as Clarient’s infrastructure costs stabilize.

     Interest, net. Interest expense in 2007 was $1.2 million, compared to $0.5 million in 2006. The increase was due to higher outstanding borrowings under Clarient’s financing facilities.

     Net Loss Before Income Taxes. Net loss decreased $0.1 million, or 1.4% in 2007 as compared to 2006. The decline in net loss was primarily attributable to margins from increased revenue.

Year ended December 31, 2006 versus year ended December 31, 2005

     Revenue. Revenue increased 142.3% or $16.3 million in 2006 from $11.4 million in 2005 to $27.7 million in 2006. This increase resulted from the execution of Clarient’s marketing and sales strategy to increase sales to new customers and to enter into new managed care contracts. This increase was also driven in part by increasing the number of available tests, including immunohistochemistry, flow cytometry and FISH.

     Cost of Sales. Cost of sales was $15.6 million in 2006 compared to $8.8 million in 2005, an increase of 77.4%. These costs included laboratory personnel, lab-related depreciation expense, laboratory supplies and other direct costs such as shipping. Clarient’s gross margin was 43.7% in 2006 compared to 23.1% in 2005. The increase in gross margin in 2006 was attributable to realizing economies of scale in diagnostics laboratory operations.

     Selling, General and Administrative. Selling, general and administrative expenses increased approximately $6.5 million, or 35.7%, to $24.8 million in 2006 compared to $18.3 million in 2005. As a percentage of revenue, these costs decreased from 159.7% in 2005 to 89.4% in 2006. The increase in expenses in 2006 was primarily due to increases in rent expense related to Clarient’s new facility, increases in selling expenses to support the growing diagnostics services business, higher stock-based compensation expense due to the implementation of SFAS No. 123(R) and relocation and recruiting expenses.

     Interest, net. Interest expense in 2006 was $0.5 million, compared to $0.2 million in 2005. The increase in interest expense was due to increased borrowings under Clarient’s financing facilities.

     Net Loss Before Income Taxes. Net loss decreased $1.4 million, or 16.1%, in 2006 as compared to 2005. The improvement was related to increases in revenue and improved gross margin, partially offset by increases in selling, general and administrative expenses.

Laureate Pharma

     The financial information presented below does not include the results of operations of its Totowa operation, which was sold in December 2005 and is reflected in discontinued operations. For the year ended December 31, 2005, the Totowa operation generated revenue of $3.5 million and net income of $5.4 million, including a gain on sale of $7.7 million.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Revenue		$	27,106			$	11,714			$	7,709
Operating expenses:
Cost of sales			23,931				16,060				13,919
Selling, general and administrative			5,864				4,783				4,261
Total operating expenses			29,795				20,843				18,180
Operating loss			(2,689	)			(9,129	)			(10,471	)
Interest, net			(1,039	)			(608	)			(399	)
Net loss from continuing operations before income taxes		$	(3,728	)		$	(9,737	)		$	(10,870	)

     Laureate Pharma is a full-service Contract Manufacturing Organization (CMO) providing critical development and Current Good Manufacturing Practices (cGMP) manufacturing services. Laureate Pharma seeks to become a leader in this segment of the biopharmaceutical industry by delivering superior development and manufacturing services to its customers.

     Laureate Pharma’s broad range of services includes: bioprocessing, aseptic filling, quality control and quality assurance. Laureate Pharma provides process development and manufacturing services on a contract basis to biopharmaceutical companies. Laureate Pharma has offices and operates a manufacturing facility in Princeton, New Jersey.

     Laureate Pharma’s customers generally include biotechnology and pharmaceutical companies seeking outsourced bioprocessing manufacturing and development services. Laureate Pharma’s customers are often dependent on the availability of funding to pursue drugs that are in early stages of clinical trials, and thus have high failure rates. The loss of one or more customers can result in significant swings in profitability from quarter to quarter and year to year. Although there has been a trend among biopharmaceutical companies to outsource drug production functions, this trend may not continue. Laureate Pharma’s customer contracts are generally for periods of one to two years, and as a result, Laureate Pharma seeks new contracts to sustain its revenue.

     In 2006, Laureate Pharma began an expansion of its biopharmaceutical manufacturing facility to increase capacity and broaden its service offerings.

     As of December 31, 2007, we owned a 100% voting interest in Laureate Pharma.

Year ended December 31, 2007 versus year ended December 31, 2006

     Revenue. Revenue increased $15.4 million, or 131.4% in 2007 as compared to 2006. The increase was due to a $9.5 million increase in manufacturing revenue, a $2.5 million increase in process development services, a $2.3 million increase in reimbursable expenses and a $1.6 million increase in aseptic filling, partially offset by a $0.5 million decrease in support services. In 2007, three customers each represented more than 10% of Laureate’s revenue.

     Cost of Sales. Cost of sales increased $7.9 million, or 49.0% in 2007 as compared to 2006. The increase was due primarily to a $2.3 million increase in compensation expense resulting from additional staffing requirements, a $2.1 million increase in direct materials and lab supplies, a $2.0 million increase in reimbursable expenses for specific customer materials, and a $1.5 million increase in other production support costs resulting from higher customer activity. Gross margins were 11.7% and (37.1)% in 2007 and 2006, respectively. The improvement in

gross margins in 2007 as compared to 2006, was due primarily to increased manufacturing and filling revenue and the fixed nature of certain costs.

     Selling, General and Administrative. Selling, general and administrative expenses increased $1.1 million, or 22.6% in 2007 as compared to 2006. The increase was due primarily to a $0.6 million increase in compensation expense resulting from additional staffing and a $0.2 million increase in professional fees.

     Net Loss Before Income Taxes. Net loss decreased $6.0 million, or 61.7% in 2007 as compared to 2006. The decline in net loss was attributable primarily to improved margins from increased revenue.

Year ended December 31, 2006 versus year ended December 31, 2005

     Revenue. Revenue increased $4.0 million, or 52.0%, in 2006 as compared to 2005. The increase was primarily due to $4.3 million in increased revenue from new client contracts.

     Cost of Sales. Cost of sales increased $2.1 million, or 15.4%, in 2006 as compared to 2005 due primarily to increased materials and lab supplies of $1.1 million and increased staffing costs of $1.3 million to support continued revenue growth, partially offset by lower operating expenses of $0.2 million.

     Selling, General and Administrative. Selling, general and administrative expense increased $0.5 million, or 12.2%, in 2006 as compared to 2005 due to increased staffing and stock-based compensation charges of $0.2 million.

     Net Loss Before Income Taxes. Net loss decreased $1.1 million, or 10.4%, in 2006 as compared to 2005. The decline in net loss was primarily attributable to the increase in revenue in 2006.

Other Companies

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Other income (loss), net		$	(5,356	)		$	812			$	5,826
Equity loss			(14,143	)			(3,267	)			(6,617	)
Net loss before income taxes		$	(19,499	)		$	(2,455	)		$	(791	)

Other Income (Loss), Net

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Gain on sale of companies and funds, net		$	—			$	1,181			$	7,292
Gain (loss) on trading securities			—				330				(229	)
Impairment charges			(5,331	)			—				(1,425	)
Other			(25	)			(699	)			188
		$	(5,356	)		$	812			$	5,826

     Gain on sale of companies and funds of $1.2 million for the year ended December 31, 2006, primarily related to the sale of a cost method holding whose carrying value was zero. Gain on sale of companies and funds for the year ended December 31, 2005 of $7.3 million was primarily attributable to gains on the sales of certain interests in private equity funds. Total proceeds from the sale of these interests in private equity funds during 2005 were $27.6 million. As a result of the sale, we also were relieved of $9.1 million of future fund commitments.

     Gain on trading securities in 2006 primarily reflected a net gain of $0.4 million on the sale of our holdings in Traffic.com, Inc. Loss on trading securities in 2005 reflected the loss on the sale of holdings in stock distributed from a private equity fund.

     We recorded impairment charges of $5.3 million in 2007 for Ventaira Pharmaceuticals, Inc. (“Ventaira”). Ventaira was a cost method partner company which we determined to have experienced an other-than-temporary decline in value in accordance with our policy regarding impairment of ownership interests in and advances to companies. Our carrying value of Ventaira was zero at December 31, 2007, and as of that date, Ventaira had permanently ceased operations.

     Equity Loss. Equity loss fluctuates with the number of partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies. We recognize our share of losses to the extent we have cost basis in the equity investee or we have outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our partner companies accounted for under the equity method are based on unaudited results of operations of those partner companies and may require adjustments in the future when audits of these entities are completed. We report our share of the results of our equity method partner companies on a one quarter lag.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Share of equity method partner companies’ results of operations		$	(14,112	)		$	(2,854	)		$	(2,319	)
Share of private equity funds’ results of operations			(31	)			(413	)			(4,298	)
		$	(14,143	)		$	(3,267	)		$	(6,617	)

     During 2007, we acquired interests in five companies accounted for under the equity method: Advanced BioHealing, Alverix, Beyond.com, Bridgevine (formerly Broadband National) and Cellumen. During 2006, we acquired interests in four companies accounted for under the equity method: Advantedge Healthcare Solutions, NuPathe, Portico Systems and Rubicor Medical. In aggregate, these companies incurred losses for which we recognized our proportionate share in 2007 and 2006. New holdings in growth-stage companies are expected to lead to larger equity losses until those companies reach scale and achieve profitability.

     Included in equity loss in 2007 were in-process research and development charges of $0.2 million and $0.2 million related to the allocations of purchase price of NuPathe and Cellumen, respectively. Included in equity loss in 2006 were in-process research and development charges of $1.0 million and $0.6 million related to the allocations of purchase price of NuPathe and Rubicor Medical, respectively.

     During 2005, we restructured our ownership holdings in four private equity funds from that of a general partner to that of a special limited partner interest, and we began accounting for these funds on the cost method. In December 2005, we sold most of our holdings in certain private equity funds. The decrease in equity loss related to private equity funds in 2006 compared to 2005 was a result of the sale of these holdings. These equity funds accounted for $3.4 million of equity loss in 2005.

Corporate Operations

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
General and administrative		$	(19,058	)		$	(20,112	)		$	(16,616	)
Stock-based compensation			(3,530	)			(4,037	)			(1,265	)
Depreciation			(195	)			(197	)			(182	)
Interest income			7,460				6,703				4,871
Interest expense			(4,220	)			(4,617	)			(4,914	)
Recovery (impairment) — related party			12				360				28
Other income (loss), net			267				4,629				1,267
		$	(19,264	)		$	(17,271	)		$	(16,811	)

     General and Administrative. Our general and administrative expenses consist primarily of employee compensation, insurance, outside services such as legal, accounting and consulting, and travel-related costs. General and administrative expenses decreased $0.8 million in 2007 as compared to 2006. The decrease was primarily

related to reduced severance charges of $1.0 million in 2007 as compared to 2006, partially offset by a $0.4 million increase in employee costs due to new hires to support Safeguard’s long-term strategy and a $0.5 million increase in professional fees in 2007 as compared to 2006. General and administrative expenses increased $3.5 million in 2006 as compared to 2005. The increase was primarily related to a $1.5 million severance charge in 2006 and a $1.4 million increase in employee costs, partially offset by a $0.8 million decrease in insurance expense.

     Stock-Based Compensation. Stock-based compensation consists primarily of expense related to grants of stock options, restricted stock and deferred stock units to our employees. The decrease of $0.5 million for 2007 as compared to 2006 was attributable primarily to higher expense in 2006 due to vesting of market-based awards and on the acceleration of vesting for certain service-based awards in 2006. Stock-based compensation expense in 2007 included $1.7 million related to market-based awards and $1.8 million related to service-based awards, respectively. Stock-based compensation expense related to corporate operations is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

     Interest Income. Interest income includes all interest earned on cash and marketable security balances. Interest income increased $0.8 million in 2007 as compared to 2006 due to higher invested cash balances in 2007 as compared to 2006, partially offset by declining interest rates. Interest income increased $1.8 million in 2006 as compared to 2005 due to higher interest rates earned on invested cash balances.

     Interest Expense. Interest expense is primarily related to our 2.625% convertible senior debentures with a stated maturity of 2024. Interest expense decreased $0.4 million in 2007 as compared to 2006. The decline was attributable to the repurchase of $21 million of face value of the 2024 Debentures in 2006. Interest expense decreased $0.3 million in 2006 as compared to 2005 due to the aforementioned repurchase.

     Recovery (Impairment) — Related Party. In May 2001, we entered into a loan agreement with Mr. Musser, our former CEO, and in December 2006, we restructured the obligation so that we could obtain new collateral. The excess of cash received from the sale of collateral over our then carrying value of the loan was reflected as Recovery-related party in the Consolidated Statements of Operations. Future cash receipts in excess of the carrying value of the note will be recognized as Recovery-related party. The carrying value of the loan at December 31, 2007 was zero.

     Other. Included in 2006 was a net gain of $4.3 million on the repurchase of $21 million of face value of the 2024 Debentures. Included in this category for 2005 was a $1.0 million gain related to the sale of a legacy asset.

Income Tax (Expense) Benefit

     Our consolidated net income tax benefit for 2007, 2006 and 2005 was $0.8 million, $1.2 million and $0.2 million, respectively. We recognized a $0.7 million and $1.3 million tax benefit in 2007 and 2006, respectively, related to uncertain tax positions for which the statute of limitations expired during the respective period in the applicable tax jurisdictions. 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 net operating loss benefit that would have been recognized in 2007, 2006 and 2005 was offset by a valuation allowance.

Discontinued Operations

     The following are reported in discontinued operations for all periods through their respective sale date.

     In March 2007, we sold Pacific Title & Art Studio for net cash proceeds of approximately $21.9 million, including $2.3 million held in escrow. As a result of the sale, we recorded a pre-tax gain of $2.7 million in 2007.

     In March 2007, Clarient sold its technology group (which developed, manufactured and marketed the ACIS Automated Image Analysis System) and related intellectual property to Carl Zeiss MicroImaging, Inc. for cash proceeds of $11.0 million (excluding $1.5 million in contingent purchase price). As a result of the sale, Clarient recorded a pre-tax gain of $3.5 million in 2007. Goodwill of $2.1 million related to the technology group was included in discontinued operations.

     In October 2006, we completed the sale of our interest in Mantas for net proceeds of $112.8 million, including $19.3 million held in escrow, to i-flex ® solutions, ltd., an affiliate of Oracle Corporation. As a result of the sale, we recorded a gain of $83.9 million in 2006. Mantas sold its telecommunications business and certain related assets and liabilities in the first quarter of 2006 for $2.1 million in cash. As a result of the sale, Mantas recorded a gain of $1.9 million in the first quarter of 2006 which is also reported in discontinued operations.

     Alliance Consulting completed the sale of its Southwest region business in May 2006 for proceeds of $4.5 million, including cash of $3.0 million and stock of the acquiror valued at $1.5 million, which was subsequently sold. As a result of the sale, Alliance Consulting recorded a gain of $1.6 million in 2006.

     In December 2005, Laureate Pharma sold its Totowa, New Jersey operation for $16.0 million in cash and recorded a gain of $7.7 million on the transaction.

     The income from discontinued operations in 2007 of $3.3 million was attributable primarily to the gain on the sale of Pacific Title & Art Studio and Clarient’s technology group, partially offset by losses incurred by these businesses prior to their sale.

     The income from discontinued operations in 2006 of $89.8 million was attributable primarily to the gain on the sale of Mantas and the gain on sale of Alliance Consulting’s Southwest region business.

     The income from discontinued operations in 2005 of $8.8 million was attributable primarily to the gain on the sale of the Totowa, New Jersey operation by Laureate Pharma, partially offset by losses from Totowa operation and the Mantas telecommunications business.

Liquidity And Capital Resources

     Parent Company

     We fund our operations with cash on hand as well as proceeds from sales of and distributions from partner companies, private equity funds and marketable securities. In prior periods, we have also used sales of our equity and issuance of debt as sources of liquidity. Our ability to generate liquidity from sales of partner companies, sales of marketable securities and from equity and debt issuances has been adversely affected from time to time by adverse circumstances in the U.S. capital markets and other factors.

     As of December 31, 2007, at the parent company level, we had $94.7 million of cash and cash equivalents and $0.6 million of marketable securities for a total of $95.3 million. In addition to the amounts above, we had $5.8 million in escrow associated with our interest payments due on the 2024 Debentures through March 2009, $22.7 million of restricted cash held in escrow, including accrued interest, and our consolidated partner companies had cash and cash equivalents of $5.3 million.

     On a consolidated basis, proceeds from the sale of discontinued operations were $30.0 million in 2007, $99.6 million in 2006 and $14.7 million in 2005. Proceeds from sales of and distributions from partner companies and private equity funds were $2.8 million in 2007, $1.5 million in 2006 and $28.2 million in 2005. Proceeds from sales of available-for-sale and trading securities were $0 in 2007, $3.6 million in 2006 and $0.2 million in 2005. We expect the Bundle Transaction to generate net cash proceeds of approximately $96.6 million. See Note 24 to the Consolidated Financial Statements.

     In February 2004, we completed the sale of $150 million of 2.625% convertible senior debentures with a stated maturity of March 15, 2024 (the “2024 Debentures”).

     We have outstanding $129.0 million of the 2024 Debentures. Interest on the 2024 Debentures is payable semi-annually. At the holders’ option, the 2024 Debentures are convertible into our common stock before the close of business on March 14, 2024 subject to certain conditions. The conversion rate of the 2024 Debentures is $7.2174 of principal amount per share. The closing price of our common stock on December 31, 2007 was $1.80. The 2024

Debentures holders have the right to require repurchase of the 2024 Debentures on March 21, 2011, March 20, 2014 or March 20, 2019 at a repurchase price equal to 100% of their respective face amount plus accrued and unpaid interest. The 2024 Debenture holders also have the right to require repurchase of the 2024 Debentures upon certain events, including sale of all or substantially all of our common stock or assets, liquidation, dissolution or a change in control. Subject to certain conditions, we have the right to redeem all or some of the 2024 Debentures commencing March 20, 2009. During 2006, we repurchased $21.0 million of face value of the 2024 Debentures for $16.4 million in cash, including accrued interest.

     We maintain a revolving credit facility that provides for borrowings and issuances of letters of credit and guarantees up to $75.0 million. This revolving credit facility expires June 30, 2008. Borrowing availability under the facility is reduced by the amounts outstanding for our borrowings and letters of credit and amounts guaranteed under partner company facilities maintained with that same lender. This credit facility bears interest at the prime rate (7.25% at December 31, 2007) for outstanding borrowings. The credit facility is subject to an unused commitment fee of 0.125%, which is subject to reduction based on deposits maintained at the bank. The credit facility requires us to maintain an unrestricted cash collateral account at that same bank, equal to our borrowings and letters of credit and amounts borrowed by partner companies under the guaranteed portion of the partner company facilities maintained with that same bank. At December 31, 2007, the required cash collateral, pursuant to the credit facility agreement was $38.8 million, which amount is included within Cash and cash equivalents on our Consolidated Balance Sheet as of December 31, 2007.

     In November 2006, we entered into an additional revolving credit facility with a separate bank that provided for borrowings and issuances of letters of credit and guarantees of up to $20.0 million. This facility expired in November 2007 and we chose not to renew it.

     Availability under our revolving credit facility at December 31, 2007 was as follows (In thousands):

		Total
Size of credit facility		$	75,000
Guarantees of consolidated partner company facilities at same bank (a)			(40,800	)
Outstanding letter of credit (b)			(6,336	)
Amount available at December 31, 2007		$	27,864

     On February 28, 2008, credit facilities for Alliance Consulting, Clarient and Laureate were extended through February 26, 2009. In addition to the extension of the maturity date, Laureate’s equipment facility was increased by $3.0 million, which we guaranteed, and it entered into a new non-guaranteed $4.0 million working capital facility. Alliance Consulting’s credit facility was amended to reduce its aggregate facility by $3.0 million. Interest rates on outstanding borrowings and unused facility fees for certain consolidated partner companies were also amended. Availability under our $75.0 million revolving credit facility at March 28, 2008 was $31.3 million.

     We have committed capital of approximately $4.2 million, including conditional commitments to provide non-consolidated partner companies with additional funding and commitments made to various private equity funds in prior years. These commitments will be funded over the next several years, including approximately $3.5 million which is expected to be funded in the next 12 months. We do not intend to commit to new investments in additional private equity funds and may seek to further reduce our current ownership interests in, and our existing commitments to, the funds in which we hold interests.

     The transactions we enter into in pursuit of our strategy could increase or decrease our liquidity at any point in time. As we seek to acquire interests in technology and life sciences companies or provide additional funding to existing partner companies, we may be required to expend our cash or incur debt, which will decrease our liquidity. Conversely, as we dispose of our interests in partner companies from time-to-time, we may receive proceeds from such sales which could increase our liquidity. From time to time, we are engaged in discussions concerning acquisitions and dispositions which, if consummated, could impact our liquidity, perhaps significantly.

     In May 2001, we entered into a $26.5 loan agreement with Warren V. Musser, our former Chairman and Chief Executive Officer. In December 2006, we restructured the obligation to reduce the amount outstanding to $14.8 million, bearing interest rate of 5.0% per annum, so that we could obtain new collateral, which is expected to be the primary source of repayment, along with additional collateral required to be provided to us over time. Cash payments, when received, are recognized as Recovery-related party in our Consolidated Statements of Operations. Since 2001 and through December 31, 2007 we received a total of $16.3 million in cash payments on the loan, of which $12 thousand was received during 2007. The carrying value of the loan at December 31, 2007 was zero.

     We have received distributions as both a general partner and a limited partner from certain private equity funds. Under certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a fund for further distribution to such fund’s limited partners (the “clawback”). Assuming for these purposes only that the funds were liquidated or dissolved on December 31, 2007 and the only distributions from the funds were equal to the carrying value of the funds on the December 31, 2007 financial statements, the maximum clawback we would be required to return for our general partner interest is $8.0 million. As of December 31, 2007, management estimated this liability to be approximately $6.7 million, of which $5.3 million was reflected in accrued expenses and other current liabilities and $1.4 million was reflected in Other long-term liabilities on the Consolidated Balance Sheets.

     Our previous ownership in the general partners of the funds which have potential clawback liabilities range from 19-30%. The clawback liability is joint and several, such that we may be required to fund the clawback for other general partners should they default. The funds have taken several steps to reduce the potential liabilities should other general partners default, including withholding all general partner distributions and placing them in escrow and adding rights of set-off among certain funds. We believe our liability for the default of other general partners is remote.

     For the reasons we presented above, we believe our cash and cash equivalents at December 31, 2007, availability under our revolving credit facilities and other internal sources of cash flow will be sufficient to fund our cash requirements for at least the next 12 months, including commitments to our existing companies and funds, possible additional funding of existing partner companies and our general corporate requirements. Our acquisition of new partner company interests is always contingent upon our availability of cash to fund such deployments, and our timing of monetization events directly affects our availability of cash.

     Consolidated Partner Companies

     Each of our consolidated partner companies incurred losses in 2007 and may need additional capital to fund their operations. From time-to-time, some or all of our consolidated partner companies may require additional debt or equity financing or credit support from us to fund planned expansion activities. If we decide not to, or can’t, provide sufficient capital resources to allow them to reach a positive cash flow position, and they are unable to raise capital from outside resources, they may need to scale back their operations. If Alliance Consulting meets its business plans for 2008, we believe they will have sufficient cash or availability under established lines of credit to fund their operations for at least the next twelve months. We expect that Acsis and Laureate Pharma will require additional capital in 2008 to fund their business plans. As described below, we have renewed, expanded and extended a revolving line of credit to Clarient. Alliance Consulting, Acsis and Laureate Pharma are among the Six Partner Companies expected to be sold during the second quarter of 2008 as part of the Bundle Transaction. If the Bundle Transaction is consummated, as expected, we will not have any continuing involvement with the funding requirements of these partner companies.

     As of December 31, 2007, our consolidated partner companies had outstanding credit facilities that provided for borrowings of up to $57.5 million. These facilities contained financial and non-financial covenants. As of December 31, 2007, Alliance Consulting and Clarient were not in compliance with certain financial covenants under their respective facilities and subsequently received waivers from the lender. On February 28, 2008, credit facilities for Alliance Consulting, Clarient and Laureate Pharma were revised and extended through February 26, 2009.

     As of December 31, 2007, outstanding borrowings under consolidated partner company facilities was $35.1 million, including guaranteed partner company facilities maintained at the same bank as our revolving credit facility.

     In March 2007, we provided a subordinated revolving credit line (the “Mezzanine Facility”) to Clarient. Under the Mezzanine Facility, we committed to provide Clarient access to up to $12.0 million in working capital funding, which was reduced to $6.0 million as a result of the ACIS Sale. At December 31, 2007, $2.0 million was outstanding under the Mezzanine Facility. The Mezzanine Facility originally had a term expiring on December 8, 2008. On March 14, 2008, the Mezzanine Facility was extended through April 15, 2009 and increased from $6.0 million to $21.0 million. The Mezzanine Facility is subject to reduction back to $6.0 million under certain circumstances involving the completion of replacement financing by Clarient.

     As reported in its Form 10-K for the year ended December 31, 2007, Clarient’s independent auditors have determined that there is substantial doubt about Clarient’s ability to continue as a going concern. Clarient’s bank credit facility matures in February 2009, at which time, Clarient will need to extend, renew or refinance such debt and possibly secure additional debt or equity financing in order to fund anticipated working capital needs and capital expenditures and to execute its strategy. There can be no assurance Clarient will be able to maintain compliance with financial covenants in its credit facility which could result in the lender requiring repayment of the debt earlier than the scheduled maturity. Clarient has not had a history of complying with such covenants. This facility is guaranteed by the Company. Should Clarient’s sources of funding be inadequate, Clarient management’s plans would include seeking waivers from existing lenders, pursuing additional sources of funding or curtailment of expenses. As discussed in Note 24, we have provided Clarient a $21.0 million subordinated revolving credit facility through April 15, 2009.

     In September 2006, Clarient entered into a $5.0 million senior secured revolving credit agreement. Borrowing availability under the agreement was based on the amount of Clarient’s qualified accounts receivable, less certain reserves. The agreement bore interest at variable rates based on the lower of LIBOR plus 3.25% or the prime rate plus 0.5%. At December 31, 2007 under this facility, Clarient had borrowed $5.0 million, had no availability based on the level of qualified accounts receivable and was not in compliance with certain financial covenants. On March 17, 2008, Clarient borrowed $4.6 million under the Mezzanine Facility to repay and terminate this facility, and borrowed $2.8 million under the Mezzanine Facility to repay and terminate its equipment line of credit with the same lender.

Analysis of Parent Company Cash Flows

Cash flow activity for the Parent Company was as follows:

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Net cash used in operating activities		$	(16,777	)		$	(12,039	)		$	(13,534	)
Net cash provided by (used in) investing activities			50,788				(16,159	)			(16,000	)
Net cash provided by (used in) financing activities			741				(20,169	)			9,572
		$	34,752			$	(48,367	)		$	(19,962	)

     Cash Used In Operating Activities

     Year ended December 31, 2007 versus year ended December 31, 2006. Cash used in operating activities increased $4.7 million in 2007 as compared to 2006, The increase was primarily due to cash payments of $2.0 million for severance in 2007, professional fees related to the Bundle Transaction and changes in working capital.

     Year ended December 31, 2006 versus year ended December 31, 2005. Cash used in operating activities decreased $1.5 million in 2006 as compared to 2005. The decrease was primarily due to changes in working capital and an increase in interest income as a result of higher average interest rates, partially offset by an increase in operating costs.

     Cash Provided by (Used In) Investing Activities

Year ended December 31, 2007 versus year ended December 31, 2006. Cash provided by (used in) investing activities increased $66.9 million in 2007 compared to 2006. The increase was primarily due to a $155.9 million net decrease in restricted cash and short term investments, partially offset by a $73.8 million decrease in proceeds from sale of discontinued operations and a $8.4 million increase in the acquisition of ownership interests in companies and funds, net of cash acquired.

Year ended December 31, 2006 versus year ended December 31, 2005. Cash provided by (used in) investing activities decreased $0.2 million in 2006 compared to 2005. The decrease was primarily due to a $7.6 million increase in cash used to acquire ownership interests in companies and subsidiaries, a $64.2 million net increase in restricted cash and short-term investments and a $27.9 million decrease in proceeds from sales of and distributions from companies, partially offset by an increase in proceeds from sale of discontinued operations of $93.4 million and a $3.3 million increase in proceeds from sales of available-for-sale and trading securities.

     Cash Provided by (Used In) Financing Activities

Year ended December 31, 2007 versus year ended December 31, 2006. Cash provided by (used in) financing activities increased $20.9 million in 2007 as compared to 2006, primarily due to the repurchase of a portion of our 2024 Debentures for $16.2 million, excluding accrued interest, and the repayment of intercompany advances from a partner company of $5.5 million in 2006,

Year ended December 31, 2006 versus year ended December 31, 2005. Cash provided by (used in) financing activities decreased $29.7 million in 2006 as compared to 2005, primarily due to the repurchase of a portion of our 2024 Debentures for $16.2 million, excluding accrued interest, and the repayment of intercompany advances from a partner company.

Consolidated Working Capital From Continuing Operations

     Consolidated working capital from continuing operations decreased to $78.5 at December 31, 2007 compared to $128.6 million at December 31, 2006. The decrease was primarily attributable to the increase in cash used in the current year to fund new and follow-on holdings and to fund continuing operations.

     Analysis of Consolidated Cash Flows

     Cash flow activity was as follows, including cash flows from Pacific Title & Art Studio and Mantas for which cash was included in current assets from discontinued operations for all periods through their respective sale dates.

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
Net cash used in operating activities		$	(36,253	)		$	(18,379	)		$	(21,910	)
Net cash provided by (used in) investing activities			53,063				(27,590	)			1,411
Net cash provided by (used in) financing activities			17,500				(5,527	)			2,360
		$	34,310			$	(51,496	)		$	(18,139	)

     Cash Used In Operating Activities

Year ended December 31, 2007 versus year ended December 31, 2006. Net cash used in operating activities increased $18.0 million in 2007 as compared to 2006. The increase was primarily due to the current year results of continuing operations and unfavorable changes in working capital.

Year ended December 31, 2006 versus year ended December 31, 2005. Net cash used in operating activities decreased $3.5 million in 2006 as compared to 2005. The decrease was primarily due to favorable changes in working capital, offset partially by results of continuing operations of partner companies.

     Cash Provided by (Used In) Investing Activities

Year ended December 31, 2007 versus year ended December 31, 2006. Net cash provided by (used in) investing activities increased $80.7 million in 2007 as compared to 2006. The increase was primarily due to a $156.0 million net decrease in restricted cash and short term investments, partially offset by a $69.7 million decrease in proceeds from sale of discontinued operations and a $19.2 million increase in the acquisition of ownership interests in companies and funds, net of cash acquired.

Year ended December 31, 2006 versus year ended December 31, 2005. Net cash provided by (used in) investing activities increased $29.0 million in 2006 as compared to 2005. The increase was primarily attributable to a $64.2 million increase in cash used to purchase short-term investments, a $8.6 million increase in cash used to acquire ownership interests in companies and funds, a $8.8 million increase in cash used for acquisitions by partner companies and a decrease of $26.7 million in proceeds from sales of and distributions from companies, partially offset by a $85.0 million increase in proceeds from sale of discontinued operations.

     Cash Provided by (Used In) Financing Activities

Year ended December 31, 2007 versus year ended December 31, 2006. Cash provided by (used in) financing activities increased $23.0 million in 2007 as compared to 2006, primarily due to the repurchase of a portion of our 2024 Debentures for $16.2 million, excluding accrued interest, in 2006. Also contributing to the current year increase in cash provided by financing activities was a $2.6 million net increase in borrowings under revolving credit facilities and a $2.6 million net increase in borrowings on term debt.

Year ended December 31, 2006 versus year ended December 31, 2005. Net cash provided by (used in) financing activities decreased $7.9 million in 2006 as compared to 2005, primarily due to the 2006 repurchase $21.0 million, in face amount, of our 2024 Debentures for $16.2 million, excluding accrued interest, partially offset by increased borrowings on revolving credit facilities.

Contractual Cash Obligations and Other Commercial Commitments

     The following table summarizes our contractual obligations and other commercial commitments as of December 31, 2007, by period due or expiration of the commitment.

		Payments Due by Period
										2009 and				2011 and				Due after
		Total				2008				2010				2012				2012
		(In millions)
Contractual Cash Obligations:
Lines of credit (a)		$	40.0			$	40.0			$	—			$	—			$	—
Long-term debt (a)			6.0				2.2				3.6				0.2				—
Capital leases			2.5				1.6				0.9				—				—
Convertible senior debentures (b)			129.0				—				—				—				129.0
Operating leases			31.1				6.0				9.6				6.2				9.3
Funding commitments (c)			4.2				3.5				0.7				—				—
Potential clawback liabilities (d)			6.7				5.3				1.4				—				—
Other long-term obligations (e)			2.8				0.7				1.3				0.8				—
Total Contractual Cash Obligations		$	222.3			$	59.3			$	17.5			$	7.2			$	138.3

										Amount of Commitment Expiration
										by Period
										2009 and				2011 and				Due after
		Total				2008				2010				2012				2012
										(in millions)
Other Commitments:
Letters of credit (f)		$	9.3			$	3.0			$	—			$	—			$	6.3