SAFEGUARD SCIENTIFICS INC ET AL, 10-Q, 1997-08-14

SAFEGUARD SCIENTIFICS INC ET AL
10-Q, 1997-08-14
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended June 30, 1997 Commission File Number 1-5620

SAFEGUARD SCIENTIFICS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

Pennsylvania 23-1609753
-----------------------------------------------------------------------------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

800 The Safeguard Building, 435 Devon Park Drive Wayne, PA 19087
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

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
and 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 /X/ NO / /

Number of shares outstanding as of August 12, 1997

Common Stock 31,302,897

<PAGE>
SAFEGUARD SCIENTIFICS, INC.
QUARTERLY REPORT FORM 10-Q

INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
------------------------------- -----------
<S> <C>

Item 1--Financial Statements:

Consolidated Balance Sheets -- June 30, 1997 (unaudited) and December 31, 1996........................... 3

Consolidated Statements of Operations (unaudited) -- Three and Six Months Ended June 30, 1997 and 1996... 4

Consolidated Statements of Cash Flows (unaudited) -- Six Months Ended June 30, 1997 and 1996............. 5

Notes to Consolidated Financial Statements............................................................... 6

Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9

PART II--OTHER INFORMATION
-------------------------------
<S> <C>

Item 5--Other Information.................................................................................. 15

Item 6 -- Exhibits and Reports on Form 8-K................................................................. 16

Signatures................................................................................................. 17
</TABLE>

2
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
ASSETS 1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>

Current Assets
Cash and cash equivalents........................................................... $ 5,233 $ 12,881
Receivables less allowances ($2,763-1997; $3,088-1996).............................. 224,709 399,403
Inventories......................................................................... 227,171 234,543
Other current assets................................................................ 8,152 7,239
-------------- ------------
Total current assets.......................................................... 465,265 654,066

Property, Plant and Equipment....................................................... 126,779 118,394
Less accumulated depreciation and amortization.................................... (38,933) (39,525)
-------------- ------------
87,846 78,869
Other Assets
Investments......................................................................... 157,115 134,844
Notes and other receivables......................................................... 19,134 9,038
Excess of cost over net assets of businesses acquired............................... 27,711 30,286
Other............................................................................... 12,218 28,967
-------------- ------------
216,178 203,135
-------------- ------------
$ 769,289 $ 936,070
-------------- ------------
-------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Current debt obligations............................................................ $ 3,970 $ 8,640
Accounts payable.................................................................... 148,946 221,992
Accrued expenses.................................................................... 76,356 77,904
-------------- ------------
Total current liabilities..................................................... 229,272 308,536

Long Term Debt...................................................................... 148,064 252,725
Deferred Taxes...................................................................... 21,823 18,311
Minority Interest and Other......................................................... 87,320 85,356
Convertible Subordinated Notes...................................................... 90,881 102,131
Shareholders' Equity
Common stock........................................................................ 3,280 3,280
Additional paid-in capital.......................................................... 45,193 35,566
Retained earnings................................................................... 140,098 129,970
Treasury stock, at cost............................................................. (9,153) (7,165)
Net unrealized appreciation on investments.......................................... 12,511 7,360
-------------- ------------
191,929 169,011
-------------- ------------
$ 769,289 $ 936,070
-------------- ------------
-------------- ------------
</TABLE>

3
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)

Net Sales
Product...................................................... $ 438,263 $ 479,464 $ 823,668 $ 867,137
Services..................................................... 64,443 47,978 126,614 90,402
---------- ---------- ---------- ----------
Total net sales................................................ 502,706 527,442 950,282 957,539

Gains on sales of securities, net.............................. 6,838 6,279 14,039 11,959
Other income................................................... 2,854 1,950 5,540 3,838
---------- ---------- ---------- ----------
Total revenues............................................. 512,398 535,671 969,861 973,336

Costs and Expenses
Cost of sales- product......................................... 392,929 425,712 734,997 770,435
Cost of sales- services........................................ 39,412 32,980 79,674 60,026
Selling........................................................ 32,063 31,347 65,679 59,301
General and administrative..................................... 22,962 21,195 42,685 38,860
Depreciation and amortization.................................. 4,321 4,868 9,555 9,484
Interest and financing......................................... 5,125 5,803 10,323 11,158
Income from equity investments................................. (314) (1,079) (418) (1,966)
---------- ---------- ---------- ----------
Total costs and expenses................................... 496,498 520,826 942,495 947,298
---------- ---------- ---------- ----------
Earnings Before Minority Interest and Taxes...................... 15,900 14,845 27,366 26,038
Minority interest.............................................. (6,505) (5,832) (10,484) (10,391)
---------- ---------- ---------- ----------
Earnings Before Taxes On Income.................................. 9,395 9,013 16,882 15,647
Provision for taxes on income.................................. 3,759 3,605 6,754 6,259
---------- ---------- ---------- ----------
Net Earnings..................................................... $ 5,636 $ 5,408 $ 10,128 $ 9,388
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Earnings Per Share
Primary........................................................ $.17 $.16 $.31 $.28
Fully diluted.................................................. $.17 $.16 $.31 $.28

Average Common Shares Outstanding
Primary........................................................ 32,017 31,333 32,023 31,195
Fully diluted.................................................. 32,117 31,349 32,109 31,261
</TABLE>

4
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1997 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net earnings............................................................................. $ 10,128 $ 9,388
Adjustments to reconcile net earnings to cash from provided (used) by operating activities
Depreciation and amortization.......................................................... 9,555 9,484
Deferred income taxes.................................................................. 2,639 (1,716)
Income from equity investments......................................................... (418) (1,966)
Gains on sales of securities, net...................................................... (14,039) (11,959)
Minority interest, net................................................................. 6,290 6,234
Cash provided (used) by changes in working capital items
Receivables.......................................................................... 175,730 (63,879)
Inventories.......................................................................... 7,372 (15,170)
Accounts payable, accrued expenses and other......................................... (72,711) 14,646
----------- ----------
Cash provided (used) by operating activities............................................. 124,546 (54,938)
Proceeds from sales of securities, net................................................... 26,019 35,285
----------- ----------
Cash provided (used) by operating activities and sales of securities, net................ 150,565 (19,653)

Other Investing Activities
Investments and notes acquired, net...................................................... (36,150) (24,769)
Capital expenditures..................................................................... (17,797) (9,022)
Business acquisitions, net of cash acquired.............................................. -- (5,655)
Other, net............................................................................... 1,410 (4,336)
----------- ----------
Cash (used) by other investing activities................................................ (52,537) (43,782)

Financing Activities
Issuance of subordinated notes, net...................................................... -- 112,109
Net repayments on revolving credit facilities............................................ (103,242) (11,763)
Net repayments on term debt.............................................................. (418) (8,111)
Repurchase of Company and subsidiary common stock........................................ (5,300) --
Issuance of Company and subsidiary common stock.......................................... 3,284 2,287
----------- ----------
Cash provided (used) by financing activities............................................. (105,676) 94,522
----------- ----------
Increase (Decrease) in Cash and Cash Equivalents......................................... (7,648) 31,087
Cash and Cash Equivalents--beginning of year............................................. 12,881 7,267
----------- ----------
Cash and Cash Equivalents--End of Period................................................. $ 5,233 $ 38,354
----------- ----------
----------- ----------
</TABLE>

5
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997

1. General

The accompanying unaudited interim consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The Summary of Accounting Policies and Notes to
Consolidated Financial Statements included in the 1996 Form 10-K should be read
in conjunction with the accompanying statements. These statements include all
adjustments (consisting only of normal recurring adjustments) which the Company
believes are necessary for a fair presentation of the statements. The interim
operating results are not necessarily indicative of the results for a full year.

2. Sale of Premier Solutions Ltd.

During the second quarter of 1997, all of the assets of Premier Solutions
Ltd. were sold. Accordingly, Premier is no longer included in the Company's
consolidated operating results and financial position.

3. Recently Issued Pronouncements

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, Earnings Per Share
(Statement 128). Statement 128 supersedes Accounting Principles Board Opinion
No. 15, Earnings Per Share (APB 15), and specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. Statement
128 replaces the presentation of primary and fully diluted EPS with a
presentation of basic and diluted EPS, respectively. Statement 128 is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The calculation of EPS under APB 15 and Statement 128 for the
three and six months ended June 30, 1997 and 1996 was:

<TABLE>
<CAPTION>
APB 15 STATEMENT 128
---------------------------- ------------------------
PRIMARY FULLY DILUTED BASIC DILUTED
----------- --------------- ----- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Three months ended June 30, 1997................ $ .17 $ .17 $ .18 $ .17
Six months ended June 30, 1997.................. $ .31 $ .31 $ .32 $ .31

Three months ended June 30, 1996................ $ .16 $ .16 $ .18 $ .16
Six months ended June 30, 1996.................. $ .28 $ .28 $ .32 $ .29
</TABLE>

Also during 1997, the FASB issued pronouncements relating to the
presentation and disclosure of information related to the Company's capital
structure, comprehensive income and segment data. The Company is required to
adopt the provisions relating to capital structure for the year ending
December 31, 1997, if applicable, and the provisions of the other
pronouncements, if applicable, for the year ending December 31, 1998. The
adoption of these pronouncements will not have an impact on the Company's
financial position and results of operations but may change the presentation
of certain of the Company's financial statements and related notes and data
thereto.

6
<PAGE>

4. Investments

The following summarizes (in thousands) the Company's investments as of June
30, 1997 and December 31, 1996. Market value reflects the price of
minority-owned publicly-traded securities at the close of business at the
respective date. Unrealized appreciation reflects the net excess of market value
over carrying value of publicly-traded securities classified as
available-for-sale.

<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equity Investees
Cambridge Technology.......................... $ 18,924 $ 288,996 $ 15,340 $ 316,620
Coherent Communications....................... 12,078 121,084 10,206 94,445
Sanchez Computer.............................. 4,744 27,237 4,346 22,799
USDATA........................................ 6,100 9,006 6,664 14,410
Non-public companies.......................... 48,638 40,333
---------- ----------
90,484 76,889
Brandywine Realty Trust......................... 8,519 10,249 8,519 9,695
Diamond Technology.............................. 1,699 10,437
Integrated Systems Consulting Group............. 1,891 7,597 1,891 9,770
National Media.................................. 2,035 6,565 2,035 7,790
Sybase.......................................... 10,733 8,075 13,733 9,059
Other public companies.......................... 679 1,589 989 2,005
Unrealized appreciation......................... 18,956 11,152
Non-public companies............................ 22,119 19,636
---------- ----------
$ 157,115 $ 134,844
---------- ----------
---------- ----------
</TABLE>

The following summarized financial information for investees accounted for
on the equity method of accounting at June 30, 1997 and 1996 has been compiled
from the financial statements of the respective investees and reflects
historical data for the period during which each respective investee was
accounted for on the equity method (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net Sales:
Public companies.............................. $ 116,910 $ 79,126 $ 219,212 $ 148,515
Non-public companies.......................... 65,885 44,172 138,371 72,837
---------- ---------- ---------- ----------
$ 182,795 $ 123,298 $ 357,583 $ 221,352
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

7
<PAGE>

5. Debt

In June 1997, the Company amended its revolving credit facility,
increasing the borrowing availability under the facility to $150 million from
$100 million, reducing the rate of borrowings on LIBOR traunches by .5% to
LIBOR plus 1.25%, and extending the maturity to May 2001.

Under the terms of CompuCom's $100 million accounts receivable
securitization facility ("Securitization Facility"), CompuCom sells, on a
revolving basis, an interest in a portion of its accounts receivable
("receivables"). During the second quarter, the Securitization Facility was
amended such that the sale, on a revolving basis, of a portion of its
receivables is required to be accounted for as a sale of receivables in
accordance with Statement of Financial Accounting Standard No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". CompuCom is retained as servicer of the
receivables; however, the cost to service the receivables is not material.
The net proceeds resulting from the sale of receivables totaled $98.5 million
which are included in net cash provided by operating activities in the
Consolidated Statements of Cash Flows. These proceeds were used to pay down
long-term debt. Discounts associated with the sale of receivables totaling
$1.5 million are included in Interest and Financing Expenses on the
Consolidated Statements of Operations for the three and six months ended June
30, 1997.

The following summarizes (in thousands) long-term debt at June 30, 1997 and
December 31, 1996:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Parent Company and Other Recourse Debt
Note Payable to Equity Investee Company................ $ 9,200
Other.................................................. 16,515 $ 16,151
-------------- ------------
25,715 16,151
-------------- ------------
Subsidiary Debt (Non-Recourse to Parent)
CompuCom............................................... 126,034 239,946
Other.................................................. 285 5,268
-------------- ------------
126,319 245,214
-------------- ------------
152,034 261,365
Current debt obligations............................... (3,970) (8,640)
-------------- ------------
Long-term debt......................................... $ 148,064 $ 252,725
-------------- ------------
-------------- ------------
</TABLE>

The Company's note payable of $9.2 million at June 30, 1997 to an equity
investee company is payable on demand and bears interest at a rate that
varies with the Company's effective borrowing rate. The Company has the
intent and ability, if necessary, to repay this note with proceeds from its
revolving credit facility; accordingly, it is classified as long-term.

8
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations

General

The Company's business strategy is the development of advanced
technology-oriented, entrepreneurially-driven partnership companies to
achieve maximum returns for its shareholders. The Company provides to its
partnership companies and associated venture funds active strategic
management, operating guidance, acquisition and disposition assistance, board
and management recruitment and innovative financing. The Company offers its
shareholders, through the rights offering process, the opportunity to acquire
direct ownership in selected partnership companies which it believes are
ready for public ownership.

If the Company significantly increases or reduces its investment in any
of the partnership companies, the Company's consolidated net sales and
earnings may fluctuate primarily due to the applicable accounting method used
for recognizing its participation in the operating results of that company.

The net sales and related costs and expenses of a partnership company are
included in the Company's consolidated operating results if the Company owns
more than 50% of the outstanding voting securities of the partnership
company. Participation of shareholders other than the Company in the earnings
or losses of a more than 50% owned partnership company is reflected in the
caption "Minority interest" in the Consolidated Statement of Operations which
adjusts consolidated earnings to reflect only the Company's share of the
earnings or losses of the partnership company. The partnership companies that
are consolidated in 1997 are CompuCom Systems, Inc., Tangram Enterprise
Solutions, Inc., Premier Solutions Ltd. and Pioneer Metal Finishing. Premier
was sold during the second quarter of 1997 and therefore is no longer
included in the Company's consolidated operating results.

Investments in companies in which the Company owns 50% or less of the
outstanding voting securities, in which significant influence is exercised,
are accounted for on the equity method of accounting. Significant influence
is presumed at a 20% ownership level; however, the Company applies the equity
method for certain companies in which it owns less than 20% because it exerts
significant influence through representation on those companies' Boards of
Directors and other means. Under the equity method of accounting, a
partnership company's net sales and related costs and expenses are not
included in the Company's consolidated operating results; however, the
Company's share of the earnings or losses of the partnership company is
reflected in the caption "Income from equity investments" in the Consolidated
Statement of Operations. The number of partnership companies accounted for on
the equity method has increased significantly over the last several years. In
addition, the Company's current strategy is to invest in larger, more mature
companies. As a result, total revenues from the Company's equity investments,
which are not included in the Consolidated Statements of Operations, have
increased significantly (see Note 4 to the consolidated financial statements).

Under either consolidation accounting or the equity method of accounting,
only the Company's share of the earnings or losses of a partnership company
is included in the Consolidated Statement of Operations.

9
<PAGE>

Operations Overview

Net sales by industry segment were (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Information Technology
Microcomputer Systems and Services........ $ 491,220 $ 508,755 $ 923,109 $ 922,089
Information Solutions..................... 3,221 11,126 11,191 20,570
---------- ---------- ---------- ----------
494,441 519,881 934,300 942,659
Metal Finishing and Other................... 8,265 7,561 15,982 14,880
---------- ---------- ---------- ----------
$ 502,706 $ 527,442 $ 950,282 $ 957,539
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

Microcomputer Systems and Services sales decreased for the three months
ended June 30, 1997 compared to the same period in 1996 as CompuCom's 54%
increase in services sales was more than offset by an 8% decrease in product
sales. The increase in services sales reflects CompuCom's continued focus on
expanding its network and technology services at competitive prices to meet
increased customer demand for its value-added desktop network services.
Product sales declined for the three and six months ended June 30, 1997,
compared to the comparable periods in 1996. CompuCom shipped more desktop,
laptop, and server units relative to comparable 1996 periods; however, due to
certain manufacturer price reductions, these units carried a lower average
sales price, which contributed to the product sales decline. Also, CompuCom
believes the product sales decline has been the result of an overall
industry-wide demand softness caused by a delay in corporate customers
upgrading to Pentium Pro Technology, as well as an increase in direct
marketers' market share.

Comparability of Information Solutions 1997 net sales and earnings to
1996 is impacted by the sale of Premier during the second quarter of 1997.
Excluding Premier's sales, Information Solutions sales decreased slightly for
the three and six months ended June 30, 1997 compared to the same periods in
1996 due to decreased sales at Tangram. Tangram's services sales increased
52% and 30% for the three and six months ended June 30, 1997 compared to the
same periods in 1996 principally due to an increase in implementation and
maintenance fees. This increase was more than offset by a decrease in product
sales as Tangram migrates from its AM:PM-R- product to its Asset Insight-TM-
product. Information Solutions losses increased in 1997 as a result of
Tangram's substantial investment in marketing its Asset Insight-TM- product
and personnel increases to support the Asset Insight-TM- product rollout.
Tangram expects to continue to devote substantial resources to developing
sales of Asset Insight-TM-.

Net earnings for the quarter ended June 30, 1997 were $5.6 million, or
$.17 a share, compared to $5.4 million, or $.16 a share, for the same period
in 1996. Net earnings for the six months ended June 30, 1997 were $10.1
million, or $.31 a share, compared to $9.4 million, or $.28 a share, for the
comparable period in 1996. The increased net earnings resulted primarily from
increased operating earnings at CompuCom, improved Metal Finishing results,
elimination of losses from Premier due to its sale, and higher securities
gains, partially offset by decreased earnings at Tangram and lower income
from equity investments. Despite the lack of growth in CompuCom's product
sales and its continued investment in the service business and overall
infrastructure of the company, CompuCom's net earnings from operations
increased for the three

<PAGE>

and six months ended June 30, 1997 compared to the same periods in 1996
due to the higher margins on services sales and the results of
CompuCom's efforts to control operating expenses. Future improved
profitability at CompuCom will depend on its ability to retain and hire
quality service personnel while effectively managing the utilization of such
personnel, increased focus on providing technical service and support to
customers, product demand, competition, manufacturer product availability and
pricing changes, effective utilization of vendor programs, and control of
operating expenses.

The following summarizes significant pre-tax gains from securities
transactions (in millions):

<TABLE>

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1997 1996 1997 1996
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cambridge Technology......... $6.5 $4.6 $12.0 $ 9.7
Premier Solutions............ 6.3 6.3
Diamond Technology........... 4.3
Coherent Communications...... 7.6 9.3
PC Service Source............ 4.4 4.4
Sybase....................... (3.0) (4.5) (3.0) (4.5)
Other........................ (3.0) (5.8) (5.6) (6.9)
------------- -------------- ------------ ------------
$6.8 $6.3 $14.0 $12.0
------------- -------------- ------------ ------------
------------- -------------- ------------ ------------

</TABLE>

Securities gains in 1997 included the open market sales of a portion of
the Company's interest in Cambridge and the sale of shares in the Diamond
rights offering. Securities gains in 1997 also included the sale of all of
the assets of Premier Solutions Ltd. Partially offsetting these gains was a
write-down of the Company's holdings in Sybase due to the other than
temporary decline in the market price of that stock, charges incurred in the
disposition of investments, and provisions for other investments and notes.
Securities gains in 1996 included the open market sales of a portion of the
Company's interest in Coherent and Cambridge and the sale of shares in the
Integrated Systems Consulting Group rights offering. Securities gains in 1996
also included the Company's share of CompuCom's gain from the sale of
substantially all of its holdings in PC Service Source. Partially offsetting
these 1996 gains was a write-down of Sybase, charges incurred in the
disposition of investments, and provisions for other investments and notes.

Income from equity investments fluctuates with the Company's ownership
percentage and the operating results of investees accounted for on the equity
method. Increased equity income from the Company's public equity investments in
1997 was more than offset by the Company's share of losses at certain private,
early-stage equity investments and increased amortization of the excess of
carrying value over the Company's share of underlying net assets of equity
investments. The Company's public equity investments include Cambridge,
Coherent, Sanchez Computer Associates and USDATA Corporation.

Cambridge's earnings increased 66% on 48% revenue growth compared to the
same quarter in 1996. Demand remains very strong for its services, both
domestically and internationally. During the quarter, Cambridge continued to
build its delivery capabilities through the addition of new staff and office
locations. Safeguard owns approximately 17% of Cambridge's common stock at
June 30, 1997.

<PAGE>

Coherent's revenues and earnings increased 35% and 37%, respectively,
compared to the same quarter of 1996. Sales growth was especially strong in
Europe, the Middle East and Africa. New customers, installation expansions
within existing customers, software upgrades and sales from new products all
contributed to the record revenue in the quarter as did sales of Coherent's
new echo canceller product for the wireless industry, EC-Duo-TM-. Safeguard
owns approximately 32% of Coherent's common stock at June 30, 1997.

Diamond's earnings increased significantly on revenues of $12.1 million
which were up 56% over the comparable quarter in 1996. During the first
quarter of 1997, Diamond completed the rights offering of Diamond common
stock to the Company's shareholders. As a result of the rights offering, the
Company owns less than 9% of Diamond's common stock at June 30, 1997.
Accordingly, the Company discontinued accounting for its investment in
Diamond on the equity method subsequent to the first quarter.

Sanchez's earnings increased 60% on 30% revenue growth compared to the same
quarter in 1996. Revenue growth was primarily attributable to the licensing of
the PROFILE/Anyware product to Canada's Credit Union Central of Saskatchewan and
increased PROFILE implementation activity in both Canada and the emerging
markets of Central Europe and Asia. In July 1997, Sanchez announced an agreement
with ING Group, a worldwide Dutch financial institution, marking its first ever
global software license agreement. Safeguard owns approximately 24% of Sanchez's
common stock at June 30, 1997.

USDATA reported lower sales and earnings compared to the second quarter of
1996 as a result of continued weakness in international software sales. In July
1997, USDATA announced the appointment of Robert Merry as its new President
and Chief Executive Officer. Safeguard owns approximately 20% of USDATA's common
stock at June 30, 1997.

In August 1997, Chromavision Medical Systems (Chromavision) completed the
rights offering of its common stock to the Company's shareholders. As part of
the rights offering, the Company converted its non-voting preferred shares
into ChromaVision common stock and sold a portion of its common stock
holdings. The Company owns approximately 20% of ChromaVision's common stock
at August 12, 1997.

The Company's overall gross margin was 14.0% and 14.3% in the three and six
months ended June 30, 1997, compared to 13.0% and 13.3% for the comparable
periods in 1996. The increase is attributable to the increased services sales at
CompuCom which generate higher gross margins relative to product sales.
CompuCom's services gross margin for the three and six months ended June 30,
1997 was 37.1% and 36.6%, up from 30.0% and 33.3% for the comparable periods in
1996. This resulted from improved utilization of service personnel and better
management of spare parts used in the service business. CompuCom's product gross
margin for the three and six months ended June 30, 1997 was 9.6% and 10.0%, down
from 10.1% in the same periods in 1996. The lower product margin at CompuCom is
principally due to pricing to win new business and increased pricing pressures
from competitors. Future product margins at CompuCom will be influenced by
manufacturers' pricing strategies together with competitive pressures from other
resellers and direct marketers in the industry. CompuCom participates in certain
manufacturer-sponsored programs designed to increase sales of specific products.
These programs, excluding volume rebates, are not material when compared to
CompuCom's overall financial results.

12
<PAGE>

Selling and general and administrative expense, in absolute dollars and as a
percentage of sales, increased significantly in 1997 primarily due to the costs
to manage and expand the growing services business and maintain the overall
infrastructure at CompuCom and increased corporate expenses incurred to support
the growing activities of the partnership companies. CompuCom's general and
administrative expenses are reported net of reimbursements by certain
manufacturers for specific training, promotional and marketing programs. These
reimbursements offset the expenses incurred by CompuCom.

Interest and financing expense decreased for the three and six months
ended June 30, l997 compared to the same periods in 1996 primarily as a
result of the elimination of interest related to the Company's commercial
real estate operations, the conversion of approximately $24 million of the
Company's Convertible Subordinated Notes in the fourth quarter of 1996 and
the first quarter of 1997 into the Company's common stock, and reduced
interest expense at CompuCom in the second quarter of 1997 compared to 1996
as a result of its lower effective interest rate.

Depreciation and amortization expense decreased for the three months
ended June 30, 1997 when compared to 1996 primarily as a result of the
elimination of depreciation and amortization resulting from the sale of
Premier and the Company's commercial real estate operations, partially offset
by increased depreciation at CompuCom. Although depreciation and amortization
expense decreased in the second quarter compared to 1996, depreciation and
amortization expense for the six months ended June 30, 1997 as compared to
the same period in 1996 was essentially flat due to the timing of the
increased depreciation at CompuCom and the sale of Premier in 1997. CompuCom
has substantially completed the refurbishment of and relocation to its new
corporate headquarters and operations campus and will commence depreciation
of the facility in the third quarter of 1997.

Liquidity and Capital Resources

In June 1997, the Company amended its revolving credit facility which
increased the borrowing availability under the facility from $100 million to
$150 million, reduced the rate of borrowings on LIBOR traunches by .5% to
LIBOR plus 1.25%, and extended the maturity to May 2001. The credit facility
is secured by the equity securities the Company holds of its publicly traded
partnership companies, including CompuCom. The value of these securities
significantly exceeds the total availability under the revolving credit
facility. There were no borrowings under this facility at June 30, 1997.

In June 1997, the Company entered into a revolving note agreement with an
equity investee company whereby the Company may borrow up to $12 million from
the equity investee company on a revolving basis at the Company's effective
borrowing rate less .75%. At June 30, 1997, $9.2 million was outstanding
under this agreement.

Availability under the Company's $150 million revolving credit facility
and the $12 million equity investee revolving note agreement, proceeds from
the sales from time to time of selected minority-owned publicly traded
securities, and other internal sources of cash flow should be sufficient to
fund the Company's cash requirements through the first half of 1998,
including investments in new or existing partnership companies, general
corporate requirements, and the repurchase of up to $20 million of the
Company's common stock from time to time in the open market as authorized by
the Company's Board of Directors, of which $5.6 million was repurchased as of
August 12, 1997.

13
<PAGE>

CompuCom maintains separate, independent bank credit facilities, which
are nonrecourse to the Company and are secured by substantially all of the
assets of CompuCom. During recent years, CompuCom has utilized operating
earnings, bank credit facilities, equity financing and long-term subordinated
notes to fund its significant sales growth and related operating asset
requirements. CompuCom's financing arrangements consists of a $200 million
working capital facility, the $100 million revolving Securitization Facility,
and a $25 million real estate loan. At June 30, 1997, approximately $95
million was outstanding under the working capital facility and the real
estate loan and the Securitization Facility were fully utilized. All of
Compucom's bank credit facilities mature in September 1999, except for $12.5
million of the real estate loan which is due September 1998. Compucom is
currently evaluating other permanent financing options for the $25 million
real estate loan.

The outstanding balance on Premier's master demand note was repaid in the
second quarter in connection with the sale of Premier's assets.

Cash flow provided by operating activities increased significantly
primarily from the effect of Compucom's Securitization Facility in which $100
million of accounts receivable were sold with the proceeds used to pay down
long-term debt.

The Company's operations are not capital intensive, and capital
expenditures in any year normally would not be significant in relation to the
overall financial position of the Company. Capital asset requirements are
generally funded through bank credit facilities, internally generated funds
or other financing sources. Capital expenditures during the six months ended
June 30, 1997 were primarily related to getting CompuCom's new headquarters
and operations campus ready for full occupancy and costs incurred in the
construction of a Monroe, Michigan Metal Finishing facility. The Company
expects capital expenditures to decline in the second half of 1997 after
these construction projects have been significantly completed. There were no
material asset purchase commitments at June 30, 1997.

<PAGE>

Item 5. Other Information

A rights offering to the Company's shareholders of 6,720,000 shares of
ChromaVision Medical Systems (ChromaVision) common stock was completed on
August 5, 1997. The Company sold approximately 731,000 shares of ChromaVision
common stock as part of the offering and owns approximately 20% of
ChromaVision's common stock at August 12, 1997.

On July 22, 1997, the Company announced the proposed rights offering to
its shareholders of common shares of OAO Technology Solutions, Inc. The
Company anticipates announcing the terms of the offering in the third quarter
of 1997 and commencing the offering in the fourth quarter of 1997. The
offering will be made only by means of a prospectus subject to the
effectiveness of a registration statement to be filed with the Securities and
Exchange Commission.

15
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

NUMBER DESCRIPTION
----- -------------
<C> <S>

10.1 Asset Acquisition Agreement dated April 15, 1997 for the sale of certain assets of Premier Solutions Ltd.
to a subsidiary of Sungard Data Systems Inc. (exhibits omitted) (1)

10.2 Amendment to Safeguard Scientifics, Inc 1990 Stock Option Plan dated October 25, 1996 (1)

10.3 Amendment No. 3 to Transfer and Administration Agreement, dated as of February 1, 1997, among CSI Funding,
Inc., CompuCom Systems, Inc., Enterprise Funding Corporation and NationsBank N.A. (1)

10.4 First amendment to Credit Agreement, dated June 19, 1997, between Safeguard Scientifics, Inc., Safeguard
Scientifics (Delaware), Inc and PNC Bank, N.A. (exhibits omitted) *

10.5 Amendment No. 4 to Transfer and Administration Agreement, dated as of April 1, 1997, among CSI Funding,
Inc., CompuCom Systems, Inc., Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted) *

10.6 Amendment No. 2 to Receivables Purchase Agreement, dated as of April 1, 1997, among CSI Funding, Inc.,
CompuCom Systems, Inc., Enterprise Funding Corporation and NationsBank, N.A. (exhibits omitted) *

11 Computation of Per Share Earnings*

27 Financial Data Schedule (electronic filing only)*
</TABLE>

- ------------------------

* filed herewith

(1) Incorporated by reference from registrant's form 10-Q for the quarter
ended March 31, 1997 dated May 15, 1997 and made a part hereof by such
reference

(b) No reports on Form 8-K have been filed by the Registrant during the quarter
ended June 30, 1997.

16
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SAFEGUARD SCIENTIFICS, INC.
(Registrant)

Date: August 14, 1997 /s/ Donald R. Caldwell
--------------------------------------
Donald R. Caldwell
President and Chief Operating Officer

Date: August 14, 1997 /s/ Michael W. Miles
--------------------------------------
Michael W. Miles
Vice President and Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)

<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT (the "Amendment") made as of June 19, 1997 by and
among SAFEGUARD SCIENTIFICS, INC. ("SSI" or a "Borrower"), SAFEGUARD SCIENTIFICS
(DELAWARE) INC. ("SSD" or a "Borrower"), PNC BANK, NATIONAL ASSOCIATION and the
other lending institutions that are parties hereto (collectively, the "Lenders"
and singly, a "Lender"), PNC BANK, NATIONAL ASSOCIATION, as issuer of letters of
credit under the Credit Agreement (as herein defined) (in such capacity,
"Issuer") and PNC BANK, NATIONAL ASSOCIATION, as administrative and collateral
agent for the Issuer and Lenders under the Credit Agreement (in such capacity,
"Agent").

B A C K G R O U N D

The parties, other than the Additional Lenders (as herein defined), are
parties to that certain Credit Agreement dated as of September 13, 1996 (as
amended to date, the "Credit Agreement"), and desire to amend the Credit
Agreement in the manner hereinafter set forth. All capitalized terms used in
this Amendment but which are not defined herein shall have the respective
meanings given thereto in the Credit Agreement. Except to the extent otherwise
set forth herein to the contrary, all of the terms hereof are effective as of
the date hereof.

NOW THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as
follows:

1. Additional Lenders. Each of Wilmington Trust of Pennsylvania and
First Union National Bank (each an "Additional Lender") hereby joins in the
Credit Agreement for the purpose of becoming a "Lender" thereunder.
Accordingly:

a. Each Additional Lender shall constitute a "Lender" for all
purposes of the Credit Agreement, and the term "Lenders", as defined in the
Credit Agreement, shall include, collectively with PNC Bank, National
Association, CoreStates Bank, N.A., Mellon Bank, N.A. and First Bank National
Association, each Additional Lender.

b. Schedule "A" to the Credit Agreement, setting forth each Lender's
"Pro Rata Percentage", is hereby replaced by Schedule "A" attached hereto.

2. Revolving Loan Commitment. The definition of "Revolving Loan
Commitment" set forth in Section 1.1 of the Credit Agreement is hereby amended
and restated in its entirety as follows:

<PAGE>

" "Revolving Loan Commitment" - $150,000,000, as the same may be reduced
pursuant to Section 2.2 hereof."

3. Commitment Termination Date. The definition of "Commitment
Termination Date" set forth in Section 1.1 of the Credit Agreement is hereby
amended to mean May 31, 2001.

4. Collateral Coverage. The definitions of "Collateral Coverage Base"
and "Collateral Coverage Securities" set forth in Section 1.1 of the Credit
Agreement are hereby amended and restated in their entirety as follows:

"Collateral Coverage Base" - a dollar amount equal to the following
percentages of the value of the Collateral Coverage Securities, in no event,
however, to exceed the lesser of (i) as to Collateral Coverage Securities which
constitute "margin stock" pursuant to Regulation U of the Board of Governors of
the Federal Reserve System, 12 C.F.R. 221 et seq. ("Regulation U"), 50% (or the
then maximum "loan value" for margin stock pursuant to Regulation U) of the
value of such Collateral Coverage Securities, and (ii) the following dollar
maximum specified for each type of Collateral Coverage Securities, provided that
the following dollar maximum for such Collateral Coverage Securities will be
inapplicable at such time as Borrowers own (directly or indirectly) less than
15% of the applicable issuing corporation's securities which have ordinary
voting power for the election of directors (with an "N/A" designation in the
"Maximum $" column below constituting Borrowers' representation to Lenders that
Borrowers presently own less than 15% of the applicable issuing corporation's
securities which have ordinary voting power for the election of directors):

Securities % Maximum $
-------------- ----------- ---------------

CompuCom 33.33% $75 Million
Cambridge 50% $75 Million
Sybase 50% N/A
Coherent 50% $75 Million
Tangram 25% $10 Million
USDATA 33.33% $25 Million
National Media 33.33% N/A
ISCG 33.33% N/A
Sanchez 25% $25 Million
Brandywine 25% N/A
Diamond 25% N/A
New Public 25% $25 Million
Companies

"Collateral Coverage Securities" - Pledged Securities consisting of common
stock issued by one or more of the following corporations but only as long as
(A) such securities are traded on a recognized national securities exchange, on
the NASDAQ national or small-cap market or on the over-the-counter market and
(B) such

2
<PAGE>

securities are not Restricted Securities;

(i) CompuCom Systems, Inc. ("CompuCom")
(ii) Cambridge Technology Partners, Inc.
(iii) Sybase, Inc. ("Sybase")
(iv) Integrated Systems Consulting Group, Inc. ("ISCG")
(v) Coherent Communications Systems Corporation
(vi) Tangram Enterprise Solutions, Inc. ("Tangram")
(vii) USDATA Corporation ("USDATA")
(viii) National Media Corporation ("National Media")
(ix) Sanchez Computer Associates, Inc. ("Sanchez")
(x) Brandywine Real Estate Trust ("Brandywine")
(xi) Diamond Technology Partners Incorporated
("Diamond")
(xii) New Public Companies

5. Interest. Each reference in Section 2.8(c)(i)(B) of the Credit
Agreement to "1.75 percentage points" is hereby amended by replacing each such
reference with "1.25 percentage points", effective as of the date hereof for
outstanding principal presently accruing interest at the LIBOR Rate as well as
for LIBOR Rate elections hereafter made.

6. Covenant Amendments.

a. Tangible Net Worth. Effective as of March 31, 1997, Section 6.8
of the Credit Agreement is amended and restated in its entirety as follows:

"The Borrowers shall have and maintain Tangible Net Worth of
not less than $190,000,000 as of March 31, 1997, increasing
by 75% of after tax earnings for all periods after March 31,
1997 (determined on a cumulative basis), tested as set forth
in Section 1.3 hereof."

b. Guaranties. Effective as of January 1, 1997, Section 6.5(c) of
the Credit Agreement is hereby amended by replacing the reference made therein
to "Thirty Five Million ($35,000,000)" with "Fifty Million Dollars
($50,000,000)". Each Lender hereby waives noncompliance by Borrowers with the
replaced covenant during the period commencing January 1, 1997 through the date
hereof.

c. Investments and Loans. Section 6.6(a)(i) of the Credit Agreement
is hereby amended and restated in its entirety as follows:

"(a) (i) The aggregate of all Investments may not

3
<PAGE>

exceed $200,000,000 in the aggregate for Borrowers'
fiscal years 1997 and 1998 and may not exceed $50,000,000
for each fiscal year thereafter."

7. Consent of Lenders. Section 8.15(b) of the Credit Agreement is hereby
amended by adding at the end thereof the following additional clause:

"or (ix) knowingly waive or fail to enforce any Event of
Default under Section 7.6(a) hereof, or fail to terminate
all obligations of Lenders to make any further loans or
other credit extensions under the Revolving Loan at any
time after the occurrence of any Event of Default under
Section 7.6(a) hereof or of any Default which with the
lapse of time referred to in Section 7.6(a) hereof would
constitute an Event of Default under Section 7.6(a)."

8. Conditions. Concurrently herewith and as a condition to the
effectiveness hereof, the Borrowers shall deliver the following (all documents
to be in form and substance acceptable to the Lenders):

a. Borrowers will execute and deliver to each Lender, including each
Additional Lender, a promissory note in the face amount of such Lender's Pro
Rata Percentage of the Revolving Loan Commitment, each of which promissory notes
shall constitute one of the "Notes" for all purposes of the Credit Agreement;
and

b. The Borrowers shall deliver to Agent a certified copy of a
Resolution of such Borrower's Board of Directors authorizing the execution and
delivery of this Amendment and the other documents to be executed pursuant
hereto.

9. Reaffirmation. Except to the extent specifically modified hereby, the
terms and conditions of the Credit Agreement shall remain unchanged and in full
force and effect, and Borrowers hereby ratify and reaffirm all of their
Obligations to each Lender (including the Additional Lenders) and to the Agent
and the Issuer, and agree that the same are owing without setoff, counterclaim
or other defense of any nature whatsoever.

10. Counterparts. This Amendment may be executed in counterparts, each
which shall be deemed to be an original but all of which together shall
constitute but one and the same instrument.

4
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.

PNC BANK, NATIONAL ASSOCIATION, as Agent,
Lender and Issuer

By: /s/ Warren C. Engle, V.P.
-------------------------------------

CORESTATES BANK, N.A.

By: /s/ Richard C. Collins, V.P.
-------------------------------------

Address: Great Valley Corporate Center
55 Valley Stream Parkway, Suite 200
Malvern, PA 19355
Attn: John Fessick, VP

Facsimile No: 610-251-5929

FIRST BANK NATIONAL ASSOCIATION

By: /s/ Christopher H. Patton
-------------------------------------

Address: 1st Bank Place
601 2nd Avenue South, 7th Avenue
Minneapolis, MN 55402-4302
Attn: Christopher Patton, CBO

Facsimile No: 612-973-0825

MELLON BANK, N.A.

By: /s/ Donald Cassidy, Jr., First V.P.
-------------------------------------

Address: Mellon Bank Center
Corporate Banking, 7th Floor
1735 Market Street
Philadelphia, PA 19106
Attn: Gilbert Mateer

Facsimile No: (215) 553-4899

[Signatures continued on next page]

5
<PAGE>

[Signatures continued from previous page]

WILMINGTON TRUST OF PENNSYLVANIA

By: /s/ Thomas J. Raymond
-------------------------------------

Address: 1522 McDaniel Drive
West Chester, PA 19380
Attn: Thomas J. Raymond

Facsimile No.: (610) 431-1792

With copy to:

Banking Legal
Wilmington Trust Co.
1100 N. Market Street
Rodney Square
Wilmington, DE 19890

FIRST UNION NATIONAL BANK

By: /s/ Constantin E. Cherrny
-------------------------------------

Address: 123 South Broad Street
Philadelphia, PA 19109
Attn: Carl Goelz

Facsimile No.: (215) 985-3555

SAFEGUARD SCIENTIFICS, INC., a
Pennsylvania corporation

By: /s/ Michael W. Miles
-------------------------------------

Attest: /s/ John B. Wright
---------------------------------

SAFEGUARD SCIENTIFICS (DELAWARE) INC.,
a Delaware corporation

By: /s/ Michael W. Miles
-------------------------------------

Attest: /s/ John B. Wright
---------------------------------

6
<PAGE>

Schedule "A"

Lender Pro Rata Percentage
- ------ -------------------

PNC Bank, National Association 55/150
CoreStates Bank, N.A. 25/150
Mellon Bank, N.A. 25/150
First Bank National Association 15/150
Wilmington Trust of Pennsylvania 15/150
First Union National Bank 15/150

<PAGE>
Exhibit 10.5

AMENDMENT NO. 4 TO TRANSFER AND ADMINISTRATION AGREEMENT

AMENDMENT NO. 4 (this "Amendment"), dated as of April 1, 1997, TO TRANSFER
AND ADMINISTRATION AGREEMENT dated as of April 1, 1996, as amended as of
September 25, 1996, December 5, 1996 and February 1, 1997, by and among CSI
FUNDING INC., a Delaware corporation, as transferor (hereinafter, together with
its successors and assigns in such capacity, called the "Transferor"), COMPUCOM
SYSTEMS, INC., a Delaware corporation, as collection agent (hereinafter,
together with its successors and assigns in such capacity, called the
"Collection Agent"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation
(hereinafter, together with its successors and assigns, called the "Company")
and NATIONSBANK, N.A., a national banking association, as agent for the benefit
of the Company and the Bank Investors (hereinafter, together with its successors
and assigns in such capacity, called the "Agent").

W I T N E S S E T H :

WHEREAS, the Transferor, the Collection Agent, the Company and the Agent
have entered into a Transfer and Administration Agreement, dated as of April 1,
1996 (such agreement, as amended to the date hereof, the "Agreement");

WHEREAS, the parties hereto have entered into a certain letter agreement,
dated March 25, 1997, a copy of which is attached hereto as Exhibit A, the terms
of which the parties hereto desire to incorporate into this Amendment; and

WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided.

NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

SECTION 1. Defined Terms. Unless otherwise defined herein, the terms used
herein shall have the

<PAGE>

meanings assigned to such terms in, or incorporated by reference into, the
Agreement.

SECTION 2. Amendments to Agreement. The Agreement is hereby amended,
effective on the Effective Date, as follows:

(a) Section 2.13 shall be deleted in its entirety; and

(b) Section 2(f) of Amendment No. 1, dated as of September 25, 1996, to
the Agreement, shall be amended by deleting the words "Pursuant to the terms of
Section 5.1(j)" and by replacing them with the words "Pursuant to the terms of
Section 5.2(j)".

(c) The definition of "Commitment Termination Date" in Section 1.1 shall
be deleted in its entirety and replaced with the following definition, effective
as of March 25, 1997:

"Commitment Termination Date" means December 31, 1997, or such later
date to which the Commitment Termination Date may be extended by the
Transferor, the Agent and the Bank Investors.

SECTION 3. Effectiveness. This Amendment shall become effective on April
1, 1997 (the "Effective Date").

SECTION 4. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Amendment.

SECTION 5. Consents; Binding Effect. The execution and delivery by the
Company, the Transferor, the Collection Agent and the Agent of this Amendment
shall constitute the written consent of each of them to this Amendment. This
Amendment shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns.

<PAGE>

SECTION 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

SECTION 7. Severability of Provisions. Any provision of this
Amendment which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

SECTION 8. Captions. The captions in this Amendment are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.

SECTION 9. Agreement to Remain in Full Force and Effect. Except as
amended hereby, the Agreement shall remain in full force and effect and is
hereby ratified, adopted and confirmed in all respects. This Amendment shall be
deemed to be an amendment to the Agreement. All references in the Agreement to
"this Agreement", "hereunder", "hereof", "herein", or words of like import, and
all references to the Agreement in any other agreement or document shall
hereafter be deemed to refer to the Agreement as amended hereby.

[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4
to Transfer and Administration Agreement to be executed as of the date and
year first above written.

ENTERPRISE FUNDING CORPORATION,
as Company

By: /s/ Stewart L. Cutler
-------------------------------
Name: Stewart L. Cutler
Title: Vice President

CSI FUNDING INC., as Transferor

By: /s/ Patrick D. Lane
-------------------------------
Name: Patrick D. Lane
Title: Vice President

COMPUCOM SYSTEMS, INC.,
as Collection Agent

By: /s/ Daniel Celoni
------------------------------
Name: Daniel Celoni
Title: Treasurer

NATIONSBANK, N.A., as Agent
and as Bank Investor

By: /s/ Stan Meihaus
-------------------------------
Name: Stan Meihaus
Title: Vice President

<PAGE>

Exhibit 10.6

AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT

AMENDMENT NO. 2 (this "Amendment"), dated as of April 1, 1997, TO
RECEIVABLES PURCHASE AGREEMENT dated as of April 1, 1996, as amended by
Amendment No. 1 thereto dated as of September 25, 1996, between CSI FUNDING
INC., a Delaware corporation (hereinafter, together with its successors and
assigns, called the "Purchaser") and COMPUCOM SYSTEMS, INC., a Delaware
corporation (hereinafter, together with its successors and assigns, called the
"Seller").

W I T N E S S E T H :
- - - - - - - - - - -

WHEREAS, the Purchaser and the Seller have entered into a Receivables
Purchase Agreement, dated as of April 1, 1996 (such agreement, as amended to the
date hereof, the "Agreement");

WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided.

NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

SECTION 1. Defined Terms. Unless otherwise defined herein, the terms used
herein shall have the meanings assigned to such terms in, or incorporated by
reference into, the Agreement.

SECTION 2. Amendments to Agreement. The Agreement is hereby amended,
effective on the Effective Date, by inserting the following defined term in
Section 1.1 of the Agreement in alphabetical order:

<PAGE>

"Inventory Financing Agreements" shall mean those agreements
specifically referenced in Section 5.1(j).

SECTION 3. Effectiveness. This Amendment shall become effective on April
1, 1997 (the "Effective Date").

SECTION 5. Consents; Binding Effect. The execution and delivery by the
Seller and the Purchaser of this Amendment shall constitute the written consent
of each of them to this Amendment. This Amendment shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns.

SECTION 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

SECTION 8. Captions. The captions in this Amendment are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.

<PAGE>

Agreement", "hereunder", "hereof", "herein", or words of like import, and all
references to the Agreement in any other agreement or document shall
hereafter be deemed to refer to the Agreement as amended hereby.

[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
Receivables Purchase Agreement to be executed as of the date and year first
above written.

CSI FUNDING INC., as Purchaser

By /s/ Patrick D. Lane
----------------------------
Name: Patrick D. Lane
Title: Vice President

COMPUCOM SYSTEMS, INC.,
as Seller

By /s/ Daniel Celoni
---------------------------
Name: Daniel Celoni
Title: Treasurer

Acknowledged and agreed as of
the date first above written:

ENTERPRISE FUNDING CORPORATION

By: /s/ Stewart L. Cutler
-----------------------------
Name: Stewart L. Cutler
Title: Vice President

NATIONSBANK, N.A.

By: /s/ Stan Meihaus
-----------------------------
Name: Stan Meihaus
Title: Vice President

<PAGE>
Safeguard Scientifics, Inc. and Subsidiaries
Exhibit 11--Computation of Per Share Earnings
(In thousands except per share data)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary earnings per common share
Net earnings............................................................... $ 5,636 $ 5,408 $ 10,128 $ 9,388
Adjustment (1)............................................................. (128) (381) (217) (513)
--------- --------- --------- ---------
$ 5,508 $ 5,027 $ 9,911 $ 8,875
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common shares outstanding.......................................... 31,326 29,753 31,225 29,629
Average common share equivalents........................................... 691 1,580 798 1,566
--------- --------- --------- ---------
Average number of common shares and common share equivalents outstanding... 32,017 31,333 32,023 31,195
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary earnings per common share.......................................... $ .17 $ .16 $ .31 $ .28
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted earnings per common share
Net earnings............................................................... $ 5,636 $ 5,408 $ 10,128 $ 9,388
Adjustment (1)............................................................. (128) (381) (217) (513)
--------- --------- --------- ---------
$ 5,508 $ 5,027 9,911 $ 8,875
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common shares outstanding.......................................... 31,326 29,753 31,225 29,629
Average common share equivalents........................................... 791 1,596 884 1,632
--------- --------- --------- ---------
Average number of common shares assuming full dilution..................... 32,117 31,349 32,109 31,261
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted earnings per common share.................................... $ .17 $ .16 $ .31 $ .28
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

- ------------------------

(1) Net earnings are adjusted for the dilutive effect of public subsidiary
common stock equivalents (primary) and convertible securities (fully
diluted).

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
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