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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

Commission file number 000-31019

ARGONAUT TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(State or other jurisdiction of
incorporation or organization) |  | 94-3216714
(IRS Employer
Identification Number)

1101 Chess Drive
Foster City, CA 94404
(Address of principal executive offices, including zip code)

(650) 655-4200
(Registrants telephone number, including area code)

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 [X]   No [   ]

As of October 31, 2002, 19,945,452 shares of the Registrants Common Stock,
$0.0001 par value, were outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                              
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1: LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 3: DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5: OTHER INFORMATION                                                                    
|                              | ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|CERTIFICATIONS               
|EXHIBIT INDEX                
|EXHIBIT 10.17                
|EXHIBIT 99.1                 



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##### Table of Contents



Argonaut Technologies, Inc.

Form 10-Q

Quarterly Period Ended September 30, 2002

INDEX

|               |  |                                                                                                                                     |  |   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I         |  | FINANCIAL INFORMATION                                                                                                               |  |   
|Item 1.        |  | Condensed Consolidated Financial Statements (Unaudited)                                                                             |  | 3 
|               |  | Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001                                    |  | 3 
|               |  | Condensed Consolidated Statements of Operations for the Three- and Nine-Month Periods Ended
September 30, 2002 and 2001 (Unaudited) |  | 4 
|               |  | Condensed Consolidated Statement of Cash Flows for the Nine-Month Periods Ended September 30,
2002 and 2001 (Unaudited)             |  | 5 
|               |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                    |  | 6 
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                               |  | 11
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          |  | 20
|Item 4.        |  | Controls and Procedures                                                                                                             |  | 20
|PART II        |  | OTHER INFORMATION                                                                                                                   |  |   
|Item 1.        |  | Legal Proceedings                                                                                                                   |  | 22
|Item 2.        |  | Changes in Securities and Use of Proceeds                                                                                           |  | 22
|Item 3.        |  | Defaults Upon Senior Securities                                                                                                     |  | 22
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                                                 |  | 22
|Item 5.        |  | Other Information                                                                                                                   |  | 22
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                                                    |  | 22
|Signatures     |  | 23                                                                                                                                 
|Certifications |  | 24                                                                                                                                 
|EXHIBITS       |  | 26                                                                                                                                 

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PART I: FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




ARGONAUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                     |                                                                |                            |        |               |        |              |        |         |        | 
|------------------------------------ | -------------------------------------------------------------- | -------------------------- | ------ | ------------- | ------ | ------------ | ------ | ------- | ------ | 
|                                     |                                                                |                            |        | September 30, |        | December 31,
|                                     |                                                                |                            |        | 2002          |        | 2001        
|                                     |                                                                |                            |        |               |        |             
|                                     |                                                                |                            |        | (Unaudited)   |        | (1)         
|ASSETS                               |                                                                |                            |        |               |        |              |        |        
|Current assets:                      |                                                                |                            |        |               |        |              |        |        
|                                     | Cash and cash equivalents                                      |                            | $      | 10,622        |        |              | $      | 17,996  |       
|                                     | Short-term investments                                         |                            |        | 18,198        |        |              |        | 39,636  |       
|                                     | Accounts receivable, net                                       |                            |        | 5,254         |        |              |        | 4,187   |       
|                                     | Inventories                                                    |                            |        | 6,783         |        |              |        | 4,096   |       
|                                     | Prepaid expenses & other current assets                        |                            |        | 987           |        |              |        | 784     |       
|                                     | Notes receivable                                               |                            |        | 177           |        |              |        |        |       
|                                     |                                                                |                            |        |               |        |              |        |        
|                                     |                                                                | Total current assets       |        |               | 42,021 |              |        |         | 66,699 | 
|Restricted cash                      |                                                                |                            | 11,949 |               |        |              |       |        
|Property and equipment, net          |                                                                |                            | 5,255  |               |        |              | 3,233  |        
|Goodwill                             |                                                                |                            | 9,387  |               |        |              | 763    |        
|Other intangible assets, net         |                                                                |                            | 6,649  |               |        |              | 1,450  |        
|Other assets                         |                                                                |                            | 139    |               |        |              | 26     |        
|                                     |                                                                |                            |        |               |        |              |        |        
|                                     |                                                                | $                          | 75,400 |               |        | $            | 72,171 |        
|                                     |                                                                |                            |        |               |        |              |        |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                |                            |        |               |        |              |        |        
|Current liabilities:                 |                                                                |                            |        |               |        |              |        |        
|                                     | Accounts payable                                               |                            | $      | 1,620         |        |              | $      | 1,681   |       
|                                     | Accrued compensation                                           |                            |        | 848           |        |              |        | 1,421   |       
|                                     | Other accrued liabilities                                      |                            |        | 2,495         |        |              |        | 1,679   |       
|                                     | Deferred revenue                                               |                            |        | 3,012         |        |              |        | 3,439   |       
|                                     | Current portion of notes payable and capital lease obligations |                            |        | 274           |        |              |        | 187     |       
|                                     |                                                                |                            |        |               |        |              |        |        
|                                     |                                                                | Total current liabilities  |        |               | 8,249  |              |        |         | 8,407  | 
|Long term liabilities                |                                                                |                            | 12,237 |               |        |              |       |        
|Stockholders equity:                |                                                                |                            |        |               |        |              |        |        
|                                     | Common stock                                                   |                            |        | 2             |        |              |        | 2       |       
|                                     | Additional paid-in capital                                     |                            |        | 121,563       |        |              |        | 120,036 |       
|                                     | Deferred stock compensation                                    |                            |        | (222          | )      |              |        | (1,008  | )     
|                                     | Accumulated other comprehensive loss (income)                  |                            |        | 417           |        |              |        | (32     | )     
|                                     | Accumulated deficit                                            |                            |        | (66,846       | )      |              |        | (55,234 | )     
|                                     |                                                                |                            |        |               |        |              |        |        
|                                     |                                                                | Total stockholders equity |        |               | 54,914 |              |        |         | 63,764 | 
|                                     |                                                                |                            |        |               |        |              |        |        
|                                     |                                                                | $                          | 75,400 |               |        | $            | 72,171 |        
|                                     |                                                                |                            |        |               |        |              |        |        



---

|(1) |  | The condensed consolidated balance sheet at December 31, 2001 has been
derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.

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ARGONAUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |        |        |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------- | --------------- | ----- | ------------------ | ----- | ----------------- | ----- | ----- | ----- | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | 
|                                                                                                                                                    |                                                                |          |                 |       | Three Months Ended |       | Nine Months Ended
|                                                                                                                                                    |                                                                |          |                 |       | September 30,      |       | September 30,    
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                  
|                                                                                                                                                    |                                                                |          |                 |       | 2002               |       | 2001              |       | 2002  |       | 2001   
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |        
|Net sales:                                                                                                                                          |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|                                                                                                                                                    |                                                                | Products |                 | $     | 6,238              |       |                   | $     | 3,143 |       |         | $      | 16,478 |        |         | $      | 10,319 |       
|                                                                                                                                                    |                                                                | Services |                 |       | 1,044              |       |                   |       | 440   |       |         |        | 2,284  |        |         |        | 1,126  |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|                                                                                                                                                    |                                                                |          | Total net sales |       |                    | 7,282 |                   |       |       | 3,583 |         |        |        | 18,762 |         |        |        | 11,445 | 
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Costs and Expenses:                                                                                                                                 |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|                                                                                                                                                    | Costs of products                                              |          |                 | 3,496 |                    |       |                   | 1,888 |       |       |         | 8,928  |        |        |         | 5,972  |       
|                                                                                                                                                    | Costs of services                                              |          |                 | 525   |                    |       |                   | 76    |       |       |         | 1,213  |        |        |         | 156    |       
|                                                                                                                                                    | Costs of sales  special charges                               |          |                 | 765   |                    |       |                   |      |       |       |         | 765    |        |        |         |       |       
|                                                                                                                                                    | Research and development (Note 1)                              |          |                 | 1,468 |                    |       |                   | 1,530 |       |       |         | 4,307  |        |        |         | 5,035  |       
|                                                                                                                                                    | Selling, general and administrative (Note 1)                   |          |                 | 4,476 |                    |       |                   | 4,178 |       |       |         | 13,190 |        |        |         | 12,552 |       
|                                                                                                                                                    | Amortization of goodwill and other purchased intangible assets |          |                 | 209   |                    |       |                   | 216   |       |       |         | 524    |        |        |         | 504    |       
|                                                                                                                                                    | Acquired in-process research and development                   |          |                 |      |                    |       |                   |      |       |       |         |       |        |        |         | 270    |       
|                                                                                                                                                    | Restructuring charges                                          |          |                 | 1,802 |                    |       |                   |      |       |       |         | 1,802  |        |        |         |       |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Total costs and expenses                                                                                                                            |                                                                |          | 12,741          |       |                    |       | 7,888             |       |       |       | 30,729  |        |        |        | 24,489  |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Loss from operations                                                                                                                                |                                                                |          | (5,459          | )     |                    |       | (4,305            | )     |       |       | (11,967 | )      |        |        | (13,044 | )     
|Other income (expenses):                                                                                                                            |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|                                                                                                                                                    | Interest and other income                                      |          |                 | 294   |                    |       |                   | 593   |       |       |         | 977    |        |        |         | 2,347  |       
|                                                                                                                                                    | Interest and other expense                                     |          |                 | (173  | )                  |       |                   | (10   | )     |       |         | (422   | )      |        |         | (211   | )     
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Net loss before provision for income taxes                                                                                                          |                                                                |          | (5,338          | )     |                    |       | (3,722            | )     |       |       | (11,412 | )      |        |        | (10,908 | )     
|Provision for income taxes                                                                                                                          |                                                                |          |                |       |                    |       |                  |       |       |       | (200    | )      |        |        |        |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Net loss                                                                                                                                            |                                                                | $        | (5,338          | )     |                    | $     | (3,722            | )     |       | $     | (11,612 | )      |        | $      | (10,908 | )     
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Net loss per common share, basic and diluted                                                                                                        |                                                                | $        | (0.27           | )     |                    | $     | (0.19             | )     |       | $     | (0.59   | )      |        | $      | (0.57   | )     
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Weighted-average shares used in
computing net loss per common share, basic and diluted                                                              |                                                                |          | 19,973          |       |                    |       | 19,199            |       |       |       | 19,839  |        |        |        | 18,975  |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Note 1: Research and development expenses and selling, general and administrative
expenses include charges for stock-based compensation as follows: |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|Research and development                                                                                                                            |                                                                | $        | 32              |       |                    | $     | 112               |       |       | $     | 154     |        |        | $      | 531     |       
|Selling, general and administrative                                                                                                                 |                                                                |          | 1               |       |                    |       | 285               |       |       |       | 200     |        |        |        | 1,032   |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       
|                                                                                                                                                    |                                                                | $        | 33              |       |                    | $     | 397               |       |       | $     | 354     |        |        | $      | 1,563   |       
|                                                                                                                                                    |                                                                |          |                 |       |                    |       |                   |       |       |       |         |        |        |        |         |       

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARGONAUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |         |       |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------------------------------------- | ----- | ----------------- | ------ | ------- | ----- | ------ | ------ | -
|                                                 |                                                                             |                                                                    |                                                     |                                       |       | Nine Months Ended
|                                                 |                                                                             |                                                                    |                                                     |                                       |       | September 30,    
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                  
|                                                 |                                                                             |                                                                    |                                                     |                                       |       | 2002              |        | 2001   
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Cash flows from operating activities:            |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 | Net loss                                                                    |                                                                    | $                                                   | (11,612                               | )     |                   | $      | (10,908 | )    
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                    |                                                     |                                       |       |                   |        |         |      
|                                                 |                                                                             | Depreciation and amortization                                      |                                                     |                                       | 1,014 |                   |        |         | 404   |       
|                                                 |                                                                             | Amortization of goodwill, other purchased intangibles and licenses |                                                     |                                       | 540   |                   |        |         | 504   |       
|                                                 |                                                                             | Stock-based compensation                                           |                                                     |                                       | 354   |                   |        |         | 1,563 |       
|                                                 |                                                                             | Acquired in-process research and development                       |                                                     |                                       |      |                   |        |         | 270   |       
|                                                 |                                                                             | Non-cash portion of restructuring charges                          |                                                     |                                       | 683   |                   |        |         |      |       
|                                                 |                                                                             | Change in cumulative translation adjustment                        |                                                     |                                       | 465   |                   |        |         | (55   | )     
|                                                 |                                                                             | Changes in assets and liabilities:                                 |                                                     |                                       |       |                   |        |         |       |       
|                                                 |                                                                             |                                                                    | Accounts receivable                                 |                                       |       | 1,405             |        |         |       | 1,110  |       
|                                                 |                                                                             |                                                                    | Inventories                                         |                                       |       | 689               |        |         |       | (1,151 | )     
|                                                 |                                                                             |                                                                    | Prepaid expenses and other current assets           |                                       |       | (181              | )      |         |       | (407   | )     
|                                                 |                                                                             |                                                                    | Other assets                                        |                                       |       | (64               | )      |         |       | 23     |       
|                                                 |                                                                             |                                                                    | Accounts payable                                    |                                       |       | (1,557            | )      |         |       | (85    | )     
|                                                 |                                                                             |                                                                    | Accrued compensation                                |                                       |       | (604              | )      |         |       | 45     |       
|                                                 |                                                                             |                                                                    | Other accrued liabilities and long-term liabilities |                                       |       | 18                |        |         |       | (247   | )     
|                                                 |                                                                             |                                                                    | Deferred revenue                                    |                                       |       | (614              | )      |         |       | (883   | )     
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 |                                                                             |                                                                    |                                                     | Net cash used in operating activities |       |                   | (9,464 | )       |       |        | (9,817 | )
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Cash flows from investing activities:            |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 | Capital expenditures                                                        |                                                                    |                                                     | (662                                  | )     |                   |        | (894    | )    
|                                                 | Business acquisitions (net of cash received)                                |                                                                    |                                                     | (6,273                                | )     |                   |        | (3,964  | )    
|                                                 | Purchase of short-term investments                                          |                                                                    |                                                     | (7,422                                | )     |                   |        | (31,786 | )    
|                                                 | Proceeds from the sales of short-term investments                           |                                                                    |                                                     | 4,510                                 |       |                   |        |        |      
|                                                 | Proceeds from the maturities of short-term investments                      |                                                                    |                                                     | 24,191                                |       |                   |        | 43,036  |      
|                                                 | Purchase of licenses                                                        |                                                                    |                                                     | (1,400                                | )     |                   |        |        |      
|                                                 | Restricted cash                                                             |                                                                    |                                                     | (10,863                               | )     |                   |        |        |      
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 |                                                                             |                                                                    | Net cash provided by investing activities           |                                       |       | 2,081             |        |         |       | 6,392  |       
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Cash flows from financing activities:            |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 | Repayment of long term debt                                                 |                                                                    |                                                     |                                      |       |                   |        | (542    | )    
|                                                 | Principal payments on capital lease obligations                             |                                                                    |                                                     | (121                                  | )     |                   |        | (248    | )    
|                                                 | Repurchase of common stock                                                  |                                                                    |                                                     | (47                                   | )     |                   |        |        |      
|                                                 | Net proceeds from issuances of common stock                                 |                                                                    |                                                     | 177                                   |       |                   |        | 354     |      
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 |                                                                             | Net cash provided by (used in) financing activities                |                                                     |                                       | 9     |                   |        |         | (436  | )     
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Net decrease in cash and cash equivalents        |                                                                             |                                                                    | (7,374                                              | )                                     |       |                   | (3,861 | )      
|Cash and cash equivalents at beginning of period |                                                                             |                                                                    | 17,996                                              |                                       |       |                   | 39,147 |        
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Cash and cash equivalents at end of period       |                                                                             | $                                                                  | 10,622                                              |                                       |       | $                 | 35,286 |        
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|SUPPLEMENTAL CASH FLOW DISCLOSURES:              |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 | Cash paid for interest                                                      |                                                                    | $                                                   | 351                                   |       |                   | $      | 32      |      
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|Cash flow for acquisition of the Jones Group     |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 | Tangible assets acquired                                                    |                                                                    | $                                                   | 9,138                                 |       |                   |        |         |      
|                                                 | Goodwill and other intangible assets acquired                               |                                                                    |                                                     | 12,963                                |       |                   |        |         |      
|                                                 | Acquisition costs incurred                                                  |                                                                    |                                                     | (875                                  | )     |                   |        |         |      
|                                                 | Liabilities assumed                                                         |                                                                    |                                                     | (2,261                                | )     |                   |        |         |      
|                                                 | Notes payable issued                                                        |                                                                    |                                                     | (10,863                               | )     |                   |        |         |      
|                                                 | Common stock issued                                                         |                                                                    |                                                     | (1,829                                | )     |                   |        |         |      
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        
|                                                 |                                                                             | Cash paid for acquisition (net of $28 cash received)               |                                                     | $                                     | 6,273 |                   |        |         |       |       
|                                                 |                                                                             |                                                                    |                                                     |                                       |       |                   |        |        

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in conformity with generally accepted accounting principles in
the United States for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required by generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals and adjustments, which Argonaut Technologies, Inc. (Argonaut or the
Company) considers necessary to present fairly the financial information
included herein. This Quarterly Report on Form 10-Q should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Companys Form 10-K, for the year ended December 31,
2001 as filed with the Securities and Exchange Commission. The interim results
presented herein are not necessarily indicative of the results of operations
that may be expected for the full fiscal year ending December 31, 2002, or any
other future period.

NOTE 2  INVENTORIES

Inventories consist of the following (in thousands):

|                |  |               |       |              |  |   |       | 
|--------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|                |  | September 30, |       | December 31,
|                |  | 2002          |       | 2001        
|                |  |               |       |             
|Raw materials   |  | $             | 3,086 |              |  | $ | 3,375 | 
|Work in process |  |               | 675   |              |  |   | 658   | 
|Finished goods  |  |               | 3,022 |              |  |   | 63    | 
|                |  |               |       |              |  |   |       | 
|                |  | $             | 6,783 |              |  | $ | 4,096 | 
|                |  |               |       |              |  |   |       | 

In the third quarter of fiscal year 2002, the Company recorded a charge to cost
of sales of $765,000 for inventories determined to be excess and obsolete based
on the decision to discontinue active selling of those products as a component
of a broader restructuring plan. Management does not believe that this
inventory can be sold or be used in the future. Final disposition of this
inventory is expected to occur by the end of the first quarter of 2003.

NOTE 3  NET LOSS PER SHARE

Net loss per share has been computed according to Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, which requires
disclosure of basic and diluted earnings per share. Basic and diluted net loss
per share was computed using the weighted-average number of common shares
outstanding during the period. Because the Company is in a net loss position,
diluted earnings per share is calculated using the weighted average number of
common shares outstanding and excludes the effects of potential common shares
that are antidilutive. Options to purchase 4,203,616 and 2,548,569 shares of
common stock were outstanding at September 30, 2002 and September 30, 2001,
respectively, and warrants to purchase 80,665 shares of common stock were
outstanding at September 30, 2002 and September 30, 2001, but were not included
in the computation of diluted net loss per share, since the effect would be
antidilutive.

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NOTE 4  COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss and other items of comprehensive
income (loss). Other comprehensive income (loss) includes unrealized gains and
losses on the Companys short-term investments and foreign currency translation
adjustments.

For the three and nine month periods ended September 30, 2002 and 2001,
comprehensive loss is as follows (in thousands):

|                                  |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|--------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                  |  | Three Months Ended |        | Nine Months Ended
|                                  |  | September 30,      |        | September 30,    
|                                  |  |                    |        |                  
|                                  |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                  |  |                    |        |                   |  |      |        |     
|Net loss                          |  | $                  | (5,338 | )                 |  | $    | (3,722 | )    |  | $ | (11,612 | ) |  | $ | (10,908 | )
|Unrealized income (loss)          |  |                    | (9     | )                 |  |      |       |      |  |   | (159    | ) |  |   |        |  
|Cumulative translation adjustment |  |                    | 291    |                   |  |      | 206    |      |  |   | 608     |   |  |   | 149     |  
|                                  |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Comprehensive loss                |  | $                  | (5,056 | )                 |  | $    | (3,516 | )    |  | $ | (11,163 | ) |  | $ | (10,759 | )
|                                  |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  

NOTE 5  BUSINESS COMBINATION

On February 20, 2002, Argonaut completed its acquisition of Jones
Chromatography Limited, a company organized under the laws of England and Wales
(JCL), and its wholly owned subsidiaries International
Sorbent Technology (IST) and Jones Chromatography U.S.A., Inc. (JCI) (together with JCL,
Jones Group), pursuant to a Share Purchase Agreement (the Purchase
Agreement), dated February 11, 2002, among Argonaut and the stockholders of
JCL.

The strategic acquisition of Jones Group creates a combined company serving as
a global provider of solutions for chemistry development. The addition of Jones
Group to Argonaut strengthens and expands the Companys position in chemistry
consumables sales, and increases the Companys European business. The Jones
Group is a leading manufacturer and distributor of high quality chromatography
and purification accessories, consumables and instrumentation. Consumable items
include leading brand sorbents, solid phase extraction (SPE) columns and
96-well plates, flash chromatography and High Performance Liquid Chromatography
(HPLC) columns. It manufactures purification and other chemistry development
instruments for the drug discovery market.

In the transaction, the stockholders of JCL exchanged all of their respective
shares of JCLs stock for (i) cash in an aggregate amount of £3,825,000
($5,431,500), (ii) 572,152 shares of unregistered Argonaut Common Stock, and
(iii) notes payable in the aggregate principal amount of £7,650,000
($10,863,000). The aggregate purchase price, including transaction costs of
$875,000, was approximately $19.0 million. The notes payable, which are
redeemable for cash over a two year period following the closing date, are
guaranteed by Barclays Bank PLC. In addition, certain employees of the Jones
Group that remained as employees after the transaction have received stock
options to purchase an aggregate 349,800 shares of Argonauts Common Stock.

All shares of Argonauts Common Stock issued to JCLs stockholders in the
transaction were issued in reliance on exemptions from registration under the
Securities Act of 1933, as amended (the Securities Act). As a result, all such
shares of Argonauts Common Stock are subject to restrictions on transfer under
the applicable provisions of the Securities Act. Under the terms of the
Registration Rights Agreement dated February 20, 2002, Argonaut has granted
JCLs stockholders certain rights to register under the Securities Act the
shares of Argonauts Common Stock received in the transaction.

Immediately prior to the acquisition of the Jones Group by the Company, the
shareholders of JCL effected a series of transactions whereby JCL acquired all
of the shares in the capital of IST and JCI which were not previously held by
JCL.

The acquisition was accounted for under the purchase method of accounting. The
572,152 shares of unregistered Argonaut Common Stock issued in the transaction
were valued at $3.196 per share based on the average closing price of
Argonauts Common Stock on the Nasdaq National Market System on the two trading
days prior and two trading days subsequent to the announcement date of the
acquisition (February 11, 2002).

The Condensed Consolidated Statements of Operations include the results of
Jones Group for the period from February 21,

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2002 to September 30, 2002.

The Company allocated the purchase price based on the estimated fair value of
the net tangible and intangible assets acquired. Based on the information
obtained from an independent valuation, the Company allocated the purchase
price as follows (in thousands):

|                                                |                      |   |        |       | 
|----------------------------------------------- | -------------------- | - | ------ | ----- | 
|Net tangible assets                             |                      | $ | 6,037  |      
|Goodwill and other purchased intangible assets: |                      |   |        |      
|                                                | Completed technology |   |        | 4,090 | 
|                                                | Trade names          |   |        | 250   | 
|                                                | Goodwill             |   |        | 8,623 | 
|                                                |                      |   |        |      
|Total purchase price                            |                      | $ | 19,000 |      
|                                                |                      |   |        |      

Approximately $8.6 million of the total purchase price has been allocated to
goodwill and intangible assets with indefinite lives. Goodwill represents the
excess of the purchase price of an acquired business over the fair value of the
underlying net tangible and intangible assets. In accordance with the SFAS No.
142, Goodwill and Other Intangible Assets, goodwill and intangible assets
with indefinite lives resulting from business combinations completed subsequent
to June 30, 2001 will not be amortized, but instead will be tested for
impairment at least annually (more frequently if certain indicators are
present).

The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the acquisition of Jones Group had occurred at
the beginning of 2001 and does not purport to be indicative of what would have
occurred had the acquisition been made as of those dates or of results which
may occur in the future.

|                   |  |                                       |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|------------------ |  | ------------------------------------- | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                   |  | Three
months ended                    |        | Nine
months ended
|                   |  | September 30,                         |        | September 30,    
|                   |  |                                       |        |                  
|                   |  | 2002                                  |        | 2001              |  | 2002 |        | 2001
|                   |  |                                       |        |                   |  |      |        |     
|                   |  | (In thousands, except per share data)
|Total net sales    |  | $                                     | 7,282  |                   |  | $    | 7,033  |      |  | $ | 20,518  |   |  | $ | 21,597 |  
|Net loss           |  |                                       | (5,338 | )                 |  |      | (3,166 | )    |  |   | (11,510 | ) |  |   | (9,727 | )
|Net loss per share |  |                                       | (0.27  | )                 |  |      | (0.16  | )    |  |   | (0.58   | ) |  |   | (0.50  | )

NOTE 6  RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144) that is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. These new rules on asset impairment
supersede SFAS 121 and provide a single accounting model for disposal of
long-lived assets. SFAS 144 removes goodwill from its scope, describes a
profitability-weighted cash flow estimation approach to deal with situations in
which alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration or a range is estimated for the amount
of possible future cash flows, and establishes a primary-asset approach to
determine the cash flow estimation period for a group of assets and liabilities
that represents the unit of accounting for a long-lived asset to be held and
used. The adoption of SFAS 144 on January 1, 2002 did not have a material
adverse effect on the Companys results of operations, financial position, or
cash flows.

In June 2001, the FASB issued SFAS 141, Business Combinations (SFAS 141), and
SFAS 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising
from business combinations completed after June 30, 2001. SFAS 142 prohibits
the amortization of goodwill and intangible assets with indefinite useful
lives. SFAS 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized
over their estimated useful lives. Additionally, SFAS 142 requires that
goodwill included in the carrying value of equity method investments no longer
be amortized.

The Company adopted SFAS 142 on January 1, 2002. The Company reclassified
identifiable intangible assets with indefinite lives, as defined by SFAS 142,
to goodwill at the date of adoption. The Company tested for goodwill and
indefinite lived

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intangible assets impairment using the two-step process prescribed by SFAS 142.
The first step is a screen for potential impairment, while the second step
measures the amount of impairment by reporting unit, if any. The Company
performed the first step of the required impairment test of goodwill and
indefinite lived intangible assets in the second quarter of fiscal 2002,
determining that no potential impairment was indicated.

The following pro forma information reflects the impact on net loss and net
loss per share assuming the adoption of SFAS 142 had occurred on January 1,
2001:

|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |       |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | - | ------------------------------------- | ----- | ----------------- | - | ------ | ----- | ----------- | - | ------- | ----- | ---- | - | ------- | ----- | -
|                                                                                  |                                                                                                      |   | Three
months ended                    |       | Nine
months ended
|                                                                                  |                                                                                                      |   | September 30,                         |       | September 30,    
|                                                                                  |                                                                                                      |   |                                       |       |                  
|                                                                                  |                                                                                                      |   |                                       |       |                   |   | 2001   |       |             |   |         |       | 2001
|                                                                                  |                                                                                                      |   | 2002                                  |       | (Pro
forma)       |   | 2002   |       | (Pro
forma)
|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |            
|                                                                                  |                                                                                                      |   | (In thousands, except per share data)
|Reported net loss                                                                 |                                                                                                      | $ | (5,338                                | )     |                   | $ | (3,722 | )     |             | $ | (11,612 | )     |      | $ | (10,908 | )    
|Amortization of goodwill and identifiable
intangible assets with indefinite lives |                                                                                                      |   |                                      |       |                   |   | 117    |       |             |   |        |       |      |   | 273     |      
|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |      
|Pro forma net loss                                                                |                                                                                                      | $ | (5,338                                | )     |                   | $ | (3,605 | )     |             | $ | (11,612 | )     |      | $ | (10,635 | )    
|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |      
|Basic and diluted net loss per share:                                             |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |      
|                                                                                  | Reported net loss per share                                                                          |   | $                                     | (0.27 | )                 |   | $      | (0.19 | )           |   | $       | (0.59 | )    |   | $       | (0.57 | )
|                                                                                  | Adjustment related to goodwill and
identifiable intangible assets with
indefinite lives amortization |   |                                       |      |                   |   |        | 0.01  |             |   |         |      |      |   |         | 0.01  |  
|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |      
|                                                                                  | Pro forma net loss per share                                                                         |   | $                                     | (0.27 | )                 |   | $      | (0.18 | )           |   | $       | (0.59 | )    |   | $       | (0.56 | )
|                                                                                  |                                                                                                      |   |                                       |       |                   |   |        |       |             |   |         |       |      |   |         |      

The amortization expense relating to the intangible assets for the three- and
nine-month periods ended September 30, 2002 was $209,000 and $524,000,
respectively. The following represents the gross carrying amounts and
accumulated amortization of amortized intangible assets at September 30, 2002
(in thousands):

|                             |                      |       |   |          |       |              |   |      |      |  
|---------------------------- | -------------------- | ----- | - | -------- | ----- | ------------ | - | ---- | ---- | -
|                             |                      |       |   | Gross    |       |              |   |     
|                             |                      |       |   | Carrying |       | Accumulated 
|                             |                      |       |   | Amount   |       | Amortization
|                             |                      |       |   |          |       |             
|Amortized intangible assets: |                      |       |   |          |       |              |   |     
|                             | Completed technology |       | $ | 5,539    |       |              | $ | (508 | )   
|                             | Licenses             |       |   | 1,400    |       |              |   | (16  | )   
|                             | Tradenames           |       |   | 250      |       |              |   | (16  | )   
|                             |                      |       |   |          |       |              |   |     
|                             |                      | Total |   | $        | 7,189 |              |   | $    | (540 | )
|                             |                      |       |   |          |       |              |   |     

The estimated amortization expense over the expected life of the amortized
intangible assets is as follows (in thousands):

|                                |                               |  |   |       | 
|------------------------------- | ----------------------------- |  | - | ----- | 
|Estimated amortization expense: |                               |  |   |      
|                                | For the year ended 12/31/2002 |  | $ | 764   | 
|                                | For the year ended 12/31/2003 |  |   | 991   | 
|                                | For the year ended 12/31/2004 |  |   | 1,026 | 
|                                | For the year ended 12/31/2005 |  |   | 1,051 | 
|                                | For the year ended 12/31/2006 |  |   | 930   | 
|                                | For the year ended 12/31/2007 |  |   | 665   | 

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The carrying amount of indefinite lived intangible assets at September 30, 2002
is as follows (in thousands):

|                               |                     |       |   |       |       | 
|------------------------------ | ------------------- | ----- | - | ----- | ----- | 
|Unamortized intangible assets: |                     |       |   |      
|                               | Assembled workforce |       | $ | 1,892 |      
|                               | Customer base       |       |   | 1,551 |      
|                               | Goodwill            |       |   | 5,944 |      
|                               |                     |       |   |      
|                               |                     | Total |   | $     | 9,387 | 
|                               |                     |       |   |      

In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146), effective for exit or disposal
activities that are initiated after December 31, 2002. Under SFAS 146, a
liability for the cost associated with an exit or disposal activity is
recognized when the liability is incurred. Under prior guidance, a liability
for such costs could be recognized at the date of commitment to an exit plan.
The effect of adoption of SFAS 146 is dependent on the Companys related
activities subsequent to the date of adoption.

NOTE 7  RESTRUCTURING CHARGES

In the fourth quarter of fiscal 2001, the Company announced a restructuring
program to downsize its organizational structure in order to reduce its
operating expenses and improve workforce processes and efficiencies. As a
result, the Company recorded a charge of $384,000, which includes termination
benefits and related expenses of $362,000 related to a reduction of the
workforce by 22 employees, and termination benefits and related expenses, and
expenses of $22,000 for abandonment of excess equipment. At September 30, 2002,
all 22 employees had been terminated, and the accrued restructuring liability
was zero. For the nine-month period ended September 30, 2002, cash payments
related to the restructuring program were $342,000.

On August 8, 2002, the Company announced its intention to execute a
restructuring program focused on improving productivity, reducing operational
expenses in remote offices, and implementing a workforce reduction of
approximately 20% of its existing worldwide employees. As a result, the
Company recognized a charge of $1.8 million in the third quarter ending
September 30, 2002. The charge includes termination benefits and related
expenses of approximately $630,000 related to the reduction of the workforce by
44 employees, expenses of approximately $683,000 related to the abandonment of
excess equipment, expenses of approximately $356,000 for the abandonment of
excess leased facilities, and expenses of approximately $133,000 for various
other related charges. At September 30, 2002, 11 of the 44 employees had been
terminated and the accrued restructuring liability was $1.0 million. For the
quarterly period ended September 30, 2002, cash payments related to the
restructuring program were $105,000. A summary of the accrued restructuring
charges is as follows (in thousands):

|                                        |  |        |       |         |  |          |      |                    |  |   |      |   |  |         |       | 
|--------------------------------------- |  | ------ | ----- | ------- |  | -------- | ---- | ------------------ |  | - | ---- | - |  | ------- | ----- | 
|                                        |  |        |       |         |  |          |      |                    |  |   |      |   |  | Accrued
|                                        |  | Total  |       | Noncash |  | Cash     |      | Restructuring at  
|                                        |  | Charge |       | Charges |  | Payments |      | September 30, 2002
|                                        |  |        |       |         |  |          |      |                   
|Workforce reductions                    |  | $      | 630   |         |  | $        |     |                    |  | $ | (105 | ) |  | $       | 525   | 
|Abandonment of excess equipment         |  |        | 683   |         |  |          | (683 | )                  |  |   |     |   |  |         |      | 
|Abandonment of excess leased facilities |  |        | 356   |         |  |          |     |                    |  |   |     |   |  |         | 356   | 
|Other                                   |  |        | 133   |         |  |          |     |                    |  |   |     |   |  |         | 133   | 
|                                        |  |        |       |         |  |          |      |                    |  |   |      |   |  |         |       | 
|Total                                   |  | $      | 1,802 |         |  | $        | (683 | )                  |  | $ | (105 | ) |  | $       | 1,014 | 
|                                        |  |        |       |         |  |          |      |                    |  |   |      |   |  |         |       | 

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Remaining cash expenditures relating to workforce reduction and other related
charges will be paid through the first
quarter of fiscal 2003. Amounts related to the abandonment of excess leased
facilities will be paid as the lease payments are due through the remainder of
the lease terms through 2004.




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report contains forward-looking statements for purposes of the
Private Securities Litigation Reform Act of 1995, and it is the Companys
intention that such statements be protected by the safe harbor created thereby.
Examples of such forward-looking statements include statements about future
revenues, expenses, losses and cash flows, statements about research and
development activities, statements about possible future acquisitions,
statements about sales and marketing efforts, statements regarding the
anticipated effects of the acquisition of Jones Group to our net sales
performance and pre-tax operating results, statements about the anticipated
effects of our recent restructuring program and related accruals, statements
regarding values of our assets and liabilities over their remaining useful
lives and our testing for impairment of goodwill, and statements about our
expectations as to the duration of our negative cash flows from operations and
the sufficiency of existing cash reserves for the next 12 months. Actual
results may differ materially from these projected in such forward-looking
statements due to various known and unknown risks and uncertainties, including
the risk that a decline in the economy generally or the market for our products
will adversely affect our business, the risk that the market for our products
and services does not develop as anticipated, the risk that we are unable to
successfully integrate the product and service offerings of the company we
recently acquired and successfully capitalize on anticipated synergies and
growth opportunities, and the risk that our restructuring programs do not
proceed as planned and that we incur unexpected expenses in connection with the
implementation thereof.

For a further discussion of these and other risks related to our business see
the discussion set forth herein under Additional Factors That May Affect
Future Results, as well as the discussion of similar factors and risks set
forth in our Form 10-K for the fiscal year ended December 31, 2001 filed on
April 1, 2002, and our other filings with the Securities Exchange Commission.

Overview

Argonaut develops innovative products designed to accelerate and optimize how
chemists discover and test new chemical entities. Our products are designed to
enable chemists to increase their productivity, reduce their operating costs
through automation and process simplification, achieve faster time-to-market
for new products, and cost effectively explore the increasing number of drug
targets available for drug development. We derive revenues primarily from the
sale of our instrument products, consumable products, software and service
products. We commenced commercial shipment of our first generation instrument
in 1996, the Quest product line in 1997, the Trident product line in 1998 and
the Surveyor and the Endeavor in 2000. Revenue from sales of our instrument
products is recognized when delivery and installation of the product is
complete. We also derive revenues from the sale of reagents and other
instrument related consumables, as well as revenues derived from products and
integration services in connection with the acquisition of Argonaut
Technologies Systems, Inc. (ATSI) completed on March 1, 2001 and the sale of
instruments and consumables products of Jones Chromatography Limited (Jones
Group), which we acquired on February 20, 2002. Our expenses have consisted
primarily of costs incurred in research and development, manufacturing and
general and administrative costs associated with our operations, and our sales
and marketing organization.

Since our inception, we have incurred significant losses and, as of September
30, 2002, we had an accumulated deficit of $66.8 million. We anticipate
incurring additional losses, which may increase, for the foreseeable future.

Recent Developments

Acquisition of Jones Group

On February 20, 2002, Argonaut completed its acquisition of Jones
Chromatography Limited, a company organized under the laws of England and Wales
(JCL), and its wholly owned subsidiaries International Sorbent Technology
(IST) and Jones Chromatography U.S.A., Inc. (JCI) (collectively, Jones
Group). Pursuant to a Share Purchase Agreement (the Purchase Agreement),
dated February 11, 2002, among Argonaut and the stockholders of JCL, the Jones
Group became a wholly owned subsidiary of Argonaut. The Jones Group continues
to operate out of its Cardiff, Wales, U.K. locations. Page 11




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The Jones Group is a leading manufacturer and distributor of high quality
chromatography and purification accessories, consumables and instrumentation.
Consumable items include leading brand sorbents, solid phase extraction (SPE)
columns and 96-well plates, flash chromatography and High Performance Liquid
Chromatography (HPLC) columns. It manufactures purification and other
chemistry development instruments for the drug discovery market.

In the transaction, the stockholders of JCL exchanged all of their respective
shares of JCLs stock for (i) cash in an aggregate amount of £3,825,000
($5,431,500), (ii) 572,152 shares of unregistered Argonaut Common Stock, and
(iii) notes payable in the aggregate principal amount of £7,650,000
($10,863,000). Including transactions costs of approximately $0.9 million, the
aggregate purchase price was approximately $19.0 million, valued as of the
closing of the transaction. The notes payable, which are redeemable for cash
over a two year period following the closing date, are guaranteed by Barclays
Bank PLC. Under the terms of the Share Purchase Agreement, notes payable in the
aggregate principal amount of £2,550,000 ($3.6 million) will be held in escrow
until February 20, 2004, the second anniversary of the closing date, and may be
used to satisfy certain indemnification obligations, if any, of the principal
JCL shareholders. In addition, certain employees of the Jones Group remaining
as employees after the transaction have received stock options to purchase an
aggregate 349,800 shares of Argonauts Common Stock at an exercise price of
$3.916 per share.

All shares of Argonauts Common Stock issued to JCLs stockholders in the
transaction were issued in reliance on exemptions from registration under the
Securities Act of 1933, as amended (the Securities Act). As a result, all
such shares of Argonauts Common Stock are subject to restrictions on transfer
under the applicable provisions of the Securities Act. Under the terms of the
Registration Rights Agreement dated February 20, 2002, Argonaut has granted
JCLs stockholders certain rights to register under the Securities Act the
shares of Argonauts Common Stock received in the transaction.

Immediately prior to the acquisition of the Jones Group by the Company, the
shareholders of JCL effected a series of transactions whereby JCL acquired all
of the shares in the capital of IST and JCI which were not previously held by
JCL.

Restructuring charges

In the fourth quarter of 2001, the Company announced a restructuring program to
downsize our organizational structure in order to reduce operating expenses and
improve workforce processes and efficiencies. As a result, the Company recorded
a charge of $384,000, which includes termination benefits and related expenses
of $362,000 related to a reduction of our workforce by 22 employees and
expenses of $22,000 for abandonment of excess equipment. The restructuring
program is expected to yield cash savings of approximately $3.4 million
annually, beginning in fiscal 2002. These savings largely relate to reduced
employee related costs and are expected to be realized primarily in operating
expenses. At September 30, 2002, all 22 employees had been terminated and the
accrued restructuring liability was zero. For the nine-month period ended
September 30, 2002, cash payments related to the restructuring program were
$342,000.

On August 8, 2002, the Company announced its intention to execute a
restructuring program focused on improving productivity, reducing operational
expenses in remote offices, and implementing a workforce reduction of
approximately 20% of the existing worldwide employees. As a result, the
Company recognized a charge of $1.8 million in the third quarter ending
September 30, 2002. The charge includes termination benefits and related
expenses of approximately $630,000 related to the reduction of our workforce by
44 employees, expenses of approximately $683,000 related to the abandonment of
excess equipment, expenses of approximately $356,000 for the abandonment of
excess leased facilities, and expenses of approximately $133,000 for various
related charges. The restructuring program is estimated to result in
annualized savings of approximately $3.0 million beginning in fiscal 2003,
realized primarily in reduced operating costs as a result of reduced
employee-related costs. At September 30, 2002, 11 of the 44 employees had been
terminated and the accrued restructuring liability was $1.0 million. For the
quarterly period ended September 30, 2002, cash payments related to the
restructuring program were $105,000.
Remaining cash expenditures relating to workforce reduction and other related
charges will be paid through the first quarter of fiscal 2003. Amounts related
to the abandonment of excess leased facilities will be paid as the lease
payments are due through the remainder of the lease terms through 2004.

Critical Accounting Policies

These critical accounting policies are in addition to the critical accounting
policies included/described in our Form 10-K for the year ended December 31,
2001 filed with the Securities and Exchange Commission on April 1, 2002.

Restructuring

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During fiscal years 2002 and 2001 we recorded significant reserves in
connection with our restructuring program. These reserves include estimates
pertaining to employee separation costs, related abandonment of excess
equipment, the abandonment of excess leased facilities, and other related
charges. Actual charges have not differed significantly from these estimates.

Purchase Accounting

In June 2001, the Financing Accounting Standards Board issued SFAS 141,
Business Combinations (SFAS 141). SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. We accounted for the acquisition of
ATSI and Jones Group under the purchase method of accounting and accordingly,
the acquired assets and liabilities assumed are recorded at their respective
fair values. The recorded values of assets and liabilities are based on
third-party estimates and valuations. The remaining values are based on our
judgments and estimates, and accordingly, the Companys financial position or
results of operations may be affected by changes in estimates and judgments.

Amortization of Goodwill and Other Purchased Intangibles

In June 2001, the Financing Accounting Standards Board issued SFAS 142,
Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
SFAS 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized
over their estimated useful lives. Additionally, SFAS 142 requires that
goodwill included in the carrying value of equity method investments no longer
be amortized.

The Company adopted SFAS 142 on January 1, 2002. The Company reclassified
identifiable intangible assets with indefinite lives, as defined by SFAS 142,
to goodwill at the date of adoption. The Company tested for goodwill and
indefinite lived intangible assets impairment using a two-step process
prescribed by SFAS 142. The first step is a screen for potential impairment,
while the second step measures the amount of impairment by reporting unit, if
any. The Company performed the first step of the required impairment test of
goodwill and indefinite lived intangible assets in the second quarter of fiscal
2002, determining that no potential impairment was indicated.

RESULTS OF OPERATIONS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002

Operating results for the three- and nine-month periods ended September 30,
2002 include Jones Group since February 21, 2002.

Net Sales

Net sales for the three-month period ended September 30, 2002 increased by 103%
versus the same period in 2001. Net sales totaled $7.3 million for the quarter
ended September 30, 2002 compared to $3.6 million for the quarter ended
September 30, 2001. Sales growth versus the year ago was due primarily to the
impact of the acquisition of the Jones Group. For the third quarter of 2002,
instrument sales comprised approximately 39% of net sales, chemistry
consumables sales comprised approximately 47% of net sales, and service,
integration services and contract Research and Development (R&D) together
comprised approximately 14% of net sales. For the nine-month period ended
September 30, 2002, net sales totaled $18.8 million compared to $11.4 million
for the same period in 2001. Instrument sales comprised approximately 46% of
net sales, chemistry consumables comprised approximately 44% of net sales, and
service, integration services and contract R&D together comprised the remaining
10% of net sales for the nine-month period ended September 30, 2002. The year
over year increase in net sales is primarily attributable to growth in the
sales of chemistry consumables products due to the acquisition of the Jones
Group.

Cost of sales

Cost of sales, comprised of costs of products,
costs of services and costs of
sales-special charges, for the quarter ended September 30, 2002 was $4.8
million, compared to $2.0 million for the quarter ended September 30, 2001
primarily due to the higher sales volume and a special charge related to the
write-off of excess and obsolete inventory of approximately $765,000 recorded
based on the Companys decision to discontinue active selling of those products
as a component of a broader restructuring plan. Excluding the special charges
related to the write-off of excess and obsolete inventory recorded in Page 13




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the quarter, gross margin as a percent of sales was 45% compared to 45% for the
third quarter of 2001. For the nine-month period ended September 30, 2002,
cost of sales increased to $10.9 million from $6.1 million in the same period
for 2001 due to higher sales volume and the impact of the special charge
related to the write-off of excess and obsolete inventory. Again, excluding
the special charge, gross margin as a percent of sales for the nine-month
period ended September 30, 2002 was 46%, versus 46% for the same period in
2001.

Research and development expenses

Research and development expenses decreased to slightly below $1.5 million in
the third quarter of 2002 from slightly over $1.5 million in the third quarter
of 2001. These expenses include salaries and related costs of research and
development personnel, fees paid to consultants and outside service providers,
the costs of facilities and related expenses, non-recurring engineering charges
and prototype costs related to the design, development testing,
pre-manufacturing and significant improvement of our products. The slight
decrease was primarily attributable to lower personnel costs resulting from the
effects of the restructuring initiated in the fourth quarter of 2001, lower
outside services costs relative to the same period last year resulting from a
product development process improvement program, and reduced stock-based
compensation expenses offset by the addition of the Jones Group. Stock-based
compensation expenses related to research and development decreased by $80,000
for the third quarter of 2002 as compared to the same quarter in 2001. For the
nine months ended September 30, 2002, research and development expenses were
$4.3 million versus $5.0 million in the same period of 2001 predominantly due
to the reasons described above. For the nine-month period ended September 30,
2002, stock-based compensation expense was $154,000 versus $531,000 for the
same period in 2001. Selling, general and administrative expenses


Selling, general and administrative expenses increased to $4.5 million in the
third quarter of 2002 from $4.2 million in the same period of 2001. These
expenses consist primarily of salaries and related costs for executive, sales
and marketing, finance and other administrative personnel, the cost of
facilities and related spending, and the costs associated with promotional and
other marketing expenses. The increase was primarily attributable to the
additional expenses for the Jones Group, acquired on February 20, 2002, and
therefore, not reflected in the prior year, offset by the effect of the
restructuring effort initiated in the fourth quarter of 2001, and reduced
stock-based compensation charges. Stock-based compensation expenses related to
selling, general and administration decreased by $284,000 for the third quarter
of 2002, as compared to the same period in 2001. For the nine-month period
ended September 30, 2002, selling, general and administrative expenses were
$13.2 million versus $12.6 million in the nine months of 2001 primarily due to
the reasons described above. For the nine-month period ended September 30,
2002, stock-based compensation expense was $354,000 versus $1.0 million for the
same period in 2001.


Amortization of purchased intangible assets and acquired in-process research & development

On January 1, 2002, the Company adopted SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives and requires that these
assets be reviewed for impairment at least annually, more frequently if certain
indicators are present. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives. As of September 30, 2002, the
Company had $9.4 million in goodwill and intangible assets which have an
indefinite useful life, and thus, no amortization expense was recorded during
the nine months ended September 30, 2002. Amortization of goodwill arising from
acquisitions accounted for $273,000 in the nine months ended September 30,
2001. For the three-month period ended September 30, 2002, the Company recorded
amortization of purchased intangibles of $209,000 related to the March 1, 2001
acquisition of ATSI and the February 20, 2002 acquisition of Jones Group
compared to $216,000 in the same period of 2001. For the nine-month period
ended September 30, 2002, amortization of purchased intangibles was $524,000
versus $504,000 for the same period in 2001. The Company recorded in-process
research and development expense of $270,000 for the nine-month period ended
September 30, 2001, relating to ATSI, and no such charges were incurred in
2002.


Interest and Other Income (Expense), net

Interest and other income decreased to $294,000 for the three-month period
ended September 30, 2002 as compared to $593,000 for the three-month period
ended September 30, 2001, primarily because of lower average balances of
invested cash, cash equivalents, and short-term investments and reduced
interest rates consistent with the overall interest rate decline of high
quality short term investments. Interest and other expenses was $173,000 for
the three-month period ended September 30, 2002 compared to $10,000 in the same
period in 2001. For the nine-month period ended September 30, 2002, interest
and other income decreased to $977,000 from $2.3 million for the same period in
2001 due to lower invested cash balances and lower interest rates. Interest
and other expense was $422,000 versus $211,000 for the same period in 2001
primarily due to the interest associated with the notes payable for the Jones
Group acquisition.


Provision for Income Taxes

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The Company recorded a provision for income taxes of approximately $0 and
$200,000 to record the UK corporate tax liability of Jones Group for the three
and nine months ended September 30, 2002, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2002, the Company had cash, cash equivalents, short-term
investments and restricted cash of $40.8 million compared to $57.6 million at
December 31, 2001. The decrease was primarily due to the use of $6.3 million in
connection with the purchase of the Jones Group and related expenses,
approximately $342,000 in cash payments related to the restructuring initiated
in the fourth quarter of 2001, approximately $105,000 in cash payments related
to the restructuring activities initiated in the third quarter of 2002, and
approximately $10.0 million used in other general operating activities. The
restricted cash amount is denominated in British Pounds Sterling and represents
the cash used to secure the notes payable of £7,650,000 ($10.9 million) as
purchase consideration in the acquisition of Jones Group. The notes are payable
over two years carrying an initial interest rate of 3.9% per annum for the
twelve month period commencing on the date of note issuance, payable quarterly.

Net cash used to support operating activities has historically fluctuated based
on the timing of payments of accounts payable balances, receipts of customer
deposits, receipt of payments of accounts receivable balances, changes in
inventory balances resulting from varying levels of manufacturing activities,
the timing of research and development projects, the timing and scope of our
sales and marketing initiatives and fluctuations in the Companys net loss.

The acquisition of Jones Group was completed on February 20, 2002 for purchase
consideration of approximately 572,000 shares of unregistered Argonaut common
stock, £3,825,000 ($5.4 million) cash due at closing, and notes payable
aggregating £7,650,000 ($10.9 million) payable over two years, plus
acquisition-related legal, accounting, and other transaction expenses of
approximately $875,000. We expect Jones Group to provide approximately $10
million to our 2002 net sales performance and to be accretive to pre-tax
operating results.

Net cash provided by investing activities totaled $3.5 million and $6.4 million
for the nine months ended September 30, 2002 and 2001, respectively. The
change in 2002 was primarily attributable to the use of $6.3 million in
connection with the purchase of the Jones Group, the use of $10.9 million as
collateral for the notes payable portion of the Jones Group acquisition, offset
by the proceeds generated from the sale and maturity of short-term investments
which provide cash to fund the Companys ongoing operating activities.

The Company expects to have negative cash flows from operations through at
least the first half of 2003. We may also use cash resources to fund additional
collaborative or strategic relationships, acquisitions or investments in other
businesses, technologies or product lines. Our future capital requirements
depend on a number of factors, including market acceptance of our products, the
resources we devote to developing and supporting our products, continued
progress of our research and development of potential products, the need to
acquire licenses to new technology and the availability of other financing on
acceptable terms. We believe that our current cash balances will be sufficient
to fund our operations through at least the next 12 months. To the extent that
our capital resources are insufficient to meet future capital requirements, we
will need to raise additional capital or incur indebtedness to fund our
operations. There can be no assurance that additional debt or equity financing
will be available on acceptable terms, if at all. If adequate funds are not
available, we may be required to delay, reduce the scope of, or eliminate, our
operations or obtain funds through arrangements with collaborative or strategic
partners or others that may require us to relinquish rights to certain
technologies or products that we might otherwise seek to retain.

On August 8, 2002, the Company announced the approval by its Board of Directors
of a stock repurchase program pursuant to which shares of its outstanding
common stock having an aggregate value of up to $500,000 may be repurchased
through open market transactions at prices deemed appropriate by the Company.
The duration of the stock repurchase program is open-ended. The timing and
amount of repurchase transactions under this program will depend on market
conditions, corporate and regulatory considerations, and will be funded from
available working capital. At September 30, 2002, the Company had repurchased
50,000 shares of outstanding common stock at an average price of $0.93 per
share.

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The following summarizes the Companys contractual cash obligations at
September 30, 2002, and the effect such obligations are expected to have on our
liquidity and cash flows in future periods (in thousands):

|                                   |  |                         |        |        |  |           |       |        |  |        |        |  |  |   |    | 
|---------------------------------- |  | ----------------------- | ------ | ------ |  | --------- | ----- | ------ |  | ------ | ------ |  |  | - | -- | 
|                                   |  | Payments due by period:
|                                   |  |                        
|                                   |  |                         |        |        |  | Less than |       | 1 to 3 |  | 4 to 5
|Contractual Obligations            |  | Total                   |        | 1 year |  | years     |       | years 
|                                   |  |                         |        |        |  |           |       |       
|Notes payable                      |  | $                       | 11,949 |        |  | $         |      |        |  | $      | 11,949 |  |  | $ |   | 
|Capital lease obligations          |  |                         | 67     |        |  |           | 67    |        |  |        |       |  |  |   |   | 
|Operating lease obligations        |  |                         | 1,979  |        |  |           | 1,112 |        |  |        | 867    |  |  |   |   | 
|Mortgage payments                  |  |                         | 361    |        |  |           | 207   |        |  |        | 77     |  |  |   | 77 | 
|                                   |  |                         |        |        |  |           |       |        |  |        |        |  |  |   |    | 
|Total contractual cash obligations |  | $                       | 14,356 |        |  | $         | 1,386 |        |  | $      | 12,893 |  |  | $ | 77 | 
|                                   |  |                         |        |        |  |           |       |        |  |        |        |  |  |   |    | 

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

We have a history of operating losses and we may never achieve or sustain
profitability and may be required to raise additional funds if losses continue.

We have incurred operating losses and negative cash flows from operations since
our inception. As of September 30, 2002 we had an accumulated deficit of $66.8
million and we recorded net losses of $11.6 million for the nine-month period
ended September 30, 2002. We expect to continue to incur operating and net
losses for the foreseeable future and we may never generate positive cash
flows.


To the extent our capital resources are insufficient to meet our future capital
requirements, we will have to raise additional funds to continue the
development and commercialization of our products. Funds may not be available
on favorable terms, if at all. To the extent that we raise additional capital
through the sale of equity, the issuance of those securities will result in
dilution to our stockholders.

If our products do not become more widely used in the life sciences and
chemical industries, it is unlikely that we will ever become profitable.

Pharmaceutical, biotechnology, life sciences and chemical companies have
historically performed chemistry development using traditional laboratory
methods. To date, our products have not been widely adopted by chemists in
these industries. The commercial success of our products will depend upon the
adoption of these products as a method to develop chemical compounds for the
life sciences and other industries. In order to be successful, our products
must meet the performance and pricing requirements for chemistry development
within the life sciences and other industries. Market acceptance will depend on
many factors, including our ability to:




| |  | Convince prospective customers that our products are a cost-effective alternative to
traditional methods and other technologies that may be introduced for chemistry development.        
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Convince prospective customers that our products provide the same or enhanced quality and
accuracy as compared with traditional methods and other new technologies that may be developed.
| 
| |  | Manufacture products in sufficient quantities with acceptable quality and at an acceptable cost.                                                                                         
| 
| |  | Install and service sufficient quantities of our products.                                                                                                                               

If we cannot achieve these objectives, our products will not gain market
acceptance and we will not achieve profitability.

We face risks associated with past and future acquisitions.

Our success depends in part on our ability to continually enhance and broaden
our product offerings in response to changing technologies, customer demands
and competitive pressures. To meet these challenges, we have recently acquired
complementary businesses and may choose to acquire others in the future. Our
failure to successfully integrate these businesses may materially affect our
business going forward. We do not know if we will be able to complete any
future acquisitions, or whether we will be able to successfully integrate any
acquired business, operate it profitably or retain its key employees.
Integrating any business, product or technology we acquire could be expensive
and time consuming, and may disrupt our ongoing business and distract our
management. If we are unable to effectively integrate any acquired entities,
products or technologies, our business may suffer. In addition, any
amortization of purchased intangible assets or other assets or charges
resulting from the costs of acquisitions could negatively impact our operating
results. Our available cash and securities may be used to buy or invest in
companies or products, possibly resulting in significant acquisition-related
charges


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to earnings and dilution to our stockholders. Due to volatile market
conditions, the value of long live assets maybe negatively impacted, which may
result in future, additional impairment charges. Moreover, if we buy a company,
we may have to incur or assume that companys liabilities, including
liabilities that are unknown at the time of acquisition.

Our product development efforts may not produce commercially viable products.

We continue to devote significant personnel and financial resources to research
and development activities to develop new products. We may not be successful in
developing new products, and we may never realize any benefits from such
research and development activities, including both our current research
collaborations with Pfizer and GlaxoSmithKline, and our product development
consortium with Pfizer and ICI, which may not produce commercially viable
products. Our ability to increase our revenues and achieve and sustain
profitability is dependent upon our ability to successfully develop new and
commercially viable products.


The life sciences industry is highly competitive and subject to rapid
technological change, and we may not have the resources necessary to
successfully compete.

We compete with companies worldwide that are engaged in the development and
production of similar products. We face competition primarily from the
following three sectors:




| |  | companies marketing conventional products based on traditional chemistry methodologies;                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | pharmaceutical companies developing their own instruments; and                                                                                                               
| 
| |  | companies marketing products based upon parallel synthesis and other innovative
technologies, such as Mettler-Toledo AG and several smaller instrument and reagent
companies.

Many of our competitors have access to greater financial, technical, research,
marketing, sales, distribution, service and other resources than we do. We
face, and will continue to face, intense competition from organizations serving
the life sciences industry that are developing or marketing competing products
and technologies. These organizations may develop products or technologies that
are superior to our products or technologies in terms of performance, cost or
both. These organizations may offer price discounts or other concessions as a
competitive tactic that we may not be in a position to match.

We may need to develop new applications for our products to remain competitive.
Our present or future products could be rendered obsolete or uneconomical by
technological advances of one or more of our current or future competitors. In
addition, the introduction or announcement of new products by us or by others
could result in a delay of or decrease in sales of existing products, as
customers evaluate these new products. Our future success will depend on our
ability to compete effectively against current technology as well as to respond
effectively to technological advances.

The capital spending policies of life sciences and other chemical research
companies have a significant effect on the demand for our products.

We market our products to and receive our revenues principally from
pharmaceutical, biotechnology, life sciences and other chemical research
companies, and the capital spending policies of these entities can have a
significant effect on the demand for our products. During 2002, these companies
have significantly constrained their capital expenditures. These policies are
based on a wide variety of factors, including the resources available for
purchasing research equipment, the spending priorities among various types of
research equipment and the policies regarding capital expenditures. In
particular, the volatility of the public stock market for biotechnology and
related companies has at times significantly impacted their ability to raise
capital, which has directly affected their capital spending budgets. In
addition, continued consolidation within the pharmaceutical industry will
likely delay and may potentially reduce capital spending by pharmaceutical
companies involved in such consolidations. Any decrease or delay in capital
spending by life sciences companies could cause our revenues to decline and
harm our profitability.


In order to be successful, we must recruit, retain and motivate key employees,
and failure to do so could seriously harm us.

In order to be successful, we must recruit, retain and motivate executives and
other key employees, including those in managerial, technical, marketing and
sales positions. In particular, our product generation efforts depend on hiring
and retaining qualified technical personnel. Attracting and retaining qualified
sales representatives is also critical to our future. Experienced management
and technical, marketing and support personnel in the instrumentation industry
are in high demand and competition for their talents is intense. This is
particularly the case in Silicon Valley, where our headquarters and certain key
research and development facilities are located. The loss of key employees
could have a significant impact on our operations. We also must continue to
motivate employees and keep them focused on Argonauts strategies and goals,
which may be particularly difficult due to morale challenges posed by workforce
reductions and general uncertainty. Changes in management may be disruptive to
our business and may result in the departure of existing employees, customers
and/or


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research collaborators. It may take significant time to locate, retain and
integrate qualified management personal.

Our direct worldwide sales force and network of distributors may not be
sufficient to successfully address the market for our products.

We sell a major portion of our products through our own sales force. We may not
be able to build an efficient and effective sales and marketing force and
continue to expand our network of distributors. Our failure to build an
efficient and effective sales and marketing force could negatively impact sales
of our products, thus reducing our revenues and profitability. In addition, if
we cannot successfully and efficiently integrate the Jones Group sales force,
we may not realize expected synergies.


Because we outsource our product assembly, our ability to produce and supply
our products could be impaired.

We outsource most of the assembly of our products to vendors. Our reliance on
our outside vendors exposes us to risks including:




| |  | the possibility that one or more of our vendors could terminate their services at any time without notice;                 
|- |  | ---------------------------------------------------------------------------------------------------------------------------
| 
| |  | reduced control over pricing, quality and timely delivery, due to the difficulties in switching to
alternative vendors; and
| 
| |  | the potential delays and expenses of seeking alternative sources of manufacturing services.                                

Consequently, in the event that components from our suppliers or work performed
by our vendors are delayed or interrupted for any reason, our ability to
produce and deliver our products would decline.

We are exposed to fluctuations in the exchange rates of foreign currency.

As a global concern, we face exposure to adverse movements in foreign currency
exchange rates. With the Jones Group acquisition, a significant percentage of
our net sales are exposed to foreign currency risk. These exposures may change
over time as business practices evolve and could have a material adverse impact
on our financial results. The use of the Euro as a common currency for members
of the European Union could impact our foreign exchange exposure. We will
monitor our exposure and may hedge against this and any other emerging market
currencies as necessary.


We are exposed to the credit risk of some of our customers.

Due to the current slowdown in the economy, the credit risks relating to our
customers have increased. Although we have programs in place to monitor and
mitigate the associated risk, there can be no assurance that such programs will
be effective in reducing our credit risks. We have experienced losses due to
customers failing to meet their obligations. Although these losses have not
been significant, future losses, if incurred, could harm our business and have
a material adverse effect on our operating results and financial conditions.


Our instrument products have lengthy sales cycles, which could cause our
operating results to fluctuate significantly from quarter to quarter.

Our ability to obtain customers for our products depends in significant part
upon the perception that our products can help accelerate efforts in chemical
development. The sale of many of our instrument products typically involves a
significant technical evaluation and commitment of capital by customers.
Accordingly, the sales cycles of many of our products are lengthy and subject
to a number of risks that are beyond our control, including customers
budgetary constraints and internal acceptance reviews. Our revenues could
fluctuate significantly from quarter to quarter, due to this lengthy and
unpredictable sales cycle. A large portion of our expenses, including expenses
for facilities, equipment and personnel, are relatively fixed. Accordingly, if
our revenues decline or do not grow as we anticipate, we might not be able to
correspondingly reduce our operating expenses. Our failure to achieve our
anticipated levels of revenues could significantly harm our operating results
for a particular fiscal period. Due to the possibility of fluctuations in our
operating results, we believe that quarter-to-quarter comparisons of our
operating results are not always a good indication of our future performance.


We are exposed to general global economic and market conditions.

Our business is subject to the effects of general economic conditions in the
United States, the United Kingdom and globally, and, in particular, market
conditions in the life sciences and chemical industries. In recent quarters,
our operating results have been adversely affected as a result of unfavorable
economic conditions and reduced capital spending in the United States, Europe,
and Asia. If the economic conditions in the United States and globally do not
improve, or if we experience a worsening in the global economic slowdown, we
may continue to experience material adverse impacts on our business, operating
results, and financial condition.


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Our business is subject to risks from international operations.

We conduct business globally. Accordingly, our future results could be
materially adversely affected by a variety of uncontrollable and changing
factors including, among others, foreign currency exchange rates; regulatory,
political, or economic conditions in a specific country or region; trade
protection measures and other regulatory requirements; and natural disasters.
Any or all of these factors could have a material adverse impact on our future
international business.


If we infringe on or misappropriate the proprietary rights of others or we are
unable to protect our own intellectual property rights our revenues could be
harmed.

We may be sued for infringing on the intellectual property rights of others.
Intellectual property litigation is costly, and, even if we prevail, the cost
of such litigation could affect our profitability. In addition, litigation is
time consuming and could divert management attention and resources away from
our business. If we do not prevail in any litigation, in addition to any
damages we might have to pay, we could be required to stop the infringing
activity or obtain a license. We may not be able to obtain required licenses on
acceptable terms, or at all. In addition, some licenses may be nonexclusive,
and therefore, our competitors may have access to the technology licensed to
us. If we fail to obtain a required license or are unable to design around a
patent, we may be unable to sell some of our products, which could harm our
ability to compete and result in a decline in our revenues.


Our success will depend on our ability to obtain and enforce patents on our
technology and to protect our trade secrets. Any patents we own may not afford
meaningful protection for our technology and products. Others may challenge our
patents and, as a result, our patents could be narrowed, invalidated or
rendered unenforceable. In addition, our current and future patent applications
may not result in the issuance of patents to us in the United States or foreign
countries. Moreover, competitors may develop products similar to ours that are
not covered by our patents.

We try to protect our unpatented trade secrets by requiring our employees,
consultants and advisors to execute confidentiality agreements. However, we
cannot guarantee that these agreements will provide us with adequate protection
against improper use or disclosure of our trade secrets. Further, others may
independently develop substantially equivalent proprietary information and
techniques. If we are unable to protect our proprietary information and
techniques, our ability to exclude certain competitors from the market will be
limited.

Risks Related to Our Common Stock

There may not be an active, liquid trading market for our common stock.

The Company has applied to transfer from the Nasdaq National Market to the NASDAQ
SmallCap Market and expects to begin trading on the SmallCap Market sometime during the fiscal fourth quarter of 2002. If we fail
to comply with the continued listing requirements of the SmallCap Market,
including the $1 minimum bid price per share requirement, we may be delisted
from trading on such market, and thereafter trading in our common stock, if
any, would be conducted through the over-the-counter market or on the
Electronic Bulletin Board of the National Association of Securities Dealers,
Inc. There is no guarantee that an active trading market for our common stock
will be maintained on the NASDAQ Small Cap Market. You may not be able to sell
your shares of our common stock quickly, or at the market price or at all if
trading in our stock is not active or otherwise.


Our stock price has been highly volatile, and your investment could suffer a
further decline in value.

The trading price of our common stock has been highly volatile and ranged in
the third quarter of 2002 from a per-share high of $1.03 to a low of $0.56 and
could continue to be subject to wide fluctuations in price in response to
various factors, many of which are beyond our control, including;




| |  | actual or anticipated variations in quarterly operating results;                                                                               
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | failure to achieve, or changes in, financial estimates by securities analysts;                                                                 
| 
| |  | announcements of new products or services or technological innovations by us or our competitors;                                               
| 
| |  | conditions or trends in the pharmaceutical, biotechnology, life sciences and chemical industries;                                              
| 
| |  | announcements by us of significant acquisitions, strategic partnerships, joint ventures, capital commitments;                                  
| 
| |  | additions or departures of key personnel, including any directors;                                                                             
| 
| |  | developments in the
application or interpretation of new or existing accounting pronouncements and reporting obligations;                      
| 
| |  | negotiating changes;                                                                                                                           
| 
| |  | purchase or sales of our common stock, including any repurchases of our common stock under the existing or
future stock repurchase program; and
| 
| |  | developments regarding our patents or other intellectual property or that of our competitors.                                                  

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##### Table of Contents



In addition, the stock market in general, the Nasdaq Stock Markets Small Cap
Market, and the market for securities of technology companies in particular,
have experienced significant price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of those companies.
Further, there has been particular volatility in the market prices of
securities of life science companies. These broad market and industry factors
may seriously harm the market price of our common stock, regardless of our
operating performance. In the past, following periods of volatility in the
market price of a companys securities, securities class action litigation has
often been instituted. A securities class action suit against us could result
in substantial costs, potential liabilities and the diversion of managements
attention and resources.

Our principal stockholders, directors and executive officers own approximately
43% of our common stock, which may prevent new investors from influencing
corporate decisions.

Our principal stockholders (defined as those stockholders who currently own
over 5% of our common stock) and our directors and executive officers, who
together beneficially own approximately 43% of our outstanding common stock,
will be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay or prevent a change in control of us even if beneficial to our other
stockholders.


Sales of large numbers of shares of our common stock could cause our stock
price to decline.

The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. All
of the shares sold in our initial public offering are now freely transferable
without restriction or further registration under the Securities Act, except
for any shares purchased by our affiliates, as defined in Rule 144 of the
Securities Act. The remaining shares of common stock outstanding are restricted
securities as defined in Rule 144. These shares may be sold in the future
without registration under the Securities Act, to the extent permitted by Rule
144 or other exemptions under the Securities Act.


On March 1, 2001, we issued 666,667 shares of unregistered common stock in
connection with the acquisition of ATSI.

On February 5, 2002, we registered 2,628,618 shares of common stock that are
reserved for issuance upon exercise of options granted under our stock option
and employee stock purchase plans. These shares can be sold in the public
market upon issuance, subject to restrictions under the securities laws
applicable to resales by affiliates.

On February 20, 2002, we issued 572,152 shares of unregistered common stock in
connection with the acquisition of Jones Group.

Anti-takeover provisions in our charter and bylaws and under Delaware law could
make a third-party acquisition of us difficult.

Pursuant to our charter, our board of directors has the authority to issue up
to 10,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote of action by our stockholders. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock. Our certificate of
incorporation and bylaws contain other provisions that could make it more
difficult for a third party to acquire us, even if doing so might be deemed
beneficial by our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
We are also subject to certain provisions of Delaware law that could delay,
deter or prevent a change in control of us.





Item 3.Quantitative and Qualitative Disclosures about Market Risk

Our market risk disclosures have not changed significantly from those set forth
in the Managements Discussion and Analysis of Financial Condition and Results
of Operations in our Form 10-K for the year ended December 31, 2001 filed with
the Securities and Exchange Commission on April 1, 2002.




Item 4.Controls and Procedures

Within 90 days prior to the date of filing this Quarterly Report on Form 10-Q,
our management, including our Chief Executive Officer and the Chief
Financial Officer, conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and the Chief

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##### Table of Contents



Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in
this quarterly report has been made known to them in a timely fashion. There
have been no significant changes in internal controls, or in factors that could
significantly affect internal controls, subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their evaluation.

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##### Table of Contents






PART II. OTHER INFORMATION




ITEM 1: LEGAL PROCEEDINGS

The Company is not currently involved in any material legal proceedings.




ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 8, 2002, the Company announced the approval by its Board of Directors
of a stock repurchase program pursuant to which shares of its outstanding
common stock having an aggregate value of up to $500,000 may be repurchased
through open market transactions at prices deemed appropriate by the Company.
The duration of the stock repurchase program is open-ended. The timing and
amount of repurchase transactions under this program will depend on market
conditions, corporate and regulatory considerations, and will be funded from
available working capital. At September 30, 2002, the Company had repurchased
50,000 shares of outstanding common stock at an average price of $0.93 per
share.




ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.




ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.




ITEM 5: OTHER INFORMATION

None.




ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits.                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The exhibits listed in the accompanying Exhibit Index are filed or
incorporated by reference as part of this Report on Form 10-Q.
|   
|(b) |  | Reports on Form 8-K.                                                                                                             
|   
|    |  | The Company filed no reports on Form 8-K during the quarter ended
September 30, 2002.                                            

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##### Table of Contents






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.

|                        |  |                             |                                                            
|----------------------- |  | --------------------------- | -----------------------------------------------------------
|Date: November 11, 2002 |  | ARGONAUT TECHNOLOGIES, INC.
|                       
|                        |  | By:                         | /s/ LISSA A. GOLDENSTEIN                                   
|                        |  |                             |                                                            
|                        |  |                             | Lissa A. Goldenstein
President, Chief Executive Officer    
|                       
|                        |  | By:                         | /s/ DAVID J. FOSTER                                        
|                        |  |                             |                                                            
|                        |  |                             | David J. Foster
Sr. Vice President, Chief Financial Officer

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##### Table of Contents






Certifications

I, Lissa A. Goldenstein, President and Chief Executive Officer of Argonaut Technologies, Inc., certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Argonaut Technologies,
Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 11, 2002

| |  |                                                                                     
| |  | ------------------------------------------------------------------------------------
| |  | /s/ Lissa A. Goldenstein

Lissa A. Goldenstein
President and Chief Executive Officer

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##### Table of Contents



I, David J. Foster, Chief Financial Officer of Argonaut Technologies, Inc.,
certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Argonaut Technologies, Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 11, 2002

| |  |                                                               
| |  | --------------------------------------------------------------
| |  | /s/ David J. Foster                                           
| |  |                                                               
| |  | David J. Foster
Sr. Vice President and Chief Financial Officer

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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.
Form 10-Q
Quarterly Period Ended September 30, 2002




EXHIBIT INDEX

|           |  |                                                                                                                                                                                                       |  |  |  | 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Number     |  | Description of Document                                                                                                                                                                               |  |  |  | 
|           |  |                                                                                                                                                                                                       |  |  |  | 
|2.1***     |  | Agreement and Plan of Merger dated January 31, 2001, by and among the Registrant, CPL Acquisition Corp. and
Camile Products, LLC.                                                                    
|2.2****    |  | Agreement for the sale and purchase of the entire issued share capital of Jones Chromatography Limited, dated
February 11, 2002, by and among the Registrant and the former Jones Group shareholders.
|3.1*       |  | Amended and Restated Certificate of Incorporation of the Registrant.                                                                                                                                 
|3.2*       |  | Bylaws of Registrant.                                                                                                                                                                                
|4.3***     |  | Registration Rights Agreement dated March 1, 2001, by and among the Registrant and the members of Camile
Products, LLC.                                                                              
|4.4****    |  | Registration Rights Agreement dated February 20, 2002, by and among the Registrant and the former Jones Group
shareholders.                                                                          
|4.5****    |  | £7,650,000 Loan Note Instrument Creating Principal Amount Guaranteed Loan Notes 2004 guaranteed by Barclays Bank
PLC dated February 20, 2002.                                                        
|10.1*      |  | Amended and Restated Stockholder Rights Agreement, dated May 21, 1999.                                                                                                                               
|10.2*      |  | Offer Letter, dated October 29, 1996, from Registrant to David P. Binkley, Ph.D.                                                                                                                     
|10.3*      |  | Promissory Note Secured by Deed of Trust between the Registrant and David P. Binkley, dated December 17, 1996.                                                                                       
|10.4*      |  | Lease Agreement between the Registrant and Tanklage Family Partnership, dated July 9, 1999.                                                                                                          
|10.5*      |  | Lease Agreement between the Registrant and MK Kojimachi Building Co., Ltd., dated September 16, 1997, as amended.                                                                                    
|10.6*      |  | Lease Agreement between the Registrant and Personalvorsorgestiftung Rapp AG, dated April 16, 1997.                                                                                                   
|10.7*      |  | License and Supply Agreement between the Registrant and Symyx Technologies, Inc., dated August 6, 1999.                                                                                              
|10.8*      |  | Manufacturing Agreement between the Registrant and Merck, Inc. dated June 24, 1997, as amended.                                                                                                      
|10.9*      |  | Form of Indemnification Agreement between the Registrant and each of its directors and officers.                                                                                                     
|10.10*     |  | 1995 Stock Plan.                                                                                                                                                                                     
|10.11*     |  | 1995 Stock Plan Form of Stock Option Agreement.                                                                                                                                                      
|10.12*     |  | 2000 Stock Incentive Plan.                                                                                                                                                                           
|10.13*     |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                   
|10.14**    |  | Amendment to License and Supply Agreement between the Registrant and Symyx Technologies, Inc., dated January 1,
2002.                                                                                
|10.15**    |  | Agreement between the Registrant and David P. Binkley dated December 5, 2001.                                                                                                                        
|10.16**    |  | Agreement between the Registrant and John T. Supan dated January 10, 2002.                                                                                                                           
|10.17***** |  | License Agreement between Argonaut Technologies, Inc. and Symyx Technologies, Inc. dated August 21, 2002.                                                                                            
|99.1       |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                       



---

|*     |  | Incorporated by reference from our registration statement on Form S-1, registration number 333-35782, declared effective by the Securities and Exchange Commission on July
18, 2000.                 
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|**    |  | Incorporated by reference from our Form 10-K filed with the Securities and Exchange Commission on April 1, 2002.                                                                                     
|     
|     
|     
|     
|***   |  | Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on March 16, 2001.                                                                                     
|     
|     
|     
|     
|****  |  | Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on March 6, 2002.                                                                                      
|     
|     
|     
|     
|***** |  | Certain portions of this
exhibit have been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with
respect to such omitted portions.

End of Filing

Page 26