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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR  o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from                      to Commission file number 000-31019 
 ARGONAUT TECHNOLOGIES, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    94-3216714
(IRS Employer
Identification Number)
 220 Saginaw Drive
Redwood City, CA 94063
(Address of principal executive offices, including zip code) (650) 716-1600
(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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Securities Exchange Act of 1934). Yes o No þ There were 20,773,762 shares of the registrants common stock outstanding on April 30, 2005.




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Argonaut Technologies, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2005 TABLE OF CONTENTS PART I: FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2005 (Unaudited) and
December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the Three-Month Periods
Ended March 31, 2005 and 2004 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three-Month Periods
Ended March 31, 2005 and 2004 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEXEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  Page 2 of 22




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PART I: FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS ARGONAUT TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,106
    
    
    $
    8,321Short-term investments
    
    
    2,508
    
    
    
    1,837Accounts receivable, net
    
    
    3,926
    
    
    
    4,353Inventories
    
    
    5,992
    
    
    
    6,615Prepaid expenses & other current assets
    
    
    690
    
    
    
    532Notes receivable
    
    
    46
    
    
    
    47Total current assets
    
    
    20,268
    
    
    
    21,705Restricted cash
    
    
    169
    
    
    
    169Property and equipment, net
    

    
    3,852
    
    
    
    4,231Goodwill
    
    
    9,410
    
    
    
    9,410Other intangible assets, net
    
    
    2,906
    
    
    
    3,017Long-term investments
    
    
    
    
    
    
    699Other assets
    
    
    197
    
    
    
    174$
    36,802
    
    
    $
    39,405LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,359
    
    
    $
    1,100Accrued compensation
    
    
    548
    
    
    
    534Other accrued liabilities
    
    
    1,324
    
    
    
    1,136Deferred revenue
    
    
    284
    
    
    
    618Current portion of deferred rent
    
    
    62
    
    
    
    82Current portion of notes payable and capital lease obligations
    
    
    17
    
    
    
    24Total current liabilities
    
    
    3,594
    
    
    
    3,494Capital lease obligations
    
    
    53
    
    
    
    53Long term portion of deferred rent
    
    
    470
    
    
    
    470Stockholders equity:Common stock
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    121,825
    
    
    
    121,822Deferred stock compensation
    
    
    (4
    )
    
    
    (4
    )Accumulated other comprehensive income (loss)
    
    
    1,908
    
    
    
    2,330Accumulated deficit
    
    
    (91,046
    )
    
    
    (88,762
    )Total stockholders equity
    
    
    32,685
    
    
    
    35,388$
    36,802
    
    
    $
    39,405
 The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements. Page 3 of  22




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ARGONAUT TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedMarch 31,2005
    
    
    2004Net sales:Products
    
    $
    4,577
    
    
    $
    4,241Services
    
    
    266
    
    
    
    439Total net sales
    
    
    4,843
    
    
    
    4,680Costs and Expenses:Costs of products
    
    
    2,701
    
    
    
    3,089Costs of services
    
    
    60
    
    
    
    224Research and development
    
    
    965
    
    
    
    945Selling, general and administrative
    
    
    3,412
    
    
    
    3,046Amortization of purchased intangibles
    
    
    111
    
    
    
    121Total costs and expenses
    
    
    7,249
    
    
    
    7,425Loss from operations
    
    
    (2,406
    )
    
    
    (2,745
    )Other income (expenses):Interest and other income
    
    
    137
    
    
    
    329Interest and other expense
    
    
    (78
    )
    
    
    (137
    )Net loss before provision for income taxes
    
    
    (2,347
    )
    
    
    (2,553
    )Income taxes benefit
    
    
    63
    
    
    
    27Net loss
    
    $
    (2,284
    )
    
    $
    (2,526
    )Net loss per common share, basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.12
    )Weighted-average shares used in
computing net loss per common share, basic and diluted
    
    
    20,630
    
    
    
    20,397
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 4 of  22




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ARGONAUT TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Three Months EndedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (2,284
    )
    
    $
    (2,526
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    210
    
    
    
    293Amortization of other purchased intangibles
    
    
    111
    
    
    
    155Disposal of fixed assets
    
    
    129
    
    
    
    106Change in cumulative translation adjustment
    
    
    48
    
    
    
    (11
    )Changes in assets and liabilities:Accounts and notes receivable
    
    
    427
    
    
    
    1,645Inventories
    
    
    623
    
    
    
    (487
    )Prepaid expenses and other current assets
    
    
    (180
    )
    
    
    (71
    )Accounts payable
    
    
    259
    
    
    
    (214
    )Accrued compensation
    
    
    14
    
    
    
    (171
    )Other accrued liabilities
    
    
    188
    
    
    
    (308
    )Deferred rent
    
    
    (20
    )
    
    
    Deferred revenue
    
    
    (334
    )
    
    
    (242
    )Net cash used in operating activities
    
    
    (809
    )
    
    
    (1,831
    )Cash flows from investing activities:Capital expenditures
    
    
    (8
    )
    
    
    (61
    )Purchase of short-term investments
    
    
    (671
    )
    
    
    Proceeds from the sales of short-term investments
    
    
    
    
    
    
    771Proceeds from the maturities of short-term investments
    
    
    
    
    
    
    3,007Purchase of long-term investments
    
    
    
    
    
    
    (840
    )Proceeds from long-term investments
    
    
    699
    
    
    
    Restricted cash
    
    
    
    
    
    
    (154
    )Net cash provided by investing activities
    
    
    20
    
    
    
    2,723Cash flows from financing activities:Principal payments on capital lease obligations
    
    
    (7
    )
    
    
    Repurchase of common stock
    
    
    
    
    
    
    (81
    )Net proceeds from issuances of common stock
    
    
    3
    
    
    
    47Net cash used in financing activities
    
    
    (4
    )
    
    
    (34
    )Effect of exchange rate changes on cash
    
    
    (422
    )
    
    
    210Net increase (decrease) in cash and cash equivalents
    
    
    (1,215
    )
    
    
    1,068Cash and cash equivalents at beginning of period
    
    
    8,321
    
    
    
    9,620Cash and cash equivalents at end of period
    
    $
    7,106
    
    
    $
    10,688
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 5 of  22




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ARGONAUT TECHNOLOGIES, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS 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. The condensed consolidated balance sheet at December 31, 2004 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. 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, 2004 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, 2005, or any other
future period. Product Warranty The Company generally warrants its equipment for a period of one year and provides a reserve for
estimated warranty costs concurrent with the recognition of revenue. The Company also sells
warranty extensions and the related revenue is recognized ratably over the term of the extension.
Warranty costs incurred during the extension period are expensed as incurred. Changes in the Companys product warranty accrual for the three months ended March 31, 2005 and
2004 are as follows (in thousands): IncreaseBalance
    
    
    (Decrease) in
    
    
    Cost of
    
    
    BalanceAccrued Product Warranty
    
    Beginning of
    
    
    Warranty
    
    
    Warranty
    
    
    End ofThree Months Ended:
    
    Period
    
    
    Accrual
    
    
    Repair
    
    
    PeriodMarch 31, 2005
    
    $
    250
    
    
    $
    53
    
    
    $
    (57
    )
    
    $
    246March 31, 2004
    
    $
    199
    
    
    
    51
    
    
    
    (17
    )
    
    
    233
 Recent Accounting Pronouncements In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory
Costs, an amendment to ARB No. 43, Chapter 4 (SFAS 151). SFAS 151 amends ARB No. 43, Chapter 4,
to clarify that, abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage) should be recognized as current period charges. In addition, SFAS 151 requires
that the allocation of fixed production overheads to the cost of conversion be based on the normal
capacity of the production facilities. SFAS 151 is effective for inventory costs incurred for
fiscal years beginning after June 5, 2005. We do not expect the adoption of SFAS 151 to have a
significant impact on our financial condition or results of operations. In December 2004, the FASB issued SFAS No. 123R, Shared-Based Benefits"(SFAS 123R). This
statement is a revision to Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation (SFAS 123 and supercedes APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and amends SFAS No. 95, Statement of Cash Flows. SFAS 123R will
require us to measure the cost of our employee stock-based compensation Page 6 of  22




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awards granted after the effective date based on the grant date fair value of those awards and
to record that cost as compensation expense over the period during which the employee is required
to perform services in exchange for the award (generally over the vesting period of the award).
SFAS 123R addresses all forms of share-based payments awards, including shares issued under
employee stock purchase plans, stock option, restricted stock and stock appreciation rights. In
addition, we will be required to record compensation expense (as previous awards continue to vest)
for the unvested portion of previously granted awards that remain outstanding at the date of
adoption. SFAS 123R was originally effective for fiscal periods beginning after June 15, 2005. On
April 14, 2005, the Securities and Exchange Commission delayed the effective date, and as such the
Company will be required to implement the provisions of SFAS 123R
beginning January 1, 2006. The Company is still considering the
total impact of SFAS 123R implementation on the financial statement. NOTE 2  STOCK-BASED COMPENSATION The Company accounts for its stock-based employee compensation as permitted by SFAS 123, as amended
by Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, whereby stock-based employee compensation arrangements are accounted
for under the intrinsic value method prescribed by APB 25. Under APB 25, when the exercise price
of the Companys stock options is less than the market price of the underlying shares on the date
of grant, compensation expense is recognized. Pro forma information regarding net loss per share
is required by SFAS 123 as if the Company had accounted for its employee stock options under the
fair value method of SFAS 123. The fair value of these options granted prior to the Companys
initial public offering in July 2000 was estimated at the date of grant using the minimum value
method. The fair value of stock options granted subsequent to the initial public offering were
valued using the Black-Scholes valuation model based on the actual stock closing price on the date
of grant. The fair value of these options was estimated at the date of grant using the following
weighted-average assumptions: Three Months Ended March 31,2005
    
    
    2004Risk-free interest rate
    
    
    3.54
    %
    
    
    1.58
    %Dividend yield
    
    
    
    
    
    
    Weighted-average expected life
    
    
    3.2
    
    
    
    3.6Volatility
    
    
    0.65
    
    
    
    0.81
 The pro forma disclosures required by SFAS 123 are as follows (in thousands, except per share
amounts): Three Months Ended March 31,2005
    
    
    2004Net loss, as reported
    
    $
    (2,284
    )
    
    $
    (2,526
    )Stock-based employee compensation expense included in
reported net loss
    
    
    
    
    
    
    3Total stock-based employee compensation expense
determined under fair value based methods for all awards
    
    
    (232
    )
    
    
    (350
    )Pro forma net loss
    
    $
    (2,516
    )
    
    $
    (2,873
    )Basic and diluted net loss per common share, as reported
    
    $
    (0.11
    )
    
    $
    (0.12
    )Pro forma basic and diluted net loss per common share
    
    $
    (0.12
    )
    
    $
    (0.14
    )
 Equity instruments granted to non-employees are accounted for using the Black-Scholes valuation
model prescribed by SFAS 123 and, in accordance with Emerging Issues Task Force Consensus No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or
in Conjunction with Selling Goods or Services. The equity instruments are subject to periodic
revaluations over their vesting terms. The expense is recognized as the instruments vest. Page 7 of  22




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NOTE 3  INVENTORIES Inventories consist of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    3,418
    
    
    $
    3,836Work in process
    
    
    1,129
    
    
    
    1,416Finished goods
    
    
    1,445
    
    
    
    1,363$
    5,992
    
    
    $
    6,615
 NOTE 4  NET LOSS PER SHARE Net loss per share has been computed according to Statement of Financial Accounting Standards 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. Due to the net loss position of the Company, 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 3,245,552 and
3,749,995 shares of common stock were outstanding at March 31, 2005 and March 31, 2004,
respectively. NOTE 5  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-month periods ended March 31, 2005 and 2004, comprehensive loss is as follows (in
thousands): Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (2,284
    )
    
    $
    (2,526
    )Unrealized gain (loss)

    
    
    (5
    )
    
    
    28Cumulative translation adjustment
    
    
    (417
    )
    
    
    210Comprehensive loss
    
    $
    (2,706
    )
    
    $
    (2,288
    )
 NOTE 6  GOODWILL AND OTHER PURCHASED INTANGIBLES Goodwill and other purchased intangible assets with indefinite lives have resulted from the
acquisition of Camile Products, LLC (now Argonaut Technologies Systems, Inc. (ATSI)) and Jones
Chromatography Limited (the Jones Group). Goodwill and other intangible assets with indefinite
lives are not amortized subsequent to the Companys adoption of SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142). All goodwill and intangible assets have been assigned to one of two reporting units. The Argonaut
(AGNT)-Legacy reporting unit consists primarily of goodwill and intangible assets related to the
Companys acquisition of ATSI. The Jones-Group reporting unit consists of goodwill and intangible
assets deriving from the Companys acquisition of Jones Chromatography, Ltd. Page 8 of  22




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During the third quarter ended September 30, 2003 the Company performed an interim test for
goodwill impairment in light of lower than expected third quarter revenue. Based on the discounted
cash flows of the AGNT-Legacy reporting unit, the Company recognized an impairment charge of $1.6
million relating to the goodwill and intangible assets associated with ATSI. Approximately
$763,000 of the impairment charge was related to goodwill associated with ATSI, and the remainder
was related to completed technology assets associated with the acquisition of ATSI. See Note 7 regarding impairment charges recorded on intangible assets. The amortization expense
relating to purchased intangible assets for the three months ended March 31, 2005 and 2004 was
$111,000 and $121,000 respectively.The following represents the gross carrying amounts and
accumulated amortization of amortized purchased intangible assets at March 31, 2005. As of March 31, 2005GrossCarrying
    
    
    AccumulatedAmount
    
    
    AmortizationAmortized intangible assets:Completed technology
    
    $
    5,533
    
    
    $
    (2,795
    )Licenses
    
    
    609
    
    
    
    (609
    )Tradenames
    
    
    250
    
    
    
    (82
    )Total
    
    $
    6,392
    
    
    $
    (3,486
    )
 NOTE 7  IMPAIRMENT OF LONG-LIVED ASSETS In the fourth quarter of 2004, the Company was preparing to enter into an agreement to sell
substantially all of the assets of the Company to Biotage AB. This became the indicator that there
would be an impairment to our remaining long-lived assets. Impairment charges of long-lived assets have been recognized in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. For the year ended December 31,
2004, the Company recognized asset impairment charges of approximately $2.2 million, of which $1.4
million relate to fixed assets and $833,000 relate to purchased intangible assets with finite
lives. These impairments were measured after comparing the carrying value of such long-lived assets
to the discounted cash flows from the related reporting unit, as defined by SFAS 142. This
comparison indicated impairment, at which point the Company estimated the fair value of these
assets using a discount cash flow methodology. The carrying value of these assets exceeded this
estimated fair value by $2.2 million. 
 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
regarding future revenues, expenses, losses and cash flows, research and development activities and
sales and marketing initiatives such as our plan to concentrate our efforts in those areas such as
building our core consumables business, and related accruals, values of our assets and liabilities
over their remaining useful lives and our testing for impairment of goodwill, 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 and the possibility of selling substantially all of our assets and
winding up our business. Actual results may differ materially from those 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. For a further discussion of these and other risks and uncertainties related to our
business see the discussion set forth herein under Factors That May Affect Our Future Results. Page 9 of  22




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Overview We develop innovative products designed to help pharmaceutical and other chemists engaged in the
discovery and development of new chemical entities increase their productivity and reduce their
operating costs without compromising the scientific integrity of their research. Our products are
designed to enable chemists to increase their productivity, reduce their operating costs through
automation and process simplification, and cost effectively explore the increasing number of drug
targets available for drug development. We derive revenues primarily from the sale of our chemistry
consumable products, instrumentation products and services. We also derive revenues from the sale
of reagents, and other instrument-related consumables and consumables products of Jones
Chromatography Limited, 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. In March 2001, we completed the acquisition of Camile Products, LLC, a privately held
instrumentation and software company in Indianapolis, Indiana, and renamed this subsidiary Argonaut
Technologies Systems, Inc. (ATSI). In February 2002, we completed the strategic acquisition of Jones Chromatography Limited (and
its wholly owned subsidiaries: International Sorbent Technology Limited and Jones Chromatography
U.S.A., Inc.), a privately held chemistry consumables and instrument company (Jones Group)
headquartered in Cardiff, Wales, United Kingdom. Since our inception, we have incurred significant losses and, as of March 31, 2005, we had an
accumulated deficit of $91.0 million. Recent Developments Proposed Asset Sale On March 24, 2005 the Company filed a proxy statement asking stockholders of Argonaut Technologies,
Inc. to approve the sale of the assets of Argonauts chemistry consumables business and certain
assets related to the process research development business at a special meeting. On May 3, 2005,
the Company mailed a definitive proxy to stockholders for a special meeting to be held on June 1,
2005, regarding the proposed asset sale. As the proposed asset sale has not yet been approved or
closed, unless otherwise indicated, any forward-looking information disclosed in this Managements
Discussion and Analysis of Financial Condition and Results of Operations assumes the continued
operation of our current business. Critical Accounting Policies There have been no material changes to the Companys critical accounting policies that are
included/described in our Form 10-K for the year ended December 31, 2004 filed with the Securities
and Exchange Commission on April 21, 2005. RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2005 Net sales Net sales in the three-month period ended March 31, 2005 were $4.8 million compared to $4.7 million
for the same period in 2004, an increase of 3%. The increase in net sales is primarily due to an
increase of 12% in sales of our core product lines offset by lower revenues from discontinued
product lines and no revenues from our contract research and development (R&D) project. For the
first quarter of 2005, instrument sales comprised approximately 32% of net sales, chemistry
consumables sales comprised approximately 58% of net sales, and service, integration services and
contract R&D together comprised approximately 10% of net sales. Instrument sales were $1.6 million
in the first quarter of 2005 versus $1.4 million for the same period in 2004, primarily due to an
increase in sales of our core product lines offset by lower revenues from the discontinuation of
certain product lines. Chemistry consumables sales were $2.8 million in the first quarter of 2005
versus $2.7 million in the same period of 2004, an increase of 4%. Services and integration sales
were $266,000 in the first quarter of 2005 versus $551,000 in the same period of 2004, a decrease
of about 52%. The decline is primarily due to no contract R&D revenues in 2005. Cost of sales Gross margin as a percent of sales was 43% for the first quarter of 2005 compared to 29.2% for the
first quarter of 2004. Higher margin performance in 2005 was due to higher revenues of products
that yielded higher margins. The margin in first Page 10 of  22




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quarter of 2004 was impacted negatively by the
costs incurred by the Company of approximately $211,000 due to the transfer of the manufacturing of
our flash chromatography instruments from Cardiff, Wales to Foster City, California and the
transfer of a chemistry resins manufacturing from Foster City to Cardiff. Research and development expenses Research and development expenses, which were $0.9 million for the three-month period ended March
31, 2005 remained about the same compared to the same period in 2004. 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. Selling, general and administrative expenses Selling, general and administrative expenses increased to $3.4 million in the three-month period
ended March 31, 2005 from $3.0 million for the same period in 2004, an increase of 12%. 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 transaction related costs of $725,000 in connection with the proposed sale of the
assets of Argonauts chemistry consumables business and certain assets related to the process
research development business to Biotage AB. Without these transaction related costs, expenses
would have been $2.7 million or 10% lower compared to the same period in 2004. Restructuring charges 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 existing worldwide employees. As a result, the
Company recognized a charge of $1.8 million in the third quarter ended September 30, 2002. The
charge included 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. As of March
31, 2004, 40 of the 44 employees had been terminated. The remaining accrued restructuring
liability was $158,000 at March 31, 2004. For the quarterly period ended March 31, 2004, there
were $33,000 of cash payments related to the restructuring program. As of December 31, 2004, all
amounts related to workforce reduction and other related charges and abandonment of excess leased
facilities had been paid. Amortization of purchased intangible assets For the quarter ended March 31, 2005, as part of operating expenses, the Company recorded
amortization of purchased intangibles of $111,000 compared to $121,000 in the same period in 2004.
The decrease in amortization expense is due to the lower carrying value of the purchased intangible
assets. Interest and other income (expense), net Interest and other income decreased to $137,000 for the three-month period ended March 31, 2005 as
compared to $329,000 for the same period in 2004, primarily due to lower interest income from
short-term investments. Interest and other expense was $78,000 for the first quarter of 2005
compared to $137,000 in the same period in 2004 primarily due to lower interest expense. The notes
payable for the Jones Group acquisition was paid in full in 2004. Provision for income taxes The Company recorded a benefit for income taxes of approximately $63,000 in the UK subsidiary for the
three-month period ended March 31, 2005 as compared to a benefit for income taxes of approximately
$27,000 in the UK subsidiary for the same period in 2004. The benefit in 2005 is largely due to the
recognition of R & D tax credits. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2005, the Company had cash, cash equivalents, investments and restricted cash of
$9.8 million compared to $11.0 million at December 31, 2004. The decrease was primarily due to the
use of $800,000 in general operating activities and $8,000 used for capital expenditures. At March 31, 2005, restricted cash of $169,000 represents deposits against operating leases. 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 Page 11 of  22




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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. 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. Through
March 31, 2004, the Company had repurchased 100,000 shares of its outstanding common stock at an
average price of $1.28, pursuant to our stock repurchase program. The Company expects to have negative cash flows from operations through at least the fourth quarter
of 2005. On March 24, 2005 the Company filed a proxy statement asking stockholders of Argonaut
Technologies, Inc. at a special meeting to approve a sale of the assets of Argonauts chemistry
consumables business and certain assets related to the process chemistry business. If the asset
sale is completed, Argonaut will be paid $21.2 million in cash by Biotage AB, plus the assumption
of specified liabilities by Biotage AB. If the proposed sale to Biotage AB is completed as
anticipated, the Company intends to make an initial distribution of a portion of the net proceeds
following the close of the asset sale, the exact amount or timing of which has not been determined
but is expected to be approximately $0.70 per share. The Company currently intends to make the
initial distribution to its stockholders within 45 days after the closing of the asset sale. If the
proposed asset sale to Biotage AB is not completed as anticipated, the Company may also use cash
resources and/or raise additional funds to fund future strategic alternatives the Company may elect
to pursue. At March 31, 2005, there have not been any substantial changes to the Companys contractual cash
obligations from those reported at December 31, 2004. FACTORS THAT MAY AFFECT OUR FUTURE RESULTS We may sell substantially all of our assets and wind up our business. We have signed a definitive agreement with Biotage AB to purchase our chemistry consumables
business and certain assets related to the process research development business, which represents
substantially all of our assets. If our stockholders approve the sale and we sell the business, we
may wind up our affairs and continue to explore alternatives for the use of our remaining assets,
including a plan of liquidation and dissolution. 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 March 31, 2005, we had an accumulated deficit of $91.0 million and we recorded net losses of
$2.3 million for the three-month period ended March 31, 2005. We expect to continue to incur
operating and net losses during 2005 and we may never generate positive cash flows. 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. 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. 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. 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. We may be required to 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. Page 12 of  22




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If our products do not become widely used in the pharmaceutical, biotechnology, life sciences and
chemical industries, it is unlikely that we will ever become profitable. Pharmaceutical, biotechnology, life sciences and chemical organizations have historically performed
chemistry development using traditional laboratory methods. To date, our products have not been as
widely adopted by these industries as we had expected. The commercial success of our products will
depend upon the adoption of these products as a method to develop chemical compounds for these
industries. In order to be successful, our products must meet the performance and pricing
requirements for chemistry development within the pharmaceutical, biotechnology, life sciences and
chemical 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 numbers of our instruments, particularly new instruments such as
the Advantage Series 3400 process chemistry workstation.
    Convince prospective customers that our products and our ability to supply and support our
products are equivalent or better as compared to competitor companies. If we cannot achieve these objectives, our products will not gain market acceptance. 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, 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. During the first half of 2003, we launched a new product,
the Advantage Series(TM) 3400
workstation and in the first half of 2004, we launched the FlashMaster Personal+ system and the
Advantage Series 2410 personal screening synthesizer. Our ability to increase revenues in 2005 and
beyond is dependent on the success of these products. 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 instrument 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 instrument 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. The capital spending policies of pharmaceutical, biotechnology, life sciences and other chemical
research organizations have a significant effect on the demand for our instruments. We market our products to and receive our revenues principally from pharmaceutical, biotechnology,
life sciences and other chemical research organizations, and the capital spending policies of these
entities can have a significant effect on the demand for our instruments. 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 certain times significantly impacted their ability to raise capital,
which has directly affected their capital spending budgets. In addition, continued consolidation
within these industries 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. Page 13 of  22




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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 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 chemistry
instrumentation and consumables industry are in high demand and competition for their talents is
intense, although current economic conditions have moderated this demand and competition for
talent. 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 research collaborators. It may take significant
time to locate, retain and integrate qualified management personnel. 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:  
    pharmaceutical companies developing their own instruments;
    companies marketing products based upon parallel synthesis and other
non-traditional technologies, such as Mettler-Toledo AG and several
smaller instrument and reagent companies; and
    companies marketing conventional products based on traditional
chemistry methodologies, such as Biotage AB, and Isco, Inc. 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 will 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. We are exposed to the credit risk of some of our customers. Due to the prior slowdown in the economy, the credit risks relating to our customers 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. Because we outsource our instrument component, chemical intermediates and product manufacturing,
our ability to produce and supply our products could be impaired. We outsource most of the production of components of our instruments to vendors. We also outsource
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of our high volume chemical intermediates for our consumables products. 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 in
sufficient quantities and at acceptable costs would decline.
Additionally, certain components are provided by a single source. The effect of a disruption of
delivery of those single
source components could impact our ability to deliver product to our customers. We are exposed to fluctuations in the exchange rates of foreign currency and the US dollar. As a global concern, we face exposure to adverse movements in foreign currency and US dollar
exchange rates. During the first quarter of 2005, approximately 69% of our net sales were exposed
to foreign currency risk. During the same period, approximately 25% of our operating expenses were
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. We will monitor our
exposure and may hedge against this and any other emerging market currencies as necessary. 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. Our business is subject to the effects of general global economic conditions, and particularly
economic conditions in the United States and the United Kingdom. Specifically, our business is
subject to the effects of market conditions in the pharmaceutical, biotechnology, 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. 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 may 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 non-patented 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. Page 15 of  22




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There may not be an active, liquid trading market for our common stock. We are currently listed on the NASDAQ National Market. There is no guarantee that an active
trading market for our Common Stock will be maintained on the NASDAQ National Market. You may not
be able to sell your shares quickly or at the market price if trading in our stock is not active.
The Company has announced that it has filed an application to have its common stock traded on The
NASDAQ SmallCap Market. The transfer is expected to be effective following NASDAQs review of the
Companys application. If we fail to comply with the continued listing requirements of the NASDAQ
SmallCap Market, we may be de-listed from trading on such market, and thereafter trading in our
common stock, if any, would likely be conducted through the over-the-counter market or on the
Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. 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 2005 from a per-share
high of $0.96 to a low of $0.68 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 or 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;
    purchases 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. In addition, the stock market in general, and the NASDAQ Stock Markets National Market and
SmallCap Market and the market for 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 negatively
impact 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. Recently Enacted and Proposed Changes in Securities Laws and Regulations are Likely to Increase Our
Costs The Sarbanes-Oxley Act of 2002 that became law in July 2002 requires changes in some of our
corporate governance and securities disclosure or compliance practices. That Act also requires the
SEC to promulgate new rules on a variety of subjects, in addition to rule proposals already made,
and Nasdaq has proposed revisions to its requirements for companies that are Nasdaq-listed. We
expect these developments to increase our legal compliance costs, and to make some activities more
time-consuming. We are presently evaluating and monitoring regulatory developments and cannot
estimate the timing or magnitude of additional costs we may incur as a result. Legislative Actions, Potential New Accounting Pronouncements and Higher Compliance Costs are Likely
to Adversely Impact Our Future Financial Position and Results of Operations. Future changes in financial accounting standards, including the requirement to measure all
sock-based compensation awards using a fair value method and record such expense in the
consolidated financial statements, may cause adverse, unexpected earnings fluctuations and affect
our financial position and results of operations. New accounting pronouncements and varying
interpretations of such pronouncements have occurred with frequency in the recent past and may
occur in the future. In addition, we may make changes in our accounting policies in the future.
Compliance with changing regulation of corporate governance and public disclosure will also result
in additional expenses. Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Page 16 of  22




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National Market listing requirements, are creating uncertainty for companies such as ours and
compliance costs are increasing as a result of this uncertainty and other factors. We are committed
to maintaining high standards of corporate governance and public disclosure. As a result, we intend
to invest all reasonably necessary resources to comply with evolving standards, and this investment
will result in increased general and administrative expenses and may cause a diversion of
management time and attention from revenue-generating activities to compliance activities. Anti-takeover provisions in our charter, bylaws and Preferred Stock Rights Agreement and under
Delaware law could make a third-party acquisition of us difficult. Our certificate of incorporation, bylaws and Stockholder Rights Plan contain 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. The rights issued pursuant to our Preferred Stock Rights Agreement will become exercisable the
tenth day after a person or group announces acquisition of 10% or more of our common stock or
announces commencement of a tender or exchange offer the consummation of which would result in
ownership by the person or group of 10 % or more of our common stock. If the rights become
exercisable, the holders of the rights (other than the person acquiring 10 % or more of our
common stock) will be entitled to acquire, in exchange for the rights exercise price, shares of
our common stock or shares of any company in which we are merged, with a value equal to twice the
rights exercise price. FACTORS RELATED TO THE POTENTIAL SALE AND WINDING UP OF THE COMPANY We cannot assure you of the amount, if any, or timing of any distributions to our
stockholders. Although our board of directors has not established a firm timetable for distributions to
stockholders, our board of directors intends, subject to contingencies inherent in winding up our
business, to make distributions as promptly as practicable, including an initial distribution of a
portion of the net proceeds of the asset sale to Biotage AB within 45 days after the closing of the
asset sale. We intend that any distributions to the stockholders will be in the form of cash. Our
board of directors is, however, currently unable to predict the precise nature, amount or timing of
any distribution to stockholders. The actual nature, amount and timing of any distributions will be
determined by our board of directors (or possibly in the case of a plan complete liquidation and
dissolution, a trustee designated by our board of directors), in its sole discretion, and will
depend in part on, among other things, the final amount of the purchase price we receive from
Biotage AB in the asset sale, our ability to convert our remaining assets into cash and the amount
of our liabilities and obligations, including any amounts we may owe to Biotage AB pursuant to our
indemnification obligations under the purchase agreement. In lieu of satisfying all of our liabilities and obligations prior to making distributions to our
stockholders, we may instead reserve assets deemed by management and our board of directors to be
adequate to provide for those liabilities and obligations. Uncertainties as to the precise value of our non-cash assets and the ultimate amount of our
liabilities make it impracticable to predict the aggregate net value ultimately distributable to
stockholders. Claims, liabilities and expenses from operations (including operating costs,
salaries, income taxes, payroll and local taxes, legal, accounting and miscellaneous office
expenses), although declining, will continue to be incurred following stockholder approval of the
asset sale to Biotage AB. These expenses will reduce the amount of assets available for ultimate
distribution to stockholders, and, while a precise estimate of those expenses cannot currently be
made, management and the board of directors believe that available cash amounts received from the
sale of assets will be adequate to provide for our obligations, liabilities, expenses and claims
(including contingent liabilities) and to make cash distributions to stockholders. However, no
assurances can be given that available cash and amounts received on the sale of assets will be
adequate to provide for our obligations, liabilities, expenses and claims and to make cash
distributions to stockholders. If available cash and amounts received on the sale of assets are not
adequate to provide for our obligations, liabilities, expenses and claims, distributions of cash
and other assets to our stockholders will be reduced and could be eliminated. Further, we are currently unable to predict the precise timing of any distributions pursuant to our
wind up. The timing of any distribution will depend on and could be delayed by, among other things,
the timing of sales of our non-cash assets and claim settlements with creditors. Additionally, a
creditor could seek an injunction against the making of distributions to our stockholders on the
ground that the amounts to be distributed were needed to provide for the payment of our liabilities
and expenses. Any action of this type could delay or substantially diminish the amount available
for distribution to our stockholders. Page 17 of  22




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The announcement of our entry into a stock and asset purchase agreement with Biotage AB could have
a negative impact on our business. The announcement of our intent to sell our chemistry consumables business to Biotage AB may result
in adverse consequences to us, including causing our customers to stop purchasing from us or to
purchase less of our products due to uncertainties regarding the transaction and our future
operations. If this occurs, we would experience negative impacts on our
revenues and cash flows, which may reduce the assets available for ultimate distribution to our
stockholders in a liquidation and dissolution of our company. We will continue to incur claims, liabilities and expenses that will reduce the amount available
for distribution to stockholders. Claims, liabilities and expenses from operations (such as operating costs, salaries, directors and
officers insurance, payroll and local taxes and legal and accounting fees), including operation of
our process chemistry business, will continue to be incurred as we seek to close the asset to
Biotage AB and wind up operations. These expenses will reduce the amounts of assets available for
ultimate distribution to stockholders. Claims against the escrow account and any purchase price
reduction could reduce the amount available to us from the sale of our chemistry consumables
business. If available, cash and amounts received on the sale of non-cash assets are not adequate
to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute
meaningful cash, or any cash at all, to our stockholders. We will continue to incur the expenses of complying with public company reporting requirements. We have an obligation to continue to comply with the applicable reporting requirements of the
Securities Exchange Act of 1934, as amended, even though, compliance with the reporting
requirements is economically burdensome. If we pursue a plan of complete liquidation and dissolution, in order to curtail expenses, we
currently intend to seek relief from the Securities and Exchange Commission from the reporting
requirements under the Exchange Act after the filing of a certificate of dissolution. We anticipate
that in that event, if relief were granted, we would continue to file current reports on Report 8-K
to disclose material events relating to our liquidation and dissolution, along with any other
reports that the Securities and Exchange Commission might require. However, the Securities and
Exchange Commission may not grant relief. If we fail to retain the services of key personnel, the winding up of our business may not
succeed. The success of our winding up depends in large part on our ability to retain the services of
certain of our key personnel. The retention of key personnel is particularly difficult under our
current circumstances. Failure to retain these personnel could harm the implementation of our
winding up. If we fail to retain these personnel, we will need to hire others to oversee our
winding up, which could involve additional compensation expenses. Under their change of control severance agreements, Ms. Goldenstein and Messrs. Foster, Tredger and
Labadie have agreed to remain reasonably available to assist us in the transition for 90 days (180
days in the case of Ms. Goldenstein) after the asset sale to Biotage at the same base salary and
level of benefits in effect before the asset sale. However, those executives will be entitled to
their change of control benefits pursuant to their change of control severance agreements in any
case. 
 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, 2004 filed with the Securities and Exchange Commission on April 21, 2005. Page 18 of  22




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ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Our management, including our Chief Executive
Officer (CEO) and our Chief Financial Officer (CFO), are responsible for evaluating and
attesting as to the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form 10-Q as required by
Rule 13a-15 under the Securities Exchange Act of 1934. In connection with the audit of our
consolidated financial statements for the year ended December 31, 2004, our independent registered
public accounting firm, Ernst & Young LLP, reported to our audit committee the identification of a
material weakness (under the standards established by the Public Company Accounting Oversight
Board) in our internal controls. Based in part on that evaluation, our management, including the
CEO and CFO, concluded that as of March 31, 2005, our disclosure controls were not effective to
ensure that that information about us required to be disclosed by us were recorded, processed,
summarized and reported as required by applicable Securities and Exchange Commission rules and
forms. In performing the assessment management believes that many of the items cited in connection
with the material weakness determination were due to employee turnover in the US finance department
and the need for resources to be used for the pending sale of substantially all of the Companys
assets to Biotage AB. In response to the material weakness, we are taking a number of corrective
actions to insure that the financial information and other disclosures included in the Company
future reports are complete and accurate in all material respects. Those actions include increasing
internal review time and temporary staffing. Despite the deficiencies in our disclosure controls
noted above, management does not believe that there are any material inaccuracies or omissions of
material facts contained in this Quarterly Report on Form 10-Q. Changes in internal control over financial reporting. Other than as noted above, there have been no
significant changes in our internal controls over financial reporting during the period covered by
this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting during the fiscal quarter ended
March 31, 2005. 
 PART II. OTHER INFORMATION 
 ITEM 1: LEGAL PROCEEDINGS The Company is not currently involved in any material legal proceedings. 
 ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. 
 ITEM 3: DEFAULTS UPON SENIOR SECURITIES None. 
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 ITEM 5: OTHER INFORMATION None. Page 19 of  22




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ITEM 6: EXHIBITS (a) Exhibits. The following exhibits have been filed with this report. Number
    
    Description of Document2.1(b)
    
    Agreement and Plan of Merger dated January 31, 2001, by and among the Registrant, CPL Acquisition
Corp. and Camile Products, LLC.2.2(c)
    
    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(a)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(d)
    
    Amended and Restated Bylaws of Registrant.4.3(b)
    
    Registration Rights Agreement dated March 1, 2001, by and among the Registrant and the members of
Camile Products, LLC.4.4(c)
    
    Registration Rights Agreement dated February 20, 2002, by and among the Registrant and the former
Jones Group shareholders.4.5(c)
    
    £7,650,000 Loan Note Instrument Creating Principal Amount Guaranteed Loan Notes 2004 guaranteed by
Barclays Bank PLC dated February 20, 2002.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(a)
    
    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.(b)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
March 16, 2001.(c)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
March 6, 2002.(d)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
May 14, 2003.
 Page 20 of  22




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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:  May 12, 2005
    ARGONAUT TECHNOLOGIES, INC.By:
    /s/ LISSA A. GOLDENSTEINLissa A. GoldensteinPresident and Chief Executive Officer By:
    /s/ DAVID J. FOSTERDavid J. FosterSr. Vice President and Chief Financial Officer Page 21 of  22




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##### Table of Contents



ARGONAUT TECHNOLOGIES, INC.
FORM 10-Q
Quarterly Period Ended March 31, 2005 
 EXHIBIT INDEX Number
    
    Description of Document2.1(b)
    
    Agreement and Plan of Merger dated January 31, 2001, by and among the Registrant, CPL Acquisition
Corp. and Camile Products, LLC.2.2(c)
    
    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(a)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(d)
    
    Amended and Restated Bylaws of Registrant.4.3(b)
    
    Registration Rights Agreement dated March 1, 2001, by and among the Registrant and the members of
Camile Products, LLC.4.4(c)
    
    Registration Rights Agreement dated February 20, 2002, by and among the Registrant and the former
Jones Group shareholders.4.5(c)
    
    £7,650,000 Loan Note Instrument Creating Principal Amount Guaranteed Loan Notes 2004 guaranteed by
Barclays Bank PLC dated February 20, 2002.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(a)
    
    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.(b)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
March 16, 2001(c)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
March 6, 2002.(d)
    
    Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on
May 14, 2003.