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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

                    ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                            ------------------------

(MARK ONE)

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

                      FOR THE YEAR ENDED DECEMBER 31, 2000

                                       OR

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

                       COMMISSION FILE NUMBER: 000-31019

                          ARGONAUT TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------

<TABLE>
<S>                                           <C>
                  DELAWARE                                     94-3216714
       (STATE OR OTHER JURISDICTION OF                      (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NUMBER)
</TABLE>

                          887 INDUSTRIAL ROAD, SUITE G
                              SAN CARLOS, CA 94070
                                 (650) 598-1350
 (ADDRESS, INCLUDING ZIP CODE, OR REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND
                     TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
                               $0.0001 PAR VALUE

     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 [ ]

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

     The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $33,248,000 as of February 28, 2001, based upon the
closing price on the Nasdaq National Market reported for such date. This
calculation does not reflect a determination that certain persons are affiliates
of the Registrant for any other purpose. The number of shares outstanding of the
Registrant's common stock on February 28, 2001 was 18,382,013 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Stockholders (the "Proxy Statement"), to be filed with the Securities and
Exchange Commission, are incorporated by reference to Part III of this Form 10-K
Report.

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                          ARGONAUT TECHNOLOGIES, INC.

                                   FORM 10-K

                                     INDEX

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
                                   PART I
Item 1.    Business....................................................     1
Item 2.    Properties..................................................    14
Item 3.    Legal Proceedings...........................................    14
Item 4.    Submission of Matters to a Vote of Security Holders.........    14

                                   PART II
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters.........................................    15
Item 6.    Selected Financial Data.....................................    16
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................    17
Item 7A.   Quantitative and Qualitative Disclosures About Market
           Risk........................................................    20
Item 8.    Financial Statements and Supplementary Data.................    28
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure....................................    47

                                  PART III
Item 10.   Directors and Executive Officers of the Registrant..........    47
Item 11.   Executive Compensation......................................    47
Item 12.   Security Ownership of Certain Beneficial Owners and
           Management..................................................    47
Item 13.   Certain Relationships and Related Transactions..............    47

                                   PART IV
Item 14.   Exhibits, Financial Statements, Schedule, and Reports on
           Form 8-K....................................................    48
SIGNATURES.............................................................    49
</TABLE>

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                                     PART I

     The statements contained in this Form 10-K that are not purely historical
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding sales of our Endeavor
product, our future profitability and the future profitability of our recently
acquired subsidiary, projected operating results for 2001, and all similar
statements regarding our expectations, hopes, beliefs, commitments, intentions
and strategies for the future. Forward looking statements include, but are not
limited to, statements contained in "Item 1. Business," and "Item 7.
Managements's Discussion and Analysis of Financial Condition and Results of
Operations." Actual results could differ from those projected in any
forward-looking statements for the reasons, among others, detailed in "Risk
Factors." The fact that some of the risk factors may be the same or similar to
our past filings means only that the risks are present in multiple periods. We
believe that many of the risks detailed here are part of doing business in the
industry in which we compete and will likely be present in all periods reported.
The fact that certain risks are characteristic to the industry does not lessen
the significance of the risk. The forward-looking statements are made as of the
date of this Form 10-K and we assume no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from those
projected in the forward-looking statements.

ITEM 1. BUSINESS

OVERVIEW

     Argonaut Technologies, Inc. was incorporated in the state of Delaware on
November 10, 1994. We are a pioneer in the development of innovative products
that help chemists engaged in the discovery and development of new molecules
increase their productivity and reduce their operating costs without
compromising the scientific integrity of their research. Pharmaceutical and
chemical industry organizations worldwide have implemented our solutions to
achieve faster time to market for new products. Many companies are seeking
innovative and cost-effective tools and technologies for exploring the
increasing number of targets for the development of new drugs. Our instruments
enable parallel synthesis and automate many of the most labor-intensive steps of
chemistry development. Through automation, chemists are able to perform multiple
experiments under a variety of conditions in a fraction of the time it would
take to perform the same experiments using traditional chemistry development
methods. We believe that our products enable companies to develop new drugs in a
faster and more productive and cost-effective manner than traditional chemistry
development methods, allowing companies to capitalize on the wealth of potential
new drug targets being generated by the drug discovery process. We began
marketing our first product in 1996. Currently, we market eight instruments and
more than 40 reagents. Through December 31, 2000, we have sold our products to
more than 825 customers in the pharmaceutical, biotechnology, life sciences and
chemical research industries and have placed more than 1,100 instruments
worldwide. In March 2001, we completed the strategic acquisition of Camile
Products LLC, or Camile, a software and instrument products company in
Indianapolis, IN. The acquisition of Camile expands our product offering to the
later stages of drug development and, importantly, provides a software platform
for our instrument systems.

INDUSTRY

BACKGROUND

     The life sciences research industry is undergoing fundamental change,
resulting principally from the explosive growth in gene discovery and the
increasing demand for greater efficiency in the drug discovery and development
process. Battelle Memorial Institute in Columbus, Ohio estimated that in the
year 2000 the life sciences research industry would spend more than $47 billion
in the United States on drug discovery research and development. Advances in
genomics, combinatorial chemistry and high throughput screening have
significantly enhanced the discovery process. Science publication estimated that
sequencing of the human genome will provide an estimated 5,000 to 10,000
relevant new drug targets over the next ten years, compared to the approximately
500 targets that have been explored thus far. Chemists have been able to make
these advances in drug discovery by using new tools that simplify, automate and
accelerate the drug discovery process. Chemists are discovering a large number
of new drug candidates that are ready for the drug

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development process through widespread use of these tools. However, the
pharmaceutical industry does not have sufficient tools and resources to fully
exploit the opportunities presented by advances in drug discovery due to the
technological limitations of traditional drug development, or chemistry
development.

DRUG DISCOVERY AND DEVELOPMENT

     Although the drug discovery and development process involves a number of
steps, it can best be understood in the context of two phases:

     - Discovery Phase. Discovery is the process by which chemists develop drug
       targets identified through biology, including genomics and proteomics,
       the study of protein function, into biological screens. Then, chemists
       test the millions of compounds produced by combinatorial chemistry using
       high throughput biological screens to identify possible drug candidates.

     - Development Phase. Chemists optimize the pharmacological, pharmacokinetic
       and safety properties of a drug for human testing and approval during the
       development phase. Pharmacological properties are the measure of a drug's
       potency with respect to a specific drug target. The pharmacokinetic
       properties of a drug are the extent to which the drug remains available
       in the body for interaction with the target. Safety is a measure of a
       drug's toxicity to humans. The development phase can be further broken
       down into three stages:

      - Lead Optimization. Chemists evaluate the hundreds of drug candidates
        that may emerge from the discovery phase using a process called lead
        optimization. Chemists perform successive rounds of chemical syntheses
        to create numerous variants of the drug candidates to find compounds
        likely to have appropriate drug properties. Chemists then optimize the
        compounds for their biological potency, thus creating lead compounds.

      - Pre-Clinical Development. Chemists further refine a limited number of
        lead compounds into clinical drug candidates by applying additional
        chemistry methodologies in the pre-clinical development process. During
        this process, chemists make relatively small changes to the compounds in
        order to optimize their safety and pharmacokinetic properties.

      - Clinical Development. Chemists test clinical candidates in humans to
        demonstrate their safety and effectiveness, or efficacy during the
        clinical development process. The successful outcome of clinical trials
        may result in regulatory approval to commercialize the new drug product.
        During this time period, chemists optimize the method of compound
        synthesis prior to commencement of large scale manufacturing of the
        drug. By optimizing the method of compound synthesis, chemists select
        the best method of compound synthesis to reduce the cost of synthesis
        which includes a reduction in by products of the synthesis.

     The following figure illustrates the drug discovery and development
timeline:

                               [TIMELINE GRAPHIC]

TRADITIONAL CHEMISTRY METHODS FOR DRUG DEVELOPMENT

     Chemists typically employ traditional methods in their drug development
efforts. Utilizing traditional methods of chemical synthesis, a chemist performs
a series of chemical reactions, or transformations, until the desired compound
is obtained. Chemists generally achieve each synthetic transformation in a
four-part process:

  Set-up and Execution of Reaction

     Chemists build a reaction apparatus as the first step in chemical
synthesis. Chemists often construct the apparatus using a variety of traditional
laboratory components depending on the type of chemistry they are performing.
Chemists use the apparatus to combine chemicals, reagents and solutions, which
the chemist will often heat or cool to specified temperatures under air and
moisture-free, or inert, conditions. The chemist then

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monitors reactions over time to determine reaction progress. In chemistry
development, the assembly of a specific apparatus and the periodic addition of
chemicals can often be very complicated and time-consuming depending on the
complexity of the desired reaction. In addition, although some reactions occur
very quickly, others can take hours, or even days to complete, and involve
frequent monitoring.

  Product Work-up

     Chemists perform a product work-up as the second step in chemical
synthesis. Once the chemist determines that a reaction has proceeded to
completion, the chemist subjects the reaction mixture to an extensive reaction
work-up. During the work-up the chemist stops the reaction and carries out an
initial cleanup of the reaction mixture prior to purification. The chemist
performs a series of washes with a variety of solvents, a drying process and a
filtration process during the work-up. The chemist usually takes several hours
to complete this labor-intensive work-up process.

  Product Purification

     Chemists perform product purification as the third step in chemical
synthesis. During this step, the chemist isolates the desired product from its
starting materials and various byproducts. Product purification is an integral
step in chemical synthesis due to the fact that impurities may interfere in the
next chemical transformation or mask a drug's potency and toxicity. Chemists
typically utilize large volumes of different solvents during the purification
process. This step often takes the chemists days to complete.

  Product Analysis

     Chemists perform product analysis as the final step in chemical synthesis.
In this step, the chemist confirms that the desired drug has been synthesized
and isolated before continuing on in the synthetic pathway or submitting the
compound for biological testing. Analysis requires a large amount of data
collection and is labor-intensive. Chemists must repeat this laborious,
four-step process until the desired compound is obtained. The synthesis of a
particular compound could take months and even years to complete before
researchers can determine whether the compound has the desired drug properties.

LIMITATIONS OF EXISTING DRUG DEVELOPMENT TECHNOLOGIES

     Traditional chemistry development methods have the following limitations:

     - Limited Productivity. Traditional methods are time consuming, inefficient
       and labor-intensive. Stu Borman of Chemical and Engineering News
       estimates that chemists currently synthesize an average of 100 compounds
       per year. Since it is not economically feasible for pharmaceutical
       companies to increase chemistry headcount to the extent necessary to take
       advantage of the thousands of expected drug targets, we believe that
       throughput in the development phase must increase dramatically.

     - Long Drug Development Timelines. Traditional methods require chemists to
       synthesize compounds one at a time in an inefficient, sequential process.
       This results in long drug development timelines, which delay product
       commercialization and reduce the commercial value of the exclusivity
       period provided by patent protection.

     - High Cost. Traditional methods are expensive due to the time and labor
       required of a chemist to produce a single compound. In addition,
       companies utilizing the traditional methods incur the costs associated
       with the high volumes of solvents and chemicals utilized and the expense
       associated with their disposal.

     - High Drug Candidate Failures. Traditional methods limit the number of
       compounds synthesized, which can lead to companies or chemists selecting
       sub-optimal drug candidates, often resulting in drug candidate failures.
       These failures greatly increase the average length of time and cost
       required to bring a specific drug to market. If a drug candidate fails
       during clinical trials, a company must incur the time and expense of
       repeating all of the development steps or face abandoning the project
       altogether. The

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       cost of a failed candidate increases significantly as it progresses to
       later stages of the development process.

     - Lack of Flexibility. To date, chemists have lacked flexible tools and
       systems to easily perform the wide variety of complex experiments
       required for chemistry development. Instead, chemists have had to
       repeatedly assemble various components into complicated systems.

     - Difficult to Use. The steps required for a chemist to put together an
       apparatus and perform the reaction, work-up, purification and data
       analysis are difficult to execute. Therefore, many of these complex
       chemistries require skilled chemists with many years of training.

     These limitations restrict the ability of pharmaceutical and life sciences
companies to fully capitalize on the large number of new drug candidates
resulting from the significant technical advances in drug discovery. In order to
take advantage of these advances, we believe that pharmaceutical and life
sciences companies will need to increase productivity, shorten the drug
development process and reduce costs. We believe that these objectives will be
achieved through advances and innovations in chemistry development technologies
and tools.

THE ARGONAUT SOLUTION

     We design, manufacture and market instruments and reagents that increase
the productivity of chemists, thereby accelerating the drug development process.
Our products enable chemists to rapidly synthesize a wide range of compounds at
a reduced cost. We design and develop products using extensive customer
assessment, validation and testing. We intend to promote our products as the
laboratory standard for chemists and the industry standard for companies seeking
more efficient methods of addressing their increasing drug development needs. We
believe our technology provides the following key benefits over current
chemistry development methods:

  Increased Productivity

     We design our systems to simultaneously synthesize many distinct compounds
by automating many of the labor-intensive aspects of the experiments. Using our
systems, chemists save significant time and effort while performing a greater
number of experiments. Chemists can create approximately 100 compounds per year
using the traditional approach of performing one reaction at a time. The same
chemist can create up to 192 compounds per day, using our products.

  Reduced Drug Development Timelines

     Through parallel synthesis and automation, our products enable chemists to
optimize drug candidates faster by producing a significantly larger number of
compounds in less time than traditional methods. By simultaneously producing
numerous variants of drug candidates, our tools provide more comprehensive
information for the management by chemists of drug development projects. Our
customers can identify and accelerate the development of promising drug
candidates through the use of improved data, thus significantly reducing drug
development timelines.

  Reduced Costs

     Chemists are able to generate significant cost savings using our products
by reducing labor hours and solvent usage in the drug development process. We
believe that reactions performed in our systems versus those performed using
traditional methods could result in significant cost savings per compound. In
addition, by synthesizing more drug candidates, our products provide greater
amounts of information and enable companies to abandon poor drug candidates
sooner; thereby eliminating the costs associated with later stage drug failures.

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  Improved Intellectual Property Positions

     Chemists can significantly increase the number of chemical compounds
synthesized by using our tools. As a result, pharmaceutical companies may be
able to improve their patent and intellectual property positions by submitting
more detailed claims with their patent applications covering a wider variety of
compounds.

  Flexibility

     Our products are flexible and chemists can perform a wide range of chemical
reactions, from simple reactions to complex, multi-step reactions that require
inert environments using our tools. As a result, chemists are able to more
easily perform complex and difficult reactions, thereby encouraging innovation
on the part of chemists.

  Ease of Use

     Our systems are designed to make the labor-intensive steps of performing
the reaction, work-up, purification and data analysis faster and easier for
chemists, and can be operated by chemists with minimal training.

OUR STRATEGY

     Our objective is to become the leading provider of productivity enhancing
tools for all stages of the chemistry development process. In order to achieve
this goal, we have implemented the following strategy:

  Focus Initially on Industry Leaders within the Pharmaceutical Market

     We are initially focusing on the large and fast-growing sector of drug
development within the pharmaceutical market. We have targeted leading
pharmaceutical, biotechnology and life sciences companies as well as academic
institutions for our principal marketing efforts. We believe that these
customers provide the greatest opportunity for maximizing the use of our
products and that early adoption by these industry leaders and academic
institutions will promote wider market acceptance.

  Expand Our High-Value Reagent Business

     In addition to our instruments, we develop, manufacture and market reagents
and other consumables for our products. We plan to continue to leverage our
installed base of instrument products through the sale of reagents and other
consumables to our existing customers as well as new customers. We intend to
expand our reagent business by offering additional reagent products.

  Continue to Establish Product Development Collaborations

     We are continuing to pursue collaborations with pharmaceutical and
biotechnology companies in order to further develop and enhance our existing
technology platforms and products, as well as develop new products. For each of
our instruments released to date, we formed a consortium or collaboration with
industry leaders to define product requirements and to perform validation and
testing. We intend to follow this model in order to enhance market acceptance of
our current and future products. In addition, we intend to selectively
in-license and commercialize technology that can enhance our total product
portfolio.

  Build Global Customer Relationships Through Direct Sales

     Our marketing approach is based on a thorough understanding of our
customers' specific chemistry needs, which we develop through the close
interaction of our direct sales and applications support personnel with our
customers. We intend to continue to expand our 53 person direct sales and
applications support organization to build long-term relationships with existing
customers, gain access to new accounts and expand into new geographic
territories.

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  Acquire Complementary Businesses

     We intend to pursue opportunities to expand our core business by acquiring
businesses that have technologies or capabilities complementary to ours. In
March, 2001, we completed the acquisition of Camile, a software and instrument
product company, We may acquire additional software development expertise to
capitalize on the chemistry data flow generated by our products. In addition, we
intend to explore our options regarding acquiring distribution channels in
specific geographic regions to speed our market penetration.

  Expand into New Markets

     We believe that our existing technologies and products can be leveraged
into additional markets. Our capabilities enable us to address the needs of a
wide range of chemistries. As the use of productivity tools in drug development
becomes more visible, related industries are beginning to investigate these
tools. Other potential markets include cosmetics, catalysts, and high-margin
specialty chemicals.

PRODUCTS

     Our products include instruments, reagents and instrument related
consumables.

<TABLE>
<CAPTION>
                                                                                              INITIAL
                                      PRIMARY                       PRIMARY DRUG             COMMERCIAL
         PRODUCT                    APPLICATION                   DEVELOPMENT PHASE           SHIPMENT
         -------           -----------------------------   -------------------------------   ----------
<S>                        <C>                             <C>                               <C>
INSTRUMENTS
Trident Product Line
  Trident Library
  Synthesizer............  Automated parallel library      Lead optimization                    1998
                           synthesis
  Trident
  Workstation............  Semi-automated benchtop         Lead optimization                    1999
                           parallel synthesis
  Trident Sample
  Processing Station.....  Automated parallel work-up      Lead optimization                    2000
                           and purification
Quest Product Line
  Quest 210..............  Small scale, semi-automated     Pre-clinical development             1997
                           parallel synthesis, work-up
                           and purification
  Quest 205..............  Large Scale, semi-automated     Pre-clinical development             1998
                           parallel synthesis, work-up
                           and purification
  FirstMate..............  Entry-level, manual parallel    Lead optimization, pre-clinical      1999
                           synthesis                       and clinical
Surveyor.................  Automated parallel chemistry    Clinical development                 2000
                           optimization, screening and
                           analysis
Endeavor.................  Semi-automated catalyst         Clinical development                 2000
                           screening system
REAGENTS
ArgoGel..................  Compound synthesis              Lead optimization                    1996
ArgoPore.................  Compound synthesis              Lead optimization                    1997
Polystyrene..............  Compound synthesis              Lead optimization                    1998
Polymer Reagents.........  Compound synthesis, work-up     Pre-clinical development             1998
                           and purification
Polymer Scavengers.......  Compound synthesis, work-up     Pre-clinical development             1998
                           and purification
</TABLE>

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INSTRUMENTS

     We address the broad range of chemistries required in all three stages of
the drug development phase with our current instrument product offerings. We
have designed each of our instrument products for a specific stage of
development, although chemists often purchase our instruments to perform
chemistry activities in stages other than those for which they were initially
designed.

  Trident Product Line

     Chemistry groups purchase our Trident products to perform lead
optimization. These chemists synthesize libraries of between one thousand and
two thousand compounds that are closely related to a drug candidate identified
in the discovery process. Chemists traditionally have had more difficulty
performing chemistry methodologies in lead optimization than in the drug
discovery phase, as they require more inert synthesis conditions. The
traditional automation tools developed for use in the drug discovery phase for
combinatorial synthesis are not capable of meeting the requirements of chemists
performing lead optimization. To enable the Trident to meet the specific needs
of lead optimization, we formed a product development consortium compromised of
eight pharmaceutical companies. As a result of this consortium, we developed
three instrument modules, the Trident Library Synthesizer, the Trident
Workstation and the Trident Sample Processing Station, the first of which we
initially commercialized in 1998. All Trident products utilize our proprietary
Reaction Cassette, which enables the automation and manual manipulation of
multi-step inert chemistry methodologies.

  Trident Library Synthesizer

     The Trident Library Synthesizer is a fully automated synthesizer that
chemists can use to produce up to 192 individual compounds simultaneously. The
Trident Library Synthesizer integrates up to four Reaction Cassettes with
motors, heaters and liquid dispensers, or fluidics, and software on a WindowsNT
computer. Since its initial commercial shipment in 1998, we have updated the
system periodically to broaden its range of chemistry capabilities. In our most
recent improvement, we enhanced the system with the capability of performing
four independent chemistries, one in each of the four Reaction Cassettes, which
allows four chemists to use the instrument simultaneously.

  Trident Workstation

     The Trident Workstation is a scalable, semi-automated personal bench-top
system that utilizes a single Reaction Cassette. The Trident workstation is well
suited for the development by chemists of new chemistry methodologies, which is
the most critical path used by chemists in producing lead optimization
libraries. Using the Trident Workstation, our customers can develop and validate
methodologies in the Reaction Cassette prior to performing them on the Trident
Library Synthesizer.

  Trident Sample Processing Station

     The Trident Sample Processing Station is an automated robotic platform that
utilizes the Reaction Cassette to perform work-up and purification. Often these
methodologies do not require an inert or temperature controlled environment and
therefore are more efficiently performed by chemists on a different instrument.
Some of our customers have purchased the Trident Sample Processing Station and
the Trident Workstation as an entry-level system to provide their chemists with
a cost effective solution for lead optimization.

  Quest Product Line

     Our customers purchase our Quest products primarily for pre-clinical
applications, where their goal is to refine drug candidates identified during
lead optimization. Chemists refine lead compounds by synthesizing a small
library, typically consisting of between ten and 20 compounds, testing the
compounds for drug characteristics, and based upon the tests, synthesizing
another library of compounds to start the next iteration. The Quest product line
provides a personal synthesis tool that chemists can use to perform a broad
range of
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chemistry methodologies, reduces the amount of laboratory space required, and is
cost effective for use by most pre-clinical groups. The Quest product line is
comprised of the Quest 210, Quest 205 and FirstMate, all of which use our
proprietary vertical mixing system. Chemists can use vertical mixing to
efficiently mix reaction solutions by moving a Teflon encapsulated magnet
vertically through a solution. This mixing method offers chemists several
benefits over the traditional means of spinning a magnet in mixtures: it can mix
a broader range of viscosities and more readily mix solid reagents that must be
suspended in order for the reactions to occur. To enable the Quest 210 to meet
the specific needs of pre-clinical development, we developed it as part of a
collaboration. We initially shipped the Quest 210 in 1997. In addition, we
developed the Quest 205 as part of a consortium. We initially shipped the Quest
205 in 1998.

  Quest 210 and Quest 205

     The Quest 210 and Quest 205 are similar systems that utilize our unique
Teflon reactor, which provides an inert reactor environment that allows chemist
to view the reaction mixtures. Each system has automated heating, cooling,
mixing and fluidics. The two systems differ by the number and volume of the
reactors; the Quest 210 has 20 ten-milliliter reactors and the Quest 205 has ten
100-milliliter reactors.

  FirstMate

     Our most recent addition to the Quest product line is the FirstMate, which
we initially shipped in 1999. FirstMate is an entry-level, manual parallel
synthesizer, which utilizes existing laboratory equipment and glassware.
Chemists use the FirstMate for all three stages of drug development. We
developed the FirstMate for those chemists and academicians who desire a
low-cost, entry-level system.

  Surveyor and Endeavor

     The Surveyor and Endeavor are instruments we developed specifically for
synthesis requirements in clinical development, where the chemists' goal is to
maximize yield and purity prior to commencement of large scale manufacturing.
This activity is called process optimization and is a form of parallel
synthesis. Process optimization involves the chemist making the same compound in
an iterative manner by varying the synthesis conditions such as the reactants
and/or temperature, and allowing periodic sampling and analysis of the mixture
for yield and purity.

  Surveyor

     The Surveyor is a fully automated ten-reactor synthesizer that allows the
chemist to vary the synthesis conditions in each reactor. In addition, the
Surveyor automates the tedious activity of mixture sampling and analysis. The
Surveyor utilizes the Quest Teflon reactor and vertical mixing system and the
Trident software. We developed the Surveyor as part of a consortium of five
pharmaceutical companies, in order to meet the needs of clinical development. We
initially shipped the Surveyor in 2000.

  Endeavor

     The Endeavor is a semi-automated, parallel, catalyst screening system
designed for reactions requiring greater than standard atmospheric pressures and
gas-phase reagents, such as hydrogen. With the Endeavor, a chemist can perform
eight simultaneous reactions. We initially shipped the Endeavor in 2000.

REAGENTS

     Our reagents are used by chemists to perform a broad range of chemistries
in lead optimization and pre-clinical development and can be used in conjunction
with our instruments or independently. The primary benefit of our reagents is
that they allow chemists to perform easy work-up and purification of the
reaction mixture to obtain the desired compounds by a simple filtration process.
Chemists can automate the filtration process using our instruments and therefore
achieve higher productivity by reducing the time spent manually processing
reaction mixtures.

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  ArgoGel, ArgoPore and Polystyrene

     Chemists typically use our ArgoGel, ArgoPore and polystyrene reagent
products to perform lead optimization. To overcome the limitation of traditional
reagents, we initially formed a product development consortium consisting of
four pharmaceutical companies, Abbott Laboratories, Bristol-Myers Squibb, Merck
and Novartis Pharmaceuticals. We have developed additional products through
collaborations with Pharmacia, Parke-Davis and Stanford University. We currently
offer nine distinct products in each of the ArgoGel and ArgoPore product lines
and eleven polystyrene reagent products. We shipped our first reagent products
in 1996.

  Polymer Reagents, Polymer Scavengers and Solution Phase Toolbox

     Chemists primarily use our Polymer Reagents and Polymer Scavengers products
during pre-clinical development. These chemists synthesize much smaller numbers
of compounds than chemists synthesize during lead optimization and these
chemists are more likely to use traditional synthesis methods. Both the Polymer
Reagents and Polymer Scavengers are new technologies that allow chemists to
accelerate the synthesis, work-up and purification of traditional synthesis
methods. We tailor our polymer reagents to permit chemists to perform a wide
variety of important synthetic reactions. The Solution Phase Toolbox is a series
of prepackaged polymers that are used by chemists performing traditional
work-ups and purification processes. We currently offer ten distinct Polymer
Reagents and nine distinct Polymer Scavengers products. We shipped the first of
these products in 1998 and continue to expand the product line with new
introductions.

PRODUCT DEVELOPMENT STRATEGY

     Our product development strategy is to combine our expertise in chemistry
and engineering with an understanding of market needs to rapidly design and
launch products that fulfill these needs. We have a track record of quickly and
effectively developing solutions to our customer's problems. We took fewer than
12 months to develop our last two instruments, from design initiation to
delivery of the first commercial shipment.

     To understand market needs, we form product development teams with our
customers. Through this process, we have developed innovative products that have
had extensive customer input, validation and testing prior to our commercially
introducing them. We have formed product development consortia and
collaborations with our customers.

     Our consortia are non-exclusive arrangements in which we bring together
several companies, typically five to seven, who share the need to solve a common
problem. We meet with consortium members on a regular basis during the product
development period to review product definition, specifications, progress,
validation and testing. We may give consortium members prototypes for use in
their research programs and we incorporate their feedback into the final
product. Members typically pay a non-refundable participation fee, which may be
credited against future purchases of the product we develop. By participating in
our consortia, and becoming familiar with the performance and operating
characteristics of the product, members can achieve a nine-month to one-year
competitive advantage in using the new technology we develop. Consortium members
often become the initial references during the product development phase and
initial customers upon our commercialization of the product. We have used the
consortium approach to develop the Trident, Quest, Surveyor and reagent
products.

     Through our collaborations, we in-license technology that we believe has
significant potential for commercialization. Typically, our partner will have
developed and tested a concept to the prototype level. We further develop and
enhance the prototype into a commercially viable product. Our contributions
include design for manufacturing, cost reduction, safety and code compliance and
ease of use issues. Our partner is able to purchase the final product at a
substantial discount and may receive royalties on product sales.

     In June 1997, we entered into an exclusive five year License and Supply
Agreement with Merck & Co., Inc. related to the technology used in our Quest
product. At the end of the five years, the technology is ours with no future
obligations to Merck. In exchange for the right to this technology, we have
granted Merck

                                        9
<PAGE>   12

substantial discounts on Quest and Quest related products. We used this approach
with the Endeavor product, which we developed in collaboration with Symyx. In
August 1999, we entered a license and supply agreement with Symyx Technologies
related to technology used in the Endeavor product. Symyx earns a royalty when
Endeavor product revenue is recognized. Either party may terminate the agreement
upon six months prior notice at any time after December 31, 2000. Through
December 2000, Symyx earned approximately $353,000 in royalties and was given an
Endeavor Instrument pursuant to the terms of the agreement.

     In addition, we entered into a Research Collaboration Agreement with the
University College London in September 1999. The term of this agreement is two
years, and is cancelable by either party upon written notice. Pursuant to this
agreement, we loaned a Trident Library Synthesizer to the University College
London and we support a full time staff member at the University in return for
access to published data and visitation rights at the site. We expect the
support of the staff member and related costs to total approximately $200,000
during the term of the agreement.

     The following table lists our product development consortia and
collaborations:
<TABLE>
<CAPTION>
         TRIDENT                     QUEST                    SURVEYOR                   ENDEAVOR
         -------                     -----                    --------                   --------
<S>                        <C>                        <C>                        <C>
Abbott Laboratories, Inc.  Abbott Laboratories, Inc.  Aventis S.A.               Symyx Technologies, Inc.
Ariad Pharmaceuticals,
  Inc.                     Affymax Research           Agouron Pharmaceuticals,
                           Institute                  Inc.
Astra Zeneca
  International            Alanex Corporation         Eli Lilly & Co.
                           Research Divisions
Aventis, S.A.              Aventis, S.A.              Rohm & Haas Co.
E.I. duPont de
  Nemours & Co.            Merck & Co., Inc.          Pfizer, Inc.
Genetics Institute, Inc.
Merck & Co., Inc.
Merck KgAA

<CAPTION>
         TRIDENT                   REAGENTS
         -------                   --------
<S>                        <C>
Abbott Laboratories, Inc.  Abbott Laboratories, Inc.
Ariad Pharmaceuticals,
  Inc.                     Bristol-Myers Squibb Co.
Astra Zeneca
  International            Merck & Co., Inc.
Aventis, S.A.              Pharmacia Corporation
E.I. duPont de
  Nemours & Co.            Novartis Pharmaceutical,
                           Inc.
Genetics Institute, Inc.   Parke-Davis, Division of
                           Warner-Lambert
                           & Co.
Merck & Co., Inc.          Stanford University
Merck KgAA
</TABLE>

CUSTOMERS

     Our customers consist of a broad range of companies in the pharmaceutical,
life sciences and biotechnology industries, as well as academic institutions.
Through December 31, 2000, we have sold our products to more than 825 customers
and, we have placed more than 1,100 instruments worldwide. Our leading customers
include:

<TABLE>
<S>                             <C>                             <C>
Abbott Laboratories, Inc.       E.I. duPont de Nemours & Co.    Pfizer Inc.
Affymax Research Institute      Eli Lilly & Company             Pharmacia Corporation
Agouron                         Glaxo Wellcome plc              Pharmacopeia, Inc.
Amgen                           Merck & Company, Inc.           Proctor & Gamble
Astrazeneca International       Monsanto Company                Smith Kline Beecham
Aventis S.A.                    Novartis International
Boehringer Ingelheim
Pharmaceuticals, Inc.
</TABLE>

     No single customer accounted for more than 10% of our revenue during fiscal
year 2000.

SALES AND MARKETING

     We base our sales strategy on understanding our customers' needs,
recommending solutions and ensuring successful implementation of that solution
in our customers' research laboratories. Our approach is designed to achieve
customer satisfaction and build a long-term working relationship with our
customer.

     As of December 31, 2000, our direct sales and marketing organization
included 53 full-time employees located in North America, Europe and Japan. Our
team of professionals is comprised of senior account-oriented sales people,
application chemists, service engineers, telesales people and marketing
specialists who sell directly to our customers worldwide. We have 19 direct
sales professionals with an average of 12 years of experience in selling high
technology products to the scientific industry. In addition to their academic
expertise, the industrial laboratory experience of our sales professionals is
essential to their ability to

                                        10
<PAGE>   13

understand our customers' needs. We had application chemists and service
engineers with expertise in both chemistry and engineering to support our
customers worldwide. We had professional marketing communication specialists
located in the United States, Europe and Japan dedicated to providing local
marketing programs. In North America we had telesales personnel to support the
direct sales efforts by providing lead generation, lead qualification, and
consumable product sales and service sales.

     We use distributors to provide local sales and marketing in some foreign
countries, including China, Australia, Korea, Eastern Europe, Finland, Sweden,
Denmark, Italy and Spain. In these countries, we seek to maintain close contact
with our customers and potential customers by providing application chemistry
support and service support through our worldwide direct sales organization. We
have developed both scientific seminars and technology transfer programs to
educate and train our customers. We conduct on-site seminars in the use of our
chemistry reagents, referencing important scientific publications and research
that validate their successful usage. Typically 20 to 40 researchers at a given
customer site will participate in this type of scientific seminar.

     In addition to seminars, we have developed our "Advanced Implementation
Program," a technology implementation program, designed to accelerate the
adoption of our technology within a laboratory. Our customers leverage our
experience by participating in customized classes that teach how to plan
parallel chemistry synthesis, how to use our instruments, accessories, and
chemistry reagents and how to work-up the resulting chemistry products. We
monitor our participants' success and encourage them to publish their results
internally, thereby increasing our visibility within their company.

     Our web site provides technical information regarding the use of our tools
for our customers. In addition, the Internet has the potential to become a
significant distribution channel for our reagents, instrument consumables and
entry-level systems. The combination of our telesales with e-commerce makes it
very easy for a customer to make routine purchases of our reagents and
consumables. We have established ArgoStore, our proprietary web site for quick,
easy and routine purchasing of our reagents and consumables. In addition, we
have entered into an agreement with SciQuest.com to support the purchasing of
our products.

     To facilitate the awareness of our products, we have arrangements with
leading academic research institutions to provide them with our products. In
return our products are validated by reputable institutions through published
results in leading scientific journals and the researchers' creation of
application notes. We also work with universities to assist them in creating and
implementing teaching laboratories that promote the scientific advantages
associated with the use of our products.

ACQUISITION OF CAMILE PRODUCTS, LLC

     On March 1, 2001, we completed the acquisition of Camile Products, LLC, or
Camile, pursuant to an Agreement and Plan of Reorganization, dated January 31,
2001. Camile became a wholly owned subsidiary of Argonaut, which will operate as
Argonaut Technologies Systems, Inc. and will continue to operate out of its
current Indianapolis, Indiana location. The new subsidiary currently has 42
employees worldwide with the majority of them focused on software development
and chemistry application support.

     Camile markets software solutions that allow pharmaceutical and chemical
companies to automate and precisely control chemical reactions. Camile
specializes in automating research and pilot-scale reactors with personal
computer based software solutions. Through the use of Camile's easy to learn
graphical interface for the software, chemists have more time to focus on
scientific discoveries. Together, Argonaut and Camile have over 2,000 systems
installed.

     We acquired Camile in a purchase accounting transaction for $4 million in
cash and 666,667 shares of common stock. A portion of the cash and common stock
will be held in escrow pursuant to the terms of the Agreement and Plan of
Reorganization.

MANUFACTURING

     A series of qualified outside vendors manufacture most of our instruments
and reagents to our specifications. Our vendors then deliver the finished
product to us for final quality assurance testing.

                                        11
<PAGE>   14

  Instruments

     Our instrument manufacturing staff is comprised of senior level, highly
skilled manufacturing engineers, documentation support, material procurement and
assembly support resources, which are closely integrated within our product
development group. We focus these resources on the rapid development of
manufacturing processes and methods, which we transfer to our outside
subcontractors. Our contractors are responsible for ordering all components from
qualified vendors, inspecting, stocking, assembling and testing the modules
prior to shipment to our facility. We typically qualify multiple manufacturing
subcontractors, and we develop the relevant manufacturing processes internally,
enabling us to maintain control of the manufacturing program.

  Reagents

     Our chemistry organization develops, validates, documents and initially
manufactures our reagents at our facility. During reagent development, we
qualify outside manufacturers, known as toll manufacturers, so that we can
outsource production as demand and volume increase.

INTELLECTUAL PROPERTY

     As of December 31, 2000, we owned a patent portfolio of seven issued U.S.
patents and one issued foreign patent as well as several pending U.S. patent
applications. Corresponding foreign patent applications have been filed in a
number of countries. Of these issued patents, five U.S. patents relate to the
reactor and fluidics technology incorporated into our instruments. Several of
our patent applications relate to this technology and others relate to our
reagent technologies. We intend to continue to file patent applications covering
any new inventions incorporated into our products and technologies as
appropriate. In addition, we rely upon copyright protection as well as trade
secrets, know-how and continuing technological innovation to develop and
maintain our competitive position. Our success will depend in part upon our
ability to obtain patent protection for our products and technologies, to
preserve our copyrights and trade secrets, and to operate without infringing on
the proprietary rights of third parties.

     Certain of our products incorporate technology subject to patent
applications licensed to us by third parties. Collectively, the related license
agreements require us to pay royalties, provide use of a prototype instrument
and provide discount pricing. These agreements are subject to termination under
certain circumstances, such as breach by us or if we fail to commercialize the
products incorporating the licensed technology. In particular, we have a license
agreement with Symyx Technologies, Inc. relating to technology incorporated in
our Endeavor product. Through December, 2000, Symyx earned approximately
$353,000 in royalties and was given an Endeavor instrument pursuant to the terms
of the agreement. Either party can terminate this agreement at its discretion at
any time after December 31, 2000, upon six months' notice. If our licenses to
any such technology, or any similar licenses we may enter into in the future,
are terminated, we may be unable to continue selling such products and our
revenues would decline.

COMPETITION

     We anticipate that competition will come primarily from companies providing
products based on traditional chemistry methods as well as companies that offer
competing products based on alternative technologies. In order to compete
effectively, we will need to demonstrate the advantages of our products over
well-established traditional chemistry methods and alternative technologies and
products. We will also need to demonstrate the potential economic value of our
products relative to traditional chemistry methods and alternative technologies
and products. Some of the companies that provide products that compete with ours
include Mettler-Toledo AG and several smaller instrument and reagent companies.

GOVERNMENT REGULATION

     We are subject to various federal, state and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of chemicals. The laws and
regulations applicable to our operations include provisions that regulate the
discharge of materials into the environment. Usually these environmental laws
and regulations impose "strict liability,"

                                        12
<PAGE>   15

rendering a person liable without regard to negligence or fault on the part of
such person. Such environmental laws and regulations may expose us to liability
for the conduct of, or conditions caused by, others, or for acts that were in
compliance with all applicable laws at the time the checks were performed. We
have not been required to make material expenditures in connection with our
efforts to comply with environmental requirements. We do not believe that
compliance with such requirements will have a material adverse effect upon our
capital expenditures, results of operations or competitive position. Because the
requirements imposed by such laws and regulations are frequently changed, we are
unable to predict the cost of compliance with such requirements in the future,
or the effect of such laws on our capital expenditures, results of operations or
competitive position.

EMPLOYEES

     As of December 31, 2000, we had 110 employees. None of our employees are
covered by a collective bargaining agreement. We believe that our relations with
our employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information regarding our executive
officers as of December 31, 2000:

<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>    <C>
David P. Binkley, Ph.D. .............  47     President, Chief Executive Officer and Director
Lissa A. Goldenstein.................  45     Sr. Vice President, Chief Business Officer
Doug W. Heigel.......................  40     Vice President, Manufacturing
Jan K. Hughes........................  40     Sr. Vice President, Chief Technical Officer
Laura S. Lehman, Ph.D. ..............  43     Vice President, Business Development
Terry D. Long........................  39     Vice President, Engineering
John T. Supan........................  50     Vice President, Finance and Chief Financial Officer
</TABLE>

     David P. Binkley, Ph.D. Dr. Binkley has served as our President, Chief
Executive Officer and one of our directors since December 1996. From July 1997
to May 2000 he served as our Chief Financial Officer. From June 1993 to November
1996, he served as a Vice President at Perkin-Elmer Corporation, where he was
responsible for its worldwide organic analysis business including molecular
spectroscopy and data analysis. Dr. Binkley joined Perkin-Elmer in 1979 and held
a series of increasingly responsible technical and management positions before
becoming Vice President. Dr. Binkley has a B.S. in Chemistry from Elizabethtown
College and a Ph.D. in Chemistry from Virginia Tech.

     Lissa A. Goldenstein. Ms. Goldenstein has served as our Sr. Vice President,
Chief Business Officer since August 2000. From January 1998 until August 2000,
she served as our Vice President, Sales and Marketing. Additionally, Ms.
Goldenstein serves as the President and Representative Director for Argonaut's
wholly owned subsidiaries in Europe and Japan. From January 1994 to December
1997, Ms. Goldenstein was Senior Vice President, Worldwide Sales with Molecular
Simulations, a provider of molecular modeling and simulation software for life
and materials science research. While at Molecular Simulation Incorporated, Ms.
Goldenstein was President of Teijin Molecular Simulations, a joint venture in
Tokyo, which managed Molecular Simulation's business in Japan and the Asia
Pacific markets. Ms. Goldenstein has a B.S. in Architectural Engineering from
Pennsylvania State University and received her Professional Engineers license as
a civil engineer in the State of California in 1981.

     Doug W. Heigel. Mr. Heigel has served as our Vice President, Manufacturing
since October 1995. From February 1995 to October 1995, Mr. Heigel was
responsible for manufacturing at BioMolecular Technologies, a start-up
manufacturer of biotech instrumentation, where he served as their Instrument
Manufacturing Manager. From July 1988 to February 1995, he held various
managerial positions in manufacturing and engineering, including his final
position as Operations/Manufacturing Manager, at MTI Analytical Instruments, a
manufacturer of analytical instrumentation. Mr. Heigel has a B.S. in Mechanical
Engineering from Oregon State University.

                                        13
<PAGE>   16

     Jan K. Hughes. Mr. Hughes is one of our founders and was promoted to Sr.
Vice President and Chief Technical Officer in August 2000. Mr. Hughes has served
as our Vice President, Product Development since November 1994. From June 1985
to November 1994, he served as Engineering Group Leader for New Synthesis
Systems at Applied Biosystems, Inc., where he was responsible for the
development of peptide and DNA synthesis instrumentation. Mr. Hughes has a B.S.
in Mechanical Engineering from California Polytechnic State University, San Luis
Obispo.

     Laura S. Lehman, Ph.D. Dr. Lehman has served as our Vice President of
Business Development since August 1999. From June 1994 to July of 1999, she was
at RiboGene, Inc., a pharmaceutical discovery and development company, where she
held the positions of Vice President of Drug Discovery and Drug Development
until January of 1996 and Vice President of Research until her departure. While
at RiboGene, she was responsible for the strategic management of all preclinical
and clinical projects and the coordination of the projects with their corporate
partners. Dr. Lehman has a B.S. degree in Chemistry and a M.S. degree in Organic
Chemistry from Bucknell University and a Ph.D. degree in Organic Chemistry from
Duke University.

     Terry D. Long. Mr. Long has served as our Vice President, Engineering since
April 1996. From December 1991 to March 1996, Mr. Long served as Executive Vice
President for Protein Technologies, Inc., a division of Rainin Instruments, a
manufacturer of pipesetting products and services. While at Protein
Technologies, Inc., he was responsible for product development of peptide
synthesis and preparative electrophoresis instrumentation. Mr. Long has a B.S.
degree in Chemical Engineering from the University of Arizona.

     John T. Supan. Mr. Supan has served as our Vice President, Finance and
Chief Financial Officer since May 2000. From September 1997 to May 2000, he
served as an independent consultant and then as a Director with Azia Core, Ltd.,
a consulting and investment firm where he worked with clients in the high tech
and bio-pharmaceutical industries. Mr. Supan was Vice President of Finance and
Chief Financial Officer with Beacon Diagnostics from April 1992 through August
1997. Mr. Supan joined Ernst & Young, LLP, a public accounting firm, in
September 1976 as a staff accountant, and was named a partner in October 1986.
He left Ernst & Young, LLP to pursue industry experience. Mr. Supan received a
B.S. in Business Administration from California State University, San Jose and
is a Certified Public Accountant.

ITEM 2. PROPERTIES

FACILITIES

     We occupy approximately 24,000 combined square feet of leased and
sub-leased office space and other facilities in San Carlos, California. These
facilities serve as the base for our marketing and product support operations,
research and development and manufacturing activities. We have leased
substantially all of our space through the second quarter of 2001. We intend to
use a portion of the proceeds of our initial public offering to relocate to new
facilities in 2001. We are currently seeking several alternatives in California
and are actively negotiating with several parties for facilities in 2001. In
addition, we lease approximately 200 square meters of office space in Muttenz,
Switzerland and 200 square meters of office space in Tokyo, Japan. These offices
are the base operations for our sales and support groups in the respective
regions.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, we may be involved in litigation that arises through the
normal course of business. As of the date of filing of this Form 10-K, we are
not a party to any litigation that we believe could reasonably be expected to
harm our business or results of operations in any material respects.

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

     There were no matters submitted to a vote of the security holders during
fourth quarter of 2000.

                                        14
<PAGE>   17

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock has been quoted on the Nasdaq Stock Market's National
Market under the symbol "AGNT" since the commencement of our initial public
offering on July 19, 2000. Prior to this time, there was no public market for
our stock. The following table sets forth the high and low sales prices per
share of our common stock as reported on the Nasdaq Stock Market's National
Market for the periods indicated. We currently expect to retain future earnings,
if any, for use in the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future. As of February
28, 2001 there were 156 holders of record of our common stock.

<TABLE>
<CAPTION>
                                                               SALES PRICE
                                                             ----------------
                                                              HIGH      LOW
                                                             ------    ------
<S>                                                          <C>       <C>
FISCAL YEAR 2000:
  Third Quarter (from July 19, 2000).......................  $27.69    $10.00
  Fourth Quarter...........................................  $22.00    $ 7.00
</TABLE>

     On July 18, 2000, our Registration Statement on Form S-1 (File No.
333-35782) was declared effective by the Securities and Exchange Commission in
connection with our initial public offering. In the offering, which commenced on
July 19, 2000, we sold an aggregate of 5,290,000 shares of common stock
(including an over-allotment option of 690,000 shares) at $15 per share. The
offering generated aggregate gross proceeds of approximately $79.4 million. The
aggregate net proceeds were approximately $72.5 million, after deducting
underwriting discounts and commissions of approximately $5.6 million and
expenses of the offering of approximately $1.3 million. As of December 31, 2000,
we had used approximately $4.4 million of the proceeds to repay an outstanding
debt. The remaining funds have been invested in short-term interest bearing
securities and will be utilized to fund our operations and continued growth.

                                        15
<PAGE>   18

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data has been derived from our audited
financial statements and the following table should be read in conjunction with
the consolidated financial statements and the notes to such statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. Historical results are not
necessarily indicative of the results to be expected in the future.

     The pro forma net loss per share and shares used in computing pro forma net
loss per share are calculated as if all of our convertible preferred stock was
converted into shares of our common stock on the date of issuance. All
outstanding shares of preferred stock were converted to 0.88 shares of common
stock upon completion of our initial public offering.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                   -----------------------------------------------
                                                    2000      1999      1998      1997      1996
                                                   -------   -------   -------   -------   -------
                                                        (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                <C>       <C>       <C>       <C>       <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................  $17,449   $10,558   $12,076   $ 5,826   $ 2,305
Costs and expenses:
  Cost of sales..................................    7,994     4,689     5,608     3,155     1,183
  Research and development.......................    5,057     4,180     4,922     4,292     4,056
  Selling, general and administrative............   13,819     9,125     7,108     4,795     2,127
                                                   -------   -------   -------   -------   -------
          Total costs and expenses...............   26,870    17,994    17,638    12,242     7,366
                                                   -------   -------   -------   -------   -------
Loss from operations.............................   (9,421)   (7,436)   (5,562)   (6,416)   (5,061)
Interest and other income (expenses), net........    1,900      (167)      (94)      216       219
                                                   -------   -------   -------   -------   -------
Net loss.........................................  $(7,521)  $(7,603)  $(5,656)  $(6,200)  $(4,842)
                                                   =======   =======   =======   =======   =======
Net loss per share, basic & diluted..............  $ (0.79)  $ (3.55)  $ (3.31)  $ (4.52)  $ (4.20)
                                                   =======   =======   =======   =======   =======
Weighted-average shares used in computing net
  loss per share, basic and diluted..............    9,538     2,142     1,710     1,372     1,154
Pro forma net loss per share, basic and
  diluted........................................  $ (0.50)  $ (0.68)
                                                   =======   =======
Weighted-average shares used in computing pro
  forma net loss per share, basic and diluted....   15,009    11,263
</TABLE>

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                               ---------------------------------------------------
                                                 2000       1999       1998       1997      1996
                                               --------   --------   --------   --------   -------
                                                                 (IN THOUSANDS)
<S>                                            <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
  investments................................  $ 73,372   $ 11,073   $  2,261   $  7,664   $ 6,680
Working capital..............................    76,131      9,061      3,115      6,559     5,910
Total assets.................................    83,032     19,080      9,363     11,948     9,831
Long-term obligations, less current
  portion....................................       180      1,859      4,147      1,844       608
Accumulated deficit..........................   (34,439)   (26,918)   (19,315)   (13,659)   (7,459)
Total stockholders' equity...................    77,720      9,048        865      6,364     6,657
</TABLE>

                                        16
<PAGE>   19

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS

     Since our inception, we have incurred significant losses and, as of
December 31, 2000, we had an accumulated deficit of $34.4 million. We anticipate
incurring additional losses, which may increase, for the foreseeable future.

     We derive revenues primarily from the sale of our instrument products. We
commenced commercial shipment of our first generation instrument, the Nautilus,
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. Our expenses have consisted primarily of costs incurred in
research and development, manufacturing and general and administrative costs
associated with our operations, and the expansion of our sales and marketing
organization. We expect our research and development expenses to increase in the
future as we continue to develop our products. Our selling and marketing
expenses are expected to increase as we continue to expand the geographic
coverage of our direct sales and support organization. Our general and
administrative expenses are expected to increase as we expand our facilities and
assume the obligations of a public reporting company.

STOCK COMPENSATION

     We recorded deferred stock compensation of approximately $2.8 million in
the year ended December 31, 2000 and approximately $3.8 million in the year
ended December 31, 1999 in connection with the grant of stock options to
employees. Deferred stock compensation is the difference between the exercise
price of the options and the fair value of the common stock at the date of
grant. The fair value was determined based on the business factors underlying
the value of our common stock on the date of grant viewed in light of our
initial public offering and the anticipated initial public offering price per
share. The deferred stock compensation was recorded as a component of
stockholders' equity and is being amortized over the vesting periods of the
options, generally four years, using the graded vesting method. We have recorded
amortization of deferred stock compensation of approximately $2.9 million in the
year ended December 31, 2000 and approximately $653,000 in the year ended
December 31, 1999. As of December 31, 2000, we had a total of $3.1 million to be
amortized over the remaining vesting period of the options.

     We also recorded stock compensation of $617,000 in the year ended December
31, 2000 and $12,000 in the year ended December 31, 1999 in connection with
options granted to consultants. These options are periodically remeasured as
they vest, in accordance with Emerging Issues Task Force No. 96-18.

     In 2000, we granted performance-based options to certain of our employees
and recorded a stock compensation expense of $86,000 on the date the performance
criteria were met and the options were vested. We will record additional stock
compensation expense on the remaining unvested options when and if they vest.

     We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market evaluation and acceptance of our current and new
products, which may result in a lengthy sales cycle, the introduction of new
products by our competitors, the timing and extent of our research and
development efforts, and the timing of significant orders. Our limited history
makes accurate predictions of future operations difficult.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000 AND 1999

  Net Sales

     Net sales in 2000 were $17.4 million compared to $10.6 million in 1999. The
increase was substantially attributable to the introduction of three new
instrument products in 2000 along with higher sales in other instruments and
chemistry products.

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<PAGE>   20

  Cost of Sales

     Cost of sales increased to $8.0 million in 2000 from $4.7 million in 1999.
This increase was primarily due to higher sales volume. Gross margins as a
percentage of net sales in 2000 declined slightly compared to 1999. This is
attributable to the recently launched Surveyor and Endeavor products with
additional costs typically associated with early production units offset by
improved margins in the chemistry products.

  Research and Development Expenses

     Research and development expenses increased to $5.1 million in 2000 from
$4.2 million in 1999. These expenses include salaries and related costs of
research and development personnel as well as the costs of parts and supplies
associated with research and development projects. Personnel levels and related
expenses remained relatively constant during both periods. The increase is
primarily attributable to stock-based compensation charges.

  Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $13.8 million in
2000 from $9.1 million in 1999. These expenses consist primarily of salaries and
related costs for executive, sales and marketing, finance and other
administrative personnel and the costs of facilities. The increase was
attributable to further expansion of our direct sales force in the United States
and Europe and the recruitment and placement of a general manager for our
European subsidiary during 2000. The increase also includes $2.3 million of
stock-based compensation charges incurred in 2000 versus $457,000 in 1999.

  Interest and Other Income (Expense), net

     Net interest and other income was $1.9 million compared to net interest and
other expense of $167,000 in 1999. The change was primarily due to interest
income generated from the investments of proceeds of our initial public offering
in July 2000 and a reduction of interest expense from the repayment of our
outstanding debt balances during the year using proceeds from our initial public
offering.

  Income Taxes

     As of December 31, 2000, we had federal net operating loss and research
credit carryforwards of approximately $26.0 million and $700,000, respectively,
which expire on various dates between 2010 and 2020.

     Utilization of our net operating loss may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. Such an annual limitation
could result in the expiration of the net operating loss before utilization.

YEARS ENDED DECEMBER 31, 1999 AND 1998

  Net Sales

     Net sales in 1999 were $10.6 million versus $12.1 million in 1998. The
decrease in our net sales is primarily the result of lower Quest sales, the
discontinuation of our first product, the Nautilus, in the first quarter of
1999, and a change in our product sales strategy to include installation in the
selling price of certain instrument products. This new sales strategy resulted
in a delay in revenue recognition. The overall decrease in our net sales was
partially offset by higher sales for the Trident product line.

  Cost of Sales

     Cost of sales decreased to $4.7 million in 1999 from $5.6 million in 1998.
This decrease was primarily due to lower sales volume. Gross margin percentages
improved in 1999 compared to 1998 due to increases in the instrument group of
products.

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<PAGE>   21

  Research and Development Expenses

     Research and development expenses decreased to $4.2 million in 1999 from
$4.9 million in 1998. These expenses include salaries and related costs of
research and development personnel as well as the costs of parts and supplies
associated with research and development projects. Personnel levels and related
expenses remained relatively constant during both periods. The $700,000 decrease
in research and development expenses is primarily attributable to the timing of
the cost of parts and components associated with specific research and
development projects. During 1998, the major focus of the research and
development group was on the Trident product line. During 1999, the research and
development group focused on several projects which were at earlier stages of
development. This resulted in a decrease in parts and supplies associated with
the research.

  Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased to $9.1 million in
1999 from $7.1 million in 1998. These expenses consist primarily of salaries and
related costs for executive, sales and marketing, finance and other
administrative personnel and the costs of facilities. The increase was
attributable to further expansion of our direct sales force in the United States
and Europe and the recruitment and placement of a general manager for our
Japanese subsidiary during 1999.

  Interest and Other Income (Expenses), Net

     Net interest expense increased to $167,000 in 1999 from $94,000 in 1998.
The increase was primarily attributable to the interest expense for the
additional debt incurred on our equipment and accounts receivable financing
loans.

LIQUIDITY AND CAPITAL RESOURCES

     We have funded our operations principally though sales of equity
securities. On July 19, 2000 we commenced our initial public offering raising
net proceeds of $72.5 million. We used $4.7 million of these proceeds to repay
substantially all of our outstanding debt. The remaining funds have been
invested in short-term interest bearing securities and will be utilized to fund
operations and continued growth. At December 31, 2000, the company had total
cash, cash equivalents and short-term investments of $73.4 million.

     Net cash used in operating activities was $5.0 million in 2000, $5.4
million in 1999 and $7.3 million in 1998. Cash used in operating activities was
attributable primarily to net losses, after adjustments for non-cash items, and
working capital requirements.

     Net cash provided by (used in) investing activities was ($28.9 million) in
2000, ($6.8 million) in 1999 and $567,000 in 1998. Our investing activities
consisted principally of capital expenditures and purchases and sales of our
short-term investments.

     Net cash provided by financing activities was $68.1 million in 2000, $14.9
million in 1999 and $2.3 million in 1998. Our financing activities consisted
principally of draw downs on our loan facilities in 1998, proceeds from the sale
of our convertible preferred stock in 1999 and proceeds from the sale of our
common stock in an initial public offering in 2000. We used part of the proceeds
from our initial public offering to repay existing loans in 2000.

     We expect to have negative cash flow from operations through at least
through 2001. We expect to incur increasing development expenses, as well as
expenses for additional personnel for production and commercialization efforts,
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. We
believe that our current cash balances, together with the net proceeds of our
initial public offering and revenue to be derived from product sales and
research and development collaborations will be sufficient to fund our
operations at least through the next 24 months. To the extent our capital
resources are insufficient to meet future capital requirements, we

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<PAGE>   22

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 partners or
others that may require us to relinquish rights to certain technologies or
products that we might otherwise seek to retain.

     The acquisition of Camile Products (renamed Argonaut Technologies Systems,
Inc.) was completed March 1, 2001 at a cost of $4 million in cash and 666,667
shares of common stock. Camile is expected to contribute to our overall 2001
goal to attain profitability in the fourth quarter prior to recognition of
amortization charges in connection with the current acquisition. We expect to
account for this transaction using the purchase accounting method. As a result
of applying the purchase accounting method to this transaction, we expect to
record a one-time in-process research and development charge and goodwill. We
are currently evaluating the valuation of this transaction.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     Our exposure to interest rate risk is related principally to our investment
portfolio. Fixed rate investments may have their fair market value adversely
impacted from changes in interest rates and floating rate investments may
produce less income than expected if interest rates fall. Due in part to these
factors, our future investment income may fall short of expectations. Further,
we may suffer losses in investment principal if we are forced to sell securities
that have declined in market value due to changes in interest rates. We invest
our excess cash in debt instruments of the U.S. government and its agencies, and
in debt instruments of high quality corporate issuers. As of December 31, 2000,
the principal notional amount with an expected maturity in 2001 was $71.6
million and the weighted-average interest rate was 6.4%. The average contractual
maturity of all of our investments at December 31, 2000 was approximately 52
days. Due to the short-term nature of these investments, we have assessed that
there is no material exposure to interest rate risk arising from our
investments.

FOREIGN CURRENCY RISK

     As we have operations and sales outside of the United States, our financial
results can be affected by changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which we operate. To date, our
foreign operations and sales have not been significant to our results of
operations and financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

  Derivative Instruments

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value though net
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset against the change
in fair value of asset, liabilities, or firm commitments thought earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. SFAS 133, as amended, is effective for the first fiscal quarter in
fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133 on
January 1, 2001 and does not expect this pronouncement to materially impact the
results of its operations, as it does not currently hold derivatives or engage
in hedging activities.

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<PAGE>   23

RISK FACTORS

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 flow from operations
since our inception. As of December 31, 2000, we had an accumulated deficit of
$34.4 million. We recorded net losses of $7.5 million in 2000, $7.6 million in
1999 and $5.7 million for 1998. We expect to continue to incur operating and net
losses and negative cash flow from operations, which may increase, for the
foreseeable future due in part to anticipated increases in expenses for research
and development and expansion of our sales and marketing capabilities. We may
never become profitable.

     We anticipate that our existing cash and cash equivalents will be
sufficient to fund our currently planned operations through at least the next 24
months. However, this expectation is based on our current operating plan, which
could change as a result of many factors, and we could require additional
funding sooner than anticipated. 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 WIDELY USED IN THE LIFE SCIENCES INDUSTRY, IT IS
UNLIKELY THAT WE WILL EVER BECOME PROFITABLE.

     Pharmaceutical, biotechnology and life sciences companies have historically
performed chemistry development using traditional laboratory methods. To date,
our products have not been widely adopted by the life sciences industry. 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 which may be developed;

     - manufacture products in sufficient quantities with acceptable quality and
       at an acceptable cost; and

     - install and service sufficient quantities of our products.

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

OUR PRODUCT DEVELOPMENT EFFORTS MAY NOT PRODUCE COMMERCIALLY VIABLE PRODUCTS.

     We intend 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. Our ability to increase our
revenues and achieve and sustain profitability is dependent upon our ability to
successfully develop new and commercially viable products.

BECAUSE WE RECEIVE REVENUES PRINCIPALLY FROM LIFE SCIENCES AND CHEMICAL
COMPANIES, THE CAPITAL SPENDING POLICIES OF THESE ENTITIES HAVE A SIGNIFICANT
EFFECT ON THE DEMAND FOR OUR PRODUCTS.

     We market our products to 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. 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

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<PAGE>   24

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 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.

OUR 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 drug
development. The sale of many of our 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
significant 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. In particular, our operating results in the first and third
quarters have historically been depressed. 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.

IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR
TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE
THESE ACQUISITIONS OR MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED
BUSINESS OR TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.

     Our success depends 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 a
complementary business and may choose to acquire others in the future. We do not
know if we will be able to complete any acquisitions, or whether we will be able
to successfully integrate any acquired businesses, operate it profitably or
retain its key employees. Integrating any business, product or technology we
acquire could be expensive and time consuming, disrupt our ongoing business and
distract our management. If we are unable to integrate any acquired entities,
products or technologies effectively, our business may suffer. In addition, any
amortization of goodwill or other assets or charges resulting from the costs of
acquisitions could negatively impact our operating results.

OUR DIRECT SALES FORCE MAY NOT BE SUFFICIENTLY LARGE TO SUCCESSFULLY ADDRESS THE
MARKET FOR OUR PRODUCTS.

     We sell a major portion of our products through our own sales force. We
believe that we will need to expand our direct sales and marketing force to
successfully address the market for our products. We may not be able to build an
efficient and effective sales and marketing force. 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.

FAILURE TO EXPAND OUR INTERNATIONAL SALES AS WE INTEND WOULD REDUCE OUR ABILITY
TO BECOME PROFITABLE.

     We will need to sell a significant number of our products outside of the
United States, to achieve our sales objectives. To be successful in our
international effort we will need to expand our direct sales force to conduct
international operations and develop relationships with international dealers
and distributors. We may not be able to expand our sales force or identify,
attract or retain suitable international dealers and distributors. As a result,
we may be unsuccessful in our international expansion efforts. We must continue
to establish and expand foreign operations and hire additional personnel to run
these operations, in order to expand our presence into international markets.

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<PAGE>   25

     International operations involve a number of risks and burdens not
typically present in domestic operations, including:

     - preferences of certain customers to purchase goods manufactured in their
       own country or geographic market;

     - difficulties in staffing and managing foreign operations;

     - reliance on distributors in countries where we do not have a physical
       presence;

     - licenses, tariffs and other trade barriers;

     - changes in regulatory requirements;

     - potentially adverse tax consequences; and

     - political and economic instability.

     In addition, we conduct a portion of our business in Japanese yen and other
non-U.S. dollar currencies. As a result, currency fluctuations between the U.S.
dollar and the currencies in which we do business will cause us to incur foreign
currency translation gains and losses. To date, our foreign currency translation
gains and losses have been immaterial. Our international operations will also be
subject to the risks associated with the imposition of legislation and
regulations relating to the import or export of high technology products. We
cannot predict whether tariffs or restrictions upon the exportation or
importation of our products will be implemented by the United States or other
countries.

IF WE LOSE OUR EXCLUSIVE LICENSE TO PROPRIETARY TECHNOLOGY INCORPORATED INTO OUR
PRODUCTS WE MAY BE UNABLE TO CONTINUE SELLING THOSE PRODUCTS.

     We have developed some of our products based on proprietary technology
originally developed by third parties. We currently have exclusive licenses to
use such technology in our products that are subject to termination in certain
events. In particular, our license to proprietary technology belonging to Symyx,
which is incorporated into our Endeavor product, is subject to termination at
Symyx's or our option upon six months prior notice at any time after December
31, 2000. Our sales of this product do not currently constitute a material
portion of our revenue. We estimate that sales of this product will constitute
approximately 10 to 15% of our revenues this year. This estimate depends on a
variety of factors, including increased demand, and we cannot be certain that
this estimate will be accurate. If licensors terminate our licenses to any such
technology, our revenues would decline.

IF WE HAVE DIFFICULTY MANAGING OUR GROWTH, OUR ABILITY TO INCREASE OUR REVENUES
AND BECOME PROFITABLE WOULD BE DAMAGED.

     Our growth has placed significant demands on our management and other
resources. Our future success will depend on our ability to manage our growth,
including:

     - continuing to train, motivate, manage and retain our existing employees
       and to attract and assimilate new employees;

     - manufacturing on a timely basis increasing quantities of current products
       and new products under development while maintaining product quality;

     - expanding and improving our domestic and international sales and
       marketing capabilities; and

     - developing and improving our operational, financial, accounting and other
       internal systems and controls consistent with our pace of growth.

     - integrating and successfully managing operations at Camile and any other
       businesses that we may acquire in the future.

     If we are unable to manage our growth successfully, our operations will
suffer.

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<PAGE>   26

IF WE ARE UNABLE TO RETAIN THE PRINCIPAL MEMBERS OF OUR MANAGEMENT TEAM AND
OTHER KEY EMPLOYEES OR TO RECRUIT SALES, SUPPORT AND OTHER ADDITIONAL PERSONNEL,
OUR OPERATING RESULTS COULD SUFFER.

     We are highly dependent on the principal members of our management team and
scientific staff. In particular, but without limitation, we are highly dependent
on David Binkley, our President and Chief Executive Officer, Lissa Goldenstein,
our Senior Vice President and Chief Business Officer, Jan Hughes, our Senior
Vice President and Chief Technical Officer, John Supan, our Vice President,
Finance and Chief Financial Officer, and Lori Lehman our Vice President,
Business Development. Our loss of the services of any of these persons or our
other key personnel could delay or reduce our product development and
commercialization efforts. None of the principal members of our management team
and scientific staff have entered into employment agreements with us nor do we
have any key person life insurance on such individuals. We believe that we will
need to recruit additional sales and customer support personnel with the
requisite backgrounds and expertise. Hiring such personnel is very competitive
in our industry. In addition, we will require additional personnel in the areas
of chemistry research, product development, manufacturing and finance and
administration. In particular, it is difficult to attract and retain qualified
individuals with the requisite experience in chemistry. We may not be able to
attract and retain the requisite personnel, which could seriously harm our
ability to manage our business.

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.

                   RISKS RELATED TO OPERATING IN OUR INDUSTRY

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 in the United States and abroad 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.

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<PAGE>   27

     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 by 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.

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.

OUR FACILITIES ARE LOCATED IN CALIFORNIA AND VULNERABLE TO POWER OUTAGES WHICH
COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

     Our primary facility, including our manufacturing site, is located in the
state of California, which presently is experiencing a severe shortage of
electrical power. Because of California's current energy crisis, we may
experience increased electricity prices, power shortages and rolling blackouts.
If blackouts interrupt our power supply, we may be temporarily unable to
continue operations at our California facility. Any such interruption in our
ability to continue operations could delay our ability to develop or provide our
products, which could result in lost revenue and seriously harm our business,
financial condition and results of operations. We cannot be sure that the
insurance we maintain against general business interruptions will be adequate to
cover our losses in this particular case, if at all.

        RISKS RELATED TO OUR RECENTLY COMPLETED INITIAL PUBLIC OFFERING

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE, AND YOUR INVESTMENT COULD SUFFER A
DECLINE IN VALUE.

     The trading price of our common stock has been highly volatile 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;

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<PAGE>   28

     - announcements of new products or services or technological innovations by
       us or our competitors;

     - conditions or trends in the pharmaceutical, biotechnology and life
       sciences industries;

     - announcements by us of significant acquisitions, strategic partnerships,
       joint ventures or capital commitments;

     - additions or departures of key personnel;

     - sales of our common stock; 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 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 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.

THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.

     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.

OUR PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OWN APPROXIMATELY
52% OF OUR COMMON STOCK, WHICH MAY PREVENT NEW INVESTORS FROM INFLUENCING
CORPORATE DECISIONS.

     Our stockholders who currently own over 5% of our common stock, our
directors and executive officers beneficially own approximately 52% of our
outstanding common stock. These stockholders 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.

THE LARGE NUMBER OF SHARES OF OUR COMMON STOCK WHICH RECENTLY BECAME ELIGIBLE
FOR PUBLIC SALE 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 recently completed initial public offering will be 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 will be
"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.

     We registered on September 22, 2000, 4,059,147 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.

                                        26
<PAGE>   29

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS AND UNDER DELAWARE LAW COULD
MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.

     Our certificate of incorporation and bylaws 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.

                                        27
<PAGE>   30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................   29
Consolidated Balance Sheets.................................   30
Consolidated Statements of Operations.......................   31
Consolidated Statement of Shareholders' Equity..............   32
Consolidated Statements of Cash Flows.......................   33
Notes to Consolidated Financial Statements..................   34
</TABLE>

                                        28
<PAGE>   31

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Argonaut Technologies, Inc.

     We have audited the accompanying consolidated balance sheets of Argonaut
Technologies, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Argonaut
Technologies, Inc. at December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Palo Alto, California
February 2, 2001

                                        29
<PAGE>   32

                          ARGONAUT TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                 2000           1999
                                                              -----------    -----------
                                                                (IN THOUSANDS, EXCEPT
                                                              SHARE AND PER SHARE DATA)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................    $ 39,147       $  4,946
  Short-term investments....................................      34,225          6,127
  Accounts receivable, less allowance for doubtful accounts
     of $50 in 2000 and 1999................................       4,088          3,462
  Inventories...............................................       2,782          2,110
  Note receivable from officer, current.....................         200             --
  Prepaid expenses and other current assets.................         821            589
                                                                --------       --------
          Total current assets..............................      81,263         17,234
Property and equipment, net.................................       1,743          1,620
Note receivable from officer, current.......................          --            200
Other assets................................................          26             26
                                                                --------       --------
                                                                $ 83,032       $ 19,080
                                                                ========       ========
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  1,004       $    865
  Accrued compensation......................................       1,097            756
  Other accrued liabilities.................................       1,209            657
  Deferred revenue..........................................       1,534          2,608
  Current portion of capital lease obligations..............         288            303
  Current portion of long-term debt.........................          --          2,984
                                                                --------       --------
          Total current liabilities.........................       5,132          8,173
Noncurrent portion of capital lease obligations.............         180            468
Noncurrent portion of long-term debt........................          --          1,391
Commitments
Stockholders' equity:
Convertible preferred stock, $0.0001 par value; 10,000,000
  and 26,200,000 shares authorized at December 31, 2000 and
  1999, respectively, issuable in series; no shares issued
  and outstanding at December 31, 2000 and 11,339,268 shares
  issued and outstanding at December 31, 1999...............          --              1
Common stock, $0.0001 par value; 120,000,000 and 32,200,000
  shares authorized at December 31, 2000 and 1999,
  respectively; 18,270,019 and 2,342,573 shares issued and
  outstanding at December 31, 2000 and 1999, respectively...           2             --
Additional paid-in capital..................................     115,283         39,069
Deferred stock compensation.................................      (3,055)        (3,106)
Accumulated deficit.........................................     (34,439)       (26,918)
Other comprehensive (loss) income...........................         (71)             2
                                                                --------       --------
          Total stockholders' equity........................      77,720          9,048
                                                                --------       --------
                                                                $ 83,032       $ 19,080
                                                                ========       ========
</TABLE>

                            See accompanying notes.

                                        30
<PAGE>   33

                          ARGONAUT TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                              --------------------------------------
                                                                 2000          1999          1998
                                                              ----------    ----------    ----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Net sales...................................................   $17,449       $10,558       $12,076
Costs and expenses:
  Cost of sales.............................................     7,994         4,689         5,608
  Research and development (note 1).........................     5,057         4,180         4,922
  Selling, general and administrative (note 1)..............    13,819         9,125         7,108
                                                               -------       -------       -------
          Total costs and expenses..........................    26,870        17,994        17,638
                                                               -------       -------       -------
Loss from operations........................................    (9,421)       (7,436)       (5,562)
Other income (expenses):
  Interest and other income.................................     2,403           531           451
  Interest and other expense................................      (503)         (698)         (545)
                                                               -------       -------       -------
Net loss....................................................   $(7,521)      $(7,603)      $(5,656)
                                                               =======       =======       =======
Net loss per share, basic and diluted.......................   $ (0.79)      $ (3.55)      $ (3.31)
                                                               =======       =======       =======
Weighted-average shares used in computing net loss per
  share, basic and diluted..................................     9,538         2,142         1,710
                                                               =======       =======       =======
</TABLE>

Note 1: Research and development expenses and selling, general and
administrative expenses include charges for stock-based compensation as follows:

<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Research and development....................................  $ 1,191    $   208    $    --
Selling, general and administration.........................    2,296        457         --
                                                              -------    -------    -------
                                                              $ 3,487    $   665    $    --
                                                              =======    =======    =======
</TABLE>

                            See accompanying notes.

                                        31
<PAGE>   34

                          ARGONAUT TECHNOLOGIES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                      PREFERRED STOCK         COMMON STOCK       ADDITIONAL     DEFERRED
                                    --------------------   -------------------    PAID-IN        STOCK       ACCUMULATED
                                      SHARES      AMOUNT     SHARES     AMOUNT    CAPITAL     COMPENSATION     DEFICIT
                                    -----------   ------   ----------   ------   ----------   ------------   -----------
<S>                                 <C>           <C>      <C>          <C>      <C>          <C>            <C>
BALANCES AT DECEMBER 31, 1997.....    8,730,573    $ 1      1,763,080     $--     $ 20,022      $    --       $(13,659)
 Net and comprehensive loss.......           --     --             --     --            --           --         (5,656)
 Issuance of common stock upon
   exercise of stock options, net
   repurchase.....................           --     --        260,853     --           114           --             --
 Issuance of warrants for loan
   arrangement....................           --     --             --     --            41           --             --
 Compensation expense related to
   common stock and options to
   consultants....................           --     --             --     --             2           --             --
                                    -----------    ---     ----------     --      --------      -------       --------
BALANCES AT DECEMBER 31, 1998.....    8,730,573      1      2,023,933     --        20,179           --        (19,315)
 Net loss.........................           --     --             --     --            --           --         (7,603)
 Other comprehensive income:
   Foreign currency translation
    adjustments...................           --     --             --     --            --           --             --
      Total comprehensive loss....
 Issuance of common stock upon
   exercise of stock options, net
   of repurchase..................           --     --        287,840     --           101           --             --
 Issuance of common stock to
   director in exchange for
   promissory note................           --     --         13,200     --            15           --             --
 Issuance of common stock as
   charitable donation............           --     --         17,600     --            20           --             --
 Issuance of Series D convertible
   preferred stock................    2,608,695     --             --     --        14,961           --             --
 Issuance of warrant for loan
   arrangement....................           --     --             --     --            22           --             --
 Compensation expense related to
   issuance of options to
   consultants....................           --     --             --     --            12           --             --
 Deferred stock compensation......           --     --             --     --         3,759       (3,759)            --
 Amortization of deferred stock
   compensation...................           --     --             --     --            --          653             --
                                    -----------    ---     ----------     --      --------      -------       --------
BALANCES AT DECEMBER 31, 1999.....   11,339,268      1      2,342,573     --        39,069       (3,106)       (26,918)
 Net loss.........................           --     --             --     --            --           --         (7,521)
 Other comprehensive income:
   Foreign currency translation
    adjustments...................           --     --             --     --            --           --             --
   Total comprehensive loss.......
 Issuance of common stock upon
   exercise of stock options, net
   of repurchase..................           --     --        658,898     --           320           --             --
 Issuance of common stock upon the
   completion of initial public
   offering, net of issuance costs
   of $6,891......................           --     --      5,290,000      1        72,458           --             --
 Conversion of preferred stock
   upon close of initial public
   offering at an exchange rate of
   0.88 for 1.....................  (11,339,268)    (1)     9,978,548      1            --           --             --
 Compensation expense related to
   issuance of options to
   consultants....................           --     --             --     --           617           --             --
 Deferred stock compensation......           --     --             --     --         2,819       (2,819)            --
 Amortization of deferred stock
   compensation...................           --     --             --     --            --        2,870             --
                                    -----------    ---     ----------     --      --------      -------       --------
BALANCES AT DECEMBER 31, 2000.....           --    $--     18,270,019     $2      $115,283      $(3,055)      $(34,439)
                                    ===========    ===     ==========     ==      ========      =======       ========

<CAPTION>
                                        OTHER           TOTAL
                                    COMPREHENSIVE   STOCKHOLDERS'
                                    INCOME (LOSS)      EQUITY
                                    -------------   -------------
<S>                                 <C>             <C>
BALANCES AT DECEMBER 31, 1997.....      $ --           $ 6,364
 Net and comprehensive loss.......        --            (5,656)
 Issuance of common stock upon
   exercise of stock options, net
   repurchase.....................        --               114
 Issuance of warrants for loan
   arrangement....................        --                41
 Compensation expense related to
   common stock and options to
   consultants....................        --                 2
                                        ----           -------
BALANCES AT DECEMBER 31, 1998.....        --               865
 Net loss.........................        --            (7,603)
 Other comprehensive income:
   Foreign currency translation
    adjustments...................         2                 2
                                                       -------
      Total comprehensive loss....                      (7,601)
 Issuance of common stock upon
   exercise of stock options, net
   of repurchase..................        --               101
 Issuance of common stock to
   director in exchange for
   promissory note................        --                15
 Issuance of common stock as
   charitable donation............        --                20
 Issuance of Series D convertible
   preferred stock................        --            14,961
 Issuance of warrant for loan
   arrangement....................        --                22
 Compensation expense related to
   issuance of options to
   consultants....................        --                12
 Deferred stock compensation......        --                --
 Amortization of deferred stock
   compensation...................        --               653
                                        ----           -------
BALANCES AT DECEMBER 31, 1999.....         2             9,048
 Net loss.........................        --            (7,521)
 Other comprehensive income:
   Foreign currency translation
    adjustments...................       (73)              (73)
                                                       -------
   Total comprehensive loss.......                      (7,594)
 Issuance of common stock upon
   exercise of stock options, net
   of repurchase..................        --               320
 Issuance of common stock upon the
   completion of initial public
   offering, net of issuance costs
   of $6,891......................        --            72,459
 Conversion of preferred stock
   upon close of initial public
   offering at an exchange rate of
   0.88 for 1.....................        --                --
 Compensation expense related to
   issuance of options to
   consultants....................        --               617
 Deferred stock compensation......        --                --
 Amortization of deferred stock
   compensation...................        --             2,870
                                        ----           -------
BALANCES AT DECEMBER 31, 2000.....      $(71)          $77,720
                                        ====           =======
</TABLE>

                            See accompanying notes.

                                        32
<PAGE>   35

                          ARGONAUT TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------    -------    -------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>        <C>
OPERATING ACTIVITIES
Net loss....................................................  $ (7,521)   $(7,603)   $(5,656)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................       723        714        676
  Stock compensation........................................     3,487        665         --
  Issuance of equity for noncash benefits...................        --         42          5
  Change in cumulative translation adjustment...............       (73)         2         --
  Changes in assets and liabilities:
    Accounts receivable.....................................      (626)      (861)    (1,420)
    Inventories.............................................      (672)        81     (1,019)
    Prepaid expenses and other current assets...............      (232)      (176)      (132)
    Other assets............................................        --         20        (15)
    Accounts payable........................................       139        250         51
    Accrued compensation....................................       341         53        221
    Other accrued liabilities...............................       552       (171)       440
    Deferred revenue........................................    (1,074)     1,584       (423)
                                                              --------    -------    -------
        Net cash used in operating activities...............    (4,956)    (5,400)    (7,272)
                                                              --------    -------    -------
INVESTING ACTIVITIES
Capital expenditures, net...................................      (846)      (690)      (430)
Purchase of short-term investments..........................   (34,309)    (6,127)        --
Maturities and sale of short-term investments...............     6,211         --        997
                                                              --------    -------    -------
        Net cash provided by (used in) investing
        activities..........................................   (28,944)    (6,817)       567
                                                              --------    -------    -------
FINANCING ACTIVITIES
Proceeds from long-term debt................................        --      1,000      3,000
Repayment of long-term debt.................................    (4,375)      (668)      (457)
Principal payments on capital lease obligations.............      (303)      (492)      (359)
Net proceeds from issuances of common stock.................    72,779        101        114
Net proceeds from issuances of convertible preferred
  stock.....................................................        --     14,961         --
                                                              --------    -------    -------
        Net cash provided by financing activities...........    68,101     14,902      2,298
                                                              --------    -------    -------
Net increase (decrease) in cash and cash equivalents........    34,201      2,685     (4,407)
Cash and cash equivalents at beginning of year..............     4,946      2,261      6,668
                                                              --------    -------    -------
Cash and cash equivalents at end of year....................  $ 39,147    $ 4,946    $ 2,261
                                                              ========    =======    =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid...............................................  $    380    $   577    $   325
                                                              ========    =======    =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
  ACTIVITIES
Equipment acquired under capital lease......................  $     --    $    --    $   481
                                                              ========    =======    =======
Options and warrants for services...........................  $     --    $    22    $    43
                                                              ========    =======    =======
Common stock for promissory note............................  $     --    $    15    $    --
                                                              ========    =======    =======
Deferred stock compensation.................................  $  2,819    $ 3,759    $    --
                                                              ========    =======    =======
</TABLE>

                            See accompanying notes.

                                        33
<PAGE>   36

                          ARGONAUT TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

     Argonaut Technologies, Inc. (the "Company") was incorporated in the state
of Delaware on November 10, 1994. The Company is a pioneer in the development,
manufacturing and marketing of innovative products that enable chemists to use
high-speed parallel synthesis for the development of new drugs. Parallel
synthesis is a process by which multiple compounds are created simultaneously.
The Company's products include a variety of parallel chemical synthesizers and
reagents and enable chemists to increase their productivity, accelerate the drug
development process and reduce costs. The Company's products are used for
chemistry development in the pharmaceutical, biotechnology, life sciences, and
chemical research fields worldwide. Its principal markets are in the United
States, Western Europe, and the Far East.

     The Company has two wholly owned subsidiaries, Argonaut Technologies KK in
Japan and Argonaut Technologies AG in Switzerland.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts and results of
operations of the Company and its wholly owned subsidiaries, Argonaut
Technologies KK and Argonaut Technologies AG. All significant intercompany
accounts and transactions have been eliminated on consolidation.

FOREIGN CURRENCY TRANSLATION

     The Company translates the assets and liabilities of its foreign
subsidiaries stated in local functional currencies to U.S. dollars at the rates
of exchange in effect at the end of the period. Revenues and expenses are
translated using rates of exchange in effect during the period. Gains and losses
from translation of financial statements denominated in foreign currencies, if
material, are included in stockholders' equity.

FOREIGN CURRENCY TRANSACTIONS

     The Company records foreign currency transactions at the exchange rate
prevailing at the date of the transaction. Monetary assets and liabilities
denominated in foreign currency are retranslated at the exchange rates in effect
at the balance sheet date. All translation differences arising from foreign
currency transactions are recorded through profit and loss.

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.

CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

     The Company invests its excess cash in deposits, money market accounts, and
high quality marketable debt securities. The Company considers all highly liquid
investments with a maximum original maturity of 90 days or less at the time of
purchase to be cash equivalents.

     The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115").

                                        34
<PAGE>   37
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Under SFAS 115, all affected debt and equity securities must be stated at
fair value and classified as held-to-maturity, trading, or available-for-sale.
Management determines the appropriate classification of securities at the time
of purchase and reevaluates such designation as of each balance sheet date.

     All investments in debt securities have been designated as
available-for-sale. Short-term investments are carried at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, if material. Realized gains and losses and declines in value judged to
be other- than-temporary, if any, on short-term investments are included in
other income. The cost of securities sold is based on the specific
identification method. Interest on securities classified as available-for-sale
is included in interest income.

REVENUE RECOGNITION

     The Company recognizes revenue upon transfer of title, after collectibility
is assured and fees are fixed and determinable. For products with no future
obligation, revenue is recognized upon shipment when the recognition criteria
has been met. For those products where the Company has obligations to provide
installation services, revenue is recognized upon installation when the
recognition criteria has been met. Sales which require customer acceptance or
have rights of return are not recognized as revenue until the requirements have
been met or rights of return have expired.

     The Company has entered into agreements with certain customers whereby the
customers provide funds for the development of new products or product
enhancements. The amounts paid by the customers are applied toward the purchase
of products from the Company. These amounts have been recorded as deferred
revenue in the accompanying balance sheet and will be recognized upon shipment
of a product and when all performance obligations have been met.

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 on an as-incurred basis.

SOFTWARE DEVELOPMENT COSTS

     Software development costs included in the research and development of new
products and enhancements to existing products are expensed as incurred until
technological feasibility in the form of a working model has been established.
To date, software development costs subsequent to reaching feasibility have not
been significant and accordingly, no costs have been capitalized.

ADVERTISING COSTS

     Advertising costs are accounted for as expenses in the period in which they
are incurred. Advertising expense for 2000, 1999, and 1998 was $373,000,
274,000, and $243,000, respectively.

INVENTORIES

     Inventories are stated at the lower of cost (on a first-in, first-out cost
method) or market value. Reserves are established for excess, slow-moving or
obsolete inventory on a specific identification basis and include considerations
such as changes in customer demand, technology developments or other economic
factors.

                                        35
<PAGE>   38
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets, which range
from two to five years. Leasehold improvements are amortized over the shorter of
the lease term or the estimated useful life.

IMPAIRMENT OF LONG-LIVED ASSETS

     In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews
long-lived assets, including property and equipment, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of
the assets may not be fully recoverable. Under SFAS 121, an impairment loss
would be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition is less than it
carrying amount. Impairment, if any, is assessed using discounted cash flows.
Through December 31, 2000, there have been no such losses.

CONCENTRATIONS OF RISK

     The Company outsources part of its manufacturing process to third party
contractors. There are no other third party contractors who could readily assume
this manufacturing function on short notice. Any delay in production could
result in failure to meet customer demand.

     Cash equivalents and short-term investments are financial instruments,
which potentially subject the Company to concentration of risk to the extent
recorded on the balance sheet. Management of the Company believes it has
established guidelines for investment of its excess cash relative to
diversification and maturities that maintain safety and liquidity.

ACCOUNTING FOR STOCK-BASED COMPENSATION

     As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to continue to account for its employee stock options in accordance with the
provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") and related interpretations. Pro forma disclosures
required by SFAS 123 are included in Note 8.

     Equity instruments granted to consultants are accounted for using the
Black-Scholes method 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.

COMPREHENSIVE LOSS

     Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), requires unrealized gains or losses on the
Company's short-term investments and foreign currency translation adjustments to
be included as part of total comprehensive loss. Total comprehensive loss has
been disclosed in the consolidated statement of stockholders' equity.

                                        36
<PAGE>   39
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NET LOSS PER SHARE

     Net loss per share has been computed according to the Financial Accounting
Standards No. 128, "Earnings Per Share," which requires disclosure of basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, shares subject to repurchase, warrants, and convertible
securities. Diluted earnings per share includes the impact of potentially
dilutive securities (calculated using the treasury stock method).

     Pro forma net loss per share includes shares issuable upon the conversion
of outstanding shares of preferred stock (using the as-if-converted method) from
the original date of issuance.

     A reconciliation of shares used in the calculations is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000       1999      1998
                                                          -------    -------    -----
<S>                                                       <C>        <C>        <C>
Basic and diluted:
  Weighted-average shares of common stock outstanding...    9,538      2,142    1,834
  Less: weighted-average shares subject to repurchase...       --         --     (124)
                                                          -------    -------    -----
  Weighted-average shares used in net loss per share,
     basic and diluted..................................    9,538      2,142    1,710
                                                                                =====
  Adjustment to reflect weighted-average effect of
     assumed conversions of preferred stock
     (unaudited)........................................    5,471      9,121
                                                          -------    -------
  Weighted-average shares used in pro forma net loss per
     share, basic and diluted (unaudited)...............   15,009     11,263
                                                          -------    -------
  Pro forma net loss per share, basic and diluted
     (unaudited)........................................  $ (0.50)   $ (0.68)
                                                          =======    =======
</TABLE>

     During all periods presented, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. These outstanding securities consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             ------------------------
                                                             2000      1999     1998
                                                             -----    ------    -----
<S>                                                          <C>      <C>       <C>
Convertible preferred stock................................     --    11,339    8,731
Outstanding options........................................  1,616     1,776    1,426
Warrants...................................................    125       136      116
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

  Derivative Instruments

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value though net
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset against the change
in fair value of asset, liabilities, or firm commitments thought earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. SFAS 133, as amended, is effective for the first fiscal quarter in
fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133 on
January 1, 2001 and does not expect this pronouncement to materially impact the
results of its operations, as it does not currently hold or engage in hedging
activities.

                                        37
<PAGE>   40
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 2. MARKETABLE SECURITIES

     Marketable securities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             AMORTIZED COST
                                                             AND FAIR VALUE
                                                             AT DECEMBER 31,
                                                            -----------------
                                                             2000       1999
                                                            -------    ------
<S>                                                         <C>        <C>
Money market funds........................................  $     5    $    5
U.S. government obligations...............................   71,391        --
Corporate commercial paper................................       --     3,692
Corporate notes...........................................       --     3,247
Market auction preferreds.................................       --     2,114
                                                            -------    ------
                                                            $71,396    $9,058
                                                            =======    ======
Reported As:
  Cash equivalents........................................  $37,171    $2,931
  Short-term investments..................................   34,225     6,127
                                                            =======    ======
                                                            $71,396    $9,058
                                                            =======    ======
</TABLE>

     Market auction preferreds are short-term debt securities in which interest
is reset every seven to twenty-eight days. The investor can elect to withdraw
the funds or reinvest at the new interest rate at each reset date.

     At December 31, 2000 and 1999, the maturity of the investments was between
one and four months.

     There were no material gross realized gains or losses from sales of
securities in the periods presented. Unrealized gains and losses on investments
were not material at December 31, 2000 and 1999.

 3. INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              2000      1999
                                                             ------    ------
<S>                                                          <C>       <C>
Raw materials..............................................  $1,693    $1,175
Work in process............................................     649       208
Finished goods.............................................     440       727
                                                             ------    ------
                                                             $2,782    $2,110
                                                             ======    ======
</TABLE>

 4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Laboratory and office equipment..........................  $ 4,579    $ 3,738
Leasehold improvements...................................      255        250
                                                           -------    -------
                                                             4,834      3,988
Less accumulated depreciation and amortization...........   (3,091)    (2,368)
                                                           -------    -------
Property and equipment, net..............................  $ 1,743    $ 1,620
                                                           =======    =======
</TABLE>

                                        38
<PAGE>   41
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Equipment leased under capital leases is included in laboratory and office
equipment. At December 31, 2000 and 1999, equipment under capital leases was
approximately $1.5 million and $1.5 million with accumulated amortization of
approximately $1.1 million, and $898,000, respectively.

 5. NOTE RECEIVABLE FROM OFFICER

     In December 1996, an officer of the Company borrowed $200,000 in exchange
for a note secured by the officer's residence. The note and accrued interest, at
a rate of 6.31% per annum, are due at the earlier of December 17, 2001,
disposition of the officer's residence, or at the time of separation from the
Company.

 6. LEASES

     The Company leases its primary office and research facilities in San
Carlos, California and a research facility in Arizona under operating leases
which expire in July 2001 and April 2002, respectively. The company is currently
seeking several alternatives in California and is actively negotiating with
several parties for facilities in 2001. The Company finances certain laboratory
and office equipment under capital leases. Future minimum lease payments under
all noncancelable leases are as follows (in thousands):

<TABLE>
<CAPTION>
                                                  CAPITAL LEASES    OPERATING LEASES
                                                  --------------    ----------------
<S>                                               <C>               <C>
Year ended December 31,
  2001..........................................      $ 327               $435
  2002..........................................        193                 13
                                                      -----               ----
          Total minimum payment required........        520               $448
                                                                          ====
Less amount representing interest...............        (52)
                                                      -----
Present value of future lease payments..........        468
Less current portion............................       (288)
                                                      -----
Noncurrent obligations under capital leases.....      $ 180
                                                      =====
</TABLE>

     Rent expense under operating leases was approximately $641,000, $511,000,
and $477,000, in 2000, 1999, and 1998, respectively.

 7. LONG-TERM DEBT

     In July 1997, the Company entered into a loan agreement for $1.5 million
with a financial institution. The loan has an interest rate of 10.5%. It was
secured by the assets of the Company and subordinated to institutional
creditors. Under the terms of the loan agreement, the Company issued warrants to
purchase 22,000 shares of common stock. The loan was repaid in full in August
2000 and the security was removed.

     In July 1997, the Company entered into a capital lease agreement for $1.5
million with a financial institution. The loan has an interest rate of 10.5% and
is repayable in 48 monthly installments from the date the funds were used for
capital expenditures. It is secured by the assets of the Company and
subordinated to institutional creditors. Under the terms of the capital lease
agreement, the Company issued warrants to purchase 8,799 shares of common stock.

     In July 1998, the Company entered into a loan agreement (the "Loan") and a
receivables loan agreement (the "Receivables Loan") with a financial institution
for a total of up to $8.0 million ($4.0 million under each loan). The Loan bears
interest at rates of 11.75% to 12.5% and is repayable in 16 quarterly
installments after an initial three quarters of interest-only payments. The
Receivables Loan bears interest at prime plus 1.5% at the time of the draw down
and the average interest rate for 2000 and 1999 was 9.5% and 10.0%,
respectively. The Receivables Loan is repayable two years after the draw down
and interest is payable monthly.

                                        39
<PAGE>   42
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Also, under the terms of the Loan agreement, the Company is required to
issue warrants to purchase 17,600 shares of common stock for each draw down of
$1.0 million. Under the terms of the Receivables Loan agreement, the Company is
required to issue two warrants each to purchase 14,666 shares of common stock,
one on signing of the agreement and the second if the draw down exceeds $2.0
million. Both loans are secured by the assets of the Company and subordinated to
institutional creditors.

     At December 31, 1999, the Company had drawn down $2.0 million against the
Loan line and $2.0 million against the Receivables Loan line and issued three
warrants to purchase a total of 49,866 shares of common stock (see Note 8). The
balance of the Loan and the Receivables Loan was repaid in August 2000.

     The carrying amount for the Company's long-term and short-term debt
approximated fair value at each of balance sheet date. The fair value of the
Company's debt was estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rate for similar types of borrowing
arrangements.

 8. STOCKHOLDERS' EQUITY

  Common Stock

     In July 2000, the Company completed its initial public offering of
5,290,000 shares of common stock, inclusive of the underwriters' over-allotment
option, at a price of $15.00 per share. The Company received approximately $72.5
million in net proceeds after underwriting discounts of $5,554,000 and other
offering costs of $1,337,000. In conjunction with the initial public offering,
the Company effected a 0.88 for one reverse stock split of the common stock.
Upon the close of the initial public offering, all of the outstanding
convertible preferred stock was automatically converted into shares of common
stock.

     In May 1999, the Company issued 13,200 shares of common stock to a director
of a subsidiary company in exchange for a promissory note. The promissory note
was recorded in current assets at December 31, 1999 and was repaid in March
2000.

     Also in May 1999, the Company issued 17,600 shares of common stock to a
charitable foundation as a donation. The fair value of the common stock was
expensed at the time of issuance.

CONVERTIBLE PREFERRED STOCK

     The authorized, issued and outstanding Series A, A-1, B, B-1, C, C-1, D,
and D-1 shares of convertible preferred stock at December 31, 1999 were as
follows:

<TABLE>
<CAPTION>
                                                                 SHARES       ISSUANCE      AGGREGATE
                                               SHARES          ISSUED AND     PRICE PER    LIQUIDATION
     DESIGNATION (ALL CONVERTIBLE)           AUTHORIZED        OUTSTANDING      SHARE      PREFERENCE
     -----------------------------        -----------------    -----------    ---------    -----------
<S>                                       <C>                  <C>            <C>          <C>
  Series A..............................      5,000,000         4,627,500       $1.00      $ 4,627,500
  Series A-1............................      5,000,000                --          --               --
  Series B..............................      3,000,000         2,923,073       $3.25        9,499,987
  Series B-1............................      3,000,000                --          --               --
  Series C..............................      1,600,000         1,180,000       $5.00        5,900,000
  Series C-1............................      1,600,000                --          --               --
  Series D..............................      2,700,000         2,608,695       $5.75       14,999,996
  Series D-1............................      2,700,000                --          --               --
                                             ----------        ----------                  -----------
December 31, 1999.......................     24,600,000        11,339,268                  $35,027,483
                                             ==========        ==========                  ===========
</TABLE>

     Upon completion of the Company's initial public offering in July 2000, all
of the outstanding shares of convertible preferred stock were converted to
common stock on a 0.88 to one basis.

                                        40
<PAGE>   43
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

WARRANTS

     In conjunction with a capital lease line executed in April 1995, the
Company issued a warrant to purchase 44,000 shares of common stock at an
exercise price of $1.36 per share. The warrant expires in April 2001.

     In 1997, the Company issued a series of warrants to purchase 30,799 shares
of common stock at an exercise price of $6.82 per share in connection with the
execution of a capital lease line and a loan and security agreement. These
warrants expire at various dates through August 2004. At December 31, 2000, all
of these warrants were still outstanding.

     In 1998, the Company issued two warrants to purchase a total of 32,266
shares of common stock at an exercise price of $6.82 per share in connection
with two loan agreements entered into in July 1998 (see Note 7). These warrants
expire in July 2005. At December 31, 2000, all of these warrants were still
outstanding. The fair value of these warrants, determined using a Black-Scholes
valuation model, was $40,699 and has been recorded as interest expense.

     In 1999, the Company issued one warrant to purchase 17,600 shares of common
stock at an exercise price of $6.82 per share in connection with a drawdown on
one of their loans (see Note 7). The warrant expires in January 2003. At
December 31, 2000, this warrant was still outstanding. The fair value of the
warrant, determined using a Black-Scholes valuation model, was $22,200 and has
been recorded as interest expense.

1995 INCENTIVE STOCK PLAN

     The Company's 1995 Incentive Stock Plan (the "1995 Plan") provides for (i)
the grant of incentive stock options to employees, (ii) the grant of
nonstatutory stock options to employees and consultants, and (iii) the grant of
stock purchase rights. A total of 3,464,179 shares of common stock have been
authorized for issuance under the 1995 Plan.

     Under the terms of the 1995 Plan, the options and purchase rights granted
generally vest at a rate of 25% at the end of the first year with the remaining
balance vesting in equal amounts over the next 36 months.

2000 INCENTIVE STOCK PLAN

     In April 2000, the Company adopted its 2000 Incentive Stock Plan (the "2000
Plan") and initially reserved a total of 1,760,000 shares of common stock for
issuance. Under the terms of the 2000 Plan, the number of shares reserved shall
increase annually on the first day of the Company's fiscal year beginning 2001
by the lessor of (i) 1,320,000 shares, (ii) 5% of the outstanding shares on such
date or (iii) an amount determined by the Board. The 2000 Plan provides for (i)
the grant of incentive stock options to employees, (ii) the grant of
non-statutory stock options to employees and consultants, and (iii) the grant of
stock purchase rights. The 2000 Plan permits options and or purchase rights to
be granted at an exercise price of not less than 100% of the fair value on the
date of the grant. The vesting term of option and purchase rights is determined
by the Board of Directors and is generally over four years.

                                        41
<PAGE>   44
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     A summary of activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                      SHARES                   AVERAGE
                                                     AVAILABLE    NUMBER OF    EXERCISE
                                                     FOR GRANT     OPTIONS      PRICE
                                                     ---------    ---------    --------
<S>                                                  <C>          <C>          <C>
Balance at December 31, 1997.......................    680,766    1,219,138     $0.34
  Options granted..................................   (519,888)     519,888      0.57
  Options exercised................................         --     (236,375)     0.31
  Options canceled.................................     76,912      (76,912)     0.41
  Shares repurchased...............................     27,820           --      0.09
                                                     ---------    ---------
Balance at December 31, 1998.......................    265,610    1,425,739      0.43
  Additional shares authorized.....................  1,320,000           --        --
  Common stock granted out of the Plan.............    (13,200)          --        --
  Options granted..................................   (882,290)     882,290      1.07
  Options exercised................................         --     (288,920)     0.35
  Options canceled.................................    243,592     (243,592)     0.57
  Shares repurchased...............................        990           --      0.06
                                                     ---------    ---------
Balance at December 31, 1999.......................    934,702    1,775,517      0.74
  Additional shares authorized.....................  1,760,000           --        --
  Options granted..................................   (671,613)     671,613      7.16
  Options exercised................................         --     (659,077)     0.49
  Options canceled.................................    171,786     (171,786)     1.61
                                                     ---------    ---------
Balance at December 31, 2000.......................  2,194,875    1,616,267      3.42
                                                     =========    =========
</TABLE>

     All options and shares were granted with exercise prices equal to the fair
value of the Company's common stock as determined by the Company's board of
directors as follows:

<TABLE>
<CAPTION>
                               DECEMBER 31, 2000
-------------------------------------------------------------------------------
                                OPTIONS OUTSTANDING
                             --------------------------    OPTIONS EXERCISABLE
                                WEIGHTED                  ---------------------
                                 AVERAGE       WEIGHTED               WEIGHTED
                                REMAINING      AVERAGE                 AVERAGE
                 NUMBER OF     CONTRACTUAL     EXERCISE   NUMBER OF   EXERCISE
EXERCISE PRICES   OPTIONS    LIFE (IN YEARS)    PRICE      OPTIONS      PRICE
---------------  ---------   ---------------   --------   ---------   ---------
<S>              <C>         <C>               <C>        <C>         <C>
$          0.06    397,479        6.86          $ 0.49     243,424     $ 0.46
$          1.14    640,977        8.85          $ 1.14     177,877     $ 1.14
$ 5.68 - $ 8.38    440,531        9.24          $ 6.31       5,492     $ 5.68
$12.50 - $20.13    137,280        9.79          $12.99      10,142     $14.49
                 ---------                                 -------
                 1,616,267        8.58          $ 3.42     436,935     $ 1.15
                 =========                                 =======
</TABLE>

     There were 612,994 and 467,456 options exercisable as of December 31, 1999
and 1998, respectively.

     The weighted-average fair value of the stock options granted were $6.86,
$0.34, and $0.17 for the years ended December 31, 2000, 1999 and 1998,
respectively.

     In 2000, the Company granted 86,592 options outside of its options plans to
certain employees and one consultant at a weighted-average exercise price of
$4.53. At December 31, 2000, all of these options were still outstanding. These
outstanding options had a weighted-average remaining contractual life of 9.48
years. Of the outstanding options, 24,992 shares were exercisable at December
31, 2000 with an exercise price of $1.68.

                                        42
<PAGE>   45
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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 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 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:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                       ---------------------------------
                                                         2000        1999        1998
                                                       ---------    -------    ---------
<S>                                                    <C>          <C>        <C>
Risk-free interest rate..............................    5.00%       5.32%       5.08%
Dividend yield.......................................     --          --          --
Weighted-average expected life.......................   6 years     7 years    6.5 years
Volatility...........................................    0.90         --          --
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net loss:
  As reported.........................................  $(7,521)   $(7,603)   $(5,656)
  Pro forma...........................................  $(8,122)   $(7,894)   $(5,740)
Basic and diluted net loss per share:
  As reported.........................................  $ (0.79)   $ (3.55)   $ (3.31)
  Pro forma...........................................  $ (0.85)   $ (3.69)   $ (3.36)
</TABLE>

     The pro forma net loss is not necessarily indicative of potential pro forma
effects on results for future years.

     In connection with the grant of certain stock options to employees for the
years ended December 31, 2000 and 1999, the Company recorded deferred stock
compensation of approximately $2.8 million and $3.8 million, respectively. These
amounts represent the difference between the fair value of the common stock and
the option exercise price at the date of grant. Deferred stock compensation
expense is being amortized over the four-year vesting period of the options
using the graded vesting period. The amount of deferred compensation expense to
be recorded in future periods could decline if options for which accrued but
unvested compensation has been recorded are forfeited. The Company recorded
amortization of deferred stock compensation of approximately $2.9 million and
$653,000 for the years ended December 31, 2000 and 1999, respectively.

     In 2000, the Company granted performance based options to certain of its
employees and record a stock compensation expense of $86,000 on the date the
performance criteria were met and the options were vested. At December 31, 2000,
the Company has 26,410 options subject to performance criteria. The Company will
record stock compensation related to these options when and if they vest.

     The Company has granted 70,412, 4,401, and 13,200 options to consultants in
exchange for services in 2000, 1999 and 1998, respectively. The Company recorded
compensation expense related to these options of $617,000 for the year ended
December 31, 2000 and $12,000 for the year ended December 31, 1999. In
accordance with SFAS 123 and EITF 96-18, options granted to consultants are
periodically revalued as they vest.

                                        43
<PAGE>   46
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2000 EMPLOYEE STOCK PURCHASE PLAN

     In April 2000, the Company adopted its 2000 Employee Stock Purchase Plan
(the "Purchase Plan") and initially reserved a total of 176,000 shares. Under
the terms of the Purchase Plan, the number of shares reserved shall increase
annually on the first day of the Company's fiscal year beginning in 2001 by the
lesser of (i) 440,000 shares, (ii) 2% of the outstanding shares on such date or
(iii) a lesser amount determined by the board. The Purchase Plan permits
eligible employees to purchase common stock at a discount through payroll during
defined offering periods. The price at which the stock is purchased is equal to
the lower of 85% of the fair market value of the common stock on the first day
of the offering or 85% of the fair market value of the Company's common stock on
the purchase date. The initial offering period commenced on November 1, 2000. As
of December 31, 2001, no shares have been issued under the stock purchase plan.

RESERVED SHARES

     As of December 31, 2000, the Company has reserved shares of common stock
for future issuance as follows:

<TABLE>
<S>                                                         <C>
Warrants..................................................    124,665
Incentive stock plan......................................  3,897,734
Employee Stock Purchase Plan..............................    176,000
                                                            ---------
                                                            4,198,399
                                                            =========
</TABLE>

 9. 401(k) RETIREMENT SAVINGS PLAN

     The Company maintains a 401(k) retirement savings plan for its full-time
employees. Each participant in the Plan may elect to contribute from 1% to 20%
of annual compensation to the Plan. The Company, at its discretion, may make
contributions to the Plan. The Company's expenses related to the Plan have been
immaterial.

10. INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Deferred tax assets:
  Net operating losses.................................  $  9,200    $  8,200
  Research credits.....................................     1,100       1,100
  Capitalized research and development.................     1,000         800
  Non-deductible accruals and reserves.................       800
  Other................................................       800         400
                                                         --------    --------
          Total deferred tax assets....................    12,900      10,500
                                                         --------    --------
Valuation allowance....................................   (12,900)    (10,500)
                                                         --------    --------
Net deferred tax assets:                                 $     --    $     --
                                                         ========    ========
</TABLE>

     Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $2,400,000 and $2,500,000 during 2000 and 1999
respectively.

                                        44
<PAGE>   47
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     As of December 31, 2000, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $26,000,000, which expire in
the years 2010 through 2020 and federal research and development tax credits of
approximately $700,000, which expire in the years 2012 through 2020.

     Utilization of the Company's net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.

11. MARKET SALES, EXPORT SALES, AND SIGNIFICANT CUSTOMERS

     The Company has determined that it operates in only one segment in
accordance with SFAS 131 as it only reports profit and loss information on an
aggregate basis to its chief operating decision maker.

     The Company had net sales by market as follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Instruments...........................................  $13,054    $ 7,572    $10,074
Consumables...........................................    3,762      2,438      1,655
Services..............................................      633        548        347
                                                        -------    -------    -------
                                                        $17,449    $10,558    $12,076
                                                        =======    =======    =======
</TABLE>

     The Company had net sales by geographical region as follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
U.S.A.................................................  $12,981    $ 6,472    $ 7,279
Western Europe........................................    2,128      2,687      2,649
Far East (principally Japan)..........................    2,340      1,399      2,148
                                                        -------    -------    -------
                                                        $17,449    $10,558    $12,076
                                                        =======    =======    =======
</TABLE>

     An international distributor represented 13% of total net sales during the
year ended December 31, 1998. No single customer accounted for more than 10% of
total net sales during 1999 and 2000.

     Revenues are attributed to countries based on the location of the customer.

12. UNAUDITED QUARTERLY DATA

<TABLE>
<CAPTION>
                                               DECEMBER 31,    SEPTEMBER 30,    JUNE 30,    MARCH 31,
                                                   2000            2000           2000        2000
                                               ------------    -------------    --------    ---------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>             <C>              <C>         <C>
Net sales....................................    $ 5,290          $ 4,532       $ 4,063      $ 3,564
Loss from operations.........................     (2,356)          (2,368)       (2,670)      (2,027)
Net loss.....................................     (1,194)          (1,595)       (2,715)      (2,017)
Net loss per share, basic & diluted..........      (0.07)           (0.11)        (1.02)       (0.86)
</TABLE>

<TABLE>
<CAPTION>
                                               DECEMBER 31,    SEPTEMBER 30,    JUNE 30,    MARCH 31,
                                                   1999            1999           1999        1999
                                               ------------    -------------    --------    ---------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>             <C>              <C>         <C>
Net sales....................................    $ 2,604          $ 2,189       $ 2,784      $ 2,981
Loss from operations.........................     (2,683)          (1,941)       (1,587)      (1,225)
Net loss.....................................     (2,663)          (1,771)       (1,772)      (1,397)
Net loss per share, basic & diluted..........      (1.16)           (0.82)        (0.86)       (0.68)
</TABLE>

                                        45
<PAGE>   48
                          ARGONAUT TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUBSEQUENT EVENTS (UNAUDITED)

ACQUISITION OF CAMILE PRODUCTS, LLC

     On March 1, 2001, the Company completed its acquisition of Camile Products
LLC ("Camile"). The Company issued 666,667 shares of the Company's common stock
and paid $4 million in cash for all of the outstanding capital stock of Camile.
The Company expects to account for this acquisition using the purchase method.

                                        46
<PAGE>   49

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     There have been none.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information regarding our directors is incorporated by reference from
"Election of Directors -- Directors and Nominees" in our Proxy Statement for our
2001 Annual Meeting of Stockholders. The required information concerning our
executive officers contained in the section entitled "Executive Officers of the
Registrant" in Part I of this Form 10-K.

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our executive officers and directors and persons who
own more than ten percent (10%) of a registered class of our equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission") and the National Association of
Securities Dealers, Inc. Executive officers, directors and greater than ten
percent (10%) stockholders are required by Commission regulation to furnish us
with copies of all Section 16(a) forms they file. We believe that all of our
executive officers and directors complied with all applicable filing
requirements during the fiscal year ended December 31, 2000.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference from our
definitive Proxy Statement referred to in Item 10 above under the heading
"Executive Compensation and Other Matters."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference from our
definitive Proxy Statement referred to in Item 10 above under the heading
"Security Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference from our
definitive Proxy Statement referred to in Item 10 above under the heading
"Certain Relationships and Related Transactions."

                                        47
<PAGE>   50

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this Form 10-K:

          (1) Financial Statements

          (2) Financial Statement Schedule

          All schedules have been omitted since the required information is not
     present in amounts sufficient to require submission of the schedule or
     because the information required is included in the financial statements or
     notes thereto.

          (3) Exhibits:

<TABLE>
<CAPTION>
    NUMBER                      DESCRIPTION OF DOCUMENT
    ------                      -----------------------
    <C>       <S>
     3.1*     Amended and Restated Certificate of Incorporation of the
              Registrant.
     3.2*     Bylaws of Registrant.
    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.
    21.1      Subsidiaries of the Registrant.
    23.1      Consent of Ernst & Young LLP, Independent Auditors.
    24.1      Power of Attorney (see Form 10-K signature page).
</TABLE>

---------------
* 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) Reports on Form 8-K

     None.

                                        48
<PAGE>   51

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          ARGONAUT TECHNOLOGIES, INC.

                                          By:  /s/ DAVID P. BINKLEY, PH.D.
                                            ------------------------------------
                                                  David P. Binkley, Ph.D.
                                               President and Chief Executive
                                                           Officer

Dated: April 2, 2001

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David P. Binkley and John T. Supan, and
each of them, his true and lawful attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any amendments to this
report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact or their
substitute or substitutes may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<S>                                                    <C>                               <C>

             /s/ DAVID P. BINKLEY, PH.D.                President and Chief Executive    April 2, 2001
-----------------------------------------------------    Officer, Director (Principal
               David P. Binkley, Ph.D.                        Executive Officer)

                  /s/ JOHN T. SUPAN                        Chief Financial Officer       April 2, 2001
-----------------------------------------------------      (Principal Financial and
                    John T. Supan                            Accounting Officer)

                   /s/ BROOK BYERS                                 Director              April 2, 2001
-----------------------------------------------------
                     Brook Byers

                                                                   Director
-----------------------------------------------------
                  Samuel D. Colella

                                                                   Director
-----------------------------------------------------
                  Hingge Hsu, M.D.

              /s/ BRIAN METCALF, PH.D.                             Director              April 2, 2001
-----------------------------------------------------
                Brian Metcalf, Ph.D.

            /s/ WILLIAM RASTETTER, PH.D.                           Director              April 2, 2001
-----------------------------------------------------
              William Rastetter, Ph.D.

                                                                   Director
-----------------------------------------------------
                   James Schlater
</TABLE>

                                        49
<PAGE>   52

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    NUMBER                      DESCRIPTION OF DOCUMENT
    ------                      -----------------------
    <C>       <S>
     3.1*     Amended and Restated Certificate of Incorporation of the
              Registrant.
     3.2*     Bylaws of Registrant.
    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.
    21.1      Subsidiaries of the Registrant.
    23.1      Consent of Ernst & Young LLP, Independent Auditors.
    24.1      Power of Attorney (see Form 10-K signature page).
</TABLE>

---------------
* 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.

                                        50