##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22570


Solexa, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3161073                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

25861 Industrial Blvd., Hayward, CA 94545


(Address of principal executive offices, including zip
code)


(510) 670-9300


(Registrants 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, $.01 par value per share


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2




|                           |                      |                         
|-------------------------- | -------------------- | ------------------------
|Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  þ

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##### 










SOLEXA, INC.


ANNUAL REPORT ON
FORM 10-K


For the Fiscal Year Ended


December 31, 2005


Table of Contents


|                |  |                                                                                                                         |  |      |    | 
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                |  |                                                                                                                         |  | Page
|                |  |                                                                                                                         |  |     
|PART I         
|Item 1.         |  | Business                                                                                                                |  |      | 2  | 
|Item 1A.        |  | Risk Factors                                                                                                            |  |      | 6  | 
|Item 1B.        |  | Unresolved Staff Comments                                                                                               |  |      | 14 | 
|Item 2.         |  | Properties                                                                                                              |  |      | 14 | 
|Item 3.         |  | Legal Proceedings                                                                                                       |  |      | 15 | 
|Item 4.         |  | Submission of Matters to a Vote of Security
    Holders                                                                 |  |      | 15 | 
|PART II        
|Item 5.         |  | Market for Registrants Common Equity
    and Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 15 | 
|Item 6.         |  | Selected Financial Data                                                                                                 |  |      | 17 | 
|Item 7.         |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                               |  |      | 18 | 
|Item 7A.        |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                          |  |      | 26 | 
|Item 8.         |  | Financial Statements and Supplementary
    Data                                                                         |  |      | 28 | 
|Item 9.         |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosures                               |  |      | 56 | 
|Item 9A.        |  | Controls and Procedures                                                                                                 |  |      | 56 | 
|Item 9B.        |  | Other Information                                                                                                       |  |      | 57 | 
|               
|PART III       
|Item 10.        |  | Directors and Executive Officers of the
    Registrant                                                                  |  |      | 57 | 
|Item 11.        |  | Executive Compensation                                                                                                  |  |      | 61 | 
|Item 12.        |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                      |  |      | 67 | 
|Item 13.        |  | Certain Relationships and Related
    Transactions                                                                      |  |      | 71 | 
|Item 14.        |  | Principal Accountant Fees and Services                                                                                  |  |      | 71 | 
|PART IV        
|Item 15.        |  | Exhibits and Financial Statements
    Schedule                                                                          |  |      | 72 | 
|Signatures      |  |                                                                                                                         |  |      |    | 
|EXHIBIT 10.27.1
|EXHIBIT-10.37.1
|EXHIBIT 21.1   
|EXHIBIT 23.1   
|EXHIBIT 23.2   
|EXHIBIT 31.1   
|EXHIBIT 31.2   
|EXHIBIT 32.1   



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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS


Except for the historical information contained herein, this
report contains certain information that is forward-looking in
nature. Examples of forward-looking statements include
statements regarding our future financial results, operating
results, product successes, business strategies, projected
costs, future products, competitive positions and plans and
objectives of management for future operations. In some cases,
you can identify forward-looking statements by terminology, such
as may, will, should,
expects, plans, optimistic,
anticipates, believes,
estimates, predicts,
potential, envisions, hopes,
intends, confident, could or
continue or the negative of such terms and other
comparable terminology. In addition, statements that refer to
expectations or other characterizations of future events or
circumstances are forward-looking statements. These statements
involve known and unknown risks and uncertainties that may cause
our or our industrys results, levels of activity,
performance or achievements to be materially different from
those expressed or implied by the forward-looking statements.
Factors that may cause or contribute to such differences
include, among others, those discussed under the captions
Item 1. Business  Business Risks and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. These and
many other factors could affect our future financial and
operating results. We undertake no obligation to update any
forward-looking statement to reflect events after the date of
this report, except as required by law or applicable
regulations.





PART I







|        |         
|------- | --------
|Item 1. | Business

Overview


tm


tm




Business Combination and Name Change




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Market Opportunity






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Determining the sequences of additional species, as has been
    done for humans. This is called de novosequencing.                                                                                                                                                                                                                                                                                                                                                                               
| |  | Determining how the DNA sequence of an individual varies from
    that of a reference genome. This is called resequencing, and it
    is often performed on just a fraction of a genome. The goal of
    resequencing is to identify mutations or variations among
    individuals. Resequencing is a comprehensive scan for mutations
    within the portion of the genome being resequenced.                                                                                                    
| |  | Identifying a molecule by its sequence for the purpose of
    identifying the presence, or quantifying the number, of
    molecules with a given sequence in a sample. This is called tag
    sequencing because the sequence determined is used as an
    identifier for the overall molecule of which it is a part.
    Precision measurements of gene expression and small RNA
    detection and quantification can be made using this approach.
    MPSS is another example of this technique.





| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sequencing part of the genetic material of an infectious agent,
    such as HIV, to distinguish among differing HIV strains that may
    require different medical treatment.                                                                                                                                                                  
| |  | Sequencing specific genes which, if mutated, can predispose the
    individual with those genes to a specific disease. Myriad
    Genetics, Inc., a biopharmaceutical company, for example, offers
    a clinical diagnostic service in which it sequences the BRCA1
    and BRCA2 genes in order to identify breast cancer
    susceptibility.
| |  | Sequencing specific genes to determine which subtype of a
    genetic disease an individual might have. Some genetic diseases
    can be caused by many different mutation locations within a
    specific gene, and the severity and progression of a disease can
    be determined by which mutations an individual possesses.               



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Our Products Under Development




Our Genomics Services Business












Customers




Competition






4



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Intellectual Property








Employees






5



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Available Information


10-K, 10-Q, 8-K 1-800-SEC-0330.







|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Business Risks


Our business faces significant risks. These risks include
those described below and may include additional risks of which
we are not currently aware or which we currently do not believe
are material. If any of the events or circumstances described in
the following risks actually occurs, our business, financial
condition or results of operations could be harmed. These risks
should be read in conjunction with the other information set
forth in this report.


We have a history of net losses, expect to continue to
incur net losses and may not achieve or maintain
profitability.




If we are unable to successfully develop and commercialize
our new products, we will not be able to increase our revenues
or become profitable.






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Our technology platform is at the development stage and is
unproven for market acceptance.






| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | technical and economic performance of our technologies in
    relation to competing technologies;                          
| |  | the acceptance of our technology in the marketplace;                                                                       
| |  | our ability to establish an instrument manufacturing capability,
    or obtain instruments from another manufacturer; and  
| |  | our ability to manufacture reagents and other consumables, or
    obtain licenses to resell reagents and other consumables.

de novo


We have limited experience in sales and marketing and thus
may be unable to further commercialize our genetic analysis
instrument systems and services.




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We will need to develop manufacturing capacity by
ourselves or with a partner.




We intend to implement a business model that is unproven
and different from our former business model.






We may need to raise additional funding, which may not be
available on favorable terms, if at all.








| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the progress and scope of research and development programs;                                                                                   
| |  | the progress of efforts to develop and commercialize new
    products and services; and                                                        
| |  | the costs of preparing, filing, prosecuting, maintaining,
    defending and enforcing patent claims and other intellectual
    property rights.



8



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We currently depend on a small number of genomics services
customers for substantially all our revenues.






Capacity reduction in our genomics services business could
increase our loss.




Our sales cycle for our genomics services business is
lengthy, and we may spend considerable resources on unsuccessful
sales efforts or may not be able to enter into agreements on the
schedule we anticipate.




We operate in an intensely competitive industry with
rapidly evolving technologies, and our competitors may develop
products and technologies that make ours obsolete.




9



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If management is unable to effectively manage the
increasing size and complexity of our organization, our
operating results will suffer.




We are subject to risks associated with our international
operations which may harm our business.






| |   |                                                  
| | - | -------------------------------------------------
| |  | fluctuations in currency exchange rates;         
| |  | imposition of additional taxes and penalties; and
| |  | the burden of complying with foreign laws.       

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We could lose key personnel, which could materially affect
our business and require us to incur substantial costs to
recruit replacements for lost personnel.




If we fail to adequately protect our proprietary
technologies, third parties may be able to use our technologies,
which could prevent us from competing in the market.






Litigation or third-party claims of intellectual property
infringement could require us to spend substantial time and
money and adversely affect our ability to develop and
commercialize our technologies and products.




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We use hazardous chemicals and radioactive and biological
materials in our business. Any claims relating to improper
handling, storage or disposal of these materials could be time
consuming and costly.




We currently utilize sole-source suppliers for certain
components of our Solexa Genome Analysis System and in our MPSS
service business.








| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the inability to obtain an adequate supply due to manufacturing
    capacity constraints, a discontinuation of a product by a
    third-party manufacturer or other supply constraints;
| |  | the potential lack of leverage in contract negotiations with the
    sole vendor;                                                                                                      
| |  | reduced control over quality and pricing of components; and                                                                                                                            
| |  | delays and long lead times in receiving materials from vendors.                                                                                                                        



Our facilities in Hayward, California are located near
known earthquake fault zones, and the occurrence of an
earthquake or other catastrophic disaster could cause damage to
our facilities and equipment, which could require us to cease or
curtail operations.




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Our stock price may be extremely volatile.






| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in our operating results;                                                                                                                         
| |  | announcements of technological innovations or new commercial
    products by us or our competitors;                                                            
| |  | release of reports by securities analysts;                                                                                                                     
| |  | developments or disputes concerning patent or proprietary rights;                                                                                              
| |  | developments in our relationships with current or future
    customers;                                                                                        
| |  | sales of our common stock by large holders, and distributions
    and/or sales of shares held by stockholders affiliated with
    certain of our directors; and
| |  | general market conditions.                                                                                                                                     



We have determined that we have a material weakness in our
internal controls over financial reporting. As a result, current
and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the
trading of our stock.




We are required to recognize expense for stock based
compensation related to employee stock options and employee
stock purchases, there is no assurance that the expense we are
required to recognize accurately measures the value of our
share-based payment awards, and the recognition of this expense
could cause the trading price of our common stock to
decline.




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Our companys officers, directors and their
affiliated entities have substantial control over the
company.




Anti-takeover provisions in our charter documents and
under Delaware law may make it more difficult to acquire us or
to effect a change in our management, even though an acquisition
or management change may be beneficial to our
stockholders.











|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Price Range of Common Stock




|                              |                |                    |   |       |     |  |   |      | 
|----------------------------- | -------------- | ------------------ | - | ----- | --- |  | - | ---- | 
|                              |                | Common Stock Price |  
|                              |                |                    |  
|                              |                | High               |   |       | Low | 
|                              |                |                    |   |       |     | 
|Year Ended December 31, 2005: |                |                    |   |       |     |  |   |     
|                              | First quarter  |                    | $ | 17.00 |     |  | $ | 8.20 | 
|                              | Second quarter |                    |   | 9.00  |     |  |   | 5.00 | 
|                              | Third quarter  |                    |   | 7.16  |     |  |   | 4.79 | 
|                              | Fourth quarter |                    |   | 10.87 |     |  |   | 5.57 | 
|Year Ended December 31, 2004: |                |                    |   |       |     |  |   |     
|                              | First quarter  |                    | $ | 13.72 |     |  | $ | 8.98 | 
|                              | Second quarter |                    |   | 10.60 |     |  |   | 3.98 | 
|                              | Third quarter  |                    |   | 5.02  |     |  |   | 2.96 | 
|                              | Fourth quarter |                    |   | 8.20  |     |  |   | 4.52 | 



Dividend Policy




15



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Recent Sales and Purchases of Unregistered Securities








16



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |        |       |       |   |        |       |       | 
|------------------------------------------------------- | -------------------------- | ---------------------------------------- | ------- | ------ | ------ | - | ------- | ----- | ------ | - | ------ | ----- | ----- | ---- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                        |                            | Year Ended December 31,                  |        
|                                                        |                            |                                          |        
|                                                        |                            | 2005                                     |         |        | 2004   |   |         | 2003  |        |   | 2002   |       |       | 2001 |       
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|                                                        |                            | (In thousands, except per share amounts) |        
|Revenues:                                               |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |        |       |       |   |        |      
|                                                        | Service revenue            |                                          | $       | 4,150  |        |   | $       | 96    |        |   | $      | 7     |       |      | $      |      |       |   |        |      |      
|Operating costs and expenses:                           |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |        |       |       |   |        |      
|                                                        | Cost of service revenue    |                                          |         | 7,066  |        |   |         |      |        |   |        |      |       |      |        |      |       |   |        |      |      
|                                                        | Research and development   |                                          |         | 17,294 |        |   |         | 6,870 |        |   |        | 5,266 |       |      |        | 3,991 |       |   |        | 1,718 |      
|                                                        | General and administrative |                                          |         | 12,030 |        |   |         | 3,184 |        |   |        | 1,459 |       |      |        | 1,325 |       |   |        | 895   |      
|                                                        | Restructuring charge       |                                          |         | 333    |        |   |         |      |        |   |        |      |       |      |        |      |       |   |        |      |      
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|                                                        |                            | Total operating costs and expenses       |         |        | 36,723 |   |         |       | 10,054 |   |        |       | 6,725 |      |        |       | 5,316 |   |        |       | 2,613 | 
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Loss from operations                                    |                            |                                          | (32,573 | )      |        |   | (9,958  | )     |        |   | (6,718 | )     |       |      | (5,316 | )     |       |   | (2,613 | )    
|Interest and other income (expense), net                |                            |                                          | (321    | )      |        |   | 402     |       |        |   | 362    |       |       |      | 555    |       |       |   | 104    |      
|Other income, net                                       |                            |                                          | 464     |        |        |   |        |       |        |   |       |       |       |      |       |       |       |   |       |      
|Gain on foreign exchange                                |                            |                                          | 271     |        |        |   | (164    | )     |        |   |       |       |       |      |       |       |       |   |       |      
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Loss before income taxes                                |                            |                                          | (32,159 | )      |        |   | (9,720  | )     |        |   | (6,356 | )     |       |      | (4,761 | )     |       |   | (2,509 | )    
|Income tax benefit                                      |                            |                                          | (2,999  | )      |        |   | (916    | )     |        |   | (707   | )     |       |      | (293   | )     |       |   |       |      
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Net loss                                                |                            |                                          | (29,160 | )      |        |   | (8,804  | )     |        |   | (5,649 | )     |       |      | (4,468 | )     |       |   | (2,509 | )    
|Dividends                                               |                            |                                          | (522    | )      |        |   | (1,229  | )     |        |   |       |       |       |      |       |       |       |   |       |      
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Net loss applicable to common stockholders              |                            | $                                        | (29,682 | )      |        | $ | (10,033 | )     |        | $ | (5,649 | )     |       | $    | (4,468 | )     |       | $ | (2,509 | )    
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Basic and diluted net loss per common share             |                            | $                                        | (1.51   | )      |        | $ | (9.68   | )     |        | $ | (5.45  | )     |       | $    | (4.31  | )     |       | $ | (3.31  | )    
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       
|Shares used in computation of net loss per common share |                            |                                          | 19,698  |        |        |   | 1,036   |       |        |   | 1,036  |       |       |      | 1,036  |       |       |   | 757    |      
|                                                        |                            |                                          |         |        |        |   |         |       |        |   |        |       |       |      |       

|                                                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                  |  | December 31,   |       
|                                                  |  |                |       
|                                                  |  | 2005           |        |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                  |  | (In thousands) |       
|Consolidated Balance Sheet Data:                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash, cash equivalents and short-term investments |  | $              | 38,403 |  |      | $ | 10,463 |      |  | $ | 8,907  |  |  | $    | 13,295 |  |  | $ | 16,853 | 
|Total assets                                      |  |                | 73,017 |  |      |   | 17,815 |      |  |   | 10,401 |  |  |      | 15,013 |  |  |   | 17,913 | 
|Stockholders equity                              |  |                | 59,773 |  |      |   | 431    |      |  |   | 9,606  |  |  |      | 14,207 |  |  |   | 17,136 | 



17



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. When used herein, the words
believe, anticipate, expect,
estimate and similar expressions are intended to
identify such forward-looking statements. There can be no
assurance that these statements will prove to be correct. Our
actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this
section. We undertake no obligation to update any of the
forward-looking statements contained herein to reflect any
future events or developments.


Overview




10-K






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Critical Accounting Policies and Estimates






| |        
| | -------
| | Revenue





| |                         
| | ------------------------
| | Forward Loss Contingency









| |          
| | ---------
| | Inventory

first-in,


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| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets







| |                         
| | ------------------------
| | Stock-Based Compensation







Recent Accounting Pronouncements








| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. A modified prospective method in which
    compensation cost is recognized beginning with the effective
    date (a) based on the requirements of SFAS 123R for
    all share-based payments granted after

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| |                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the effective date and (b) based on the requirements of
    Statement 123 for all awards granted to employees prior to
    the effective date of SFAS 123R that remain unvested on the
    effective date, or                                                                                                                                                                     
|
| | 2. A modified retrospective method which
    includes the requirements of the modified prospective method
    described above, but also permits entities to restate based on
    the amounts previously recognized under SFAS 123 for
    purposes of pro forma disclosures either (a) all prior
    periods presented or (b) prior interim periods of the year
    of adoption.



Results of Operations




| |         
| | --------
| | Revenues







| |                             
| | ----------------------------
| | Operating Costs and Expenses



Cost of Service Revenue. work-in


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Research and Development Expenses.






Sales, General and Administrative Expenses.


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Restructuring Charge.




| |                               
| | ------------------------------
| | Interest Income (Expense), Net





| |                  
| | -----------------
| | Other Income, Net





| |                               
| | ------------------------------
| | Income Tax Provision (Benefit)







| |          
| | ---------
| | Dividends



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Liquidity and Capital Resources


Operating Activities.


Investing Activities.


Financing Activities.






Operating Capital Requirements.




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Contractual Obligations and Commitments.


|                 |       |       |       |           |        |   |       |           |  |   |       |       | 
|---------------- | ----- | ----- | ----- | --------- | ------ | - | ----- | --------- |  | - | ----- | ----- | 
|                 |       |       |       | Less than |        |   |      
|                 |       | Total |       |           | 1 year |   |       | 1-3 years | 
|                 |       |       |       |           |        |   |       |           | 
|Equipment loan   |       | $     | 80    |           |        | $ | 34    |           |  | $ | 46    |      
|Operating leases |       |       | 8,682 |           |        |   | 2,844 |           |  |   | 5,838 |      
|                 |       |       |       |           |        |   |       |           | 
|                 | Total |       | $     | 8,762     |        |   | $     | 2,878     |  |   | $     | 5,884 | 
|                 |       |       |       |           |        |   |       |           | 

Off Balance Sheet Arrangements.







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk

10-K


Financial Risk Management




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Inflation




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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                            |  |      |    | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                            |  | Page |   
|                                                                                                            |  |      |   
|Reports of Independent Registered Public
    Accounting Firms                                               |  |      | 29 | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                            |  |      | 31 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2005, 2004, and 2003             |  |      | 32 | 
|Consolidated Statement of
    Stockholders Equity for the years ended December 31,
    2005, 2004 and 2003 |  |      | 33 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2005, 2004 and 2003              |  |      | 34 | 
|Notes to Consolidated Financial
    Statements                                                              |  |      | 35 | 

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Report of Independent Registered Public Accounting Firm














| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





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Report of Independent Registered Public Accounting Firm














| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





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SOLEXA, INC.





CONSOLIDATED BALANCE SHEETS


(In thousands, except share and per share amounts)


|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |   |        |         |        | 
|----------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                                            |                                                                                                                                                                                                                                                            | December 31,               |       
|                                                            |                                                                                                                                                                                                                                                            |                            |       
|                                                            |                                                                                                                                                                                                                                                            | 2005                       |        |         | 2004   |  
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|                                                           
|ASSETS                                                     
|Current assets:                                             |                                                                                                                                                                                                                                                            |                            |        |         |        |   |        |        
|                                                            | Cash and cash equivalents                                                                                                                                                                                                                                  |                            | $      | 38,403  |        |   | $      | 10,463  |       
|                                                            | Accounts receivable                                                                                                                                                                                                                                        |                            |        | 539     |        |   |        | 25      |       
|                                                            | Inventory                                                                                                                                                                                                                                                  |                            |        | 754     |        |   |        |        |       
|                                                            | Loan receivable from Lynx Therapeutics, Inc.                                                                                                                                                                                                               |                            |        |        |        |   |        | 2,500   |       
|                                                            | Other current assets                                                                                                                                                                                                                                       |                            |        | 2,422   |        |   |        | 1,875   |       
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|                                                            |                                                                                                                                                                                                                                                            | Total current assets       |        |         | 42,118 |   |        |         | 14,863 | 
|Property and equipment, net                                 |                                                                                                                                                                                                                                                            |                            | 4,378  |         |        |   | 1,009  |        
|Intangible assets, net                                      |                                                                                                                                                                                                                                                            |                            | 3,510  |         |        |   | 1,943  |        
|Goodwill                                                    |                                                                                                                                                                                                                                                            |                            | 22,529 |         |        |   |       |        
|Other non-current assets                                    |                                                                                                                                                                                                                                                            |                            | 482    |         |        |   |       |        
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|Total assets                                                |                                                                                                                                                                                                                                                            | $                          | 73,017 |         |        | $ | 17,815 |        
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                       
|Current liabilities:                                        |                                                                                                                                                                                                                                                            |                            |        |         |        |   |        |        
|                                                            | Accounts payable                                                                                                                                                                                                                                           |                            | $      | 2,235   |        |   | $      | 840     |       
|                                                            | Equipment financing, current portion                                                                                                                                                                                                                       |                            |        | 31      |        |   |        | 23      |       
|                                                            | Forward loss contingency reserve                                                                                                                                                                                                                           |                            |        | 1,028   |        |   |        |        |       
|                                                            | Accrued compensation                                                                                                                                                                                                                                       |                            |        | 2,067   |        |   |        | 207     |       
|                                                            | Accrued professional fees                                                                                                                                                                                                                                  |                            |        | 705     |        |   |        |        |       
|                                                            | Deferred rent and lease obligations, current portion                                                                                                                                                                                                       |                            |        | 801     |        |   |        |        |       
|                                                            | Deferred revenue, current portion                                                                                                                                                                                                                          |                            |        | 1,518   |        |   |        |        |       
|                                                            | Other accrued liabilities                                                                                                                                                                                                                                  |                            |        | 529     |        |   |        | 391     |       
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|                                                            |                                                                                                                                                                                                                                                            | Total current liabilities  |        |         | 8,914  |   |        |         | 1,461  | 
|Deferred revenue, net of current portion                    |                                                                                                                                                                                                                                                            |                            | 1,905  |         |        |   |       |        
|Equipment financing, net of current portion                 |                                                                                                                                                                                                                                                            |                            | 44     |         |        |   | 4      |        
|Deferred rent and lease obligations, net of current portion |                                                                                                                                                                                                                                                            |                            | 2,381  |         |        |   |       |        
|Series B preferred redeemable convertible shares            |                                                                                                                                                                                                                                                            |                            |       |         |        |   | 15,919 |        
|Stockholders equity:                                       |                                                                                                                                                                                                                                                            |                            |        |         |        |   |        |        
|                                                            | A convertible ordinary shares: $0.37 par value;
    no shares and 5,066,669 shares authorized at December 31,
    2005 and 2004, respectively; no shares and 5,066,669 shares
    issued and outstanding at December 31, 2005 and 2004,
    respectively |                            |        |        |        |   |        | 20      |       
|                                                            | Ordinary shares: $0.37 par value; no shares and
    4,428,513 shares authorized at December 31, 2005 and
    2004, respectively; no shares and 2,338,138 shares issued
    and outstanding at December 31, 2005 and 2004, respectively                     |                            |        |        |        |   |        | 9       |       
|                                                            | Preferred stock: $0.01 par value; 2,000,000 shares
    authorized; no shares issued and outstanding at
    December 31, 2005 and 2004, respectively                                                                                                        |                            |        |        |        |   |        |        |       
|                                                            | Common stock: $0.01 par value; 60,000,000 shares
    authorized; 30,027,182 shares and no shares issued and
    outstanding at December 31, 2005 and 2004, respectively                                                                                    |                            |        | 300     |        |   |        |        |       
|                                                            | Additional paid-in capital                                                                                                                                                                                                                                 |                            |        | 109,575 |        |   |        | 20,385  |       
|                                                            | Deferred compensation                                                                                                                                                                                                                                      |                            |        | (326    | )      |   |        |        |       
|                                                            | Accumulated other comprehensive income                                                                                                                                                                                                                     |                            |        | 2,064   |        |   |        | 2,697   |       
|                                                            | Accumulated deficit                                                                                                                                                                                                                                        |                            |        | (51,840 | )      |   |        | (22,680 | )     
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|                                                            |                                                                                                                                                                                                                                                            | Total stockholders equity |        |         | 59,773 |   |        |         | 431    | 
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  
|Total liabilities and stockholders equity                  |                                                                                                                                                                                                                                                            | $                          | 73,017 |         |        | $ | 17,815 |        
|                                                            |                                                                                                                                                                                                                                                            |                            |        |         |        |  

See accompanying notes.


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SOLEXA, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


|                                                                  |                                   |                                    |         |        |        |   |         |        |        |   |        |       |       | 
|----------------------------------------------------------------- | --------------------------------- | ---------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------ | ----- | ----- | 
|                                                                  |                                   | Year Ended December 31,            |        
|                                                                  |                                   |                                    |        
|                                                                  |                                   | 2005                               |         |        | 2004   |   |         | 2003   |       
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Revenues:                                                         |                                   |                                    |         |        |        |   |         |        |        |   |        |      
|                                                                  | Service revenue                   |                                    | $       | 4,150  |        |   | $       | 96     |        |   | $      | 7     |      
|Operating costs and expenses:                                     |                                   |                                    |         |        |        |   |         |        |        |   |        |      
|                                                                  | Cost of service revenue           |                                    |         | 7,066  |        |   |         |       |        |   |        |      |      
|                                                                  | Research and development          |                                    |         | 17,294 |        |   |         | 6,870  |        |   |        | 5,266 |      
|                                                                  | Sales, general and administrative |                                    |         | 12,030 |        |   |         | 3,184  |        |   |        | 1,459 |      
|                                                                  | Restructuring charge              |                                    |         | 333    |        |   |         |       |        |   |        |      |      
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|                                                                  |                                   | Total operating costs and expenses |         |        | 36,723 |   |         |        | 10,054 |   |        |       | 6,725 | 
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Loss from operations                                              |                                   |                                    | (32,573 | )      |        |   | (9,958  | )      |        |   | (6,718 | )    
|Interest income                                                   |                                   |                                    | 555     |        |        |   | 408     |        |        |   | 367    |      
|Interest expense                                                  |                                   |                                    | (876    | )      |        |   | (6      | )      |        |   | (5     | )    
|Other income (expense), net                                       |                                   |                                    | 464     |        |        |   |        |        |        |   |       |      
|Gain (loss) on foreign exchange                                   |                                   |                                    | 271     |        |        |   | (164    | )      |        |   |       |      
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Loss before income taxes                                          |                                   |                                    | (32,159 | )      |        |   | (9,720  | )      |        |   | (6,356 | )    
|Income tax benefit related to research and development tax credit |                                   |                                    | (2,999  | )      |        |   | (916    | )      |        |   | (707   | )    
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Net loss                                                          |                                   | $                                  | (29,160 | )      |        | $ | (8,804  | )      |        | $ | (5,649 | )    
|                                                                  | Dividends                         |                                    |         | (522   | )      |   |         | (1,229 | )      |   |        |      |      
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Net loss applicable to common stockholders                        |                                   | $                                  | (29,682 | )      |        | $ | (10,033 | )      |        | $ | (5,649 | )    
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Basic and diluted net loss per common share                       |                                   | $                                  | (1.51   | )      |        | $ | (9.68   | )      |        | $ | (5.45  | )    
|                                                                  |                                   |                                    |         |        |        |   |         |        |       
|Shares used in computation of net loss per common share           |                                   |                                    | 19,698  |        |        |   | 1,036   |        |        |   | 1,036  |      
|                                                                  |                                   |                                    |         |        |        |   |         |        |       

See accompanying notes.


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SOLEXA, INC.





STATEMENT OF STOCKHOLDERS EQUITY


(In thousands, except share amounts)


|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        |         |  
|---------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------- | ----- | ------ | --------------- | - | -- | ------------ | - |  | ---------- | ------ | ----------- | -------- | - | ------- | -------- |  | ------ | ----------- |  | - | ------------ | -- |  | ----------- | ------- | ------ | ------- | - | ---- | ----- | - | - | ----- | ----- | - | - | ------- | ------- | - | - | ------ | ------- | -
|                                                                                                                             |                                                                      | A convertible |       |        |                 |   |    |              |   |  |            |        | Accumulated |          |   |         |          | 
|                                                                                                                             |                                                                      | ordinary shares |       |        | Ordinary shares |   |    | Common stock |   |  | Additional |        |             |          |   | Foreign |          |  |        |             | 
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  | Paid-In    |        |             | Deferred |   |         | Currency |  |        | Accumulated |  |   |             
|                                                                                                                             |                                                                      | Shares          |       |        | Amount          |   |    | Shares       |   |  | Amount     |        |             | Shares   |   |         | Amount   |  |        | Capital     |  |   | Compensation |    |  | Translation |         |        | Deficit |   |      | Total |  
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|Balances at December 31, 2002                                                                                                |                                                                      |                 | 4,000 |        |                 | $ | 15 |              |   |  | 2,338      |        |             | $        | 9 |         |          |  |       |             |  |   |             |    |  | $           | 21,085  |        |         | $ |     |       |   | $ | 1,325 |       |   | $ | (8,227  | )       |   | $ | 14,207 |        
|Comprehensive loss:                                                                                                          |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             |        |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   |       |        
|                                                                                                                             | Foreign currency translation adjustment                              |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       | 1,048 |   |   |         |        |   |   |        | 1,048   |  
|                                                                                                                             | Net loss                                                             |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       |      |   |   |         | (5,649  | ) |   |        | (5,649  | )
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|                                                                                                                             | Comprehensive loss                                                   |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        | (4,601  | )
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|Balances at December 31, 2003                                                                                                |                                                                      |                 | 4,000 |        |                 | $ | 15 |              |   |  | 2,338      |        |             | $        | 9 |         |          |  |       |             |  |   |             |    |  | $           | 21,085  |        |         |   |     |       |   | $ | 2,373 |       |   | $ | (13,876 | )       |   | $ | 9,606  |        
|Comprehensive loss:                                                                                                          |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        |        
|                                                                                                                             | Net loss                                                             |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       |      |   |   |         | (8,804  | ) |   |        | (8,804  | )
|                                                                                                                             | Foreign currency translation adjustment                              |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       | 324   |   |   |         |        |   |   |        | 324     |  
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|                                                                                                                             | Comprehensive loss                                                   |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        | (8,480  | )
|Dividends accretion on A ordinary shares                                                                                   |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | 747     |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 747    |        
|Dividends accretion on A ordinary shares closed to
    additional paid in capital                                          |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | (747    | )      |         |   |     |       |   |   |      |       |   |   |        |         |   |   | (747   | )      
|Dividends accretion on series B preferred redeemable
    convertible shares liability closed to additional paid in capital |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | (482    | )      |         |   |     |       |   |   |      |       |   |   |        |         |   |   | (482   | )      
|Issuance cost of B Preferred                                                                                               |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | (213    | )      |         |   |     |       |   |   |      |       |   |   |        |         |   |   | (213   | )      
|Issuance of convertible A shares                                                                                           |                                                                      |                 | 1,067 |        |                 |   | 5  |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | (5      | )      |         |   |     |       |   |   |      |       |   |   |        |         |   |   |       |        
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|Balances at December 31, 2004                                                                                                |                                                                      |                 | 5,067 |        |                 | $ | 20 |              |   |  | 2,338      |        |             | $        | 9 |         |          |  |       |             |  |   |             |    |  | $           | 20,385  |        |         |   |     |       |   | $ | 2,697 |       |   | $ | (22,680 | )       |   | $ | 431    |        
|                                                                                                                             | Net loss                                                             |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       |      |   |   |         | (29,160 | ) |   |        | (29,160 | )
|                                                                                                                             | Foreign currency translation adjustment                              |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         |       |         |   |      |      |   |   |       | (633  | ) |   |         |        |   |   |        | (633    | )
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|                                                                                                                             | Comprehensive loss                                                   |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        | (29,793 | )
|Business combination transaction:                                                                                            |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        |        
|                                                                                                                             | Conversion of series B preferred redeemable
    convertible shares |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        | 5,812       |  |   | $            | 58 |  |             |         | 15,734 |         |   |      |      |   |   |       |      |   |   |         |        |   |   |        | 15,792  |  
|                                                                                                                             | Solexa Ltd. shares exchanged                                         |                 |       | (5,067 | )               |   |    | (20          | ) |  |            | (2,338 | )           |          |   | (9      | )        |  |        | 8,028       |  |   |              | 80 |  |             |         | (80    | )       |   |      |      |   |   |       |      |   |   |         |        |   |   |        | (29     | )
|                                                                                                                             | Shares issued for Lynx, Inc.                                         |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        | 3,764       |  |   |              | 38 |  |             |         | 15,884 |         |   |      |       |   |   |       |       |   |   |         |         |   |   |        | 15,922  |  
|                                                                                                                             | Options assumed from Lynx, Inc.                                      |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        |            |  |   |              |   |  |             |         | 851    |         |   | $    | (635  | ) |   |       |      |   |   |         |        |   |   |        | 216     |  
|                                                                                                                             | Shares and warrants issued for fees                                  |                 |       |       |                 |   |    |             |   |  |            |       |             |          |   |        |          |  |        | 180         |  |   |              | 2  |  |             |         | 1,704  |         |   |      |      |   |   |       |      |   |   |         |        |   |   |        | 1,706   |  
|Common shares issued in private placements, net                                                                              |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  | 11,977 |             |  |   | 120          |    |  |             | 54,206  |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 54,326 |        
|Common shares issued for purchases of intellectual property                                                                  |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  | 66     |             |  |   | 1            |    |  |             | 449     |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 450    |        
|Exercise of stock options                                                                                                    |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  | 146    |             |  |   | 1            |    |  |             | 373     |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 374    |        
|Exercise of warrants                                                                                                         |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  | 54     |             |  |   |             |    |  |             | 269     |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 269    |        
|Amortization of and reversal of deferred compensation                                                                        |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | (210    | )      |         |   | 309  |       |   |   |      |       |   |   |        |         |   |   | 99     |        
|Stock based compensation to non- employees                                                                                   |                                                                      |                 |      |        |                 |   |   |              |   |  |           |        |             |          |  |         |          |  |       |             |  |   |             |    |  |             | 10      |        |         |   |     |       |   |   |      |       |   |   |        |         |   |   | 10     |        
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  
|Balances at December 31, 2005                                                                                                |                                                                      |                 |      |        |                 | $ |   |              |   |  |           |        |             | $        |  |         |          |  | 30,027 |             |  | $ | 300          |    |  | $           | 109,575 |        |         | $ | (326 | )     |   | $ | 2,064 |       |   | $ | (51,840 | )       |   | $ | 59,773 |        
|                                                                                                                             |                                                                      |                 |       |        |                 |   |    |              |   |  |            |        |             |          |   |         |          |  |        |             |  |   |              |    |  |             |         |        |         |   |      |       |  

See accompanying notes.


33



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SOLEXA, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |     |      |      |  
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ------- | ---- | ------ | ------ | ------ | --- | ---- | ---- | -
|                                                                                                  |                                                                                          | Year Ended December 31,       |                                                    
|                                                                                                  |                                                                                          |                               |                                                    
|                                                                                                  |                                                                                          | 2005                          |                                                     |       | 2004   |        |         | 2003 |       
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Cash flows from operating activities:                                                             |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|Net loss                                                                                          |                                                                                          | $                             | (29,160                                             | )     |        | $      | (8,804  | )    |        | $      | (5,649 | )  
|Adjustments to reconcile net loss to net cash used in operating
    activities:                   |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|                                                                                                  | Depreciation and amortization                                                            |                               |                                                     | 4,564 |        |        |         | 823  |        |        |        | 539 |     
|                                                                                                  | Write off of fixed assets                                                                |                               |                                                     | 286   |        |        |         |     |        |        |        |    |     
|                                                                                                  | Stock based compensation expense                                                         |                               |                                                     | 109   |        |        |         |     |        |        |        |    |     
|                                                                                                  | Amortization of warrant value related to note                                            |                               |                                                     | 175   |        |        |         |     |        |        |        |    |     
|                                                                                                  | Stock based compensation related to Business combination
    engagement fees             |                               |                                                     | 987   |        |        |         |     |        |        |        |    |     
|                                                                                                  | Gain on sale of equity investment                                                        |                               |                                                     | (496  | )      |        |         |     |        |        |        |    |     
|                                                                                                  | Changes in operating assets and liabilities (net of effect of
    business combination): |                               |                                                     |       |        |        |         |      |        |        |        |     |     
|                                                                                                  |                                                                                          | Accounts receivable           |                                                     |       | (195   | )      |         |      | (15    | )      |        |     | (7   | )   
|                                                                                                  |                                                                                          | Inventory                     |                                                     |       | 549    |        |         |      |       |        |        |     |     |     
|                                                                                                  |                                                                                          | Forward loss contingency      |                                                     |       | 1,028  |        |         |      |       |        |        |     |     |     
|                                                                                                  |                                                                                          | Other current assets          |                                                     |       | (427   | )      |         |      | (3,881 | )      |        |     | 345  |     
|                                                                                                  |                                                                                          | Accounts payable              |                                                     |       | (1,729 | )      |         |      | 596    |        |        |     | (131 | )   
|                                                                                                  |                                                                                          | Accrued liabilities           |                                                     |       | 2,538  |        |         |      |       |        |        |     |     |     
|                                                                                                  |                                                                                          | Deferred revenue              |                                                     |       | 602    |        |         |      |       |        |        |     |     |     
|                                                                                                  |                                                                                          | Other non-current liabilities |                                                     |       | (1,297 | )      |         |      |       |        |        |     |     |     
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Net cash used in operating activities                                                             |                                                                                          |                               | (22,466                                             | )     |        |        | (11,281 | )    |        |        | (4,903 | )  
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Cash flows from investing activities:                                                             |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|Purchase of technology rights                                                                     |                                                                                          |                               | (75                                                 | )     |        |        | (2,044  | )    |        |        |       |    
|Purchase of property and equipment                                                                |                                                                                          |                               | (976                                                | )     |        |        | (337    | )    |        |        | (445   | )  
|Proceeds from disposal of fixed assets                                                            |                                                                                          |                               |                                                    |       |        |        |        |      |        |        | 1      |    
|Gain on sale of equity investment                                                                 |                                                                                          |                               | 496                                                 |       |        |        |        |      |        |        |       |    
|Costs paid in connection with the business combination, net of
    cash received                  |                                                                                          |                               | (642                                                | )     |        |        |        |      |        |        |       |    
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|                                                                                                  |                                                                                          |                               | Net cash used in investing activities               |       |        | (1,197 | )       |      |        | (2,381 | )      |     |      | (444 | )
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Cash flows from financing activities:                                                             |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|Proceeds from exercise of stock options                                                           |                                                                                          |                               | 374                                                 |       |        |        |        |      |        |        |       |    
|Proceeds from exercise of warrants                                                                |                                                                                          |                               | 269                                                 |       |        |        |        |      |        |        |       |    
|Issuance of common stock, net of issuance costs                                                   |                                                                                          |                               | 54,326                                              |       |        |        |        |      |        |        |       |    
|Repayment of bank loan                                                                            |                                                                                          |                               | (3,000                                              | )     |        |        |        |      |        |        |       |    
|Proceeds from issuance of series A ordinary and
    B preferred shares, net of issuance costs |                                                                                          |                               |                                                    |       |        |        | 14,459  |      |        |        |       |    
|Payments of capital lease obligations                                                             |                                                                                          |                               | (37                                                 | )     |        |        | (22     | )    |        |        | (15    | )  
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|                                                                                                  |                                                                                          |                               | Net cash provided by (used in) financing activities |       |        | 51,932 |         |      |        | 14,437 |        |     |      | (15  | )
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Net increase (decrease) in cash and cash equivalents                                              |                                                                                          |                               | 28,269                                              |       |        |        | 775     |      |        |        | (5,362 | )  
|Effect of exchange rate differences on cash and cash equivalents                                  |                                                                                          |                               | (329                                                | )     |        |        | 781     |      |        |        | 974    |    
|Cash and cash equivalents at beginning of year                                                    |                                                                                          |                               | 10,463                                              |       |        |        | 8,907   |      |        |        | 13,295 |    
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Cash and cash equivalents at end of year                                                          |                                                                                          | $                             | 38,403                                              |       |        | $      | 10,463  |      |        | $      | 8,907  |    
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Supplemental disclosure of cash flow information:                                                 |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|                                                                                                  | Cash paid during the period for interest                                                 |                               | $                                                   | 126   |        |        | $       | 6    |        |        | $      | 5   |     
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       
|Supplemental disclosure of non-cash investing activities:                                         |                                                                                          |                               |                                                     |       |        |        |         |      |        |        |        |    
|                                                                                                  | Acquisitions of equipment under capital leases                                           |                               | $                                                   | (90   | )      |        | $       |     |        |        | $      | (40 | )   
|                                                                                                  |                                                                                          |                               |                                                     |       |        |        |         |      |       

See accompanying notes.


34



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##### Table of Contents



SOLEXA, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                        
|-- | -----------------------
|1. | Description of Business

tm re-sequencing




|   |                      
|-- | ---------------------
|2. | Basis of Presentation

10-K








35



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|3. | Summary of Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                                                          
| | ---------------------------------------------------------
| | Concentration of Credit Risk and Other
    Concentrations













| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                                                  
| | -------------------------------------------------
| | Cash, Cash Equivalents and Short Term Investments



36



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |          
| | ---------
| | Inventory

first-in,




| |                       
| | ----------------------
| | Property and Equipment





| |                               
| | ------------------------------
| | Goodwill and Intangible Assets





| |                                
| | -------------------------------
| | Impairment of Long-lived Assets





| |                    
| | -------------------
| | Revenue Recognition





| |                                  
| | ---------------------------------
| | Research and Development Expenses



37



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                         
| | ------------------------
| | Forward Loss Contingency







|                                                         |  |                |       |   |      |   |   | 
|-------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | - | 
|                                                         |  | Year Ended    
|                                                         |  | December 31,  
|                                                         |  |               
|                                                         |  | 2005           |       |   | 2004
|                                                         |  |                |       |   |     
|                                                         |  | (In thousands)
|Balance at beginning of year                             |  | $              |      |   |      | $ |  | 
|Initial accrual for forward loss contracts               |  |                | 2,167 |   |      |   |  | 
|Loss experienced on completed samples                    |  |                | (708  | ) |      |   |  | 
|Reversal of forward loss accrual for completed contracts |  |                | (157  | ) |      |   |  | 
|Change in forward loss estimate                          |  |                | (274  | ) |      |   |  | 
|                                                         |  |                |       |   |      |  
|Balance at end of year                                   |  | $              | 1,028 |   |      | $ |  | 
|                                                         |  |                |       |   |      |  



| |              
| | -------------
| | Pension Costs



38



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Net Loss Per Share







|                                                 |  |              |           |  |      |  |            |      |  |  |           | 
|------------------------------------------------ |  | ------------ | --------- |  | ---- |  | ---------- | ---- |  |  | --------- | 
|                                                 |  | December 31, |          
|                                                 |  |              |          
|                                                 |  | 2005         |           |  | 2004 |  |            | 2003 | 
|                                                 |  |              |           |  |      |  |            |      | 
|Options and warrants to purchase ordinary shares |  |              | 9,178,522 |  |      |  | 2,059,144  |      |  |  | 1,052,783 | 
|A convertible ordinary shares                  |  |              |          |  |      |  | 5,066,669  |      |  |  | 4,000,000 | 
|B preferred shares                             |  |              |          |  |      |  | 4,444,444  |      |  |  |          | 
|                                                 |  |              |           |  |      |  |            |      | 
|                                                 |  |              | 9,178,522 |  |      |  | 11,570,257 |      |  |  | 5,052,783 | 
|                                                 |  |              |           |  |      |  |            |      | 



| |                         
| | ------------------------
| | Stock-Based Compensation





39



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                           |  |                                 |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                           |  | Year Ended December 31,         |        
|                                                                                                           |  |                                 |        
|                                                                                                           |  | 2005                            |         |   | 2004 |   |         | 2003 | 
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|                                                                                                           |  | (In thousands, except per share |        
|                                                                                                           |  | amounts)                        |        
|Net loss, as reported                                                                                      |  | $                               | (29,682 | ) |      | $ | (10,033 | )    |  | $ | (5,649 | )
|Add: Stock-based compensation to employees                                                                 |  |                                 | 99      |   |      |   |        |      |  |   |       |  
|Deduct: Stock-based employee compensation, as if fair value
    method had been applied to all awards      |  |                                 | (2,294  | ) |      |   | (66     | )    |  |   | (55    | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Pro forma net loss, as if fair value method had been applied to
    all awards                             |  | $                               | (31,877 | ) |      | $ | (10,099 | )    |  | $ | (5,704 | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Basic and diluted net loss per share, as reported                                                          |  | $                               | (1.51   | ) |      | $ | (9.68   | )    |  | $ | (5.45  | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Pro forma basic and diluted net loss per share, as if fair value
    method had been applied to all awards |  | $                               | (1.62   | ) |      | $ | (9.75   | )    |  | $ | (5.50  | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 

96-18,






| |                  
| | -----------------
| | Segment Reporting





|               |  |              |       |  |      |   |       | 
|-------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|               |  | Year Ended   |      
|               |  | December 31, |      
|               |  |              |      
|               |  | 2005         |       |  | 2004 |  
|               |  |              |       |  |      |  
|United Kingdom |  | $            | 973   |  |      | $ | 1,009 | 
|United States  |  |              | 3,405 |  |      |   |      | 
|               |  |              |       |  |      |  
|               |  | $            | 4,378 |  |      | $ | 1,009 | 
|               |  |              |       |  |      |  

40



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|               |  |              |       |  |      |   |    |      |  |   |   | 
|-------------- |  | ------------ | ----- |  | ---- | - | -- | ---- |  | - | - | 
|               |  | Year Ended   |      
|               |  | December 31, |      
|               |  |              |      
|               |  | 2005         |       |  | 2004 |   |    | 2003 | 
|               |  |              |       |  |      |   |    |      | 
|United States  |  | $            | 3,851 |  |      | $ |   |      |  | $ |  | 
|United Kingdom |  |              | 181   |  |      |   | 96 |      |  |   | 7 | 
|Other          |  |              | 118   |  |      |   |   |      |  |   |  | 
|               |  |              |       |  |      |   |    |      | 
|               |  | $            | 4,150 |  |      | $ | 96 |      |  | $ | 7 | 
|               |  |              |       |  |      |   |    |      | 



| |             
| | ------------
| | Income Taxes





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                  
| | -----------------
| | Reclassifications





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements



41



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. A modified prospective method in which
    compensation cost is recognized beginning with the effective
    date (a) based on the requirements of SFAS 123R for
    all share-based payments granted after the effective date and
    (b) based on the requirements of Statement 123 for all
    awards granted to employees prior to the effective date of
    SFAS 123R that remain unvested on the effective
    date, or
|
| | 2. A modified retrospective method which
    includes the requirements of the modified prospective method
    described above, but also permits entities to restate based on
    the amounts previously recognized under SFAS 123 for
    purposes of pro forma disclosures either (a) all prior
    periods presented or (b) prior interim periods of the year
    of adoption.                                               





|   |                                     
|-- | ------------------------------------
|4. | Business Combination and Name Change







42



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                   |       |   |        |        | 
|-------------------------------------------------- | ----- | - | ------ | ------ | 
|Common stock                                       |       | $ | 15,922 |       
|Estimated fair value of Lynx stock options assumed |       |   | 851    |       
|Loans from Solexa to Lynx and related interest     |       |   | 2,719  |       
|Direct transaction costs of Solexa Limited         |       |   | 1,129  |       
|                                                   |       |   |       
|                                                   | Total |   | $      | 20,621 | 
|                                                   |       |   |       



|                                                  |                           |                   |        |       |        | 
|------------------------------------------------- | ------------------------- | ----------------- | ------ | ----- | ------ | 
|Assets:                                           |                           |                   |        |      
|                                                  | Cash and cash equivalents |                   | $      | 199   |       
|                                                  | Other current assets      |                   |        | 2,262 |       
|                                                  | Property and Equipment    |                   |        | 6,802 |       
|                                                  | Other non-current assets  |                   |        | 256   |       
|                                                  |                           |                   |       
|                                                  |                           | Total assets      |        | $     | 9,519  | 
|                                                  |                           |                   |       
|Liabilities:                                      |                           |                   |        |      
|                                                  | Current liabilities       |                   | $      | 7,223 |       
|                                                  | Deferred revenue          |                   |        | 2,861 |       
|                                                  | Long-term liabilities     |                   |        | 3,678 |       
|                                                  |                           |                   |       
|                                                  |                           | Total liabilities |        | $     | 13,762 | 
|                                                  |                           |                   |       
|Net book value of acquired assets and liabilities |                           | $                 | (4,243 | )    
|                                                  |                           |                   |       



|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Net liabilities                  |  | $ | (4,243 | )
|Goodwill                         |  |   | 22,529 |  
|Patents and developed technology |  |   | 1,700  |  
|Deferred compensation            |  |   | 635    |  
|                                 |  |   |       
|                                 |  | $ | 20,621 |  
|                                 |  |   |       





43



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                        |  |              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                        |  | Year ended   |        
|                                                                                        |  | December 31, |        
|                                                                                        |  |              |        
|                                                                                        |  | 2005         |         |   | 2004 |  
|                                                                                        |  |              |         |   |      |  
|Service revenue                                                                         |  | $            | 5,046   |   |      | $ | 6,429   |  
|Net loss                                                                                |  | $            | (40,067 | ) |      | $ | (24,979 | )
|Net loss per common share  basic and diluted                                           |  | $            | (1.78   | ) |      | $ | (1.46   | )
|Weighted average shares used to compute basic and diluted net
    loss per common share |  |              | 22,556  |   |      |   | 17,446  |  





|   |          
|-- | ---------
|5. | Inventory



|                |  |              |     |  |      |   |   | 
|--------------- |  | ------------ | --- |  | ---- | - | - | 
|                |  | December 31,
|                |  |             
|                |  | 2005         |     |  | 2004
|                |  |              |     |  |     
|Raw materials   |  | $            | 213 |  |      | $ |  | 
|Work in process |  |              | 541 |  |      |   |  | 
|                |  |              |     |  |      |  
|                |  | $            | 754 |  |      | $ |  | 
|                |  |              |     |  |      |  





|  |                                             
|- | --------------------------------------------
|6 | Loan Receivable from Lynx Therapeutics, Inc.





|   |                     
|-- | --------------------
|7. | Other Current Assets



|                                               |  |              |       |  |      |   |       | 
|---------------------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                               |  | December 31, |      
|                                               |  |              |      
|                                               |  | 2005         |       |  | 2004 |  
|                                               |  |              |       |  |      |  
|Prepaid expenses                               |  | $            | 544   |  |      | $ | 627   | 
|Research and development tax credit receivable |  |              | 1,789 |  |      |   | 963   | 
|Other receivables                              |  |              | 89    |  |      |   | 285   | 
|                                               |  |              |       |  |      |  
|                                               |  | $            | 2,422 |  |      | $ | 1,875 | 
|                                               |  |              |       |  |      |  

44



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|8. | Property and Equipment



|                                               |  |              |        |   |      |   |        |  
|---------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                               |  | December 31, |       
|                                               |  |              |       
|                                               |  | 2005         |        |   | 2004 |  
|                                               |  |              |        |   |      |  
|Leasehold improvements                         |  | $            | 3,500  |   |      | $ | 318    |  
|Laboratory and other equipment                 |  |              | 6,288  |   |      |   | 2,820  |  
|                                               |  |              |        |   |      |  
|                                               |  |              | 9,788  |   |      |   | 3,138  |  
|Less accumulated depreciation and amortization |  |              | (5,410 | ) |      |   | (2,129 | )
|                                               |  |              |        |   |      |  
|                                               |  | $            | 4,378  |   |      | $ | 1,009  |  
|                                               |  |              |        |   |      |  







|   |                  
|-- | -----------------
|9. | Intangible Assets







|                         |  |                |       |   |      |   |       |  
|------------------------ |  | -------------- | ----- | - | ---- | - | ----- | -
|                         |  | December 31,   |      
|                         |  |                |      
|                         |  | 2005           |       |   | 2004 |  
|                         |  |                |       |   |      |  
|                         |  | (In thousands) |      
|Purchased technology     |  | $              | 4,143 |   |      | $ | 2,148 |  
|Accumulated amortization |  |                | (633  | ) |      |   | (205  | )
|                         |  |                |       |   |      |  
|Intangible assets, net   |  | $              | 3,510 |   |      | $ | 1,943 |  
|                         |  |                |       |   |      |  



45



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 496   | 
|2007       |  |   | 496   | 
|2008       |  |   | 496   | 
|2009       |  |   | 496   | 
|2010       |  |   | 496   | 
|Thereafter |  |   | 1,030 | 
|           |  |   |      
|           |  | $ | 3,510 | 
|           |  |   |      



|    |             
|--- | ------------
|10. | Note Payable







|    |                          
|--- | -------------------------
|11. | Other accrued liabilities



|                          |  |                |     |  |      |   |     | 
|------------------------- |  | -------------- | --- |  | ---- | - | --- | 
|                          |  | December 31,   |    
|                          |  |                |    
|                          |  | 2005           |     |  | 2004 |  
|                          |  |                |     |  |      |  
|                          |  | (In thousands) |    
|Accrued rent              |  | $              | 193 |  |      | $ |    | 
|Other accrued liabilities |  |                | 336 |  |      |   | 391 | 
|                          |  |                |     |  |      |  
|                          |  | $              | 529 |  |      | $ | 391 | 
|                          |  |                |     |  |      |  



|    |                                       
|--- | --------------------------------------
|12. | Preferred Redeemable Convertible Stock



| |                                                    
| | ---------------------------------------------------
| | Series B Preferred Redeemable Convertible
    Stock





|    |                     
|--- | --------------------
|13. | Stockholders Equity



| |                                                      
| | -----------------------------------------------------
| | Ordinary and Series A Convertible Ordinary
    Shares



46



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                
| | ---------------
| | Preferred Stock





| |                          
| | -------------------------
| | Common Stock and Warrants











|                 |  |                |       |  |                 |  |      | 
|---------------- |  | -------------- | ----- |  | --------------- |  | ---- | 
|Number of Shares |  | Exercise Price |       |  | Expiration Date | 
|                 |  |                |       |  |                 | 
|50,540           |  | $              | 79.52 |  |                 |  | 2006 | 
|417,129          |  | $              | 27.16 |  |                 |  | 2007 | 
|20,857           |  | $              | 21.70 |  |                 |  | 2007 | 
|74,400           |  | $              | 19.82 |  |                 |  | 2008 | 
|18,600           |  | $              | 18.74 |  |                 |  | 2008 | 
|1,348,145        |  | $              | 7.50  |  |                 |  | 2010 | 
|59,999           |  | $              | 5.00  |  |                 |  | 2007 | 
|4,098,544        |  | $              | 5.00  |  |                 |  | 2010 | 
|                 |  |                |       |  |                 | 
|6,088,214        |  |                |       |  |                 |  |      | 
|                 |  |                |       |  |                 | 

47



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##### Table of Contents



SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                
|--- | -----------------------------------------------
|14. | Stock Option Plans and Stock-based Compensation





| |                                             
| | --------------------------------------------
| | The Solexa Share Option Plan for Consultants

10-year




| |                                                
| | -----------------------------------------------
| | The Solexa Unapproved Company Share Option Plan

10-year




| |                                                    
| | ---------------------------------------------------
| | The Solexa Ltd Enterprise Management Incentive Plan

10-year






| |                       
| | ----------------------
| | 1992 Stock Option Plan





48



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                           
| | --------------------------
| | 2005 Equity Incentive Plan







|                                        |  |           |           |          |          |   |       |           |          |  |          |   |  |           |      |  |          |  |         |   |  |   |      | 
|--------------------------------------- |  | --------- | --------- | -------- | -------- | - | ----- | --------- | -------- |  | -------- | - |  | --------- | ---- |  | -------- |  | ------- | - |  | - | ---- | 
|                                        |  | 2005      |           |          | 2004     |   |       | 2003      |         
|                                        |  |           |           |          |          |   |       |           |         
|                                        |  |           |           | Weighted |          |   |       |           | Weighted |  |          |   |  | Weighted  |     
|                                        |  |           |           | Average  |          |   |       |           | Average  |  |          |   |  | Average   |     
|                                        |  | Number    |           |          | Exercise |   |       | Number    |          |  | Exercise |   |  | Number    |      |  | Exercise | 
|                                        |  | of Shares |           |          | Price    |   |       | of Shares |          |  | Price    |   |  | of Shares |      |  | Price    | 
|                                        |  |           |           |          |          |   |       |           |          |  |          |   |  |           |      |  |          | 
|Balances at January 1                   |  |           | 912,582   |          |          | $ | 2.42  |           |          |  | 466,578  |   |  | $         | 3.51 |  |          |  | 348,805 |   |  | $ | 4.16 | 
|Options assumed in business combination |  |           | 356,316   |          |          |   | 19.20 |           |          |  |         |   |  |           |     |  |          |  |        |   |  |   |     | 
|Options granted                         |  |           | 2,133,827 |          |          |   | 6.10  |           |          |  | 468,719  |   |  |           | 1.37 |  |          |  | 127,394 |   |  |   | 1.79 | 
|Options exercised                       |  |           | (145,795  | )        |          |   | 2.57  |           |          |  |         |   |  |           |     |  |          |  |        |   |  |   |     | 
|Options forfeited                       |  |           | (166,622  | )        |          |   | 16.53 |           |          |  | (22,715  | ) |  |           | 2.17 |  |          |  | (9,621  | ) |  |   | 4.27 | 
|                                        |  |           |           |          |          |   |       |           |          |  |          |   |  |           |      |  |          | 
|Balances at December 31,                |  |           | 3,090,308 |          |          |   | 6.15  |           |          |  | 912,582  |   |  |           | 2.42 |  |          |  | 466,578 |   |  |   | 3.51 | 
|                                        |  |           |           |          |          |   |       |           |          |  |          |   |  |           |      |  |          | 
|Shares exercisable                      |  |           | 932,317   |          |          | $ | 7.77  |           |          |  | 344,109  |   |  | $         | 3.73 |  |          |  | 236,554 |   |  | $ | 3.98 | 

49



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |             |           |             |             |  |      |                |                     |        |             |  |  |                |         |  |  |   |          | 
|------------------------ |  | ----------- | --------- | ----------- | ----------- |  | ---- | -------------- | ------------------- | ------ | ----------- |  |  | -------------- | ------- |  |  | - | -------- | 
|                         |  |             |           | Options     |             |  |      |                |                    
|                         |  |             |           | Outstanding |             |  |      |                | Options Exercisable |       
|                         |  |             |           | Weighted    |             |  |      |                |                     |       
|                         |  | Number      |           |             | Average     |  |      |                |                     | Number |             |  | 
|                         |  | Outstanding |           |             | Remaining   |  |      | Weighted       |                     |        | Exercisable |  |  | Weighted       |        
|                         |  | As of       |           |             | Contractual |  |      | Average        |                     |        | As of       |  |  | Average        |        
|Range of Exercise Prices |  | 12/31/05    |           |             | Term        |  |      | Exercise Price |                     |        | 12/31/05    |  |  | Exercise Price |        
|                         |  |             |           |             |             |  |      |                |                     |        |             |  |  |                |        
|$1.28 - $2.31            |  |             | 487,110   |             |             |  | 8.43 |                |                     | $      | 1.41        |  |  |                | 188,697 |  |  | $ | 1.49     | 
|$2.31 - $4.38            |  |             | 326,713   |             |             |  | 6.08 |                |                     | $      | 4.18        |  |  |                | 306,713 |  |  | $ | 4.18     | 
|$4.38 - $6.39            |  |             | 2,150,051 |             |             |  | 9.54 |                |                     | $      | 6.10        |  |  |                | 348,055 |  |  | $ | 6.22     | 
|$6.39 - $8.50            |  |             | 78,131    |             |             |  | 8.64 |                |                     | $      | 8.10        |  |  |                | 44,709  |  |  | $ | 7.96     | 
|$8.50 - $10.78           |  |             | 38,623    |             |             |  | 4.60 |                |                     | $      | 9.42        |  |  |                | 35,172  |  |  | $ | 9.62     | 
|$10.78 - $21.56          |  |             | 3,286     |             |             |  | 6.22 |                |                     | $      | 20.05       |  |  |                | 2,577   |  |  | $ | 20.06    | 
|$21.56 - $220.50         |  |             | 4,609     |             |             |  | 3.23 |                |                     | $      | 184.04      |  |  |                | 4,609   |  |  | $ | 184.04   | 
|$220.50 - $1,074.50      |  |             | 1,785     |             |             |  | 4.15 |                |                     | $      | 1,074.50    |  |  |                | 1,785   |  |  | $ | 1,074.50 | 
|                         |  |             |           |             |             |  |      |                |                     |        |             |  |  |                |        
|$1.28 - $1,074.50        |  |             | 3,090,308 |             |             |  | 8.90 |                |                     | $      | 6.15        |  |  |                | 932,317 |  |  | $ | 7.77     | 
|                         |  |             |           |             |             |  |      |                |                     |        |             |  |  |                |        



| |                                  
| | ---------------------------------
| | 1998 Employee Stock Purchase Plan





|    |              
|--- | -------------
|15. | Restructuring

tm paid-in




|    |              
|--- | -------------
|16. | Pension Plans



50



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|17. | Income Taxes



|         |  |                            |         |   |      |   |        |      |  |   |        |  
|-------- |  | -------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|         |  | For Year Ended December 31 |        
|         |  |                            |        
|         |  | 2005                       |         |   | 2004 |   |        | 2003 | 
|         |  |                            |         |   |      |   |        |      | 
|Domestic |  | $                          | (14,101 | ) |      | $ |       |      |  | $ |       |  
|Foreign  |  |                            | (18,058 | ) |      |   | (9,720 | )    |  |   | (6,356 | )
|         |  |                            |         |   |      |   |        |      | 
|         |  | $                          | (32,159 | ) |      | $ | (9,720 | )    |  | $ | (6,356 | )
|         |  |                            |         |   |      |   |        |      | 



|                  |  |      |        |   |      |   |      |      |  |   |      |  
|----------------- |  | ---- | ------ | - | ---- | - | ---- | ---- |  | - | ---- | -
|                  |  | 2005 |        |   | 2004 |   |      | 2003 | 
|                  |  |      |        |   |      |   |      |      | 
|Current  foreign |  | $    | (2,999 | ) |      | $ | (916 | )    |  | $ | (707 | )
|                  |  |      |        |   |      |   |      |      | 



|                                                                                  |                                                         |      |         |        |      |   |        |       |   |   |        |       |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------- | ---- | ------- | ------ | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                  |                                                         | 2005 |         |        | 2004 |   |        | 2003  |  
|                                                                                  |                                                         |      |         |        |      |   |        |       |  
|Tax provision (benefit) at statutory rate (US for 2005, UK for
    2004 and 2003) |                                                         | $    | (10,934 | )      |      | $ | (2,916 | )     |   | $ | (1,907 | )    
|                                                                                  | Refundable research tax credit                          |      |         | (2,999 | )    |   |        | (916  | ) |   |        | (707  | )
|                                                                                  | Loss for which no tax benefit is currently recognizable |      |         | 10,934 |      |   |        | 2,893 |   |   |        | 1,897 |  
|                                                                                  | Other                                                   |      |         |       |      |   |        | 23    |   |   |        | 10    |  
|                                                                                  |                                                         |      |         |        |      |   |        |       |  
|Total                                                                             |                                                         | $    | (2,999  | )      |      | $ | (916   | )     |   | $ | (707   | )    
|                                                                                  |                                                         |      |         |        |      |   |        |       |  





|                                                        |  |      |         |   |      |   |        |  
|------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                                        |  | 2005 |         |   | 2004 |  
|                                                        |  |      |         |   |      |  
|Deferred tax assets, net:                               |  |      |         |   |      |   |        |  
|U.S. Federal and state net operating losses             |  | $    | 43,990  |   |      | $ |       |  
|Foreign net operating losses                            |  |      | 10,033  |   |      |   | 5,947  |  
|U.S. Federal and state research and development credits |  |      | 6,888   |   |      |   |       |  
|Capitalized research and development expenditures       |  |      | 2,703   |   |      |   |       |  
|Depreciation and amortization                           |  |      | 2,372   |   |      |   | (302   | )
|Reserves and accruals                                   |  |      | 3,061   |   |      |   | 17     |  
|Valuation allowance                                     |  |      | (69,047 | ) |      |   | (5,662 | )
|                                                        |  |      |         |   |      |  
|Deferred tax assets, net of valuation allowance         |  | $    |        |   |      | $ |       |  
|                                                        |  |      |         |   |      |  



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|    |            
|--- | -----------
|18. | Commitments









52



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |                |     |   |           |   |       | 
|---------------------------------------------- |  | -------------- | --- | - | --------- | - | ----- | 
|                                               |  | Capital        |     |   | Operating |  
|                                               |  | Leases         |     |   | Leases    |  
|                                               |  |                |     |   |           |  
|                                               |  | (In thousands) |    
|2006                                           |  | $              | 34  |   |           | $ | 2,844 | 
|2007                                           |  |                | 33  |   |           |   | 2,932 | 
|2008                                           |  |                | 13  |   |           |   | 2,906 | 
|                                               |  |                |     |   |           |  
|Total                                          |  | $              | 80  |   |           | $ | 8,682 | 
|                                               |  |                |     |   |           |  
|Less amount representing interest              |  |                | (9  | ) |           |   |       | 
|                                               |  |                |     |   |           |  
|Present value of future minimum lease payments |  |                | 71  |   |           |   |       | 
|Less current portion                           |  |                | (27 | ) |           |   |       | 
|                                               |  |                |     |   |           |  
|Long-term portion                              |  | $              | 44  |   |           |   |       | 
|                                               |  |                |     |   |           |  





|    |                           
|--- | --------------------------
|19. | Related Party Transactions









53



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                     
| | --------------------
| | Axaron Bioscience AG









|    |                  
|--- | -----------------
|20. | Subsequent Events



| |                 
| | ----------------
| | Equity financing



54



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SOLEXA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                              
|--- | -----------------------------
|21. | Quarterly Results (Unaudited)

|                                            |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|------------------------------------------- |  | -------------- | ------ | - | ------- | - | ------ | -------- |  | - | ------- | - |  | - | ------ | -
|                                            |  | Quarter Ended  |       
|                                            |  |                |       
|                                            |  | March 31       |        |   | June 30 |   |        | Sept. 30 |  |   | Dec. 31 |  
|                                            |  |                |        |   |         |   |        |          |  |   |         |  
|                                            |  | (In thousands) |       
|2005:                                       |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|Revenues                                    |  | $              | 605    |   |         | $ | 1,399  |          |  | $ | 844     |   |  | $ | 1,302  |  
|Loss from operations                        |  | $              | (5,261 | ) |         | $ | (9,040 | )        |  | $ | (10,711 | ) |  | $ | (7,331 | )
|Net loss                                    |  | $              | (5,782 | ) |         | $ | (9,385 | )        |  | $ | (10,802 | ) |  | $ | (3,713 | )
|Basic and diluted net loss per common share |  | $              | (0.96  | ) |         | $ | (0.48  | )        |  | $ | (0.43   | ) |  | $ | (0.13  | )
|2004:                                       |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|Revenues                                    |  | $              | 17     |   |         | $ | 24     |          |  | $ | 31      |   |  | $ | 24     |  
|Income (loss) from operations               |  | $              | (2,103 | ) |         | $ | (2,226 | )        |  | $ | (3,297  | ) |  | $ | (2,496 | )
|Net loss                                    |  | $              | (2,026 | ) |         | $ | (2,190 | )        |  | $ | (3,185  | ) |  | $ | (2,632 | )
|Basic and diluted net loss per common share |  | $              | (1.96  | ) |         | $ | (2.11  | )        |  | $ | (3.07   | ) |  | $ | (2.54  | )



55



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures


13a-15(e) 15d-15(e) 10-K 10-K.






Steps to Address Material Weakness




Changes in Internal Controls over Financial Reporting




56



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##### Table of Contents



Limitations on the Effectiveness of Controls











|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



|                                           |  |     |    |  |          |                                                         
|------------------------------------------ |  | --- | -- |  | -------- | --------------------------------------------------------
|Name                                       |  | Age |    |  | Position
|                                           |  |     |    |  |         
|John West                                  |  |     | 49 |  |          | Chief Executive Officer, Director                       
|Peter Lundberg                             |  |     | 45 |  |          | Vice President and Chief Technical Officer              
|Omead Ostadan                              |  |     | 34 |  |          | Vice President, Marketing                               
|Linda Rubinstein                           |  |     | 39 |  |          | Vice President and Chief Financial Officer              
|Kathy A. San Roman                         |  |     | 52 |  |          | Vice President, Human Resources & Administration        
|Mary L. Schramke, Ph.D.                    |  |     | 51 |  |          | Vice President and General Manager,
    Genomic Services
|Tony Smith, Ph.D.                          |  |     | 49 |  |          | Vice President and Chief Scientific Officer             
|Craig C. Taylor(1)(2)                      |  |     | 54 |  |          | Chairman of the Board                                   
|Stephen D. Allen, Ph.D.                    |  |     | 46 |  |          | Director and Principal Scientific Advisor               
|Douglas M. Fambrough, Ph.D.(3)             |  |     | 37 |  |          | Director                                                
|Hermann Hauser, Ph.D.(2)(3)                |  |     | 55 |  |          | Director                                                
|Genghis Lloyd-Harris, M.D., Ph.D.(1)(2)(3) |  |     | 47 |  |          | Director                                                
|G. Mason Morfit, CFA(1)(2)                 |  |     | 30 |  |          | Director                                                






|    |                                     
|--- | ------------------------------------
|(1) | Member of the Audit Committee       
|   
|(2) | Member of the Compensation Committee
|   
|(3) | Member of the Nominating Committee  

John West


57



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##### Table of Contents





Peter Lundberg


Omead Ostadan


Linda Rubinstein


Kathy A. San Roman


Mary L. Schramke, Ph.D.


58



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##### Table of Contents





Tony Smith, Ph.D.


Craig C. Taylor


Stephen D. Allen, Ph.D.


Douglas M. Fambrough, Ph.D


Hermann Hauser, Ph.D.,


Genghis Lloyd-Harris, M.D., Ph.D., MBA


59



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##### Table of Contents





G. Mason Morfit, CFA,


Audit Committee


10-K;




Audit Committee Financial Expert




Section 16(a) Beneficial Ownership Reporting
Compliance




60



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##### Table of Contents





Code of Conduct




Stockholder Communications with the Board of Directors









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



Summary Compensation Table


|                            |                          |      |      |                     |     |                               |            |         |            |              |            |        |        |           |         |        |     |              |     |   |  |  |         |         |  |   |   |   | 
|--------------------------- | ------------------------ | ---- | ---- | ------------------- | --- | ----------------------------- | ---------- | ------- | ---------- | ------------ | ---------- | ------ | ------ | --------- | ------- | ------ | --- | ------------ | --- | - |  |  | ------- | ------- |  | - | - | - | 
|                            |                          |      |      |                     |     | Long-Term Compensation Awards
|                            |                          |      |      | Annual Compensation |     |                               |           
|                            |                          |      |      |                     |     |                               | Restricted |         | Securities |              |            |       
|                            |                          |      |      |                     |     | Other Annual                  |            |         | Stock      |              | Underlying |        |        | All Other
|                            |                          |      |      | Salary              |     |                               | Bonus      |         |            | Compensation |            |        | Awards |           | Options |        |     | Compensation
|Name and Principle Position |                          | Year |      |                     | ($) |                               |            | ($)     |            |              | ($)        |        |        | ($)       |         | (#)    |     |              | ($)
|                            |                          |      |      |                     |     |                               |            |         |            |              |            |        |        |           |         |        |     |              |    
|John West                   |                          |      | 2005 |                     |     | $                             | 340,049    | (1)(7)  |            | $            | 12,489     | (2)    |        | $         | 18,552  | (3)    |     | $            |    |   |  |  | 600,000 |         |  | $ |  |  
|                            | Chief Executive Officer  |      |      | 2004                |     |                               |            | 114,583 |            |              |            | 50,064 | (4)    |           |         | 25,000 | (5) |              |     |  |  |  |         | 309,353 |  |   |   |  | 
|                            |                          |      |      | 2003                |     |                               |            |        |            |              |            |       |        |           |         |       |     |              |     |  |  |  |         |         |  |   |   |  | 
|Peter Lundberg              |                          |      | 2005 |                     |     |                               | 193,467    | (1)     |            |              | 24,000     |        |        |           |         |        |     |              |    |   |  |  | 90,000  |         |  |   |  |  
|                            | Vice President and Chief |      |      | 2004                |     |                               |            |        |            |              |            |       |        |           |         |       |     |              |     |  |  |  |         |         |  |   |   |  | 
|                            | Technical Officer        |      |      | 2003                |     |                               |            |        |            |              |            |       |        |           |         |       |     |              |     |  |  |  |         |         |  |   |   |  | 
|Linda Rubinstein            |                          |      | 2005 |                     |     |                               | 193,510    | (1)     |            |              |           |        |        |           |         |        |     |              |     |   |  |  | 166,000 |         |  |   |  |  
|                            | Vice President and       |      |      | 2004                |     |                               |            |        |            |              |            |       |        |           |         |        |     |              |     |  |  |  |         |         |  |   |   |  | 
|                            | Chief Financial Officer  |      |      | 2003                |     |                               |            |        |            |              |            |       |        |           |         |       |     |              |     |  |  |  |         |         |  |   |   |  | 
|Mary J. Schramke, Ph.D.     |                          |      | 2005 |                     |     |                               | 187,767    | (1)     |            |              | 40,000     |        |        |           |        |        |     |              |    |   |  |  | 25,000  |         |  |   |  |  
|                            | Vice President and       |      |      | 2004                |     |                               |            | 178,585 | (1)        |              |            |       |        |           |         | 5,887  | (6) |              |     |  |  |  |         |         |  |   |   |  | 
|                            | General Manager of       |      |      | 2003                |     |                               |            | 158,440 | (1)        |              |            |       |        |           |         |        |     |              |     |  |  |  |         |         |  |   |   |  | 
|                            | Genomic Services         |      |      |                     |     |                               |            |         |            |              |            |        |        |           |         |        |     |              |     |   |  |  |         |         |  |   |   |  | 
|Tony Smith, Ph.D.           |                          |      | 2005 |                     |     |                               | 253,024    |         |            |              |           |        |        |           |         |        |     |              |    |   |  |  | 88,000  |         |  |   |  |  
|                            | Vice President and Chief |      |      | 2004                |     |                               |            | 233,979 |            |              |            | 28,952 |        |           |         |       |     |              |     |  |  |  |         | 35,466  |  |   |   |  | 
|                            | Scientific Officer       |      |      | 2003                |     |                               |            | 200,740 |            |              |            | 26,278 |        |           |         |       |     |              |     |  |  |  |         | 8,863   |  |   |   |  | 






|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes contributions of $750 made by Solexa to its 401(k) Plan
    on behalf of such employee.                                                                                                              
|   
|(2) | Includes reimbursement of Social Security and Medicare taxes and
    lump sum cash payment in lieu of contributions that were to be
    made by Solexa, Inc. to its 401(K) Plan on behalf of the
    employee.
|   
|(3) | Includes reimbursement for temporary employee living expenses.                                                                                                                                                
|   
|(4) | Includes reimbursement for temporary employee payroll taxes.                                                                                                                                                  

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|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Includes Solexa Limited board of directors fees.                                                                                                                                                                                 
|   
|(6) | Includes sales commissions received.                                                                                                                                                                                              
|   
|(7) | Includes salary paid to such employee by Solexa Limited prior to
    the consummation of the business combination transaction, and an
    adjustment to correct a prior overpayment of Solexa Limited
    board of directors fees.



Stock Option Grants and Exercises






Option Grants in Last Fiscal Year


|                     |  |                   |         |  |                            |  |       |           |  |                         |            |  |                             |       |          |  |        |   |           |  |  |   |           | 
|-------------------- |  | ----------------- | ------- |  | -------------------------- |  | ----- | --------- |  | ----------------------- | ---------- |  | --------------------------- | ----- | -------- |  | ------ | - | --------- |  |  | - | --------- | 
|                     |  | Individual Grants |         |  |                           
|                     |  |                   |         |  | Potential Realizable Value | 
|                     |  | Number of         |         |  | % of Total                 |  |       |           |  | at Assumed Annual Rates |           
|                     |  | Securities        |         |  | Options                    |  |       | Exercise  |  |                         |            |  | of Stock Price Appreciation |      
|                     |  | Underlying        |         |  | Granted to                 |  |       | Price per |  |                         |            |  | for Option Term(2)          |      
|                     |  | Options           |         |  | Employees in               |  |       | Share     |  |                         | Expiration |  |                             |       |         
|Name                 |  | Granted(#)        |         |  | 2004(1)                    |  |       | ($/share) |  |                         | Date       |  |                             | 5%($) |          |  | 10%($) |  
|                     |  |                   |         |  |                            |  |       |           |  |                         |            |  |                             |       |          |  |        |  
|John West            |  |                   | 600,000 |  |                            |  | 27.32 |           |  | $                       | 6.39       |  |                             |       | 05/09/15 |  |        | $ | 2,411,182 |  |  | $ | 6,110,409 | 
|Peter Lundberg       |  |                   | 50,000  |  |                            |  | 2.28  |           |  |                         | 6.11       |  |                             |       | 06/03/15 |  |        |   | 192,127   |  |  |   | 253,060   | 
|                     |  |                   | 40,000  |  |                            |  | 1.82  |           |  |                         | 5.97       |  |                             |       | 09/06/15 |  |        |   | 150,180   |  |  |   | 380,586   | 
|Linda Rubinstein     |  |                   | 141,000 |  |                            |  | 6.42  |           |  |                         | 6.11       |  |                             |       | 06/03/15 |  |        |   | 541,799   |  |  |   | 1,272,325 | 
|                     |  |                   | 25,000  |  |                            |  | 1.14  |           |  |                         | 5.97       |  |                             |       | 09/06/15 |  |        |   | 93,863    |  |  |   | 237,866   | 
|Mary Schramke, Ph.D. |  |                   | 25,000  |  |                            |  | 1.14  |           |  |                         | 5.97       |  |                             |       | 09/06/15 |  |        |   | 93,863    |  |  |   | 237,866   | 
|Tony Smith, Ph.D.    |  |                   | 88,000  |  |                            |  | 4.01  |           |  |                         | 5.97       |  |                             |       | 09/06/15 |  |        |   | 330,396   |  |  |   | 837,289   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on options for an aggregate of 2,196,158 shares
    granted to our employees and directors during the year ended
    December 31, 2005, including the Named Executive Officers.                                                                                                                                                                                                                                                                                                                 
|   
|(2) | The potential realizable value is calculated based on the term
    of the option at its time of grant (ten years). It is calculated
    by assuming that the stock price on the date of grant
    appreciates at the indicated annual rate, compounded annually
    for the entire term of the option, and that the option is
    exercised and sold on the last day of the term for the
    appreciated stock price. The assumed annual rates of
    appreciation are for illustrative purposes only.

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Aggregated Option Exercises in the Year Ended
December 31, 2005 and Option Values


|                        |  |                    |   |  |          |                     |             |  |                      |               |        |  |             |  |         |               |  |   |         |  |  |   |           | 
|----------------------- |  | ------------------ | - |  | -------- | ------------------- | ----------- |  | -------------------- | ------------- | ------ |  | ----------- |  | ------- | ------------- |  | - | ------- |  |  | - | --------- | 
|                        |  |                    |   |  |          | Number of Unexpired |             |  | Value of Unexercised |              
|                        |  |                    |   |  |          | Options             |             |  | In-the-Money Options |              
|                        |  |                    |   |  |          | at Year End         |             |  | at Year End          |              
|                        |  | Shares Acquired on |   |  | Value    |                     |             |  |                      |               |       
|Name                    |  | Exercise           |   |  | Realized |                     | Exercisable |  |                      | Unexercisable |        |  | Exercisable |  |         | Unexercisable | 
|                        |  |                    |   |  |          |                     |             |  |                      |               |        |  |             |  |         |               | 
|John West               |  |                    |  |  |          | $                   |            |  |                      |               | 200,00 |  |             |  | 709,253 |               |  | $ | 736,000 |  |  | $ | 4,190,334 | 
|Peter Lundberg          |  |                    |  |  |          |                     |            |  |                      |               | 2,000  |  |             |  | 88,000  |               |  |   | 8,200   |  |  |   | 353,800   | 
|Linda Rubinstein        |  |                    |  |  |          |                     |            |  |                      |               | 27,999 |  |             |  | 138,001 |               |  |   | 111,095 |  |  |   | 549,765   | 
|Mary J. Schramke, Ph.D. |  |                    |  |  |          |                     |            |  |                      |               | 8,433  |  |             |  | 31,567  |               |  |   | 29,005  |  |  |   | 123,095   | 
|Tony Smith, Ph.D.       |  |                    |  |  |          |                     |            |  |                      |               | 67,303 |  |             |  | 109,344 |               |  |   | 432,926 |  |  |   | 570,404   | 

Employment, Severance and Change of Control Agreements








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Compensation of Directors












|                                  |  |               |            |            |                 |  |                |           |  |   |      | 
|--------------------------------- |  | ------------- | ---------- | ---------- | --------------- |  | -------------- | --------- |  | - | ---- | 
|                                  |  |               |            | Number of  |                 |  |               
|                                  |  |               |            | Securities |                 |  |               
|                                  |  |               |            | Underlying |                 |  | Exercise Price |          
|Name                              |  | Date of Grant |            |            | Options Granted |  |                | per Share | 
|                                  |  |               |            |            |                 |  |                |           | 
|Craig C. Taylor                   |  |               | 9/6/2005   |            |                 |  | 25,000         |           |  | $ | 5.97 | 
|Stephen Allen, Ph.D.              |  |               | 9/6/2005   |            |                 |  | 20,000         |           |  |   | 5.97 | 
|Douglas Fambrough, Ph.D.          |  |               | 9/6/2005   |            |                 |  | 20,000         |           |  |   | 5.97 | 
|Hermann Hauser, Ph.D.             |  |               | 10/21/2005 |            |                 |  | 20,000         |           |  |   | 6.20 | 
|Genghis Lloyd-Harris, M.D., Ph.D. |  |               | 9/6/2005   |            |                 |  | 20,000         |           |  |   | 5.97 | 
|G. Mason Morfit, CFA              |  |               | 9/6/2005   |            |                 |  | 20,000         |           |  |   | 5.97 | 

Compensation Committee Interlocks and Insider
Participation




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Limitations of Liability and Indemnification








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|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                                |  |                  |           |  |                   |   |                      |                       |  |  |         | 
|--------------------------------------------------------------- |  | ---------------- | --------- |  | ----------------- | - | -------------------- | --------------------- |  |  | ------- | 
|                                                                |  | Number of        |           |  |                   |   | Number of Securities |                      
|                                                                |  | Securities to be |           |  |                   |   | Remaining Available  |                      
|                                                                |  | Issued Upon      |           |  | Weighted Average  |   |                      | for Future Issuance   | 
|                                                                |  | Outstanding      |           |  | Exercise Price of |   |                      | Under Equity          | 
|                                                                |  | Options,         |           |  | Outstanding       |   |                      | Compensation Plans    | 
|                                                                |  | Warrants and     |           |  | Options, Warrants |   |                      | (Excluding Securities | 
|                                                                |  | Rights           |           |  | and Rights        |   |                      | Reflected in Column   | 
|                                                                |  | (a)              |           |  | (b)               |   |                      | (a) (c)               | 
|                                                                |  |                  |           |  |                   |   |                      |                       | 
|Equity compensation plans approved by security holders:         |  |                  |           |  |                   |   |                      |                       |  |  |         | 
|2005 Equity Incentive Plan                                      |  |                  | 1,232,744 |  |                   | $ | 5.96                 |                       |  |  | 827,936 | 
|1992 Stock Option Plan                                          |  |                  | 1,081,651 |  |                   | $ | 9.01                 |                       |  |  |        | 
|1998 Employee Stock Purchase Plan(1)                            |  |                  |          |  |                   |   | N/A                  |                       |  |  |        | 
|Solexa Limited Equity Plans                                     |  |                  | 775,913   |  |                   | $ | 2.44                 |                       |  |  |        | 
|Equity compensation plans not approved by security
    holders: |  |                  |           |  |                   |   |                      |                       |  |  |         | 
|None                                                            |  |                  |          |  |                   |   |                     |                       |  |  |        | 
|Total                                                           |  |                  | 3,090,308 |  |                   | $ | 6.15                 |                       |  |  | 827,936 | 






|    |                                                         
|--- | --------------------------------------------------------
|(1) | Our Employee Stock Purchase Plan is currently suspended.

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|                                                             |                                                                                                                                          |                         |           |            |       |  |       |   | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | --------- | ---------- | ----- |  | ----- | - | 
|                                                             |                                                                                                                                          | Beneficial Ownership(1) |          
|                                                             |                                                                                                                                          |                         |          
|                                                             |                                                                                                                                          |                         |           | Percent of |      
|Name of Beneficial Owner                                     |                                                                                                                                          | Number of Shares        |           |            | Total | 
|                                                             |                                                                                                                                          |                         |           |            |       | 
|Entities affiliated with FMR Corp.(2)                        |                                                                                                                                          |                         | 5,115,974 |            |       |  | 14.03 | %
|                                                             | 82 Devonshire Street
    Boston, Massachusetts 02109                                                                                     |                         |           |            |       |  |       |   | 
|Entities affiliated with Amadeus Capital Partners Limited(3) |                                                                                                                                          |                         | 5,028,737 |            |       |  | 13.65 | %
|                                                             | Mount Pleasant House, 2 Mount Pleasant
    Huntington Road, Cambridge CB3 ORN
    Great Britain                                          |                         |           |            |       |  |       |   | 
|Entities affiliated with Abingworth Management Limited(4)    |                                                                                                                                          |                         | 4,046,000 |            |       |  | 10.97 | %
|                                                             | 38 Jermyn Street
    London SW1Y 6DN
    Great Britain                                                                                   |                         |           |            |       |  |       |   | 
|Entities affiliated with Schroder Venture Managers Inc.(5)   |                                                                                                                                          |                         | 2,153,745 |            |       |  | 5.86  | %
|                                                             | Church Street
    Hamilton HM 11
    Bermuda                                                                                             |                         |           |            |       |  |       |   | 
|ValueAct Capital(6)                                          |                                                                                                                                          |                         | 3,043,270 |            |       |  | 8.14  | %
|                                                             | 435 Pacific Avenue, 4th Floor
    San Francisco, CA 94133                                                                                |                         |           |            |       |  |       |   | 
|Craig C. Taylor(7)                                           |                                                                                                                                          |                         | 60,905    |            |       |  | **    |  
|John West(8)                                                 |                                                                                                                                          |                         | 262,500   |            |       |  | **    |  
|Stephen Allen, Ph.D.(9)                                      |                                                                                                                                          |                         | 22,669    |            |       |  | **    |  
|Douglas Fambrough, Ph.D.(10)                                 |                                                                                                                                          |                         | 18,225    |            |       |  | **    |  
|                                                             | c/o OBP Management IV L.P.
    222 Berkeley St., Suite 1650
    Boston, Massachusetts 02116                                              |                         |           |            |       |  |       |   | 
|Hermann Hauser, Ph.D.(11)                                    |                                                                                                                                          |                         | 5,047,606 |            |       |  | 13.84 | %
|                                                             | c/o Amadeus Capital Partners Limited
    Mount Pleasant House, 2 Mount Pleasant
    Huntington Road, Cambridge CB3 ORN
    Great Britain |                         |           |            |       |  |       |   | 
|Genghis Lloyd-Harris, M.D., Ph.D.(12)                        |                                                                                                                                          |                         | 19,816    |            |       |  | **    |  
|G. Mason Morfit, CFA(13)                                     |                                                                                                                                          |                         | 19,556    |            |       |  | **    |  
|Peter Lundberg(14)                                           |                                                                                                                                          |                         | 18,041    |            |       |  | **    |  
|Linda Rubinstein(15)                                         |                                                                                                                                          |                         | 47,040    |            |       |  | **    |  
|Mary L. Schramke, Ph.D.(16)                                  |                                                                                                                                          |                         | 11,349    |            |       |  | **    |  
|Tony Smith, Ph.D.(17)                                        |                                                                                                                                          |                         | 86,128    |            |       |  | **    |  
|All directors and officers as a group (11 persons)(18)       |                                                                                                                                          |                         | 5,646,845 |            |       |  | 15.09 | %






|   |                       
|-- | ----------------------
|** | Less than one percent.



| |     |                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Beneficial ownership is determined in accordance with the rules
    of the SEC and, unless otherwise indicated, includes voting or
    investment power with respect to securities. Percentage of
    beneficial ownership is based on 36,462,323 shares of
    common stock outstanding as of March 10, 2006, except as

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | otherwise noted in the footnotes. Shares of common stock subject
    to options currently exercisable or exercisable within
    60 days of March 10, 2006, are deemed outstanding for
    computing the percentage of beneficial ownership of the person
    holding such options but are not deemed outstanding for
    computing the percentage of beneficial ownership of any other
    person.                                                                                                                                
|
| | (2) | Fidelity Management & Research Company, or Fidelity,
    82 Devonshire Street, Boston, Massachusetts 02109, a
    wholly-owned subsidiary of FMR Corp. and an investment adviser
    registered under Section 203 of the Investment Advisers Act
    of 1940, is the beneficial owner of 5,115,974 shares or
    14.03% of the Common Stock outstanding of Solexa, Inc., as a
    result of acting as investment adviser to various investment
    companies registered under Section 8 of the Investment
    Company Act of 1940.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Various persons have the right to receive or the power to direct
    the receipt of dividends from, or the proceeds from the sale of,
    the Common Stock of Solexa, Inc. The interest of one person,
    Fidelity OTC Portfolio, an investment company registered under
    the Investment Company Act of 1940, in the Common Stock of
    Solexa, Inc., amounted to 3,266,213 shares or 8.95% of the
    Common Stock outstanding. Fidelity OTC Portfolio has its
    principal business office at 82 Devonshire Street, Boston,
    Massachusetts 02109.                                                                                                                                                                                                         
|
| | Edward C. Johnson 3d and FMR Corp., through its control of
    Fidelity, and the funds each has sole power to dispose of the
    5,115,974 shares owned by the Funds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Members of the family of Edward C. Johnson 3d, Chairman of
    FMR Corp., are the predominant owners, directly or through
    trusts, of Series B shares of common stock of FMR Corp.,
    representing 49% of the voting power of FMR Corp. The Johnson
    family group and all other Series B shareholders have
    entered into a shareholders voting agreement under which
    all Series B shares will be voted in accordance with the
    majority vote of Series B shares. Accordingly, through
    their ownership of voting common stock and the execution of the
    shareholders voting agreement, members of the Johnson
    family may be deemed, under the Investment Company Act of 1940,
    to form a controlling group with respect to FMR Corp.
|
| | Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR
    Corp., has the sole power to vote or direct the voting of the
    shares owned directly by the Fidelity Funds, which power resides
    with the Funds Boards of Trustees. Fidelity carries out
    the voting of the shares under written guidelines established by
    the Funds Boards of Trustees.                                                                                                                                                                                                                                                                                                                                                                                              



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Includes 2,089,849 shares of common stock and
    173,081 shares of common stock issuable upon exercise of a
    warrant held by Amadeus II A LP;
    1,393,234 shares of common stock and 115,387 shares of
    common stock issuable upon exercise of a warrant held by
    Amadeus II B LP; 975,264 shares
    of common stock and 80,772 shares of common stock issuable
    upon exercise of a warrant held by
    Amadeus II C LP; 46,442 shares
    of common stock and 3,847 shares of common stock issuable
    upon exercise of a warrant held by Amadeus II D
    GmbH & Co KG; and 139,322 shares of common stock
    and 11,539 shares of common stock issuable upon exercise of
    a warrant held by Amadeus II Affiliates LP.                                                                                                                                                                                                                                    
|
| | (4) | Includes 1,416,438 shares of common stock held by
    Abingworth Bioventures II SICAV; 383,279 shares of
    common stock and 125,000 shares of common stock issuable
    upon exercise of a warrant held by Abingworth
    Bioventures II A LP; 764,931 shares of
    common stock and 145,489 shares of common stock issuable
    upon exercise of a warrant held by Abingworth
    Bioventures III A LP; 466,937 shares of
    common stock and 88,812 shares of common stock issuable
    upon exercise of a warrant held by Abingworth
    Bioventures III B LP; 279,700 shares of
    common stock and 53,200 shares of common stock issuable
    upon exercise of a warrant held by Abingworth
    Bioventures III C LP; 12,195 shares of
    common stock and 2,319 shares of common stock issuable upon
    exercise of a warrant held by Abingworth Bioventures III
    Executives LP; and 307,700 shares of common stock held
    by Abingworth Bioequities Master Fund Ltd.
|
| | (5) | Includes 1,096,534 shares of common stock and
    165,365 shares of common stock issuable upon exercise of a
    warrant held by Schroder Ventures International Life Sciences
    Fund II LP 1; 467,009 shares of common stock and
    70,428 shares of common stock issuable upon exercise of a
    warrant held by Schroder Ventures International Life Sciences
    Fund II LP 2; 124,455 shares of common stock and
    18,769 shares of common stock issuable upon exercise of a
    warrant held by Schroder Ventures International Life                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Sciences Fund II LP 3; 31,533 shares of
    common stock and 4,756 shares of common stock issuable upon
    exercise of a warrant held by SITCO Nominees Ltd.  VC
    01903 as nominees for Schroder Ventures International Life
    Sciences Fund II Group Co Investment Scheme;
    135,060 shares of common stock and 20,368 shares of
    common stock issuable upon exercise of a warrant held by SV
    (Nominees) Limited as nominee for Schroder Ventures Investments
    Limited; and 16,917 shares of common stock and
    2,551 shares of common stock issuable upon exercise of a
    warrant held by Schroder Ventures International Life Sciences
    Fund II Strategic Partners LP.                                                                                                                                                                                                          
|
| | (6) | Includes 2,105,770 shares of common stock and warrants to
    purchase 937,500 shares of common stock that are owned
    directly by ValueAct Capital Master Fund, L.P. and may be deemed
    to be beneficially owned by (i) VA Partners, L.L.C. as
    General Partner of ValueAct Capital Master Fund, L.P.,
    (ii) ValueAct Capital Management, L.P. as the manager of
    ValueAct Capital Master Fund, L.P., and (iii) ValueAct
    Capital Management LLC as General Partner of ValueAct Capital
    Management, L.P. Jeffrey W. Ubben, Peter H. Kamin and
    George F. Hamel, Jr. are Managing Members of
    VA Partners, L.L.C. and ValueAct Capital Management, LLC.
    These persons disclaim beneficial ownership of the reported
    stock except to the extent of their pecuniary interest therein.                                                                                       
|
| | (7) | Includes 10,252 shares of common stock, 23,511 shares
    of common stock issuable upon exercise of stock options that are
    exercisable within 60 days of March 10, 2006, and
    1,135 shares of common stock issuable upon exercise of
    warrants held by Mr. Taylor. Also includes
    26,007 shares of common stock held by Asset Management
    Associates 1989 L.P. Mr. Taylor, the Chairman of the board
    of directors of Solexa, is a general partner of AMC
    Partners 89, which is the general partner of Asset
    Management Associates 1989 L.P. Mr. Taylor shares the
    power to vote and control the disposition of shares held by
    Asset Management Associates 1989 L.P. and, therefore, may be
    deemed to be the beneficial owner of such shares.
    Mr. Taylor disclaims beneficial ownership of such shares,
    except to the extent of his pro-rata interest therein.
|
| | (8) | Includes 262,500 shares of common stock issuable upon
    exercise of stock options held by Mr. West that are
    exercisable within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (9) | Includes 1,012 shares of common stock and
    21,657 shares of common stock issuable upon exercise of
    stock options held by Dr. Allen that are exercisable within
    60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 1,559 shares of common stock and
    16,666 shares of common stock issuable upon exercise of
    stock options held by Dr. Fambrough that are exercisable
    within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(11) | Includes 2,203 shares of common stock and
    16,666 shares of common stock issuable upon exercise of
    stock options held by Dr. Hauser that are exercisable
    within 60 days of March 10, 2006. Also includes
    2,089,849 shares of common stock and 173,081 shares of
    common stock issuable upon exercise of a warrant held by
    Amadeus II A LP; 1,393,234 shares of common
    stock and 115,387 shares of common stock issuable upon
    exercise of a warrant held by Amadeus II B LP;
    975,264 shares of common stock and 80,772 shares of
    common stock issuable upon exercise of a warrant held by
    Amadeus II C LP; 46,442 shares of common
    stock and 3,847 shares of common stock issuable upon
    exercise of a warrant held by Amadeus II D
    GmbH & Co KG; and 139,322 shares of common stock
    and 11,539 shares of common stock issuable upon exercise of
    a warrant held by Amadeus II Affiliates LP. Hermann Hauser
    is a Director of Amadeus Capital Partners Ltd., or ACPL, a
    limited partnership. The General Partner of ACPL is
    Amadeus II General Partner LP, a Scottish limited liability
    partnership, whose general partner is Amadeus General Partner
    Limited, a wholly owned subsidiary of ACPL. By contract, the
    affairs of Amadeus General Partner Limited are managed by ACPL,
    whose directors are Anne Glover, Hermann Hauser, Richard Anton,
    Roy Merritt and Peter Wynn. These persons disclaim beneficial
    ownership of the securities. ACPL manages Amadeus II A
    LP, Amadeus II B LP, Amadeus II C LP,
    Amadeus II D GmbH & Co KG and Amadeus II
    Affiliates LP.
|    
|(12) | Includes 3,150 shares of common stock and
    16,666 shares of common stock issuable upon exercise of
    stock options held by Dr. Lloyd-Harris that are exercisable
    within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(13) | Includes 2,890 shares of common stock and
    16,666 shares of common stock issuable upon exercise of
    stock options held by Mr. Morfit that are exercisable
    within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

70



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##### Table of Contents





|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Includes 18,041 shares of common stock issuable upon
    exercise of stock options held by Mr. Lundberg that are
    exercisable within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                           
|    
|(15) | Includes 47,040 shares of common stock issuable upon
    exercise of stock options held by Ms. Rubinstein that are
    exercisable within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                         
|    
|(16) | Includes 11,349 shares of common stock issuable upon
    exercise of stock options held by Dr. Schramke that are
    exercisable within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                           
|    
|(17) | Includes 86,128 shares of common stock issuable upon
    exercise of stock options held by Dr. Smith that are
    exercisable within 60 days of March 10, 2006.                                                                                                                                                                                                                                                                                                                                              
|    
|(18) | Includes 4,691,184 shares of common stock (including shares
    of common stock held by entities affiliated with certain
    directors), 569,900 shares of common stock issuable upon
    exercise of stock options that are exercisable within
    60 days of March 10, 2006 and 385,761 shares of
    common stock issuable upon exercise of warrants held by current
    directors and officers (including warrants held by entities
    affiliated with certain directors). (See Notes 7
    through 17).






|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions














|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



|                   |            |                         |           |           |      |   |         |         | 
|------------------ | ---------- | ----------------------- | --------- | --------- | ---- | - | ------- | ------- | 
|                   |            | Year Ended December 31, |          
|                   |            |                         |          
|                   |            | 2005                    |           |           | 2004 |  
|                   |            |                         |           |           |      |  
|Audit fees         |            | $                       | 1,083,340 |           |      | $ | 470,685 |        
|Audit-related fees |            |                         |          |           |      |   |        |        
|Tax fees           |            |                         | 23,196    |           |      |   | 31,320  |        
|All other fees     |            |                         | 719       |           |      |   | 34,609  |        
|                   |            |                         |           |           |      |  
|                   | Total fees |                         | $         | 1,107,254 |      |   | $       | 536,614 | 
|                   |            |                         |           |           |      |  

Audit Fees: 10-Q


71



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##### Table of Contents



non-U.S.


Audit-Related Fees:


Tax Fees:


All Other Fees:




Pre-Approval Policies and Procedures







PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statements Schedules





| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) The following Reports of Independent Registered Public
    Accounting Firms and financial statements set forth on
    pages 29 through 57 of this report are being filed as part
    of this report:



| |     |                                                          
| | --- | ---------------------------------------------------------
| | (i) | Reports of Independent Registered Public Accounting Firms



| |      |                                                             
| | ---- | ------------------------------------------------------------
| | (ii) | Consolidated Balance Sheets as of December 31, 2005 and 2004



| |       |                                                                                               
| | ----- | ----------------------------------------------------------------------------------------------
| | (iii) | Consolidated Statements of Operations for the years ended
    December 31, 2005, 2004 and 2003



| |      |                                                                                                         
| | ---- | --------------------------------------------------------------------------------------------------------
| | (iv) | Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2005, 2004 and 2003
|
| | (v)  | Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003          
|
| | (vi) | Notes to Consolidated Financial Statements                                                              



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) All schedules are omitted because they are not
    required, are not applicable or the information is included in
    the consolidated financial statement or notes thereto.

72



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##### Table of Contents





| |                                                                        
| | -----------------------------------------------------------------------
| | (3) The following documents are being filed as part of this
    report:

|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 2  | .2                      |  | Acquisition Agreement, dated as of September 28, 2004, by
    and between Solexa Limited and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit in the
    Companys Registration Statement on Form S-4 filed on
    October 29, 2004                                                                                                
|        | 2  | .2.1                    |  | Amendment and Waiver, dated March 3, 2005, by and between
    Solexa Limited and Lynx Therapeutics, Inc., incorporated by
    reference to the indicated exhibit in the Companys Current
    Report on Form 8-K filed on March 7, 2005                                                                                                                           
|        | 2  | .2.2                    |  | Amendment No. 2 to acquisition agreement, dated May 6,
    2005 by and between Solexa, Inc and Solexa, Ltd incorporated by
    reference to the indicated exhibit of the Companys
    Form 8-K for the period ended May 11, 2005                                                                                                                                 
|        | 3  | .1                      |  | Amended and Restated Certificate of Incorporation of the
    Company, incorporated by reference to the indicated exhibit of
    the Companys Form 10-Q for the period ended
    June 30, 2000                                                                                                                                                                    
|        | 3  | .1.1                    |  | Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of the Company, incorporated by reference to the
    indicated exhibit of the Companys Form 10-K for the
    period ended December 31, 2002                                                                                                                                    
|        | 3  | .1.2                    |  | Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of the Company, incorporated by reference to the
    indicated exhibit of the Companys Current Report on
    Form 8-K filed on March 7, 2005                                                                                                                                   
|        | 3  | .2                      |  | Bylaws of the Company, as amended, incorporated by reference to
    the indicated exhibit of the Companys Form 10-Q for
    the period ended June 30, 2000                                                                                                                                                                                                       
|        | 3  | .3                      |  | Certificate of Ownership and Merger of Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 7, 2005                                                                                                                                                                 
|        | 10 | .1                      |  | Form of Indemnity Agreement entered into between the Company and
    its directors and officers, incorporated by reference to
    Exhibit 10.7 of the Companys Registration Statement
    on Form 10                                                                                                                                                             
|        | 10 | .2**                    |  | The Companys 1992 Stock Option Plan (the Stock
    Option Plan), incorporated by reference to
    Exhibit 10.8 of the Companys Registration Statement
    on Form 10                                                                                                                                                                                          
|        | 10 | .3**                    |  | Form of Incentive Stock Option Grant under the Stock Option
    Plan, incorporated by reference to Exhibit 10.9 of the
    Companys Registration Statement on Form 10                                                                                                                                                                                            
|        | 10 | .4**                    |  | Form of Nonstatutory Stock Option Grant under the Stock Option
    Plan, incorporated by reference to Exhibit 10.10 of the
    Companys Registration Statement on Form 10                                                                                                                                                                                        
|        | 10 | .5                      |  | Agreement of Assignment and License of Intellectual Property
    Rights, dated June 30, 1992, by and between the Company and
    Applied Biosystems, Inc. incorporated by reference to
    Exhibit 10.11 of the Companys Registration Statement
    on Form 10                                                                                                   
|        | 10 | .6                      |  | Agreement of Assignment and License of Intellectual Property
    Rights, dated June 30, 1992, by and between the Company and
    Applied Biosystems, Inc., incorporated by reference to
    Exhibit 10.11 of the Companys Registration Statement
    on Form 10                                                                                                  
|        | 10 | .6+                     |  | Technology Development and Services Agreement, dated as of
    October 2, 1995, by and among the Company, Hoechst
    Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
    Inc., incorporated by reference to Exhibit 10.28 of the
    Companys Form 10-K for the period ended
    December 31, 1995                                               
|        | 10 | .6.1+                   |  | Amended and Restated First Amendment to Technology Development
    and Services Agreement, dated May 1, 1998, by and between
    the Company and Hoechst Marion Roussel, Inc., incorporated by
    reference to Exhibit 10.36 of the Companys
    Form 10-Q for the period ended June 30, 1998                                                                   
|        | 10 | .6.2+                   |  | Second Amendment to Technology Development and Services
    Agreement, dated March 1, 1999, by and among the Company,
    Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering
    AgrEvo GmbH, incorporated by reference to the indicated exhibit
    of the Companys Form 10-K/A filed on August 24,
    2001 for the period ended December 31, 2001

73



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .6.3+                   |  | Third Amendment to Technology Development and Services
    Agreement, dated December 20, 1999, by and among the
    Company, Aventis Pharmaceutical Inc. and its affiliate Aventis
    CropScience GmbH, incorporated by reference to the indicated
    exhibit of the Companys Form 10-K/A filed on
    August 24, 2001 for the period ended December 31, 2001
|        | 10 | .6.4+                   |  | Fourth Amendment to Technology Development and Services
    Agreement, dated March 31, 2002, by and between the Company
    and Aventis CropScience GmbH, incorporated by reference to the
    indicated exhibit of the Companys Form 10-Q for the
    period ended March 31, 2002                                                                             
|        | 10 | .6.5+                   |  | Fifth Amendment to Technology Development and Services
    Agreement, dated as of September 30, 2002, by and between
    the Company and Bayer CropScience GmbH, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended September 30, 2002                                                                  
|        | 10 | .7                      |  | Lease, dated as of February 27, 1998, by and between the
    Company and SimFirst, L.P., Limited Partnership, incorporated by
    reference to Exhibit 10.35 of the Companys
    Form 10-Q for the period ended March 31, 1998                                                                                                                                 
|        | 10 | .8**                    |  | 1998 Employee Stock Purchase Plan or the Purchase Plan,
    incorporated by reference to Exhibit 99.1 of the
    Companys Form S-8 dated July 15, 1998 (File
    No. 333-59163)                                                                                                                                                                                
|        | 10 | .9+                     |  | Collaboration Agreement, dated as of October 1, 2000, by
    and between the Company and Takara Shuzo Co., Ltd. incorporated
    by reference to Exhibit 10.18 of the Companys
    Form 10-K/A filed on August 24, 2001 for the period
    ended December 31, 2001                                                                                             
|        | 10 | .9.1+                   |  | Amendment No. 1 to Collaboration Agreement, dated
    December 19, 2002, by and between the Company and Takara
    Bio Inc., incorporated by reference to Exhibit 10.17.1 of
    the Companys Form 10-K for the period ended
    December 31, 2002                                                                                                             
|        | 10 | .9.2+                   |  | Amendment No. 2 to Collaboration Agreement, dated
    June 30, 2003, by and between the Company and Takara Bio
    Inc., incorporated by reference to Exhibit 10.17.2 of the
    Companys Form 10-Q for the period ended
    September 30, 2003                                                                                                                
|        | 10 | .10                     |  | Securities Purchase Agreement, dated as of May 24, 2001, by
    and among the Company and the investors listed therein,
    incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                                                                                
|        | 10 | .11                     |  | Registration Rights Agreement, dated as of May 24, 2001, by
    and among the Company and the investors listed therein,
    incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                                                                                
|        | 10 | .12                     |  | Form of Warrant issued by the Company in favor of each investor
    thereto, incorporated by reference to Exhibit 10.3 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                                                                                                                               
|        | 10 | .13+                    |  | Common Stock Purchase Agreement, dated as of March 5, 2002,
    by and between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to Exhibit 10.26 of the
    Companys Current Report on From 8-K filed on
    March 18, 2002                                                                                                        
|        | 10 | .14                     |  | Form of Registration Rights Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    Exhibit 10.28 of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                                                                                        
|        | 10 | .15                     |  | Form of Warrant issued by the Company in favor of each investor
    party to the Securities Purchase Agreement and Friedman,
    Billings, Ramsey & Co., Inc., incorporated by reference
    to Exhibit 10.29 of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                              
|        | 10 | .16**                   |  | Employment Agreement, dated as of March 20, 2003, by and
    between the Company and Kathy A. San Roman, incorporated by
    reference to Exhibit 10.37 of the Companys
    Form 10-Q for the period ended March 31, 2003                                                                                                                                      
|        | 10 | .17**                   |  | 1992 Stock Plan, as amended, incorporated by reference to
    Exhibit 10.38 of the Companys Form 10-Q for the
    period ended June 30, 2003                                                                                                                                                                                                                   
|        | 10 | .18                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.39 of the Companys Form 8-K filed on
    September 25, 2003                                                                                                                                                           

74



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|        |    |                         |  |                                                                                                                                                                                                                                             
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .19                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.40 of the
    Companys Form 8-K filed on September 25, 2003                                                                   
|        | 10 | .20+                    |  | Services Agreement, by and between E.I. DuPont de Nemours and
    Company and Lynx Therapeutics, Inc., incorporated by reference
    to Exhibit 10.41 of the Companys Form 10-Q for
    the period ended September 30, 2003                
|        | 10 | .21                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.42 of the Companys Form 8-K filed on
    January 2, 2004                                          
|        | 10 | .22                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.43 of the
    Companys Form 8-K filed on January 2, 2004                                                                      
|        | 10 | .23                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.44 the Companys Current Report on
    Form 8-K filed on March 12, 2004                            
|        | 10 | .24                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.45 of the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                 
|        | 10 | .25**                   |  | Employment Agreement, dated January 29, 2003, between Lynx
    Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
    incorporated by reference to Exhibit 10.52 to the
    Companys Current Report on Form 8-K filed on
    November 22, 2004
|        | 10 | .26                     |  | Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
    Silicon Valley Bank on December 28, 2004, incorporated by
    reference to Exhibit 10.55 of the Companys Current
    Report on Form 8-K filed on January 3, 2005       
|        | 10 | .27**                   |  | Letter Agreement, dated as of March 23, 2005, by and
    between Solexa, Inc. and Linda Rubinstein incorporated by
    reference to Exhibit 10.56 of the Companys Current
    Report on Form 8-K filed on March 29, 2005                   
|        | 10 | .27.1*,**               |  | Letter Agreement with Linda Rubinstein dated March 27, 2006
    regarding modification of bonus terms                                                                                                                                       
|        | 10 | .28                     |  | Indemnification Agreement with Linda Rubinstein, Vice President
    and Chief Financial Officer incorporated by reference to
    Exhibit 10.57 of the Companys Current Report on
    Form 8-K filed on April 5, 2005                       
|        | 10 | .29                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.58 of the Companys Current Report on
    Form 8-K filed on April 26, 2005                                                                                        
|        | 10 | .30                     |  | Form of Warrants to purchase common stock incorporated by
    reference to Exhibit 10.59 of the Companys Current
    Report on Form 8-K filed on April 26, 2005                                                                            
|        | 10 | .31                     |  | Form of Warrants to purchase common stock incorporated by
    reference to Exhibit 10.6 of the Companys Current
    Report on Form 8-K filed on April 26, 2005                                                                             
|        | 10 | .32                     |  | Letter Agreement, dated April 21, 2005, between the Company
    and ValueAct Capital Master Fund, L.P., incorporated by
    reference to Exhibit 10.61 of the Companys Current
    Report on Form 8-K filed on April 26, 2005              
|        | 10 | .33                     |  | Warrant issued by the Company to Seven Hills Partners LLC on
    May 6, 2005, incorporated by reference to
    Exhibit 10.62 of the Companys Current Report on
    Form 8-K filed on May 11, 2005                                          
|        | 10 | .34                     |  | Solexa, Inc. 2005 Equity Incentive Plan. incorporated by
    reference to Exhibit 10.63 of the Companys Current
    Report on Form 8-K filed on June 9, 2005                                                                               
|        | 10 | .35                     |  | Form of Stock Option Agreement incorporated by reference to
    Exhibit 10.64 of the Companys Current Report on
    Form 8-K filed on June 9, 2005                                                                                         
|        | 10 | .36                     |  | Non-Executive Director Compensation Program incorporated by
    reference to Exhibit 10.65 of the Companys Current
    Report on Form 8-K filed on June 9, 2005                                                                            
|        | 10 | .37**                   |  | Executive Employment Agreement dated as of June 23, 2005 by
    and between Solexa, Inc. and John West incorporated by reference
    to Exhibit 10.66 of the Companys Current Report on
    Form 8-K filed on June 28, 2005                
|        | 10 | .37.1*,**               |  | Letter Agreement with John West dated March 27, 2006
    regarding modification of bonus terms                                                                                                                                              

75



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|        |    |                         |  |                                                                                                                                                                                             
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .38                     |  | Indemnification Agreement with John West, Chief Executive
    Officer, incorporated by reference to Exhibit 10.67 of the
    Companys Current Report on Form 8-K filed on
    June 28, 2005
|        | 10 | .39**                   |  | 2005-2006 Bonus Plan incorporated by reference to
    Exhibit 10.68 of the Companys Current Report on
    Form 8-K filed on September 12, 2005                                             
|        | 10 | .40                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.69 of the Companys Current Report on
    Form 8-K filed on November 23, 2005                                     
|        | 10 | .41                     |  | Form of Warrants incorporated by reference to Exhibit 10.70
    of the Companys Current Report on Form 8-K filed on
    November 23, 2005                                                  
|        | 10 | .42                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.71 of the Companys Current Report on
    Form 8-K filed on November 23, 2005                                     
|        | 10 | .43                     |  | Form of Warrants incorporated by reference to Exhibit 10.72
    of the Companys Current Report on Form 8-K filed on
    November 23, 2005                                                  
|        | 21 | .1*                     |  | Subsidiaries                                                                                                                                                                                
|        | 23 | .1*                     |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                    
|        | 23 | .2*                     |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                    
|        | 24 | .1*                     |  | Power of Attorney. Reference is made to the signature page                                                                                                                                  
|        | 31 | .1*                     |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a)                                                                                                                              
|        | 31 | .2*                     |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a)                                                                                                                              
|        | 32 | .1++*                   |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a) and Section 1350 of Chapter 63 of
    Title 18 of the United States Code (18 U.S.C. 1350)                                    






|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  |  | Being filed herewith; all other exhibits previously filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|** |  | Management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|+  |  | Portions of this agreement have been deleted pursuant to our
    request for confidential treatment.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|++ |  | This certification accompanies the Annual Report on
    Form 10-K to which
    it relates, pursuant to Section 906 of the
    Sarbanes-Oxley Act of
    2002, and is not deemed filed with the Securities and Exchange
    Commission and is not to be incorporated by reference into any
    filing of Solexa, Inc. under the Securities Act or the Exchange
    Act (whether made before or after the date of the Annual Report
    on Form 10-K),
    irrespective of any general incorporation language contained in
    such filing.





| |                      
| | ---------------------
| | See Item 15(a) above.





| |                      
| | ---------------------
| | See Item 15(a) above.

76



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##### Table of Contents






SIGNATURES


10-K




| |             
| | ------------
| | SOLEXA, INC.



| |     |              
| | --- | -------------
| | By: | /s/ John West

| |                        
| | -----------------------
| |                        
| | John West              
| | Chief Executive Officer

77



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##### Table of Contents



POWER OF ATTORNEY


Know All Persons by These Presents, attorneys-in 10-K, attorneys-in attorneys-in




|                                             |  |                                                                                              |  |                |  | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                    |  | Title                                                                                        |  | Date          
|                                             |  |                                                                                              |  |               
|                                            
|/s/ John WestJohn West                       |  | Chief Executive Officer and Director(Principal Executive Officer)                            |  | March 31, 2006
|                                            
|/s/ Craig C. TaylorCraig C. Taylor           |  | Chairman of the Board                                                                        |  | March 31, 2006
|                                            
|/s/ Linda RubinsteinLinda Rubinstein         |  | Vice President &
    Chief Financial Officer(Principal Financial and
    Accounting Officer) |  | March 31, 2006
|                                            
|/s/ Stephen AllenStephen Allen               |  | Director                                                                                     |  | March 31, 2006
|                                            
|/s/ Hermann HauserHermann Hauser             |  | Director                                                                                     |  | March 31, 2006
|                                            
|/s/ Genghis Lloyd-HarrisGenghis Lloyd-Harris |  | Director                                                                                     |  | March 31, 2006
|                                            
|/s/ Mason MorfitMason Morfit                 |  | Director                                                                                     |  | March 31, 2006
|                                            
|/s/ Douglas FambroughDouglas Fambrough       |  | Director                                                                                     |  | March 31, 2006

78



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##### Table of Contents



EXHIBIT INDEX


|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 2  | .2                      |  | Acquisition Agreement, dated as of September 28, 2004, by
    and between Solexa Limited and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit in the
    Companys Registration Statement on Form S-4 filed on
    October 29, 2004                                                                                                
|        | 2  | .2.1                    |  | Amendment and Waiver, dated March 3, 2005, by and between
    Solexa Limited and Lynx Therapeutics, Inc., incorporated by
    reference to the indicated exhibit in the Companys Current
    Report on Form 8-K filed on March 7, 2005                                                                                                                           
|        | 2  | .2.2                    |  | Amendment No. 2 to acquisition agreement, dated May 6,
    2005 by and between Solexa, Inc and Solexa, Ltd incorporated by
    reference to the indicated exhibit of the Companys
    Form 8-K for the period ended May 11, 2005                                                                                                                                 
|        | 3  | .1                      |  | Amended and Restated Certificate of Incorporation of the
    Company, incorporated by reference to the indicated exhibit of
    the Companys Form 10-Q for the period ended
    June 30, 2000                                                                                                                                                                    
|        | 3  | .1.1                    |  | Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of the Company, incorporated by reference to the
    indicated exhibit of the Companys Form 10-K for the
    period ended December 31, 2002                                                                                                                                    
|        | 3  | .1.2                    |  | Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of the Company, incorporated by reference to the
    indicated exhibit of the Companys Current Report on
    Form 8-K filed on March 7, 2005                                                                                                                                   
|        | 3  | .2                      |  | Bylaws of the Company, as amended, incorporated by reference to
    the indicated exhibit of the Companys Form 10-Q for
    the period ended June 30, 2000                                                                                                                                                                                                       
|        | 3  | .3                      |  | Certificate of Ownership and Merger of Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 7, 2005                                                                                                                                                                 
|        | 10 | .1                      |  | Form of Indemnity Agreement entered into between the Company and
    its directors and officers, incorporated by reference to
    Exhibit 10.7 of the Companys Registration Statement
    on Form 10                                                                                                                                                             
|        | 10 | .2**                    |  | The Companys 1992 Stock Option Plan (the Stock
    Option Plan), incorporated by reference to
    Exhibit 10.8 of the Companys Registration Statement
    on Form 10                                                                                                                                                                                          
|        | 10 | .3**                    |  | Form of Incentive Stock Option Grant under the Stock Option
    Plan, incorporated by reference to Exhibit 10.9 of the
    Companys Registration Statement on Form 10                                                                                                                                                                                            
|        | 10 | .4**                    |  | Form of Nonstatutory Stock Option Grant under the Stock Option
    Plan, incorporated by reference to Exhibit 10.10 of the
    Companys Registration Statement on Form 10                                                                                                                                                                                        
|        | 10 | .5                      |  | Agreement of Assignment and License of Intellectual Property
    Rights, dated June 30, 1992, by and between the Company and
    Applied Biosystems, Inc. incorporated by reference to
    Exhibit 10.11 of the Companys Registration Statement
    on Form 10                                                                                                   
|        | 10 | .6+                     |  | Technology Development and Services Agreement, dated as of
    October 2, 1995, by and among the Company, Hoechst
    Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
    Inc., incorporated by reference to Exhibit 10.28 of the
    Companys Form 10-K for the period ended
    December 31, 1995                                               
|        | 10 | .6.1+                   |  | Amended and Restated First Amendment to Technology Development
    and Services Agreement, dated May 1, 1998, by and between
    the Company and Hoechst Marion Roussel, Inc., incorporated by
    reference to Exhibit 10.36 of the Companys
    Form 10-Q for the period ended June 30, 1998                                                                   
|        | 10 | .6.2+                   |  | Second Amendment to Technology Development and Services
    Agreement, dated March 1, 1999, by and among the Company,
    Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering
    AgrEvo GmbH, incorporated by reference to the indicated exhibit
    of the Companys Form 10-K/A filed on August 24,
    2001 for the period ended December 31, 2001
|        | 10 | .6.3+                   |  | Third Amendment to Technology Development and Services
    Agreement, dated December 20, 1999, by and among the
    Company, Aventis Pharmaceutical Inc. and its affiliate Aventis
    CropScience GmbH, incorporated by reference to the indicated
    exhibit of the Companys Form 10-K/A filed on
    August 24, 2001 for the period ended December 31, 2001  

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|        |    |                         |  |                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .6.4+                   |  | Fourth Amendment to Technology Development and Services
    Agreement, dated March 31, 2002, by and between the Company
    and Aventis CropScience GmbH, incorporated by reference to the
    indicated exhibit of the Companys Form 10-Q for the
    period ended March 31, 2002               
|        | 10 | .6.5+                   |  | Fifth Amendment to Technology Development and Services
    Agreement, dated as of September 30, 2002, by and between
    the Company and Bayer CropScience GmbH, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended September 30, 2002    
|        | 10 | .7                      |  | Lease, dated as of February 27, 1998, by and between the
    Company and SimFirst, L.P., Limited Partnership, incorporated by
    reference to Exhibit 10.35 of the Companys
    Form 10-Q for the period ended March 31, 1998                                                                   
|        | 10 | .8**                    |  | 1998 Employee Stock Purchase Plan or the Purchase Plan,
    incorporated by reference to Exhibit 99.1 of the
    Companys Form S-8 dated July 15, 1998 (File
    No. 333-59163)                                                                                                                  
|        | 10 | .9+                     |  | Collaboration Agreement, dated as of October 1, 2000, by
    and between the Company and Takara Shuzo Co., Ltd. incorporated
    by reference to Exhibit 10.18 of the Companys
    Form 10-K/A filed on August 24, 2001 for the period
    ended December 31, 2001                               
|        | 10 | .9.1+                   |  | Amendment No. 1 to Collaboration Agreement, dated
    December 19, 2002, by and between the Company and Takara
    Bio Inc., incorporated by reference to Exhibit 10.17.1 of
    the Companys Form 10-K for the period ended
    December 31, 2002                                               
|        | 10 | .9.2+                   |  | Amendment No. 2 to Collaboration Agreement, dated
    June 30, 2003, by and between the Company and Takara Bio
    Inc., incorporated by reference to Exhibit 10.17.2 of the
    Companys Form 10-Q for the period ended
    September 30, 2003                                                  
|        | 10 | .10                     |  | Securities Purchase Agreement, dated as of May 24, 2001, by
    and among the Company and the investors listed therein,
    incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                  
|        | 10 | .11                     |  | Registration Rights Agreement, dated as of May 24, 2001, by
    and among the Company and the investors listed therein,
    incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                  
|        | 10 | .12                     |  | Form of Warrant issued by the Company in favor of each investor
    thereto, incorporated by reference to Exhibit 10.3 of the
    Companys Current Report on Form 8-K, filed on
    June 4, 2001                                                                                                 
|        | 10 | .13+                    |  | Common Stock Purchase Agreement, dated as of March 5, 2002,
    by and between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to Exhibit 10.26 of the
    Companys Current Report on From 8-K filed on
    March 18, 2002                                          
|        | 10 | .14                     |  | Form of Registration Rights Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    Exhibit 10.28 of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                          
|        | 10 | .15                     |  | Form of Warrant issued by the Company in favor of each investor
    party to the Securities Purchase Agreement and Friedman,
    Billings, Ramsey & Co., Inc., incorporated by reference
    to Exhibit 10.29 of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002
|        | 10 | .16**                   |  | Employment Agreement, dated as of March 20, 2003, by and
    between the Company and Kathy A. San Roman, incorporated by
    reference to Exhibit 10.37 of the Companys
    Form 10-Q for the period ended March 31, 2003                                                                        
|        | 10 | .17**                   |  | 1992 Stock Plan, as amended, incorporated by reference to
    Exhibit 10.38 of the Companys Form 10-Q for the
    period ended June 30, 2003                                                                                                                                                     
|        | 10 | .18                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.39 of the Companys Form 8-K filed on
    September 25, 2003                                                                                             
|        | 10 | .19                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.40 of the
    Companys Form 8-K filed on September 25, 2003                                                                                                                         
|        | 10 | .20+                    |  | Services Agreement, by and between E.I. DuPont de Nemours and
    Company and Lynx Therapeutics, Inc., incorporated by reference
    to Exhibit 10.41 of the Companys Form 10-Q for
    the period ended September 30, 2003                                                                      

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|        |    |                         |  |                                                                                                                                                                                                                                             
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .21                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.42 of the Companys Form 8-K filed on
    January 2, 2004                                          
|        | 10 | .22                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.43 of the
    Companys Form 8-K filed on January 2, 2004                                                                      
|        | 10 | .23                     |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to
    Exhibit 10.44 the Companys Current Report on
    Form 8-K filed on March 12, 2004                            
|        | 10 | .24                     |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to Exhibit 10.45 of the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                 
|        | 10 | .25**                   |  | Employment Agreement, dated January 29, 2003, between Lynx
    Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
    incorporated by reference to Exhibit 10.52 to the
    Companys Current Report on Form 8-K filed on
    November 22, 2004
|        | 10 | .26                     |  | Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
    Silicon Valley Bank on December 28, 2004, incorporated by
    reference to Exhibit 10.55 of the Companys Current
    Report on Form 8-K filed on January 3, 2005       
|        | 10 | .27**                   |  | Letter Agreement, dated as of March 23, 2005, by and
    between Solexa, Inc. and Linda Rubinstein incorporated by
    reference to Exhibit 10.56 of the Companys Current
    Report on Form 8-K filed on March 29, 2005                   
|        | 10 | .27.1*,**               |  | Letter Agreement with Linda Rubinstein dated March 27, 2006
    regarding modification of bonus terms                                                                                                                                       
|        | 10 | .28                     |  | Indemnification Agreement with Linda Rubinstein, Vice President
    and Chief Financial Officer incorporated by reference to
    Exhibit 10.57 of the Companys Current Report on
    Form 8-K filed on April 5, 2005                       
|        | 10 | .29                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.58 of the Companys Current Report on
    Form 8-K filed on April 26, 2005                                                                                        
|        | 10 | .30                     |  | Form of Warrants to purchase common stock incorporated by
    reference to Exhibit 10.59 of the Companys Current
    Report on Form 8-K filed on April 26, 2005                                                                            
|        | 10 | .31                     |  | Form of Warrants to purchase common stock incorporated by
    reference to Exhibit 10.6 of the Companys Current
    Report on Form 8-K filed on April 26, 2005                                                                             
|        | 10 | .32                     |  | Letter Agreement, dated April 21, 2005, between the Company
    and ValueAct Capital Master Fund, L.P., incorporated by
    reference to Exhibit 10.61 of the Companys Current
    Report on Form 8-K filed on April 26, 2005              
|        | 10 | .33                     |  | Warrant issued by the Company to Seven Hills Partners LLC on
    May 6, 2005, incorporated by reference to
    Exhibit 10.62 of the Companys Current Report on
    Form 8-K filed on May 11, 2005                                          
|        | 10 | .34**                   |  | Solexa, Inc. 2005 Equity Incentive Plan. incorporated by
    reference to Exhibit 10.63 of the Companys Current
    Report on Form 8-K filed on June 9, 2005                                                                               
|        | 10 | .35**                   |  | Form of Stock Option Agreement incorporated by reference to
    Exhibit 10.64 of the Companys Current Report on
    Form 8-K filed on June 9, 2005                                                                                         
|        | 10 | .36                     |  | Non-Executive Director Compensation Program incorporated by
    reference to Exhibit 10.65 of the Companys Current
    Report on Form 8-K filed on June 9, 2005                                                                            
|        | 10 | .37**                   |  | Executive Employment Agreement dated as of June 23, 2005 by
    and between Solexa, Inc. and John West incorporated by reference
    to Exhibit 10.66 of the Companys Current Report on
    Form 8-K filed on June 28, 2005                
|        | 10 | .37.1*,**               |  | Letter Agreement with John West dated March 27, 2006
    regarding modification of bonus terms                                                                                                                                              
|        | 10 | .38                     |  | Indemnification Agreement with John West, Chief Executive
    Officer, incorporated by reference to Exhibit 10.67 of the
    Companys Current Report on Form 8-K filed on
    June 28, 2005                                                
|        | 10 | .39**                   |  | 2005-2006 Bonus Plan incorporated by reference to
    Exhibit 10.68 of the Companys Current Report on
    Form 8-K filed on September 12, 2005                                                                                             
|        | 10 | .40                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.69 of the Companys Current Report on
    Form 8-K filed on November 23, 2005                                                                                     

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##### Table of Contents



|        |    |                         |  |                                                                                                                                                         
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 10 | .41                     |  | Form of Warrants incorporated by reference to Exhibit 10.70
    of the Companys Current Report on Form 8-K filed on
    November 23, 2005              
|        | 10 | .42                     |  | Securities Purchase Agreement incorporated by reference to
    Exhibit 10.71 of the Companys Current Report on
    Form 8-K filed on November 23, 2005 
|        | 10 | .43                     |  | Form of Warrants incorporated by reference to Exhibit 10.72
    of the Companys Current Report on Form 8-K filed on
    November 23, 2005              
|        | 21 | .1*                     |  | Subsidiaries                                                                                                                                            
|        | 23 | .1*                     |  | Consent of Independent Registered Public Accounting Firm                                                                                                
|        | 23 | .2*                     |  | Consent of Independent Registered Public Accounting Firm                                                                                                
|        | 24 | .1*                     |  | Power of Attorney. Reference is made to the signature page                                                                                              
|        | 31 | .1*                     |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a)                                                                                          
|        | 31 | .2*                     |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a)                                                                                          
|        | 32 | .1++*                   |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a) and Section 1350 of Chapter 63 of
    Title 18 of the United States Code (18 U.S.C. 1350)






|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  |  | Being filed herewith; all other exhibits previously filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|** |  | Management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|+  |  | Portions of this agreement have been deleted pursuant to our
    request for confidential treatment.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|++ |  | This certification accompanies the Annual Report on
    Form 10-K to which
    it relates, pursuant to Section 906 of the
    Sarbanes-Oxley Act of
    2002, and is not deemed filed with the Securities and Exchange
    Commission and is not to be incorporated by reference into any
    filing of Solexa, Inc. under the Securities Act or the Exchange
    Act (whether made before or after the date of the Annual Report
    on Form 10-K),
    irrespective of any general incorporation language contained in
    such filing.





| |                      
| | ---------------------
| | See Item 15(a) above.





| |                      
| | ---------------------
| | See Item 15(a) above.

82