##### 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, 2004                                                 
|  
|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


þ o


þ


o þ
















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SOLEXA, INC.


ANNUAL REPORT ON FORM 10-K


FOR THE FISCAL YEAR ENDED


DECEMBER 31, 2004


Table of Contents


|             |  |                                                                                                                         |    |      |    | 
|------------ |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                                                                         |    | Page |   
|             |  |                                                                                                                         |    |      |   
|             |  | PART I                                                                                                                  |    |      |    | 
|Item 1.      |  | Business                                                                                                                |    |      | 3  | 
|Item 2.      |  | Properties                                                                                                              |    |      | 16 | 
|Item 3.      |  | Legal Proceedings                                                                                                       |    |      | 16 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                                 |    |      | 16 | 
|             |  | PART II                                                                                                                 |    |      |    | 
|Item 5.      |  | Market for Registrants Common Equity
    and Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 17 | 
|Item 6.      |  | Selected Financial Data                                                                                                 |    |      | 17 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                               |    |      | 19 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                          |    |      | 28 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                         |    |      | 29 | 
|Item 9.      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosures                               |    |      | 57 | 
|Item 9A.     |  | Controls and Procedures                                                                                                 |    |      | 57 | 
|Item 9B.     |  | Other Information                                                                                                       |    |      | 58 | 
|             |  | PART III                                                                                                                |    |      |    | 
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                                  |    |      | 58 | 
|Item 11.     |  | Executive Compensation                                                                                                  |    |      | 62 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management                                                      |    |      | 66 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                      |    |      | 69 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                                                  |    |      | 73 | 
|             |  | PART IV                                                                                                                 |    |      |    | 
|Item 15.     |  | Exhibits and Financial Statement
    Schedule                                                                           |    |      | 74 | 
|Signatures   |  |                                                                                                                         | 79 |     
|EXHIBIT 23.1
|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

Business Combination and Name Change






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Overview










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 re-sequencing, and it
    is often performed on just a fraction of a whole genome. The
    goal of re-sequencing is to identify mutations or variations
    among individuals. Resequencing is a comprehensive scan for
    mutations at all locations within the region of the genome being
    re-sequenced and therefore is a form of genotyping that is
    capable of finding variations without having to know in advance
    which region of the genome to examine.
|
| |  | 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 can be made using this
    approach. Our MPSS DNA sequencing technology is one such
    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

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| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | diagnostic service in which it sequences the BRCA1 and BRCA2
    genes in order to identify breast cancer susceptibility among
    subjects.                                                                                                                                                                                            
|
| |  | 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 specific mutation an individual possesses.



Our Products under Development




Our Service Business












Collaborations, Customers and Licensees




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Competition






Intellectual Property










Employees






6



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Available Information




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.





| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We will 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 involved in preparing, filing, prosecuting,
    maintaining and enforcing patent claims and other intellectual
    property rights.

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| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the event that we raise additional capital through
    issuance of equity securities or strategic alliances with third
    parties, our stockholders could experience substantial
    additional dilution or we may have to relinquish certain
    technology or product rights.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | We may not realize the benefits we expect from the
    combination of Lynx and Solexa Limited.







| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | If management is unable to effectively manage the
    increased size and complexity of the combined company, our
    operating results will suffer.





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | We will have a new management team that may not be able to
    define or execute on our business plan.



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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.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our officers, and directors and their affiliated entities
    have substantial control over the company.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | We intend to implement a new business model that is
    different from our former services business model.





| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | It is uncertain whether we will be able to successfully
    develop and commercialize our new products or to what extent we
    can increase our revenues or become profitable.



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





| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Our technology platform is in the early stages of
    commercialization and is unproven for market acceptance.





| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | technical performance of our technologies in relation to
    existing technologies;                                         
|
| |  | the acceptance of our technologies in the market place;                                                                     
|
| |  | the ability to establish an instrument manufacturing capability,
    or to obtain instruments from another manufacturer; and
|
| |  | the ability to manufacture reagents, or obtain licenses to
    resell reagents.                                             





| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on our genetic analysis service customers
    and collaborators and will need to find additional genetic
    analysis customers and collaborators in the future.



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|                                             |  |                         |    |   |      |  |    |      |  |  |    |  
|-------------------------------------------- |  | ----------------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                             |  | Year Ended December 31, |   
|                                             |  |                         |   
|                                             |  | 2004                    |    |   | 2003 |  |    | 2002 | 
|                                             |  |                         |    |   |      |  |    |      | 
|E.I. DuPont de Nemours and Company           |  |                         | 35 | % |      |  | 28 | %    |  |  | 32 | %
|The National Human Genome Research Institute |  |                         | 30 | % |      |  | 1  | %    |  |  |   |  
|Axaron                                       |  |                         | 11 | % |      |  | 4  | %    |  |  | 4  | %
|Takara Bio Inc.                              |  |                         | 2  | % |      |  | 39 | %    |  |  | 16 | %
|BASF AG                                      |  |                         |   |   |      |  | 14 | %    |  |  | 11 | %
|Bayer CropScience                            |  |                         |   |   |      |  | 4  | %    |  |  | 14 | %
|Geron Corporation                            |  |                         |   |   |      |  |   |      |  |  | 15 | %





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







| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | attempting to identify and patent randomly sequenced genes and
    gene fragments and proteins;                                                                                                                                                                                
|
| |  | pursuing a gene identification, characterization and product
    development strategy based on positional cloning, which uses
    disease inheritance patterns to isolate the genes that are
    linked to the transmission of disease from one generation to the
    next; and
|
| |  | using a variety of different gene and protein expression
    analysis methodologies, including the use of chip-based systems,
    to attempt to identify disease-related genes and proteins.                                                                                   





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| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | We have limited experience in sales and marketing and thus
    may be unable to further commercialize our products and
    services.





| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales cycle for our service 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 currently utilize a single supplier to purchase PacI,
    an enzyme used in our MPSS service.





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the inability to obtain an adequate supply due to manufacturing
    capacity constraints, a discontinuance 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.                                                                                                                       



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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.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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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| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Ethical, legal and social issues may limit the public
    acceptance of, and demand for, our technologies and
    products.







| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                           
| | ------------------------------------------
| | Our stock price may be extremely volatile.



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| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | 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
    collaborators, customers or licensees; and
|
| |  | general market conditions.                                                                             





| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our securities have been transferred from the Nasdaq
    National Market to the Nasdaq SmallCap Market, which has
    subjected us to various statutory requirements and may have
    adversely affected the liquidity of our common stock, and a
    failure by us to meet the listing maintenance standards of the
    Nasdaq SmallCap Market could result in delisting from the Nasdaq
    SmallCap Market.







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may have lost our exemption from the provisions of
    Section 2115 of the California Corporations Code, which
    imposes aspects of California corporate law on certain
    non-California corporations operating within California. As a
    result, (i) our stockholders may be entitled to cumulative
    voting and (ii) we may be subject to more stringent
    stockholder approval requirements and more stockholder-favorable
    dissenters rights in connection with certain strategic
    transactions;
|
| |  | the state securities law exemptions available to us are more
    limited, and, as a result, future issuances of our securities
    may require time-consuming and costly registration statements
    and qualifications;                                                                                                                                                                                                                                                                                                
|
| |  | due to the application of different securities law exemptions
    and provisions, we have been required to amend our stock option
    plan, suspend our stock purchase plan and must comply with
    time-consuming and costly administrative procedures;                                                                                                                                                                                                                                                               
|
| |  | the coverage of our company by securities analysts may decrease
    or cease entirely; and                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | we may lose current or potential investors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | If we do not obtain additional funding, we may default
    under the loan and security agreement with Silicon Valley
    Bank.



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








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








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



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PART II







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



|                              |                |                    |   |       |     |  |   |      | 
|----------------------------- | -------------- | ------------------ | - | ----- | --- |  | - | ---- | 
|                              |                | Common Stock Price |  
|                              |                |                    |  
|                              |                | High               |   |       | Low | 
|                              |                |                    |   |       |     | 
|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 | 
|Year Ended December 31, 2003: |                |                    |   |       |     |  |   |     
|                              | First quarter  |                    | $ | 5.18  |     |  | $ | 3.22 | 
|                              | Second quarter |                    |   | 9.90  |     |  |   | 3.46 | 
|                              | Third quarter  |                    |   | 15.88 |     |  |   | 5.60 | 
|                              | Fourth quarter |                    |   | 13.18 |     |  |   | 8.04 | 





Recent Sales and Purchases of Unregistered Securities









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





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|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |         |        |        |   |         |        |        | 
|-------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------- | ------- | ----- | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                             |                                        | Year Ended December 31,            |        
|                                                                                             |                                        |                                    |        
|                                                                                             |                                        | 2004                               |         |       | 2003   |   |        | 2002   |        |   | 2001    |        |        | 2000 |        
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|                                                                                             |                                        | (In thousands)                     |        
|Consolidated Statements of Operations Data:                                                  |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |         |        |        |   |         |       
|Revenues:                                                                                    |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                             | Technology access and service fees     |                                    | $       | 5,743 |        |   | $      | 15,840 |        |   | $       | 13,026 |        |      | $       | 18,372 |        |   | $       | 12,389 |       
|                                                                                             | License fees from related party        |                                    |         | 760   |        |   |        | 760    |        |   |         | 759    |        |      |         | 453    |        |   |         |       |       
|                                                                                             | Collaborative research and other       |                                    |         | 590   |        |   |        | 1,501  |        |   |         | 3,621  |        |      |         | 429    |        |   |         | 235    |       
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|                                                                                             |                                        | Total revenues                     |         |       | 7,093  |   |        |        | 18,101 |   |         |        | 17,406 |      |         |        | 19,254 |   |         |        | 12,624 | 
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Operating costs and expenses:                                                                |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                             | Service fees and other                 |                                    |         | 5,750 |        |   |        | 4,362  |        |   |         | 3,499  |        |      |         | 4,118  |        |   |         | 3,652  |       
|                                                                                             | Research and development               |                                    |         | 9,372 |        |   |        | 12,178 |        |   |         | 20,813 |        |      |         | 24,660 |        |   |         | 19,761 |       
|                                                                                             | General and administrative             |                                    |         | 7,374 |        |   |        | 6,773  |        |   |         | 6,271  |        |      |         | 7,503  |        |   |         | 6,170  |       
|                                                                                             | Special charge for workforce reduction |                                    |         | 118   |        |   |        | 292    |        |   |         | 530    |        |      |         |       |        |   |         |       |       
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|                                                                                             |                                        | Total operating costs and expenses |         |       | 22,614 |   |        |        | 23,605 |   |         |        | 31,113 |      |         |        | 36,281 |   |         |        | 29,583 | 
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Loss from operations                                                                         |                                        |                                    | (15,521 | )     |        |   | (5,504 | )      |        |   | (13,707 | )      |        |      | (17,027 | )      |        |   | (16,959 | )     
|Interest and other income (expense), net                                                     |                                        |                                    | (26     | )     |        |   | (1,124 | )      |        |   | 600     |        |        |      | 378     |        |        |   | 4,158   |       
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Loss before income tax provision (benefit) and equity share of
    net loss of related party |                                        |                                    | (15,547 | )     |        |   | (6,628 | )      |        |   | (13,107 | )      |        |      | (16,649 | )      |        |   | (12,801 | )     
|Income tax provision (benefit)                                                               |                                        |                                    | 1       |       |        |   | 202    |        |        |   | (98     | )      |        |      | 81      |        |        |   | 500     |       
|Equity share of net loss of related party                                                    |                                        |                                    |        |       |        |   | 1,930  |        |        |   | 2,522   |        |        |      |        |        |        |   |        |       
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Net loss                                                                                     |                                        | $                                  | (15,548 | )     |        | $ | (8,760 | )      |        | $ | (15,531 | )      |        | $    | (16,730 | )      |        | $ | (13,301 | )     
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Basic and diluted net loss per share                                                         |                                        | $                                  | (4.30   | )     |        | $ | (3.61  | )      |        | $ | (8.99   | )      |        | $    | (18.45  | )      |        | $ | (16.36  | )     
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        
|Shares used in per share computation                                                         |                                        |                                    | 3,613   |       |        |   | 2,427  |        |        |   | 1,728   |        |        |      | 907     |        |        |   | 813     |       
|                                                                                             |                                        |                                    |         |       |        |   |        |        |        |   |         |        |        |      |        

|                                                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                  |  | December 31,   |       
|                                                  |  |                |       
|                                                  |  | 2004           |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                  |  | (In thousands) |       
|Consolidated Balance Sheet Data:                  |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash, cash equivalents and short-term investments |  | $              | 2,249  |  |      | $ | 5,609  |      |  | $ | 11,735 |  |  | $    | 5,509  |  |  | $ | 18,798 | 
|Total assets                                      |  |                | 14,311 |  |      |   | 18,796 |      |  |   | 31,987 |  |  |      | 32,502 |  |  |   | 39,215 | 
|Equipment loans  non-current portion             |  |                |       |  |      |   |       |      |  |   | 1,093  |  |  |      | 1,806  |  |  |   | 3,077  | 
|Stockholders equity                              |  |                | 1,138  |  |      |   | 10,066 |      |  |   | 12,056 |  |  |      | 4,714  |  |  |   | 6,222  | 

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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, as well as in Item 1. Business 
Business Risks. We undertake no obligation to update any
of the forward-looking statements contained herein to reflect
any future events or developments.


Overview










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Critical Accounting Policies and Estimates






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





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











Results of Operations




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



|                                             |  |                         |    |   |      |  |    |      |  |  |    |  
|-------------------------------------------- |  | ----------------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                             |  | Year Ended December 31, |   
|                                             |  |                         |   
|                                             |  | 2004                    |    |   | 2003 |  |    | 2002 | 
|                                             |  |                         |    |   |      |  |    |      | 
|E.I. DuPont de Nemours and Company           |  |                         | 35 | % |      |  | 28 | %    |  |  | 32 | %
|The National Human Genome Research Institute |  |                         | 30 | % |      |  | 1  | %    |  |  |   |  
|Axaron                                       |  |                         | 11 | % |      |  | 4  | %    |  |  | 4  | %
|Takara Bio Inc.                              |  |                         | 2  | % |      |  | 39 | %    |  |  | 16 | %
|BASF AG                                      |  |                         |   |   |      |  | 14 | %    |  |  | 11 | %
|Bayer CropScience                            |  |                         |   |   |      |  | 4  | %    |  |  | 14 | %
|Geron Corporation                            |  |                         |   |   |      |  |   |      |  |  | 15 | %



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









22



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| |                      
| | ---------------------
| | Interest Expense, Net





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



23



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











| |                                          
| | -----------------------------------------
| | Equity Share of Net Loss of Related Party



Liquidity and Capital Resources










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|                               |                                    |                        |       |       |             |   |       |             |  |   |               |       |       |   |   |   |  |   |        |        | 
|------------------------------ | ---------------------------------- | ---------------------- | ----- | ----- | ----------- | - | ----- | ----------- |  | - | ------------- | ----- | ----- | - | - | - |  | - | ------ | ------ | 
|                               |                                    | Payments Due by Period |      
|                               |                                    |                        |      
|                               |                                    | Less than              |       |       |            
|                               |                                    | 1 Year                 |       |       | 1 - 3 Years |   |       | 4 - 5 Years |  |   | After 5 Years |       | Total |  
|                               |                                    |                        |       |       |             |   |       |             |  |   |               |       |       |  
|                               |                                    | (In thousands)         |      
|Operating leases               |                                    | $                      | 2,876 |       |             | $ | 5,959 |             |  | $ | 2,969         |       |       | $ |  |   |  | $ | 11,804 |       
|Note payable to bank           |                                    |                        | 3,000 |       |             |   |      |             |  |   |              |       |       |   |  |   |  |   | 3,000  |       
|Note payable to Solexa Limited |                                    |                        | 2,500 | (1)   |             |   |      |             |  |   |              |       |       |   |  |   |  |   | 2,500  |       
|Financial advisors fee        |                                    |                        | 1,600 |       |             |   |      |             |  |   |              |       |       |   |  |   |  |   | 1,600  |       
|                               |                                    |                        |       |       |             |   |       |             |  |   |               |       |       |   |  
|                               | Total contractual cash obligations |                        | $     | 9,976 |             |   | $     | 5,959       |  |   | $             | 2,969 |       |   | $ |  |  |   | $      | 18,904 | 
|                               |                                    |                        |       |       |             |   |       |             |  |   |               |       |       |   |  






|    |                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------
|(1) | Pursuant to the business combination transaction completed on
    March 4, 2005, the note payable is no longer payable.



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Recent Accounting Pronouncements




26



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



| |                       
| | ----------------------
| | Short-Term Investments





| |                                   
| | ----------------------------------
| | Foreign Currency Rate Fluctuations





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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                             |  |      |    | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                             |  | Page |   
|                                                                                                             |  |      |   
|Report of Independent Registered Public
    Accounting Firm                                                  |  |      | 30 | 
|Consolidated Balance Sheets as of
    December 31, 2004 and 2003                                             |  |      | 31 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2004, 2003, and 2002              |  |      | 32 | 
|Consolidated Statements of
    Stockholders Equity for the years ended December 31,
    2004, 2003 and 2002 |  |      | 33 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002               |  |      | 34 | 
|Notes to Consolidated Financial
    Statements                                                               |  |      | 35 | 

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Report of Independent Registered Public Accounting Firm















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







30



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)





CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                                   |                             |        |          |       |   |        |          |        | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | -------- | ----- | - | ------ | -------- | ------ | 
|                                     |                                                                                                                                                                                   | December 31,                |       
|                                     |                                                                                                                                                                                   |                             |       
|                                     |                                                                                                                                                                                   | 2004                        |        |          | 2003  |  
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | (In thousands, except share |       
|                                     |                                                                                                                                                                                   | and per share amounts)      |       
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                   |                             |        |          |       |   |        |         
|                                     | Cash and cash equivalents                                                                                                                                                         |                             | $      | 2,249    |       |   | $      | 4,881    |       
|                                     | Restricted cash                                                                                                                                                                   |                             |        |         |       |   |        | 728      |       
|                                     | Accounts receivable                                                                                                                                                               |                             |        | 625      |       |   |        | 402      |       
|                                     | Inventory                                                                                                                                                                         |                             |        | 1,028    |       |   |        | 904      |       
|                                     | Other current assets                                                                                                                                                              |                             |        | 306      |       |   |        | 722      |       
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | Total current assets        |        |          | 4,208 |   |        |          | 7,637  | 
|Property and equipment:              |                                                                                                                                                                                   |                             |        |          |       |   |        |         
|                                     | Leasehold improvements                                                                                                                                                            |                             |        | 7,667    |       |   |        | 11,510   |       
|                                     | Laboratory and other equipment                                                                                                                                                    |                             |        | 20,374   |       |   |        | 21,667   |       
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   |                             | 28,041 |          |       |   | 33,177 |         
|                                     | Less accumulated depreciation and amortization                                                                                                                                    |                             |        | (20,444  | )     |   |        | (22,190  | )     
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|Net property and equipment           |                                                                                                                                                                                   |                             | 7,597  |          |       |   | 10,987 |         
|Intangible assets, net               |                                                                                                                                                                                   |                             | 2,250  |          |       |   |       |         
|Other non-current assets             |                                                                                                                                                                                   |                             | 256    |          |       |   | 172    |         
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | $                           | 14,311 |          |       | $ | 18,796 |         
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                   |                             |        |          |       |   |        |         
|                                     | Notes payable                                                                                                                                                                     |                             | $      | 5,252    |       |   | $      | 1,128    |       
|                                     | Bank overdraft                                                                                                                                                                    |                             |        | 153      |       |   |        |         |       
|                                     | Accounts payable                                                                                                                                                                  |                             |        | 769      |       |   |        | 1,070    |       
|                                     | Accrued compensation                                                                                                                                                              |                             |        | 330      |       |   |        | 284      |       
|                                     | Accrued professional fees                                                                                                                                                         |                             |        | 516      |       |   |        | 181      |       
|                                     | Deferred revenue  current portion                                                                                                                                                |                             |        | 1,529    |       |   |        | 759      |       
|                                     | Other accrued liabilities                                                                                                                                                         |                             |        | 147      |       |   |        | 163      |       
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | Total current liabilities   |        |          | 8,696 |   |        |          | 3,585  | 
|Deferred revenue                     |                                                                                                                                                                                   |                             | 3,597  |          |       |   | 4,213  |         
|Other non-current liabilities        |                                                                                                                                                                                   |                             | 880    |          |       |   | 932    |         
|Commitments                          |                                                                                                                                                                                   |                             |        |          |       |   |        |         
|Stockholders equity:                |                                                                                                                                                                                   |                             |        |          |       |   |        |         
|                                     | Preferred stock: $0.01 par value; 2,000,000 shares
    authorized; no shares issued and outstanding                                                                               |                             |        |         |       |   |        |         |       
|                                     | Common stock: $0.01 par value; 60,000,000 shares
    authorized; 3,763,732 shares and 3,099,586 shares
    issued and outstanding at December 31, 2004 and 2003,
    respectively |                             |        | 38       |       |   |        | 31       |       
|                                     | Additional paid-in capital                                                                                                                                                        |                             |        | 124,316  |       |   |        | 117,691  |       
|                                     | Accumulated other comprehensive income                                                                                                                                            |                             |        | 5        |       |   |        | 17       |       
|                                     | Accumulated deficit                                                                                                                                                               |                             |        | (123,221 | )     |   |        | (107,673 | )     
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | Total stockholders equity  |        |          | 1,138 |   |        |          | 10,066 | 
|                                     |                                                                                                                                                                                   |                             |        |          |       |  
|                                     |                                                                                                                                                                                   | $                           | 14,311 |          |       | $ | 18,796 |         
|                                     |                                                                                                                                                                                   |                             |        |          |       |  



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                             |                                              |                                    |         |       |        |   |        |        |        |   |         |        |        | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------- | ------- | ----- | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                             |                                              | Year Ended December 31,            |        
|                                                                                             |                                              |                                    |        
|                                                                                             |                                              | 2004                               |         |       | 2003   |   |        | 2002   |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|                                                                                             |                                              | (In thousands, except per share    |        
|                                                                                             |                                              | amounts)                           |        
|Revenues:                                                                                    |                                              |                                    |         |       |        |   |        |        |        |   |         |       
|                                                                                             | Technology access and service fees           |                                    | $       | 5,725 |        |   | $      | 15,840 |        |   | $       | 13,026 |       
|                                                                                             | License fees from related party              |                                    |         | 760   |        |   |        | 760    |        |   |         | 759    |       
|                                                                                             | Collaborative research and other             |                                    |         | 608   |        |   |        | 1,501  |        |   |         | 3,621  |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|                                                                                             |                                              | Total revenues                     |         |       | 7,093  |   |        |        | 18,101 |   |         |        | 17,406 | 
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Operating costs and expenses:                                                                |                                              |                                    |         |       |        |   |        |        |        |   |         |       
|                                                                                             | Service fees and other                       |                                    |         | 5,750 |        |   |        | 4,362  |        |   |         | 3,499  |       
|                                                                                             | Research and development                     |                                    |         | 9,372 |        |   |        | 12,178 |        |   |         | 20,813 |       
|                                                                                             | General and administrative                   |                                    |         | 7,374 |        |   |        | 6,773  |        |   |         | 6,271  |       
|                                                                                             | Restructuring charge for workforce reduction |                                    |         | 118   |        |   |        | 292    |        |   |         | 530    |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|                                                                                             |                                              | Total operating costs and expenses |         |       | 22,614 |   |        |        | 23,605 |   |         |        | 31,113 | 
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Loss from operations                                                                         |                                              |                                    | (15,521 | )     |        |   | (5,504 | )      |        |   | (13,707 | )     
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Interest income (expense), net                                                               |                                              |                                    | (104    | )     |        |   | (158   | )      |        |   | (282    | )     
|Other income (expense), net                                                                  |                                              |                                    | 78      |       |        |   | (966   | )      |        |   | 882     |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Loss before income tax provision (benefit) and equity share of
    net loss of related party |                                              |                                    | (15,547 | )     |        |   | (6,628 | )      |        |   | (13,107 | )     
|Income tax provision (benefit)                                                               |                                              |                                    | 1       |       |        |   | 202    |        |        |   | (98     | )     
|Equity share of net loss of related party                                                    |                                              |                                    |        |       |        |   | 1,930  |        |        |   | 2,522   |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Net loss                                                                                     |                                              | $                                  | (15,548 | )     |        | $ | (8,760 | )      |        | $ | (15,531 | )     
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Basic and diluted net loss per share                                                         |                                              | $                                  | (4.30   | )     |        | $ | (3.61  | )      |        | $ | (8.99   | )     
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       
|Shares used in per share computation                                                         |                                              |                                    | 3,613   |       |        |   | 2,427  |        |        |   | 1,728   |       
|                                                                                             |                                              |                                    |         |       |        |   |        |        |       



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------ | --------- | ------------------------------------ | ---------- | ---------- | -- | ------- |  | - | -------- | - | ----------- | ----------- | ---- | ----- | ----------- | - | ------ | ------- |  | - | ------ | ------ | - | - | -------- | ------- | - | - | ------- | ------- | -
|                                                                                                      |                                         |              |           |                                      |            |            |    | Notes   |  |   |          |   | Accumulated |             |      |       |             |  
|                                                                                                      |                                         |              |           |                                      |            | Receivable |    |         |  |   | Other    |   |             |             |      | Total |            
|                                                                                                      |                                         | Common Stock |           |                                      | Additional |            |    | from    |  |   | Deferred |   |             | Comprehen-  |      |       |             |   | Stock- |        
|                                                                                                      |                                         |              |           |                                      | Paid-In    |            |    | Stock-  |  |   | Compen-  |   |             | sive Income |      |       | Accumulated |   |        | holders | 
|                                                                                                      |                                         | Shares       |           |                                      | Amount     |            |    | Capital |  |   | holders  |   |             | sation      |      |       | (Loss)      |   |        | Deficit |  |   | Equity |       
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|                                                                                                      |                                         |              |           | (In thousands, except share amounts) |            |            |    |         | 
|Balance at January 1, 2002                                                                            |                                         |              | 983,248   |                                      |            | $          | 10 |         |  | $ | 87,941   |   |             | $           | (250 | )     |             | $ | (744   | )       |  | $ | 1,139  |        |   | $ | (83,382  | )       |   | $ | 4,714   |        
|Comprehensive loss:                                                                                   |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   |         |        
|                                                                                                      | Net loss                                |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        |       |   |   |          | (15,531 | ) |   |         | (15,531 | )
|                                                                                                      | Net unrealized loss on securities       |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        | (1,139 | ) |   |          |        |   |   |         | (1,139  | )
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Comprehensive loss                                                                                    |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   | (16,670 | )      
|Employee stock purchase plan issuance                                                                 |                                         |              | 5,223     |                                      |            |            |   |         |  |   | 143      |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 143     |        
|Exercise of stock options for cash and repayment of note
    receivable                               |                                         |              | 506       |                                      |            |            |   |         |  |   | 3        |   |             |             | 250  |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 253     |        
|Issuance of common stock in connection with private placements,
    net of issuance costs of $1,700   |                                         |              | 1,334,384 |                                      |            |            | 13 |         |  |   | 23,062   |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 23,075  |        
|Amortization of deferred compensation, including forfeitures                                          |                                         |              |          |                                      |            |            |   |         |  |   | (194     | ) |             |             |     |       |             |   | 735    |         |  |   |       |        |   |   |         |         |   |   | 541     |        
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Balance at December 31, 2002                                                                          |                                         |              | 2,323,361 |                                      |            |            | 23 |         |  |   | 110,955  |   |             |             |     |       |             |   | (9     | )       |  |   |       |        |   |   | (98,913  | )       |   |   | 12,056  |        
|Comprehensive loss:                                                                                   |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   |         |        
|                                                                                                      | Net loss                                |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        |       |   |   |          | (8,760  | ) |   |         | (8,760  | )
|                                                                                                      | Foreign currency translation adjustment |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        | 17     |   |   |          |        |   |   |         | 17      |  
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Comprehensive loss                                                                                    |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   | (8,743  | )      
|Employee stock purchase plan issuance                                                                 |                                         |              | 3,726     |                                      |            |            |   |         |  |   | 13       |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 13      |        
|Exercise of stock options for cash                                                                    |                                         |              | 500       |                                      |            |            |   |         |  |   | 2        |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 2       |        
|Issuance of common stock in connection with private placements,
    net of issuance costs of $272,000 |                                         |              | 771,999   |                                      |            |            | 8  |         |  |   | 6,721    |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 6,729   |        
|Amortization of deferred compensation, including forfeitures                                          |                                         |              |          |                                      |            |            |   |         |  |   |         |   |             |             |     |       |             |   | 9      |         |  |   |       |        |   |   |         |         |   |   | 9       |        
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Balance at December 31, 2003                                                                          |                                         |              | 3,099,586 |                                      |            |            | 31 |         |  |   | 117,691  |   |             |             |     |       |             |   |       |         |  |   | 17     |        |   |   | (107,673 | )       |   |   | 10,066  |        
|                                                                                                      | Net loss                                |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        |       |   |   |          | (15,548 | ) |   |         | (15,548 | )
|                                                                                                      | Foreign currency translation adjustment |              |           |                                     |            |            |    |        |  |   |          |  |             |             |      |      |             |   |        |        |  |   |        | (12    | ) |   |          |        |   |   |         | (12     | )
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Comprehensive loss                                                                                    |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |        |   |   |          |         |   |   | (15,560 | )      
|Purchase of Manteia assets                                                                            |                                         |              | 270,029   |                                      |            |            | 3  |         |  |   | 2,551    |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 2,554   |        
|Issuance of common stock in connection with private placements,
    net of issuance costs of $195,000 |                                         |              | 394,117   |                                      |            |            | 4  |         |  |   | 3,817    |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 3,821   |        
|Warrants issued in connection with bank loan                                                          |                                         |              |          |                                      |            |            |   |         |  |   | 253      |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 253     |        
|Compensation expense related to consultant options                                                    |                                         |              |          |                                      |            |            |   |         |  |   | 4        |   |             |             |     |       |             |   |       |         |  |   |       |        |   |   |         |         |   |   | 4       |        
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       
|Balance at December 31, 2004                                                                          |                                         |              | 3,763,732 |                                      |            | $          | 38 |         |  | $ | 124,316  |   |             | $           |     |       |             | $ |       |         |  | $ | 5      |        |   | $ | (123,221 | )       |   | $ | 1,138   |        
|                                                                                                      |                                         |              |           |                                      |            |            |    |         |  |   |          |   |             |             |      |       |             |   |        |         |  |   |        |       



33



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |        |       |        |  
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------- | ----- | ----- | ---- | ------- | ----- | --- | ------ | ------- | ------ | ----- | ------ | -
|                                                                                              |                                                                | Year Ended December 31,                                                                           |                                
|                                                                                              |                                                                |                                                                                                   |                                
|                                                                                              |                                                                | 2004                                                                                              |                                 |       | 2003  |      |         | 2002  |    
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|                                                                                              |                                                                | (In thousands)                                                                                    |                                
|Cash flows from operating activities:                                                         |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|Net loss                                                                                      |                                                                | $                                                                                                 | (15,548                         | )     |       | $    | (8,760  | )     |     | $      | (15,531 | )     
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|                                                                                              | Depreciation and amortization of property and equipment        |                                                                                                   |                                 | 3,639 |       |      |         | 3,328 |     |        |         | 5,357  |      
|                                                                                              | Amortization of deferred stock compensation                    |                                                                                                   |                                 | 4     |       |      |         | 9     |     |        |         | 541    |      
|                                                                                              | Amortization of warrant discount                               |                                                                                                   |                                 | 5     |       |      |         |      |     |        |         |       |      
|                                                                                              | Common stock issued in connection with acquisition of supplies |                                                                                                   |                                 | 70    |       |      |         |      |     |        |         |       |      
|                                                                                              | Forgiveness of principal and interest on loans                 |                                                                                                   |                                 |      |       |      |         |      |     |        |         | 181    |      
|                                                                                              | Equity share of net loss of related party                      |                                                                                                   |                                 |      |       |      |         | 1,930 |     |        |         | 2,522  |      
|                                                                                              | Gain on sale of antisense business                             |                                                                                                   |                                 |      |       |      |         |      |     |        |         | (1,009 | )    
|                                                                                              | Non-cash portion of gain from sale of technology assets        |                                                                                                   |                                 |      |       |      |         |      |     |        |         | (1,586 | )    
|                                                                                              | Loss on sale of equity investment                              |                                                                                                   |                                 |      |       |      |         |      |     |        |         | 64     |      
|                                                                                              | (Gain) loss on disposal of fixed assets                        |                                                                                                   |                                 | (126  | )     |      |         | 689   |     |        |         |       |      
|                                                                                              | Changes in operating assets and liabilities:                   |                                                                                                   |                                 |       |       |      |         |       |     |        |         |        |      
|                                                                                              |                                                                |                                                                                                   | Accounts receivable             |       |       | (223 | )       |       |     | 434    |         |        |       | 316    |  
|                                                                                              |                                                                |                                                                                                   | Inventory                       |       |       | (124 | )       |       |     | 866    |         |        |       | 688    |  
|                                                                                              |                                                                |                                                                                                   | Other current assets            |       |       | 416  |         |       |     | (8     | )       |        |       | 183    |  
|                                                                                              |                                                                |                                                                                                   | Bank overdraft                  |       |       | 153  |         |       |     |       |         |        |       |       |  
|                                                                                              |                                                                |                                                                                                   | Accounts payable                |       |       | (301 | )       |       |     | 108    |         |        |       | (1,075 | )
|                                                                                              |                                                                |                                                                                                   | Accrued liabilities             |       |       | 365  |         |       |     | (492   | )       |        |       | 97     |  
|                                                                                              |                                                                |                                                                                                   | Deferred revenue                |       |       | 154  |         |       |     | (8,588 | )       |        |       | (6,814 | )
|                                                                                              |                                                                |                                                                                                   | Other non-current liabilities   |       |       | (52  | )       |       |     | (14    | )       |        |       | (157   | )
|                                                                                              |                                                                |                                                                                                   | Currency translation adjustment |       |       | (12  | )       |       |     | 17     |         |        |       |       |  
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Net cash used in operating activities                                                         |                                                                |                                                                                                   | (11,580                         | )     |       |      | (10,481 | )     |     |        | (16,223 | )     
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Cash flows from investing activities:                                                         |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|Purchases of short-term investments                                                           |                                                                |                                                                                                   | (916                            | )     |       |      |        |       |     |        | (3,261  | )     
|Maturities of short-term investments                                                          |                                                                |                                                                                                   | 916                             |       |       |      |        |       |     |        | 3,261   |       
|Proceeds from sale of equity securities                                                       |                                                                |                                                                                                   |                                |       |       |      |        |       |     |        | 3,702   |       
|Property and equipment purchases, net of retirements                                          |                                                                |                                                                                                   | (15                             | )     |       |      | (435    | )     |     |        | (2,701  | )     
|Proceeds from disposal of fixed assets                                                        |                                                                |                                                                                                   | 126                             |       |       |      | 261     |       |     |        |        |       
|Payments received on notes receivable from officers and employees                             |                                                                |                                                                                                   |                                |       |       |      |        |       |     |        | 456     |       
|Other assets                                                                                  |                                                                |                                                                                                   | (84                             | )     |       |      |        |       |     |        | (11     | )     
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Net cash provided by (used in) investing activities                                           |                                                                |                                                                                                   | 27                              |       |       |      | (174    | )     |     |        | 1,446   |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Cash flows from financing activities:                                                         |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|Issuance of common stock, net of repurchases                                                  |                                                                |                                                                                                   | 3,821                           |       |       |      | 6,744   |       |     |        | 23,221  |       
|Proceeds from bank loan                                                                       |                                                                |                                                                                                   | 3,000                           |       |       |      |        |       |     |        |        |       
|Proceeds from Solexa Limited loan                                                             |                                                                |                                                                                                   | 2,500                           |       |       |      |        |       |     |        |        |       
|Proceeds from equipment loan                                                                  |                                                                |                                                                                                   |                                |       |       |      |        |       |     |        | 1,588   |       
|Repayment of equipment loan                                                                   |                                                                |                                                                                                   | (1,128                          | )     |       |      | (2,215  | )     |     |        | (1,496  | )     
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Net cash provided by financing activities                                                     |                                                                |                                                                                                   | 8,193                           |       |       |      | 4,529   |       |     |        | 23,313  |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Net (decrease) increase in cash and cash equivalents                                          |                                                                |                                                                                                   | (3,360                          | )     |       |      | (6,126  | )     |     |        | 8,536   |       
|Cash and cash equivalents at beginning of year                                                |                                                                |                                                                                                   | 5,609                           |       |       |      | 11,735  |       |     |        | 3,199   |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Cash and cash equivalents at end of year                                                      |                                                                | $                                                                                                 | 2,249                           |       |       | $    | 5,609   |       |     | $      | 11,735  |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Supplemental disclosures of cash flow information:                                            |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|                                                                                              | Cash paid for income taxes                                     |                                                                                                   | $                               | 1     |       |      | $       | 202   |     |        | $       |       |      
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|                                                                                              | Cash paid for interest                                         |                                                                                                   | $                               | 121   |       |      | $       | 208   |     |        | $       | 308    |      
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|Non-cash investing and financing activities:                                                  |                                                                |                                                                                                   |                                 |       |       |      |         |       |     |        |         |       
|                                                                                              |                                                                | Geron stock received                                                                              |                                 | $     |      |      |         | $     |    |        |         | $      | 1,586 |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|                                                                                              |                                                                | Transfer of instruments into inventory                                                            |                                 | $     |      |      |         | $     | 740 |        |         | $      |      |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|                                                                                              |                                                                | Common stock issued in connection with the acquisition of
    intellectual property and equipment |                                 | $     | 2,554 |      |         | $     |    |        |         | $      |      |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    
|                                                                                              |                                                                | Issuance of warrants in connection with bank loan                                                 |                                 | $     | 253   |      |         | $     |    |        |         | $      |      |       
|                                                                                              |                                                                |                                                                                                   |                                 |       |       |      |         |       |    



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                         
|-- | ------------------------------------------------------------------------
|1. | Summary of Significant Accounting Policies and Basis of
    Presentation

Business and Basis of
Presentation










| |                                     
| | ------------------------------------
| | Business Combination and Name Change



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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





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











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



36



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









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





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





| |                  
| | -----------------
| | Long-lived Assets



37



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







|                                             |  |              |    |   |      |  |    |      |  |  |    |  
|-------------------------------------------- |  | ------------ | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                             |  | Year Ended   |   
|                                             |  | December 31, |   
|                                             |  |              |   
|                                             |  | 2004         |    |   | 2003 |  |    | 2002 | 
|                                             |  |              |    |   |      |  |    |      | 
|E.I. DuPont de Nemours and Company           |  |              | 35 | % |      |  | 28 | %    |  |  | 32 | %
|The National Human Genome Research Institute |  |              | 30 | % |      |  | 1  | %    |  |  |   |  
|Axaron                                       |  |              | 11 | % |      |  | 4  | %    |  |  | 4  | %
|Takara Bio Inc.                              |  |              | 2  | % |      |  | 39 | %    |  |  | 16 | %
|BASF AG                                      |  |              |   |   |      |  | 14 | %    |  |  | 11 | %
|Bayer CropScience                            |  |              |   |   |      |  | 4  | %    |  |  | 14 | %
|Geron Corporation                            |  |              |   |   |      |  |   |      |  |  | 15 | %



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





|                                                                                               |  |                                 |         |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                               |  | Year Ended December 31,         |        
|                                                                                               |  |                                 |        
|                                                                                               |  | 2004                            |         |   | 2003 |   |        | 2002 | 
|                                                                                               |  |                                 |         |   |      |   |        |      | 
|                                                                                               |  | (In thousands, except per share |        
|                                                                                               |  | amounts)                        |        
|Net loss                                                                                       |  | $                               | (15,548 | ) |      | $ | (8,760 | )    |  | $ | (15,531 | )
|                                                                                               |  |                                 |         |   |      |   |        |      | 
|Shares used in per share computation  Weighted
    average shares of common stock outstanding |  |                                 | 3,613   |   |      |   | 2,427  |      |  |   | 1,728   |  
|                                                                                               |  |                                 |         |   |      |   |        |      | 
|Basic and diluted net loss per share                                                           |  | $                               | (4.30   | ) |      | $ | (3.61  | )    |  | $ | (8.99   | )
|                                                                                               |  |                                 |         |   |      |   |        |      | 

38



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







|                                                                                                           |  |                                 |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                           |  | Year Ended December 31,         |        
|                                                                                                           |  |                                 |        
|                                                                                                           |  | 2004                            |         |   | 2003 |   |         | 2002 | 
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|                                                                                                           |  | (In thousands, except per share |        
|                                                                                                           |  | amounts)                        |        
|Net loss, as reported                                                                                      |  | $                               | (15,548 | ) |      | $ | (8,760  | )    |  | $ | (15,531 | )
|Add: Stock-based employee compensation                                                                     |  |                                 |        |   |      |   | 9       |      |  |   | 541     |  
|Deduct: Stock-based employee compensation, as if fair value
    method had been applied to all awards      |  |                                 | (1,800  | ) |      |   | (2,457  | )    |  |   | (4,765  | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Pro forma net loss, as if fair value method had been applied to
    all awards                             |  | $                               | (17,348 | ) |      | $ | (11,208 | )    |  | $ | (19,755 | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Basic and diluted net loss per share, as reported                                                          |  | $                               | (4.30   | ) |      | $ | (3.61   | )    |  | $ | (8.99   | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 
|Pro forma basic and diluted net loss per share, as if fair value
    method had been applied to all awards |  | $                               | (4.80   | ) |      | $ | (4.62   | )    |  | $ | (11.43  | )
|                                                                                                           |  |                                 |         |   |      |   |         |      | 



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



39



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|               |  |                         |       |  |      |   |        |      |  |   |        | 
|-------------- |  | ----------------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|               |  | Year Ended December 31, |      
|               |  |                         |      
|               |  | 2004                    |       |  | 2003 |   |        | 2002 | 
|               |  |                         |       |  |      |   |        |      | 
|               |  | (In thousands)          |      
|United States  |  | $                       | 5,544 |  |      | $ | 6,692  |      |  | $ | 8,906  | 
|Germany        |  |                         | 760   |  |      |   | 4,058  |      |  |   | 5,570  | 
|United Kingdom |  |                         | 575   |  |      |   | 63     |      |  |   |       | 
|Japan          |  |                         | 124   |  |      |   | 7,098  |      |  |   | 2,865  | 
|Other          |  |                         | 90    |  |      |   | 190    |      |  |   | 65     | 
|               |  |                         |       |  |      |   |        |      | 
|               |  | $                       | 7,093 |  |      | $ | 18,101 |      |  | $ | 17,406 | 
|               |  |                         |       |  |      |   |        |      | 



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





| |                     
| | --------------------
| | Comprehensive Income





| |                                 
| | --------------------------------
| | Investments in Equity Securities





40



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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











|   |                                 
|-- | --------------------------------
|2. | Transactions with Solexa Limited



41



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|   |                                       
|-- | --------------------------------------
|3. | Collaborators, Customers and Licensees





| |                                   
| | ----------------------------------
| | E.I. DuPont de Nemours and Company



42



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                           
| | ----------------------------------------------------------
| | Axaron Bioscience AG, formerly BASF-LYNX Bioscience
    AG







43



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                         |  |                              |        |   |      |   |        |      |  |   |        |  
|---------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | As of and for the Year Ended |       
|                                         |  | December 31,                 |       
|                                         |  |                              |       
|                                         |  | 2004                         |        |   | 2003 |   |        | 2002 | 
|                                         |  |                              |        |   |      |   |        |      | 
|                                         |  | (In thousands)               |       
|Condensed Balance Sheet Data:            |  |                              |        |   |      |   |        |      |  |   |        |  
|Current assets                           |  | $                            | 804    |   |      | $ | 4,574  |      |  | $ | 7,459  |  
|Noncurrent assets                        |  |                              | 4,221  |   |      |   | 5,198  |      |  |   | 5,727  |  
|Current liabilities                      |  |                              | 4,961  |   |      |   | 1,247  |      |  |   | 1,872  |  
|Stockholders equity                     |  |                              | 64     |   |      |   | 8,525  |      |  |   | 11,314 |  
|Condensed Statements of Operations Data: |  |                              |        |   |      |   |        |      |  |   |        |  
|Net sales                                |  |                              | 99     |   |      |   | 4,226  |      |  |   | 2,539  |  
|Operating costs and expenses             |  |                              | 8,947  |   |      |   | 8,987  |      |  |   | 8,911  |  
|Loss from continuing operations          |  |                              | (8,848 | ) |      |   | (4,759 | )    |  |   | (6,372 | )
|Net loss                                 |  |                              | (8,818 | ) |      |   | (4,644 | )    |  |   | (6,131 | )







| |                                                  
| | -------------------------------------------------
| | Takara Bio Inc. (formerly Takara Shuzo Co., Ltd.)







44



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |        
| | -------
| | BASF AG











|   |                                            
|-- | -------------------------------------------
|4. | Cash Equivalents and Short-term Investments



45



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##### Table of Contents



SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                    |  |                |       |  |      |   |     | 
|------------------- |  | -------------- | ----- |  | ---- | - | --- | 
|                    |  | December 31,   |      
|                    |  |                |      
|                    |  | 2004           |       |  | 2003 |  
|                    |  |                |       |  |      |  
|                    |  | (In thousands) |      
|Raw materials       |  | $              | 347   |  |      | $ | 860 | 
|Services in process |  |                | 681   |  |      |   | 44  | 
|                    |  |                |       |  |      |  
|                    |  | $              | 1,028 |  |      | $ | 904 | 
|                    |  |                |       |  |      |  





|   |                  
|-- | -----------------
|6. | Intangible Assets



|                         |  |                |       |   |      |   |   | 
|------------------------ |  | -------------- | ----- | - | ---- | - | - | 
|                         |  | December 31,  
|                         |  |               
|                         |  | 2004           |       |   | 2003
|                         |  |                |       |   |     
|                         |  | (In thousands)
|Purchased technology     |  | $              | 2,455 |   |      | $ |  | 
|Accumulated amortization |  |                | (205  | ) |      |   |  | 
|                         |  |                |       |   |      |  
|Intangible assets, net   |  | $              | 2,250 |   |      | $ |  | 
|                         |  |                |       |   |      |  





|   |              
|-- | -------------
|7. | Notes Payable



|                                              |  |                |       |  |      |   |       | 
|--------------------------------------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|                                              |  | December 31,   |      
|                                              |  |                |      
|                                              |  | 2004           |       |  | 2003 |  
|                                              |  |                |       |  |      |  
|                                              |  | (In thousands) |      
|Note payable to bank, net of discount of $248 |  | $              | 2,752 |  |      | $ |      | 
|Note payable to Solexa Limited                |  |                | 2,500 |  |      |   |      | 
|Equipment lines of credit                     |  |                |      |  |      |   | 1,128 | 
|                                              |  |                |       |  |      |  
|                                              |  | $              | 5,252 |  |      | $ | 1,128 | 
|                                              |  |                |       |  |      |  



46



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|   |                               
|-- | ------------------------------
|8. | Notes Receivable from Officers



47



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                     
|-- | --------------------
|9. | Stockholders Equity

Common Stock




|                                                                            |  |        |           | 
|--------------------------------------------------------------------------- |  | ------ | --------- | 
|                                                                            |  | Shares |          
|                                                                            |  |        |          
|Stock option grants outstanding                                             |  |        | 366,862   | 
|Shares available for future option grants                                   |  |        |          | 
|Shares available for future issuance under employee stock
    purchase plan |  |        | 37,618    | 
|Warrants                                                                    |  |        | 820,242   | 
|                                                                            |  |        |          
|                                                                            |  |        | 1,224,722 | 
|                                                                            |  |        |          













48



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








1992 Stock Option
Plan








|                           |  |           |          |          |          |   |       |           |          |  |          |   |  |           |        |  |          |  |         |   |  |   |        | 
|-------------------------- |  | --------- | -------- | -------- | -------- | - | ----- | --------- | -------- |  | -------- | - |  | --------- | ------ |  | -------- |  | ------- | - |  | - | ------ | 
|                           |  | 2004      |          |          | 2003     |   |       | 2002      |         
|                           |  |           |          |          |          |   |       |           |         
|                           |  |           |          | Weighted |          |   |       |           | Weighted |  |          |   |  | Weighted  |       
|                           |  |           |          | Average  |          |   |       |           | Average  |  |          |   |  | Average   |       
|                           |  | Number of |          |          | Exercise |   |       | Number of |          |  | Exercise |   |  | Number of |        |  | Exercise | 
|                           |  | Shares    |          |          | Price    |   |       | Shares    |          |  | Price    |   |  | Shares    |        |  | Price    | 
|                           |  |           |          |          |          |   |       |           |          |  |          |   |  |           |        |  |          | 
|Balance, beginning of year |  |           | 262,010  |          |          | $ | 78.76 |           |          |  | 180,237  |   |  | $         | 145.03 |  |          |  | 190,078 |   |  | $ | 181.44 | 
|Options granted            |  |           | 211,500  |          |          |   | 7.09  |           |          |  | 121,375  |   |  |           | 4.35   |  |          |  | 64,532  |   |  |   | 18.58  | 
|Options exercised          |  |           |         |          |          |   |      |           |          |  | (500     | ) |  |           | 4.18   |  |          |  | (506    | ) |  |   | 5.00   | 
|Options canceled           |  |           | (106,648 | )        |          |   | 67.57 |           |          |  | (39,102  | ) |  |           | 154.20 |  |          |  | (73,867 | ) |  |   | 129.20 | 
|                           |  |           |          |          |          |   |       |           |          |  |          |   |  |           |        |  |          | 
|Balance, end of year       |  |           | 366,862  |          |          |   | 40.69 |           |          |  | 262,010  |   |  |           | 78.76  |  |          |  | 180,237 |   |  |   | 145.03 | 
|                           |  |           |          |          |          |   |       |           |          |  |          |   |  |           |        |  |          | 
|Shares exercisable         |  |           | 134,597  |          |          | $ | 91.82 |           |          |  | 113,766  |   |  | $         | 136.56 |  |          |  | 90,068  |   |  | $ | 165.22 | 
|                           |  |           |          |          |          |   |       |           |          |  |          |   |  |           |        |  |          | 

49



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |  |                     |         |             |                     |  |          |          |  |   |           |          |  |          |         |  |  |   |          | 
|------------------------- |  | ------------------- | ------- | ----------- | ------------------- |  | -------- | -------- |  | - | --------- | -------- |  | -------- | ------- |  |  | - | -------- | 
|                          |  | Options Outstanding |         |             | Options Exercisable | 
|                          |  |                     |         |             |                     | 
|                          |  |                     |         | Weighted    |                     |  |          |          | 
|                          |  |                     |         | Average     |                     |  |          |          | 
|                          |  |                     |         | Remaining   |                     |  | Weighted |          |  |   |           | Weighted | 
|                          |  |                     |         | Contractual |                     |  | Average  |          |  |   |           | Average  | 
|                          |  | Number of           |         |             | Life                |  |          | Exercise |  |   | Number of |          |  | Exercise |        
|Range of Exercise Prices  |  | Shares              |         |             | (in Years)          |  |          | Price    |  |   | Shares    |          |  | Price    |        
|                          |  |                     |         |             |                     |  |          |          |  |   |           |          |  |          |        
|$    4.18 
    $    8.26 |  |                     | 262,277 |             |                     |  | 9.24     |          |  | $ | 6.23      |          |  |          | 49,048  |  |  | $ | 5.45     | 
|$   10.78  $   21.56     |  |                     | 44,962  |             |                     |  | 5.82     |          |  |   | 18.90     |          |  |          | 30,724  |  |  |   | 19.35    | 
|$   43.40  $ 150.50      |  |                     | 27,945  |             |                     |  | 4.56     |          |  |   | 112.00    |          |  |          | 24,860  |  |  |   | 111.98   | 
|$ 153.16  $ 274.82       |  |                     | 24,163  |             |                     |  | 4.75     |          |  |   | 191.55    |          |  |          | 23,281  |  |  |   | 191.14   | 
|$ 315.00  $ 490.00       |  |                     | 3,805   |             |                     |  | 5.72     |          |  |   | 407.63    |          |  |          | 3,260   |  |  |   | 409.94   | 
|$ 553.00  $ 682.50       |  |                     | 1,925   |             |                     |  | 5.52     |          |  |   | 631.87    |          |  |          | 1,699   |  |  |   | 631.89   | 
|$1,074.50  $1,074.50     |  |                     | 1,785   |             |                     |  | 5.15     |          |  |   | 1,074.50  |          |  |          | 1,725   |  |  |   | 1,074.50 | 
|                          |  |                     |         |             |                     |  |          |          |  |   |           |          |  |          |        
|$    4.18  $1,074.50     |  |                     | 366,862 |             |                     |  | 8.09     |          |  | $ | 40.69     |          |  |          | 134,597 |  |  | $ | 91.82    | 
|                          |  |                     |         |             |                     |  |          |          |  |   |           |          |  |          |        



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





| |                      
| | ---------------------
| | Pro Forma Information



|                        |  |               |          |          |        |  |          |      |  |  |          |   |  |  |            |  
|----------------------- |  | ------------- | -------- | -------- | ------ |  | -------- | ---- |  |  | -------- | - |  |  | ---------- | -
|                        |  |               |          | Purchase |       
|                        |  | Stock Options |          |          | Rights | 
|                        |  |               |          |          |        | 
|                        |  | 2004          |          |          | 2003   |  |          | 2002 |  |  | 2002     |  
|                        |  |               |          |          |        |  |          |      |  |  |          |  
|Volatility              |  |               | 105      | %        |        |  | 88       | %    |  |  | 106      | % |  |  | 101        | %
|Expected life           |  |               | 5  years |          |        |  | 5  years |      |  |  | 5  years |   |  |  | 0.5  years |  
|Risk free interest rate |  |               | 3.70     | %        |        |  | 2.84     | %    |  |  | 2.98     | % |  |  | 2.97       | %
|Dividend yield          |  |               |         |          |        |  |         |      |  |  |         |   |  |  |           |  



50



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







|    |                      
|--- | ---------------------
|10. | Restructuring Charges









|    |            
|--- | -----------
|11. | 401(k) Plan





|    |             
|--- | ------------
|12. | Income Taxes



51



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |  |                         |         |   |      |   |        |      |  |   |         |  
|-------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|         |  | Year Ended December 31, |        
|         |  |                         |        
|         |  | 2004                    |         |   | 2003 |   |        | 2002 | 
|         |  |                         |         |   |      |   |        |      | 
|         |  | (In thousands)          |        
|U.S.     |  | $                       | (15,427 | ) |      | $ | (6,394 | )    |  | $ | (14,426 | )
|Non U.S. |  |                         | (120    | ) |      |   | (2,164 | )    |  |   | (1,203  | )
|         |  |                         |         |   |      |   |        |      | 
|         |  | $                       | (15,547 | ) |      | $ | (8,558 | )    |  | $ | (15,629 | )
|         |  |                         |         |   |      |   |        |      | 



|          |                           |                                |   |   |      |  |   |      |     |  |   |      |     |  
|--------- | ------------------------- | ------------------------------ | - | - | ---- |  | - | ---- | --- |  | - | ---- | --- | -
|          |                           | Year Ended December 31,        |  
|          |                           |                                |  
|          |                           | 2004                           |   |   | 2003 |  |   | 2002 |    
|          |                           |                                |   |   |      |  |   |      |    
|          |                           | (In thousands)                 |  
|Current:  |                           |                                |   |   |      |  |   |      |     |  |   |     
|          | Federal                   |                                | $ |  |      |  | $ |     |     |  | $ |     |    
|          | State                     |                                |   | 1 |      |  |   | 1    |     |  |   | (38  | )  
|          | Alternative minimum taxes |                                |   |  |      |  |   |     |     |  |   | (270 | )  
|          | Foreign                   |                                |   |  |      |  |   | 201  |     |  |   | 210  |    
|          |                           |                                |   |   |      |  |   |      |    
|          |                           | Total current                  |   |   | 1    |  |   |      | 202 |  |   |      | (98 | )
|          |                           |                                |   |   |      |  |   |      |    
|Deferred: |                           |                                |   |   |      |  |   |      |     |  |   |     
|          | Federal                   |                                |   |  |      |  |   |     |     |  |   |     |    
|          | State                     |                                |   |  |      |  |   |     |     |  |   |     |    
|          |                           |                                |   |   |      |  |   |      |    
|          |                           | Total deferred                 |   |   |     |  |   |      |    |  |   |      |    |  
|          |                           |                                |   |   |      |  |   |      |    
|          |                           | Income tax provision (benefit) |   | $ | 1    |  |   | $    | 202 |  |   | $    | (98 | )
|          |                           |                                |   |   |      |  |   |      |    



|                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                        |  | Year Ended December 31, |       
|                                                        |  |                         |       
|                                                        |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                        |  |                         |        |   |      |   |        |      | 
|                                                        |  | (In thousands)          |       
|Income tax provision (benefit) at U.S. statutory rate   |  | $                       | (5,245 | ) |      | $ | (2,910 | )    |  | $ | (5,314 | )
|Alternative minimum and state taxes                     |  |                         | 1      |   |      |   | 1      |      |  |   | (308   | )
|Foreign taxes                                           |  |                         |       |   |      |   | 201    |      |  |   | 210    |  
|Loss for which no tax benefit is currently recognizable |  |                         | 5,242  |   |      |   | 2,910  |      |  |   | 5,314  |  
|Other                                                   |  |                         | 3      |   |      |   |       |      |  |   |       |  
|                                                        |  |                         |        |   |      |   |        |      | 
|                                                        |  | $                       | 1      |   |      | $ | 202    |      |  | $ | (98    | )
|                                                        |  |                         |        |   |      |   |        |      | 

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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                     |                                                   |                         |   |         |      |  |   |         |   | 
|-------------------- | ------------------------------------------------- | ----------------------- | - | ------- | ---- |  | - | ------- | - | 
|                     |                                                   | December 31,            |  
|                     |                                                   |                         |  
|                     |                                                   | 2004                    |   |         | 2003 | 
|                     |                                                   |                         |   |         |      | 
|                     |                                                   | (In thousands)          |  
|Deferred tax assets: |                                                   |                         |   |         |      |  |   |        
|                     | Net operating loss carryforwards                  |                         | $ | 36,067  |      |  | $ | 29,714  |  
|                     | Research and development tax credit carryforwards |                         |   | 6,009   |      |  |   | 5,559   |  
|                     | Capitalized research and development expenditures |                         |   | 3,089   |      |  |   | 3,701   |  
|                     | Deferred revenue                                  |                         |   | 2,051   |      |  |   | 1,989   |  
|                     | Reserves and accruals                             |                         |   | 472     |      |  |   | 497     |  
|                     | Valuation allowance                               |                         |   | (47,688 | )    |  |   | (41,460 | )
|                     |                                                   |                         |   |         |      | 
|                     |                                                   | Net deferred tax assets |   | $       |     |  |   | $       |  | 
|                     |                                                   |                         |   |         |      | 











|    |            
|--- | -----------
|13. | Commitments



53



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                         |  |                |        | 
|------------------------ |  | -------------- | ------ | 
|                         |  | Minimum Lease  |       
|Year Ending December 31, |  | Payments       |       
|                         |  |                |       
|                         |  | (In thousands) |       
|2005                     |  | $              | 2,876  | 
|2006                     |  |                | 2,945  | 
|2007                     |  |                | 3,014  | 
|2008                     |  |                | 2,969  | 
|                         |  |                |       
|                         |  | $              | 11,804 | 
|                         |  |                |       









|    |                                  
|--- | ---------------------------------
|14. | Transactions with Related Parties









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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|15. | Sale of Technology Assets





|    |                             
|--- | ----------------------------
|16. | Closure of German Operations





|    |                  
|--- | -----------------
|17. | Subsequent Events



| |                          
| | -------------------------
| | Stock Option Transactions







| |                    
| | -------------------
| | Reverse Stock Split





| |                                         
| | ----------------------------------------
| | Business Combination with Solexa Limited



55



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SOLEXA, INC.


(formerly Lynx Therapeutics, Inc.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                              
|--- | -----------------------------
|18. | Quarterly Results (Unaudited)

|                                     |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|------------------------------------ |  | -------------- | ------ | - | ------- | - | ------ | -------- |  | - | ------- | - |  | - | ------ | -
|                                     |  | Quarter Ended  |       
|                                     |  |                |       
|                                     |  | March 31       |        |   | June 30 |   |        | Sept. 30 |  |   | Dec. 31 |  
|                                     |  |                |        |   |         |   |        |          |  |   |         |  
|                                     |  | (In thousands) |       
|2004:                                |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|Revenues                             |  | $              | 1,341  |   |         | $ | 1,743  |          |  | $ | 1,551   |   |  | $ | 2,458  |  
|Loss from operations                 |  |                | (4,161 | ) |         |   | (3,694 | )        |  |   | (4,297  | ) |  |   | (3,369 | )
|Net loss                             |  |                | (4,221 | ) |         |   | (3,612 | )        |  |   | (4,268  | ) |  |   | (3,447 | )
|Basic and diluted net loss per share |  | $              | (1.32  | ) |         | $ | (0.97  | )        |  | $ | (1.13   | ) |  | $ | (0.92  | )
|2003:                                |  |                |        |   |         |   |        |          |  |   |         |   |  |   |        |  
|Revenues                             |  | $              | 3,264  |   |         | $ | 4,585  |          |  | $ | 8,272   |   |  | $ | 1,980  |  
|Income (loss) from operations        |  |                | (3,102 | ) |         |   | (1,881 | )        |  |   | 2,441   |   |  |   | (2,962 | )
|Net income (loss)                    |  |                | (3,972 | ) |         |   | (2,857 | )        |  |   | 1,813   |   |  |   | (3,744 | )
|Basic net income (loss) per share    |  | $              | (1.71  | ) |         | $ | (1.23  | )        |  | $ | 0.77    |   |  | $ | (1.60  | )
|Diluted net income (loss) per share  |  | $              | (1.71  | ) |         | $ | (1.23  | )        |  | $ | 0.75    |   |  | $ | (1.60  | )



56



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##### Table of Contents








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








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

Disclosure Controls and Procedures








Steps to Address Material Weakness




Changes in Internal Controls over Financial Reporting




Limitations on the Effectiveness of Controls




57



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##### Table of Contents










|         |                  
|-------- | -----------------
|Item 9b. | Other Information






PART III







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



|                              |  |     |    |  |          |                                                                                        
|----------------------------- |  | --- | -- |  | -------- | ---------------------------------------------------------------------------------------
|Name                          |  | Age |    |  | Position
|                              |  |     |    |  |         
|John West                     |  |     | 48 |  |          | Chief Executive Officer, Director                                                      
|Peter Lundberg                |  |     | 44 |  |          | Vice President and Chief Technical Officer                                             
|Kathy A. San Roman            |  |     | 51 |  |          | Vice President, Human Resources & Administration and
    Acting Chief Financial Officer
|Mary L. Schramke, Ph.D., MBA  |  |     | 50 |  |          | Vice President and General Manager, Genomic Services                                   
|Tony Smith, Ph.D.             |  |     | 49 |  |          | Vice President and Chief Scientific Officer                                            
|Thomas J. Vasicek, Ph.D.      |  |     | 46 |  |          | Vice President, Business Development                                                   
|Craig C. Taylor(1)(2)(3)      |  |     | 54 |  |          | Chairman of the Board                                                                  
|Steve Allen                   |  |     | 46 |  |          | Director and Principal Scientific Advisor                                              
|Mark Carthy                   |  |     | 44 |  |          | Director                                                                               
|Tom Daniel(1)(2)(3)           |  |     | 40 |  |          | Director                                                                               
|Hermann Hauser(2)             |  |     | 55 |  |          | Director                                                                               
|Genghis Lloyd-Harris(1)(2)(3) |  |     | 47 |  |          | Director                                                                               






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

John West


Peter Lundberg


58



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##### Table of Contents





Kathy A. San Roman


Mary L. Schramke, Ph.D., MBA


Tony Smith, Ph.D.


Thomas J. Vasicek, Ph.D.


Craig C. Taylor


Steve Allen


59



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##### Table of Contents





Mark Carthy


Tom Daniel


Hermann Hauser, Ph.D.


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


Audit Committee




60



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##### Table of Contents





Audit Committee Financial Expert




Section 16(a) Beneficial Ownership Reporting
Compliance






Code of Conduct




Stockholder Communications With the Board of Directors




61



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##### Table of Contents








|         |                       
|-------- | ----------------------
|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 |      |                     | ($) |                               |            | ($)     |              | ($) |            |        | ($) |           | (#)    |        |              | ($)
|                            |                         |      |      |                     |     |                               |            |         |              |     |            |        |     |           |        |        |              |    
|Kevin P. Corcoran           |                         |      | 2004 |                     |     | $                             | 255,491    |         |              | $   |           |        |     | $         | 750    | (1)    |              | $   |  |   |  |  | 23,100 |        |  | $ |   |  
|                            | Former President and    |      |      | 2003                |     |                               |            | 245,713 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        | 20,000 |  |   |   |  | 
|                            | Chief Executive Officer |      |      | 2002                |     |                               |            | 220,544 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        | 2,500  |  |   |   |  | 
|Mary J. Schramke, Ph.D. MBA |                         |      | 2004 |                     |     |                               | 183,722    |         |              |     |           |        |     |           | 6,637  | (1)(2) |              |     |  |   |  |  | 11,500 |        |  |   |  |  
|                            | Vice President and      |      |      | 2003                |     |                               |            | 157,690 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        | 3,500  |  |   |   |  | 
|                            | General Manager of      |      |      | 2002                |     |                               |            | 221,552 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        |       |  |   |   |  | 
|                            | Genomic Services        |      |      |                     |     |                               |            |         |              |     |            |        |     |           |        |        |              |     |   |   |  |  |        |        |  |   |   |   | 
|Kathy A. San Roman          |                         |      | 2004 |                     |     |                               | 158,970    |         |              |     |           |        |     |           | 750    |        |              |     |  |   |  |  | 15,000 |        |  |   |  |  
|                            | Vice President, Human   |      |      | 2003                |     |                               |            | 154,619 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        | 12,500 |  |   |   |  | 
|                            | Resources &             |      |      | 2002                |     |                               |            | 159,032 |              |     |            |       |     |           |        | 750    | (1)          |     |   |  |  |  |        | 2,500  |  |   |   |  | 
|                            | Administration and      |      |      |                     |     |                               |            |         |              |     |            |        |     |           |        |        |              |     |   |   |  |  |        |        |  |   |   |   | 
|                            | Acting Chief Financial  |      |      |                     |     |                               |            |         |              |     |            |        |     |           |        |        |              |     |   |   |  |  |        |        |  |   |   |   | 
|                            | Officer                 |      |      |                     |     |                               |            |         |              |     |            |        |     |           |        |        |              |     |   |   |  |  |        |        |  |   |   |   | 
|Thomas J. Vasicek, Ph.D.    |                         |      | 2004 |                     |     |                               | 198,615    |         |              |     |           |        |     |           | 19,624 | (1)(2) |              |     |  |   |  |  | 3,750  |        |  |   |  |  
|                            | Vice President,         |      |      | 2003                |     |                               |            | 216,257 |              |     |            |       |     |           |        | 21,720 | (1)(2)       |     |   |  |  |  |        | 12,500 |  |   |   |  | 
|                            | Business Development    |      |      | 2002                |     |                               |            | 108,416 |              |     |            |       |     |           |        | 15,750 | (1)(3)       |     |   |  |  |  |        | 8,571  |  |   |   |  | 






|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|(1) | Includes contributions of $750 made by Lynx to its 401(k) Plan
    on behalf of such employee.
|   
|(2) | Includes sales commissions received.                                                          
|   
|(3) | Includes a sign-on bonus received by Dr. Vasicek when he
    joined Lynx in June 2002.        



Stock Option Grants and Exercises




62



---



##### Table of Contents





Option Grants in Last Fiscal Year


|                            |  |                   |        |  |                               |  |       |           |  |                         |            |  |                          |        |          |  |         |   |         |  |  |   |         | 
|--------------------------- |  | ----------------- | ------ |  | ----------------------------- |  | ----- | --------- |  | ----------------------- | ---------- |  | ------------------------ | ------ | -------- |  | ------- | - | ------- |  |  | - | ------- | 
|                            |  | Individual Grants |        |  |                              
|                            |  |                   |        |  | Potential Realizable Value at | 
|                            |  | Number of         |        |  | % of Total                    |  |       |           |  | Assumed Annual Rates of |           
|                            |  | Securities        |        |  | Options                       |  |       | Exercise  |  |                         |            |  | Stock Price Appreciation |       
|                            |  | Underlying        |        |  | Granted to                    |  |       | Price     |  |                         |            |  | for Option Term(2)       |       
|                            |  | Options           |        |  | Employees in                  |  |       | per Share |  |                         | Expiration |  |                          |        |         
|Name                        |  | Granted (#)       |        |  | 2004(1)                       |  |       | ($/share) |  |                         | Date       |  |                          | 5% ($) |          |  | 10% ($) |  
|                            |  |                   |        |  |                               |  |       |           |  |                         |            |  |                          |        |          |  |         |  
|Kevin P. Corcoran           |  |                   | 20,000 |  |                               |  | 9.46% |           |  | $                       | 8.16       |  |                          |        | 4/28/14  |  |         | $ | 103,893 |  |  | $ | 263,286 | 
|                            |  |                   | 3,100  |  |                               |  | 1.46  |           |  |                         | 5.92       |  |                          |        | 10/26/14 |  |         |   | 11,541  |  |  |   | 29,248  | 
|Mary J. Schramke, Ph.D. MBA |  |                   | 6,000  |  |                               |  | 2.84  |           |  |                         | 8.26       |  |                          |        | 4/28/14  |  |         |   | 31,168  |  |  |   | 78,986  | 
|                            |  |                   | 3,000  |  |                               |  | 1.42  |           |  |                         | 5.92       |  |                          |        | 10/26/14 |  |         |   | 11,169  |  |  |   | 28,305  | 
|                            |  |                   | 2,500  |  |                               |  | 1.18  |           |  |                         | 7.80       |  |                          |        | 12/15/14 |  |         |   | 12,263  |  |  |   | 31,078  | 
|Kathy A. San Roman          |  |                   | 10,000 |  |                               |  | 4.72  |           |  |                         | 8.26       |  |                          |        | 4/28/14  |  |         |   | 51,947  |  |  |   | 131,643 | 
|                            |  |                   | 2,500  |  |                               |  | 1.18  |           |  |                         | 5.92       |  |                          |        | 10/26/14 |  |         |   | 9,308   |  |  |   | 23,587  | 
|                            |  |                   | 2,500  |  |                               |  | 1.18  |           |  |                         | 7.80       |  |                          |        | 12/15/14 |  |         |   | 12,263  |  |  |   | 31,078  | 
|Thomas J. Vasicek, Ph.D.    |  |                   | 1,250  |  |                               |  | 0.59  |           |  |                         | 5.92       |  |                          |        | 10/26/14 |  |         |   | 4,654   |  |  |   | 11,794  | 
|                            |  |                   | 2,500  |  |                               |  | 1.18  |           |  |                         | 7.80       |  |                          |        | 12/15/14 |  |         |   | 12,263  |  |  |   | 31,078  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on options for an aggregate of 211,500 shares granted
    to our employees and directors during the year ended
    December 31, 2004, 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.



Aggregated Option Exercises in the Year Ended
December 31, 2004 and Option Values


|                            |  |             |   |  |          |                       |                     |                      |                      |               |        |  |             |  |        |               |  |   |        |  |  |   |        | 
|--------------------------- |  | ----------- | - |  | -------- | --------------------- | ------------------- | -------------------- | -------------------- | ------------- | ------ |  | ----------- |  | ------ | ------------- |  | - | ------ |  |  | - | ------ | 
|                            |  |             |   |  |          |                       |                     | Value of Unexercised |                     
|                            |  |             |   |  |          | Number of Unexercised |                     |                      | In-the-Money Options |              
|                            |  | Shares      |   |  |          |                       | Options at Year End |                      |                      | at Year End   |       
|                            |  | Acquired on |   |  | Value    |                       |                     |                      |                      |               |       
|Name                        |  | Exercise    |   |  | Realized |                       | Exercisable         |                      |                      | Unexercisable |        |  | Exercisable |  |        | Unexercisable | 
|                            |  |             |   |  |          |                       |                     |                      |                      |               |        |  |             |  |        |               | 
|Kevin P. Corcoran           |  |             |  |  |          | $                     |                    |                      |                      |               | 14,175 |  |             |  |       |               |  | $ | 23,508 |  |  | $ |       | 
|Mary J. Schramke, Ph.D. MBA |  |             |  |  |          |                       |                    |                      |                      |               | 2,183  |  |             |  | 12,817 |               |  |   | 4,611  |  |  |   | 12,659 | 
|Kathy A. San Roman          |  |             |  |  |          |                       |                    |                      |                      |               | 13,091 |  |             |  | 23,090 |               |  |   | 15,280 |  |  |   | 32,270 | 
|Thomas J. Vasicek, Ph.D.    |  |             |  |  |          |                       |                    |                      |                      |               | 8,701  |  |             |  | 16,120 |               |  |   | 15,208 |  |  |   | 30,192 | 

Employment, Severance and Change of Control Agreements




63



---



##### Table of Contents











Compensation of Directors






64



---



##### Table of Contents





|                              |  |               |          |            |         |  |                |           |  |   |      | 
|----------------------------- |  | ------------- | -------- | ---------- | ------- |  | -------------- | --------- |  | - | ---- | 
|                              |  |               |          | Number of  |         |  |               
|                              |  |               |          | Securities |         |  |               
|                              |  |               |          | Underlying |         |  |               
|                              |  |               |          | Options    |         |  | Exercise Price |          
|Name                          |  | Date of Grant |          |            | Granted |  |                | per Share | 
|                              |  |               |          |            |         |  |                |           | 
|Sydney Brenner, M.B., D. Phil |  |               | 10/26/04 |            |         |  | 625            |           |  | $ | 5.92 | 
|Leroy Hood, M.D., Ph.D.       |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 
|James C. Kitch                |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 
|Craig C. Taylor               |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 
|Marc D. Kozin                 |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 
|James V. Mitchell             |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 
|David C. UPrichard, Ph.D.    |  |               | 10/26/04 |            |         |  | 625            |           |  |   | 5.92 | 



Compensation Committee Interlocks and Insider
Participation




Limitations of Liability and Indemnification






65



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##### Table of Contents










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

Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                                |  |                   |         |  |                   |            |                 |                      |  |  |        | 
|--------------------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | ---------- | --------------- | -------------------- |  |  | ------ | 
|                                                                |  |                   |         |  |                   | Number of  |                
|                                                                |  |                   |         |  |                   | Securities |                
|                                                                |  |                   |         |  |                   | Remaining  |                
|                                                                |  | Number of         |         |  |                   |            | Available for   |                     
|                                                                |  | Securities to be  |         |  |                   |            | Future Issuance |                     
|                                                                |  | Issued Upon       |         |  | Weighted-Average  |            |                 | Under Equity         | 
|                                                                |  | Exercise of       |         |  | Exercise Price of |            |                 | Compensation         | 
|                                                                |  | Outstanding       |         |  | Outstanding       |            |                 | Plans (Excluding     | 
|                                                                |  | Options, Warrants |         |  | Options, Warrants |            |                 | Securities Reflected | 
|                                                                |  | and Rights        |         |  | and Rights        |            |                 | in Column (a))       | 
|                                                                |  |                   |         |  |                   |            |                 |                      | 
|                                                                |  | (a)               |         |  | (b)               |            |                 | (c)                  | 
|Equity compensation plans approved by security holders:         |  |                   |         |  |                   |            |                 |                      |  |  |        | 
|1992 Stock Option Plan                                          |  |                   | 366,862 |  |                   | $          | 40.69           |                      |  |  |       | 
|1998 Employee Stock Purchase Plan(1)                            |  |                   | N/A     |  |                   |            | N/A             |                      |  |  | 37,618 | 
|Equity compensation plans not approved by security
    holders: |  |                   |         |  |                   |            |                 |                      |  |  |        | 
|None                                                            |  |                   |        |  |                   |            |                |                      |  |  |       | 
|                                                                |  |                   |         |  |                   |            |                 |                      | 
|Total                                                           |  |                   | 366,862 |  |                   | $          | 40.69           |                      |  |  | 37,618 | 
|                                                                |  |                   |         |  |                   |            |                 |                      | 






|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In early 2003, pursuant to our transfer from the Nasdaq National
    Market to the Nasdaq SmallCap Market, we suspended our Employee
    Stock Purchase Plan.



|                                                             |                                        |                         |           |            |       |  |      |   | 
|------------------------------------------------------------ | -------------------------------------- | ----------------------- | --------- | ---------- | ----- |  | ---- | - | 
|                                                             |                                        | Beneficial Ownership(1) |          
|                                                             |                                        |                         |          
|                                                             |                                        |                         |           | Percent of |      
|Name of Beneficial Owner                                     |                                        | Number of Shares        |           |            | Total | 
|                                                             |                                        |                         |           |            |       | 
|Entities affiliated with Abingworth Management Limited(2)    |                                        |                         | 4,493,841 |            |       |  | 25.5 | %
|                                                             | 38 Jermyn Street                       |                         |           |            |       |  |      |   | 
|                                                             | London SW1Y 6DN                        |                         |           |            |       |  |      |   | 
|                                                             | Great Britain                          |                         |           |            |       |  |      |   | 
|Entities affiliated with Amadeus Capital Partners Limited(3) |                                        |                         | 3,487,465 |            |       |  | 19.8 | %
|                                                             | Mount Pleasant House, 2 Mount Pleasant |                         |           |            |       |  |      |   | 
|                                                             | Huntington Road, Cambridge CB3 ORN     |                         |           |            |       |  |      |   | 
|                                                             | Great Britain                          |                         |           |            |       |  |      |   | 
|Entities affiliated with OBP Management IV L.P.(4)           |                                        |                         | 2,493,757 |            |       |  | 14.2 | %
|                                                             | 222 Berkeley Street, Suite 1650        |                         |           |            |       |  |      |   | 
|                                                             | Boston, Massachusetts 02116            |                         |           |            |       |  |      |   | 

66



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##### Table of Contents



|                                                           |                                        |                         |           |            |       |  |      |   | 
|---------------------------------------------------------- | -------------------------------------- | ----------------------- | --------- | ---------- | ----- |  | ---- | - | 
|                                                           |                                        | Beneficial Ownership(1) |          
|                                                           |                                        |                         |          
|                                                           |                                        |                         |           | Percent of |      
|Name of Beneficial Owner                                   |                                        | Number of Shares        |           |            | Total | 
|                                                           |                                        |                         |           |            |       | 
|Entities affiliated with Schroder Venture Managers Inc.(5) |                                        |                         | 3,052,970 |            |       |  | 17.3 | %
|                                                           | c/o Church Street                      |                         |           |            |       |  |      |   | 
|                                                           | Hamilton HM 11                         |                         |           |            |       |  |      |   | 
|                                                           | Bermuda                                |                         |           |            |       |  |      |   | 
|Craig C. Taylor(6)                                         |                                        |                         | 37,810    |            |       |  | *    |  
|John West(7)                                               |                                        |                         | 311,715   |            |       |  | 1.8  | %
|Steve Allen(8)                                             |                                        |                         | 8,944     |            |       |  | *    |  
|Mark Carthy(9)                                             |                                        |                         | 2,493,757 |            |       |  | 14.2 | %
|                                                           | c/o OBP Management IV L.P.             |                         |           |            |       |  |      |   | 
|                                                           | 222 Berkeley St., Suite 1650           |                         |           |            |       |  |      |   | 
|                                                           | Boston, Massachusetts 02116            |                         |           |            |       |  |      |   | 
|Tom Daniel(10)                                             |                                        |                         | 3,052,970 |            |       |  | 17.3 | %
|                                                           | c/o Schroder Venture Managers Inc.     |                         |           |            |       |  |      |   | 
|                                                           | Church Street                          |                         |           |            |       |  |      |   | 
|                                                           | Hamilton HM 11                         |                         |           |            |       |  |      |   | 
|                                                           | Bermuda                                |                         |           |            |       |  |      |   | 
|Hermann Hauser(11)                                         |                                        |                         | 3,487,465 |            |       |  | 19.8 | %
|                                                           | c/o Amadeus Capital Partners Limited   |                         |           |            |       |  |      |   | 
|                                                           | Mount Pleasant House, 2 Mount Pleasant |                         |           |            |       |  |      |   | 
|                                                           | Huntington Road, Cambridge CB3 ORN     |                         |           |            |       |  |      |   | 
|                                                           | Great Britain                          |                         |           |            |       |  |      |   | 
|Genghis Lloyd-Harris                                       |                                        |                         |          |            |       |  | *    |  
|Peter Lundberg                                             |                                        |                         |          |            |       |  | *    |  
|Kathy A. San Roman(12)                                     |                                        |                         | 15,949    |            |       |  | *    |  
|Mary J. Schramke, Ph.D., MBA(13)                           |                                        |                         | 3,849     |            |       |  | *    |  
|Tony Smith, Ph.D.(14)                                      |                                        |                         | 78,708    |            |       |  | *    |  
|Thomas J. Vasicek, Ph.D.(15)                               |                                        |                         | 11,022    |            |       |  | *    |  
|All directors and officers as a group (12 persons)(16)     |                                        |                         | 9,502,189 |            |       |  | 52.8 | %






| |   |                       
| | - | ----------------------
| | * | 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 17,597,581 shares of
    common stock outstanding as of March 10, 2005, except as
    otherwise noted in the footnotes. Shares of common stock subject
    to options currently exercisable or exercisable within
    60 days of March 10, 2005, 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) | Includes 2,266,436 shares of common stock held by
    Abingworth Bioventures II SICAV; 363,278 shares of
    common stock held by Abingworth Bioventures II A LP;
    935,791 shares of common stock held by Abingworth
    Bioventures III A LP; 571,244 shares of common stock
    held by Abingworth Bioventures III B LP;
    342,179 shares of common stock held by Abingworth
    Bioventures III C LP; and 14,913 shares held by
    Abingworth Bioventures III Executives LP.                                                                                                                                                                                                                                          
|
| | (3) | Includes 1,569,359 shares of common stock held by
    Amadeus II A LP; 1,046,240 shares held by
    Amadeus II B LP; 732,368 shares of common stock held
    by Amadeus II C LP; 34,875 shares of common stock held
    by Amadeus II D GmbH & Co KG; and
    104,623 shares of common stock held by Amadeus II
    Affiliates LP.                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (4) | Includes 2,468,986 shares of common stock held by Oxford
    Bioscience Partners IV L.P. and 24,771 shares of
    common stock held by mRNA Fund II L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

67



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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Includes 1,788,785 shares of common stock held by Schroder
    Ventures International Life Sciences Fund II L.P.1;
    761,826 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II L.P.2;
    203,022 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II L.P.3;
    27,596 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II Strategic Partners
    L.P.; 51,441 shares of common stock held by Schroder
    Ventures International Life Sciences Fund II Group
    Co-Investment Scheme; and 220,320 shares of common stock
    held by SV (nominees) Limited as Nominee to Schroder Ventures
    Investments Limited.                                                                                                                                                                
|
| | (6) | Includes 8,303 shares of common stock, 2,365 shares of
    common stock issuable upon exercise of stock options that are
    exercisable within 60 days of March 10, 2005, 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 Lynx, 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.
|
| | (7) | Includes 311,175 shares of common stock issuable upon
    exercise of stock options held by Mr. West that are
    exercisable within 60 days of March 10, 2005 provided
    that a compulsory acquisition right in favor of Lynx has arisen
    pursuant to the Companies Act 1985 within 60 days of
    March 10, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (8) | Includes 8,944 Solexa ordinary shares issuable upon exercise of
    stock options held by Mr. Allen that are exercisable within
    60 days of March 10, 2005 provided that a compulsory
    acquisition right in favor of Lynx has arisen pursuant to the
    Companies Act 1985 within 60 days of March 10, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (9) | Includes 2,468,986 shares of common stock held by Oxford
    Bioscience Partners IV L.P. and 24,771 shares of
    common stock held by mRNA Fund II L.P. Mr. Carthy is a
    General Partner of OBP Management IV L.P., which is the
    general partner of Oxford Bioscience Partners IV L.P. and
    mRNA Fund II L.P. Mr. Carthy may be deemed to share
    voting and investment power of the shares held by Oxford
    Bioscience Partners IV L.P. and mRNA Fund II L.P.
    Mr. Carthy disclaims beneficial ownership of such shares,
    except to the extent of his pro-rata interest therein.                                                                                                                                                                                                                                                                                                   



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 1,788,785 shares of common stock held by Schroder
    Ventures International Life Sciences Fund II L.P.1;
    761,826 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II L.P.2;
    203,022 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II L.P.3;
    27,596 shares of common stock held by Schroder Ventures
    International Life Sciences Fund II Strategic Partners
    L.P.; 51,441 shares of common stock held by Schroder
    Ventures International Life Sciences Fund II Group
    Co-Investment Scheme; and 220,320 shares of common stock
    held by SV (nominees) Limited as Nominee to Schroder Ventures
    Investments Limited. Mr. Daniel, a director of Solexa, is a
    Venture Partner of Schroder Ventures Life Sciences Advisers
    (UK) Limited which is an advisor to Schroder Venture
    Managers, Inc., the General Partner of the entities known
    collectively as Schroder Ventures International Life Sciences
    Fund II. Mr. Daniel has no beneficial ownership of the
    shares owned by Schroder Ventures International Life Sciences
    Fund II, except to the extent of his pro-rata interest
    therein.
|    
|(11) | Includes 1,569,359 shares of common stock held by
    Amadeus II A LP; 1,046,240 shares held by
    Amadeus II B LP; 732,368 shares of common stock held
    by Amadeus II C LP; 34,875 shares of common stock held
    by Amadeus II D GmbH & Co KG; and
    104,623 shares of common stock held by Amadeus II
    Affiliates LP. Dr. Hauser shares the power to vote and
    control the disposition of shares held by Amadeus II A LP,
    Amadeus II B LP, Amadeus II C LP, Amadeus II D
    GmbH & Co KG and Amadeus II Affiliates LP.
    Dr. Hauser disclaims beneficial ownership of such shares,
    except to the extent of his pro-rata interest therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(12) | Includes 15,949 shares of common stock issuable upon
    exercise of stock options held by Ms. San Roman that
    are exercisable within 60 days of March 10, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(13) | Includes 3,849 shares of common stock issuable upon
    exercise of stock options held by Dr. Schramke that are
    exercisable within 60 days of March 10, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Includes 61,514 shares of common stock issuable upon
    exercise of stock options held by Dr. Smith that are
    exercisable within 60 days of March 10, 2005 provided
    that a compulsory acquisition right in favor of Lynx has arisen
    pursuant to the Companies Act 1985 within 60 days of
    March 10, 2005.                                                                                                       
|    
|(15) | Includes 11,022 shares of common stock issuable upon
    exercise of stock options held by Dr. Vasicek that are
    exercisable within 60 days of March 10, 2005.                                                                                                                                                                                                                                                              
|    
|(16) | Includes 9,086,236 shares of common stock (including shares
    of common stock held by entities affiliated with certain
    directors), 414,818 shares of common stock issuable upon
    exercise of stock options that are exercisable within
    60 days of March 10, 2005 and 1,135 shares of
    common stock issuable upon exercise of warrants held by current
    directors and officers. See Notes 2 through 12 above.

Section 16(a) Beneficial Ownership Reporting
Compliance











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





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if at any time prior to August 9, 2006, there occurs an
    initial closing of any collaboration or other strategic alliance
    or partnership, the terms of which provide for at least
    $4,000,000 of committed cash investment in or payment to Solexa
    Limited, Solexa Limited shall pay to Mr. West an aggregate
    lump sum bonus equal to the greater of: (i) 1% of the
    aggregate amount proposed to be paid in such transaction
    (without regard to any commissions or other transaction expenses
    paid by Solexa Limited, such payment to include upfront
    payments, payments in respect of intellectual property, good
    services and the premium for any equity investment above the
    price of last financing round or market price of the company if
    a public company, unless such investments fall within the
    sub-bullet point below); or (ii) $100,000; or                                                                                                                                                                                                                                                                                                                
|
| |  | if at any time prior to August 9, 2007, there occurs a
    closing of any financing, subject to specified exceptions, the
    terms of which provide for the sale by Solexa Limited of equity
    securities (including rights, options, or warrants to purchase
    equity securities, or securities of any type whatsoever that
    are, or may become, convertible into or exchangeable or
    exercisable for equity securities) at a price per share that is
    at least 10% greater than the price per share of equity
    securities issued in a Solexa interim financing and attracting
    gross proceeds of at least $6 million and a share price 10%
    greater than most recent issuance by Solexa Limited, Solexa
    Limited shall pay to Mr. West an aggregate lump sum bonus
    equal to the greater of: (i) 1% of the difference between
    the aggregate consolidated valuation of Solexa as of the closing
    of the immediately preceding financing and the aggregate
    consolidated valuation of Solexa immediately prior to the
    closing of such subsequent financing (without regard to any
    commissions or other transaction expenses paid by Solexa
    Limited); or (ii) $100,000.

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71



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



|                   |            |                         |         |         |      |   |         |         | 
|------------------ | ---------- | ----------------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                   |            | Year Ended December 31, |        
|                   |            |                         |        
|                   |            | 2004                    |         |         | 2003 |  
|                   |            |                         |         |         |      |  
|Audit fees         |            | $                       | 470,685 |         |      | $ | 166,460 |        
|Audit-related fees |            |                         |        |         |      |   | 48,300  |        
|Tax fees           |            |                         | 31,320  |         |      |   | 31,320  |        
|All other fees     |            |                         | 34,609  |         |      |   | 53,044  |        
|                   |            |                         |         |         |      |  
|                   | Total fees |                         | $       | 536,614 |      |   | $       | 299,124 | 
|                   |            |                         |         |         |      |  

Audit Fees:


Audit-Related Fees:


Tax Fees:


All Other Fees:




Pre-Approval Policies and Procedures




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PART IV







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







| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | (i) Report of Independent Registered Public Accounting Firm                                                  
|
| | (ii) Consolidated Balance Sheets as of December 31,
    2004 and 2003                                        
|
| | (iii) Consolidated Statements of Operations for the years
    ended December 31, 2004, 2003 and 2002         
|
| | (iv) Consolidated Statements of Stockholders Equity
    for the years ended December 31, 2004, 2003 and 2002
|
| | (v) Consolidated Statements of Cash Flows for the years
    ended December 31, 2004, 2003 and 2002           
|
| | (vi) Notes to Consolidated Financial Statements                                                              





|        |  |                                                                                                                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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                           
|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                                                                 
|4.1     |  | Form of Common Stock Certificate, incorporated by reference to
    Exhibit 4.2 of the Companys Statement Form 10
    (File No. 0-22570), as amended (see the Statement
    Form 10)                                                                            
|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 Statement 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 Statement 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 Statement 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 Statement Form 10                                                                                                        

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|         |  |                                                                                                                                                                                                                                                                                                                                                                   
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                   
|No.      |  | Description of Document                                                                                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                   
|10.5     |  | Agreement of Assignment and License of Intellectual Property
    Rights, dated June 30, 1992, by and between the Company and
    ABI, incorporated by reference to Exhibit 10.11 of the
    Companys Statement Form 10                                                                                                                                           
|10.6     |  | Amended and Restated Investor Rights Agreement, dated as of
    November 1, 1995, incorporated by reference to
    Exhibit 10.30 of the Companys Form 10-K for the
    period ended December 31, 1995                                                                                                                                                            
|10.7+    |  | 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                                               
|10.7.1+  |  | 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                                                                   
|10.7.2+  |  | 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
|10.7.3+  |  | 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  
|10.7.4+  |  | 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                                                                               
|10.7.5+  |  | 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                                                                    
|10.10    |  | 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                                                                                                                                   
|10.11**  |  | The Companys 1998 Employee Stock Purchase Plan or the
    Purchase Plan, incorporated by reference to Exhibit 99.1 of
    the Companys Form S-8 (File No. 333-59163)                                                                                                                                                                                            
|10.12+   |  | Research Collaboration Agreement, dated as of October 29,
    1998, by and between the Company and E.I. Dupont de Nemours and
    Co., incorporated by reference to Exhibit 10.13 of the
    Companys Form 10-K/A filed on August 24, 2001
    for the period ended December 31, 2001                                                                            
|10.12.1+ |  | Letter Amendment, dated March 1, 2002, to Research
    Collaboration Agreement by and between the Company and E.I.
    DuPont De Nemours and Co., incorporated by reference to the
    indicated exhibit of the Companys Form 10-Q for the
    period ended March 31, 2002                                                                                       
|10.13    |  | Master Loan and Security Agreement, dated as of October 26,
    1998, by and between the Company and Transamerica Business
    Credit Corporation, incorporated by reference to
    Exhibit 10.14 of the Companys Form 10-K/A filed
    on August 24, 2001 for the period ended December 31,
    2001                                                            
|10.14    |  | Promissory Note No. 7, dated as of September 29,
    2000, issued by the Company to Transamerica Business Credit
    Corporation, incorporated by reference to Exhibit 10.15 of
    the Companys Form 10-K/A filed on August 24,
    2001 for the period ended December 31, 2001                                                                                 
|10.15+   |  | Collaboration Agreement, dated as of September 30, 1999, by
    and between the Company and Hoechst Schering AgrEvo GmbH,
    incorporated by reference to Exhibit 10.16                                                                                                                                                                                          
|10.17+   |  | 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                                                                                               

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|         |  |                                                                                                                                                                                                                                                                                                           
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                           
|No.      |  | Description of Document                                                                                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                           
|10.17.1+ |  | Amendment No. 1 to Collaboration Agreement, dated
    December 19, 2002, by and between the Company and Takara
    Bio Inc., incorporated by reference to the indicated exhibit of
    the Companys Form 10-K for the period ended
    December 31, 2002                                                 
|10.17.2+ |  | Amendment No. 2 to Collaboration Agreement, dated
    June 30, 2003, by and between the Company and Takara Bio
    Inc., incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended
    September 30, 2003                                                    
|10.18    |  | 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                                                          
|10.19    |  | 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                                                          
|10.20    |  | 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                                                                                                         
|10.21+   |  | Joint Venture Agreement, dated as of June 29, 2001, by and
    between the Company and BASF Aktiengesellschaft, incorporated by
    reference to Exhibit 10.18 of the Companys
    Form 10-Q for the period ended June 30, 2001                                                                          
|10.22+   |  | First Amendment to Joint Venture Agreement, by and between the
    Company and BASF Aktiengesellschaft, dated as of August 14,
    2001, incorporated by reference to Exhibit 10.22.2 of the
    Companys Form 10-Q for the period ended
    September 30, 2001                                          
|10.23+   |  | Technology License Agreement, dated as of June 1, 2001, by
    and between the Company and BASF-LYNX Bioscience AG,
    incorporated by reference to Exhibit 10.19 of the
    Companys Form 10-Q for the period ended June 30,
    2001                                                                  
|10.24    |  | Common Stock Purchase Agreement, by and between the Company and
    Takara Shuzo Co., Ltd., dated as of October 1, 2001,
    incorporated by reference to Exhibit 10.24 of the
    Companys Form 10-Q for the period ended
    September 30, 2001                                                        
|10.25+   |  | Purchase Agreement, dated as of March 5, 2002, by and
    between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 18, 2002                                                       
|10.26+   |  | Common Stock Purchase Agreement, dated as of March 5, 2002,
    by and between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on From 8-K filed on
    March 18, 2002                                          
|10.27    |  | Form of Securities Purchase Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                          
|10.28    |  | Form of Registration Rights Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                          
|10.29    |  | Form of Warrant issued by the Company in favor or each investor
    party to the Securities Purchase Agreement and Friedman,
    Billings, Ramsey & Co., Inc., incorporated by reference
    to the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002
|10.30**  |  | Employment Agreement, dated as of June 3, 2002, by and
    between the Company and Kevin P. Corcoran, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended June 30, 2002                                                                            
|10.31**  |  | Employment Agreement, dated as of June 10, 2002, by and
    between the Company and Thomas J. Vasicek, Ph.D.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended June 30,
    2002                                                                
|10.33    |  | Common Stock Purchase Agreement, dated as of September 25,
    2002, by and between the Company and Takara Shuzo Co., Ltd.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended
    September 30, 2002                                             

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|        |  |                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                          
|No.     |  | Description of Document                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                          
|10.34   |  | Loan and Security Agreement, dated October 23, 2002, by and
    between the Company and Comerica Bank-California, incorporated
    by reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended September 30, 2002                                                          
|10.35   |  | Common Stock Purchase Agreement, dated as of December 26,
    2002, by and between the Company and Takara Shuzo Co., Ltd.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-K for the period ended
    December 31, 2002                                              
|10.37** |  | Employment Agreement, dated as of March 20, 2003, by and
    between the Company and Kathy A. San Roman, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended March 31, 2003                                                                       
|10.38** |  | The Companys 1992 Stock Plan, as amended, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended June 30, 2003                                                                                                                                      
|10.39   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    indicated exhibit of the Companys Form 8-K filed on
    September 25, 2003                                                                                            
|10.40   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Form 8-K filed on September 25, 2003                                                                                                                        
|10.41+  |  | Services Agreement, by and between E.I. DuPont de Nemours and
    Company and Lynx Therapeutics, Inc., incorporated by reference
    to the indicated exhibit of the Companys Form 10-Q
    for the period ended September 30, 2003                                                                     
|10.42   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    indicated exhibit of the Companys Form 8-K filed on
    January 2, 2004                                                                                               
|10.43   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Form 8-K filed on January 2, 2004                                                                                                                           
|10.44   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                                                                       
|10.45   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                                                                      
|10.46   |  | Asset Purchase Agreement, dated as of March 22, 2004, by
    and among Lynx Therapeutics, Inc. and the parties listed
    therein, incorporated by reference to the indicated exhibit of
    Lynxs Form 10-Q filed on May 13, 2004                                                                      
|10.47+  |  | Colony Technology Sharing Agreement, dated as of March 22,
    2004, by and between Solexa Limited and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q filed on May 13, 2004                                                              
|10.48   |  | Deed, dated October 25, 2004, by and between Lynx
    Therapeutics, Inc. and Solexa Limited, regarding Colony
    Technology Sharing Agreement dated March 22, 2004,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    October 26, 2004
|10.49++ |  | Loan Agreement, dated August 12, 2004, by and between Lynx
    and Solexa Limited, incorporated by reference to the indicated
    exhibit in the Companys Registration Statement on
    Form S-4 filed on October 29, 2004                                                                              
|10.50++ |  | Letter, dated September 28, 2004, from Solexa Limited to
    Lynx, incorporated by reference to the indicated exhibit in the
    Companys Registration Statement on Form S-4 filed on
    October 29, 2004                                                                                              
|10.51++ |  | Master Development Agreement, dated as of October 28, 2004,
    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                                          
|10.52** |  | Employment Agreement, dated January 29, 2003, between Lynx
    Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
    incorporated by reference to the indicated exhibit to the
    Companys Current Report on Form 8-K filed on
    November 22, 2004                                                     

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|        |  |                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                 
|No.     |  | Description of Document                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                 
|10.53   |  | Loan and Security Agreement, dated as of December 28, 2004,
    between Silicon Valley Bank and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    January 3, 2005                    
|10.54   |  | Intellectual Property Security Agreement, dated as of
    December 28, 2004, by and between Silicon Valley Bank and
    Lynx Therapeutics, Inc., incorporated by reference to the
    indicated exhibit of the Companys Current Report on
    Form 8-K filed on January 3, 2005
|10.55   |  | Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
    Silicon Valley Bank on December 28, 2004, incorporated by
    reference to the indicated exhibit of the Companys Current
    Report on Form 8-K filed on January 3, 2005                                   
|23.1*   |  | 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 Lynx Therapeutics,
    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.









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SIGNATURES






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



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

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

POWER OF ATTORNEY


Know All Persons by These Presents,




|                                             |  |                                                                                                                                    |  |                |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                    |  | Title                                                                                                                              |  | Date          
|                                             |  |                                                                                                                                    |  |               
|                                            
|/s/ John WestJohn
    West                   |  | Chief Executive Officer and Director(Principal Executive Officer)                                                                  |  | March 31, 2005
|                                            
|/s/ Craig C. TaylorCraig
    C. Taylor       |  | Chairman of the Board                                                                                                              |  | March 31, 2005
|                                            
|/s/ Kathy A. San RomanKathy
    A. San Roman |  | Vice President Human Resources & Administration and
    Acting Chief Financial Officer(Principal Financial and Accounting Officer) |  | March 31, 2005
|                                            
|/s/ Steve AllenSteve
    Allen               |  | Director                                                                                                                           |  | March 31, 2005
|                                            
|/s/ Mark CarthyMark
    Carthy               |  | Director                                                                                                                           |  | March 31, 2005
|                                            
|/s/ Tom DanielTom
    Daniel                 |  | Director                                                                                                                           |  | March 31, 2005

79



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|                                                 |  |          |  |                |  | 
|------------------------------------------------ |  | -------- |  | -------------- |  | 
|Signature                                        |  | Title    |  | Date          
|                                                 |  |          |  |               
|                                                
|/s/ H. HauserHermann
    Hauser                  |  | Director |  | March 31, 2005
|                                                
|/s/ Genghis Lloyd-HarrisGenghis
    Lloyd-Harris |  | Director |  | March 31, 2005

80



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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                                                                                                                           
|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                                                                                                                                                                 
|4.1     |  | Form of Common Stock Certificate, incorporated by reference to
    Exhibit 4.2 of the Companys Statement Form 10
    (File No. 0-22570), as amended (see the Statement
    Form 10)                                                                                                                                                                            
|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 Statement 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 Statement 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 Statement 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 Statement Form 10                                                                                                                                                                                                        
|10.5    |  | Agreement of Assignment and License of Intellectual Property
    Rights, dated June 30, 1992, by and between the Company and
    ABI, incorporated by reference to Exhibit 10.11 of the
    Companys Statement Form 10                                                                                                                                           
|10.6    |  | Amended and Restated Investor Rights Agreement, dated as of
    November 1, 1995, incorporated by reference to
    Exhibit 10.30 of the Companys Form 10-K for the
    period ended December 31, 1995                                                                                                                                                            
|10.7+   |  | 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                                               
|10.7.1+ |  | 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                                                                   
|10.7.2+ |  | 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
|10.7.3+ |  | 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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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                       
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                       
|No.      |  | Description of Document                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                       
|10.7.4+  |  | 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                   
|10.7.5+  |  | 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        
|10.10    |  | 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                                                                       
|10.11**  |  | The Companys 1998 Employee Stock Purchase Plan or the
    Purchase Plan, incorporated by reference to Exhibit 99.1 of
    the Companys Form S-8 (File No. 333-59163)                                                                                                                                
|10.12+   |  | Research Collaboration Agreement, dated as of October 29,
    1998, by and between the Company and E.I. Dupont de Nemours and
    Co., incorporated by reference to Exhibit 10.13 of the
    Companys Form 10-K/A filed on August 24, 2001
    for the period ended December 31, 2001                
|10.12.1+ |  | Letter Amendment, dated March 1, 2002, to Research
    Collaboration Agreement by and between the Company and E.I.
    DuPont De Nemours and Co., incorporated by reference to the
    indicated exhibit of the Companys Form 10-Q for the
    period ended March 31, 2002                           
|10.13    |  | Master Loan and Security Agreement, dated as of October 26,
    1998, by and between the Company and Transamerica Business
    Credit Corporation, incorporated by reference to
    Exhibit 10.14 of the Companys Form 10-K/A filed
    on August 24, 2001 for the period ended December 31,
    2001
|10.14    |  | Promissory Note No. 7, dated as of September 29,
    2000, issued by the Company to Transamerica Business Credit
    Corporation, incorporated by reference to Exhibit 10.15 of
    the Companys Form 10-K/A filed on August 24,
    2001 for the period ended December 31, 2001                     
|10.15+   |  | Collaboration Agreement, dated as of September 30, 1999, by
    and between the Company and Hoechst Schering AgrEvo GmbH,
    incorporated by reference to Exhibit 10.16                                                                                                                              
|10.17+   |  | 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                                   
|10.17.1+ |  | Amendment No. 1 to Collaboration Agreement, dated
    December 19, 2002, by and between the Company and Takara
    Bio Inc., incorporated by reference to the indicated exhibit of
    the Companys Form 10-K for the period ended
    December 31, 2002                                             
|10.17.2+ |  | Amendment No. 2 to Collaboration Agreement, dated
    June 30, 2003, by and between the Company and Takara Bio
    Inc., incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended
    September 30, 2003                                                
|10.18    |  | 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                                                      
|10.19    |  | 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                                                      
|10.20    |  | 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                                                                                                     
|10.21+   |  | Joint Venture Agreement, dated as of June 29, 2001, by and
    between the Company and BASF Aktiengesellschaft, incorporated by
    reference to Exhibit 10.18 of the Companys
    Form 10-Q for the period ended June 30, 2001                                                                      
|10.22+   |  | First Amendment to Joint Venture Agreement, by and between the
    Company and BASF Aktiengesellschaft, dated as of August 14,
    2001, incorporated by reference to Exhibit 10.22.2 of the
    Companys Form 10-Q for the period ended
    September 30, 2001                                      
|10.23+   |  | Technology License Agreement, dated as of June 1, 2001, by
    and between the Company and BASF-LYNX Bioscience AG,
    incorporated by reference to Exhibit 10.19 of the
    Companys Form 10-Q for the period ended June 30,
    2001                                                              



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                           
|No.     |  | Description of Document                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                           
|10.24   |  | Common Stock Purchase Agreement, by and between the Company and
    Takara Shuzo Co., Ltd., dated as of October 1, 2001,
    incorporated by reference to Exhibit 10.24 of the
    Companys Form 10-Q for the period ended
    September 30, 2001                                                        
|10.25+  |  | Purchase Agreement, dated as of March 5, 2002, by and
    between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 18, 2002                                                       
|10.26+  |  | Common Stock Purchase Agreement, dated as of March 5, 2002,
    by and between Geron Corporation and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on From 8-K filed on
    March 18, 2002                                          
|10.27   |  | Form of Securities Purchase Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                          
|10.28   |  | Form of Registration Rights Agreement by and among the Company
    and the investors listed therein, incorporated by reference to
    the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002                                                          
|10.29   |  | Form of Warrant issued by the Company in favor or each investor
    party to the Securities Purchase Agreement and Friedman,
    Billings, Ramsey & Co., Inc., incorporated by reference
    to the indicated exhibit of the Companys Current Report on
    Form 8-K, as amended, filed on April 30, 2002
|10.30** |  | Employment Agreement, dated as of June 3, 2002, by and
    between the Company and Kevin P. Corcoran, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended June 30, 2002                                                                            
|10.31** |  | Employment Agreement, dated as of June 10, 2002, by and
    between the Company and Thomas J. Vasicek, Ph.D.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended June 30,
    2002                                                                
|10.33   |  | Common Stock Purchase Agreement, dated as of September 25,
    2002, by and between the Company and Takara Shuzo Co., Ltd.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q for the period ended
    September 30, 2002                                             
|10.34   |  | Loan and Security Agreement, dated October 23, 2002, by and
    between the Company and Comerica Bank-California, incorporated
    by reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended September 30, 2002                                                           
|10.35   |  | Common Stock Purchase Agreement, dated as of December 26,
    2002, by and between the Company and Takara Shuzo Co., Ltd.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-K for the period ended
    December 31, 2002                                               
|10.37** |  | Employment Agreement, dated as of March 20, 2003, by and
    between the Company and Kathy A. San Roman, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended March 31, 2003                                                                        
|10.38** |  | The Companys 1992 Stock Plan, as amended, incorporated by
    reference to the indicated exhibit of the Companys
    Form 10-Q for the period ended June 30, 2003                                                                                                                                       
|10.39   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    indicated exhibit of the Companys Form 8-K filed on
    September 25, 2003                                                                                             
|10.40   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Form 8-K filed on September 25, 2003                                                                                                                         
|10.41+  |  | Services Agreement, by and between E.I. DuPont de Nemours and
    Company and Lynx Therapeutics, Inc., incorporated by reference
    to the indicated exhibit of the Companys Form 10-Q
    for the period ended September 30, 2003                                                                      
|10.42   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    indicated exhibit of the Companys Form 8-K filed on
    January 2, 2004                                                                                                
|10.43   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Form 8-K filed on January 2, 2004                                                                                                                            
|10.44   |  | Securities Purchase Agreement by and among the Company and the
    investors listed therein, incorporated by reference to the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                                                                        



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                          
|No.     |  | Description of Document                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                          
|10.45   |  | Form of Warrant issued by the Company in favor of each investor,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    March 12, 2004                                                                                                      
|10.46   |  | Asset Purchase Agreement, dated as of March 22, 2004, by
    and among Lynx Therapeutics, Inc. and the parties listed
    therein, incorporated by reference to the indicated exhibit of
    Lynxs Form 10-Q filed on May 13, 2004                                                                      
|10.47+  |  | Colony Technology Sharing Agreement, dated as of March 22,
    2004, by and between Solexa Limited and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Form 10-Q filed on May 13, 2004                                                              
|10.48   |  | Deed, dated October 25, 2004, by and between Lynx
    Therapeutics, Inc. and Solexa Limited, regarding Colony
    Technology Sharing Agreement dated March 22, 2004,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    October 26, 2004
|10.49++ |  | Loan Agreement, dated August 12, 2004, by and between Lynx
    and Solexa Limited, incorporated by reference to the indicated
    exhibit in the Companys Registration Statement on
    Form S-4 filed on October 29, 2004                                                                              
|10.50++ |  | Letter, dated September 28, 2004, from Solexa Limited to
    Lynx, incorporated by reference to the indicated exhibit in the
    Companys Registration Statement on Form S-4 filed on
    October 29, 2004                                                                                              
|10.51++ |  | Master Development Agreement, dated as of October 28, 2004,
    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                                          
|10.52** |  | Employment Agreement, dated January 29, 2003, between Lynx
    Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
    incorporated by reference to the indicated exhibit to the
    Companys Current Report on Form 8-K filed on
    November 22, 2004                                                     
|10.53   |  | Loan and Security Agreement, dated as of December 28, 2004,
    between Silicon Valley Bank and Lynx Therapeutics, Inc.,
    incorporated by reference to the indicated exhibit of the
    Companys Current Report on Form 8-K filed on
    January 3, 2005                                             
|10.54   |  | Intellectual Property Security Agreement, dated as of
    December 28, 2004, by and between Silicon Valley Bank and
    Lynx Therapeutics, Inc., incorporated by reference to the
    indicated exhibit of the Companys Current Report on
    Form 8-K filed on January 3, 2005                         
|10.55   |  | Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
    Silicon Valley Bank on December 28, 2004, incorporated by
    reference to the indicated exhibit of the Companys Current
    Report on Form 8-K filed on January 3, 2005                                                            
|23.1*   |  | 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(b) or
    Rule 15d-14(b) 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 Lynx Therapeutics,
    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.