e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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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)
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Delaware
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94-3161073 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
25861 Industrial Blvd., Hayward, CA 94545
(Address of principal executive offices, including zip
code)
(510) 670-9300
(Registrants 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
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated files in
Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant computed by
reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of
June 30, 2005 was approximately $42,500,000. This
calculation excluded approximately 13,500,000 shares held
by directors and executive officers of the Registrant. Exclusion
of these shares should not be construed to indicate that such
person controls, is controlled by or is under common control
with the Registrant. Determination of affiliate status for the
purpose of this calculation is not necessarily a conclusive
determination for any other purpose. The number of shares of
common stock of the Registrant outstanding as of March 10,
2006, was 36,462,323.
SOLEXA, INC.
ANNUAL REPORT ON
FORM 10-K
For the Fiscal Year Ended
December 31, 2005
Table of Contents
1
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 industrys 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. Managements 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
Overview
We are in the business of developing and commercializing genetic
analysis technologies. We are currently developing and preparing
to commercialize the Solexa Genome Analysis System, which
performs DNA sequencing based on our proprietary reversible
terminator Sequencing-by-Synthesis, or SBS, chemistry and our
Clonal Single Molecule
Arraytm
technology. This instrument platform is expected to perform a
range of analyses, including whole genome resequencing, gene
expression analysis and small RNA analysis. We believe that this
technology, which can potentially generate over a billion bases
of DNA sequence from a single experiment with a single sample
preparation, will dramatically reduce the cost, and improve the
practicality, of human resequencing relative to conventional
technologies. We expect our first-generation instrument, the 1G
Genome Analyzer, to enable human genome resequencing below
$100,000 per sample, which would make it the first platform
to reach this important milestone. We introduced the 1G Genome
Analyzer to customers in 2005 and expect to begin shipping and
recognizing revenues on instruments in 2006. Our longer-term
goal is to further reduce the cost of resequencing a human
genome to a few thousand dollars for use in a wide range of
applications from basic research through clinical diagnostics.
We believe our new DNA sequencing system will enable us to
implement a new business model based primarily on the sales of
genetic analysis equipment, consumables and related services to
end user customers. Historically, our business model has been
based on providing genomics services using our Massively
Parallel Sequencing
Systemtm
technology, or MPSS, and supplying customers with DNA sequences
and other information that result from experiments. We expect to
discontinue the use of MPSS in our offerings during 2006 and to
begin offering genetic analysis services using the Solexa Genome
Analysis System.
We were incorporated in Delaware in February 1992. Please see a
discussion of our plans under Item 1.
Business Business Risks and Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
Business Combination and Name Change
On March 4, 2005, Lynx Therapeutics, Inc., or Lynx,
completed a business combination with Solexa Limited, a
privately held company registered in England and Wales. Solexa
Limited became a wholly-owned subsidiary of Lynx as a result of
the transaction. However, because Solexa Limiteds
shareholders owned
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approximately 80% of the shares of Lynx common stock immediately
following the close of the transaction, Solexa Limiteds
designees to the combined companys board of directors
represented a majority of the combined companys directors
and Solexa Limiteds senior management represented a
majority of the initial senior management of the combined
company, Solexa Limited was deemed to be the acquiring company
for accounting purposes. Accordingly, the assets and liabilities
of Lynx were recorded, as of the date of the business
combination, at their respective fair values and added to those
of Solexa Limited. Reported results of operations of the
combined company issued for periods subsequent to the
combination reflect those of Solexa Limited, to which the
operations of Lynx have been added from the date of the
consummation of the business combination. The operating results
of the combined company reflect purchase accounting adjustments.
Additionally, historical financial condition and results of
operations shown for comparative purposes in periodic filings
subsequent to the completion of the business combination reflect
those of Solexa Limited. Lynx issued approximately
14.75 million shares and options to purchase shares of its
common stock in exchange for all of the outstanding share
capital and outstanding share options of Solexa Limited.
In connection with the business combination transaction, Lynx
changed its name to Solexa, Inc., or Solexa. Unless specifically
noted otherwise, as used throughout this annual report,
Lynx Therapeutics or Lynx refers to the
business, operations and financial results of Lynx prior to the
business combination on March 4, 2005, Solexa
Limited refers to the business of Solexa Limited,
Solexa refers to the business of the combined
company after the business combination, and we
refers to either the business operations and financial results
of Lynx prior to the business combination or the business of the
combined company after the business combination, as the context
requires.
Market Opportunity
Genetic analysis is currently used in both research applications
and in medical diagnostic tests. In research, some of the kinds
of genetic analysis that we anticipate may be performed using
the Solexa Genome Analysis System are as follows:
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Determining the sequences of additional species, as has been
done for humans. This is called de novo sequencing. |
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Determining how the DNA sequence of an individual varies from
that of a reference genome. This is called resequencing, and it
is often performed on just a fraction of a genome. The goal of
resequencing is to identify mutations or variations among
individuals. Resequencing is a comprehensive scan for mutations
within the portion of the genome being resequenced. |
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Identifying a molecule by its sequence for the purpose of
identifying the presence, or quantifying the number, of
molecules with a given sequence in a sample. This is called tag
sequencing because the sequence determined is used as an
identifier for the overall molecule of which it is a part.
Precision measurements of gene expression and small RNA
detection and quantification can be made using this approach.
MPSS is another example of this technique. |
As a diagnostic tool, DNA sequencing has been used several ways,
including:
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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. |
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Sequencing specific genes which, if mutated, can predispose the
individual with those genes to a specific disease. Myriad
Genetics, Inc., a biopharmaceutical company, for example, offers
a clinical diagnostic service in which it sequences the BRCA1
and BRCA2 genes in order to identify breast cancer
susceptibility. |
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Sequencing specific genes to determine which subtype of a
genetic disease an individual might have. Some genetic diseases
can be caused by many different mutation locations within a
specific gene, and the severity and progression of a disease can
be determined by which mutations an individual possesses. |
We expect to focus our efforts on the research market for at
least the next few years.
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Our Products Under Development
We are currently developing the Solexa Genome Analysis System
for commercial sale. This system includes the sequencing
instrument itself, sets of biochemical reagents, consumable
devices used in the operation of the instrument (i.e. flow
cells), ancillary instrumentation to amplify sample DNA on the
surface of our flow cells and related data analysis and other
software. In addition, we intend to make reagents available that
would be used in the preparation of biological samples to be
analyzed using the Solexa Genome Analysis System. We anticipate
offering successive generations of instrument designs to meet
different customer needs, to serve different price points and to
take advantage of new technology. We similarly anticipate
offering multiple reagent sets and corresponding software
systems for different applications. We also expect to sell
service contracts and spare parts for the instruments.
Our Genomics Services Business
Our genomics services business, which accounted for
substantially all of our revenues in 2005, provides in-depth
gene expression information to customers based on our MPSS
technology.
We anticipate that our new instrument system based on our SBS
reversible terminator chemistry and our Clonal Single Molecular
Array technology will be phased into our existing services
business during 2006 and that this system will replace our
current service offering based on MPSS. While there are many
unknowns because the design of this new system is unproven and
its ultimate performance in commercial applications has not yet
been determined, we are optimistic that it will provide the
basis for a broader and more cost competitive service than MPSS.
We are planning to discontinue MPSS activities in 2006 and are
in the process of renegotiating our current MPSS customer
contracts in order to provide these customers with services
based on our SBS chemistry.
Our existing services facility, which is located in Hayward,
California, has not previously offered large scale resequencing
or certain other applications that are intended to utilize the
Solexa Genome Analysis System. If our new system is developed as
we expect, we may be able to add these capabilities as new
services.
Given that we plan to incorporate our new technologies into
instrument systems that can be sold to customers, we anticipate
that certain customers of the genomics services business may
elect to purchase instrument systems and curtail or discontinue
using our services. As a result, the revenue and profitability
of our services business may decrease over time.
In addition to its direct revenue role in our business, our
services facility is also expected to serve as a strategic test
facility and demonstration laboratory. By operating a
high-throughput in-house laboratory, we may be able to test new
products and product improvements and educate customers faster
than we would be able to by working only with external customer
test sites.
Customers
We have derived substantially all of our revenues to date from
corporate, government and academic customers of our MPSS
genomics services business. We anticipate that customers for our
Genome Analysis System may include existing customers of our
genomics services business, genome centers and other academic
and government labs, university core facilities, firms offering
commercial genetic analysis services, and biotech and
pharmaceutical companies. For the year ended December 31,
2005, revenues from E.I. DuPont de Nemours and Company and the
University of Delaware accounted for 52% and 21%, respectively,
of our total revenues.
Competition
Competition among entities developing or commercializing
instruments, research tools or services to identify the genes
associated with specific diseases and to perform other forms of
genetic analysis is intense.
In our genomics services business, we face, and will continue to
face, competition primarily from biotechnology companies, such
as Affymetrix, Inc., the Agencourt Biosciences business of
Beckman Coulter,
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Inc., Celera Genomics Group, Gene Logic, Inc., academic and
research institutions and government agencies, both in the
United States and abroad. We are aware that certain entities are
using a variety of gene expression analysis methodologies,
including chip-based systems, to attempt to identify
disease-related genes and to perform clinical diagnostic tests.
In addition, a number of companies offer DNA sequencing
equipment or consumables including Applera Corporation, Beckman
Coulter, Inc., the Amersham Biosciences business of General
Electric and Roche Diagnostics in partnership with 454
Corporation. Furthermore, a number of other companies and
academic groups are in the process of developing novel
techniques for DNA sequencing. These companies include, among
others, Agencourt Personal Genomics, Genizon, Genovoxx, Helicos
Biosciences, LI-COR, Lucigen, Microchip Biotechnologies, Pacific
Biosciences, Perlegen, Shimadzu Biotech and Visigen. A number of
companies offer gene expression equipment including Affymetrix,
Inc., Agilent Technologies, Applera Corporation and Illumina,
Inc. In order to successfully compete against existing and
future technologies, we will need to demonstrate to potential
customers that our technologies and capabilities are superior to
those of our competitors.
Many of our competitors have substantially greater capital
resources, research and product development capabilities and
greater financial, scientific, manufacturing, marketing, and
distribution experience and resources, including human
resources, than we do. These competitors may develop or
commercialize genetic analysis technologies before us or that
are more effective than those we are developing. Moreover, our
competitors may obtain patent protection or other intellectual
property rights that could limit our rights to offer genetic
analysis products or services.
Intellectual Property
We are pursuing a strategy designed to obtain United States and
some international patent, trademark and trade secret protection
for our core technologies. As of December 31, 2005, we held
50 patents in the United States relating to certain aspects of
our products and processes with expiration dates ranging from
2014 to 2021, and have filed for several more. In addition we
hold a number of patents and patent applications in Europe and
in other jurisdictions. Our long-term commercial success will be
dependent in part on our ability to obtain commercially valuable
patent claims and to protect our intellectual property
portfolio, including trademarks and trade secrets.
Patent law relating to the scope of claims in the technology
field in which we operate is still evolving. The degree to which
we will be able to protect our technology with patents,
therefore, is uncertain. Others may independently develop
similar or alternative technologies, duplicate any of our
technologies and, if patents are licensed or issued to us,
design around the patented technologies licensed to or developed
by us. In addition, we could incur substantial costs in
litigation if we are required to defend ourselves in patent
suits brought by third parties or if we initiate such suits.
With respect to proprietary know-how that is not patentable and
for processes for which patents are difficult to enforce, we
rely on trade secret protection and confidentiality agreements
to protect our interests. We intend to maintain several
important aspects of our technology platform as trade secrets.
While we require all employees, consultants, collaborators,
customers and licensees to enter into confidentiality
agreements, we cannot be certain that proprietary information
will not be disclosed or that others will not independently
develop substantially equivalent proprietary information.
Employees
As of March 10, 2006, Solexa employed 118 full-time
employees, of which 97 were engaged in production and research
and development activities.
We believe we have been successful in attracting skilled and
experienced management and scientific personnel; however
competition for such personnel is intense. None of our employees
is covered by collective bargaining agreements, and management
considers relations with our employees to be good.
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Available Information
We maintain a site on the World Wide Web at www.solexa.com;
however, information found on our website is not incorporated by
reference into this report. We make available free of charge on
or through our website our annual report on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC. Materials we file with the SEC may be read and copied at
the SECs Public Reference Room at 450 Fifth Street,
NW, Washington, D.C. 20549. This information may also be
obtained by calling the SEC at
1-800-SEC-0330. The SEC
also maintains an internet website that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
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 have incurred net losses each year since our inception,
including a net loss for the year ended December 31, 2005.
As of December 31, 2005, we had an accumulated deficit of
approximately $51.8 million. Net losses may continue for
the next several years as we proceed with the development and
commercialization of our technologies. The presence and size of
these potential net losses will depend, in part, on the rate of
growth, if any, or decline in revenues and on the level of
expenses. Research and development expenditures and sales,
general and administrative costs have exceeded revenues to date,
and we expect these expenses to increase in the future. We will
need to generate significant revenues to achieve profitability,
and even if we are successful in achieving profitability, there
is no assurance we will be able to sustain profitability.
If we are unable to successfully develop and commercialize
our new products, we will not be able to increase our revenues
or become profitable.
We set out to develop new DNA sequencing technologies and we are
now using those technologies to develop new genetic analysis
instruments, consumables and services. If our strategy does not
result in the development of products, including our 1G Genome
Analyzer, that we can commercialize in a timely manner, we will
be unable to generate significant revenues. Furthermore, there
is no guarantee that we will be able to sell our instruments and
consumables on terms that will generate profits or positive cash
flow. Although we have developed DNA sequencing machines that we
currently use in providing gene expression services to
customers, these are based on the MPSS technology developed by
Lynx rather than the new technologies currently under
development. We cannot be certain that we will successfully
develop any new products, including our 1G Genome Analyzer,
in a timely manner, or that the new products will receive
commercial acceptance, in which case we may not be able to
increase or maintain our revenues or become profitable.
We have articulated aggressive business and technical objectives
for 2006, including our intention to recognize revenue on sales
of our 1G Genome Analyzer beginning in the second quarter of
2006; to launch a number of applications to be run on the Solexa
Genome Analysis System in 2006; and to sequence the genome of a
human in 2006. We will need to overcome significant challenges
to achieve these milestones in the designated timeframes,
including continuing to improve the technical performance of our
system; obtaining customer acceptance of our products; and
producing and implementing a fleet of 1G Genome Analyzers at
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both our U.K. and California sites. Failure to accomplish these
objectives, or to accomplish them within the articulated
timeframes, could cause our stock price to decline or to be come
more volatile.
Our technology platform is at the development stage and is
unproven for market acceptance.
While our MPSS technology has been commercialized and is
currently in use for certain kinds of genetic analysis,
including gene expression and small RNA analysis, we are
developing our SBS reversible terminator chemistry and our
Clonal Single Molecule Array technology to perform similar
genetic analyses as well as sequence the DNA of genomes and of
individual genes and genomic regions. These technologies are
still in development, and we may not be able to successfully
complete development of these technologies or commercialize
them. Our success depends on many factors, including:
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technical and economic performance of our technologies in
relation to competing technologies; |
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the acceptance of our technology in the marketplace; |
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our ability to establish an instrument manufacturing capability,
or obtain instruments from another manufacturer; and |
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our ability to manufacture reagents and other consumables, or
obtain licenses to resell reagents and other consumables. |
You must evaluate us in light of the uncertainties and
complexities affecting an early stage genetic analysis systems
company. The application of our technologies is at too early a
stage to determine whether they can be successfully implemented
within our targeted timeframe, for our targeted applications or
at our targeted technical and economic performance levels. Our
technologies also depend on the successful integration of
independent technologies, each of which has its own development
risks. Furthermore, we anticipate that, if our technology is
able to successfully reduce the cost of genetic analysis
relative to existing providers, our technology may be able to
displace current technology as well as to expand the market for
genetic analysis to include new applications that are not
practical with current technology. The current focus of many of
our potential customers performing DNA sequencing is on
candidate region, candidate gene and de novo sequencing,
rather than on whole genome resequencing. Furthermore, although
we believe our system is suitable for resequencing large and
complex genomes, there is no single technique that can be used
to resequence the entire genome of a human. Instead, scientists
need to combine several techniques to address complex structures
such as long repeat sequences. One example of such a technique
is paired end reads. We anticipate developing over time
additional techniques, such as paired end reads, for use with
our system. Our inability to sequence 100% of a human genome may
limit our market. Many of our potential customers must, in turn,
demonstrate to governmental and other funding sources that our
technology has been successfully developed before they can make
substantial purchases of our products. There is no guarantee,
even if our technology is able to successfully reduce the cost
of genetic analysis relative to existing providers, that we will
be able to induce customers with installed bases of conventional
genetic analysis instruments to purchase our system or expand
the market for genetic analysis to include new applications.
Furthermore, if we are only able to successfully commercialize
our genetic analysis systems as a replacement for existing
technology, we may face a much smaller market than we currently
anticipate.
We have limited experience in sales and marketing and thus
may be unable to further commercialize our genetic analysis
instrument systems and services.
Our ability to achieve profitability depends on attracting
customers for our genetic analysis instrument systems and
services. There are a limited number of research institutes and
pharmaceutical, biotechnology and agricultural companies that
are potential customers for our products and services. To market
and sell our products, we intend to develop a sales and
marketing group with the appropriate technical expertise. We are
currently conducting a search for an executive to run our field
organization, including sales, field application support and
field service. We may not successfully build such a field
organization. In addition, we may seek to enlist a third party
to assist with sales and distribution globally, in certain
regions of the world or for certain applications. In addition,
if we are successful in achieving market acceptance for our new
genetic analysis instruments, we will need either to build
internal capabilities to install and maintain instruments at
customer sites, to assist customers with the experiments that
they intend to conduct using our instruments and to train
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customers on the use of our instruments, or to contract with one
or more partners to do so on our behalf. There is no guarantee,
if we do seek to enter into such arrangements, that we will be
successful in attracting one or more desirable sales and
distribution partners, or that we will be able to enter into
such arrangements on favorable terms. If our sales, marketing,
field application support and field service efforts, or those of
any third-party sales and distribution partner, are not
successful, our technologies and products may not gain market
acceptance, which could materially impact our business
operations.
We will need to develop manufacturing capacity by
ourselves or with a partner.
If we are successful in achieving market acceptance for our new
genetic analysis instruments, we will need either to build
internal manufacturing capacity for instruments, flow cells and
reagents, or to contract with one or more manufacturing
partners. We are currently using personnel from our research and
development and genomics services groups and consultants to
address manufacturing and outsourcing, and we are conducting a
search for an executive to run these operations. There is no
assurance that we will be able to build manufacturing capacity
internally, or to find a manufacturing partner, to meet both the
volume and quality requirements necessary to be successful in
the market. Any delay in establishing or inability to expand our
manufacturing capacity could hurt our business.
We intend to implement a business model that is unproven
and different from our former business model.
Our current business model is based primarily on the planned
sales of genetic analysis instruments and of reagents and other
consumables and services to support customers in their use of
that equipment. Alternative commercial arrangements may take the
form of equipment leases, equipment placements and
collaborations with customers at academic, government and
commercial labs, among others.
Our historical business model was based on providing genomics
services using our MPSS technology and supplying customers with
DNA sequences and other information that resulted from
experiments. A change in emphasis from our former business model
has caused some current and prospective customers of our
genomics services business to delay, defer or cancel purchasing
decisions with respect to new or existing agreements. There is
no assurance that we will be successful in changing the emphasis
of our business model from providing genomics services to
selling instruments, consumables and support services to new or
existing customers. We are planning to discontinue MPSS
activities in 2006 and are in the process of renegotiating our
current MPSS customer contracts in order to provide those
customers with services based on our new SBS technology. We have
entered into new or amended agreements with some of our existing
customers providing for the transition from MPSS-based services
to SBS-based services. There is no guarantee, however, that all
of our customers will migrate to the new technology platform
once it is commercialized or that our genomics services business
will generate positive cash flow or become profitable.
We may need to raise additional funding, which may not be
available on favorable terms, if at all.
We may need to raise additional capital through public or
private equity or debt financings in order to satisfy our
projected future capital needs.
The amount of additional capital we may need to raise depends on
many factors, including:
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the progress and scope of research and development programs; |
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the progress of efforts to develop and commercialize new
products and services; and |
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the costs of preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual
property rights. |
We cannot be certain that additional capital will be available
when and as needed or that our actual cash requirements will not
be greater than anticipated. If we require additional capital at
a time when investment in biotechnology companies or in the
marketplace in general is limited due to the then prevailing
market or other conditions, we may not be able to raise such
funds at the time that we desire or any time thereafter. If we
are unable to obtain financing on terms favorable to us, our
stockholders may experience greater than expected dilution, we
may be unable to execute our business plan, and we may be
required to cease or reduce
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development or commercialization of our products, sell some or
all of our technology or assets or merge with another entity.
We currently depend on a small number of genomics services
customers for substantially all our revenues.
Our strategy for the commercialization of our technologies
includes entering into customer agreements in which we provide
genomics services to research institutes and pharmaceutical,
biotechnology and agricultural companies. At present, our
genomics services business generates substantially all of our
revenues. After we have developed the Solexa Genome Analysis
System, it is our intention to deploy these systems over time to
replace the instruments currently used in our genomics services
business, which operate based on our MPSS technology. If we are
successful in commercializing our genetic analysis instrument
systems, we anticipate continuing to provide genomics services
after the commercial launch in order to meet particular customer
requirements and to support the marketing of our instruments by,
for example, allowing potential systems customers to understand
how our instrumentation performs on their samples of interest.
We have entered into new or amended agreements with some of our
existing customers providing for the transition from MPSS-based
services to SBS-based services. There is no guarantee, however,
that all of our customers will migrate to the new technology
platform once it is commercialized or that our genomics services
business will generate positive cash flow or become profitable.
Prior to our business combination with Solexa Limited, Lynx
derived substantially all of its revenues from customer
agreements, collaborations and licenses related to our genomics
services business. Since the business combination we have
continued to derive substantially all of our revenues from
customer agreements. A significant portion of our revenues comes
from a small number of customers. Thus, unless and until we are
able to commercialize our new genetic analysis instrument
systems under development, we will be dependent on a small
number of customers to continue our current genomics services
business, and the loss of one or more of those customers could
harm our results of operations.
Capacity reduction in our genomics services business could
increase our loss.
Our genomics service business utilizes proprietary MPSS
instruments and information systems. In addition, the MPSS
process is lengthy and complex. These instruments, systems and
work processes are subject to intermittent failures. Any
production stoppages or yield reductions due to these factors or
otherwise could reduce the number of samples we are able to
process and the revenues we recognize, could delay our intended
termination of MPSS activities in 2006 and could increase our
loss.
Our sales cycle for our genomics services business is
lengthy, and we may spend considerable resources on unsuccessful
sales efforts or may not be able to enter into agreements on the
schedule we anticipate.
Our ability to obtain customers for our technologies and
products depends in significant part upon the perception that
our technologies and products can help reduce the costs or
accelerate the timing of drug discovery and development,
diagnostics and genomics efforts. Our sales cycle for our
genomics services business is typically lengthy, in many cases
nine months or more, because we need to educate our potential
customers and to sell the benefits of our services to a variety
of constituencies within such entities. In addition, we may be
required to negotiate agreements containing terms unique to each
customer. We may expend substantial funds and management effort
without any assurance that we will successfully sell our
technologies and products. Actual and proposed consolidations of
pharmaceutical companies have negatively affected, and may
negatively affect, the timing and progress of our sales efforts.
We operate in an intensely competitive industry with
rapidly evolving technologies, and our competitors may develop
products and technologies that make ours obsolete.
The biotechnology industry is highly fragmented and is
characterized by rapid technological change. In particular, the
areas of genetic analysis platforms and genomics research are
rapidly evolving fields. Competition among entities developing
genetic analysis systems is intense. Many of our competitors have
9
substantially greater research and product development
capabilities and financial, scientific and marketing resources
than we do.
In our genomics services business, we face, and will continue to
face, competition primarily from biotechnology companies, such
as Affymetrix, Inc., the Agencourt Biosciences business of
Beckman Coulter, Inc., Celera Genomics Group, Gene Logic, Inc.,
academic and research institutions and government agencies, both
in the United States and abroad. We are aware that certain
entities are using a variety of gene expression analysis
methodologies, including chip-based systems, to attempt to
identify disease-related genes and to perform clinical
diagnostic tests. In addition, a number of large companies offer
DNA sequencing equipment or consumables including Applera
Corporation, Beckman Coulter, Inc., the Amersham Biosciences
business of General Electric and Roche Diagnostics in
partnership with 454 Corporation. Furthermore, a number of other
companies and academic groups are in the process of developing
novel techniques for DNA sequencing. These companies include,
among others, Agencourt Personal Genomics, Genizon, Genovoxx,
Helicos Biosciences, LI-COR, Lucigen, Microchip Biotechnologies,
Pacific Biosciences, Perlegen, Shimadzu Biotech and Visigen. A
number of companies offer gene expression equipment including
Affymetrix, Inc., Agilent Technologies, Applera Corporation, and
Illumina, Inc. In order to successfully compete against existing
and future technologies, we will need to demonstrate to
potential customers that our technologies and capabilities are
superior to those of our competitors.
Our future success will depend on our ability to maintain a
competitive position with respect to technological advances.
Rapid technological development by others may make our
technologies and future products obsolete.
Any products that are developed based on our technologies will
compete in highly competitive markets. Our competitors may be
more effective at using their technologies to develop commercial
products than we are. Moreover, some of our competitors have,
and others may, introduce novel genetic analysis platforms
before we do which, if adopted by customers, could eliminate the
market for our new genetic analysis systems. Furthermore, our
competitors may obtain intellectual property rights that would
limit the use of our technologies or the commercialization of
diagnostic or therapeutic products using our technologies. As a
result, our competitors products or technologies may
render our technologies and products obsolete or noncompetitive.
Furthermore, competitors may combine operations by merger,
acquisition, licensing, distribution arrangements, partnerships
and other activities. Such combinations may give our competitors
advantages they did not previously have and lead to even more
intense competition.
If management is unable to effectively manage the
increasing size and complexity of our organization, our
operating results will suffer.
As of March 10, 2006, the 60 employees of Solexa Limited,
our subsidiary, are based near Cambridge, United Kingdom and our
58 U.S. employees are based in Hayward, California. We plan
to hire additional personnel at both sites. As a result we face
challenges inherent in efficiently managing and coordinating the
activities of our increasing number of employees located in
different countries, including the need to implement appropriate
systems, financial controls, policies, standards, benefits and
compliance programs. The inability to successfully manage a
growing and internationally diverse organization, could hurt our
business, and, as a result, the market price of our common stock
could decline.
We are subject to risks associated with our international
operations which may harm our business.
A significant portion of our research and development and other
operations are located in the United Kingdom which subjects us
to a number of risks associated with conducting business outside
of the United States, including, but not limited to:
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fluctuations in currency exchange rates; |
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imposition of additional taxes and penalties; and |
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the burden of complying with foreign laws. |
10
Currently, the lease agreement for our facilities in Cambridge,
United Kingdom and most of our employment arrangements with our
employees and consultants in the United Kingdom provide for
payment in British pounds. Increases in the value of the British
pound relative to the Unites States dollar will increase our
expenses related to our operations in the United Kingdom, which
could negatively impact our ability to compete. To date, we have
not engaged in any currency hedging activities, although we may
do so in the future. Fluctuations in currency exchange rates
could harm our business in the future, and, as a result, the
market price of our common stock could decline.
We could lose key personnel, which could materially affect
our business and require us to incur substantial costs to
recruit replacements for lost personnel.
Any of our key personnel could terminate their employment,
sometimes without notice, at any time. John West, our Chief
Executive Officer, in particular, is a key member of our
management team. We are also highly dependent on the principal
members of our scientific and commercial staff. The loss of any
of these persons services might adversely impact the
achievement of our commercial objectives. In addition,
recruiting and retaining qualified scientific personnel to
perform future research and development work will be critical to
our success. There is currently a shortage of skilled executives
and employees with technical expertise, and this shortage is
likely to continue. As a result, competition for skilled
personnel is intense, and turnover rates are high. Competition
for experienced scientists from numerous companies, academic and
other research institutions may limit our ability to attract and
retain new or current personnel.
If we fail to adequately protect our proprietary
technologies, third parties may be able to use our technologies,
which could prevent us from competing in the market.
Our success depends in part on our ability to obtain patents and
maintain adequate protection of the intellectual property
related to our technologies and products. The patent positions
of genetic analysis instrument, reagents and other consumables
sales and services companies and other biotechnology companies,
including us, are generally uncertain and involve complex legal
and factual questions. We will be able to protect our
proprietary rights from unauthorized use by third parties only
to the extent that our proprietary technologies are covered by
valid and enforceable patents or are effectively maintained as
trade secrets. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the U.S.,
and many companies have encountered significant problems in
protecting and defending their proprietary rights in foreign
jurisdictions. We have applied and will continue to apply for
patents covering our technologies, processes and products, as
and when we deem appropriate. However, third parties may
challenge these applications, or these applications may fail to
result in issued patents. Our existing patents and any future
patents we obtain may not be sufficiently broad to prevent
others from practicing our technologies or from developing
competing products. Furthermore, others may independently
develop similar or alternative technologies or design around our
patents. In addition, our patents may be challenged or
invalidated or fail to provide us with any competitive advantage.
We also rely on trade secret protection for our confidential and
proprietary information. However, trade secrets are difficult to
protect. We protect our proprietary information and processes,
in part, with confidentiality agreements with employees and
consultants. However, third parties may breach these agreements,
we may not have adequate remedies for any such breach or our
trade secrets may still otherwise become known by our
competitors. In addition, our competitors may independently
develop substantially equivalent proprietary information.
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.
Our commercial success depends in part on our ability to avoid
infringing patents and proprietary rights of third parties and
not breaching any licenses that we have entered into with regard
to our technologies. Other parties have filed, and in the future
are likely to file, patent applications covering imaging, image
analysis, fluid delivery, DNA arrays on solid surfaces, chemical
and biological reagents for DNA sequencing, genes, gene
11
fragments, the analysis of gene sequences, gene expression, DNA
amplification and the manufacture and use of DNA chips or
microarrays, which are tiny glass or silicon wafers on which
tens or hundreds of thousands of DNA molecules can be arrayed on
the surface for subsequent analysis. If patents covering
technologies required by our operations are issued to others, we
may have to rely on licenses from third parties, which may not
be available on commercially reasonable terms, or at all.
Third parties may accuse us of employing their proprietary
technology without authorization. In addition, third parties may
obtain patents that relate to our technologies and claim that
use of such technologies infringes these patents. Regardless of
their merit, such claims could require us to incur substantial
costs, including the diversion of management and technical
personnel, in defending ourselves against any such claims or
enforcing our patents. In the event that a successful claim of
infringement is brought against us, we may need to pay damages
and obtain one or more licenses from third parties. We may not
be able to obtain these licenses at a reasonable cost, or at
all. Defense of any lawsuit or failure to obtain any of these
licenses could adversely affect our ability to develop and
commercialize our technologies and products and thus prevent us
from achieving profitability.
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.
Our research and development processes involve the controlled
use of hazardous materials, including chemicals and radioactive
and biological materials. Our operations produce hazardous waste
products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from these
materials. We may be sued for any injury or contamination that
results from our use or the use by third parties of these
materials, and our liability may exceed our insurance coverage
and our total assets. Federal, state and local laws and
regulations govern the use, manufacture, storage, handling and
disposal of hazardous materials. Compliance with environmental
laws and regulations may be expensive, and current or future
environmental regulations may impair our research, development
and production efforts.
We currently utilize sole-source suppliers for certain
components of our Solexa Genome Analysis System and in our MPSS
service business.
We anticipate purchasing, on a sole-source basis, certain
components for our 1G Genome Analyzer and certain reagents used
to operate and prepare samples to be run on the 1G Genome
Analyzer. We are in the process of negotiating supply agreements
for certain of these sole-source items. In addition, we
currently purchase, on a sole-source basis, the flow cells and
certain enzymes that are used in our MPSS services business.
When we rely on sole vendors, we subject our business to several
risks, including:
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the inability to obtain an adequate supply due to manufacturing
capacity constraints, a discontinuation of a product by a
third-party manufacturer or other supply constraints; |
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the potential lack of leverage in contract negotiations with the
sole vendor; |
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reduced control over quality and pricing of components; and |
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delays and long lead times in receiving materials from vendors. |
We believe that we would be able to purchase alternative
instrument components and reagents from other providers should
the need arise, although we would likely incur additional
expense and delay. Such additional expense and delay could be
material and could harm our business in the short term.
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 facilities in Hayward, California are located near known
earthquake fault zones and are vulnerable to damage from
earthquakes. We are also vulnerable to damage from other types
of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our
ability to
12
operate our business at our facilities would be seriously, or
potentially completely, impaired. In addition, the unique nature
of our activities could cause significant delays in our research
programs commercial activities and make it difficult for us to
recover from a disaster. The insurance we maintain may not be
adequate to cover our losses resulting from disasters or other
business interruptions. Accordingly, an earthquake or other
disaster could materially and adversely harm our ability to
conduct business.
Our stock price may be extremely volatile.
We believe that the market price of our common stock will remain
highly volatile and may fluctuate significantly due to a number
of factors. The market prices for securities of many publicly
held, early-stage biotechnology companies have in the past been,
and can in the future be expected to be, especially volatile.
For example, during the period from March 7, 2005 to
December 31, 2005, the closing sales price of our common
stock as quoted on the Nasdaq Capital Market (formerly the
Nasdaq SmallCap Market) fluctuated from a low of $4.79 to a high
of $17.00 per share. In addition, the securities markets
have from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance
of particular companies. The following factors and events may
have a significant and adverse impact on the market price of our
common stock:
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fluctuations in our operating results; |
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announcements of technological innovations or new commercial
products by us or our competitors; |
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release of reports by securities analysts; |
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developments or disputes concerning patent or proprietary rights; |
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developments in our relationships with current or future
customers; |
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sales of our common stock by large holders, and distributions
and/or sales of shares held by stockholders affiliated with
certain of our directors; and |
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general market conditions. |
Many of these factors are beyond our control. These factors may
cause a decrease in the market price of our common stock,
regardless of our operating performance.
We have determined that we have a material weakness in our
internal controls over financial reporting. As a result, current
and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the
trading of our stock.
Under Section 302 of the Sarbanes-Oxley Act of 2002, we are
required to evaluate and determine the effectiveness of our
internal controls over financial reporting. As of
December 31, 2005, we did not maintain effective control
over the application of GAAP related to the financial reporting
process. This control deficiency resulted in numerous
adjustments being required to bring our financial statements
into compliance with GAAP. Additionally, this deficiency could
result in material misstatement of the annual or interim
consolidated financial statements that would not be prevented or
detected. Accordingly, management has determined that this
control deficiency constitutes a material weakness. Because of
this material weakness, our management concluded that, as of
December 31, 2005, we did not maintain effective internal
control over financial reporting based on those criteria. Should
we, or our independent registered public accounting firm,
determine in future fiscal periods that we have additional
material weaknesses in our internal controls over financial
reporting, the reliability of our financial reports may be
impacted, and our results of operations or financial condition
may be harmed and the price of our common stock may decline.
During the second quarter of 2005, we hired a controller, who
will be departing Solexa effective April 30, 2006.
We are required to recognize expense for stock based
compensation related to employee stock options and employee
stock purchases, there is no assurance that the expense we are
required to recognize accurately measures the value of our
share-based payment awards, and the recognition of this expense
could cause the trading price of our common stock to
decline.
On January 1, 2006, we will adopt Statement of Financial
Accounting Standards No. 123R, Accounting for Share
Based Payments, or SFAS 123R, which requires the
measurement and recognition of compensation
13
expense for all stock-based compensation based on estimated fair
values. As a result, our operating results for the first quarter
of 2006 and for future periods will contain a charge for
stock-based compensation related to employee stock options and
employee stock purchases. The application of SFAS 123R
requires the use of an option-pricing model to determine the
fair value of share-based payment awards. This determination of
fair value is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, our expected
stock price volatility over the term of the awards and actual
and projected employee stock option exercise behaviors.
Option-pricing models were developed for use in estimating the
value of traded options that have no vesting or hedging
restrictions and are fully transferable. Our employee stock
options have certain characteristics that are significantly
different from traded options, and changes in the subjective
assumptions can materially affect the estimated value. Although
the fair value of employee stock options is determined in
accordance with SFAS 123R and Staff Accounting Bulletin
No. 107 using an option-pricing model, that value may not
be indicative of the fair value observed in a willing
buyer/willing seller market transaction.
We expect that our adoption of SFAS 123R will have a
material impact on our financial statements and results of
operations, and this will continue to be the case for future
periods. We cannot predict the effect that this adverse impact
on our reported operating results will have on the trading price
of our common stock.
Our companys officers, directors and their
affiliated entities have substantial control over the
company.
As of March 10, 2006, our companys executive
officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 37% of the outstanding
common stock of the company, including warrants and options
exercisable within 60 days of March 10, 2006. These
stockholders, if acting together, may be able to influence
significantly all matters requiring approval by our
stockholders, including the election of directors and the
approval of mergers or other changes in corporate control.
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.
Under our certificate of incorporation, our board of directors
has the authority, without further action by the holders of our
common stock, to issue 2,000,000 shares of preferred stock
from time to time in series and with preferences and rights as
it may designate. These preferences and rights may be superior
to those of the holders of our common stock. For example, the
holders of preferred stock may be given a preference in payment
upon our liquidation or for the payment or accumulation of
dividends before any distributions are made to the holders of
common stock.
Any authorization or issuance of preferred stock, while
providing desirable flexibility in connection with financings,
possible acquisitions and other corporate purposes, could also
have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock, to remove
directors and to effect a change in management. The preferred
stock may have other rights, including economic rights senior to
those of our common stock, and, as a result, an issuance of
additional preferred stock could lower the market value of our
common stock. Provisions of Delaware law may also discourage,
delay or prevent someone from acquiring or merging with us.
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Item 1B. |
Unresolved Staff Comments |
We did not receive any written comments on our periodic or
current reports from the SEC prior to June 30, 2005, that
have not been resolved.
In February 1998, we entered into a non-cancelable operating
lease for facilities space of approximately
111,000 square-feet in two buildings in Hayward,
California. In July 2000, we leased approximately
37,000 square feet of additional space in one of the
buildings for further expansion purposes. Our corporate
headquarters, principal U.S. research and development, genomics
services production and instrument
14
production facilities are currently located in one of the two
buildings. The remaining space may be developed and occupied in
phases, depending on our growth. The leases run through December
2008. We have an option to extend the lease for an additional
five-year period, subject to certain conditions. We also lease
approximately 16,000 square feet in Little Chesterford,
United Kingdom, which is occupied by Solexa Limited, our
wholly-owned subsidiary. The lease expired in 2005, and we are
presently negotiating a renewal of the lease. In the interim, we
are occupying the space under a tenancy at will
arrangement with the same terms and conditions as the expired
lease. If we are unsuccessful in renewing the lease on
satisfactory terms, that would cause material delays and cost
increases. We believe that the lease can be renewed on
satisfactory terms.
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Item 3. |
Legal Proceedings |
We are not a party to any material legal proceedings.
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Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during
the quarter ended December 31, 2005.
PART II
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Item 5. |
Market For Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Price Range of Common Stock
Effective March 7, 2005, in connection with the change of
our name from Lynx Therapeutics, Inc. to Solexa, Inc., we
changed the symbol under which our common stock trades to SLXA.
Effective February 22, 2006, our common stock under the
symbol SLXA was transferred from the Nasdaq Capital Market
(formerly the Nasdaq SmallCap Market) to the Nasdaq National
Market. The following table sets forth, for the periods
indicated, the high and low closing bid information for the Lynx
Therapeutics, Inc. common stock (prior to March 4, 2005)
and Solexa, Inc. (after March 4, 2005) as reported by the
Nasdaq National Market and Nasdaq Capital Market, as adjusted to
reflect the effect of a 1-for-2 reverse split of our common
stock effected on March 2, 2005:
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Common Stock Price | |
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High | |
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Low | |
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Year Ended December 31, 2005:
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First quarter
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$ |
17.00 |
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$ |
8.20 |
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Second quarter
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9.00 |
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5.00 |
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Third quarter
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7.16 |
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4.79 |
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Fourth quarter
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10.87 |
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5.57 |
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Year Ended December 31, 2004:
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First quarter
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$ |
13.72 |
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$ |
8.98 |
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Second quarter
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10.60 |
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3.98 |
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Third quarter
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5.02 |
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2.96 |
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Fourth quarter
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8.20 |
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4.52 |
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As of March 10, 2006, there were approximately 1,379
stockholders of record of our common stock. On March 10,
2006, the last reported sale price of our common stock was $8.89.
Dividend Policy
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain earnings to support the
development of our business and do not anticipate paying cash
dividends for the
15
foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors.
Recent Sales and Purchases of Unregistered Securities
On April 21, 2005, Solexa entered into an agreement to
issue to private investors approximately 8.1 million shares
of common stock at $4.00 per share and warrants to purchase
approximately 4.1 million shares of common stock at an
exercise price of $5.00 per share. On April 25, 2005,
pursuant to the agreement, we issued approximately
2.1 million shares of common stock, $0.01 par value
per share, and warrants to purchase approximately
1.1 million shares of common stock, receiving gross
proceeds of approximately $8.5 million. On July 12,
2005, also pursuant to the agreement and following receipt of
stockholder approval at the Solexa 2005 annual meeting of
stockholders, we issued approximately 6.0 million shares of
common stock and warrants to purchase approximately
3.0 million shares of common stock, receiving gross
proceeds of approximately $24.0 million. In aggregate, we
raised a total of approximately $31.0 million, net of
issuance costs.
In June 2005 we settled a $1.7 million balance owed to a
consultant by paying cash and issuing common stock and warrants
to purchase common stock. As provided in the settlement
agreement terms, we paid cash of $997,000 and issued
180,000 shares of our common stock, and warrants to
purchase an additional 90,000 shares of our common stock at
an exercise price of $5.00 per share. As a result of this
transaction, we recorded $987,000 of additional expense in the
twelve months ended December 31, 2005, representing the
difference between the $1.7 million amount owed and the
fair value amount of cash and stock paid to the consultant.
On November 18, 2005, Solexa entered into agreements to
issue to private investors 10.0 million shares of common
stock at $6.50 per share and warrants to purchase
approximately 3.5 million shares of common stock at an
exercise price of $7.50 per share. On November 23,
2005, pursuant to the agreements, Solexa issued approximately
3.9 million shares of common stock and warrants to purchase
approximately 1.3 million shares of common stock, receiving
gross proceeds of approximately $25.0 million. As a result
of this transaction, we recorded $1.7 million of financing
costs in the fourth quarter of 2005. Upon receipt of shareholder
approval, the second tranche closed on January 19,
2006. We issued approximately 6.1 million shares of common
stock, and warrants to purchase approximately 2.2 million
shares of common stock, receiving gross proceeds of
approximately $40.0 million. As a result of this
transaction, we recorded $2.3 million of financing costs in
the first quarter of 2006. In aggregate, we raised a total of
approximately $61.0 million, net of issuance costs.
16
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Item 6. |
Selected Financial Data |
This section presents our selected consolidated historical
financial data. You should read this information together with
the consolidated financial statements and related notes included
in this report and Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
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Year Ended December 31, | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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(In thousands, except per share amounts) | |
Revenues:
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Service revenue
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$ |
4,150 |
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$ |
96 |
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$ |
7 |
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$ |
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Operating costs and expenses:
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Cost of service revenue
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7,066 |
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Research and development
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17,294 |
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6,870 |
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5,266 |
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3,991 |
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1,718 |
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General and administrative
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12,030 |
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3,184 |
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1,459 |
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1,325 |
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895 |
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Restructuring charge
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333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
36,723 |
|
|
|
10,054 |
|
|
|
6,725 |
|
|
|
5,316 |
|
|
|
2,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(32,573 |
) |
|
|
(9,958 |
) |
|
|
(6,718 |
) |
|
|
(5,316 |
) |
|
|
(2,613 |
) |
Interest and other income (expense), net
|
|
|
(321 |
) |
|
|
402 |
|
|
|
362 |
|
|
|
555 |
|
|
|
104 |
|
Other income, net
|
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on foreign exchange
|
|
|
271 |
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(32,159 |
) |
|
|
(9,720 |
) |
|
|
(6,356 |
) |
|
|
(4,761 |
) |
|
|
(2,509 |
) |
Income tax benefit
|
|
|
(2,999 |
) |
|
|
(916 |
) |
|
|
(707 |
) |
|
|
(293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(29,160 |
) |
|
|
(8,804 |
) |
|
|
(5,649 |
) |
|
|
(4,468 |
) |
|
|
(2,509 |
) |
Dividends
|
|
|
(522 |
) |
|
|
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$ |
(29,682 |
) |
|
$ |
(10,033 |
) |
|
$ |
(5,649 |
) |
|
$ |
(4,468 |
) |
|
$ |
(2,509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$ |
(1.51 |
) |
|
$ |
(9.68 |
) |
|
$ |
(5.45 |
) |
|
$ |
(4.31 |
) |
|
$ |
(3.31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of net loss per common share
|
|
|
19,698 |
|
|
|
1,036 |
|
|
|
1,036 |
|
|
|
1,036 |
|
|
|
757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
38,403 |
|
|
$ |
10,463 |
|
|
$ |
8,907 |
|
|
$ |
13,295 |
|
|
$ |
16,853 |
|
Total assets
|
|
|
73,017 |
|
|
|
17,815 |
|
|
|
10,401 |
|
|
|
15,013 |
|
|
|
17,913 |
|
Stockholders equity
|
|
|
59,773 |
|
|
|
431 |
|
|
|
9,606 |
|
|
|
14,207 |
|
|
|
17,136 |
|
In connection with the business combination, Solexa Limited was
deemed to be the acquiring company for accounting purposes.
Accordingly, the assets and liabilities of Lynx were recorded,
as of the date of the business combination, at their respective
fair values and added to those of Solexa Limited. The results of
operations of the combined company for 2005, reflect those of
Solexa Limited, to which the results of operations of Lynx were
added from the date of the consummation of the business
combination. The results of operations of the combined company
reflect purchase accounting adjustments, including increased
amortization and depreciation expense for net assets assumed.
Additionally, the historical results of operations and financial
position shown for comparative purposes in this Form 10-K
reflect those of Solexa Limited prior to the business
combination.
17
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. When used herein, the words
believe, anticipate, expect,
estimate and similar expressions are intended to
identify such forward-looking statements. There can be no
assurance that these statements will prove to be correct. Our
actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this
section. We undertake no obligation to update any of the
forward-looking statements contained herein to reflect any
future events or developments.
Overview
We are in the business of developing and commercializing genetic
analysis technologies. We are currently developing and preparing
to commercialize the Solexa Genome Analysis System, which
performs DNA sequencing based on our proprietary reversible
terminator Sequencing-by-Synthesis, or SBS, chemistry and our
Clonal Single Molecule Array technology. This instrument
platform is expected to perform a range of analyses, including
whole genome resequencing, gene expression analysis and small
RNA analysis. We believe that this technology, which can
potentially generate over a billion bases of DNA sequence from a
single experiment with a single sample preparation, will
dramatically reduce the cost, and improve the practicality, of
human resequencing relative to conventional technologies. We
expect our first-generation instrument, the 1G Genome Analyzer,
to enable human genome resequencing below $100,000 per
sample, which would make it the first platform to reach this
important milestone. We introduced the 1G Genome Analyzer to
customers in 2005 and expect to begin shipping and recognizing
revenues on instruments in 2006. Our longer-term goal is to
further reduce the cost of resequencing a human genome to a few
thousand dollars for use in a wide range of applications from
basic research through clinical diagnostics.
On March 4, 2005, Solexa Limited, a privately held United
Kingdom company, and Lynx Therapeutics, Inc., a Delaware
corporation, completed a business combination. Solexa Limited
became a wholly-owned subsidiary of Lynx as a result of the
transaction, and Lynx changed its name to Solexa, Inc. However,
because immediately following the business combination
transaction the former Solexa Limited shareholders owned
approximately 80% of the shares of the common stock of Lynx,
Solexa Limiteds designees to the combined companys
board of directors represented a majority of the combined
companys directors and Solexa Limiteds senior
management represented a majority of the senior management of
the combined company, Solexa Limited was deemed to be the
acquiring company for accounting purposes. Accordingly, the
assets and liabilities of Lynx were recorded, as of the date of
the business combination, at their respective fair values and
added to those of Solexa Limited. The results of operations of
the combined company for 2005 reflect those of Solexa Limited,
to which the results of operations of Lynx were added from the
date of the consummation of the business combination. The
results of operations of the combined company reflect purchase
accounting adjustments, including increased amortization and
depreciation expense for acquired assets. Additionally, the
historical results of operations and financial position shown
for comparative purposes in this
Form 10-K reflect
those of Solexa Limited prior to the business combination.
In connection with this business combination transaction, Lynx
changed its name to Solexa, Inc. and its symbol to SLXA. Unless
specifically noted otherwise, as used throughout these
Consolidated Financial Statements, Lynx Therapeutics
or Lynx refers to the business, operations and
financial results of Lynx Therapeutics, Inc. prior to the
business combination consummated on March 4, 2005,
Solexa Limited refers to the business of Solexa
Limited, a privately held United Kingdom company prior to the
business combination, Solexa refers to the business
of the combined company after the business combination, and
we refers to either the business operations and
financial results of Lynx prior to the business combination or
the business of the combined company after the business
combination, as the context requires.
On May 17, 2005, our Board of Directors approved a
workforce-restructuring plan designed to reflect our ongoing
transition from our MPSS technology to the development and
commercialization of our next-generation genetic analysis
instrument system. The restructuring plan, which was initiated
on May 18, 2005, involved a workforce reduction of
approximately 17% and left us with a post-reduction workforce of
18
approximately 116 employees in the United States and United
Kingdom. We incurred restructuring charges of approximately
$333,000 in the second quarter of 2005 primarily associated with
employee severance costs. The workforce reduction included
positions in most functional areas of Solexa.
As of December 31, 2005, we had an accumulated deficit of
approximately $51.8 million. We expect to continue to incur
net losses as we proceed with the commercialization and
development of our technologies. The size of these losses will
depend on the rate of growth, if any, in our revenues and on the
level of our expenses. Our cash and cash equivalents have
increased from $10.5 million as of December 31, 2004
to $38.4 million as of December 31, 2005, due to
financing activities involving private placements of shares of
our common stock and warrants to purchase our common stock.
On April 21, 2005, we entered into a definitive agreement
for a private placement of common stock and warrants to purchase
common stock that raised approximately $31.0 million, net
of expenses. On April 25, 2005 we received gross proceeds
of approximately $8.5 million pursuant to this agreement.
On July 12, 2005, we received the balance of gross proceeds
of approximately $24.0 million pursuant to this agreement.
On November 18, 2005, we entered into a definitive
agreement for a private placement of common stock and warrants
to purchase common stock that raised approximately
$23.3 million, net of expenses, in the fourth quarter of
2005. On January 19, 2006, we received the balance of net
proceeds of approximately $37.7 million pursuant to this
agreement. In aggregate, we raised a total of approximately
$61.0 million net of issuance costs in connection with the
two closings of the private placement.
Prior to the business combination with Lynx, Solexa Limited was
a development stage company with minimal revenue. As a result of
the business combination, Solexa is no longer a development
stage company. Until our new genetic analysis instrument system
is available for commercial use, our primary revenue source will
be from our genomics services business, formerly of Lynx. Lynx
historically received, and we expect to continue to receive in
the future, a significant portion of our genomics services
revenues from a small number of customers.
Revenues from the genomics services business in each quarterly
period have in the past, and could in the future, fluctuate due
to: the level of service fees, which is tied to the price,
number and timing of biological samples received from our
customers, as well as our performance of the related genomics
services on the samples; the timing and amount of any technology
access fees and the period over which the revenue is recognized;
the number, type and timing of new, and the termination of
existing, agreements with customers; and the sale of
instruments, reagents and other consumables, if any. In
addition, our plans to introduce genomics services based on our
SBS reversible terminator chemistry and our Clonal Single
Molecular Array technology and to discontinue MPSS-based
services could adversely impact our genomics services revenues.
Our operating costs and expenses include cost of service
revenue, research and development expenses, sales, general and
administrative expenses and restructuring costs. Cost of service
revenue includes primarily a reserve for future loss
contingencies, the cost of direct labor, materials and supplies,
outside expenses, equipment and overhead including instrument
depreciation, as well as period spending on work-in-process
samples that exceeds the expected revenue for those samples. In
addition, cost of service revenue includes a forward loss
contingency reserve that we established in the third quarter of
2005, of which $1.0 million remained outstanding at
December 31, 2005. We did not incur cost of service revenue
until completion of the business combination transaction with
Lynx. Research and development expenses include the cost of
personnel, materials and supplies, outside expenses, equipment
and overhead incurred by us in research and development related
to our genetic analysis instrument systems and process
improvements related to our genomics services business. Research
and development expenses are expected to increase due to
spending for ongoing technology development and implementation,
as well as increased headcount from the business combination.
Sales, general and administrative expenses include the cost of
personnel, materials and supplies, outside expenses, equipment
and overhead incurred by us primarily in our administrative,
sales and marketing, legal and investor relations activities.
Sales, general and administrative expenses are expected to
increase in support of our research and development and
commercial efforts, as well as increased headcount from the
business combination. Restructuring expense includes primarily
employee severance costs.
19
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in
conformity with US generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in our financial statements and
accompanying notes. The items in our financial statements
requiring significant estimates and judgments include
determining the useful lives of fixed assets for depreciation
and amortization calculations, assumptions for valuing options
and warrants and estimated lives of license and collaborative
agreements related to deferred revenue. Actual results could
differ materially from these estimates.
Revenues are related principally to services that we perform on
biological samples we receive from our customers. We recognize
revenue when persuasive evidence of an arrangement exists,
services have been rendered and materials are delivered, the fee
is fixed or determinable, and collectibility is reasonably
assured. Should conditions cause management to determine these
criteria are not met for certain transactions, then such amounts
are recorded as deferred revenue.
In our genomics services business, we enter into service
contracts to provide genetic analysis on samples provided to us
by customers. If management considers it probable that
performance on the contract will result in a loss and this loss
can be reasonably estimated, a loss reserve is recorded.
Management makes estimates of the costs to complete this genetic
analysis based on historical experience; expectations of the
nature and volume of future samples; the proportion of fixed and
variable costs; expectations with respect to production
capacity, yields and efficiency in our genomics services
business; expectations with respect to the timing and expense of
implementing our next-generation technology in our genomics
services business; the expected rate of adoption by current
customers of our next-generation technology in lieu of MPSS to
perform genetic analysis on their biological samples; and
expectations of genomic services business sample volume as a
whole, including both MPSS and our next-generation technology.
If our assumptions or conditions change, the forward loss
contingency will be adjusted accordingly.
This reserve may vary in future periods due to additional data
on our costs to process these samples; expectations of the
nature and volume of future samples; the proportion of fixed and
variable costs; expectations with respect to production
capacity, yields and efficiency in our genomics services
business; expectations with respect to the timing and expense of
implementing our next-generation technology in our genomics
services business; the expected rate of adoption by current
customers of our next-generation technology in lieu of MPSS to
perform genetic analysis on their biological samples; and
expectations of the genomic service business sample volume as a
whole, including both MPSS and our next-generation technology.
In developing our estimates for forward loss contingencies with
respect to the service contracts, we assessed the carrying value
of our fixed assets, including MPSS genetic analysis instruments
used in our genomics services business, for impairment. We
determined that there was no evidence of impairment at
December 31, 2005.
Inventory is stated at the lower of cost (which approximates
first-in, first-out
cost) or market. The balance at December 31, 2005 was
classified as raw materials and work in process. There was no
inventory at December 31, 2004 as Solexa Limited was in the
development stage prior to the business combination transaction
with Lynx, and its primary activity was research and
development. Raw material inventories consist primarily of
reagents and other chemicals utilized while performing genomics
services. Work-in-process inventories consist of accumulated
cost of experiments not completed. Amounts in excess of the
inventorys net realizable value are charged to cost of
service revenue or to the forward loss contingency reserve, as
appropriate. Inventory used in providing genomics services and
for reagent sales is charged to cost
20
of service revenue when the related revenue is recognized.
Reagents, chemicals and flowcells purchased for internal
development purposes are charged to research and development
expenses upon receipt or as consumed.
|
|
|
Goodwill and Other Intangible Assets |
Goodwill represents the excess of the purchase price over the
fair value of net tangible and identifiable intangible assets
acquired in the business combination. Other intangibles
including patents, acquired technology rights and developed
technology are being amortized using the straight-line method
over estimated useful lives of seven to ten years.
Goodwill is not amortized. We review goodwill for impairment
annually (or more frequently if impairment indicators exist). We
review other intangible assets for impairment when indicators of
impairment exist.
We grant stock options to employees for a fixed number of shares
with an exercise price equal to the fair value of the underlying
shares on the day prior to the date of grant. We account for
stock option grants in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees, or APB 25, and related interpretations.
Under APB 25, when the exercise price of employee stock
options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is
recognized.
All stock option awards to non-employees are accounted for at
the fair value of the equity instrument issued, as calculated
using the Black-Scholes model, in accordance with Statement of
Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation, or
SFAS 123, and Emerging Issues Task Force Consensus
No. 96-18, Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services. The option arrangements
are subject to periodic re-measurement over their vesting terms.
We estimate the fair value of stock options at the date of grant
using the Black-Scholes options valuation model with the
following weighted average assumptions for the year ended
December 31, 2005: risk-free interest rate of 4.30%;
expected life of six years; volatility factor of the expected
market price of common stock of 103.5%; and dividend yield of
zero. Prior to the merger, we estimated the fair value of stock
options at the date of grant using the minimum value option
valuation model using the following weighted average assumptions
for the years ended December 31, 2004 and 2003: risk free
interest rate of 3.36% and 2.84% in 2004 and 2003, respectively;
expected life of 5 years; and dividend yield of zero.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 123R, Accounting for Share Based Payments,
or SFAS 123R. This statement is a revision of SFAS 123
and supersedes APB 25 and amends SFAS No. 95,
Statement of Cash Flows. This statement requires a
public entity to expense the cost of employee services received
in exchange for an award of equity instruments. This statement
also provides guidance on valuing and expensing these awards, as
well as disclosure requirements of these equity arrangements. In
March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 107, or SAB 107, which
provided guidance on the adoption of SFAS 123R such as
accounting for share-based payment transactions with
non-employees, valuation methods, and the classification of
compensation expense. We are adopting SFAS 123R effective
January 1, 2006.
SFAS 123R permits public companies to choose between the
following two adoption methods:
|
|
|
1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123R for
all share-based payments granted after |
21
|
|
|
the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to
the effective date of SFAS 123R that remain unvested on the
effective date, or |
|
|
2. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under SFAS 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
We have elected to adopt the modified prospective method for
this new standard. However, the impact of the adoption of
SFAS 123R cannot be determined at this time because it will
depend on levels of share-based payments granted in the future.
However, the valuation of employee stock options under
SFAS 123R is similar to SFAS 123, with minor
exceptions. For information about what the Companys
reported results of operations and net loss per common share
would have been had we adopted SFAS 123, see
Stock-Based Compensation in Note 3.
Accordingly, the adoption of SFAS 123Rs fair value
method is expected to have a significant impact on our results
of operations, although it will likely have no impact on our
overall financial position. SFAS 123R also requires the
benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase
net financing cash flows in periods after adoption.
Results of Operations
Total revenues were $4.2 million, $96,000 and $7,000 in
2005, 2004 and 2003, respectively. The increase in revenue of
$4.1 million from 2004 to 2005 was primarily due to revenue
generated by the genomics service business which we acquired in
the business combination. We had been a development stage
company prior to that time. We have experienced variability from
period to period in revenues attributable to our genomics
services business based in part on the timing of receipt of
biological samples, variability in outstanding contracts and the
presence of non-service fee revenues, including sales of
reagents and other consumables. We expect this variability to
continue through 2006 and beyond. The increase in our 2004 over
our 2003 revenue was the result of obtaining a significant
contract with one customer.
In 2006, we anticipate beginning to perform genomics services
using our SBS reversible terminator chemistry and Clonal
Single Molecule Array technology and ceasing to perform MPSS
experiments for customers. We also anticipate our contract with
DuPont will terminate in 2006 and that amounts paid to us under
this contract will be less than in 2005. Our revenues could vary
in 2006 and beyond due to interruptions in service production
until the new instrumentation is ready to be deployed in our
genomics services business and as the new instrumentation is
brought on line as well as due to variable customer demand until
the new technology has demonstrated equivalence or superiority
to the MPSS technology. In 2006, we also anticipate the first
sales to customers of our first-generation Solexa Genome
Analysis Systems.
|
|
|
Operating Costs and Expenses |
Total operating costs and expenses were approximately
$36.7 million, $10.1 million and $6.7 million in
2005, 2004 and 2003, respectively. The increase in operating
costs for 2005 over 2004 is due primarily to increased operating
costs following the business combination, the costs of executing
the business combination in 2005, the creation of a reserve for
losses on service fee contracts and the establishment of a bonus
plan.
Cost of Service Revenue. Cost of service revenue
primarily reflects the cost of providing our genomics services,
including a reserve for future loss contingencies, direct labor,
materials and supplies, outside expenses, equipment and
overhead, including instrument depreciation. In addition, we
include in cost of service revenue period spending on
work-in-process samples
that exceeds the expected revenue for those samples. Cost of
service fees were $7.1 million, zero and zero in 2005, 2004
and 2003, respectively. Cost of service fees increased from zero
in the prior years as a result of the addition of revenue from
the genomics services business acquired in the business
combination transaction.
22
Cost of service fees includes a provision for future loss
contingencies with respect to existing service fee contracts.
This provision for future loss contingencies totaled
approximately $2.2 million, of which $1.0 million
remains reserved on the balance sheet at December 31, 2005.
We developed this reserve based on an evaluation of contracts
with samples performed at a loss in the first two full quarters
following the business combination; an assessment of our future
obligations under these contracts; and a range of forecast
assumptions for our future performance of these obligations,
including but not limited to timing of sample receipt, genomics
services business sample volume as a whole, our plans to cease
operation of our MPSS technology and to deploy our
SBS reversible terminator chemistry and Clonal Single
Molecule Array technology, and operating efficiencies. This
reserve may vary considerably in future periods due to
additional data on our costs to process these samples;
expectations of the nature and volume of future samples; the
proportion of fixed and variable costs; expectations with
respect to production capacity, yields and efficiency in our
genomics services business; expectations with respect to the
timing and expense of implementing our next-generation
technology in our genomics services business; the expected rate
of adoption by current customers of our next-generation
technology in lieu of MPSS to perform genetic analysis on their
biological samples; and expectations of the genomic service
business sample volume as a whole, including both MPSS and our
next-generation technology.
At the time that we begin to perform genomics services using our
SBS reversible terminator chemistry and Clonal Single Molecule
Array technology, we anticipate that our material and labor
costs per sample may decline; however, we could experience
periods of higher spending as we process both the older MPSS and
the new technology in parallel and as we experience
below-expected-efficiency levels as we work with the new
technology. We expect cost of goods sold to increase in the
future from zero at present as we initiate the manufacturing of
our next-generation instrument and associated consumables. These
costs will include personnel, materials and overhead. We
anticipate that production activities will take place both in
the US and the UK in 2006.
Research and Development Expenses. Research and
development expenses were approximately $17.3 million,
$6.9 million and $5.3 million, in 2005, 2004 and 2003,
respectively. The $10.4 million increase in research and
development expenses in 2005 over 2004 was primarily due to
increases in personnel and related expenses resulting from the
business combination, and increases in material expenses,
particularly our spending on components for the production of
instrument prototypes based on the new technology. As of
December 31, 2005, we had 73 research and development
employees at our Cambridge, UK and Hayward, California sites
compared with 49 and 46 at our Cambridge, UK site as of
December 31, 2004 and 2003, respectively. The
$1.6 million increase in research and development expenses
in 2004 over 2003 was primarily due to increases in personnel
and related expenses and OEM contract expenses related to
activities performed by Lynx on behalf of Solexa Limited prior
to the business combination.
We expect research and development expenses to increase in the
future as we continue product development efforts for our
next-generation genetic analysis instrument system, build and
operate a fleet of instruments for internal R&D projects,
including our plan to sequence a human genome in 2006 and build
out additional leasehold improvements.
We cannot reasonably estimate the timing and costs of our
research and development programs due to the risks and
uncertainties associated with developing a novel genetic
analysis instrument system and subsequent improvements. While we
anticipate beginning to ship and recognize revenue on the sale
of our first-generation instrument system in the second quarter
of 2006, we expect that there will be significant additional
work required to optimize the instrument, consumable and
software portions of the system to achieve target performance
levels. Furthermore, we anticipate continued spending on
research and development related to future-generation systems
and to additional applications of our genetic analysis
instrument systems.
Sales, General and Administrative Expenses. Sales,
general and administrative expenses were approximately
$12.0 million, $3.2 million and $1.5 million in
2005, 2004 and 2003, respectively. The increase of
$8.8 million in sales, general and administrative spending
in 2005 over 2004 was primarily due to increased operating costs
following the business combination and the costs of executing
the business combination,
23
including increased personnel and related expenses, expanded
facilities, professional fees, a stock-based compensation charge
representing the fair value of common stock and warrants issued
to a financial advisor and other operating expenses, as well as
increased amortization of purchased intangibles. The increase of
$1.7 million in sales, general and administrative expenses
in 2004 over 2003 was primarily due to increases in personnel
and related expenses, depreciation expense and professional fees.
We expect sales, general and administrative expense to increase
in the near future as we hire increased personnel to support the
commercialization of our next-generation genetic analysis
instrument system and to increase non-personnel sales and
marketing spending, including but not limited to promotional
materials and activities, market research, travel and training.
We expect to hire sales and marketing personnel, including
salespeople, application specialists and field service and
customer service/ technical support personnel. We may need to
establish additional places of business in conjunction with this
hiring.
Restructuring Charge. In 2005, we recognized a
restructuring charge of approximately $333,000. The
restructuring charge included severance and benefits related to
the involuntary termination of approximately 24 employees. There
was no restructuring charge in 2004 or 2003.
|
|
|
Interest Income (Expense), Net |
Interest income (expense), net was approximately ($321,000),
$402,000 and $362,000 in 2005, 2004 and 2003, respectively. The
increase in interest expense, net in 2005 over 2004 is due to
the write-off of an idle facility as a result of which a portion
of rental payments are treated as interest expense and
assumption of $3.0 million of Lynxs note obligations
in conjunction with business combination partially offset by
interest income on higher cash balances.
Other income, net was approximately $464,000 for 2005 and zero
for 2004 and 2003. During fiscal 2005, Solexa held an equity
investment in Axaron Bioscience AG that was acquired at the time
of the business combination transaction. In the fourth quarter
of 2005, we sold the investment and recognized approximately
$496,000 of other income in connection with the sale.
|
|
|
Income Tax Provision (Benefit) |
We maintained a full valuation allowance on our net deferred tax
assets as of December 31, 2005. The valuation allowance was
determined in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, or SFAS No. 109, which
requires an assessment of both positive and negative evidence
then determining whether it is more likely than not that
deferred tax assets are recoverable; such assessment is required
on a jurisdiction by jurisdiction basis. Cumulative losses
incurred by us in recent years represented sufficient negative
evidence under SFAS No. 109, and, accordingly, a full
valuation allowance was recorded against deferred tax assets. We
intend to maintain a full valuation allowance on the deferred
tax assets until sufficient positive evidence exists to support
reversal of the valuation allowance.
Our net income tax benefit was approximately $3.0 million,
$916,000 and $707,000 in 2005, 2004 and 2003, respectively.
These amounts result from refundable research credits allowed by
the United Kingdom.
In 2005 and 2004, Solexa Limited recorded dividends of $522,000
and $1.2 million, respectively, to holders of its
A ordinary and B preferred shares. All
A ordinary and B preferred shares were
converted to common shares June 30, 2005. No dividends have
been paid since the business combination transaction, and no
dividend payments are anticipated for 2006.
24
Liquidity and Capital Resources
Operating Activities. Cash and cash equivalents was
approximately $38.4 million as of December 31, 2005.
Net cash used in operating activities was approximately
$22.5 million, $11.3 million and $4.9 million in
2005, 2004 and 2003, respectively. For 2005, cash used in
operating activities resulted primarily from our net loss of
$29.2 million and reductions in accounts payable, partially
offset by an increase in accrued liabilities and non-cash
adjustments related to depreciation and amortization and a
reserve for forward loss contingency. For 2004, cash used in
operations resulted primarily from our net loss, Solexa
Limiteds loan to Lynx and an increase in other current
assets, partially offset by an increase in accounts payable and
non-cash adjustments related to depreciation and amortization.
Investing Activities. Net cash used in investing
activities was approximately $1.2 million,
$2.4 million and $444,000 in 2005, 2004 and 2003,
respectively. Increased net cash used in investing activities in
2005 was primarily due to purchases of property and equipment,
used primarily for research and development, and expenses
incurred in the business combination, partially offset by a gain
on the sale of an equity investment. Increased net cash used in
investing activities in 2004 was due to the purchase of a patent
portfolio and the purchase of property and equipment.
Financing Activities. Net cash provided by financing
activities was approximately $52.0 million and
$14.4 million in 2005 and 2004, respectively. Net cash used
in financing activities was approximately $15,000 in 2003. Net
cash provided by financing activities in 2005 consisted of
$54.3 million received pursuant to two private placements
of common stock and warrants to purchase common stock, net of
related financing costs, proceeds from the exercise of stock
options and warrants, partially offset by the repayment of a
bank loan assumed in the business combination in the amount of
$3.0 million. Net cash provided by financing activities in
2004 was $14.4 million pursuant to the issuance of
Series B Redeemable Convertible Preferred shares of Solexa
Limited.
On April 21, 2005, Solexa entered into a definitive
agreement for a private placement of approximately
8.1 million shares of common stock at $4.00 per share
and warrants to purchase approximately 4.1 million shares
of common stock at $5.00 per share. On April 25, 2005,
pursuant to the agreement, Solexa issued approximately
2.1 million shares of common stock and warrants to purchase
approximately 1.1 million shares of common stock, receiving
gross proceeds of approximately $8.5 million. On
July 12, 2005, following receipt of stockholder approval at
the Solexa 2005 annual meeting of stockholders, Solexa issued
approximately 6.0 million shares of common stock and
warrants to purchase approximately 3.0 million shares of
common stock, receiving gross proceeds of approximately
$24.0 million. In aggregate, we raised a total of
approximately $31.0 million net of issuance costs in this
private placement.
On November 18, 2005, Solexa entered into a definitive
agreement to issue to private investors 10.0 million shares
of common stock at $6.50 per share and warrants to purchase
approximately 3.5 million shares of common stock at an
exercise price of $7.50 per share. On November 23,
2005, pursuant to the agreement, Solexa issued approximately
3.9 million shares of common stock and warrants to purchase
approximately 1.3 million shares of common stock, receiving
gross proceeds of approximately $25.0 million. As a result
of this transaction, we recorded $1.7 million of financing
costs in the fourth quarter of 2005. Upon receipt of stockholder
approval, the second tranche closed on January 19,
2006. We issued approximately 6.1 million shares of common
stock and warrants to purchase approximately 2.2 million
shares of common stock, receiving gross proceeds of
approximately $40.0 million. In aggregate, we raised a
total of approximately $61.0 million net of issuance costs
in this private placement.
Operating Capital Requirements. We plan to use available
funds for ongoing commercial, research and development and
related general sales and administrative activities, working
capital, capital expenditures and other general corporate
purposes. We expect our capital investments during 2006 to be
approximately $3.2 million and to consist primarily of
expenditures for capital equipment required in the normal course
of business and for the introduction of our Solexa Genome
Analysis System and for leasehold improvements.
We have obtained funding for our operations primarily through
sales of common stock, ordinary shares and preferred shares,
payments received under contractual arrangements with customers,
proceeds from the
25
exercise of stock options and warrants and interest income.
Consequently, investors in our equity securities and our
customers are significant sources of liquidity for us.
Therefore, our ability to maintain liquidity is dependent upon a
number of uncertain factors, including but not limited to the
following: our ability to advance and commercialize further our
new technologies; our ability to generate revenues through
expanding and converting existing customer arrangements to our
new technologies and obtaining significant new customers either
in our genomics services business or through the sale of our
instruments and consumables related to the Solexa Genome
Analysis System, and the receptivity of capital markets toward
our equity or debt securities. The cost, timing and amount of
funds required by us for specific uses cannot be precisely
determined at this time and will be based upon the progress and
the scope of our commercial and research and development
activities; payments received under customer agreements; our
ability to establish and maintain customer agreements; costs of
protecting intellectual property rights; legal and
administrative costs; additional facilities capacity needs, and
the availability of various methods of financing.
Solexa Limited incurred net losses each year since its inception
in 1998 through March 4, 2005, the date on which the
business combination transaction with Lynx was consummated, and
Solexa has continued to incur net losses since that time. As of
December 31, 2005, we had an accumulated deficit of
$51.8 million. Net losses may continue for the next several
years as we proceed with the development and commercialization
of our technologies. The presence and size of these potential
net losses will depend, in part, on the rate of growth, if any,
in our revenues and on the level of our expenses.
We believe that our cash balances at December 31, 2005,
together with the funds we generated from the sales of common
stock and warrants to purchase common stock in early 2006, will
be sufficient to meet our projected working capital and other
cash requirements through at least the next twelve months.
However, there can be no assurance that future events will not
require us to seek additional borrowings or capital and, if so
required, that such borrowing or capital will be available on
acceptable terms.
Contractual Obligations and Commitments. We have
long-term, non-cancelable building lease commitments. Future
payments due under building leases and other contractual
obligations as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than | |
|
|
|
|
Total | |
|
1 year | |
|
1-3 years | |
|
|
| |
|
| |
|
| |
Equipment loan
|
|
$ |
80 |
|
|
$ |
34 |
|
|
$ |
46 |
|
Operating leases
|
|
|
8,682 |
|
|
|
2,844 |
|
|
|
5,838 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,762 |
|
|
$ |
2,878 |
|
|
$ |
5,884 |
|
|
|
|
|
|
|
|
|
|
|
Off Balance Sheet Arrangements. At December 31, 2004
and 2005, we did not have any off-balance sheet arrangements or
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purposes entities, which are typically
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
The Securities and Exchange Commission requires that registrants
include information about potential effects of changes in
currency exchange and interest rates in their
Form 10-K filings.
Several alternatives, all with some limitations, have been
offered. The following discussion is based on an analysis which
is constrained by several factors including the fact that it is
based on a single point in time and it does not include the
effects of other complex market reactions that could arise.
Financial Risk Management
We are exposed to risks associated with foreign exchange rate
fluctuations due to our United Kingdom and German operations and
international sales activities. Approximately 7% of our revenue
in 2005 was from foreign countries. These exposures may change
over time as business practices evolve and could negatively
impact our operating results and financial condition. Currently,
we do not hedge these foreign exchange rate exposures. All of
our sales are denominated in U.S. dollars or U.K. pounds.
An increase in the value of the
26
U.S. dollar relative to foreign currencies could make our
products and services more expensive and therefore reduce the
demand for them. Such a decline in demand could reduce revenues,
inhibit revenue growth and/or result in operating losses. In
addition, a downturn in the economies of the United Kingdom or
Germany could impair the value of our operations in that country.
The primary objective of our investment activities is to
preserve principal while, at the same time, maximizing yields
without significantly increasing risk. To achieve this
objective, we invest in highly liquid and high-quality debt
securities. Our investments in debt securities are subject to
interest rate risk. To minimize the exposure due to adverse
shifts in interest rates, we invest in short-term securities and
maintain an average maturity of less than one year. As a result,
we do not believe we are subject to significant interest rate
risk.
At any time, fluctuations in interest rates could affect
interest earnings on our cash and, cash equivalents. A 10% move
in interest rates as of December 31, 2005 would have an
immaterial effect on our financial position, results of
operations and cash flows. Currently, we do not hedge these
interest rate exposures. As of December 31, 2005, the
carrying value of our cash and cash equivalents approximated
fair value.
Inflation
We continually monitor inflation and the effects of changing
prices. Inflation increases the cost of goods and services used.
Competitive and regulatory conditions in many markets may
restrict our ability to fully recover the higher costs of
acquired goods and services through price increases. The effects
of inflation have, in our opinion, been managed appropriately
and as a result have not had a material impact on our operations
and the resulting financial position or liquidity.
27
|
|
Item 8. |
Consolidated Financial Statements and Supplementary
Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Solexa, Inc.
We have audited the accompanying consolidated balance sheet of
Solexa, Inc. as of December 31, 2005, and the related
consolidated statements of operations, stockholders equity
and cash flows for the year ended December 31, 2005. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Solexa, Inc. at
December 31, 2005, and the consolidated results of its
operations and its cash flows for the year ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
Palo Alto, California
March 17, 2006
29
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Solexa, Inc.
We have audited the accompanying consolidated balance sheet of
Solexa, Inc. as of December 31, 2004, and the related
consolidated statements of operations, stockholders equity
and cash flows for each of the two years in the period ended
December 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Solexa, Inc. at
December 31, 2004, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
Cambridge, England
May 13, 2005
30
SOLEXA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
38,403 |
|
|
$ |
10,463 |
|
|
Accounts receivable
|
|
|
539 |
|
|
|
25 |
|
|
Inventory
|
|
|
754 |
|
|
|
|
|
|
Loan receivable from Lynx Therapeutics, Inc.
|
|
|
|
|
|
|
2,500 |
|
|
Other current assets
|
|
|
2,422 |
|
|
|
1,875 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
42,118 |
|
|
|
14,863 |
|
Property and equipment, net
|
|
|
4,378 |
|
|
|
1,009 |
|
Intangible assets, net
|
|
|
3,510 |
|
|
|
1,943 |
|
Goodwill
|
|
|
22,529 |
|
|
|
|
|
Other non-current assets
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
73,017 |
|
|
$ |
17,815 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,235 |
|
|
$ |
840 |
|
|
Equipment financing, current portion
|
|
|
31 |
|
|
|
23 |
|
|
Forward loss contingency reserve
|
|
|
1,028 |
|
|
|
|
|
|
Accrued compensation
|
|
|
2,067 |
|
|
|
207 |
|
|
Accrued professional fees
|
|
|
705 |
|
|
|
|
|
|
Deferred rent and lease obligations, current portion
|
|
|
801 |
|
|
|
|
|
|
Deferred revenue, current portion
|
|
|
1,518 |
|
|
|
|
|
|
Other accrued liabilities
|
|
|
529 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,914 |
|
|
|
1,461 |
|
Deferred revenue, net of current portion
|
|
|
1,905 |
|
|
|
|
|
Equipment financing, net of current portion
|
|
|
44 |
|
|
|
4 |
|
Deferred rent and lease obligations, net of current portion
|
|
|
2,381 |
|
|
|
|
|
Series B preferred redeemable convertible shares
|
|
|
|
|
|
|
15,919 |
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
A convertible ordinary shares: $0.37 par value;
no shares and 5,066,669 shares authorized at December 31,
2005 and 2004, respectively; no shares and 5,066,669 shares
issued and outstanding at December 31, 2005 and 2004,
respectively
|
|
|
|
|
|
|
20 |
|
|
Ordinary shares: $0.37 par value; no shares and
4,428,513 shares authorized at December 31, 2005 and
2004, respectively; no shares and 2,338,138 shares issued
and outstanding at December 31, 2005 and 2004, respectively
|
|
|
|
|
|
|
9 |
|
|
Preferred stock: $0.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding at
December 31, 2005 and 2004, respectively
|
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value; 60,000,000 shares
authorized; 30,027,182 shares and no shares issued and
outstanding at December 31, 2005 and 2004, respectively
|
|
|
300 |
|
|
|
|
|
|
Additional paid-in capital
|
|
|
109,575 |
|
|
|
20,385 |
|
|
Deferred compensation
|
|
|
(326 |
) |
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
2,064 |
|
|
|
2,697 |
|
|
Accumulated deficit
|
|
|
(51,840 |
) |
|
|
(22,680 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
59,773 |
|
|
|
431 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
73,017 |
|
|
$ |
17,815 |
|
|
|
|
|
|
|
|
See accompanying notes.
31
SOLEXA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$ |
4,150 |
|
|
$ |
96 |
|
|
$ |
7 |
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
7,066 |
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
17,294 |
|
|
|
6,870 |
|
|
|
5,266 |
|
|
Sales, general and administrative
|
|
|
12,030 |
|
|
|
3,184 |
|
|
|
1,459 |
|
|
Restructuring charge
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
36,723 |
|
|
|
10,054 |
|
|
|
6,725 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(32,573 |
) |
|
|
(9,958 |
) |
|
|
(6,718 |
) |
Interest income
|
|
|
555 |
|
|
|
408 |
|
|
|
367 |
|
Interest expense
|
|
|
(876 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
Other income (expense), net
|
|
|
464 |
|
|
|
|
|
|
|
|
|
Gain (loss) on foreign exchange
|
|
|
271 |
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(32,159 |
) |
|
|
(9,720 |
) |
|
|
(6,356 |
) |
Income tax benefit related to research and development tax credit
|
|
|
(2,999 |
) |
|
|
(916 |
) |
|
|
(707 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(29,160 |
) |
|
$ |
(8,804 |
) |
|
$ |
(5,649 |
) |
|
Dividends
|
|
|
(522 |
) |
|
|
(1,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$ |
(29,682 |
) |
|
$ |
(10,033 |
) |
|
$ |
(5,649 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$ |
(1.51 |
) |
|
$ |
(9.68 |
) |
|
$ |
(5.45 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computation of net loss per common share
|
|
|
19,698 |
|
|
|
1,036 |
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
32
SOLEXA, INC.
STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A convertible | |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
ordinary shares | |
|
Ordinary shares | |
|
Common stock | |
|
Additional | |
|
|
|
Foreign | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
Currency | |
|
Accumulated | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Translation | |
|
Deficit | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balances at December 31, 2002
|
|
|
4,000 |
|
|
$ |
15 |
|
|
|
2,338 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
$ |
21,085 |
|
|
$ |
|
|
|
$ |
1,325 |
|
|
$ |
(8,227 |
) |
|
$ |
14,207 |
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
1,048 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,649 |
) |
|
|
(5,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
4,000 |
|
|
$ |
15 |
|
|
|
2,338 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
$ |
21,085 |
|
|
|
|
|
|
$ |
2,373 |
|
|
$ |
(13,876 |
) |
|
$ |
9,606 |
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,804 |
) |
|
|
(8,804 |
) |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,480 |
) |
Dividends accretion on A ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747 |
|
Dividends accretion on A ordinary shares closed to
additional paid in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(747 |
) |
Dividends accretion on series B preferred redeemable
convertible shares liability closed to additional paid in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482 |
) |
Issuance cost of B Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213 |
) |
Issuance of convertible A shares
|
|
|
1,067 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
5,067 |
|
|
$ |
20 |
|
|
|
2,338 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
$ |
20,385 |
|
|
|
|
|
|
$ |
2,697 |
|
|
$ |
(22,680 |
) |
|
$ |
431 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,160 |
) |
|
|
(29,160 |
) |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(633 |
) |
|
|
|
|
|
|
(633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,793 |
) |
Business combination transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of series B preferred redeemable
convertible shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,812 |
|
|
$ |
58 |
|
|
|
15,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,792 |
|
|
Solexa Ltd. shares exchanged
|
|
|
(5,067 |
) |
|
|
(20 |
) |
|
|
(2,338 |
) |
|
|
(9 |
) |
|
|
8,028 |
|
|
|
80 |
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
Shares issued for Lynx, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,764 |
|
|
|
38 |
|
|
|
15,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,922 |
|
|
Options assumed from Lynx, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
851 |
|
|
$ |
(635 |
) |
|
|
|
|
|
|
|
|
|
|
216 |
|
|
Shares and warrants issued for fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180 |
|
|
|
2 |
|
|
|
1,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,706 |
|
Common shares issued in private placements, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,977 |
|
|
|
120 |
|
|
|
54,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,326 |
|
Common shares issued for purchases of intellectual property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
1 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450 |
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146 |
|
|
|
1 |
|
|
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374 |
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269 |
|
Amortization of and reversal of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210 |
) |
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
99 |
|
Stock based compensation to non- employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
30,027 |
|
|
$ |
300 |
|
|
$ |
109,575 |
|
|
$ |
(326 |
) |
|
$ |
2,064 |
|
|
$ |
(51,840 |
) |
|
$ |
59,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
33
SOLEXA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(29,160 |
) |
|
$ |
(8,804 |
) |
|
$ |
(5,649 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,564 |
|
|
|
823 |
|
|
|
539 |
|
|
Write off of fixed assets
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
Amortization of warrant value related to note
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
Stock based compensation related to Business combination
engagement fees
|
|
|
987 |
|
|
|
|
|
|
|
|
|
|
Gain on sale of equity investment
|
|
|
(496 |
) |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities (net of effect of
business combination):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(195 |
) |
|
|
(15 |
) |
|
|
(7 |
) |
|
|
Inventory
|
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
Forward loss contingency
|
|
|
1,028 |
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(427 |
) |
|
|
(3,881 |
) |
|
|
345 |
|
|
|
Accounts payable
|
|
|
(1,729 |
) |
|
|
596 |
|
|
|
(131 |
) |
|
|
Accrued liabilities
|
|
|
2,538 |
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
602 |
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
(1,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(22,466 |
) |
|
|
(11,281 |
) |
|
|
(4,903 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of technology rights
|
|
|
(75 |
) |
|
|
(2,044 |
) |
|
|
|
|
Purchase of property and equipment
|
|
|
(976 |
) |
|
|
(337 |
) |
|
|
(445 |
) |
Proceeds from disposal of fixed assets
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Gain on sale of equity investment
|
|
|
496 |
|
|
|
|
|
|
|
|
|
Costs paid in connection with the business combination, net of
cash received
|
|
|
(642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,197 |
) |
|
|
(2,381 |
) |
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
374 |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
269 |
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of issuance costs
|
|
|
54,326 |
|
|
|
|
|
|
|
|
|
Repayment of bank loan
|
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
Proceeds from issuance of series A ordinary and
B preferred shares, net of issuance costs
|
|
|
|
|
|
|
14,459 |
|
|
|
|
|
Payments of capital lease obligations
|
|
|
(37 |
) |
|
|
(22 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
51,932 |
|
|
|
14,437 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
28,269 |
|
|
|
775 |
|
|
|
(5,362 |
) |
Effect of exchange rate differences on cash and cash equivalents
|
|
|
(329 |
) |
|
|
781 |
|
|
|
974 |
|
Cash and cash equivalents at beginning of year
|
|
|
10,463 |
|
|
|
8,907 |
|
|
|
13,295 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
38,403 |
|
|
$ |
10,463 |
|
|
$ |
8,907 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$ |
126 |
|
|
$ |
6 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of equipment under capital leases
|
|
$ |
(90 |
) |
|
$ |
|
|
|
$ |
(40 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
34
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Description of Business |
Solexa, Inc. (Solexa, or the Company) is
in the business of developing and commercializing genetic
analysis technologies. We are currently developing and preparing
to commercialize a novel instrumentation system for genetic
analysis based on our reversible-terminator
Sequencing-by-Synthesis, or SBS, chemistry and based on our
Clonal Single Molecule
Arraytm
technology. This platform is expected to support many types of
genetic analyses, including DNA sequencing, gene expression and
small RNA analysis. We believe that this technology, which can
potentially generate over a billion bases of DNA sequence from a
single experiment with a single sample preparation, will
dramatically reduce the cost, and improve the practicality, of
human re-sequencing relative to conventional technologies. We
introduced our first-generation system, the Solexa Genome
Analysis System, at the end of 2005 for delivery in 2006. We
believe our new DNA sequencing system will enable us to
implement a new business model based primarily on the sales of
genetic analysis equipment, reagents and other consumables and
services to end user customers. Our longer-term goal is to
further reduce the cost of human
re-sequencing to a few
thousand dollars for use in a wide range of applications from
basic research through clinical diagnostics.
On March 4, 2005, Solexa Limited, a privately held United
Kingdom company, and Lynx Therapeutics, Inc., a Delaware
corporation, completed a business combination. Solexa Limited
became a wholly owned subsidiary of Lynx as a result of the
transaction, and Lynx changed its name to Solexa, Inc. However,
because immediately following the business combination
transaction the former Solexa Limited shareholders owned
approximately 80% of the shares of the common stock of Lynx,
Solexa Limiteds designees to the combined companys
board of directors represented a majority of the combined
companys directors and Solexa Limiteds senior
management represented a majority of the senior management of
the combined company, Solexa Limited is deemed to be the
acquiring company for accounting purposes. Accordingly, the
assets and liabilities of Lynx were recorded, as of the date of
the business combination, at their respective fair values and
added to those of Solexa Limited. Results of operations of the
combined company for 2005, reflect those of Solexa Limited, to
which the results of operations of Lynx were added from the date
of the consummation of the business combination. The results of
operations of the combined company reflect purchase accounting
adjustments, including increased amortization and depreciation
expense for acquired net assets. Additionally, the historical
results of operations and financial position shown for
comparative purposes in this
Form 10-K reflect
those of Solexa Limited prior to the business combination. (See
Note 4).
Unless specifically noted otherwise, as used throughout these
consolidated financial statements, Lynx Therapeutics
or Lynx refers to the business, operations and
financial results of Lynx Therapeutics, Inc. prior to the
business combination on March 4, 2005; Solexa
Limited refers to the business of Solexa Limited, a
privately-held United Kingdom company, prior to the business
combination; and Solexa or we refers to
the business of the combined company after the business
combination, as the context requires.
The consolidated financial statements include all accounts of
Solexa and our wholly-owned subsidiaries, Solexa Limited and
Lynx Therapeutics GmbH. All intercompany balances and
transactions have been eliminated.
Solexa Limited was a development stage company prior to the
business combination transaction with Lynx. As a result of the
business combination, Solexa Inc. is no longer considered to be
a development stage company.
35
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3. |
Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with US
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates. One of our most
significant estimates relates to our accrual for forward loss
contingencies. See below for further discussion.
|
|
|
Foreign Currency Translation |
Assets and liabilities of our wholly-owned foreign subsidiaries
are translated to the US dollar from their local currency, which
is the functional currency, at exchange rates in effect at the
balance sheet date for certain assets and liabilities. Revenues
and expenses are translated at average exchange rates prevailing
during the period. The resulting translation adjustments are
recognized within other comprehensive income.
|
|
|
Concentration of Credit Risk and Other
Concentrations |
Financial instruments that potentially subject us to
concentration of credit risk consist principally of cash
equivalents and trade receivables. We invest our excess cash in
deposits with major banks and in money market funds of companies
with strong credit ratings. These securities generally mature
within 365 days and, therefore, bear minimal interest-rate
risk.
Agricultural companies and research institutions account for a
substantial portion of our trade receivables. Accounts
receivable are stated as amounts billed to customers. We provide
credit in the normal course of business to our customers, and
collateral for these receivables is generally not required. We
monitor the creditworthiness of our customers to which we grant
credit terms in the normal course of business. We have not
experienced significant credit losses to date.
We anticipate purchasing, on a sole-source basis, certain
components for our 1G Genome Analyzer and certain reagents used
to operate and prepare samples to be run on the 1G Genome
Analyzer. We are in the process of negotiating supply agreements
for certain of these sole-source items. In addition, we
currently purchase, on a sole-source basis, certain enzymes that
are used in our MPSS service business.
However, we believe that we would be able to purchase
alternative instrument components and reagents from other
providers should the need arise, although we would likely incur
additional expense and delay. Such additional expense and delay
could be material and could harm our business in the short term.
For the year ended December 31, 2005 revenue from two
customers represented 52% and 21% of the Companys revenue,
respectively. For the years ended December 31, 2004 and
2003, revenue from one customer accounted for 82% and 88% of the
Companys revenue, respectively.
|
|
|
Fair Value of Financial Instruments |
The carrying value of our cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities
approximates their fair value because of the short-term nature
of these financial instruments. The fair value of other
short-term and long-term obligations is estimated based on
current interest rates available to us for debt instruments with
similar terms, degrees of risk and remaining maturities. The
carrying values of these obligations approximate their fair
values.
|
|
|
Cash, Cash Equivalents and Short Term Investments |
We consider all investments in money market mutual funds,
commercial paper and corporate bonds and notes with maturities
at the date of purchase of 90 days or less to be cash
equivalents. Investments in debt
36
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securities with maturities beyond 90 days, but less than
one year, and investments in publicly traded equity securities
are considered to be short-term investments. All investments
held as of December 31, 2005 are classified as available
for sale.
Inventory is stated at the lower of cost (which approximates
first-in, first-out
cost) or market. The balance at December 31, 2005 was
classified as raw materials and work in process. There was no
inventory at December 31, 2004 as Solexa Limited was in the
development stage prior to the business combination transaction
with Lynx, and its primary activity was research and
development. Raw material inventories consist primarily of
reagents and other chemicals utilized while performing genomics
services. Work-in-process inventories consist of accumulated
cost of experiments not completed. Amounts in excess of the
inventorys net realizable value are changed to cost of
revenue or to the forward loss contingency reserve, as
appropriate. Inventory used in providing genomics services and
for reagent sales is charged to cost of service revenue when the
related revenue is recognized. Reagents, flowcells and chemicals
purchased for internal development purposes are charged to
research and development expenses upon receipt or as consumed.
Property and equipment are recorded at original cost, except for
property and equipment acquired in the business combination
which were recorded at fair value on that date. Property and
equipment are depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements
are amortized over the shorter of the useful life of the asset
or the remaining term of the facility lease.
|
|
|
Goodwill and Intangible Assets |
Goodwill represents the excess of the purchase price over the
fair value of net tangible and identifiable intangible assets
acquired in the business combination. Other intangibles
including patents, acquired technology rights and developed
technology are being amortized using the straight-line method
over estimated useful lives of seven to ten years. Goodwill and
intangible assets with indefinite lives are not amortized. We
review goodwill for impairment annually (or more frequently if
impairment indicators exist). We review other intangible assets
for impairment when indicators of impairment exists,
|
|
|
Impairment of Long-lived Assets |
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we identify
and record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the
assets might be impaired and the cash flows estimated to be
generated by those assets are less than the carrying amounts of
those assets.
Revenues are related principally to fees for services that we
perform on biological samples we receive from our customers. We
recognize revenue when persuasive evidence of an arrangement
exists, services have been rendered and materials are delivered,
the fee is fixed or determinable, and collectibility is
reasonably assured. Should conditions cause management to
determine these criteria are not met for certain transactions
then such amounts are recorded as deferred revenue.
|
|
|
Research and Development Expenses |
Research and development expenses consist primarily of costs
associated with compensation and other expenses for research and
development personnel, supplies and development materials, costs
for consultants
37
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and related contract research, facility costs, amortization of
purchased technology and depreciation. Expenditures relating to
research and development are expensed as incurred.
In our genomics services business, we enter into service
contracts to provide genetic analysis on samples provided to us
by customers. If management considers it probable that
performance on the contract will result in a loss and this loss
can be reasonably estimated, a loss reserve is recorded.
Management makes estimates of the costs to complete this genetic
analysis based on historical experience; expectations of the
nature and volume of future samples; the proportion of fixed and
variable costs; expectations with respect to production
capacity, yields and efficiency in our genomics services
business; expectations with respect to the timing and expense of
implementing our next-generation technology in our genomics
services business; the expected rate of adoption by current
customers of our next-generation technology in lieu of MPSS to
perform genetic analysis on their biological samples; and
expectations of genomic services business sample volume as a
whole, including both MPSS and our next-generation technology.
If our assumptions or conditions change, the forward loss
contingency will be adjusted accordingly.
This reserve may vary in future periods due to additional data
on our costs to process these samples; expectations of the
nature and volume of future samples; the proportion of fixed and
variable costs; expectations with respect to production
capacity, yields and efficiency in our genomics services
business; expectations with respect to the timing and expense of
implementing our next-generation technology in our genomics
services business; the expected rate of adoption by current
customers of our next-generation technology in lieu of MPSS to
perform genetic analysis on their biological samples; and
expectations of the genomic service business sample volume as a
whole, including both MPSS and our next-generation technology.
In developing our estimates for forward loss contingencies with
respect to the service contracts, we assessed the carrying value
of our fixed assets, including MPSS genetic analysis instruments
used in our genomics services businesses, for impairment. We
determined that there was no evidence of impairment at
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
|
|
|
|
2005 | |
|
2004 |
|
|
| |
|
|
|
|
(In thousands) |
Balance at beginning of year
|
|
$ |
|
|
|
$ |
|
|
Initial accrual for forward loss contracts
|
|
|
2,167 |
|
|
|
|
|
Loss experienced on completed samples
|
|
|
(708 |
) |
|
|
|
|
Reversal of forward loss accrual for completed contracts
|
|
|
(157 |
) |
|
|
|
|
Change in forward loss estimate
|
|
|
(274 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
1,028 |
|
|
$ |
|
|
|
|
|
|
|
|
|
We operate defined contribution pension plans for employees.
Contributions are expensed as they become payable into the
individuals pension plans in accordance with the rules of
the plans.
38
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic net loss per share has been computed using the
weighted-average number of shares of common stock and ordinary
shares outstanding for 2005 and ordinary shares for 2004 and
2003 during the respective periods.
Common stock equivalents including options and warrants to
purchase common shares, A ordinary stock and
B preferred redeemable convertible stock, were not
included in the computation of diluted net loss per share, as
their effect was anti-dilutive for the periods presented.
Therefore, both the basic and diluted net loss per share
computations resulted in the same number of shares, and there
were no reconciling items. The options will be included in the
calculation at such time as the effect is no longer
anti-dilutive, as calculated using the treasury stock method.
Upon the consummation of the business combination transaction,
all ordinary shares, A ordinary, and B
preferred redeemable convertible stock were exchanged for
Solexa, Inc. common shares.
The following common stock equivalents outstanding as of
December 31 were not considered in the computation of basic
and diluted net loss per share for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Options and warrants to purchase ordinary shares
|
|
|
9,178,522 |
|
|
|
2,059,144 |
|
|
|
1,052,783 |
|
A convertible ordinary shares
|
|
|
|
|
|
|
5,066,669 |
|
|
|
4,000,000 |
|
B preferred shares
|
|
|
|
|
|
|
4,444,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,178,522 |
|
|
|
11,570,257 |
|
|
|
5,052,783 |
|
|
|
|
|
|
|
|
|
|
|
We grant stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the underlying
common shares at the date of grant. We account for stock option
grants in accordance with Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for
Stock Issued to Employees, or APB 25 and related
interpretations. Under APB 25, when the exercise price of
our employee stock options equals the per share fair value of
the underlying stock on the date of grant, no compensation
expense is recognized.
For pro forma purposes, we estimate the fair value of stock
options at the date of grant using the Black-Scholes options
valuation model using the following weighted average assumptions
for the year ended December 31, 2005: risk-free interest
rate of 4.30%; an expected life of 6 years; volatility
factor of the expected market price of common stock of 103.5%;
and a dividend yield of zero. Prior to the merger, we estimated
the fair value of stock options at the date of grant using the
minimum value option valuation model using the following
weighted average assumptions for the years ended
December 31, 2004 and 2003: risk free interest rate of
3.36% and 2.84% in 2004 and 2003, respectively; an expected life
of 5 years; and a dividend yield of zero.
39
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro forma information regarding net loss and net loss per share
required by SFAS 123, as amended by SFAS 148, is
presented below and has been determined as if we had accounted
for awards under our stock option plan using the fair value
method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share | |
|
|
amounts) | |
Net loss, as reported
|
|
$ |
(29,682 |
) |
|
$ |
(10,033 |
) |
|
$ |
(5,649 |
) |
Add: Stock-based compensation to employees
|
|
|
99 |
|
|
|
|
|
|
|
|
|
Deduct: Stock-based employee compensation, as if fair value
method had been applied to all awards
|
|
|
(2,294 |
) |
|
|
(66 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss, as if fair value method had been applied to
all awards
|
|
$ |
(31,877 |
) |
|
$ |
(10,099 |
) |
|
$ |
(5,704 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share, as reported
|
|
$ |
(1.51 |
) |
|
$ |
(9.68 |
) |
|
$ |
(5.45 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per share, as if fair value
method had been applied to all awards
|
|
$ |
(1.62 |
) |
|
$ |
(9.75 |
) |
|
$ |
(5.50 |
) |
|
|
|
|
|
|
|
|
|
|
All stock option awards to non-employees are accounted for at
the fair value of the equity instrument issued, as calculated
using the Black-Scholes model, in accordance with
SFAS No. 123, Accounting for Stock-Based
Compensation, or Statement 123, and Emerging Issues
Task Force (EITF) Consensus
No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. These options are subject to periodic
re-measurement over their vesting terms.
We recorded compensation expense related to option grants to
non-employees of $10,000 in 2005. We recorded no compensation
expense related to option grants to non-employees in 2004 and
2003.
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for the way that public business enterprises report information
about operating segments in financial statements.
SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and
major customers. Our business activities include the development
and commercialization of technologies aimed at handling and/or
analyzing the DNA molecules or fragments in biological samples.
Accordingly, we operate in only one business segment. All of our
assets and revenues are derived from this activity.
Substantially all of our long-lived assets are located in the
United States and the United Kingdom. Other than property and
equipment, long-lived assets cannot be attributed to a
particular geographic location. The net book value of property
and equipment by geographical location are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
United Kingdom
|
|
$ |
973 |
|
|
$ |
1,009 |
|
United States
|
|
|
3,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,378 |
|
|
$ |
1,009 |
|
|
|
|
|
|
|
|
40
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
To date, revenues have been derived primarily from contracts
with companies located in the United States and other countries
as follows (revenues are attributed to geographic areas based on
the location of the customer, in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
United States
|
|
$ |
3,851 |
|
|
$ |
|
|
|
$ |
|
|
United Kingdom
|
|
|
181 |
|
|
|
96 |
|
|
|
7 |
|
Other
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,150 |
|
|
$ |
96 |
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be
realized.
|
|
|
Comprehensive Income (Loss) |
In accordance with SFAS No. 130, Reporting
Comprehensive Income, all components of comprehensive income
(loss), including net income (loss), are reported in the
financial statements in the period in which they are recognized.
Net income (loss) and other comprehensive income (loss),
including foreign currency translation adjustments, are
combined, net of any related tax effect, to arrive at
comprehensive income (loss).
Certain amounts in the fiscal 2004 and 2003 consolidated
financial statements have been reclassified to conform to the
current year presentation. These classifications have no impact
on our previously reported net losses. Specifically, certain
amounts in the statements of operations for the years ended
December 31, 2004 and 2003 were reclassified between
research and development expense, sales, general and
administrative expense and gain (loss) on foreign exchange.
These classifications have no impact on our previously reported
net losses.
|
|
|
Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 123R, Accounting for Share Based Payments,
or SFAS 123R. This statement is a revision of SFAS 123
Accounting for Stock Based Compensation and
supersedes Accounting Principles Board, or APB, Opinion
No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. This statement requires a
public entity to expense the cost of employee services received
in exchange for an award of equity instruments. This statement
also provides guidance on valuing and expensing these awards, as
well as disclosure requirements of these equity arrangements. In
March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 107, or SAB 107, which
provided guidance on the adoption of SFAS 123R such as
accounting for share-based payment transactions with
non-employees, valuation methods, and the classification of
compensation expense. We are adopting SFAS 123R on
January 1, 2006.
41
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS 123R permits public companies to choose between the
following two adoption methods:
|
|
|
1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of SFAS 123R for
all share-based payments granted after the effective date and
(b) based on the requirements of Statement 123 for all
awards granted to employees prior to the effective date of
SFAS 123R that remain unvested on the effective
date, or |
|
|
2. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under SFAS 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
We have elected to adopt SFAS 123R using the modified
prospective method. However, the impact of the adoption of
SFAS 123R cannot be determined at this time because it will
be depend on levels of share-based payments granted in the
future. However, the valuation of employee stock options under
SFAS 123R is similar to SFAS 123, with minor
exceptions. For information about what our reported results of
operations and net loss per common share would have been had we
adopted SFAS 123, see Stock-Based Compensation
in Note 3. Accordingly, the adoption of
SFAS 123Rs fair value method is expected to have a
significant impact on our results of operations, although it
will likely have no impact on our overall financial position.
SFAS 123R also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce
net operating cash flows and increase net financing cash flows
in periods after adoption.
|
|
4. |
Business Combination and Name Change |
On March 4, 2005, Solexa Limited, a privately held United
Kingdom company, and Lynx Therapeutics, Inc., a Delaware
corporation then listed on the Nasdaq Capital Market, completed
a business combination transaction. Solexa Limited has become a
wholly owned subsidiary of Lynx as a result of the transaction.
However, because immediately following the business combination
transaction, the former Solexa Limited shareholders owned
approximately 80% of the shares of the common stock, Solexa
Limiteds designees to the combined companys board of
directors represented a majority of the combined companys
directors and Solexa Limiteds senior management
represented a majority of the senior management of the combined
company, Solexa Limited was deemed to be the acquiring company
for accounting purposes. Accordingly, the assets and liabilities
of Lynx were recorded, as of the date of the business
combination, at their respective fair values and added to those
of Solexa Limited. Reported results of operations of the
combined company issued for the year ended December 31,
2005, reflect those of Solexa Limited, to which the operations
of Lynx were added from the date of the consummation of the
business combination. The operating results of the combined
company reflect purchase accounting adjustments. The financial
results of Solexa, Inc, prior to the business combinations,
reflect those of Solexa Limited.
Lynx issued approximately 13.8 million shares of common
stock in exchange for all of the outstanding share capital of
Solexa Limited and issued options to purchase approximately
910,000 shares of its common stock in exchange for all of
Solexa Limiteds outstanding share options.
Based on the average of the closing prices for a range of
trading days (September 24, 2004 through September 30,
2004, inclusive) around and including the announcement date of
the business combination transaction between Lynx and Solexa
Limited, the fair value of the outstanding Lynx shares was
$4.23 per share or approximately $15.9 million. The
total purchase price of $20.6 million includes the fair
value of the outstanding Lynx common stock of approximately
$15.9 million, the fair value of Lynx outstanding stock
42
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options of approximately $0.9 million, the fair value of a
loan and related interest from Solexa Limited to Lynx of
$2.7 million and direct transaction costs of approximately
$1.1 million.
Total consideration was as follows (in thousands):
|
|
|
|
|
|
Common stock
|
|
$ |
15,922 |
|
Estimated fair value of Lynx stock options assumed
|
|
|
851 |
|
Loans from Solexa to Lynx and related interest
|
|
|
2,719 |
|
Direct transaction costs of Solexa Limited
|
|
|
1,129 |
|
|
|
|
|
|
Total
|
|
$ |
20,621 |
|
|
|
|
|
The net book value of acquired assets and liabilities of Lynx,
which approximated fair value as of March 4, 2005, was as
follows (in thousands):
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
199 |
|
|
Other current assets
|
|
|
2,262 |
|
|
Property and Equipment
|
|
|
6,802 |
|
|
Other non-current assets
|
|
|
256 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
9,519 |
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current liabilities
|
|
$ |
7,223 |
|
|
Deferred revenue
|
|
|
2,861 |
|
|
Long-term liabilities
|
|
|
3,678 |
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
13,762 |
|
|
|
|
|
Net book value of acquired assets and liabilities
|
|
$ |
(4,243 |
) |
|
|
|
|
Based in part upon an independent third-party valuation of the
intangible assets acquired, we have allocated the total purchase
price on March 4, 2005 as follows (in thousands):
|
|
|
|
|
Net liabilities
|
|
$ |
(4,243 |
) |
Goodwill
|
|
|
22,529 |
|
Patents and developed technology
|
|
|
1,700 |
|
Deferred compensation
|
|
|
635 |
|
|
|
|
|
|
|
$ |
20,621 |
|
|
|
|
|
We valued the patents and developed technology utilizing a
discounted cash flow model which uses forecasts of future
royalty savings and expenses related to the intangible asset. We
utilized a discount rate of 15%. The patents and developed
technology are amortized over the estimated remaining life of
ten years. Amortization expense of acquisition-related
intangible assets was $142,000 for the year ended
December 31, 2005. As of December 31, 2005 patents and
developed technology are included in intangible assets.
The results of operations of Lynx are included in Solexas
consolidated financial statements from the date of the business
combination transaction as of March 4, 2005. The following
table presents pro forma results of operations and gives effect
to the business combination transaction as if the business
combination transaction were consummated at the beginning of the
period presented. The unaudited pro forma results of operations
are not necessarily indicative of what would have occurred had
the business combination transaction been
43
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completed at the beginning of the period or of the results that
may occur in the future (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Service revenue
|
|
$ |
5,046 |
|
|
$ |
6,429 |
|
Net loss
|
|
$ |
(40,067 |
) |
|
$ |
(24,979 |
) |
Net loss per common share basic and diluted
|
|
$ |
(1.78 |
) |
|
$ |
(1.46 |
) |
Weighted average shares used to compute basic and diluted net
loss per common share
|
|
|
22,556 |
|
|
|
17,446 |
|
In April 2004, Lynx and Solexa Limited jointly acquired certain
proprietary technology and associated assets for DNA colony
generation and entered into a technology sharing agreement (See
Note 9). No fees were recognized between Lynx and Solexa
Limited under this technology sharing agreement. In August 2004
in connection with the term sheet on the business combination,
Solexa Limited entered an agreement with Lynx to provide up to a
$2.5 million bridge loan. On December 31, 2004,
$2.5 million was outstanding under this loan (see
Note 6).
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
2005 | |
|
2004 |
|
|
| |
|
|
Raw materials
|
|
$ |
213 |
|
|
$ |
|
|
Work in process
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
754 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Raw materials consist primarily of reagents and other chemicals
utilized while performing genomics discovery services.
|
|
6 |
Loan Receivable from Lynx Therapeutics, Inc. |
The loan receivable from Lynx at December 31, 2004 carried
interest at a rate of 10%. Upon the consummation of the business
combination, the loan and accumulated interest were effectively
repaid. (See Note 4).
Prepaid expenses and other current assets consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Prepaid expenses
|
|
$ |
544 |
|
|
$ |
627 |
|
Research and development tax credit receivable
|
|
|
1,789 |
|
|
|
963 |
|
Other receivables
|
|
|
89 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
$ |
2,422 |
|
|
$ |
1,875 |
|
|
|
|
|
|
|
|
44
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8. |
Property and Equipment |
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Leasehold improvements
|
|
$ |
3,500 |
|
|
$ |
318 |
|
Laboratory and other equipment
|
|
|
6,288 |
|
|
|
2,820 |
|
|
|
|
|
|
|
|
|
|
|
9,788 |
|
|
|
3,138 |
|
Less accumulated depreciation and amortization
|
|
|
(5,410 |
) |
|
|
(2,129 |
) |
|
|
|
|
|
|
|
|
|
$ |
4,378 |
|
|
$ |
1,009 |
|
|
|
|
|
|
|
|
Depreciation and amortization for property and equipment charged
for the years ended December 31, 2005, 2004 and 2003 was
$4,385,500, $618,000 and $539,000, respectively.
The cost of assets held under capital leases at
December 31, 2005 and 2004 was $213,000 and $65,000,
respectively. Accumulated depreciation on assets under capital
leases at December 31, 2005 and 2004 was $84,000 and
$32,000, respectively.
In April 2004, Solexa Limited and Lynx jointly acquired from
Manteia SA, a company established under the laws of Switzerland,
or Manteia, the rights to proprietary technology assets for DNA
colony generation. Solexa Limited paid approximately
$2.1 million in cash for its portion. The acquired
technology assets feature a process to enable parallel
amplication of millions of DNA fragments, each from a single DNA
molecule, to create DNA colonies or clusters. The
clusters are dense collections of DNA molecules on a surface,
which has enabled fast and simplified preparation of biological
samples in the form of our Clonal Single Molecule Array
technology for analysis with our SBS reversible terminator
chemistry. We have incorporated the cluster technology assets
into our DNA sequencing process. The Lynx portion of the Manteia
technology was acquired as part of the business combination
transaction (see Note 4).
In the second quarter of 2005, we purchased intellectual
property rights related to our core reversible-terminator SBS
technology with a value of $525,000. Pursuant to this
arrangement, we paid $75,000 in cash and issued
66,175 shares of our common stock with a fair market value
of $450,000. The total purchase price amount has been
capitalized as an intangible asset, and the value is being
amortized over 10 years. We believe that there are
alternative future uses for this technology; therefore, the
value paid for this intellectual property has been capitalized
as an intangible asset.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Purchased technology
|
|
$ |
4,143 |
|
|
$ |
2,148 |
|
Accumulated amortization
|
|
|
(633 |
) |
|
|
(205 |
) |
|
|
|
|
|
|
|
Intangible assets, net
|
|
$ |
3,510 |
|
|
$ |
1,943 |
|
|
|
|
|
|
|
|
All intangible assets are being amortized on a straight-line
method over their estimated useful lives. Purchased technologies
have been assigned useful lives of between 7 and 10 years
(with a weighted average life of approximately 8.6 years).
Amortization expense related to identifiable intangible assets
was $466,000 and $205,000 in 2005 and 2004, respectively.
45
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated future amortization expense of intangible assets is as
follows (in thousands):
|
|
|
|
|
2006
|
|
$ |
496 |
|
2007
|
|
|
496 |
|
2008
|
|
|
496 |
|
2009
|
|
|
496 |
|
2010
|
|
|
496 |
|
Thereafter
|
|
|
1,030 |
|
|
|
|
|
|
|
$ |
3,510 |
|
|
|
|
|
As part of the business combination transaction with Lynx, we
assumed a short-term loan and security agreement, or the Loan
Agreement with Silicon Valley Bank, or SVB, in the aggregate
principal amount of $3,000,000. The loan bore interest at
10% per annum. On July 14, 2005, we repaid the
outstanding principal and accrued interest balances.
In connection with the Loan Agreement, Lynx issued to SVB a
warrant to purchase 47,770 shares of its common stock
at an exercise price of $6.28 per share. The value of the
warrant has been reflected as a financing cost that was
amortized as interest expense over the life of the loan. Because
of anti-dilution protection contained in the warrant that was
triggered as a result of that certain securities purchase
agreement dated April 21, 2005, the warrant became
exercisable for 59,999 shares at an exercise price of $5.00
per share. The warrant is exercisable until December 27,
2007 and was outstanding at December 31, 2005.
|
|
11. |
Other accrued liabilities |
Other accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Accrued rent
|
|
$ |
193 |
|
|
$ |
|
|
Other accrued liabilities
|
|
|
336 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
$ |
529 |
|
|
$ |
391 |
|
|
|
|
|
|
|
|
|
|
12. |
Preferred Redeemable Convertible Stock |
|
|
|
Series B Preferred Redeemable Convertible
Stock |
Series B preferred redeemable convertible shareholders were
entitled to receive a fixed dividend of 8% per annum of the
subscription price of the shares. The shares together with
accrued dividends were classified as a liability in the balance
sheet at December 31, 2004 since the shares carried certain
redemption privileges that were outside of our control. Upon the
closing of the business combination transaction, all outstanding
shares of Series B preferred redeemable convertible stock
were exchanged for shares of common stock of Solexa, Inc.
|
|
|
Ordinary and Series A Convertible Ordinary
Shares |
Upon the closing of the business combination transaction, all
outstanding ordinary shares and Series A
convertible ordinary shares of Solexa Limited were exchanged for
the shares of common stock of Solexa, Inc.
46
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under our certificate of incorporation, our board of directors
has the authority, without further action by the holders of our
common stock, to issue up to 2,000,000 shares of preferred
stock from time to time in series and with preferences and
rights as it may designate. These preferences and rights may be
superior to those of the holders of our common stock.
|
|
|
Common Stock and Warrants |
On April 21, 2005, we entered into a definitive agreement
for a private placement of approximately 8.1 million shares
of common stock at $4.00 per share and warrants to purchase
approximately 4.1 million shares of common stock at
$5.00 per share. On April 25, 2005, pursuant to the
agreement, we issued approximately 2.1 million shares of
common stock and warrants to purchase approximately
1.1 million shares of common stock, receiving gross
proceeds of approximately $8.5 million. On July 12,
2005, following receipt of stockholder approval at our 2005
annual meeting of stockholders, we issued approximately
6.0 million shares of common stock and warrants to purchase
approximately 3.0 million shares of common stock, receiving
gross proceeds of approximately $24.0 million. In
aggregate, we raised a total of approximately
$31.0 million, net of issuance costs.
In June 2005, we settled a $1.7 million balance owed to a
consultant by paying cash and issuing common stock and warrants
to purchase common stock. As provided in the settlement
agreement terms, we paid cash of $997,000 and issued
180,000 shares of our common stock, and warrants to
purchase an additional 90,000 shares of our common stock at
an exercise price of $5.00 per share. As a result of this
transaction, we recorded $987,000 of additional expense in the
twelve months ended December 31, 2005, representing the
difference between the $1.7 million amount owed and the
fair value amount of cash and stock paid to the consultant.
On November 18, 2005, Solexa entered into agreements to
issue to private investors 10.0 million shares of common
stock at $6.50 per share and warrants to purchase
approximately 3.5 million shares of common stock at an
exercise price of $7.50 per share. On November 23,
2005, pursuant to the agreements, Solexa issued approximately
3.9 million shares of common stock, $0.01 par value
per share, receiving gross proceeds of approximately
$25.0 million and warrants to purchase approximately
1.3 million shares of common stock. As a result of this
transaction, we recorded $1.7 million of financing costs in
the fourth quarter of 2005.
At the time of the business combination transaction, Lynx had
warrants outstanding for the purchase of an aggregate of
641,525 shares of common stock resulting from earlier
financing transactions. We assumed these warrant obligations.
A summary of the warrants outstanding as of December 31,
2005 is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Exercise Price | |
|
Expiration Date | |
|
|
| |
|
| |
50,540
|
|
$ |
79.52 |
|
|
|
2006 |
|
417,129
|
|
$ |
27.16 |
|
|
|
2007 |
|
20,857
|
|
$ |
21.70 |
|
|
|
2007 |
|
74,400
|
|
$ |
19.82 |
|
|
|
2008 |
|
18,600
|
|
$ |
18.74 |
|
|
|
2008 |
|
1,348,145
|
|
$ |
7.50 |
|
|
|
2010 |
|
59,999
|
|
$ |
5.00 |
|
|
|
2007 |
|
4,098,544
|
|
$ |
5.00 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
6,088,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
Stock Option Plans and Stock-based Compensation |
We have six equity incentive plans as follows:
|
|
|
The Solexa Share Option Plan for Consultants |
This plan was adopted by us on April 14, 1999. Options have
been granted under this plan to consultants of Solexa Limited
and vest over four years from the date of grant with 25% vesting
on the first anniversary of the date of grant, and the remainder
vesting at the rate of 1/36 per complete month thereafter.
Options only become exercisable after the third anniversary of
the date of grant, to the extent they have vested, and options
have a 10-year term,
unless earlier forfeited.
|
|
|
The Solexa Unapproved Company Share Option Plan |
This plan was adopted by the Solexa Limited on January 23,
2001. Options have been granted under the unapproved plan to
employees of Solexa Limited and generally vest over four years
from the date employment starts (or for subsequent awards, from
the date awarded) with 25% vesting on the first anniversary of
the date of grant, and the remainder vesting at the rate of
1/36 per complete month thereafter. Options are exercisable
once vested and have a
10-year term unless
earlier forfeited.
|
|
|
The Solexa Ltd Enterprise Management Incentive Plan |
This plan was adopted by the Solexa Limited on May 22,
2002. Options have been granted under this plan to employees of
Solexa Limited and generally vest over four years from the date
employment starts (or for subsequent awards, from the date
awarded) with 25% vesting on the first anniversary of the date
of grant, and the remainder vesting at the rate of 1/36 per
complete month thereafter. Options are exercisable once vested
and have a 10-year term
unless earlier forfeited.
During 2003, 137,450 options which had conditional vesting terms
dependent upon milestone achievement were granted to all
employees of Solexa Limited. As at June 30, 2004 the Board
had agreed that 50% of the award should start vesting on
April 1, 2004 with the remaining 50% on June 1, 2004.
In connection with the business combination transaction, we
assumed the Lynx 1992 Stock Option Plan, or the Lynx 1992 Plan,
which authorized up to 1,535,526 shares of common stock for
issuance. (See Note 4). At our annual stockholders meeting
on July 7, 2005, and in connection with the approval of our
2005 Equity Incentive Plan, or the 2005 Incentive Plan,
178,767 shares remaining available for issuance under
future option rights under the Lynx 1992 Plan were transferred
for issuance under future option grants under the 2005 Incentive
Plan.
Under the Lynx 1992 Plan, the exercise price of incentive stock
options may not be less than 100% of the fair market value of
Lynxs common stock at the date of grant. The exercise
price of nonqualified options may not be less than 85% of the
fair market value of Lynxs common stock at the date of
grant. Options generally vest over a five-year period from the
date of grant and have a term of ten years. In the case of
incentive stock options granted to a person who owns more than
10% of the total combined voting power of all classes of stock
of Lynx, the exercise price may not be less than 110% of the
fair market value of Lynxs common stock at the date of
grant and the term cannot exceed five years. As of
December 31, 2005, all options granted under the 1992 Plan
were nonqualified options.
48
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
2005 Equity Incentive Plan |
In June 2005, the Board adopted, and the stockholders
subsequently approved, our 2005 Incentive Plan. The 2005
Incentive Plan is for a ten year term and authorizes for
issuance 1,978,767 shares of common stock which includes
178,767 shares of common stock that were previously held in
reserve under Lynx 1992 Plan but were unused. Additionally, if
any outstanding stock options granted under the Lynx 1992 Plan
expire or terminate without being exercised, the shares of
common stock that are not acquired under such stock options
shall revert to, and become available for issuance under, the
2005 Incentive Plan. The maximum aggregate number of additional
shares of common stock that may revert to the 2005 Incentive
Plan in this manner is 1,171,737 shares.
Under the 2005 Incentive Plan, the exercise price of incentive
stock options may not be less than 100% of the fair market value
of our common stock at the date of grant. The exercise price of
nonqualified options may not be less than 100% of the fair
market value of our common stock at the date of grant. Options
generally vest over a five-year period from the date of grant
and have a term of ten years. In the case of incentive stock
options granted to a person who owns more than 10% of the total
combined voting power of all classes of our stock, the exercise
price may not be less than 110% of the fair market value of our
common stock at the date of grant and the term cannot exceed
five years.
Stock option activity under the above plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
Number | |
|
Exercise | |
|
Number | |
|
Exercise | |
|
Number | |
|
Exercise | |
|
|
of Shares | |
|
Price | |
|
of Shares | |
|
Price | |
|
of Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balances at January 1
|
|
|
912,582 |
|
|
$ |
2.42 |
|
|
|
466,578 |
|
|
$ |
3.51 |
|
|
|
348,805 |
|
|
$ |
4.16 |
|
Options assumed in business combination
|
|
|
356,316 |
|
|
|
19.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,133,827 |
|
|
|
6.10 |
|
|
|
468,719 |
|
|
|
1.37 |
|
|
|
127,394 |
|
|
|
1.79 |
|
Options exercised
|
|
|
(145,795 |
) |
|
|
2.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(166,622 |
) |
|
|
16.53 |
|
|
|
(22,715 |
) |
|
|
2.17 |
|
|
|
(9,621 |
) |
|
|
4.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31,
|
|
|
3,090,308 |
|
|
|
6.15 |
|
|
|
912,582 |
|
|
|
2.42 |
|
|
|
466,578 |
|
|
|
3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares exercisable
|
|
|
932,317 |
|
|
$ |
7.77 |
|
|
|
344,109 |
|
|
$ |
3.73 |
|
|
|
236,554 |
|
|
$ |
3.98 |
|
49
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes additional information about
options outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
|
|
|
|
|
|
|
Outstanding | |
|
|
|
Options Exercisable | |
|
|
|
|
Weighted | |
|
|
|
| |
|
|
Number | |
|
Average | |
|
|
|
Number | |
|
|
|
|
Outstanding | |
|
Remaining | |
|
Weighted | |
|
Exercisable | |
|
Weighted | |
|
|
As of | |
|
Contractual | |
|
Average | |
|
As of | |
|
Average | |
Range of Exercise Prices |
|
12/31/05 | |
|
Term | |
|
Exercise Price | |
|
12/31/05 | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$1.28 - $2.31
|
|
|
487,110 |
|
|
|
8.43 |
|
|
$ |
1.41 |
|
|
|
188,697 |
|
|
$ |
1.49 |
|
$2.31 - $4.38
|
|
|
326,713 |
|
|
|
6.08 |
|
|
$ |
4.18 |
|
|
|
306,713 |
|
|
$ |
4.18 |
|
$4.38 - $6.39
|
|
|
2,150,051 |
|
|
|
9.54 |
|
|
$ |
6.10 |
|
|
|
348,055 |
|
|
$ |
6.22 |
|
$6.39 - $8.50
|
|
|
78,131 |
|
|
|
8.64 |
|
|
$ |
8.10 |
|
|
|
44,709 |
|
|
$ |
7.96 |
|
$8.50 - $10.78
|
|
|
38,623 |
|
|
|
4.60 |
|
|
$ |
9.42 |
|
|
|
35,172 |
|
|
$ |
9.62 |
|
$10.78 - $21.56
|
|
|
3,286 |
|
|
|
6.22 |
|
|
$ |
20.05 |
|
|
|
2,577 |
|
|
$ |
20.06 |
|
$21.56 - $220.50
|
|
|
4,609 |
|
|
|
3.23 |
|
|
$ |
184.04 |
|
|
|
4,609 |
|
|
$ |
184.04 |
|
$220.50 - $1,074.50
|
|
|
1,785 |
|
|
|
4.15 |
|
|
$ |
1,074.50 |
|
|
|
1,785 |
|
|
$ |
1,074.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.28 - $1,074.50
|
|
|
3,090,308 |
|
|
|
8.90 |
|
|
$ |
6.15 |
|
|
|
932,317 |
|
|
$ |
7.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Employee Stock Purchase Plan |
In connection with the business combination transaction, we
assumed the Lynx 1998 Employee Stock Purchase Plan, or the
Purchase Plan. The Purchase Plan authorized the issuance of
51,684 shares of common stock pursuant to purchase rights
granted to our employees and is intended to be an employee
stock purchase plan as defined in Section 423 of the
Internal Revenue Code. As of December 31, 2005, a total of
37,618 shares remained available for future issuance. In
early 2003, pursuant to our transfer from the Nasdaq National
Market to the Nasdaq Capital Market, Lynx suspended its Purchase
Plan, and no shares were issued in 2005.
On May 17, 2005, the Board of Directors of Solexa approved
a workforce restructuring plan designed to reflect Solexas
ongoing transition from its
MPSStm
technology to the development and commercialization of the
next-generation Solexa Genome Analysis System. The restructuring
plan, which was initiated on May 18, 2005, involved a
workforce reduction of approximately 17% and left Solexa with a
post-reduction workforce of approximately 116 employees in the
United States and United Kingdom. The workforce reduction
included positions in most functional areas of Solexa.
Accordingly, we recognized a restructuring charge of $333,000
during the second quarter for severance and benefits related to
the involuntary termination of approximately 24 employees. At
December 31, 2005, all amounts related to restructuring
have been paid-in-full.
We operate a defined contribution group personal pension plan
for substantially all of our United Kingdom employees. At the
time of the business combination transaction, we assumed the
Lynx 401(k) Plan, also a defined contribution plan. Pursuant to
the 401(k) Plan, employees in the United States may elect to
reduce their current compensation by up to 25% (subject to an
annual limit prescribed by the Internal Revenue Code) and have
the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional
contributions to the 401(k) Plan by us on behalf of all
participants in the 401(k) Plan. Company contributions to the
plans totaled $415,000, $355,000 and $286,000 in the years ended
December 31, 2005, 2004 and 2003, respectively.
50
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the accompanying statements of operations, Loss before
provision for income taxes includes the following
components for the years ended December 31, 2005, 2004, and
2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Year Ended December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Domestic
|
|
$ |
(14,101 |
) |
|
$ |
|
|
|
$ |
|
|
Foreign
|
|
|
(18,058 |
) |
|
|
(9,720 |
) |
|
|
(6,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(32,159 |
) |
|
$ |
(9,720 |
) |
|
$ |
(6,356 |
) |
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current foreign
|
|
$ |
(2,999 |
) |
|
$ |
(916 |
) |
|
$ |
(707 |
) |
|
|
|
|
|
|
|
|
|
|
The reconciliation of income tax expense
(benefits) attributed to continuing operations computed at
the statutory rates to income tax expense (benefit) for the
fiscal years ended December 31, 2005, 2004, and 2003 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Tax provision (benefit) at statutory rate (US for 2005, UK for
2004 and 2003)
|
|
$ |
(10,934 |
) |
|
$ |
(2,916 |
) |
|
$ |
(1,907 |
) |
|
Refundable research tax credit
|
|
|
(2,999 |
) |
|
|
(916 |
) |
|
|
(707 |
) |
|
Loss for which no tax benefit is currently recognizable
|
|
|
10,934 |
|
|
|
2,893 |
|
|
|
1,897 |
|
|
Other
|
|
|
|
|
|
|
23 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(2,999 |
) |
|
$ |
(916 |
) |
|
$ |
(707 |
) |
|
|
|
|
|
|
|
|
|
|
Our net income tax benefit was approximately $3.0 million,
$916,000 and $707,000 in 2005, 2004 and 2003, respectively.
These amounts result from refundable research credits allowed by
the United Kingdom Inland Revenue.
Deferred income taxes reflect the next tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets, net:
|
|
|
|
|
|
|
|
|
U.S. Federal and state net operating losses
|
|
$ |
43,990 |
|
|
$ |
|
|
Foreign net operating losses
|
|
|
10,033 |
|
|
|
5,947 |
|
U.S. Federal and state research and development credits
|
|
|
6,888 |
|
|
|
|
|
Capitalized research and development expenditures
|
|
|
2,703 |
|
|
|
|
|
Depreciation and amortization
|
|
|
2,372 |
|
|
|
(302 |
) |
Reserves and accruals
|
|
|
3,061 |
|
|
|
17 |
|
Valuation allowance
|
|
|
(69,047 |
) |
|
|
(5,662 |
) |
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, a valuation allowance, in an amount equal to the
net deferred tax assets as
51
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of December 31, 2005 and 2004 has been established to
reflect these uncertainties. Approximately $24.0 million of
the valuation allowance was attributable to acquisition related
items that, if and to the extent realized in future periods,
will first reduce the carrying value of goodwill and then other
long-lived intangible assets. The change in the valuation
allowance was a net increase of $63.4 million,
$2.0 million, and $1.4 million for the years ended
December 31, 2005, 2004 and 2003, respectively. Deferred
tax assets related to carry forwards at December 31, 2005
include approximately $3.9 million associated with stock
option activity for which subsequently recognized tax benefits
will be credited directly to stockholders equity.
As of December 31, 2005, the Company had a federal net
operating loss carryforwards of approximately
$118.8 million, which will expire at various dates from
2010 through 2025, if not utilized. The Company has a state net
operating loss carryforwards of approximately $59.7 million
which will expire in the years 2012 through 2015.
As of December 31, 2005, the Company had foreign net
operating loss carryforwards of approximately
$33.0 million, which have an unlimited carryforward period.
As of December 31, 2005, the Company also had federal and
California research and development and other tax carryforwards
of approximately $9.0 million and $3.9 million
respectively. The federal research credits will expire at
various dates from 2007 through 2025, if not utilized. The
California research credits do not expire.
Utilization of the Companys net operating loss may be
subject to substantial annual limitations due to the ownership
change limitations provided by the Internal Revenue Code and
similar state provisions. Such an annual limitation could result
in the expiration of the net operating loss before utilization.
As part of the business combination transaction with Lynx, we
assumed non-cancelable operating leases for facilities space of
approximately 148,000 square-feet in two buildings in
Hayward, California. Our corporate headquarters,
U.S. research and development facilities and genomics
services facilities are located in one of the two buildings. We
expect that the remaining space will be developed and occupied
in phases, depending on our growth. The leases expire on
December 14, 2008. Under the terms of the leases, the
monthly rental payments are subject to annual consumer price
index-based adjustments, with minimum and maximum limits. We are
recognizing rent expense on a straight-line basis over the lease
period. We have the option to extend the lease for an additional
five-year period, subject to certain conditions, with payments
to be determined at the time of the exercise of the option.
In 2003, we leased approximately 16,000 square feet in
Little Chesterford, United Kingdom. This space is occupied by
Solexa Limited, our wholly-owned subsidiary. The lease expired
in 2005, and we are presently negotiating a renewal of the
lease. In the interim, we are occupying the space under a
tenancy at will arrangement with the same terms and
conditions as the expired lease. We believe that the lease can
be renewed on satisfactory terms or that alternative facilities
can be found nearby on satisfactory terms.
Rent expense for facilities under operating leases was
$1,138,000 in 2005, $293,000 in 2004, and $217,000 in 2003.
The net book value of property and equipment financed through
capital leases and long-term obligations was $119,000, $32,000
and $50,000 at December 31, 2005, 2004 and 2003,
respectively. The obligation under the equipment loans is
collateralized by the equipment financed, bears interest at 10%
and is due in monthly installments.
52
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Annual future minimum payments are as follows at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
|
|
Leases | |
|
Leases | |
|
|
| |
|
| |
|
|
(In thousands) | |
2006
|
|
$ |
34 |
|
|
$ |
2,844 |
|
2007
|
|
|
33 |
|
|
|
2,932 |
|
2008
|
|
|
13 |
|
|
|
2,906 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
80 |
|
|
$ |
8,682 |
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum lease payments
|
|
|
71 |
|
|
|
|
|
Less current portion
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
|
|
|
As part of the business combination with Lynx, we assumed a
research collaboration agreement with E.I. DuPont de Nemours and
Company, or DuPont, to apply our MPSS technologies on an
exclusive basis to the study of certain crops and their
protection. Under the terms of the agreement, we provide MPSS
services to enhance DuPonts discovery and development of
new agricultural traits and products. This multi-year research
collaboration agreement obligates us to provide MPSS services
through 2008, subject to the unilateral right of DuPont to
terminate the contract in 2006. DuPont has the obligation to pay
us $2.5 million per year through the termination of the
contract. However, we are currently in negotiations to amend
this research collaboration agreement in light of our intention
to discontinue MPSS operations and to transition our genomics
services business to our next-generation instrument system. From
the date of the business combination, we received services fees
of $1.9 million in 2005 under this agreement, and we had
$1.1 million in deferred revenue in connection with this
contract at December 31, 2005.
|
|
19. |
Related Party Transactions |
Dr. Shankar Balasubramanian, a director of Solexa Limited,
received $36,424, $37,000, and $37,000 for consulting services
during 2005, 2004 and 2003, respectively. On September 6,
2005, Dr. Balasubramanian was granted a stock option to
purchase 40,000 shares of Solexa, Inc. common stock in
consideration of consulting services. The exercise price of the
stock option is $5.97 per common share, and the term is ten
years. The stock option vests ratably over a four-year period.
The fair value of the stock option will be recognized as
research and development expense as the related services are
rendered. As of December 31, 2005, no amounts were payable
to Dr. Balasubramanian.
Dr. Timothy Rink, a director of Solexa Limited, earned
$7,923, $51,000, and $20,000 for consulting services provided
during 2005, 2004 and 2003, respectively. As of
December 31, 2005, no amounts were payable to Dr. Rink.
Dr. Stephen Allen, a director of Solexa, Inc. and Solexa
Limited, was paid $37,000 for consulting services during 2004.
Solexa paid $179,454 and $29,000 for consulting services
provided during 2005 and 2004, respectively by i2r Ltd, a
private company of which Dr. Allen is a shareholder and a
director. As of December 31, 2005, $11,846 was outstanding
under this arrangement.
During 2005 and 2004, Solexa Limited incurred $53,892 in fees
paid to to Abingworth Management Inc. and $155,000 to Abingworth
Management Ltd, members of a group of companies that manages
funds that are collectively significant holders of Solexa, Inc.
common stock. These liabilities were incurred for salary and
expenses of John West in respect of his services as a director
and Chief Executive Officer of Solexa Limited and for consulting
services provided by Abingworth Management Ltd. As of
December 31, 2005, no amounts
53
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were outstanding and these arrangements have been terminated.
Claire Wilkinson, an employee of Abingworth Management Limited,
earned $25,267 for consulting services in 2005. As of
December 31, 2005, no amounts were outstanding.
During fiscal 2005, we held an equity investment in Axaron
Bioscience AG, or Axaron, a company owned primarily by us and
BASF Aktiengesellschaft AG, or BASF, that was originally
acquired by Lynx. On October 21, 2005, we sold all
remaining stock to BASF. During the fourth quarter of 2005, we
recorded approximately $496,000 of other income in connection
with the sale.
During 2005, we had a technology licensing agreement with
Axaron, which allowed Axaron to use our proprietary MPSS and
Megasort technologies non-exclusively in Axarons
neuroscience, toxicology and microbiology programs until
December 31, 2007. Lynx had received from Axaron a
$5.0 million technology license fee, which was recorded as
deferred revenue and was being recognized on a straight-line
basis over the non-cancelable term of the agreement. As part of
the purchase accounting related to the business combination, the
deferred revenue balance was reduced to zero since Lynx had no
further legal performance obligation related to the Axaron
contract. In accordance with APB 18, we do not apply the
equity method as our investment in Axaron has been reduced to
zero and no pro-rata share of Axaron losses has been reflected
in the Condensed Consolidated Statement of Operations for the
year ended December 31, 2005.
The technology licensing agreement was terminated in connection
with the sale to BASF of all remaining stock held by us.
On November 18, 2005, Solexa entered into an agreement to
issue to private investors 10.0 million shares of common
stock at $6.50 per share and five-year warrants to purchase
approximately 3.5 million shares of common stock at an
exercise price of $7.50 per share. On November 23,
2005, pursuant to the agreement, Solexa issued approximately
3.9 million shares of common stock and warrants to purchase
approximately 1.3 million shares of common stock, receiving
net proceeds of approximately $23.3 million. Upon receipt
of stockholder approval, the second tranche was completed
on January 19, 2006. We issued approximately
6.1 million shares of common stock and warrants to purchase
approximately 2.2 million shares of common stock, receiving
net proceeds of approximately $37.7 million. In aggregate,
we raised a total of approximately $61.0 million, net of
issuance costs, from the two tranches.
54
SOLEXA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
21. |
Quarterly Results (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
Sept. 30 | |
|
Dec. 31 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
605 |
|
|
$ |
1,399 |
|
|
$ |
844 |
|
|
$ |
1,302 |
|
Loss from operations
|
|
$ |
(5,261 |
) |
|
$ |
(9,040 |
) |
|
$ |
(10,711 |
) |
|
$ |
(7,331 |
) |
Net loss
|
|
$ |
(5,782 |
) |
|
$ |
(9,385 |
) |
|
$ |
(10,802 |
) |
|
$ |
(3,713 |
) |
Basic and diluted net loss per common share
|
|
$ |
(0.96 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.43 |
) |
|
$ |
(0.13 |
) |
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
17 |
|
|
$ |
24 |
|
|
$ |
31 |
|
|
$ |
24 |
|
Income (loss) from operations
|
|
$ |
(2,103 |
) |
|
$ |
(2,226 |
) |
|
$ |
(3,297 |
) |
|
$ |
(2,496 |
) |
Net loss
|
|
$ |
(2,026 |
) |
|
$ |
(2,190 |
) |
|
$ |
(3,185 |
) |
|
$ |
(2,632 |
) |
Basic and diluted net loss per common share
|
|
$ |
(1.96 |
) |
|
$ |
(2.11 |
) |
|
$ |
(3.07 |
) |
|
$ |
(2.54 |
) |
Net income (loss) per share amounts have been restated to
reflect the effects of the conversion of ordinary common shares
of Limited into common stock of Solexa. Basic and diluted net
loss per share is computed independently for each of the
quarters presented. Therefore, the sum of the quarters may not
be equal to the full year net loss per share amounts.
55
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Prior to consummation on March 4, 2005 of the business
combination between Solexa Limited and Lynx, Lynx had engaged
Ernst & Young LLP, Palo Alto, California, a limited
liability partnership, or the US Auditors, as its independent
registered public accounting firm. In addition, prior to the
consummation of the business combination, Solexa Limited had
engaged Ernst & Young LLP, Cambridge, England, a limited
liability partnership registered in England and Wales, or the UK
Auditors, as its independent auditors. Following the
consummation of the business combination, with the approval of
the Audit Committee of our Board of Directors, we engaged the US
Auditors as our registered independent public accounting firm
for 2006 thereby effectively dismissing the UK Auditors as our
independent auditor. There were no disagreements or other
reportable events in connection with the dismissal of the UK
Auditors.
|
|
Item 9A. |
Controls and Procedures |
Disclosure Controls and Procedures
Based on managements evaluation, our Chief Executive
Officer and Vice President and Chief Financial Officer have
concluded that as a result of the material weakness discussed
below, our disclosure controls and procedures (as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) were not effective
in providing reasonable assurance that the information required
to be disclosed by us in this annual report on
Form 10-K was
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and
Form 10-K.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. As of
December 31, 2005, management has determined a material
weakness exists in our ability to maintain effective controls
over the application of generally accepted accounting principles
(GAAP) related to the financial reporting process.
We currently have limited financial personnel and they do not
possess sufficient depth, skills and experience to ensure that
all transactions are accounted for in accordance with GAAP.
Additionally, we have insufficient formalized procedures to
assure that transactions receive adequate review by accounting
personnel with sufficient technical accounting expertise.
The ineffective control over the application of GAAP related to
the financial reporting process could result in a material
misstatement to our annual or interim financial statements that
may not be prevented or detected. This control deficiency
resulted in numerous adjustments being required to bring our
financial statements into compliance with GAAP. The impact of
these adjustments did not cause the restatement of any of our
previously issued financial statements.
Steps to Address Material Weakness
In 2005, we hired a Vice President and Chief Financial Officer
to improve the overall quality and level of experience of our
financial organization. We are recruiting additional finance and
accounting personnel to fill multiple open positions in the
finance organization. However, in March 2006, our controller
announced her decision to terminate her position with us
effective April 30, 2006. We have updated our procedures,
including those with respect to revenue recognition,
depreciation, physical inventory monitoring, accruals and
accounting for deferred revenue. We are in the process of
reviewing our control procedures surrounding monthly account
reconciliations, support for manual journal vouchers and the
review of the monthly close to determine any additional steps
necessary to remediate the material weakness.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2005 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
56
Limitations on the Effectiveness of Controls
Our management, including our chief executive officer and chief
financial officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error
and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the company have
been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under
all potential future conditions; over time, control may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
|
|
Item 9B. |
Other Information |
Not applicable.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Our executive officers and directors, and their ages as of
March 10, 2006, are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
John West
|
|
|
49 |
|
|
Chief Executive Officer, Director
|
Peter Lundberg
|
|
|
45 |
|
|
Vice President and Chief Technical Officer
|
Omead Ostadan
|
|
|
34 |
|
|
Vice President, Marketing
|
Linda Rubinstein
|
|
|
39 |
|
|
Vice President and Chief Financial Officer
|
Kathy A. San Roman
|
|
|
52 |
|
|
Vice President, Human Resources & Administration
|
Mary L. Schramke, Ph.D.
|
|
|
51 |
|
|
Vice President and General Manager,
Genomic Services
|
Tony Smith, Ph.D.
|
|
|
49 |
|
|
Vice President and Chief Scientific Officer
|
Craig C. Taylor(1)(2)
|
|
|
54 |
|
|
Chairman of the Board
|
Stephen D. Allen, Ph.D.
|
|
|
46 |
|
|
Director and Principal Scientific Advisor
|
Douglas M. Fambrough, Ph.D.(3)
|
|
|
37 |
|
|
Director
|
Hermann Hauser, Ph.D.(2)(3)
|
|
|
55 |
|
|
Director
|
Genghis Lloyd-Harris, M.D., Ph.D.(1)(2)(3)
|
|
|
47 |
|
|
Director
|
G. Mason Morfit, CFA(1)(2)
|
|
|
30 |
|
|
Director
|
|
|
(1) |
Member of the Audit Committee |
|
(2) |
Member of the Compensation Committee |
|
(3) |
Member of the Nominating Committee |
John West joined the company in March 2005 as Chief
Executive Officer and director upon the completion of the
business combination with Solexa Limited. From August 2004 to
March 2005, Mr. West served as Chief Executive Officer and
a director of Solexa Limited. From January 2001 to July 2004,
57
Mr. West was Vice President at Applied Biosystems, Inc., or
ABI, where he was responsible for the companys instrument
and reagent products for DNA sequencing, gene expression,
genotyping, PCR and DNA synthesis. From January 1999 to January
2001, Mr. West was the Marketing Director for Microfluidics
at Coventor, Inc. (aka Microcosm Technologies, Inc.). From 1996
to June 1998, Mr. West was the President of Princeton
Instruments, Inc., and from June 1990 to 1996 he was a General
Manager at Princeton Instruments, Inc. Prior to Princeton
Instruments, Inc., Mr. West was the President and founder
of BioAutomation, Inc. Mr. West received BS and MS degrees
in Engineering from MIT and an MBA in Finance from the Wharton
School at the University of Pennsylvania.
Peter Lundberg joined the company in March 2005 as Vice
President and Chief Technical Officer. Prior to joining the
company, from 1997 to March 2005, Mr. Lundberg held several
positions at ABI, most recently as the Vice President, DNA
Platforms R&D, where he was responsible for the development
of instrument systems spanning DNA sequencing, gene expression
and genotyping. Mr. Lundberg received his BS and MS degrees
in Engineering Physics at Chalmers Technical University in
Sweden. Mr. Lundberg holds an MBA, with a concentration in
Finance, from the University of Connecticut.
Omead Ostadan joined Solexa in June 2005 from Applied
Biosystems, Inc., or ABI, where he was Senior Product Line
Manager, Gene Expression Platforms. During his tenure at ABI,
Mr. Ostadan held P&L responsibilities for a range of
product lines, including the High Throughput DNA Sequencing
product line, comprised of the Applied Biosystems 3700 DNA
Sequencer, the Applied Biosystems 3730xl Genetic Analyzer and
all associated reagents, consumables, and chemistry. While at
ABI, Mr. Ostadan also led the marketing efforts on the
Applied Biosystems 3730xl Genetic Analyzer, which currently
populates virtually all state-of-the-art sequencing facilities
worldwide. Mr. Ostadan holds a BSc in Biochemistry from the
University of California, Davis.
Linda Rubinstein joined Solexa in March 2005 as Vice
President and Chief Financial Officer. Ms. Rubinstein
brings more than 16 years of life sciences industry and
financial experience to the company. From January 2004 to March
2005, as principal of RDJ Advisors, a financial and business
operations consulting firm, she provided strategic planning and
financial transaction expertise to biotechnology companies. From
October 2001 to December 2003, Ms. Rubinstein served as
Vice President of Finance at privately held ChemoCentryx, Inc.,
where she developed and implemented the financial strategy that
took the company from early-stage drug discovery into clinical
development. Among her responsibilities at ChemoCentryx, she
served on the executive and development committees, directed
intellectual property and oversaw operations. Prior to joining
ChemoCentryx, from April 1993 to June 2001, Ms. Rubinstein
was an investment banker at Lehman Brothers, most recently
Senior Vice President in the Global Healthcare Group. Prior to
Lehman Brothers, she worked in investment banking at Scully
Brothers & Foss and Merrill Lynch Capital Markets.
Ms. Rubinstein sits on the board of JVS, a non-profit
organization. She holds BA and MA degrees in economics from the
University of California, Los Angeles.
Kathy A. San Roman joined the company in August 1992
as Director of Administration and was appointed Vice President,
Human Resources and Administration in January 1999. She served
as Acting Chief Financial Officer from March 2004 to March 2005.
Prior to joining Lynx, from June 1982 through July 1989,
Ms. San Roman held numerous positions at ABI,
including, most recently, Corporate Secretary. From February
1991 to July 1992, Ms. San Roman was Associate
Director, Investor Relations at Informix Corporation, a software
development company.
Mary L. Schramke, Ph.D. was appointed Vice President
and General Manager of Genomic Services in March 2005. From
December 2004 to March 2005, Dr. Schramke was Acting Chief
Executive Officer of the company. Dr. Schramke joined the
company in February 2003 as Senior Director of Business
Development and in April 2004 was appointed Vice President of
Product Development. From 1999 to 2002, Dr. Schramke held
increasing levels of responsibility at Hyseq Pharmaceuticals,
Inc., a biopharmaceuticals company, most recently as Vice
President of Business Development. From 1998 to 1999,
Dr. Schramke served as a Director of Business Development
for Cellomics, Inc., a provider of screening tools and
informatics products for drug discovery. From 1996 to 1998,
Dr. Schramke was a Senior Product Manager at CLONTECH
Laboratories, Inc., a provider of biological products to the
life sciences, and from 1991 to 1996 she held several marketing
58
positions of increasing responsibility at Bio-Rad Laboratories,
Inc., a provider of tools to the life sciences and clinical
diagnostics markets. Dr. Schramke holds a Ph.D. in
microbiology from Louisiana State University, Baton Rouge and
completed her post-doctoral training in genetics at the
University of Missouri-Columbia. Dr. Schramke also holds an
MBA from John F. Kennedy University.
Tony Smith, Ph.D. joined Solexa in March 2005 as
Vice President and Chief Scientific Officer upon the completion
of the business combination with Solexa Limited. Dr. Smith
was Chief Technology Officer at Solexa Limited from January 2002
to March 2005. Prior to Solexa Limited, Dr. Smith was Vice
President R&D, at Amersham Biosciences, United Kingdom
(previously Amersham Pharmacia Biotech), or Amersham, from 1999
to 2002. Previously, he was an executive director of Gemini
Genomics, responsible for business and technology development.
Before that, he held a series of R&D management positions
with Amersham. Dr. Smith holds a BSc in Biochemistry and
Chemistry and Ph.D. in Biochemistry from Nottingham University.
Craig C. Taylor was elected Chairman of the Board in
2000, has served as a director of the company since 1994 and
served as Acting Chief Financial Officer from July 1994 to April
1997. He has been active in venture capital since 1977, when he
joined Asset Management Company, a venture capital firm. He is a
general partner of AMC Partners 89 L.P., which serves as the
general partner of Asset Management Associates 1989 L.P., a
private venture capital partnership. He currently serves as a
director of Pharmacyclics, Inc., a biotechnology company, Adeza
Biomedical, a medical technology company and several private
companies.
Stephen D. Allen, Ph.D. became a director of Solexa
in March 2005 upon the completion of the business combination
with Solexa Limited. Dr. Allen has been director of Solexa
Limited since January 2004. Dr. Allen, an independent
consultant, was previously with Mettler-Toledo Intl. Inc. from
2000 to 2004, as Head of Automated Chemistry, in which role he
has been responsible for the acquisition and integration of a
series of companies focused on drug discovery tools. From 1999
to 2000, Dr. Allen was Vice President of European
Operations for Perkin-Elmer Instruments and from 1983 to 1999,
Dr. Allen held a series of senior management positions in
the United Kingdom and United States for PE Corporation (now
Applera Corp), including General Manager of a spectroscopy
business and Vice President of Product Development.
Dr. Allen holds a BSc and Ph.D. in Chemistry from
Nottingham University. Dr. Allen is currently a director of
XCounter AB in Danderyd, Sweden.
Douglas M. Fambrough, Ph.D., is a Principal with Oxford
Bioscience Partners and became a Director of Solexa in July
2005. Dr. Fambrough focuses on investments in
technology-based life sciences companies. Among his recent
projects, he led Oxfords investments in Solstice
Neurosciences, a neurology specialty pharma company, and in
Sirna Therapeutics, an RNA interference-based drug discovery and
development company. Dr. Fambrough represents Oxford on the
boards of those companies and acts as a board observer to
Cambrios Technologies Corp. Prior to joining Oxford in 1999,
Dr. Fambrough spend 10 years in academic research,
most recently at the Whitehead/MIT Center for Genome Research.
He graduated from Cornell University and holds a Ph.D. in
genetics from the University of California, Berkeley.
Hermann Hauser, Ph.D., became a director of Solexa
in March 2005 upon the completion of the business combination
with Solexa Limited. Dr. Hauser had been a director of
Solexa Limited since July 2004. Dr. Hauser has founded,
co-founded and backed over 20 information technology companies,
including Acorn Computer Group and Virata (now GlobespanVirata).
While working at Olivetti as Vice President, Research, he
established Olivettis global network of research
laboratories. In 1997, he co-founded Amadeus Capital Partners
Ltd., a venture capital company specializing in high-technology
investments. He has served as a Director of Amadeus since that
time. Dr. Hauser holds an MA in Physics from Vienna
University and a Ph.D. in Physics from the University of
Cambridge. He is a Fellow of the Institute of Physics and of the
Royal Academy of Engineering, an honorary Fellow of Kings
College, Cambridge and in 2001 was awarded an honorary CBE for
innovative service to the UK enterprise sector.
Genghis Lloyd-Harris, M.D., Ph.D., MBA became a
director of Solexa in March 2005 upon the completion of the
business combination with Solexa Limited. Dr. Lloyd-Harris
had been a director of Solexa Limited since June 2004. Since
April 2004, Dr. Lloyd-Harris has been at Abingworth
Management, a venture
59
capital firm in the U.K. From 1996 to 2004,
Dr. Lloyd-Harris was a biotechnology equity research
analyst at Credit Suisse First Boston in the European Equity
Research Group, based in London. From 1989 to 1996,
Dr. Lloyd-Harris worked for Credit Suisse First
Bostons Health Care Group in the Investment Banking
Division in New York and London. From 1981 to 1987, Dr
Lloyd-Harris was a pediatrician in Melbourne, Australia.
Dr. Lloyd-Harris holds a Medical Degree from the University
of Liverpool in the U.K., a Ph.D. in Clinical Pharmacology from
the University of Melbourne, Australia, and an MBA from Harvard
Business School.
G. Mason Morfit, CFA, was appointed to the Solexa
board of directors in April 2005. Mr. Morfit has been a
Partner of ValueAct Capital since January 2003 and was an
associate at ValueAct Capital from January 2001 to December
2002. Prior to joining ValueAct Capital, Mr. Morfit worked
in equity research for Credit Suisse First Boston following the
managed care and physician services industries from 1998 to
2000. Mr. Morfit holds a BA from Princeton University and
is a CFA charterholder. Mr. Morfit is currently on the
board of MSD Ignition, a privately held performance auto parts
company.
Audit Committee
The Audit Committee of the Board of Directors oversees our
corporate accounting and financial reporting process. For this
purpose, the Audit Committee performs several functions. The
Audit Committee evaluates the performance of and assesses the
qualifications of the independent registered public accounting
firm; determines and approves the engagement of the independent
registered public accounting firm; determines whether to retain
or terminate the existing independent registered public
accounting firm or to appoint and engage a new independent
registered public accounting firm; reviews and approves the
retention of the independent registered public accounting firm
to perform any proposed permissible non-audit services; monitors
the rotation of partners of the independent registered public
accounting firm on Solexas audit engagement team as
required by law; confers with management and the independent
registered public accounting firm regarding the effectiveness of
internal controls over financial reporting; establishes
procedures, as required under applicable law, for the receipt,
retention and treatment of complaints received by Solexa
regarding accounting, internal accounting controls or auditing
matters and the confidential and anonymous submission by
employees of concerns regarding questionable accounting or
auditing matters; reviews the financial statements to be
included in our Annual Report on
Form 10-K; and
discusses with management and the independent registered public
accounting firm the results of the annual audit and the results
of our quarterly financial results.
Three directors currently comprise the Audit Committee:
Messrs. Morfit and Taylor and Dr. Lloyd-Harris. The Board
of Directors conducts an annual review of the Nasdaq listing
standards definition of independence for Audit Committee members
and has determined that all members of our Audit Committee are
independent (as independence is currently defined in
Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing
standards).
Audit Committee Financial Expert
The Board of Directors has determined that Mr. Morfit
qualifies as an audit committee financial expert, as
defined in applicable SEC rules. The Board made a qualitative
assessment of Mr. Morfits level of knowledge and
experience based on a number of factors, including his formal
education and experience in equity research for Credit Suisse
First Boston and as a partner at ValueAct Capital.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than 10% of a
registered class of our equity securities, to file with the
Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of our common stock and
other equity securities. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish us
with copies of all Section 16(a) forms that they file.
60
To our knowledge, based solely on a review of the copies of such
reports furnished to us, during the calendar year ended
December 31, 2005, all Section 16(a) filing
requirements applicable to our officers, directors and greater
than 10% beneficial owners were complied with except with regard
to filings made by Hermann Hauser, a director, and Amadeus
Capital Partners Ltd., whose reports on Form 3 were filed
late and Schroder Venture Managers Ltd. who filed a late report
on Form 4 relating to the issuance of reallocated shares
related to the business combination.
Code of Conduct
We have adopted the Solexa, Inc. Code of Conduct that applies to
all officers, directors and employees. The Code of Conduct is
available on our website at www.solexa.com. If we make any
substantive amendments to the Code of Conduct or grant any
waiver from a provision of the Code to any executive officer or
director, we will promptly disclose the nature of the amendment
or waiver on our website.
Stockholder Communications with the Board of Directors
In October 2004, we adopted a formal process for stockholder
communications with our Board of Directors. The process for such
communication is available on our website at www.solexa.com.
Every effort will be made to ensure that the views of
stockholders are heard by the Board of Directors or individual
directors, as applicable, and that appropriate responses are
provided to stockholders in a timely manner.
|
|
Item 11. |
Executive Compensation |
The following table sets forth certain compensation paid by
Solexa during the calendar years ended December 31, 2005,
2004 and 2003, to (i) all persons who served as our Chief
Executive Officer and (ii) the other four most highly
compensated executive officers whose compensation exceeded
$100,000:
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation Awards |
|
|
|
|
Annual Compensation | |
|
|
|
|
|
|
| |
|
Restricted |
|
Securities | |
|
|
|
|
|
|
|
|
Other Annual | |
|
Stock |
|
Underlying | |
|
All Other |
|
|
|
|
Salary | |
|
Bonus | |
|
Compensation | |
|
Awards |
|
Options | |
|
Compensation |
Name and Principle Position |
|
Year | |
|
($) | |
|
($) | |
|
($) | |
|
($) |
|
(#) | |
|
($) |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
|
John West
|
|
|
2005 |
|
|
$ |
340,049 |
(1)(7) |
|
$ |
12,489 |
(2) |
|
$ |
18,552 |
(3) |
|
$ |
|
|
|
|
600,000 |
|
|
$ |
|
|
|
Chief Executive Officer |
|
|
2004 |
|
|
|
114,583 |
|
|
|
50,064 |
(4) |
|
|
25,000 |
(5) |
|
|
|
|
|
|
309,353 |
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Lundberg
|
|
|
2005 |
|
|
|
193,467 |
(1) |
|
|
24,000 |
|
|
|
|
|
|
|
|
|
|
|
90,000 |
|
|
|
|
|
|
Vice President and Chief |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Officer |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda Rubinstein
|
|
|
2005 |
|
|
|
193,510 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,000 |
|
|
|
|
|
|
Vice President and |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary J. Schramke, Ph.D.
|
|
|
2005 |
|
|
|
187,767 |
(1) |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
Vice President and |
|
|
2004 |
|
|
|
178,585 |
(1) |
|
|
|
|
|
|
5,887 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
General Manager of |
|
|
2003 |
|
|
|
158,440 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genomic Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony Smith, Ph.D.
|
|
|
2005 |
|
|
|
253,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,000 |
|
|
|
|
|
|
Vice President and Chief |
|
|
2004 |
|
|
|
233,979 |
|
|
|
28,952 |
|
|
|
|
|
|
|
|
|
|
|
35,466 |
|
|
|
|
|
|
Scientific Officer |
|
|
2003 |
|
|
|
200,740 |
|
|
|
26,278 |
|
|
|
|
|
|
|
|
|
|
|
8,863 |
|
|
|
|
|
|
|
(1) |
Includes contributions of $750 made by Solexa to its 401(k) Plan
on behalf of such employee. |
|
(2) |
Includes reimbursement of Social Security and Medicare taxes and
lump sum cash payment in lieu of contributions that were to be
made by Solexa, Inc. to its 401(K) Plan on behalf of the
employee. |
|
(3) |
Includes reimbursement for temporary employee living expenses. |
|
(4) |
Includes reimbursement for temporary employee payroll taxes. |
61
|
|
(5) |
Includes Solexa Limited board of directors fees. |
|
(6) |
Includes sales commissions received. |
|
(7) |
Includes salary paid to such employee by Solexa Limited prior to
the consummation of the business combination transaction, and an
adjustment to correct a prior overpayment of Solexa Limited
board of directors fees. |
Except as disclosed above, we did not pay any compensation
characterized as long-term compensation, including restricted
stock awards issued at a price below fair market value or
long-term incentive plan payouts, to any of the Named Executive
Officers during the year ended December 31, 2005.
Stock Option Grants and Exercises
We grant options to our executive officers under our 2005 Equity
Incentive Plan, or the 2005 Incentive Plan, and have previously
granted stock options under our 1992 Stock Option Plan, as
amended, or the Lynx 1992 Plan. Options were also previously
granted to executive officers under the Solexa, Ltd. Enterprise
Management Incentive Plan, or the EMI Plan, and the Unapproved
Option Plan, or the Unapproved Plan. As of December 31,
2005, options to purchase a total of 3,090,308 shares were
outstanding under all stock option plans, and options to
purchase 827,936 shares remained available for grant
under the 2005 Plan.
The following table sets forth, for each of the Named Executive
Officers, certain information regarding options granted to,
exercised by and held during the year ended December 31,
2005:
Option Grants in Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants | |
|
|
|
|
| |
|
Potential Realizable Value | |
|
|
Number of | |
|
% of Total | |
|
|
|
at Assumed Annual Rates | |
|
|
Securities | |
|
Options | |
|
Exercise | |
|
|
|
of Stock Price Appreciation | |
|
|
Underlying | |
|
Granted to | |
|
Price per | |
|
|
|
for Option Term(2) | |
|
|
Options | |
|
Employees in | |
|
Share | |
|
Expiration | |
|
| |
Name |
|
Granted(#) | |
|
2004(1) | |
|
($/share) | |
|
Date | |
|
5%($) | |
|
10%($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
John West
|
|
|
600,000 |
|
|
|
27.32 |
|
|
$ |
6.39 |
|
|
|
05/09/15 |
|
|
$ |
2,411,182 |
|
|
$ |
6,110,409 |
|
Peter Lundberg
|
|
|
50,000 |
|
|
|
2.28 |
|
|
|
6.11 |
|
|
|
06/03/15 |
|
|
|
192,127 |
|
|
|
253,060 |
|
|
|
|
40,000 |
|
|
|
1.82 |
|
|
|
5.97 |
|
|
|
09/06/15 |
|
|
|
150,180 |
|
|
|
380,586 |
|
Linda Rubinstein
|
|
|
141,000 |
|
|
|
6.42 |
|
|
|
6.11 |
|
|
|
06/03/15 |
|
|
|
541,799 |
|
|
|
1,272,325 |
|
|
|
|
25,000 |
|
|
|
1.14 |
|
|
|
5.97 |
|
|
|
09/06/15 |
|
|
|
93,863 |
|
|
|
237,866 |
|
Mary Schramke, Ph.D.
|
|
|
25,000 |
|
|
|
1.14 |
|
|
|
5.97 |
|
|
|
09/06/15 |
|
|
|
93,863 |
|
|
|
237,866 |
|
Tony Smith, Ph.D.
|
|
|
88,000 |
|
|
|
4.01 |
|
|
|
5.97 |
|
|
|
09/06/15 |
|
|
|
330,396 |
|
|
|
837,289 |
|
|
|
(1) |
Based on options for an aggregate of 2,196,158 shares
granted to our employees and directors during the year ended
December 31, 2005, including the Named Executive Officers. |
|
(2) |
The potential realizable value is calculated based on the term
of the option at its time of grant (ten years). It is calculated
by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually
for the entire term of the option, and that the option is
exercised and sold on the last day of the term for the
appreciated stock price. The assumed annual rates of
appreciation are for illustrative purposes only. |
62
The following table sets forth certain information concerning
the number of options exercised by the Named Executive Officers
during the year ended December 31, 2005, and the number of
shares covered by both exercisable and unexercisable stock
options held by the Named Executive Officers.
Aggregated Option Exercises in the Year Ended
December 31, 2005 and Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Unexpired | |
|
Value of Unexercised | |
|
|
|
|
|
|
Options | |
|
In-the-Money Options | |
|
|
|
|
|
|
at Year End | |
|
at Year End | |
|
|
Shares Acquired on | |
|
Value |
|
| |
|
| |
Name |
|
Exercise | |
|
Realized |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
John West
|
|
|
|
|
|
$ |
|
|
|
|
200,00 |
|
|
|
709,253 |
|
|
$ |
736,000 |
|
|
$ |
4,190,334 |
|
Peter Lundberg
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
88,000 |
|
|
|
8,200 |
|
|
|
353,800 |
|
Linda Rubinstein
|
|
|
|
|
|
|
|
|
|
|
27,999 |
|
|
|
138,001 |
|
|
|
111,095 |
|
|
|
549,765 |
|
Mary J. Schramke, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
8,433 |
|
|
|
31,567 |
|
|
|
29,005 |
|
|
|
123,095 |
|
Tony Smith, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
67,303 |
|
|
|
109,344 |
|
|
|
432,926 |
|
|
|
570,404 |
|
Employment, Severance and Change of Control Agreements
In January 2002, Solexa Limited entered into an employment
agreement with Dr. Tony Smith, Vice President and Chief
Scientific Officer, and such agreement was amended
August 4, 2005. Under the terms of the agreement, as
amended, Dr. Smith will receive an annualized base salary
of $245,000 per year. In July 2005, the Board of Directors
approved an annual bonus with a target up to 35% of the base
salary subject to the achievement of milestones. If
Dr. Smith elects to participate in the Companys
defined contribution pension plan, we will also contribute up to
an amount equal to 10% of Dr. Smiths salary to his
account.
In March 2005, we entered into an employment agreement with
Peter Lundberg, Vice President and Chief Technical Officer.
Under the terms of the Employment Agreement, Mr. Lundberg
will receive (i) an annualized base salary of
$240,000 per year, (ii) an annual bonus with a target
of up to 35% of the base salary subject to the achievement of
milestones, and (iii) a stock option grant to
purchase 50,000 shares of Solexa common stock, of
which 20% vests and becomes exercisable on March 10, 2006
and the remainder vests in 48 equal installments over
4 years, which was granted on June 3, 2005 with an
exercise price of $6.11 per share.
In March 2005, Linda Rubinstein joined the company as Vice
President and, effective April 1, 2005, Chief Financial
Officer. Solexa entered into a letter agreement, or the Letter
Agreement, with Ms. Rubinstein on March 23, 2005.
Under the terms of the Letter Agreement, Ms. Rubinstein
received an initial base salary of $225,000 per year which
increased to $250,000 on May 1, 2005, an annual bonus with
a target of 30% of base salary and anticipated stock option
grants of not less than 45,000 shares within 30 days
following the first and second anniversaries of her start date,
each of which vest and become exercisable in 48 equal
installments over 4 years from the respective grant dates
subject to approval by our Board of Directors. Pursuant to a
letter agreement between us and Ms. Rubinstein dated
March 27, 2006, effective for the period beginning
January 1, 2005 and ending June 30, 2006, or the Bonus
Period, the bonus provision of Ms. Rubinsteins
employment agreement was superseded by the Solexa, Inc. Company
2005-2006 Bonus Plan, or the Plan, and any bonus compensation
earned by Ms. Rubinstein during the Bonus Period shall be
determined in accordance with the Plan. Under the Plan,
Ms. Rubinstein is entitled to receive as a bonus a
percentage of her salary which will be determined by the board
of directors, and will be awarded upon our achievement of
certain financial milestones which are also set by the board of
directors. Recommencing July 1, 2006, bonus compensation
earned by Ms. Rubinstein will be determined in accordance
with the terms of her employment agreement. If we successfully
completed a financing within six months of
Ms. Rubinsteins start date which resulted in at least
$10,000,000 in available funds to us, Ms. Rubinstein would
be granted an additional nonstatutory stock option to
purchase 141,000 shares pursuant to the Lynx 1992 Plan
subject to Board approval, which stock option was granted on
June 3, 2005 with an exercise price of $6.11 per
share. In addition, if (i) Ms. Rubinsteins
employment is terminated without Cause (as defined in the Letter
Agreement) by Solexa, (ii) Ms. Rubinstein resigns with
Good Reason (as defined in the Letter Agreement),
(iii) Ms. Rubinsteins employment is terminated
without Cause by Solexa or any successor to or acquiring
63
entity of Solexa within 30 days prior to, upon or within
12 months after an Asset Sale, Merger, Consolidation, or
Reverse Merger (each as defined in the Plan), or
(iv) Ms. Rubinstein resigns for Good Reason within
thirty days prior to, upon or within 12 months after an
Asset Sale, Merger, Consolidation or Reverse Merger of Solexa,
she will be eligible to receive severance compensation of
between 4.5 to 6 months of her final base salary, 100% of
her target bonus, prorated to the percent of the year completed,
and two years acceleration of the vesting and exercisability of
any outstanding stock options granted to her.
In June 2005, Lynx entered into an executive employment
agreement, or the Employment Agreement, with John S. West, our
Chief Executive Officer. Under the terms of the Employment
Agreement, Mr. West will receive (i) an annualized
base salary of $350,000 per year, (ii) an annual bonus
with a target of up to 40% of the base salary subject to the
achievement of milestones, and (iii) a stock option grant
to purchase 600,000 shares of our common stock which
vests and becomes exercisable in 48 equal installments over
4 years beginning August 9, 2004, which stock option
was granted on May 9, 2005 with an exercise price of
$6.39 per share. Furthermore, if Solexa enters into a
collaboration or other strategic alliance or partnership, on or
before August 9, 2006, which provides for at least
$4 million of committed cash investment in or payment to
Solexa other than for goods or services, Mr. West shall be
entitled to an aggregate lump sum bonus equal to the greater of
(i) 1% of the aggregate committed amount to be paid in such
transaction or (ii) $100,000. Pursuant to a letter
agreement between us and Mr. West dated March 27,
2006, effective for the period beginning January 1, 2005
and ending June 30, 2006, or the Bonus Period, the bonus
provision of Mr. Wests employment agreement providing
for a bonus calculated as a percentage of salary based upon the
achievement of certain milestones shall be superseded by the
Solexa, Inc. Company 2005-2006 Bonus Plan, or the Plan, and any
such bonus compensation earned by Mr. West during the Bonus
Period shall be determined in accordance with the Plan. Under
the Plan, Mr. West is entitled to receive as a bonus a
percentage of his salary which will be determined by the board
of directors, and will be awarded upon our achievement of
certain financial milestones which are also set by the board of
directors. Recommencing July 1, 2006, bonus compensation
earned by Mr. West will be determined in accordance with
the terms of his employment agreement.
Under the terms of the Employment Agreement, in the event of a
Change of Control (as defined in the Employment Agreement),
Mr. West will be entitled to receive (a) two years
acceleration of the vesting and exercisability of any
outstanding stock options granted to him and (b) an
aggregate lump sum bonus equal to the greater of (i) 2% of
the amount by which the value received by our stockholders in
connection with the Change of Control exceeds the sum of
$50 million plus the aggregate gross proceeds received by
Solexa through sales of equity securities after the Closing (as
defined in the Employment Agreement) or (ii) $100,000. In
addition, if (i) Mr. Wests employment is
terminated without Cause (as defined in the Employment
Agreement) by Solexa or (ii) Mr. West resigns with
Good Reason (as defined in the Employment Agreement), he will be
entitled to receive a lump sum severance payment equal to
12 months of his final base salary, reimbursement of the
cost of continued health insurance coverage for himself and his
eligible dependents for 12 months, and one year
acceleration of the vesting and exercisability of any
outstanding stock options granted to him (except to the extent
such options are accelerated in connection with a Change of
Control). If Mr. Wests employment is terminated
without Cause or he resigns for Good Reason within 6 months
prior to or 12 months following a Change of Control, he
will be entitled to receive a lump sum severance payment equal
to 12 months of his final base salary and reimbursement of
the cost of continued health insurance coverage for himself and
his eligible dependents for 12 months.
In January 2003, we entered into an employment agreement with
Mary L. Schramke, our Vice President and General Manager of
Genomic Services, providing for annual compensation of $185,000.
In the event Dr. Schramkes employment is terminated
without cause (as defined in the agreement) by us, or by any
successor or acquiring entity, upon or after certain change of
control events, Dr. Schramke shall be eligible to receive
severance compensation: (a) if the termination occurs on or
prior to the first year anniversary of the effective date of the
agreement, equal to three months of her base salary; and
(b) if the termination occurs after the first year
anniversary of the effective date of the agreement, equal to at
least one month of her base salary. The severance shall be the
only severance, benefit or cash compensation, other than accrued
wages, to
64
which Dr. Schramke shall be entitled from us in the event
of a termination without cause. In the event, however, that a
successor or acquiring entity is obligated to pay such severance
to Dr. Schramke, such severance shall be in addition to any
equity compensation or benefits for which Dr. Schramke may
be eligible under the Lynx 1992 Plan.
Compensation of Directors
In June 2005, the Board adopted a Non-Executive Director
Compensation Program, or the Program, whereby the non-employee
directors will be compensated for their service on the Board and
committees.
Pursuant to the Program, each of our non-employee directors
receives an annual retainer of $15,000 (plus $10,000 for serving
as chairman of the Board) and a fee of $2,000 per meeting
attended in person and $1,000 per meeting attended via
telephone. Members of the Audit Committee receive an annual
retainer fee of $5,000 (plus $2,500 for serving as chairman of
the Audit Committee) and a fee of $1,250 per meeting
attended in person (plus $750 per meeting for chairman of
the Audit Committee) and $1,000 per meeting attended via
telephone. Members of the Compensation Committee receive an
annual retainer fee of $5,000 (plus $2,500 for serving as
chairman of the Compensation Committee) and a fee of
$1,250 per meeting attended in person (plus $750 per
meeting attended in person by the chairman of the Compensation
Committee) and $1,000 per meeting attended via telephone.
Members of the Nominating and Corporate Governance Committee
receive a fee of $1,250 per meeting attended in person and
$1,000 per meeting attended via telephone. The meeting fee
amounts are subject to adjustment to the extent that board and
committee meetings are held on the same day.
Under the Program, directors who are affiliated with certain of
our stockholders, as determined by the Compensation Committee of
the Board, shall receive their meeting and retainer fees in the
form of shares of common stock subject to a twelve month
restriction on resale and options to purchase shares of our
common stock, respectively. All other non-employee directors
shall receive one-half of their meeting and retainer fees in the
form of cash and one-half of their retainer and meeting fees in
the form of shares of our common stock subject to a twelve month
restriction on resale and options to purchase shares of our
common stock, respectively.
Options granted to non-employee directors under our Program are
discretionary, granted under our 2005 Equity Incentive Plan and
are intended by Solexa not to qualify as incentive stock options
under the Internal Revenue Code.
The following table sets forth options granted to our
non-employee directors during the last fiscal year. The exercise
price is equal to the fair market value of the common stock on
the last market trading day prior to the date of grant (based on
the closing sales price reported on the Nasdaq Capital Market).
As of December 31, 2005, no options had been exercised by
non-employee directors under our 2005 Equity Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
Securities | |
|
|
|
|
|
|
Underlying | |
|
Exercise Price | |
Name |
|
Date of Grant | |
|
Options Granted | |
|
per Share | |
|
|
| |
|
| |
|
| |
Craig C. Taylor
|
|
|
9/6/2005 |
|
|
|
25,000 |
|
|
$ |
5.97 |
|
Stephen Allen, Ph.D.
|
|
|
9/6/2005 |
|
|
|
20,000 |
|
|
|
5.97 |
|
Douglas Fambrough, Ph.D.
|
|
|
9/6/2005 |
|
|
|
20,000 |
|
|
|
5.97 |
|
Hermann Hauser, Ph.D.
|
|
|
10/21/2005 |
|
|
|
20,000 |
|
|
|
6.20 |
|
Genghis Lloyd-Harris, M.D., Ph.D.
|
|
|
9/6/2005 |
|
|
|
20,000 |
|
|
|
5.97 |
|
G. Mason Morfit, CFA
|
|
|
9/6/2005 |
|
|
|
20,000 |
|
|
|
5.97 |
|
Compensation Committee Interlocks and Insider
Participation
Our Compensation Committee was established in March 2005 and is
currently composed of four non-employee directors:
Messrs. Taylor and Morfit and Drs. Hauser and
Lloyd-Harris. Mr. Taylor served as our
65
Acting Chief Financial Officer from July 1994 to April 1997.
There were no officers or employees of Solexa who participated
in deliberations of the Compensation Committee concerning
executive officer compensation during the year ended
December 31, 2005.
Limitations of Liability and Indemnification
Our Bylaws provide that we will indemnify our directors and
executive officers and may indemnify our other officers,
employees and other agents to the fullest extent permitted by
Delaware law. We are also empowered under our Bylaws to enter
into indemnification agreements with our directors and officers
and to purchase insurance on behalf of any person whom we are
required or permitted to indemnify. Pursuant to this provision,
we have entered into indemnity agreements with each of our
directors and executive officers.
In addition, our Amended and Restated Certificate of
Incorporation, as amended, provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for
monetary damages for breach of the directors fiduciary
duty of care to Solexa and our stockholders. This provision in
the Amended and Restated Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances,
equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law.
Each director will continue to be subject to liability for
breach of the directors duty of loyalty to Solexa, for
acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions
that the director believes to be contrary to the best interests
of Solexa or our stockholders, for any transaction from which
the director derived an improper personal benefit, for acts or
omissions involving a reckless disregard for the directors
duty to Solexa or our stockholders when the director was aware
or should have been aware of a risk of serious injury to Solexa
or our stockholders, for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication
of the directors duty to Solexa or our stockholders, for
improper transactions between the director and Solexa and for
improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a
directors responsibilities under any other laws such as
the federal securities laws or state or federal environmental
laws.
No pending material litigation or proceeding involving a
director, officer, employee or other agent of Solexa as to which
indemnification is being sought exists, and we are not aware of
any pending or threatened material litigation that may result in
claims for indemnification by any director, officer, employee or
other agent.
66
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
Securities Authorized for Issuance Under Equity Compensation
Plans
The following table provides certain information with respect to
all of our equity compensation plans in effect as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Number of Securities | |
|
|
Securities to be | |
|
|
|
Remaining Available | |
|
|
Issued Upon | |
|
Weighted Average | |
|
for Future Issuance | |
|
|
Outstanding | |
|
Exercise Price of | |
|
Under Equity | |
|
|
Options, | |
|
Outstanding | |
|
Compensation Plans | |
|
|
Warrants and | |
|
Options, Warrants | |
|
(Excluding Securities | |
|
|
Rights | |
|
and Rights | |
|
Reflected in Column | |
|
|
(a) | |
|
(b) | |
|
(a) (c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Equity Incentive Plan
|
|
|
1,232,744 |
|
|
$ |
5.96 |
|
|
|
827,936 |
|
1992 Stock Option Plan
|
|
|
1,081,651 |
|
|
$ |
9.01 |
|
|
|
|
|
1998 Employee Stock Purchase Plan(1)
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
Solexa Limited Equity Plans
|
|
|
775,913 |
|
|
$ |
2.44 |
|
|
|
|
|
Equity compensation plans not approved by security
holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,090,308 |
|
|
$ |
6.15 |
|
|
|
827,936 |
|
|
|
(1) |
Our Employee Stock Purchase Plan is currently suspended. |
67
The following table sets forth certain information regarding
beneficial ownership of our common stock as of March 10,
2006 by: (i) each stockholder who is known by us to own
beneficially more than five percent of the common stock;
(ii) each executive officer named in the Summary
Compensation Table, which we refer to as the named
executive officers; (iii) each director from 2005;
and (iv) all of our current directors and executive
officers as a group. Unless otherwise indicated, the address of
each of the individuals and entities listed below is
c/o Solexa, Inc., 25861 Industrial Boulevard, Hayward, CA
94545.
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership(1) | |
|
|
| |
|
|
|
|
Percent of | |
Name of Beneficial Owner |
|
Number of Shares | |
|
Total | |
|
|
| |
|
| |
Entities affiliated with FMR Corp.(2)
|
|
|
5,115,974 |
|
|
|
14.03 |
% |
|
82 Devonshire Street
Boston, Massachusetts 02109 |
|
|
|
|
|
|
|
|
Entities affiliated with Amadeus Capital Partners Limited(3)
|
|
|
5,028,737 |
|
|
|
13.65 |
% |
|
Mount Pleasant House, 2 Mount Pleasant
Huntington Road, Cambridge CB3 ORN
Great Britain |
|
|
|
|
|
|
|
|
Entities affiliated with Abingworth Management Limited(4)
|
|
|
4,046,000 |
|
|
|
10.97 |
% |
|
38 Jermyn Street
London SW1Y 6DN
Great Britain |
|
|
|
|
|
|
|
|
Entities affiliated with Schroder Venture Managers Inc.(5)
|
|
|
2,153,745 |
|
|
|
5.86 |
% |
|
Church Street
Hamilton HM 11
Bermuda |
|
|
|
|
|
|
|
|
ValueAct Capital(6)
|
|
|
3,043,270 |
|
|
|
8.14 |
% |
|
435 Pacific Avenue, 4th Floor
San Francisco, CA 94133 |
|
|
|
|
|
|
|
|
Craig C. Taylor(7)
|
|
|
60,905 |
|
|
|
** |
|
John West(8)
|
|
|
262,500 |
|
|
|
** |
|
Stephen Allen, Ph.D.(9)
|
|
|
22,669 |
|
|
|
** |
|
Douglas Fambrough, Ph.D.(10)
|
|
|
18,225 |
|
|
|
** |
|
|
c/o OBP Management IV L.P.
222 Berkeley St., Suite 1650
Boston, Massachusetts 02116 |
|
|
|
|
|
|
|
|
Hermann Hauser, Ph.D.(11)
|
|
|
5,047,606 |
|
|
|
13.84 |
% |
|
c/o Amadeus Capital Partners Limited
Mount Pleasant House, 2 Mount Pleasant
Huntington Road, Cambridge CB3 ORN
Great Britain |
|
|
|
|
|
|
|
|
Genghis Lloyd-Harris, M.D., Ph.D.(12)
|
|
|
19,816 |
|
|
|
** |
|
G. Mason Morfit, CFA(13)
|
|
|
19,556 |
|
|
|
** |
|
Peter Lundberg(14)
|
|
|
18,041 |
|
|
|
** |
|
Linda Rubinstein(15)
|
|
|
47,040 |
|
|
|
** |
|
Mary L. Schramke, Ph.D.(16)
|
|
|
11,349 |
|
|
|
** |
|
Tony Smith, Ph.D.(17)
|
|
|
86,128 |
|
|
|
** |
|
All directors and officers as a group (11 persons)(18)
|
|
|
5,646,845 |
|
|
|
15.09 |
% |
|
|
** |
Less than one percent. |
|
|
|
|
(1) |
Beneficial ownership is determined in accordance with the rules
of the SEC and, unless otherwise indicated, includes voting or
investment power with respect to securities. Percentage of
beneficial ownership is based on 36,462,323 shares of
common stock outstanding as of March 10, 2006, except as |
68
|
|
|
|
|
otherwise noted in the footnotes. Shares of common stock subject
to options currently exercisable or exercisable within
60 days of March 10, 2006, are deemed outstanding for
computing the percentage of beneficial ownership of the person
holding such options but are not deemed outstanding for
computing the percentage of beneficial ownership of any other
person. |
|
|
(2) |
Fidelity Management & Research Company, or Fidelity,
82 Devonshire Street, Boston, Massachusetts 02109, a
wholly-owned subsidiary of FMR Corp. and an investment adviser
registered under Section 203 of the Investment Advisers Act
of 1940, is the beneficial owner of 5,115,974 shares or
14.03% of the Common Stock outstanding of Solexa, Inc., as a
result of acting as investment adviser to various investment
companies registered under Section 8 of the Investment
Company Act of 1940. |
|
|
|
Various persons have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of,
the Common Stock of Solexa, Inc. The interest of one person,
Fidelity OTC Portfolio, an investment company registered under
the Investment Company Act of 1940, in the Common Stock of
Solexa, Inc., amounted to 3,266,213 shares or 8.95% of the
Common Stock outstanding. Fidelity OTC Portfolio has its
principal business office at 82 Devonshire Street, Boston,
Massachusetts 02109. |
|
|
Edward C. Johnson 3d and FMR Corp., through its control of
Fidelity, and the funds each has sole power to dispose of the
5,115,974 shares owned by the Funds. |
|
|
Members of the family of Edward C. Johnson 3d, Chairman of
FMR Corp., are the predominant owners, directly or through
trusts, of Series B shares of common stock of FMR Corp.,
representing 49% of the voting power of FMR Corp. The Johnson
family group and all other Series B shareholders have
entered into a shareholders voting agreement under which
all Series B shares will be voted in accordance with the
majority vote of Series B shares. Accordingly, through
their ownership of voting common stock and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR Corp. |
|
|
Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR
Corp., has the sole power to vote or direct the voting of the
shares owned directly by the Fidelity Funds, which power resides
with the Funds Boards of Trustees. Fidelity carries out
the voting of the shares under written guidelines established by
the Funds Boards of Trustees. |
|
|
|
|
(3) |
Includes 2,089,849 shares of common stock and
173,081 shares of common stock issuable upon exercise of a
warrant held by Amadeus II A LP;
1,393,234 shares of common stock and 115,387 shares of
common stock issuable upon exercise of a warrant held by
Amadeus II B LP; 975,264 shares
of common stock and 80,772 shares of common stock issuable
upon exercise of a warrant held by
Amadeus II C LP; 46,442 shares
of common stock and 3,847 shares of common stock issuable
upon exercise of a warrant held by Amadeus II D
GmbH & Co KG; and 139,322 shares of common stock
and 11,539 shares of common stock issuable upon exercise of
a warrant held by Amadeus II Affiliates LP. |
|
|
(4) |
Includes 1,416,438 shares of common stock held by
Abingworth Bioventures II SICAV; 383,279 shares of
common stock and 125,000 shares of common stock issuable
upon exercise of a warrant held by Abingworth
Bioventures II A LP; 764,931 shares of
common stock and 145,489 shares of common stock issuable
upon exercise of a warrant held by Abingworth
Bioventures III A LP; 466,937 shares of
common stock and 88,812 shares of common stock issuable
upon exercise of a warrant held by Abingworth
Bioventures III B LP; 279,700 shares of
common stock and 53,200 shares of common stock issuable
upon exercise of a warrant held by Abingworth
Bioventures III C LP; 12,195 shares of
common stock and 2,319 shares of common stock issuable upon
exercise of a warrant held by Abingworth Bioventures III
Executives LP; and 307,700 shares of common stock held
by Abingworth Bioequities Master Fund Ltd. |
|
|
(5) |
Includes 1,096,534 shares of common stock and
165,365 shares of common stock issuable upon exercise of a
warrant held by Schroder Ventures International Life Sciences
Fund II LP 1; 467,009 shares of common stock and
70,428 shares of common stock issuable upon exercise of a
warrant held by Schroder Ventures International Life Sciences
Fund II LP 2; 124,455 shares of common stock and
18,769 shares of common stock issuable upon exercise of a
warrant held by Schroder Ventures International Life |
69
|
|
|
|
|
Sciences Fund II LP 3; 31,533 shares of
common stock and 4,756 shares of common stock issuable upon
exercise of a warrant held by SITCO Nominees Ltd. VC
01903 as nominees for Schroder Ventures International Life
Sciences Fund II Group Co Investment Scheme;
135,060 shares of common stock and 20,368 shares of
common stock issuable upon exercise of a warrant held by SV
(Nominees) Limited as nominee for Schroder Ventures Investments
Limited; and 16,917 shares of common stock and
2,551 shares of common stock issuable upon exercise of a
warrant held by Schroder Ventures International Life Sciences
Fund II Strategic Partners LP. |
|
|
(6) |
Includes 2,105,770 shares of common stock and warrants to
purchase 937,500 shares of common stock that are owned
directly by ValueAct Capital Master Fund, L.P. and may be deemed
to be beneficially owned by (i) VA Partners, L.L.C. as
General Partner of ValueAct Capital Master Fund, L.P.,
(ii) ValueAct Capital Management, L.P. as the manager of
ValueAct Capital Master Fund, L.P., and (iii) ValueAct
Capital Management LLC as General Partner of ValueAct Capital
Management, L.P. Jeffrey W. Ubben, Peter H. Kamin and
George F. Hamel, Jr. are Managing Members of
VA Partners, L.L.C. and ValueAct Capital Management, LLC.
These persons disclaim beneficial ownership of the reported
stock except to the extent of their pecuniary interest therein. |
|
|
(7) |
Includes 10,252 shares of common stock, 23,511 shares
of common stock issuable upon exercise of stock options that are
exercisable within 60 days of March 10, 2006, and
1,135 shares of common stock issuable upon exercise of
warrants held by Mr. Taylor. Also includes
26,007 shares of common stock held by Asset Management
Associates 1989 L.P. Mr. Taylor, the Chairman of the board
of directors of Solexa, is a general partner of AMC
Partners 89, which is the general partner of Asset
Management Associates 1989 L.P. Mr. Taylor shares the
power to vote and control the disposition of shares held by
Asset Management Associates 1989 L.P. and, therefore, may be
deemed to be the beneficial owner of such shares.
Mr. Taylor disclaims beneficial ownership of such shares,
except to the extent of his pro-rata interest therein. |
|
|
(8) |
Includes 262,500 shares of common stock issuable upon
exercise of stock options held by Mr. West that are
exercisable within 60 days of March 10, 2006. |
|
|
(9) |
Includes 1,012 shares of common stock and
21,657 shares of common stock issuable upon exercise of
stock options held by Dr. Allen that are exercisable within
60 days of March 10, 2006. |
|
|
(10) |
Includes 1,559 shares of common stock and
16,666 shares of common stock issuable upon exercise of
stock options held by Dr. Fambrough that are exercisable
within 60 days of March 10, 2006. |
|
(11) |
Includes 2,203 shares of common stock and
16,666 shares of common stock issuable upon exercise of
stock options held by Dr. Hauser that are exercisable
within 60 days of March 10, 2006. Also includes
2,089,849 shares of common stock and 173,081 shares of
common stock issuable upon exercise of a warrant held by
Amadeus II A LP; 1,393,234 shares of common
stock and 115,387 shares of common stock issuable upon
exercise of a warrant held by Amadeus II B LP;
975,264 shares of common stock and 80,772 shares of
common stock issuable upon exercise of a warrant held by
Amadeus II C LP; 46,442 shares of common
stock and 3,847 shares of common stock issuable upon
exercise of a warrant held by Amadeus II D
GmbH & Co KG; and 139,322 shares of common stock
and 11,539 shares of common stock issuable upon exercise of
a warrant held by Amadeus II Affiliates LP. Hermann Hauser
is a Director of Amadeus Capital Partners Ltd., or ACPL, a
limited partnership. The General Partner of ACPL is
Amadeus II General Partner LP, a Scottish limited liability
partnership, whose general partner is Amadeus General Partner
Limited, a wholly owned subsidiary of ACPL. By contract, the
affairs of Amadeus General Partner Limited are managed by ACPL,
whose directors are Anne Glover, Hermann Hauser, Richard Anton,
Roy Merritt and Peter Wynn. These persons disclaim beneficial
ownership of the securities. ACPL manages Amadeus II A
LP, Amadeus II B LP, Amadeus II C LP,
Amadeus II D GmbH & Co KG and Amadeus II
Affiliates LP. |
|
(12) |
Includes 3,150 shares of common stock and
16,666 shares of common stock issuable upon exercise of
stock options held by Dr. Lloyd-Harris that are exercisable
within 60 days of March 10, 2006. |
|
(13) |
Includes 2,890 shares of common stock and
16,666 shares of common stock issuable upon exercise of
stock options held by Mr. Morfit that are exercisable
within 60 days of March 10, 2006. |
70
|
|
(14) |
Includes 18,041 shares of common stock issuable upon
exercise of stock options held by Mr. Lundberg that are
exercisable within 60 days of March 10, 2006. |
|
(15) |
Includes 47,040 shares of common stock issuable upon
exercise of stock options held by Ms. Rubinstein that are
exercisable within 60 days of March 10, 2006. |
|
(16) |
Includes 11,349 shares of common stock issuable upon
exercise of stock options held by Dr. Schramke that are
exercisable within 60 days of March 10, 2006. |
|
(17) |
Includes 86,128 shares of common stock issuable upon
exercise of stock options held by Dr. Smith that are
exercisable within 60 days of March 10, 2006. |
|
(18) |
Includes 4,691,184 shares of common stock (including shares
of common stock held by entities affiliated with certain
directors), 569,900 shares of common stock issuable upon
exercise of stock options that are exercisable within
60 days of March 10, 2006 and 385,761 shares of
common stock issuable upon exercise of warrants held by current
directors and officers (including warrants held by entities
affiliated with certain directors). (See Notes 7
through 17). |
|
|
Item 13. |
Certain Relationships and Related Transactions |
For a description of the employment agreements between us and
certain of our executive officers, see the descriptions above in
Item 11. Executive Compensation under the heading
Employment, Severance and Change of Control
Agreements.
For legal services rendered during the calendar year ended
December 31, 2005, we paid approximately $1.3 million
to Cooley Godward LLP, Solexas counsel, of which
Mr. Kitch, a former director of Lynx, is a partner.
Mr. Kitch resigned from the board effective March 4,
2005, in connection with the closing of the business combination
transaction between Lynx and Solexa Limited.
For genomics discovery services performed during the calendar
year ended December 31, 2005, we received approximately
$93,000 from the Institute for Systems Biology, of which Leroy
Hood, a former director of Lynx, is President and Director.
Dr. Hood resigned from the board effective March 4,
2005, in connection with the closing of the business combination
transaction with Solexa Limited.
Our Bylaws provide that we will indemnify our directors and
executive officers and may indemnify our other officers,
employees and other agents to the fullest extent permitted by
Delaware law. We are also empowered under our Bylaws to enter
into indemnification agreements with our directors and officers
and to purchase insurance on behalf of any person whom we are
required or permitted to indemnify. Pursuant to this provision,
we have entered into indemnity agreements with each of our
directors and executive officers, as well as certain employees.
|
|
Item 14. |
Principal Accountant Fees and Services |
The following table represents aggregate fees billed to us for
fiscal years ended December 31, 2005 and December 31,
2004, by Ernst & Young LLP, Solexas principal
independent registered public accounting firm. These amounts
reflect fees related to Lynx in 2004 and to Solexa, including
Solexa Limited, in 2005
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Audit fees
|
|
$ |
1,083,340 |
|
|
$ |
470,685 |
|
Audit-related fees
|
|
|
|
|
|
|
|
|
Tax fees
|
|
|
23,196 |
|
|
|
31,320 |
|
All other fees
|
|
|
719 |
|
|
|
34,609 |
|
|
|
|
|
|
|
|
|
Total fees
|
|
$ |
1,107,254 |
|
|
$ |
536,614 |
|
|
|
|
|
|
|
|
Audit Fees: This category includes fees for the audit of
our annual financial statements, review of the financial
statements included in our quarterly reports on
Form 10-Q and
services that are normally provided by the independent auditors
in connection with statutory and regulatory filings or
engagements for those fiscal
71
years. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements and
statutory audits required by
non-U.S. jurisdictions.
Audit-Related Fees: This category consists of assurance
and related services by Ernst & Young LLP that are
reasonably related to the performance of the audit or review of
our financial statements and are not reported above under
Audit Fees.
Tax Fees: This category consists of professional services
rendered by Ernst & Young LLP for tax compliance and
tax advice. The services for the fees disclosed under this
category include tax return preparation and technical tax advice.
All Other Fees: This category consists of fees for
professional services rendered by Ernst & Young LLP in
connection with other services not included in the categories
above, and research and consultations regarding a foreign joint
venture and reorganization of Lynx GmbH and the business
combination.
All of the fees described above were approved by the Audit
Committee. The Audit Committee has determined the rendering of
non-audit services by Ernst & Young LLP is compatible
with maintaining their independence.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our
independent registered public accounting firm, Ernst &
Young LLP. The policy generally pre-approves specified services
in defined categories of audit services, audit related services,
and tax services up to specified amounts. Pre-approval may also
be given as part of the Audit Committees approval of the
scope of engagement of the independent registered accounting
firm or on an individual explicit case-by-case basis before the
independent registered accounting firm is engaged to provide
each service. The pre-approval of services may be delegated to
one or more of the Audit Committees members, but the
decision must be reported to the full Audit Committee at its
next scheduled meeting.
PART IV
|
|
Item 15. |
Exhibits and Financial Statements Schedules |
(a) The following documents are filed as part of this
report:
|
|
|
(1) The following Reports of Independent Registered Public
Accounting Firms and financial statements set forth on
pages 29 through 57 of this report are being filed as part
of this report: |
|
|
|
|
(i) |
Reports of Independent Registered Public Accounting Firms |
|
|
|
|
(ii) |
Consolidated Balance Sheets as of December 31, 2005 and 2004 |
|
|
|
|
(iii) |
Consolidated Statements of Operations for the years ended
December 31, 2005, 2004 and 2003 |
|
|
|
|
(iv) |
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2005, 2004 and 2003 |
|
|
(v) |
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003 |
|
|
(vi) |
Notes to Consolidated Financial Statements |
|
|
|
(2) All schedules are omitted because they are not
required, are not applicable or the information is included in
the consolidated financial statement or notes thereto. |
72
|
|
|
(3) The following documents are being filed as part of this
report: |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
2 |
.2 |
|
Acquisition Agreement, dated as of September 28, 2004, by
and between Solexa Limited and Lynx Therapeutics, Inc.,
incorporated by reference to the indicated exhibit in the
Companys 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 Companys Current
Report on Form 8-K filed on March 7, 2005 |
|
2 |
.2.2 |
|
Amendment No. 2 to acquisition agreement, dated May 6,
2005 by and between Solexa, Inc and Solexa, Ltd incorporated by
reference to the indicated exhibit of the Companys
Form 8-K for the period ended May 11, 2005 |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Company, incorporated by reference to the indicated exhibit of
the Companys 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 Companys 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 Companys 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 Companys 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
Companys Current Report on Form 8-K filed on
March 7, 2005 |
|
10 |
.1 |
|
Form of Indemnity Agreement entered into between the Company and
its directors and officers, incorporated by reference to
Exhibit 10.7 of the Companys Registration Statement
on Form 10 |
|
10 |
.2** |
|
The Companys 1992 Stock Option Plan (the Stock
Option Plan), incorporated by reference to
Exhibit 10.8 of the Companys Registration Statement
on Form 10 |
|
10 |
.3** |
|
Form of Incentive Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.9 of the
Companys Registration Statement on Form 10 |
|
10 |
.4** |
|
Form of Nonstatutory Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.10 of the
Companys Registration Statement on Form 10 |
|
10 |
.5 |
|
Agreement of Assignment and License of Intellectual Property
Rights, dated June 30, 1992, by and between the Company and
Applied Biosystems, Inc. incorporated by reference to
Exhibit 10.11 of the Companys Registration Statement
on Form 10 |
|
10 |
.6 |
|
Agreement of Assignment and License of Intellectual Property
Rights, dated June 30, 1992, by and between the Company and
Applied Biosystems, Inc., incorporated by reference to
Exhibit 10.11 of the Companys Registration Statement
on Form 10 |
|
10 |
.6+ |
|
Technology Development and Services Agreement, dated as of
October 2, 1995, by and among the Company, Hoechst
Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
Inc., incorporated by reference to Exhibit 10.28 of the
Companys Form 10-K for the period ended
December 31, 1995 |
|
10 |
.6.1+ |
|
Amended and Restated First Amendment to Technology Development
and Services Agreement, dated May 1, 1998, by and between
the Company and Hoechst Marion Roussel, Inc., incorporated by
reference to Exhibit 10.36 of the Companys
Form 10-Q for the period ended June 30, 1998 |
|
10 |
.6.2+ |
|
Second Amendment to Technology Development and Services
Agreement, dated March 1, 1999, by and among the Company,
Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering
AgrEvo GmbH, incorporated by reference to the indicated exhibit
of the Companys Form 10-K/A filed on August 24,
2001 for the period ended December 31, 2001 |
73
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.6.3+ |
|
Third Amendment to Technology Development and Services
Agreement, dated December 20, 1999, by and among the
Company, Aventis Pharmaceutical Inc. and its affiliate Aventis
CropScience GmbH, incorporated by reference to the indicated
exhibit of the Companys Form 10-K/A filed on
August 24, 2001 for the period ended December 31, 2001 |
|
10 |
.6.4+ |
|
Fourth Amendment to Technology Development and Services
Agreement, dated March 31, 2002, by and between the Company
and Aventis CropScience GmbH, incorporated by reference to the
indicated exhibit of the Companys Form 10-Q for the
period ended March 31, 2002 |
|
10 |
.6.5+ |
|
Fifth Amendment to Technology Development and Services
Agreement, dated as of September 30, 2002, by and between
the Company and Bayer CropScience GmbH, incorporated by
reference to the indicated exhibit of the Companys
Form 10-Q for the period ended September 30, 2002 |
|
10 |
.7 |
|
Lease, dated as of February 27, 1998, by and between the
Company and SimFirst, L.P., Limited Partnership, incorporated by
reference to Exhibit 10.35 of the Companys
Form 10-Q for the period ended March 31, 1998 |
|
10 |
.8** |
|
1998 Employee Stock Purchase Plan or the Purchase Plan,
incorporated by reference to Exhibit 99.1 of the
Companys Form S-8 dated July 15, 1998 (File
No. 333-59163) |
|
10 |
.9+ |
|
Collaboration Agreement, dated as of October 1, 2000, by
and between the Company and Takara Shuzo Co., Ltd. incorporated
by reference to Exhibit 10.18 of the Companys
Form 10-K/A filed on August 24, 2001 for the period
ended December 31, 2001 |
|
10 |
.9.1+ |
|
Amendment No. 1 to Collaboration Agreement, dated
December 19, 2002, by and between the Company and Takara
Bio Inc., incorporated by reference to Exhibit 10.17.1 of
the Companys Form 10-K for the period ended
December 31, 2002 |
|
10 |
.9.2+ |
|
Amendment No. 2 to Collaboration Agreement, dated
June 30, 2003, by and between the Company and Takara Bio
Inc., incorporated by reference to Exhibit 10.17.2 of the
Companys Form 10-Q for the period ended
September 30, 2003 |
|
10 |
.10 |
|
Securities Purchase Agreement, dated as of May 24, 2001, by
and among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.11 |
|
Registration Rights Agreement, dated as of May 24, 2001, by
and among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.12 |
|
Form of Warrant issued by the Company in favor of each investor
thereto, incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.13+ |
|
Common Stock Purchase Agreement, dated as of March 5, 2002,
by and between Geron Corporation and Lynx Therapeutics, Inc.,
incorporated by reference to Exhibit 10.26 of the
Companys Current Report on From 8-K filed on
March 18, 2002 |
|
10 |
.14 |
|
Form of Registration Rights Agreement by and among the Company
and the investors listed therein, incorporated by reference to
Exhibit 10.28 of the Companys Current Report on
Form 8-K, as amended, filed on April 30, 2002 |
|
10 |
.15 |
|
Form of Warrant issued by the Company in favor of each investor
party to the Securities Purchase Agreement and Friedman,
Billings, Ramsey & Co., Inc., incorporated by reference
to Exhibit 10.29 of the Companys Current Report on
Form 8-K, as amended, filed on April 30, 2002 |
|
10 |
.16** |
|
Employment Agreement, dated as of March 20, 2003, by and
between the Company and Kathy A. San Roman, incorporated by
reference to Exhibit 10.37 of the Companys
Form 10-Q for the period ended March 31, 2003 |
|
10 |
.17** |
|
1992 Stock Plan, as amended, incorporated by reference to
Exhibit 10.38 of the Companys Form 10-Q for the
period ended June 30, 2003 |
|
10 |
.18 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.39 of the Companys Form 8-K filed on
September 25, 2003 |
74
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.19 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.40 of the
Companys Form 8-K filed on September 25, 2003 |
|
10 |
.20+ |
|
Services Agreement, by and between E.I. DuPont de Nemours and
Company and Lynx Therapeutics, Inc., incorporated by reference
to Exhibit 10.41 of the Companys Form 10-Q for
the period ended September 30, 2003 |
|
10 |
.21 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.42 of the Companys Form 8-K filed on
January 2, 2004 |
|
10 |
.22 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.43 of the
Companys Form 8-K filed on January 2, 2004 |
|
10 |
.23 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.44 the Companys Current Report on
Form 8-K filed on March 12, 2004 |
|
10 |
.24 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.45 of the
Companys Current Report on Form 8-K filed on
March 12, 2004 |
|
10 |
.25** |
|
Employment Agreement, dated January 29, 2003, between Lynx
Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
incorporated by reference to Exhibit 10.52 to the
Companys Current Report on Form 8-K filed on
November 22, 2004 |
|
10 |
.26 |
|
Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
Silicon Valley Bank on December 28, 2004, incorporated by
reference to Exhibit 10.55 of the Companys Current
Report on Form 8-K filed on January 3, 2005 |
|
10 |
.27** |
|
Letter Agreement, dated as of March 23, 2005, by and
between Solexa, Inc. and Linda Rubinstein incorporated by
reference to Exhibit 10.56 of the Companys Current
Report on Form 8-K filed on March 29, 2005 |
|
10 |
.27.1*,** |
|
Letter Agreement with Linda Rubinstein dated March 27, 2006
regarding modification of bonus terms |
|
10 |
.28 |
|
Indemnification Agreement with Linda Rubinstein, Vice President
and Chief Financial Officer incorporated by reference to
Exhibit 10.57 of the Companys Current Report on
Form 8-K filed on April 5, 2005 |
|
10 |
.29 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.58 of the Companys Current Report on
Form 8-K filed on April 26, 2005 |
|
10 |
.30 |
|
Form of Warrants to purchase common stock incorporated by
reference to Exhibit 10.59 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.31 |
|
Form of Warrants to purchase common stock incorporated by
reference to Exhibit 10.6 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.32 |
|
Letter Agreement, dated April 21, 2005, between the Company
and ValueAct Capital Master Fund, L.P., incorporated by
reference to Exhibit 10.61 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.33 |
|
Warrant issued by the Company to Seven Hills Partners LLC on
May 6, 2005, incorporated by reference to
Exhibit 10.62 of the Companys Current Report on
Form 8-K filed on May 11, 2005 |
|
10 |
.34 |
|
Solexa, Inc. 2005 Equity Incentive Plan. incorporated by
reference to Exhibit 10.63 of the Companys Current
Report on Form 8-K filed on June 9, 2005 |
|
10 |
.35 |
|
Form of Stock Option Agreement incorporated by reference to
Exhibit 10.64 of the Companys Current Report on
Form 8-K filed on June 9, 2005 |
|
10 |
.36 |
|
Non-Executive Director Compensation Program incorporated by
reference to Exhibit 10.65 of the Companys Current
Report on Form 8-K filed on June 9, 2005 |
|
10 |
.37** |
|
Executive Employment Agreement dated as of June 23, 2005 by
and between Solexa, Inc. and John West incorporated by reference
to Exhibit 10.66 of the Companys Current Report on
Form 8-K filed on June 28, 2005 |
|
10 |
.37.1*,** |
|
Letter Agreement with John West dated March 27, 2006
regarding modification of bonus terms |
75
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.38 |
|
Indemnification Agreement with John West, Chief Executive
Officer, incorporated by reference to Exhibit 10.67 of the
Companys Current Report on Form 8-K filed on
June 28, 2005 |
|
10 |
.39** |
|
2005-2006 Bonus Plan incorporated by reference to
Exhibit 10.68 of the Companys Current Report on
Form 8-K filed on September 12, 2005 |
|
10 |
.40 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.69 of the Companys Current Report on
Form 8-K filed on November 23, 2005 |
|
10 |
.41 |
|
Form of Warrants incorporated by reference to Exhibit 10.70
of the Companys Current Report on Form 8-K filed on
November 23, 2005 |
|
10 |
.42 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.71 of the Companys Current Report on
Form 8-K filed on November 23, 2005 |
|
10 |
.43 |
|
Form of Warrants incorporated by reference to Exhibit 10.72
of the Companys Current Report on Form 8-K filed on
November 23, 2005 |
|
21 |
.1* |
|
Subsidiaries |
|
23 |
.1* |
|
Consent of Independent Registered Public Accounting Firm |
|
23 |
.2* |
|
Consent of Independent Registered Public Accounting Firm |
|
24 |
.1* |
|
Power of Attorney. Reference is made to the signature page |
|
31 |
.1* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) |
|
31 |
.2* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) |
|
32 |
.1++* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) |
|
|
|
* |
|
Being filed herewith; all other exhibits previously filed. |
|
** |
|
Management contract or compensatory plan or arrangement. |
|
+ |
|
Portions of this agreement have been deleted pursuant to our
request for confidential treatment. |
|
++ |
|
This certification accompanies the Annual Report on
Form 10-K to which
it relates, pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002, and is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any
filing of Solexa, Inc. under the Securities Act or the Exchange
Act (whether made before or after the date of the Annual Report
on Form 10-K),
irrespective of any general incorporation language contained in
such filing. |
(b) Exhibit Index
(c) Financial Statement Schedule
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
Securities Exchange Act of 1934, the Registrant has duly caused
this report on
Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized, on March 31, 2005.
|
|
|
|
|
John West |
|
Chief Executive Officer |
77
POWER OF ATTORNEY
Know All Persons by These Presents, that each person
whose signature appears below constitutes and appoints John West
and Linda Rubinstein each or any of them, as his true and lawful
attorneys-in-fact and
agents, each acting alone, with full power of substitution and
resubstitutions, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the
Report on
Form 10-K, and to
file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange
Commission, granting onto said
attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said
attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ John West
John West |
|
Chief Executive Officer and Director
(Principal Executive Officer) |
|
March 31, 2006 |
|
/s/ Craig C. Taylor
Craig C. Taylor |
|
Chairman of the Board |
|
March 31, 2006 |
|
/s/ Linda Rubinstein
Linda Rubinstein |
|
Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer) |
|
March 31, 2006 |
|
/s/ Stephen Allen
Stephen Allen |
|
Director |
|
March 31, 2006 |
|
/s/ Hermann Hauser
Hermann Hauser |
|
Director |
|
March 31, 2006 |
|
/s/ Genghis Lloyd-Harris
Genghis Lloyd-Harris |
|
Director |
|
March 31, 2006 |
|
/s/ Mason Morfit
Mason Morfit |
|
Director |
|
March 31, 2006 |
|
/s/ Douglas Fambrough
Douglas Fambrough |
|
Director |
|
March 31, 2006 |
78
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
Companys 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 Companys Current
Report on Form 8-K filed on March 7, 2005 |
|
2 |
.2.2 |
|
Amendment No. 2 to acquisition agreement, dated May 6,
2005 by and between Solexa, Inc and Solexa, Ltd incorporated by
reference to the indicated exhibit of the Companys
Form 8-K for the period ended May 11, 2005 |
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Company, incorporated by reference to the indicated exhibit of
the Companys 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 Companys 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 Companys 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 Companys 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
Companys Current Report on Form 8-K filed on
March 7, 2005 |
|
10 |
.1 |
|
Form of Indemnity Agreement entered into between the Company and
its directors and officers, incorporated by reference to
Exhibit 10.7 of the Companys Registration Statement
on Form 10 |
|
10 |
.2** |
|
The Companys 1992 Stock Option Plan (the Stock
Option Plan), incorporated by reference to
Exhibit 10.8 of the Companys Registration Statement
on Form 10 |
|
10 |
.3** |
|
Form of Incentive Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.9 of the
Companys Registration Statement on Form 10 |
|
10 |
.4** |
|
Form of Nonstatutory Stock Option Grant under the Stock Option
Plan, incorporated by reference to Exhibit 10.10 of the
Companys Registration Statement on Form 10 |
|
10 |
.5 |
|
Agreement of Assignment and License of Intellectual Property
Rights, dated June 30, 1992, by and between the Company and
Applied Biosystems, Inc. incorporated by reference to
Exhibit 10.11 of the Companys Registration Statement
on Form 10 |
|
10 |
.6+ |
|
Technology Development and Services Agreement, dated as of
October 2, 1995, by and among the Company, Hoechst
Aktiengesellschaft and its subsidiary, Hoechst Marion Roussel,
Inc., incorporated by reference to Exhibit 10.28 of the
Companys Form 10-K for the period ended
December 31, 1995 |
|
10 |
.6.1+ |
|
Amended and Restated First Amendment to Technology Development
and Services Agreement, dated May 1, 1998, by and between
the Company and Hoechst Marion Roussel, Inc., incorporated by
reference to Exhibit 10.36 of the Companys
Form 10-Q for the period ended June 30, 1998 |
|
10 |
.6.2+ |
|
Second Amendment to Technology Development and Services
Agreement, dated March 1, 1999, by and among the Company,
Hoechst Marion Roussel, Inc. and its affiliate Hoechst Schering
AgrEvo GmbH, incorporated by reference to the indicated exhibit
of the Companys Form 10-K/A filed on August 24,
2001 for the period ended December 31, 2001 |
|
10 |
.6.3+ |
|
Third Amendment to Technology Development and Services
Agreement, dated December 20, 1999, by and among the
Company, Aventis Pharmaceutical Inc. and its affiliate Aventis
CropScience GmbH, incorporated by reference to the indicated
exhibit of the Companys Form 10-K/A filed on
August 24, 2001 for the period ended December 31, 2001 |
79
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.6.4+ |
|
Fourth Amendment to Technology Development and Services
Agreement, dated March 31, 2002, by and between the Company
and Aventis CropScience GmbH, incorporated by reference to the
indicated exhibit of the Companys Form 10-Q for the
period ended March 31, 2002 |
|
10 |
.6.5+ |
|
Fifth Amendment to Technology Development and Services
Agreement, dated as of September 30, 2002, by and between
the Company and Bayer CropScience GmbH, incorporated by
reference to the indicated exhibit of the Companys
Form 10-Q for the period ended September 30, 2002 |
|
10 |
.7 |
|
Lease, dated as of February 27, 1998, by and between the
Company and SimFirst, L.P., Limited Partnership, incorporated by
reference to Exhibit 10.35 of the Companys
Form 10-Q for the period ended March 31, 1998 |
|
10 |
.8** |
|
1998 Employee Stock Purchase Plan or the Purchase Plan,
incorporated by reference to Exhibit 99.1 of the
Companys Form S-8 dated July 15, 1998 (File
No. 333-59163) |
|
10 |
.9+ |
|
Collaboration Agreement, dated as of October 1, 2000, by
and between the Company and Takara Shuzo Co., Ltd. incorporated
by reference to Exhibit 10.18 of the Companys
Form 10-K/A filed on August 24, 2001 for the period
ended December 31, 2001 |
|
10 |
.9.1+ |
|
Amendment No. 1 to Collaboration Agreement, dated
December 19, 2002, by and between the Company and Takara
Bio Inc., incorporated by reference to Exhibit 10.17.1 of
the Companys Form 10-K for the period ended
December 31, 2002 |
|
10 |
.9.2+ |
|
Amendment No. 2 to Collaboration Agreement, dated
June 30, 2003, by and between the Company and Takara Bio
Inc., incorporated by reference to Exhibit 10.17.2 of the
Companys Form 10-Q for the period ended
September 30, 2003 |
|
10 |
.10 |
|
Securities Purchase Agreement, dated as of May 24, 2001, by
and among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.11 |
|
Registration Rights Agreement, dated as of May 24, 2001, by
and among the Company and the investors listed therein,
incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.12 |
|
Form of Warrant issued by the Company in favor of each investor
thereto, incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K, filed on
June 4, 2001 |
|
10 |
.13+ |
|
Common Stock Purchase Agreement, dated as of March 5, 2002,
by and between Geron Corporation and Lynx Therapeutics, Inc.,
incorporated by reference to Exhibit 10.26 of the
Companys Current Report on From 8-K filed on
March 18, 2002 |
|
10 |
.14 |
|
Form of Registration Rights Agreement by and among the Company
and the investors listed therein, incorporated by reference to
Exhibit 10.28 of the Companys Current Report on
Form 8-K, as amended, filed on April 30, 2002 |
|
10 |
.15 |
|
Form of Warrant issued by the Company in favor of each investor
party to the Securities Purchase Agreement and Friedman,
Billings, Ramsey & Co., Inc., incorporated by reference
to Exhibit 10.29 of the Companys Current Report on
Form 8-K, as amended, filed on April 30, 2002 |
|
10 |
.16** |
|
Employment Agreement, dated as of March 20, 2003, by and
between the Company and Kathy A. San Roman, incorporated by
reference to Exhibit 10.37 of the Companys
Form 10-Q for the period ended March 31, 2003 |
|
10 |
.17** |
|
1992 Stock Plan, as amended, incorporated by reference to
Exhibit 10.38 of the Companys Form 10-Q for the
period ended June 30, 2003 |
|
10 |
.18 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.39 of the Companys Form 8-K filed on
September 25, 2003 |
|
10 |
.19 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.40 of the
Companys Form 8-K filed on September 25, 2003 |
|
10 |
.20+ |
|
Services Agreement, by and between E.I. DuPont de Nemours and
Company and Lynx Therapeutics, Inc., incorporated by reference
to Exhibit 10.41 of the Companys Form 10-Q for
the period ended September 30, 2003 |
80
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.21 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.42 of the Companys Form 8-K filed on
January 2, 2004 |
|
10 |
.22 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.43 of the
Companys Form 8-K filed on January 2, 2004 |
|
10 |
.23 |
|
Securities Purchase Agreement by and among the Company and the
investors listed therein, incorporated by reference to
Exhibit 10.44 the Companys Current Report on
Form 8-K filed on March 12, 2004 |
|
10 |
.24 |
|
Form of Warrant issued by the Company in favor of each investor,
incorporated by reference to Exhibit 10.45 of the
Companys Current Report on Form 8-K filed on
March 12, 2004 |
|
10 |
.25** |
|
Employment Agreement, dated January 29, 2003, between Lynx
Therapeutics, Inc. and Mary L. Schramke, Ph.D.,
incorporated by reference to Exhibit 10.52 to the
Companys Current Report on Form 8-K filed on
November 22, 2004 |
|
10 |
.26 |
|
Warrant to Purchase Stock, issued by Lynx Therapeutics, Inc. to
Silicon Valley Bank on December 28, 2004, incorporated by
reference to Exhibit 10.55 of the Companys Current
Report on Form 8-K filed on January 3, 2005 |
|
10 |
.27** |
|
Letter Agreement, dated as of March 23, 2005, by and
between Solexa, Inc. and Linda Rubinstein incorporated by
reference to Exhibit 10.56 of the Companys Current
Report on Form 8-K filed on March 29, 2005 |
|
10 |
.27.1*,** |
|
Letter Agreement with Linda Rubinstein dated March 27, 2006
regarding modification of bonus terms |
|
10 |
.28 |
|
Indemnification Agreement with Linda Rubinstein, Vice President
and Chief Financial Officer incorporated by reference to
Exhibit 10.57 of the Companys Current Report on
Form 8-K filed on April 5, 2005 |
|
10 |
.29 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.58 of the Companys Current Report on
Form 8-K filed on April 26, 2005 |
|
10 |
.30 |
|
Form of Warrants to purchase common stock incorporated by
reference to Exhibit 10.59 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.31 |
|
Form of Warrants to purchase common stock incorporated by
reference to Exhibit 10.6 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.32 |
|
Letter Agreement, dated April 21, 2005, between the Company
and ValueAct Capital Master Fund, L.P., incorporated by
reference to Exhibit 10.61 of the Companys Current
Report on Form 8-K filed on April 26, 2005 |
|
10 |
.33 |
|
Warrant issued by the Company to Seven Hills Partners LLC on
May 6, 2005, incorporated by reference to
Exhibit 10.62 of the Companys Current Report on
Form 8-K filed on May 11, 2005 |
|
10 |
.34** |
|
Solexa, Inc. 2005 Equity Incentive Plan. incorporated by
reference to Exhibit 10.63 of the Companys Current
Report on Form 8-K filed on June 9, 2005 |
|
10 |
.35** |
|
Form of Stock Option Agreement incorporated by reference to
Exhibit 10.64 of the Companys Current Report on
Form 8-K filed on June 9, 2005 |
|
10 |
.36 |
|
Non-Executive Director Compensation Program incorporated by
reference to Exhibit 10.65 of the Companys Current
Report on Form 8-K filed on June 9, 2005 |
|
10 |
.37** |
|
Executive Employment Agreement dated as of June 23, 2005 by
and between Solexa, Inc. and John West incorporated by reference
to Exhibit 10.66 of the Companys Current Report on
Form 8-K filed on June 28, 2005 |
|
10 |
.37.1*,** |
|
Letter Agreement with John West dated March 27, 2006
regarding modification of bonus terms |
|
10 |
.38 |
|
Indemnification Agreement with John West, Chief Executive
Officer, incorporated by reference to Exhibit 10.67 of the
Companys Current Report on Form 8-K filed on
June 28, 2005 |
|
10 |
.39** |
|
2005-2006 Bonus Plan incorporated by reference to
Exhibit 10.68 of the Companys Current Report on
Form 8-K filed on September 12, 2005 |
|
10 |
.40 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.69 of the Companys Current Report on
Form 8-K filed on November 23, 2005 |
81
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description of Document |
|
|
|
|
10 |
.41 |
|
Form of Warrants incorporated by reference to Exhibit 10.70
of the Companys Current Report on Form 8-K filed on
November 23, 2005 |
|
10 |
.42 |
|
Securities Purchase Agreement incorporated by reference to
Exhibit 10.71 of the Companys Current Report on
Form 8-K filed on November 23, 2005 |
|
10 |
.43 |
|
Form of Warrants incorporated by reference to Exhibit 10.72
of the Companys Current Report on Form 8-K filed on
November 23, 2005 |
|
21 |
.1* |
|
Subsidiaries |
|
23 |
.1* |
|
Consent of Independent Registered Public Accounting Firm |
|
23 |
.2* |
|
Consent of Independent Registered Public Accounting Firm |
|
24 |
.1* |
|
Power of Attorney. Reference is made to the signature page |
|
31 |
.1* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) |
|
31 |
.2* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) |
|
32 |
.1++* |
|
Certification required by Rule 13a-14(a) or
Rule 15d-14(a) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) |
|
|
|
* |
|
Being filed herewith; all other exhibits previously filed. |
|
** |
|
Management contract or compensatory plan or arrangement. |
|
+ |
|
Portions of this agreement have been deleted pursuant to our
request for confidential treatment. |
|
++ |
|
This certification accompanies the Annual Report on
Form 10-K to which
it relates, pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002, and is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any
filing of Solexa, Inc. under the Securities Act or the Exchange
Act (whether made before or after the date of the Annual Report
on Form 10-K),
irrespective of any general incorporation language contained in
such filing. |
(b) Exhibit Index
(c) Financial Statement Schedule
82