Lumera Reports Second Quarter 2005 Results and Updates Product Development Progress

"At the beginning of the year, we indicated that 2005 would be atransition year for Lumera as we evolved from a research company to acompany with commercial products," said Lumera Chief Executive OfficerTom Mino. "We continue to gain customer validation of our products andexpect this acceptance will translate to revenues late this year."

Summary Financial Discussion

Revenues for the three months ended June 30, 2005, increased by$60,000 to $348,000 compared to $288,000 for the same period in 2004,due to higher billings on the Company's two governmental contracts.Backlog on Lumera's governmental contracts totaled $736,000 at quarterend.

Revenues for the six months ended June 30, 2005, declined by$16,000 to $588,000 compared to $604,000 for the same period in 2004.Aggregate billings on the Company's two governmental contracts wererelatively unchanged during the comparative periods. The Company alsosold $15,000 of polymer materials during the 2004 period.

Research and development expense increased by $2,614,000 to$1,890,000 for the quarter ended June 30, 2005, from a net benefit of$724,000 for the three months ended June 30, 2004. Expenses associatedwith product development and commercialization activities during thecurrent quarter totaled $317,000. Expenses associated with variousagreements with the University of Washington increased during thecurrent quarter by approximately $2,377,000 due primarily to anon-cash adjustment recorded during the prior year quarter totaling$2,375,000. Non-cash stock based compensation expenses arising fromoptions granted in March 2004 at below market prices were $184,000lower during the current quarter due primarily to acceleratedamortization of deferred compensation associated with options grantedin March 2004 at below market prices.

Research and development expense increased to $3,625,000 for thesix months ended June 30, 2005, from $1,070,000 for the six monthsended June 30, 2004. Expenses associated with various agreements withthe University of Washington increased by approximately $2,311,000 dueprimarily to a non-cash adjustment recorded during the current periodended June 30, 2004, totaling $2,375,000. Expenses associated withproduct development and commercialization activities during thequarter totaled $382,000. Non-cash stock based compensation expensesarising from options granted in March 2004 at below market prices were$353,000 lower during the current period due primarily to acceleratedamortization of deferred compensation associated with options grantedin March 2004 at below market prices.

Marketing, general and administrative expense increased by$351,000 to $1,322,000 for the quarter ended June 30, 2005, from$971,000 for the quarter ended June 30, 2004. Contributing to thisincrease in the current quarter were increased audit, legal and otherprofessional fees and insurance costs primarily associated with beinga public company of $231,000, increased general administrative andfacilities costs of approximately $216,000, and increased costsarising from additional headcount in marketing and finance of $28,000,all compared with the prior year quarter. Non-cash stock basedcompensation expenses arising from options granted in March 2004 atbelow market prices were $98,000 lower during the current quarter dueprimarily to accelerated amortization of deferred compensationassociated with options granted in March 2004 at below market prices.

Marketing, general and administrative expense increased by$815,000 to $2,706,000 for the six months ended June 30, 2005, from$1,891,000 for the six months ended June 30, 2004. The increase inexpense is primarily attributable to increased costs arising fromadditional headcount in marketing and finance of $411,000, increasedaudit, legal and investor relations professional fees and insurancecosts primarily associated with being a public company of $519,000,and general administrative and facilities costs of approximately$347,000, all compared with the prior six month period. Non-cash stockbased compensation costs were $452,000 lower during the current sixmonth period due primarily to accelerated amortization of deferredcompensation associated with options granted in March 2004 at belowmarket prices.

Lumera's net loss was $2,926,000 or $0.18 per share for the secondquarter of 2005 compared to a net loss of $232,000 or $0.04 per sharein the same period in 2004. The company recorded a $2,375,000 non-cashbenefit associated with its various University of Washingtonagreements during the second quarter of 2004, explaining the majorityof the comparative increase in net loss. Additionally, the Companyincurred various expenses associated with product development andcommercialization activities and costs associated with being a publiccompany. There were approximately 10.4 million fewer sharesoutstanding during the quarter ending June 30, 2004.

Lumera used $2,452,000 in cash to fund operations during thesecond quarter of 2005, ending the quarter with $25.0 million in cashand investment securities. The company invests cash not needed to fundnear term operations in highly liquid investments with varying statedmaturities, all of which are available for sale.

Summary Discussion of Product Development

Lumera develops proprietary polymer materials which are in turnused in products for three distinct markets: biotechnologydisposables, electro-optic devices, and smart wireless antennas andsystems. Although Lumera has not yet generated commercial sales of itsproducts in any of these markets in the reporting quarter, orders forqualification products in both the bioscience and electro-opticsbusinesses were received. These are further detailed in the marketsummaries below.

Biotechnology Disposables

Lumera is developing disposable biochips fabricated for both DNAand protein analysis. Lumera's proprietary polymer coatings improveperformance for genetic profiling and fundamentally enable proteinarray production. The Company received orders for the DNA disposablesand supplied quantities of protein chips to potential customers forevaluation. The Institute of Systems Biology ("ISB"), with whom Lumerahas a collaborative agreement announced in February, placed an initialqualification order for NanoCapture-OH(TM) arrays and has placed afollow-up order. An article for publication has also been submittedbased upon their favorable results with Lumera biochips.

The protein array surfaces and methods, termedNanoCapture-HPT(TM), combine Lumera's proprietary nanosurfacemodification chemistry with Helix Biopharma's Heterodimer ProteinTechnology (HPT) to which Lumera has an exclusive license. Thesearrays are expected to, for the first time, allow researchers to buildactive, high density protein arrays from simple, widely available cDNAlibraries.

Also in collaboration with ISB, Lumera is developing a companionhigh-throughput, label-free detection platform to analyze proteinarrays. The initial prototype device is currently undergoing testingand further development in ISB and Lumera labs. The Company expects tohave prototype devices available for customer evaluation in late 2005.

Electro-Optic Devices

Lumera recently announced that Raytheon Company placed an orderfor evaluation purposes for Lumera's high performance modulators,which are expected to ship during the third quarter of 2005. Lumera ishopeful that this initial order could potentially lead to a long termrelationship between the two companies. Additionally, Lumera hassupplied samples of specialized electro-optic polymer material tomultiple government agencies and potential partners in thesemiconductor and telecommunications industries. The applications forthis advanced material include electro-optic components such asmodulators and ring oscillators, polymer electronics such as highperformance diodes and transistors, and optical interconnects for highspeed (greater than 20 billion cycles per second) inter and intrasemiconductor chip communication. Lumera is continuing developmentefforts to enhance the speed, efficiency and power requirements ofelectro-optic materials and devices to meet evolving customerrequirements and applications.

During the quarter, Lumera was also awarded a patent that protectsits ability to mass produce electro-optical devices with greatlyenhanced waveguide performance. Waveguides are the paths in whichlight carrying data travels through an electro-optical device.Waveguides manufactured with sharper vertical walls and extremelysmooth services are crucial to increased performance as well asreducing optical loss.

Lumera is currently working on two government contracts to producepolymer-based modulators for use in defense communications systems andphased array radar. Backlog on Lumera's two governmental contractstotaled $736,000 at June 30, 2005.

Wireless Antennas and Systems

The Company is developing "smart antenna" applications, whichfeature polymer-based technology that provides electronic rather thanmechanical beam steering, for a specific niche customer application.Lumera has delivered smart antenna prototypes to a potential customerfor testing and evaluation. The Company has not yet begun commercialproduction of smart antennas.

Conference Call

Lumera will host a conference call to discuss its second quarterof 2005 financial results at 4:30 p.m. EDT today. The call will bebroadcast over the Internet and can be accessed from the company's website at www.lumera.com. Additionally, U.S. participants may join theconference call by dialing 888-873-4896 ten minutes prior to the startof the conference. International participants can dial 617-213-8850.The conference passcode number is 75695655. A telephone replay of thecall will be available through August 15, 2005, and can be accessed bydialing 888-286-8010 (for U.S. participants) or 617-801-6888 (forinternational participants. The replay passcode is 79879988. A replayof the conference call will be available on the company's web site.

About Lumera

Lumera is an emerging leader in the field of nanotechnology. Thecompany designs proprietary molecular structures and polymer compoundsfor a broad range of bioscience, electro-optic, and specialtynanotechnology applications. The company also has developedproprietary processes for fabricating such devices. For moreinformation, please visit http://www.lumera.com/.

Forward-Looking Statements Disclaimer

Certain statements contained in this release are forward-lookingstatements that involve a number of risks and uncertainties. Factorsthat could cause actual results to differ materially from thoseprojected in the company's forward-looking statements include thefollowing: market acceptance of our technologies and products; ourability to obtain financing; our financial and technical resourcesrelative to those of our competitors; our ability to keep up withrapid technological change; government regulation of our technologies;our ability to enforce our intellectual property rights and protectour proprietary technologies; the ability to obtain additionalcontract awards and to develop partnership opportunities; the timingof commercial product launches; the ability to achieve key technicalmilestones in key products; and other risk factors identified fromtime to time in the company's SEC reports, including its Annual Reporton Form 10-K, and its Quarterly Reports on Form 10-Q.
Lumera Corporation
Condensed Balance Sheets
(In thousands)
(Unaudited)

June 30, Dec. 31,
Assets 2005 2004
-------- --------
Current assets
Cash and cash equivalents $ 3,015 $ 3,505
Investment securities, available-for-sale 22,007 15,460
Accounts receivable - 32
Costs and estimated earnings in excess of
billings on uncompleted contracts 222 3
Other current assets 548 623
-------- --------
Total current assets 25,792 19,623

Investment securities, available-for-sale - 11,216
Property and equipment, net 1,616 2,047
-------- --------
Total assets $ 27,408 $ 32,886
======== ========
Liabilities and Shareholders' equity

Current liabilities
Accounts payable $ 241 $ 416
Current portion of research liability - 101
Accrued liabilities 1,050 976
-------- --------
Total current liabilities 1,291 1,493

Commitments and contingencies

Shareholders' equity
Common stock at par value 16 16
Additional paid-in capital 70,629 70,435
Deferred stock-based compensation (364) (666)
Accumulated other comprehensive loss (113) (145)
Accumulated deficit (44,051) (38,247)
-------- --------
Total shareholders' equity 26,117 31,393
-------- --------
Total liabilities and shareholders' equity $ 27,408 $ 32,886
======== ========

Lumera Corporation
Condensed Statements of Operations
(In thousands, except earnings per share and share data)
(Unaudited)

Three months ended Six months ended
June 30, June 30,
-------------------------------------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
Revenue $ 348 $ 288 $ 588 $ 604
Cost of revenue 217 188 385 382
----------- ---------- ----------- ----------
Gross profit 131 100 203 222
----------- ---------- ----------- ----------

Research and
development expense 1,890 (724) 3,625 1,070
Marketing, general
and administrative
expense 1,322 971 2,706 1,891
----------- ---------- ----------- ----------
Total operating
expenses 3,212 247 6,331 2,961
----------- ---------- ----------- ----------
Loss from operations (3,081) (147) (6,128) (2,739)
Interest income 155 1 324 1
Interest expense - (86) - (86)
----------- ---------- ----------- ----------
Net loss $ (2,926) $ (232) $ (5,804) $ (2,824)

Deemed dividend upon
issuance of
mandatorily
redeemable
convertible
preferred stock - - - (500)
----------- ---------- ----------- ----------
Net loss available
to common
shareholders $ (2,926) $ (232) $ (5,804) $ (3,324)
=========== ========== =========== ==========
Net loss per share-
basic and diluted $ (0.18) $ (0.04) $ (0.35) $ (0.54)
=========== ========== =========== ==========
Weighted-average
shares outstanding
- basic and diluted 16,582,253 6,172,400 16,573,922 6,172,400
=========== ========== =========== ==========