Lumera Reports Second Quarter 2005 Results and Updates Product Development Progress

BOTHELL, Wash.--(BUSINESS WIRE)--Aug. 8, 2005--Lumera Corporation, (NASDAQ:LMRA), an emerging leader in the field of nanotechnology, today reported financial results for the second quarter of 2005 and released information regarding its current product development progress.

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

“We continue to gain customer validation of our products and expect 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 quarter end.

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 were relatively unchanged during the comparative periods. The Company also sold $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 associated with product development and commercialization activities during the current quarter totaled $317,000. Expenses associated with various agreements with the University of Washington increased during the current quarter by approximately $2,377,000 due primarily to a non-cash adjustment recorded during the prior year quarter totaling $2,375,000. Non-cash stock based compensation expenses arising from options granted in March 2004 at below market prices were $184,000 lower during the current quarter due primarily to accelerated amortization of deferred compensation associated with options granted in March 2004 at below market prices.

Research and development expense increased to $3,625,000 for the six months ended June 30, 2005, from $1,070,000 for the six months ended June 30, 2004. Expenses associated with various agreements with the University of Washington increased by approximately $2,311,000 due primarily to a non-cash adjustment recorded during the current period ended June 30, 2004, totaling $2,375,000. Expenses associated with product development and commercialization activities during the quarter totaled $382,000. Non-cash stock based compensation expenses arising from options granted in March 2004 at below market prices were $353,000 lower during the current period due primarily to accelerated amortization of deferred compensation associated with options granted in 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 this increase in the current quarter were increased audit, legal and other professional fees and insurance costs primarily associated with being a public company of $231,000, increased general administrative and facilities costs of approximately $216,000, and increased costs arising from additional headcount in marketing and finance of $28,000, all compared with the prior year quarter. Non-cash stock based compensation expenses arising from options granted in March 2004 at below market prices were $98,000 lower during the current quarter due primarily to accelerated amortization of deferred compensation associated 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 in expense is primarily attributable to increased costs arising from additional headcount in marketing and finance of $411,000, increased audit, legal and investor relations professional fees and insurance costs 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 stock based compensation costs were $452,000 lower during the current six month period due primarily to accelerated amortization of deferred compensation associated with options granted in March 2004 at below market prices.

Lumera's net loss was $2,926,000 or $0.18 per share for the second quarter of 2005 compared to a net loss of $232,000 or $0.04 per share in the same period in 2004. The company recorded a $2,375,000 non-cash benefit associated with its various University of Washington agreements during the second quarter of 2004, explaining the majority of the comparative increase in net loss. Additionally, the Company incurred various expenses associated with product development and commercialization activities and costs associated with being a public company. There were approximately 10.4 million fewer shares outstanding during the quarter ending June 30, 2004.

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

Summary Discussion of Product Development

Lumera develops proprietary polymer materials which are in turn used in products for three distinct markets: biotechnology disposables, electro-optic devices, and smart wireless antennas and systems. Although Lumera has not yet generated commercial sales of its products in any of these markets in the reporting quarter, orders for qualification products in both the bioscience and electro-optics businesses were received. These are further detailed in the market summaries below.

Biotechnology Disposables

Lumera is developing disposable biochips fabricated for both DNA and protein analysis. Lumera's proprietary polymer coatings improve performance for genetic profiling and fundamentally enable protein array production. The Company received orders for the DNA disposables and supplied quantities of protein chips to potential customers for evaluation. The Institute of Systems Biology ("ISB"), with whom Lumera has a collaborative agreement announced in February, placed an initial qualification order for NanoCapture-OH(TM) arrays and has placed a follow-up order. An article for publication has also been submitted based upon their favorable results with Lumera biochips.

The protein array surfaces and methods, termed NanoCapture-HPT(TM), combine Lumera's proprietary nanosurface modification chemistry with Helix Biopharma's Heterodimer Protein Technology (HPT) to which Lumera has an exclusive license. These arrays are expected to, for the first time, allow researchers to build active, high density protein arrays from simple, widely available cDNA libraries.

Also in collaboration with ISB, Lumera is developing a companion high-throughput, label-free detection platform to analyze protein arrays. The initial prototype device is currently undergoing testing and further development in ISB and Lumera labs. The Company expects to have prototype devices available for customer evaluation in late 2005.

Electro-Optic Devices

Lumera recently announced that Raytheon Company placed an order for evaluation purposes for Lumera's high performance modulators, which are expected to ship during the third quarter of 2005. Lumera is hopeful that this initial order could potentially lead to a long term relationship between the two companies. Additionally, Lumera has supplied samples of specialized electro-optic polymer material to multiple government agencies and potential partners in the semiconductor and telecommunications industries. The applications for this advanced material include electro-optic components such as modulators and ring oscillators, polymer electronics such as high performance diodes and transistors, and optical interconnects for high speed (greater than 20 billion cycles per second) inter and intra semiconductor chip communication. Lumera is continuing development efforts to enhance the speed, efficiency and power requirements of electro-optic materials and devices to meet evolving customer requirements and applications.

During the quarter, Lumera was also awarded a patent that protects its ability to mass produce electro-optical devices with greatly enhanced waveguide performance. Waveguides are the paths in which light carrying data travels through an electro-optical device. Waveguides manufactured with sharper vertical walls and extremely smooth services are crucial to increased performance as well as reducing optical loss.

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

Wireless Antennas and Systems

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

Conference Call

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

About Lumera

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

Forward-Looking Statements Disclaimer

Certain statements contained in this release are forward-looking statements that involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those projected in the company's forward-looking statements include the following: market acceptance of our technologies and products; our ability to obtain financing; our financial and technical resources relative to those of our competitors; our ability to keep up with rapid technological change; government regulation of our technologies; our ability to enforce our intellectual property rights and protect our proprietary technologies; the ability to obtain additional contract awards and to develop partnership opportunities; the timing of commercial product launches; the ability to achieve key technical milestones in key products; and other risk factors identified from time to time in the company's SEC reports, including its Annual Report on 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
                      ===========  ==========  ===========  ==========

Contacts

The Summit Group
Todd Wolfenbarger, (media), 801-595-1155
or
Lumera Corporation
Helene Jaillet, (investors), 425-398-6546

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