Lumera Reports First Quarter 2006 Results and Updates Product Development Progress

Revenues for the three months ended March 31, 2006 increased by$263,000 to $503,000 compared to $240,000 for the same period in 2005.Our net loss for the quarter totaled $3,120,000 or $0.19 per sharecompared to $2,878,000 or $0.17 per share in the prior year quarter.

"We were pleased during the first quarter that we finalized twovery important collaborative agreements that demonstrate clearprogress toward achieving our outlined strategy. We continue to gainmarket validation of our products and expect this acceptance willtranslate to increased revenues later this year," said Lumera ChiefExecutive Officer Tom Mino.

Summary Discussion of Product Development

Lumera develops proprietary polymer materials which are used inbioscience products and in electro-optic devices further detailed inthe market summaries below.

Bioscience

Lumera is developing label free high throughput methods forbiology and medical research. During the quarter, the company madeseveral announcements indicating progress in this business.

Together with Harvard Medical School (HMS), Lumera will develop anext generation silicon chip substrate that combines Lumera'sNanoCapture(TM) technology with HMS's NAPPA(TM) methodology (nucleicacid programmable protein arrays) to produce a 10,000-spot very highdensity protein array. The resultant biochips are expected tosignificantly increase the speed of drug discovery and to advance lifescience research.

During the first quarter, the Medical University of South Carolina(MUSC) agreed to purchase one of Lumera's ProteomicProcessor(TM)Biosensor instruments. Additionally, MUSC and Lumera are workingtogether to develop a new protein chip aimed at the growing drugdiscovery and toxicology market.

Lumera is in negotiations with other leading academic centers tosell additional biosensor instruments, and believes that the initialresponses to this product have been very positive.

Electro-Optics

Based on its proprietary polymer materials, Lumera is developing anew generation of electro-optic modulators and other devices foroptical networks and systems.

During the quarter, Lumera announced an order from OptoelectronicsIndustry Development Association (OIDA). OIDA administers thePhotonics Technology Access Program for interaction with DukeUniversity's Pratt School of Engineering. Lumera will be working withDuke to develop optical interconnect and wafer scale photonicintegrated devices. The modulators will be used as opticalinterconnects in Duke's integrated optoelectronic micro and nanosystems.

In addition, the Company has continued to successfully pursuesignificant government contracts to develop high speed/high bandwidthmodulators. The total contract value thus far awarded is approximately$5.7 million.

Summary Financial Discussion

Revenues for the three months ended March 31, 2006 increased by$263,000 to $503,000 compared to $240,000 for the same period in 2005.Government contract revenue totaled $483,000 for the current quarter,an increase of $243,000 from $240,000 in 2005 due primarily to higherbillings on two of our contracts. Product revenues totaled $20,000 forthe current quarter, reflecting sales of electro-optic modulators.Backlog on our government contracts totaled $840,000 at March 31,2006.

Operating expenses increased by $454,000 for the three monthsended March 31, 2006 to $3,573,000 compared to $3,119,000 for the sameperiod in 2005. We adopted Financial Accounting Standards Board("FASB") Statement No. 123R, Share-Based Payment, ("FAS 123R") onJanuary 1, 2006, recording a total of $395,000 of non-cash stock basedcompensation expense during the quarter, or $0.02 per share, comparedwith $145,000 in the prior year quarter. Research and developmentexpense declined by $67,000 for the three months ended March 31, 2006to $1,578,000 from $1,645,000 for the same period in 2005. General andadministrative expenses increased by $521,000 for the three monthsended March 31, 2006 to $1,995,000 from $1,474,000 for the same periodin 2005. The increase in general and administrative expense during thecurrent quarter includes $192,000 of additional non-cash stock basedcompensation expense and $189,000 of additional head count relatedcompensation expenses.

Our net loss totaled $3,120,000 or $0.19 per share for the threemonths ending March 31, 2006 compared to a net loss of $2,878,000 or$0.17 per share in the same period in 2005.

We ended the quarter with $18.0 million in cash and investmentsecurities. We used $3.8 million in cash to fund operations andworking capital requirements during the first quarter of 2006including $700,000 to collateralize our new facilities lease duringthe quarter, compared to $2.7 million in the prior year quarter.Compensation costs associated with additional headcount and incentiveaccruals were $343,000 higher during the first quarter and we investedan additional $150,000 in capitalized equipment associated with ourfacilities.

Conference Call

Lumera will host a conference call to discuss its first quarter of2006 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 866-202-3048 ten minutes prior to the startof the conference. International participants can dial 617-213-8843.The conference passcode number is 64142489. A telephone replay of thecall will be available through May 11, 2006, and can be accessed bydialing 888-286-8010 (for U.S. participants) or 617-801-6888 (forinternational participants. The replay passcode is 50724840. 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 the bioscience and communications/computing industries, both ofwhich represent large market opportunities. The company also hasdeveloped proprietary processes for fabricating such devices. For moreinformation, please visit www.lumera.com.

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)

March December
31, 31,
Assets 2006 2005
-------- ---------
Current assets
Cash and cash equivalents $4,083 $4,885
Investment securities, available-for-sale 13,888 16,871
Accounts receivable 54 -
Costs and estimated earnings in excess of
billings on uncompleted contracts 197 77
Inventories 152 -
Other current assets 377 551
-------- ---------
Total current assets 18,751 22,384

Property and equipment, net 1,294 1,276
Restricted Investments 700 -
Other Assets 46 46
-------- ---------
Total assets $20,791 $23,706
======== =========


Liabilities and Shareholders' equity

Current liabilities
Accounts payable $305 $493
Accrued liabilities 1,035 1,059
-------- ---------
Total current liabilities 1,340 1,552

Commitments and contingencies

Shareholders' equity
Common stock at par value 17 17
Additional paid-in capital 71,267 71,070
Deferred stock-based compensation - (215)
Accumulated other comprehensive loss (13) (18)
Accumulated deficit (51,820) (48,700)
-------- ---------
Total shareholders' equity 19,451 22,154
-------- ---------
Total liabilities and shareholders' equity $20,791 $23,706
======== =========


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

Three months
ended March 31,
-----------------------
2006 2005
----------- -----------

Revenue $503 $240
Cost of revenue 258 168
----------- -----------
Gross profit 245 72
----------- -----------

Research and development expense 1,578 1,645
Marketing, general and administrative expense 1,995 1,474
----------- -----------
Total operating expenses 3,573 3,119
----------- -----------

Loss from operations (3,328) (3,047)
Interest income 208 169
----------- -----------
Net loss from operations $(3,120) $(2,878)
=========== ===========

Net loss per share-basic and diluted $(0.19) $(0.17)
=========== ===========

Weighted-average shares outstanding -
basic and diluted 16,757,005 16,565,403
=========== ===========