Lumera Corporation, a leader in the emerging field of nanotechnology, today reported financial results for the second quarter of 2006 and released information regarding its current product development progress.

Revenues totaled $665,000 for the three months ended 30 June 2006, compared with $348,000 for the same period in 2005, a 91% increase of $317,000 from the prior year. Lumera’s net loss totaled $3,174,000 or $0.19 per share for the second quarter of 2006 compared with $2,926,000 or $0.18 per share for the same period in 2005.

Revenues totaled $1,168,000 for the six months ended 30 June 2006, compared with $588,000 for the same period in 2005, a 99% increase of $580,000 from the prior year. Lumera’s net loss totaled $6,294,000 or $0.38 per share for the first six months of 2006 compared with $5,804,000 or $0.35 per share for the same period in 2005.

“In our bioscience business unit, we successfully installed three ProteomicProcessor Biosensors this quarter as anticipated, which we believe puts us in a good position for achieving bioscience product revenue growth late this year,” said Lumera Chief Executive Officer Tom Mino. “We also received additional contract revenue in our electro-optics business which is a big step toward making this business self sustaining.”

Summary Discussion of Product Development

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

Bioscience

Lumera is developing label free high throughput methods targeted at the biological and medical research markets. During the quarter, the company fulfilled orders for three ProteomicProcessor biosensors, installing these units at Harvard Medical School, Baylor Research Institute and the Institute for Systems Biology. Additionally, the company is in negotiations with other leading academic centers to sell additional biosensor instruments. Lumera has received favorable initial responses to this product as evidenced by the invitation to demonstrate the unit at the 2006 Cold Spring Harbor Proteomic course. The company was only one of eight companies invited to showcase instruments and the only company demonstrating Surface Plasmon Resonance.

Pre-sales activities have begun on the biosensor with a commercial model expected to be available in the fourth quarter and to be officially launched at a national conference in January of 2007.

Electro-Optics

Based on proprietary polymer materials, Lumera is developing a new generation of electro-optic modulators and other devices for optical networks and systems.

During the quarter, Lumera announced that Defense Advanced Research Projects Agency (DARPA) had awarded the company a $3.45 million contract which, based on the achievements of certain milestones, will be followed by a $2.43 million contract for a total of $5.9 million. The scope of the two-year multi-phase project is to build state-of-the-art electro-optic polymer modulators. These modulators are critical to defense applications, including terrestrial and satellite RF photonic links and phased array radar. The project directly parallels the company’s roadmap for commercial products and management anticipates that this could lead to significant commercial revenue from materials, modulators, and systems.

Summary Financial Discussion

Revenues totaled $665,000 for the three months ended 30 June 2006, compared with $348,000 for the same period in 2005. Government contract revenue totaled $538,000 for the three months ended 30 June 2006, compared with $347,000 for the same period in 2005. The increase in current quarter contract revenues was due primarily to work on the millimetre wave detection contract we were awarded in November 2005 and increased activity on our polymer modulator development contract. Backlog on government contracts at 30 June 2006, including the $3.5 million initial phase of the DARPA contract awarded in June 2006, totaled $3,756,000. Product revenues totaled $127,000 for the three months ended 30 June 2006, consisting primarily of the sale of ProteomicProcessors and related consumables which were released in beta version during the second quarter of 2006, and sales of electro-optics products of approximately $20,000 during the current quarter.

Operating expenses totaled $3,661,000 for the three months ended 30 June 2006, compared with $3,212,000 for the same period in 2005. Research and development expense, which totaled $1,672,000 for the three months ended 30 June 2006, declined by $165,000 from the same period in 2005 as we directed resources toward product commercialization and contract revenue activities. Marketing, general and administrative expense, which totaled $1,989,000 for the three months ended 30 June 2006, increased by $614,000 from the same period in 2005 due primarily to non-cash expenses associated with share-based payments and additional sales and marketing and administrative personnel costs.

Lumera adopted Financial Accounting Standards Board (“FASB”) Statement No. 123®, Share-Based Payment, (“FAS 123R”) effective 1 January 2006. During the three and six months ended 30 June 2006, we recorded non-cash share based compensation expense of $85,000 and $162,000 to R&D expense and $444,000 and $763,000 to G&A expense, respectively.

Our net loss totaled $3,174,000 or $0.19 per share for the three months ending 30 June 2006, compared to a net loss of $2,926,000 or $0.18 per share for the same period in 2005.

Lumera net loss totaled $6,294,000 or $0.38 per share for the six months ending 30 June 2006, compared to a net loss of $5,804,000 or $0.35 per share for the same period in 2005.

Lumera ended the quarter with $15.7 million in cash and investment securities. Lumera used $2.3 million in cash to fund operations and working capital requirements during the second quarter of 2006, bringing the six month total to $6.1 million. Lumera set aside $700,000 to collateralise our new facilities lease during the first quarter. Capital expenditures totaled $424,000 for the second quarter and $741,000 for the first six months of 2006. Lumera used approximately $1.3 million less during the second quarter than anticipated due to delayed spending on tenant improvements and capital asset acquisitions which will now occur during the third quarter of 2006.

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