Lumera Reports Third Quarter 2008 Results, Updates Progress on Proposed Merger

Business Wire, Oct 21, 2008

BOTHELL, Wash. -- Lumera Corporation (NASDAQ:LMRA), a leader in photonics communication, today reported financial results for the third quarter 2008.

Revenues totaled $1,565,000 for the three months ended September 30, 2008 compared to $624,000 for the three months ended September 30, 2007, a 151% increase over the prior year quarter. Lumera's loss from continuing operations totaled $1,526,000, or $0.06 per share, declined 53% for the three months ended September 30, 2008 compared to a loss of $3,214,000 or $0.16 per share for the three months ended September 30, 2007.

Revenues totaled $3,548,000 for the nine months ended September 30, 2008 compared to $2,418,000 for the nine months ended September 30, 2007, a 47% increase over the prior year-to-date period. Lumera's loss from continuing operations the nine months ended September 30, 2008 totaled $6,752,000, or $0.32 per share, compared to a loss of $7,123,000 or $0.35 per share for the nine months ended September 30, 2007.

"Our strong revenue growth this quarter reflects the continuing support from our government funding partners," said Dr. Joe Vallner, Interim Chief Executive Officer of Lumera. "We continue to meet our current contract milestones, while also discussing new and continuation projects for 2009 and beyond. Our management team is working closely with the GigOptix team on pre-merger integration planning and the results of that work is evident in both our technology roadmap as well as in creating cost efficiencies. Efforts that we initiated last quarter to trim corporate expenses are beginning to show in our operating results. The technology planning work will help both teams hit the ground running post-merger. We are now in the final stages of the merger process with GigOptix and hope to mail merger proxies to our shareholders in the very near term. We trust that our shareholders will see, as do we, the merits of combining GigOptix and Lumera together and will vote for the merger."

Proposed Merger with GigOptix, LLC

On March 27, 2008, Lumera Corporation and GigOptix, LLC ("GigOptix") announced their entry into a definitive agreement to merge the two companies. Upon completion of the merger, which is subject to Lumera shareholder and other regulatory approval, existing securities holders of Lumera and GigOptix will each own approximately 50% of the outstanding securities of a new holding company named "GigOptix, Inc." which will trade on the NASDAQ Market under the ticker symbol "GIGX."

The Company filed the Form S-4 on September 8, 2008 and amended its filing to address initial SEC comments on October 10, 2008 and the SEC is continuing their review. When the SEC completes their review and declares it effective, we will begin mailing proxy statements to shareholders of record. We hope to hold the Annual Shareholder Meeting in early December at the Country Inn & Suites in Bothell, Washington. If the shareholders approve the merger at the meeting, the merger will close shortly thereafter.

A presentation by Dr. Avi Katz, current CEO of GigOptix, LLC and future Chairman and CEO of GigOptix, Inc. will be given during Lumera's investor conference call beginning at 4:30 pm EDT, today, and will also be available for replay in the Investor Relations section of our web site.

The Company also announced a management change for the new combined company, GigOptix, Inc. Peter Biere, currently Senior Vice President and Chief Financial Officer of Lumera, will become Chief Financial Officer of GigOptix, Inc. and General Manager of GigOptix Bothell.

Summary Financial Discussion

Revenues totaled $1,565,000 for the three months ended September 30, 2008 compared to $624,000 for the three months ended September 30, 2007, a 151% increase over the prior year quarter. Government contract revenues totaled $1,555,000 for the current three month period, an increase of $931,000 or 149% from $624,000 in 2007. The expected increase in our current quarter contract revenues is related to additional and renewed government contracts awarded late in the first quarter of 2008. Backlog on our government contracts totaled $2.3 million at September 30, 2008. Product revenues for the three months ended September 30, 2008 totaled $10,000 consisting of sample electro-optic materials and devices. There were no product revenues in the prior year comparative period.

Revenues totaled $3,548,000 for the nine months ended September 30, 2008 compared to $2,418,000 for the nine months ended September 30, 2007, a 47% increase over the prior year-to-date period. Government contract revenues totaled $3,405,000 for the current nine month period, an increase of $1,078,000 or 46% from $2,327,000 in 2007. Product revenues for the nine months ended September 30, 2008 totaled $143,000 consisting of electro-optic devices and materials primarily for devices shipped to Lockheed Martin and sample electro-optic devices and materials. Product revenues for the same period in 2007 totaled $91,000.

Expenses from continuing operations for the three months ended September 30, 2008 totaled $2,350,000 compared to $3,760,000 for the same period in 2007, a 38% decline over the prior year quarter. Research and development expense totaled $437,000 in the current quarterly period, declining $501,000 or 53% for the same period in 2007. Increased contract revenues led to lower internal research expenses as we dedicated more science labor hours and materials to contract work. Marketing, general and administrative expense decreased by $909,000 or 32% to $1,913,000 during the current quarterly period from $2,822,000 in the same period in 2007. This decline is mostly due to lower salaries and non-cash stock based compensation costs in the current period due to reductions in our executive and administrative workforce and to contractual severance expenses incurred in the prior year quarterly period. Included in the current quarter is $383,000 in professional fees related to preparations for our proposed merger.