Color Kinetics Reports Record Revenues and Net Income for Third Quarter 2005

Color Kinetics Incorporated, a leading innovator of intelligent solid-state lighting ;systems and technologies, today announced its results of operations for the ;third quarter of 2005. Revenues were a record $14.1 million, a 27% increase ;from the $11.1 million reported in the third quarter of 2004. Net income rose ;to $1.3 million, up 47% from the $853,000 reported in the third quarter of ;2004. On a per share basis, earnings were $0.06 per diluted share, compared to ;$0.04 per diluted share for the third quarter of 2004. "We are very pleased with our strong third quarter performance, which ;reflects a broad and growing base of customers worldwide," said Bill Sims, ;President and CEO. "Once again we achieved record revenues across both ;business units, driven in part by market adoption of new RGB systems, ;increased traction for the IntelliWhite(TM) series, and escalating licensing ;activity. As LED technology progresses, fueling adoption in both new and ;existing markets, we believe that Color Kinetics is well-equipped to advance ;the intelligent solid-state lighting industry -- both for the replacement of ;conventional sources, and for the completely new uses of light that our ;technology makes possible." ; Third quarter highlights include: ; * Record revenue performance for Lighting Systems and OEM & Licensing with overall gross margins at 53.1%. * Continued OEM business momentum, including renewed agreements with Electrix, Inc. and TouchTunes, and new agreements with FC Lighting, Litecontrol, Sunnlaine, and Thematics. * Record licensing revenues of $423,000 reflecting contributions from a broad mix of partners. * Two new patents issued, including a European regional patent relating specifically to white light applications. ; For the fourth quarter of 2005, the company currently targets revenues in ;the range of $14.0 million to $15.0 million with earnings of $0.05 to $0.07 ;per diluted share. Color Kinetics will host a conference call to review its ;third quarter results at 5:00 pm ET today. The conference call may be accessed ;by dial-in number or via the Internet as follows: ; Thursday, October 27 at 5:00 pm ET Domestic dial-in number: 800-798-2801 International dial-in number: 617-614-6205 Passcode: 64412430 Webcast: http://phx.corporate-ir.net/phoenix.zhtml?c=178448&p=irol-irhome ; A dial-in replay of the conference call will be available from 7:00 pm ET ;on October 27 through November 3 at 888-286-8010 (domestic), 617-801-6888 ;(international), passcode: 84839277. The webcast will be archived and ;available for one year via the Investor Relations section of Color Kinetics' ;website. ; About Color Kinetics Color Kinetics Incorporated (Nasdaq: CLRK) is a leading innovator of ;intelligent solid-state lighting -- enabling light without limits(TM). The ;company's award-winning product lines apply the benefits of LEDs to transform ;the way light is produced, controlled and applied, advancing the adoption of ;cost- and energy-efficient lighting worldwide. Its systems leverage a patented ;layer of digital intelligence, called Chromacore(R), to generate and control ;color and white light for use in high-performance lighting and OEM and ;licensing applications. The company's investment in research and development ;is reflected by its wide-ranging intellectual property portfolio. Founded in ;1997, the company is headquartered in Boston, MA with offices in the UK, ;China, and Japan. More information can be found at ;http://www.colorkinetics.com. ; Chromacore, Color Kinetics, and the Color Kinetics logo are registered ;trademarks and IntelliWhite and Light Without Limits are trademarks of Color ;Kinetics Incorporated. All other trademarks mentioned are the property of ;their respective owners. ; "Safe Harbor" Statement under the Private Securities Litigation Reform Act ;of 1995: Statements in this press release regarding Color Kinetics ;Incorporated's business that are not historical facts are "forward-looking ;statements" within the meaning of the Private Securities Litigation Reform Act ;of 1995. Readers are cautioned that these statements involve risks and ;uncertainties, are only predictions and may differ materially from actual ;future events and results. For a discussion of such risks and uncertainties, ;see "Risk Factors" in the Company's Annual Report on Form 10-K for the Twelve ;Months Ended December 31, 2004, File Number 000-50798, and most recent 10-Q, ;each as filed with the Securities and Exchange Commission. ; Color Kinetics Incorporated Condensed Consolidated Balance Sheets (In thousands, except per share data) ; September 30, December 31, 2005 2004 ASSETS ; CURRENT ASSETS: Cash and equivalents $18,537 $26,198 ; Investments 37,223 29,022 ; Restricted cash 100 100 ; Accounts receivable, net 7,6525,346 ; Accounts receivable from related parties 285 31 ; Inventory 6,2414,730 ; Prepaid expenses and other current assets 2,7492,076 ; Total current assets 72,787 67,503 ; PROPERTY AND EQUIPMENT -- net 1,2101,147 ; INVESTMENT IN JOINT VENTURE 784 557 ; RESTRICTED CASH -- Long-term portion 9001,000 ; TOTAL ASSETS $75,681 $70,207 ; ; LIABILITIES AND STOCKHOLDERS' EQUITY ; CURRENT LIABILITIES: Accounts payable $1,933 $1,681 ; Accounts payable to related parties 224 48 ; Accrued expenses1,8111,458 ; Accrued compensation 1,7691,731 ; Accrued restructuring 388 405 ; Accrued warranty 850 860 ; Deferred revenue 425 379 ; Total current liabilities7,4006,562 ; ACCRUED RESTRUCTURING 340 628 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $0.001 par value 18 18 ; Additional paid-in capital 98,990 97,059 ; Accumulated other comprehensive income (100)(122) Accumulated deficit(30,967) (33,938) Total stockholders' equity67,941 63,017 ; TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,681 $70,207 ; ; ; Color Kinetics Incorporated Condensed Consolidated Statements of Income (In thousands, except per share data) ; Three Months Ended Nine Months Ended September 30, September 30, 20052004 2005 2004 REVENUES (1): ; Lighting systems$11,361 $9,275 $31,672 $24,767 OEM and licensing 2,697 1,786 6,755 4,670Total revenues 14,058 11,061 38,427 29,437 ; COST OF REVENUES: Lighting systems 5,457 4,392 15,145 12,038 OEM and licensing 1,137 1,089 3,103 2,542Total cost of revenues 6,594 5,481 18,248 14,580 GROSS PROFIT 7,464 5,580 20,179 14,857 OPERATING EXPENSES: ; Selling and marketing 3,004 2,284 8,257 6,177 Research and development 1,162 886 3,369 2,491 General and administrative (2) 2,587 1,807 6,839 4,911 ;Total operating expenses 6,753 4,977 18,465 13,579 ; INCOME FROM OPERATIONS 711 603 1,714 1,278 ; INTEREST INCOME 443 181 1,147258 ; EQUITY IN EARNINGS OF JOINT VENTURE 96 69110221 NET INCOME $1,250$853 $2,971 $1,757 ; EARNINGS PER SHARE: Basic $0.07 $0.05 $0.16 $0.21 ; Diluted $0.06 $0.04 $0.15 $0.11 ; WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 18,251 17,881 18,113 8,560 ; Diluted19,672 19,409 19,558 16,648 ; ; ; Three Months Ended Nine Months Ende ;eptember 30,September 30, 2005 2004 2005 2004 (1) Includes revenues from related parties as follows:Lighting systems $1,195 $1,019 $3,858 $2,938 ;OEM and licensing 56 30 72 90 ; Total related party revenues $1,251 $1,049 $3,930 $3,028 ; ; (2) Includes stock-based compensation of $8 $8$24 $339 ; ; ; Color Kinetics Incorporated Condensed Consolidated Statements of Cash Flows (In thousands) ;Nine Months Ended September 30, 2005 2004 ; CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,971 $ 1,757 ; Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 746 536 ; Loss on disposal of property and equipment 4 - ; Stock-based compensation 24 339 ; Equity in earnings of joint venture(110)(221) Common stock issued for services37 - ; Changes in assets and liabilities:Accounts receivable (2,560) (878)Inventory (1,511) (1,071)Prepaid expenses and other current assets (673) (182)Accounts payable428 411 ;Accrued expenses381 1,152 ;Deferred revenue 46 (57)Accrued restructuring (305) (320) Cash flows from operating activities (522) 1,466 ; ; CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments(43,357) (15,000) Maturities of investments35,097 - ; Purchase of property and equipment (813) (513) Proceeds from restricted cash 100 100 ; Cash flows from investing activities (8,973) (15,413) ; CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercise of stock options 1,594 28 ; Proceeds from issuance of redeemable convertible preferred stock -- net of issuance costs - 13,003 ; Proceeds from issuance of common stock -- net of issuance costs 277 35,227 ; Cash flows from financing activities 1,871 48,258 ; ; EFFECT OF EXCHANGE RATE CHANGES ON CASH(37)(43) INCREASE (DECREASE) IN CASH AND EQUIVALENTS (7,661) 34,268 ; CASH AND EQUIVALENTS -- Beginning of period 26,198 5,686 ; CASH AND EQUIVALENTS -- End of period 18,537 39,954 ; ; Add back investments 37,223 15,000 ; CASH AND EQUIV. AND INVESTMENTS -- End of period $55,760 $54,954 ; ; Contacts: ; Felicia Spagnoli Justine Alonzo Media Relations Investor Relations Color Kinetics Incorporated Color Kinetics Incorporated 617-701-2292 617-701-2272 fspagnoli@colorkinetics.com jalonzo@colorkinetics.com ; ; ;

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