##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2006
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-50798
 Color Kinetics Incorporated
  Delaware
    
    04-3391805(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
 
 þ o
  o þ o
  o þ




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##### 



COLOR KINETICS INCORPORATED
FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2006
INDEX
 Page No.PART I.  FINANCIAL INFORMATIONItem 1.
    
    Unaudited Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II.  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3.
    
    Defaults Upon Senior Securities
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Item 5.
    
    Other Information
    
    
    22Item 6.
    
    Exhibits
    
    
    23Signatures
    
    
    
    
    23EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO
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PART I. FINANCIAL INFORMATION
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 Color Kinetics Incorporated
 
 Condensed Consolidated Balance Sheets
 (In thousands, except per share data)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and equivalents
    
    $
    35,829
    
    
    $
    43,032Investments
    
    
    21,915
    
    
    
    14,137Restricted cash
    
    
    
    
    
    
    100Accounts receivable, net
    
    
    10,043
    
    
    
    7,813Accounts receivable from related party
    
    
    233
    
    
    
    249Inventory
    
    
    6,518
    
    
    
    7,159Prepaid expenses and other current assets
    
    
    2,054
    
    
    
    1,436Total current assets
    
    
    76,592
    
    
    
    73,926PROPERTY AND EQUIPMENTnet
    
    
    1,644
    
    
    
    1,026INTANGIBLE ASSETSnet
    
    
    292
    
    
    
    INVESTMENT IN JOINT VENTURE
    
    
    877
    
    
    
    887RESTRICTED CASHNon-current portion
    
    
    500
    
    
    
    900TOTAL ASSETS
    
    $
    79,905
    
    
    $
    76,739LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,531
    
    
    $
    1,019Accounts payable to related party
    
    
    210
    
    
    
    63Accrued expenses
    
    
    2,236
    
    
    
    2,169Accrued compensation
    
    
    2,225
    
    
    
    2,251Accrued restructuring
    
    
    374
    
    
    
    385Accrued warranty
    
    
    862
    
    
    
    876Deferred revenue
    
    
    434
    
    
    
    231Total current liabilities
    
    
    7,872
    
    
    
    6,994ACCRUED RESTRUCTURINGNon-current portion
    
    
    62
    
    
    
    243COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $0.001 par value
    
    
    19
    
    
    
    18Additional paid-in capital
    
    
    101,086
    
    
    
    99,210Accumulated other comprehensive loss
    
    
    (141
    )
    
    
    (120
    )Accumulated deficit
    
    
    (28,993
    )
    
    
    (29,606
    )Total stockholders equity
    
    
    71,971
    
    
    
    69,502TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    79,905
    
    
    $
    76,739
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Color Kinetics Incorporated
 
 Condensed Consolidated Statements of Income  (In thousands, except per share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES (1):Lighting systems
    
    $
    13,729
    
    
    $
    10,672
    
    
    $
    26,827
    
    
    $
    20,311OEM and licensing
    
    
    1,805
    
    
    
    2,181
    
    
    
    3,365
    
    
    
    4,058Total revenues
    
    
    15,534
    
    
    
    12,853
    
    
    
    30,192
    
    
    
    24,369COST OF REVENUES:Lighting systems
    
    
    6,036
    
    
    
    5,045
    
    
    
    12,135
    
    
    
    9,688OEM and licensing
    
    
    635
    
    
    
    1,065
    
    
    
    1,175
    
    
    
    1,966Total cost of revenues
    
    
    6,671
    
    
    
    6,110
    
    
    
    13,310
    
    
    
    11,654GROSS PROFIT
    
    
    8,863
    
    
    
    6,743
    
    
    
    16,882
    
    
    
    12,715OPERATING EXPENSES:Selling and marketing
    
    
    4,322
    
    
    
    2,833
    
    
    
    8,077
    
    
    
    5,253Research and development
    
    
    1,801
    
    
    
    1,175
    
    
    
    3,405
    
    
    
    2,207General and administrative
    
    
    2,908
    
    
    
    2,025
    
    
    
    5,999
    
    
    
    4,252Total operating expenses
    
    
    9,031
    
    
    
    6,033
    
    
    
    17,481
    
    
    
    11,712INCOME (LOSS) FROM OPERATIONS
    
    
    (168
    )
    
    
    710
    
    
    
    (599
    )
    
    
    1,003INTEREST INCOME
    
    
    636
    
    
    
    365
    
    
    
    1,198
    
    
    
    704EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE
    
    
    (43
    )
    
    
    (26
    )
    
    
    14
    
    
    
    14NET INCOME
    
    $
    425
    
    
    $
    1,049
    
    
    $
    613
    
    
    $
    1,721EARNINGS PER SHARE:Basic
    
    $
    0.02
    
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.10Diluted
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.09WEIGHTED AVERAGE SHARES OUTSTANDING:Basic
    
    
    18,506
    
    
    
    18,126
    
    
    
    18,458
    
    
    
    18,043Diluted
    
    
    19,974
    
    
    
    19,468
    
    
    
    19,960
    
    
    
    19,502
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(1) Includes revenues from related parties as follows:Lighting systems
    
    $
    701
    
    
    $
    1,398
    
    
    $
    1,479
    
    
    $
    2,663OEM and licensing
    
    
    
    
    
    
    16
    
    
    
    43
    
    
    
    16Total related party revenues
    
    $
    701
    
    
    $
    1,414
    
    
    $
    1,522
    
    
    $
    2,679
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Color Kinetics Incorporated
 
 Condensed Consolidated Statements of Cash Flows  (In thousands)
 Six Months Ended June 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    613
    
    
    $
    1,721Adjustments to reconcile net income to cash from operating activities:Depreciation and amortization
    
    
    584
    
    
    
    470Stock-based compensation
    
    
    1,170
    
    
    
    16Loss on disposal of property and equipment
    
    
    
    
    
    
    3Equity in earnings of joint venture
    
    
    (14
    )
    
    
    (14
    )Common stock issued for services
    
    
    47
    
    
    
    13Changes in assets and liabilities:Accounts receivable
    
    
    (2,214
    )
    
    
    (455
    )Inventory
    
    
    641
    
    
    
    (1,997
    )Prepaid expenses and other current assets
    
    
    (618
    )
    
    
    32Accounts payable
    
    
    659
    
    
    
    (328
    )Accrued expenses
    
    
    27
    
    
    
    (485
    )Deferred revenue
    
    
    203
    
    
    
    63Accrued restructuring
    
    
    (192
    )
    
    
    (202
    )Cash flows from operating activities
    
    
    906
    
    
    
    (1,163
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of investments
    
    
    (11,228
    )
    
    
    (17,569
    )Maturities of investments
    
    
    3,455
    
    
    
    21,215Purchases of property and equipment
    
    
    (1,194
    )
    
    
    (523
    )Purchase of patent
    
    
    (300
    )
    
    
    Proceeds from restricted cash
    
    
    500
    
    
    
    Cash flows from investing activities
    
    
    (8,767
    )
    
    
    3,123CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the exercise of stock options
    
    
    528
    
    
    
    924Proceeds from issuance of common stock
    
    
    132
    
    
    
    153Cash flows from financing activities
    
    
    660
    
    
    
    1,077EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (2
    )
    
    
    INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    
    
    (7,203
    )
    
    
    3,037CASH AND EQUIVALENTSBeginning of period
    
    
    43,032
    
    
    
    26,198CASH AND EQUIVALENTSEnd of period
    
    $
    35,829
    
    
    $
    29,235
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Color Kinetics Incorporated
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Nature of Business and Basis of Presentation
 Nature of Business 
 Basis of Presentation 
  2. Revenue Recognition
   3. Stock-Based Compensation
   6




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in thousands, except per share data
 Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net income, as reported
    
    $
    1,049
    
    
    $
    1,721Add: stock-based compensation expense included in reported net income
    
    
    8
    
    
    
    16Less: stock-based compensation expense determined under fair value method
    
    
    (436
    )
    
    
    (827
    )Pro forma net income
    
    $
    621
    
    
    $
    910Basic earnings per shareAs reported
    
    $
    0.06
    
    
    $
    0.10Pro forma
    
    $
    0.04
    
    
    $
    0.05Diluted earnings per shareAs reported
    
    $
    0.05
    
    
    $
    0.09Pro forma
    
    $
    0.03
    
    
    $
    0.05
  Stock Options
 th
 7




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(in thousands, except per
share data)
 WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    2,576
    
    
    $
    9.39Granted
    
    
    173
    
    
    
    17.33Exercised
    
    
    (181
    )
    
    
    6.78Forfeited
    
    
    (79
    )
    
    
    11.46Outstanding at June 30, 2006
    
    
    2,489
    
    
    $
    10.06Exercisable at June 30, 2006
    
    
    1,217
    
    
    $
    6.44
   2006
    
    2005Risk-free interest rate
    
    
    4.6
    %
    
    
    3.8
    %Expected volatility
    
    
    61.3
    %
    
    
    65.0
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected life in years
    
    
    4.2
    
    
    
    4.0
    Employee Stock Purchase Plan
   2006
    
    2005Risk-free interest rate
    
    
    4.3
    %
    
    
    2.6
    %Expected volatility
    
    
    61.0
    %
    
    
    64.7
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected life in years
    
    
    0.5
    
    
    
    0.5
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4. Inventory
 in thousands
 June 30,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    6,108
    
    
    $
    6,589Raw material components
    
    
    410
    
    
    
    570Total
    
    $
    6,518
    
    
    $
    7,159
 5. Intangible Assets
  6. Warranty Reserve
 in thousands
 Six Months Ended June 30,2006
    
    
    2005Balance, beginning of period
    
    $
    876
    
    
    $
    860Provisions in cost of revenues
    
    
    303
    
    
    
    279Expenditures
    
    
    (317
    )
    
    
    (407
    )Balance, end of period
    
    $
    862
    
    
    $
    732
 7. Earnings per Share
  in thousands
 Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005Weighted average shares for basic computation
    
    
    18,506
    
    
    
    18,126
    
    
    
    18,458
    
    
    
    18,043Potential common shares from:Options
    
    
    994
    
    
    
    917
    
    
    
    1,028
    
    
    
    1,026Warrants
    
    
    474
    
    
    
    425
    
    
    
    474
    
    
    
    433Weighted average shares for diluted computation
    
    
    19,974
    
    
    
    19,468
    
    
    
    19,960
    
    
    
    19,502
 9




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8. Segment Information
   in thousands
 2006
    
    
    2005Lighting
    
    
    OEM and
    
    
    
    
    
    
    Lighting
    
    
    OEM andThree Months Ended June 30,
    
    Systems
    
    
    Licensing
    
    
    Total
    
    
    Systems
    
    
    Licensing
    
    
    TotalRevenues
    
    $
    13,729
    
    
    $
    1,805
    
    
    $
    15,534
    
    
    $
    10,672
    
    
    $
    2,181
    
    
    $
    12,853Cost of revenues
    
    
    6,036
    
    
    
    635
    
    
    
    6,671
    
    
    
    5,045
    
    
    
    1,065
    
    
    
    6,110Gross profit
    
    
    7,693
    
    
    
    1,170
    
    
    
    8,863
    
    
    
    5,627
    
    
    
    1,116
    
    
    
    6,743Other direct costs
    
    
    4,788
    
    
    
    322
    
    
    
    5,110
    
    
    
    2,913
    
    
    
    315
    
    
    
    3,228Direct contribution margin
    
    $
    2,905
    
    
    $
    848
    
    
    
    3,753
    
    
    $
    2,714
    
    
    $
    801
    
    
    
    3,515Reconciling items to income (loss) from
operations:Unallocated selling and marketing
    
    
    
    
    
    
    
    
    
    
    617
    
    
    
    
    
    
    
    
    
    
    
    328Unallocated research and development
    
    
    
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    452Unallocated general and administrative
    
    
    
    
    
    
    
    
    
    
    2,908
    
    
    
    
    
    
    
    
    
    
    
    2,025Income (loss) from operations
    
    
    
    
    
    
    
    
    
    $
    (168
    )
    
    
    
    
    
    
    
    
    
    $
    710
 2006
    
    
    2005Lighting
    
    
    OEM and
    
    
    
    
    
    
    Lighting
    
    
    OEM andSix Months Ended June 30,
    
    Systems
    
    
    Licensing
    
    
    Total
    
    
    Systems
    
    
    Licensing
    
    
    TotalRevenues
    
    $
    26,827
    
    
    $
    3,365
    
    
    $
    30,192
    
    
    $
    20,311
    
    
    $
    4,058
    
    
    $
    24,369Cost of revenues
    
    
    12,135
    
    
    
    1,175
    
    
    
    13,310
    
    
    
    9,688
    
    
    
    1,966
    
    
    
    11,654Gross profit
    
    
    14,692
    
    
    
    2,190
    
    
    
    16,882
    
    
    
    10,623
    
    
    
    2,092
    
    
    
    12,715Other direct costs
    
    
    8,817
    
    
    
    710
    
    
    
    9,527
    
    
    
    5,336
    
    
    
    561
    
    
    
    5,897Direct contribution margin
    
    $
    5,875
    
    
    $
    1,480
    
    
    
    7,355
    
    
    $
    5,287
    
    
    $
    1,531
    
    
    
    6,818Reconciling items to income (loss) from
operations:Unallocated selling and marketing
    
    
    
    
    
    
    
    
    
    
    1,265
    
    
    
    
    
    
    
    
    
    
    
    697Unallocated research and development
    
    
    
    
    
    
    
    
    
    
    690
    
    
    
    
    
    
    
    
    
    
    
    866Unallocated general and administrative
    
    
    
    
    
    
    
    
    
    
    5,999
    
    
    
    
    
    
    
    
    
    
    
    4,252Income (loss) from operations
    
    
    
    
    
    
    
    
    
    $
    (599
    )
    
    
    
    
    
    
    
    
    
    $
    1,003
 10




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9. Comprehensive Income
 in thousands
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    425
    
    
    $
    1,049
    
    
    $
    613
    
    
    $
    1,721Foreign currency translation adjustments
    
    
    (23
    )
    
    
    66
    
    
    
    (26
    )
    
    
    88Unrealized holding gains (losses) on investments
    
    
    11
    
    
    
    22
    
    
    
    5
    
    
    
    (40
    )Total comprehensive income
    
    $
    413
    
    
    $
    1,137
    
    
    $
    592
    
    
    $
    1,769
 10. Contingencies
 Super Vision International, Inc.
     Super Vision International, Inc. (High End)
   11




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TIR Systems, Ltd.
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statements
  Overview
  
    
    Lighting systems:we offer intelligent LED lighting systems sold under the Color
Kinetics brand for installation in lighting projects where their use has been specified,
typically by a designer or architect. We also similarly sell, under the Color Kinetics
brand, simplified LED lighting systems for broader categories of the lighting market.
    
    OEM and licensing:we offer a standard line of LED lighting modules, custom and basic
components and other products that can be incorporated by manufacturers in products sold
under their own brands. We also license access to our intellectual property portfolio.
  12




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Description of Our Revenues, Costs and Expenses
        Adoption of SFAS No. 123R
  13




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Critical Accounting Estimates
   Revenue Recognition.
 
    
    evidence exists of an arrangement with the customer, typically consisting of a purchase
order;
    
    our products have been delivered and risk of loss has passed to the customer, which
typically occurs when a product is shipped under our customary terms, generally FOB
shipping point;
    
    the amount of revenue to which we are entitled is fixed or determinable; and
    
    we believe it is probable that we will be able to collect the amount due us from our customer.
  14




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Allowance for Doubtful Accounts.
 Product Warranty.
 Inventory Reserves.
 Accounting for Income Taxes.
 Stock-Based Compensation
 Results of Operations
  15




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Percentage of Total RevenuesThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Revenues:Lighting systems
    
    
    88
    %
    
    
    83
    %
    
    
    89
    %
    
    
    83
    %OEM and licensing
    
    
    12
    
    
    
    17
    
    
    
    11
    
    
    
    17Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Cost of revenues:Cost of lighting systems, as a percentage of
lighting systems revenues
    
    
    44
    
    
    
    47
    
    
    
    45
    
    
    
    48Cost of OEM and licensing, as a percentage
of
OEM and licensing revenues
    
    
    35
    
    
    
    49
    
    
    
    35
    
    
    
    48Total cost of revenues
    
    
    43
    
    
    
    48
    
    
    
    44
    
    
    
    48Gross profit
    
    
    57
    
    
    
    52
    
    
    
    56
    
    
    
    52Operating expenses:Selling and marketing
    
    
    28
    
    
    
    22
    
    
    
    27
    
    
    
    22Research and development
    
    
    12
    
    
    
    9
    
    
    
    11
    
    
    
    9General and administrative
    
    
    18
    
    
    
    16
    
    
    
    20
    
    
    
    17Total operating expenses
    
    
    58
    
    
    
    47
    
    
    
    58
    
    
    
    48Income (loss) from operations
    
    
    (1
    )
    
    
    5
    
    
    
    (2
    )
    
    
    4Interest income
    
    
    4
    
    
    
    3
    
    
    
    4
    
    
    
    3Equity in earnings (loss) of joint venture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    3
    %
    
    
    8
    %
    
    
    2
    %
    
    
    7
    %
 Revenues.
    16




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Gross Profit.
   Selling and Marketing Expenses.
 Research and Development Expenses.
 17




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General and Administrative Expenses.
 Interest Income.
 Equity in Earnings (Loss) of Joint Venture.
 Provision for Income Taxes.
 Liquidity and Capital Resources
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
     
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Super Vision International, Inc.
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Super Vision International, Inc. (High End)
     TIR Systems, Ltd.
   
 Item 1A. Risk Factors
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
    
    Because we have a limited history of profitable operations,
it is difficult to evaluate the likelihood that we will
maintain profitability in the future.
    
    If LED lighting in general, and our intelligent LED
lighting systems in particular, do not achieve greater
market acceptance, prospects for our growth and
profitability may be limited.
    
    If advances in LED technology do not continue, we may be
unable to increase our penetration of our existing markets
or expand into new markets.
    
    If we are unable to respond effectively as new lighting technologies and market trends emerge, our
competitive position and our ability to generate revenues and profits may be harmed.
    
    If demand for our white light products in the general lighting market fails to emerge, we may not be able to
carry out long-term business strategies.
    
    Our products could contain defects, which could reduce sales of those products or result in claims against us.
    
    If the companies to which we outsource the manufacture of our products fail to meet our requirements for
quality, quantity and timeliness, our revenues and reputation in the marketplace could be harmed.
    
    We face substantial competition, jeopardizing our prospects for future success.
    
    We rely on Color Kinetics Japan, a joint venture in which we hold a 50% equity interest, to distribute our
products in Japan, and inadequate performance of this distributor could substantially reduce our revenues and
adversely affect our results of operations.
    
    We may incur substantial costs or lose important rights as a result of litigation or other proceedings
relating to patent and other intellectual property rights.
    
    If we are unable to obtain and maintain patent protection for our technology and otherwise protect our
intellectual property, the value of our technology and products will be adversely affected.
    
    If critical components that we currently purchase from a small number of suppliers become unavailable, we may
incur delays in shipment, which could damage our business.
    
    If we are unable to increase production capacity for our products in a timely manner, we may incur delays in
shipment and our revenues and reputation in the marketplace could be harmed.
    
    Our gross margins are subject to variability.
    
    Our OEM business consumes significant time and resources with no guarantee of revenues; OEM and licensing
revenues are generally not subject to our control.
    
    The loss of the services of any members of our key management team could adversely affect our ability to
execute our business strategy and, as a result, adversely affect our sales and profitability.
    
    If we are unable to manage our growth effectively, our future growth, profitability and liquidity could be
adversely affected.
    
    If we are unable to obtain additional capital as needed in the future, our growth could be limited and we may
be unable to pursue our current business strategy.
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
    
    We have limited experience conducting operations internationally, which may make overseas expansion more
difficult and costly than we expect and adversely affect our revenue growth and profitability.
    
    We must comply with new regulatory requirements regarding internal control over financial reporting and
corporate governance, which will cause us to incur significant costs, and our failure to comply with these
requirements could cause our stock price to decline.
    
    Our operations are concentrated in a small number of facilities, and unavailability of one or more of these
facilities could interrupt our business.
    
    The market price of our common stock may be volatile, which could result in substantial losses for investors
holding our shares.
    
    Because our sales cycles are long and we lack long-term purchase commitments by our customers, forecasting
our sales accurately is difficult and our failure to meet expectations for our quarterly revenue could cause
our stock price to fall.
    
    We could be the subject of securities class action litigation due to future stock price volatility.
    
    Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control
of our company.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Items 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
    
    To elect the following three Class II directors: Elisabeth Allison, John Abele and William J. Sims:
 Nominee
    
    For
    
    Withhold AuthorityElisabeth Allison
    
    
    16,177,717
    
    
    
    58,219John Abele
    
    
    16,219,179
    
    
    
    16,757William J. Sims
    
    
    16,220,080
    
    
    
    15,856
 
    
    To approve an Amendment to the 2004 Stock Incentive Plan (2004 Plan)
to increase the number of shares currently available for issuance
under the 2004 Plan from 1,650,000 to 2,650,000. The effect of this
amendment was to increase the maximum number of shares issuable under
the 2004 Plan from 2,250,000 to 3,250,000:
 For
    
    Against
    
    Abstain
    
    Broker Non-Votes8,909,117
    
    
    3,733,249
    
    
    
    1,070,910
    
    
    
    2,522,660
 
 Item 5. Other Information
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Item 6. Exhibits
 Exhibit No.
    
    Description3.2
    
    Seventh Amended and Restated Certificate of Incorporation of Color Kinetics
Incorporated (1)3.4
    
    Second Amended and Restated By-Laws of Color Kinetics Incorporated (1)*10.27
    
    Letter agreement by and between Color Kinetics Incorporated and George Mueller, dated
April 11, 2006 (2)*10.28
    
    Consulting agreement by and between Color Kinetics Incorporated and George Mueller,
dated as of April 11, 2006 (3)31.1
    
    Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002  William J. Sims.31.2
    
    Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002  David K. Johnson31.3
    
    Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to the similarly numbered exhibit to our Registration Statement on
Form S-1, File No. 333-114386.(2)
    
    Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed April 14,
2006(3)
    
    Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed June 6,
2006 
 SIGNATURES
  Date: August 9, 2006
    
    COLOR KINETICS INCORPORATED(Registrant)By:
    
    /s/ William J. Sims

William J. SimsChief Executive OfficerBy:
    
    /s/ David K. Johnson

David K. JohnsonChief Financial Officer
 23