Control4 Corp
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10‑K (Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to . Commission file number 001‑36017Control4 Corporation(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization)42‑1583209(I.R.S. EmployerIdentification No.)11734 S. Election RoadSalt Lake City, Utah(Address of principal executive offices)84020(Zip Code) (801) 523‑3100(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.0001 par value per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§ 229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or anyamendment to this Form 10‑K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b‑2 of the Exchange Act. Large accelerated filer ☐Accelerated filer ☒Non‑accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☒ (Do not check if a smaller reporting company) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of voting and non‑voting common equity held by non‑affiliates of the registrant as of June 30, 2017 was approximately$484.3 million (based on a closing sale price of $19.61 per share as reported for the NASDAQ Global Select Market on June 30, 2017). For purposes of thiscalculation, shares of common stock held by officers, directors and their affiliated holders and shares of common stock held by persons who hold more than 10% ofthe outstanding common stock of the registrant have been excluded from this calculation because such persons may be deemed to be affiliates. This determination ofexecutive officer or affiliate status is not necessarily a conclusive determination for other purposes.As of February 9, 2018, 25,833,471 shares of the registrant’s Common Stock, $0.0001 par value, were outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement relating to its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of thisAnnual Report on Form 10‑K where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission (“SEC”) within 120 days afterthe end of the fiscal year to which this report relates.  Control4 CorporationForm 10-KFor Fiscal Year Ended December 31, 2017 Table of Contents Part I. Item 1. Business4Item 1A. Risk Factors13Item 1B. Unresolved Staff Comments35Item 2. Properties35Item 3. Legal Proceedings35Item 4. Mine Safety Disclosures35Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities36Item 6. Selected Financial Data38Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations42Item 7A. Qualitative and Quantitative Disclosures about Market Risk63Item 8. Financial Statements and Supplementary Data64Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure94Item 9A. Controls and Procedures94Item 9B. Other Information94Part III. Item 10. Directors, Executive Officers and Corporate Governance95Item 11. Executive Compensation95Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters95Item 13. Certain Relationships and Related Transactions and Director Independence95Item 14. Principal Accountant Fees and Services95Part IV. Item 15. Exhibits, Consolidated Financial Statements and Financial Statement Schedules96Item 16. Form 10-K Summary97Signatures 98 2 Table of Contents Cautionary Note Regarding Forward-Looking Statements This Annual Report on Form 10-K (“Form 10-K” or “Annual Report”) contains “forward-looking statements” thatinvolve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause ourresults to differ materially from those expressed or implied by such forward-looking statements. All statements other thanstatements of historical fact contained in this Form 10-K are forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, asamended, or the Exchange Act. Such forward-looking statements include any expectation of earnings, revenues or otherfinancial items including without limitation statements about the accretive effect of any acquisitions; any statements of theplans, strategies and objectives of management for future operations or growth; factors that may affect our operating results;statements related to adding employees; statements related to future capital expenditures; statements related to futureeconomic conditions or performance; statements related to product or service adoption and network expansion; statements asto industry trends or market opportunities and other matters that do not relate strictly to historical facts or statements ofassumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminologysuch as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or“intends” or the negative of these terms or other comparable terminology. We caution investors that any forward-lookingstatements are made as of the date they were first issued and are based on management’s beliefs, expectations, and onassumptions made by, and information currently available to, management. Forward-looking statements are subject to risks,assumptions and uncertainties, many of which involve factors or circumstances that are beyond Control4’s control.Control4’s actual results could differ materially from those stated or implied in forward-looking statements due to a numberof factors, including but not limited to, those discussed in the section titled “Risk Factors” included in this Form 10-K, aswell as other documents that may be filed by the Company from time to time with the SEC. Control4 urges investors toconsider these factors carefully in evaluating the forward-looking statements contained in this Form 10-K and not to give anysuch forward-looking statement any undue reliance. Moreover, we operate in a very competitive and rapidly changingenvironment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors,nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination offactors, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements included in this Form 10-K represent Control4’s views as of the date of this Form 10-K, and the Companyanticipates that subsequent events and developments will cause its views to change. Control4 undertakes no intention orobligation to update or revise any forward-looking statements, whether as a result of new information, future events, orotherwise. References in this Form 10-K to the “Company,” “Control4,” “we,” “us,” and “our” refer to Control4 Corporationand, where appropriate, its subsidiaries, unless otherwise stated. "Control4," "Pakedge," “Triad,” and other trademarks of ours appearing in this report are our property. This reportcontains additional trade names and trademarks of other companies. We do not intend our use or display of other companies'trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any ofthese companies. 3 Table of Contents PART I. ITEM 1. Business Overview Control4 is a leading provider of smart home and business solutions that are designed to personalize and enhancehow consumers engage with an ever-changing connected world. Our entertainment, smart lighting, comfort and convenience,safety and security, and networking solutions unlock the potential of connected devices, making entertainment systemseasier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals moreconnected and secure. Our premium smart home and small business solutions provide consumers with the ability to integrateaudio, video, lighting, temperature, security, communications, network management and other functionalities into a unifiedautomation solution, customized to match their lifestyles and business needs. Our advanced software, delivered through ourcontroller and user-interface products together with various cloud services power this customized experience, enablingcohesive interoperability with thousands of connected Control4 and third-party devices. Consumer need for simplicity and a personalized experience, combined with advances in technology, are drivingrapid growth in the connected home market. As the “Internet of Things” shapes the way we live and work, consumers arelooking for affordable ways to extend and enhance the interoperability of connected devices in their homes and businesses,driving growth in the mainstream automation market. We were founded in 2003 to deliver a premium home automation solution by enabling consumers to unify theirconnected devices into a personalized system. We strive to create solutions that enable customers to purchase our products atan accessible and affordable entry point, while offering flexibility to expand to include additional devices, services andfeatures optimized for every type of project, from a single-room all the way to a luxurious, fully-integrated whole-homeexperience. We believe that our solution is a leader in the mainstream home automation market by providing integrated andscalable control of over 11,000 third-party devices and services. These devices and services span a broad range of productcategories including audio, video, lighting, temperature, security, communications, network management and cloud services.Our platform capabilities provide consumers with solutions that are comprehensive, personalized, flexible, affordable, andeasy to use and manage. Based on our analysis, we estimate that we have automated more than 329,000 homes and businesses representingcumulative sales of more than 665,000 of our controllers, which include our automation software. We sell and deliver oursolutions through our worldwide network of over 5,290 active direct dealers and 50 distributors and have solutions installedin 101 countries. In 2017, our top 100 dealers represented 18% of our total revenue and our top 10 dealers represented 4% ofour total revenue. We generated revenue of $244.7 million, $208.8 million and $163.2 million in 2017, 2016 and 2015, respectively.We had net income of $16.0 million and $13.0 million in 2017 and 2016, respectively, and a net loss of $1.7 million in2015. Our Industry Within the last decade, the pace of innovation in the electronics industry has accelerated rapidly. Network-awaredevices—such as televisions, smartphones, tablets, thermostats, audio systems, lighting, blinds, security systems, cameras,video doorbell stations and other appliances form the basis for the “connected controllable home.” Home automationtechnology integrates network aware and enabled devices in the connected home, unlocking the collective potential of thesedevices to work together to improve consumers’ lives, and with proliferation of connectable devices, we believe that theappeal of integrated home automation will continue to expand to a broadening base of consumers. Whole-home or business automation solutions unify the control of audio, video, lighting, temperature, security,communications and other devices in the connected home or business to provide consumers with improved convenience,comfort, energy efficiency and security. The key functional elements of home or business automation include: ·Control. Controlling devices is the most basic capability of home automation solutions. From a singleinterface, consumers can operate a wide array of devices using wired or wireless connections. With the growth insmartphones and tablets, control functionality is increasingly extended to these mobile devices; 4 Table of Contents·Automation. After initial programming, automation enables devices to function without additional humanintervention. Automation also enables various devices to work in concert to perform more complex tasks and totake actions based on external conditions; ·Personalization. Personalization enables home automation solutions to be tailored to the unique lifestylerequirements of individual consumers and their families. Personalization unlocks the full potential of homeautomation to enhance, enrich and simplify the lives of consumers; and ·Connectivity. An advanced networking system with the ability to provide reliable, scalable services for audioand video distribution and cloud-based management services for both the monitoring and repair of wireless andwired automation solutions, provides a foundational layer for home automation. We believe new technology will continue to enhance the automation experience through artificial intelligence,identity recognition, presence and location awareness and advancements in voice control. Our Solution The Control4 solution, built around our advanced software platform and utilizing our network management devicesand cloud services functions as the operating system of the home, integrating audio, video, lighting, temperature, security,communications and other devices into a unified automation solution that enhances our consumers’ lives. We unlock thepotential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient,and families more secure. The Control4 solution integrates our own devices and thousands of third-party devices and systems into a unified,easy-to-use solution for mainstream consumers. As a result, our solution provides the consumer with the following benefits: ·Easy to Use. Our solution is designed to be simple and intuitive. Through our unified software platform,consumers can easily interact with their entire automated home without needing to learn how to use multipleinterfaces or numerous remote controls. We have designed our solution so that anyone, from a young child to agrandparent, can pick up a Control4 remote or other interface device (including a smartphone or tablet withControl4’s app), and with a few intuitive clicks, watch a movie; ·Broad Device Interoperability. Our open and flexible platform provides consumers with access to a broaduniverse of third-party devices that become connected and interoperable through our solution. Our platform iscurrently interoperable with over 11,000 third-party devices, and we continually add additional integrationwith new devices in order to ensure that Control4 is able to integrate with the typical home’s connectable andcontrollable devices; ·Advanced Personalization. Our adaptable solution enables our consumers to personalize the features andfunctionality of their Control4 system. Using “When >> Then” automation, consumers can personalize theirautomation system through homeowner directed programming. Our modular design also enables the smoothintegration of new third-party products to meet the evolving needs of our consumers as their lifestyles change; ·Attractive Entry Point. In February 2018, we released our new CA-1 controller which is designed for entry-level projects for homeowners interested in lighting, temperature control and security, and retails for $350(excluding installation costs). This supplements our Entertainment and Automation series of controllers, or theEA Series, which includes the entry-level EA-1 controller at a reduced price point for entry-level consumerswanting to start with a single room multi-media automation experience of approximately $500 (excludinginstallation costs). Projects can then scale in sophistication and scope from a single room to a fully-integratedwhole-home experience. We have also introduced entry-level solutions in networking with the release of theWR-1 router, and audio with the introduction of the award-winning Triad One streaming amplifier; ·Professional Installation and Support. As the number and types of connected devices continues to grow, theneed for local professional consultation, installation and support is essential for a successful home automationexperience. We have built a global network of over 5,290 active certified independent dealers. Independentdealers certified on our full range of products receive in-depth training and on-going education and support,enabling them to help consumers develop and install their personalized home automation experiences. Tofurther5 Table of Contentsincrease consumer satisfaction, we also maintain a small Customer Advocacy & Care Group that works directlywith consumers to understand unresolved questions and concerns and coordinate with their dealer to reach aresolution; ·Cloud Services. We have built a secure infrastructure to provide an array of cloud-based services to enhance thehomeowner and dealer experience, which include remote customer system access and control, remote dealermanagement capabilities and voice control; and, ·Scalability. Our solution provides customers with the ability to extend and enhance the automation capabilitiesof their system as their needs evolve. Customers who initially purchase an entry level, one-room solution couldlater build a comprehensive home automation system. The extensibility of the system empowers customers toinvest in solutions that fit their current needs. Our Strategy Our primary goal is to be the leading provider of comprehensive home automation solutions that provide a premiumexperience for our customers. We believe we differentiate ourselves through our operating system which orchestrates thethousands of devices consumers choose to install in their homes. The following are key elements of our growth strategy: ·Product Innovation. We strive to continuously develop new innovative hardware and software products for ourcustomers. We believe that our success to-date has been largely driven by our software platform’s ability todeliver personalized solutions for the end consumer. In 2017, we released Control4 OS 2.10, featuring expandedmusic service integrations with iHeartRadio, Sirius XM, and Spotify supported by our EA Controllers. Inaddition, we released an updated version of 4Sight which includes a new homeowner customizationfunctionality called “When >> Then” automation; ·Channel Expansion. We have developed a global network of over 5,290 active, independent, authorized directdealers and 50 distributors to sell, install and support our solutions. We intend to continue to expand andoptimize our dealer and distributor network to ensure that we have sufficient geographic coverage across bothexisting and new markets. We will also continue to devote significant resources to increase the productivity andcompetency of our dealers and distributors by providing them with ongoing training, tools and support. Forexample, in 2017 we launched the Pakedge Certified Network Administrator (PCNA) hands-on and onlinetraining program to provide dealers and technicians the networking knowledge they need to design, install, andmanage wired and wireless IP networks; ·Enhanced Services. In addition to automating devices within the home, our solution also enables a widevariety of service and application opportunities. We plan to continue to enhance our cloud-based serviceswhich provide consumers with remote home monitoring, support and control capabilities from any Internet-connected mobile device or computer. We also recently acquired the intellectual property and key operatingassets of ihiji, Inc. (“ihiji”), a leading provider of remote management services for technical integratorsservicing connected home customers. By offering BakPak, Control4’s network management solution, andcombining it with ihiji’s invision device monitoring and management solution in the future, Control4 canprovide robust cloud-based services to our dealers to securely and efficiently monitor end-customer systems,which we intend to continue to develop and integrate. In addition, we recently integrated the latest release ofour BakPak management software on the entry-level Pakedge RK-1 Router enabling our independent dealernetwork to offer more homeowners the benefits of a monitored, intelligent home network; ·Licensing Opportunities. We continue to make our technology available to third parties through licensingagreements. We make our device auto-discovery technology, Simple Device Discovery Protocol (“SDDP”),available on a royalty-free basis to third parties to streamline and automate the setup, identification andconfiguration of their devices into our system. For example, in the past year, both LG and Samsung announcedthe incorporation of SDDP software in their products to simplify integration with Control4 installations. As ofDecember 31, 2017, 270 third parties had licensed SDDP from us, representing 2,900 SDDP enabled devices. We also plan to expand our licensing activities to leverage third-party distribution channels, grow our partnerrelationships through our integration certification program for third-party products, simplify the homeautomation experience for dealers and consumers, and increase interoperability; and 6 Table of Contents·Strategic Acquisitions. As the operating system of the connected home, we believe we are ideally positioned toidentify, acquire and integrate strategic acquisitions that are complementary to our current offerings, strengthenand expand our technology foundation, enhance our market positioning, distribution channels and sales, andare consistent with our overall growth strategy. For example, over the last few years we have acquiredcompanies such as Pakedge Device & Software, Inc. (“Pakedge”), a leading and award winning developer andmanufacturer of networking products, power distribution and management solutions, as well as cloud network-managed services for both wireless and wired networking solutions in the connected home and business; andNexus Technologies Pty, Ltd. (“Nexus”), a leading distributed audio/video provider. Our Products and Services The primary benefits we provide consumers and dealers lie in the value and competitive differentiation of oursoftware platform in our integrated solution. We deliver value and differentiation to consumers and generate revenue byembedding our software into a range of physical products. Software Platform At the center of the Control4 product line is the Control4 Home Operating System, which we refer to as the C4 OS,and the associated application software and software development kits, or SDKs. The high-level software componentsinclude: ·Director. Director is a real-time, extensible home operating system that runs on our controllers. It is responsiblefor monitoring and receiving events from numerous devices and services, processing those events according toconsumer personalization settings, and then dispatching commands to the appropriate devices to performpredefined actions; ·User Interface Application. The user interface for our Control4 Operating System displays intuitive and richgraphical user interfaces on televisions, in-wall and table-top touch panels, smartphones and tablets, as well aslist-based devices such as remote controls with LCD text-displays; ·Composer. Composer is a software application that enables trained and certified independent Control4 dealersand installers to design, configure and personalize a Control4 home automation system for consumers.Composer “Home Edition” enables consumers to view and configure certain features of their dealer installedand Control4 managed devices; ·Control4 Drivers. Control4 creates drivers for all of our internal hardware, and also provides Driverworks SDK(software development kit) to third parties in order to enable dealers, programmers and device manufacturers toindependently develop and test custom two-way interface drivers to support the integration of a new device ordevice model into our system, or to customize and enhance an existing driver. DriverWorks SDK has enabled11,000 different products and services to be incorporated into the Control4 ecosystem; ·I/O Servers. We maintain dedicated IP servers, Zigbee servers, and Z-Wave servers allowing connected homesto communicate with devices on various types of wireless standards; and, ·Cloud-Based Services and Tools. 4Sight is our subscription service that enables end customers to remotelyaccess, monitor and adjust settings in their homes (such as lights, temperature settings, door locks, gates andcameras), receive event-based email alerts from their system. 4Sight also enables voice control of the Control4system through Amazon Alexa and allows consumers to personalize their automation experience throughsimple homeowner directed programming, referred to as “When >> Then” automation. BakPak is a customeraccount management system for dealers, enabling rapid remote diagnostics and response to customerconnectivity issues, proactive device management, and greater visibility of networks and automation systemswithin each connected home. Products with Embedded Software Our products leverage our software platform to provide consumers with a comprehensive and easy-to-use connectedhome experience. We designed our software platform to be extensible, which has allowed us to improve and augment thefunctionality of hardware products (both those designed by us and by others) over time. We also design and manufacture our7 Table of Contentsproducts via contract manufacturers as well as certify partner products for sale through our dealers. Our products and servicesinclude: ·Controllers. Our controllers run our Director software to monitor, process and automate events, statuses andactions for numerous devices and services, creating a comprehensive connected home experience. Currently weoffer three Entertainment and Automation series controllers: (1) the EA-1 is designed for a single-roomaudio/video entertainment automation, such as a family-room, home-theater, a study, or bedroom; (2) the EA-3is designed to integrate and control automation in small-to-mid-sized homes; and (3) the EA-5 is designed tointegrate and control automation in large homes and estates. In addition, we recently released the CA-1controller designed for entry-level projects for homeowners interested in lighting, temperature control andsecurity. Controllers are the hub of our systems and represented 26% of our total revenue in 2017. ·Interface Devices. We offer touch panels, handheld remote controls and keypads as interface devices. We alsodevelop and deliver software applications for Apple iOS and Android smartphones and tablets that enable thesepersonal devices to become control interfaces to Control4 connected homes, both on-premises and remotely. ·Networking Devices. We offer advanced networking products with a range of routers, switches, wireless accesspoints, power control, and management solutions for the connected home and business. ·Audio Solutions. Our EA series controllers offer high-resolution audio with bit depth up to 24bit and samplerates up to 192kHz. In addition, we offer audio distribution and amplification products that scale from singleroom systems to whole home distributed audio systems. We offer 4-zone and 8-zone power amplifiers, 4x4 and8x8 matrix amplifiers, a 16x16 audio matrix switch, and a single-zone wireless amplifier for retrofitinstallations. In addition, through our Triad brand, Control4 offers a comprehensive range of high-quality,customizable speakers designed for home theaters, family rooms, whole-home or multi-room audio, as well asfor outdoor environments. Consumers are able to listen to their personal music library as well as streamingmusic services via our music streamer, which is built into our controllers. Consumers can also enjoy musicavailable on their smartphone, tablet or computer by wirelessly streaming their selection to their home audiosystem using AirPlay, DLNA or Bluetooth technologies. ·Video Solutions. We offer a broad line of video matrix switches ranging from 6x6 to 10x10, which includesHDMI as well as HDBaseT switches that are capable of distributing HD video images up to 100 meters overcat5/6e cable. This product line also includes a variety of additional extender kits, mounting kits, and variouspackages for broad flexibility in offering systems that allow customers to watch what they want, when andwhere they want to watch it. ·Lighting Products. We offer a suite of lighting products that provide personalized control and energymanagement. Our suite of wireless light switches, dimmers and keypads can revitalize an existing home orcomplement new home construction. We offer innovative in-wall wireless switches and dimmers for 120V,240V and 277V electrical loads, which meet the requirements of North America, Europe, Asia and many otherinternational markets. We also offer centralized, wired lighting systems, where all of the lighting control can bemanaged on a remote panel. In addition to providing lighting control, our keypads can be programmed tooperate other systems in the home, such as a lighting scene or audio control. ·Comfort Products. Our wireless multi-stage thermostat, jointly developed with climate control specialistAprilaire, is completely programmable, allowing the homeowner to create schedules that fit their lifestyle,comfort and economical needs. Through the Control4 operating system, we also integrate with third-partycomfort products (such as automated blinds and pool controls) that provide additional energy savings,convenience and efficiency. ·Security Products. We offer video doorbell station products that allow our customers to see who is at the doorfrom their network-enabled smartphone, tablet or Control4 interface. In addition, we distribute certified third-party products, including IP cameras, NVRs, deadbolts, motion sensors, garage access systems and water leakdetection systems, from our security partners such as Baldwin, Lilin, Nyce, Kwikset and Yale. We also integratewith the top security panel manufacturers such as DSC, Honeywell and Interlogix, including network videorecorder products and surveillance cameras sold by five of the top security monitoring manufacturers. 8 Table of Contents·Communication Products. We offer full motion video and high-quality audio intercom capability through ourin-wall and tabletop touchscreens, as well as our exterior weather-resistant video doorbell stations. Our Distribution Network We offer our products exclusively through a network of independent dealers that professionally install our products.In 2005, we started selling our solutions through a network of around 450 independent dealers. Since that time, ourdistribution network has grown to over 5,290 active direct dealers and 50 distributors in 101 countries. Our directindependent dealer network is comprised of 4,220 dealers offering our full range of products and 1,070 dealers selling onlythe Pakedge and Triad line of products. Our distributors are comprised of 33 distributors offering our full range of productsand 17 distributors offering only Pakedge and Triad line of products. Dealers range in size from small family businesses tolarge enterprises. Our dealers are independent home automation and networking specialists that have significant experience indesigning, installing and servicing both low- and high-voltage systems including music, video, security, networking,communications and temperature control. Every authorized dealer of our full line of products has gone through extensivetraining and has passed the necessary certification tests—either in one of our training facilities located in the United States,the United Kingdom, Germany, Australia, China, or India or in a training facility operated by one of our 33 distributors. Inorder to become certified to sell and install our full line of solutions, every installer for each dealer must complete coursework and pass pre-training examinations, as well as pass rigorous testing at the conclusion of the multi-day formal training. We sell directly through dealers in the United States, Canada, the United Kingdom, Australia, China, Germany and50 other countries. We partner with 50 distributors to serve 45 additional countries. Together, our independent dealernetwork and our distributors allow us to service 101 countries. Our distributors recruit, train and manage dealers within theirregion and also help dealers find country-specific solutions for unique needs based on the special home automation marketcharacteristics within each country. In recent years, we have moved more toward a dealer-direct model in specificinternational regions, and we have added, and continue to add, sales and support staff in the United Kingdom, China, India,Australia and Germany. During the years ended December 31, 2017, 2016 and 2015, respectively, none of our dealers or distributorsaccounted for more than 5% of our revenue. None of our dealers or distributors have minimum or long-term purchaseobligations. Dealer orders are typically placed on a project-by-project basis. As such, our dealers do not typically carrysignificant levels of inventory. The resulting just-in-time model helps reduce dealer inventory investment. Our dealersaround the world are each responsible for local marketing, selling, installing and servicing our solution for the consumer. Our Partners The home automation market is made up of a collection of thousands of electronically controllable products madeby hundreds of key manufacturers. We believe that our success has come, in part, due to our ability to establish relationshipswith many of these manufacturers. As of December 31, 2017, approximately 100 separate manufacturers had formallysubmitted over 2,300 devices to us for Control4 certification so that our worldwide dealer and distributor network can beassured that these third-party devices work uniformly with our platform. Third-party manufacturers are currently selling over 1,130 different products representing 33 brands (includingbrands such as Denon, Sony and Yale) through our online store. Our online store provides manufacturers valuable reach intoour trained dealer network, and it helps our dealers gain easy access to products that they know are certified by Control4. Wealso partner with other companies for purposes of strategic initiatives. Our Research and Development Our flexible research and development model relies upon a combination of in-house staff and offshore design andmanufacturing partners to improve and enhance our existing products and services, as well as develop new products, featuresand functionality in a cost-effective manner. We believe that our software platform is critical to expanding our leadershipposition within the mainstream home automation market. As a result, we devote much of our research and developmentresources to software development. We work closely with our dealers and their consumers to understand their current andfuture needs and have designed a product development process that captures and integrates feedback from our consumers. As of December 31, 2017, we had 249 employees in our research and development organization, most of whom werelocated at our headquarters in Salt Lake City, Utah. Our research and development expenses were $40.6 million in 2017,9 Table of Contents$36.0 million in 2016, and $32.4 million in 2015. We intend to continue to invest in research and development to expandour solutions and capabilities in the future. Our Manufacturing We outsource most of the manufacturing of most of our hardware products to contract manufacturers. The majorityof our hardware products are manufactured by iLife Technology Co., Ltd (“iLife”), Remote Control Systems, Inc. (“RCS”)and Sanmina Corporation (“Sanmina”) at their facilities located in China and Korea, with additional manufacturingperformed by several other contract manufacturers located throughout Asia. Our agreement with iLife automatically renewsfor a one-year term in February 2018 and will continue to automatically renew for successive one-year periods unless either(i) iLife gives written notice of its intent to terminate the agreement at least 180 days prior to the end of the then current term,or (ii) Control4 gives written notice of its intent to terminate the agreement at least 30 days prior to the intended terminationdate. Our agreement with RCS automatically renewed for a one-year term in September 2017 and will continue to renew forsuccessive one-year periods unless either party gives written notice of its intent to terminate the agreement at least 120 daysprior to the end of the then current term. Our agreement with Sanmina automatically renewed for a one-year term inJune 2017, and will continue to automatically renew for successive one-year terms unless either party gives written notice ofits intent to terminate the agreement at least 90 days prior to the end of the then current term, or at any other time with at least120 days’ written notice. Our manufacturing partners assemble our products using our design specifications, quality assurance programs andstandards. These partners procure components and assemble our products based on our demand forecasts. These forecastsrepresent our estimates of future demand for our products based upon historical trends and analysis from our sales andproduct management functions. We maintain fulfillment centers in Salt Lake City, Utah; York, England; and Melbourne,Australia. We have multiple sources for most of our components. However, we depend on single source manufacturers forcertain critical components, including processors and touch panels. We can choose to change processor and memory modulesfor any of our products, but because of high implementation costs and significant lead times, we generally choose to makethese changes only upon development of new products. We also rely on certain custom connectors, cables and mechanicalenclosures for our hardware products that are single sourced because of the high tooling costs of sourcing the componentsfrom multiple suppliers. In each of these cases, we own the drawings and design of these custom components. We alsomanufacture custom builds for our high-end Triad speakers in our facility in Portland, Oregon. Our Sales and Marketing Our marketing team supports our sales channel with dealer-directed advertising and promotions, lead-generation,social media engagements and training events, as well as the design and production of consumer-facing, customizablecollateral, point-of-sale video and showroom signs and advertising. Our website is the anchor of our online and social mediastrategy, from which we direct leads to our independent dealers. Control4’s bi-annual magazine, Home Smart Home, featureslifestyle stories of Control4 installations from around the world and is available for download on our website and helps drivedemand for our solutions and leads for our dealers. We continue to focus on lead generation through online marketing and qualifying inbound leads for our dealers. Asinterested consumers go online to research home automation solutions, we help direct them to dealers in their markets. Tobetter qualify these leads and direct them to interested dealers, we employ a small team of telemarketers. In addition tospeaking directly to prospects, these inside representatives work closely with dealers, to assist them in direct customeroutreach. We are active participants at global industry conferences and maintain a significant presence at Custom ElectronicsDesign and Installation Association (“CEDIA”) Expo trade shows. Beyond CEDIA Expo in the United States, we exhibit atISE, the annual industry trade show held in Amsterdam, as well as participate in CEDIA-specific events and tradeshowsthroughout China to assist in the recruitment and training of new dealers in that region. We are frequently featured in thetrade press and maintain strong relationships with the industry’s key analysts and associations. We believe that partneringwith device manufacturers, leveraging co-marketing partnerships, expanding our sales channels and increasing our brandrecognition among consumers are key components of our growth strategy. 10 Table of ContentsOur Competition The market for home automation systems is fragmented, highly competitive and continually evolving. Our currentcompetitors fall into several categories: ·providers that focus primarily on the professional installation segment of the home automation market,including Crestron, Elan, Lutron and Savant; ·providers of point products that address a narrow set of networking, entertainment or control capabilities,including Logitech, Luxul, Nest, Ruckus, Ring, Sonance, Sonos and Universal Remote Control; ·providers of managed home control and security services, including ADT, AT&T, Comcast and Vivint (which inturn may utilize third-party software from companies including Alarm.com and iControl); ·providers of device control platforms such as Apple HomeKit and SmartThings; and ·large technology companies such as Amazon, Apple, Google and Samsung that offer device control capabilitieswithin some of their own products, applications and services, and are engaged in ongoing development effortsto address the broader home automation market. In the past, companies that provide popular point solutions have eliminated or restricted, and may again eliminateor restrict, our ability to control and integrate with their products. Given the growth dynamics of this market, there are many new and existing companies targeting portions of themainstream home automation market. To the extent that consumers adopt products, applications and services from a singlelarge technology company, or if any of these companies broaden their home automation capabilities, we will face increasedcompetition. The principal competitive factors in our market include the: ·breadth of home automation capabilities provided; ·simplicity of use and installation; ·interoperability with third-party devices; ·price and total cost of ownership; ·sales reach and local installation and support capabilities; and ·brand awareness and reputation. We believe that our home automation solution competes favorably with respect to these factors. Nevertheless, manyof our competitors have substantially greater financial, technical and other resources, greater name recognition, larger salesand marketing budgets, broader distribution channels, and larger and more mature intellectual property portfolios than wedo. Our Intellectual Property Our success and ability to compete effectively depend in part on our ability to protect our proprietary technologyand to establish and adequately protect our intellectual property rights. To accomplish these objectives, we rely on acombination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well aslicense agreements, confidentiality agreements and other contractual protections. 11 Table of ContentsAs of December 31, 2017, we owned 61 issued U.S. patents (20 of which are design patents) that are scheduled toexpire between 2025 and 2034, with respect to utility patents, and between 2020 and 2029, with respect to design patents.We continue to file patent applications in multiple jurisdictions and as of December 31, 2017, we had 10 patent applicationspublished and 7 patent applications pending in the United States. We also had 15 issued patents and 1 pending patentapplication under foreign jurisdictions and treaties such as Canada, Australia, New Zealand, the United Kingdom, Germany,France and the European Patent Convention. We also rely on several registered and unregistered trademarks to protect our brand. As of December 31, 2017, wehad the following registered trademarks: (a) Control4, Control4 My Home, the Control4 Design, the 4 Design, 4Store, 4Sight,Mockupancy, Pakedge, Pakedge SectorMaxx, Pakedge TruStream, Smartwav, Stealth Ports, Triad, the Triad Design, theTriangle Design, BakPak, and the BakPak and Pakedge Device&Software Inc. Design in the United States, (b) Control4 inBrazil, Canada, China, the European Union, India and Mexico, (c) the Control4 Design in China, and (d) the 4 Design inBrazil, China, the European Union and Mexico. As of December 31, 2017, we also had 12 trademark applications, forvarious marks, pending in Australia, China, the European Union, India and the United States. We have filed for U.S. copyright protection for our source code for all major releases of our software. We also licensesoftware from third parties for integration into or use with our products, including open-source software and othercommercially available software. In addition, we seek to protect our intellectual property rights by requiring our employees and independentcontractors involved in development to enter into agreements acknowledging that all inventions, trade secrets, works ofauthorship, developments, concepts, processes, improvements and other works generated by them on our behalf are ourintellectual property, and assigning to us any rights, including intellectual property rights, that they may claim in thoseworks. Employees As of December 31, 2017, we had 635 full-time employees, including 526 employees in the United States and 109employees outside the United States. None of our employees are currently represented by a labor union or trade council withrespect to his or her employment with us. We have not experienced any work stoppages and we consider our relations withour employees to be good. Available Information Our website is located at www.Control4.com, and our investor relations website is located atwww.investor.Control4.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and our Proxy Statementsare available through our investor relations website, free of charge, after we file them with the Securities and ExchangeCommission (“SEC”). You may also visit the SEC's website at www.sec.gov to view all of the reports we file or furnish withthe SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE,Washington, D.C. 20549. You can get information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We webcast via our investor relations website our earnings calls and certain events we participate in or host withmembers of the investment community. Our investor relations website also provides notifications of news or announcementsregarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs. Furthercorporate governance information, including our corporate governance guidelines and board committee charters, is alsoavailable on our investor relations website under the heading "Corporate Governance.” The content of our websites is notincorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, andany references to our websites are intended to be inactive textual references only. We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBSAct”). We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which wehave more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 million ofequity securities held by non-affiliates determined as of the last business day of the previous second fiscal quarter; theissuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or December 31, 2018,the last day of the fiscal year ending after the fifth anniversary of our initial public offering.12 Table of Contents ITEM 1A. Risk Factors A description of certain risks and uncertainties associated with our business is set forth below. You shouldcarefully consider such risks and uncertainties, together with the other information contained in this report, and in ourother public filings. Factors that could cause our business, financial condition or operating results to differ materially fromthe plans, projections and other forward-looking statements included in the section titled “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filingsinclude, but are not limited to, the following risks and uncertainties, which could cause substantial harm to our business,financial condition or operating results and the market price of our stock to decline, perhaps significantly. Risks Related to Our Business and Industry We have incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintainprofitability. We began our operations in 2003. For most of our history, we have experienced net losses and negative cash flowsfrom operations. As of December 31, 2017, we had an accumulated deficit of $67.0 million. We expect our operatingexpenses to increase in the future as we expand our operations. If our revenue does not grow to offset any increased expenses,we will not be profitable. After achieving profitability in 2013 and 2014 of $3.5 million and $8.2 million respectively, wesustained a net loss of $1.7 million in 2015. Our net income for the years ended December 31, 2016 and 2017 was $13.0million and $16.0 million, respectively, but we may incur significant losses in the future for a number of reasons, includingwithout limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operatingor legal expenses, difficulties, complications, delays in manufacturing and selling our products and other unknown factorsthat may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are notmet in future periods, our profitability will be harmed and our stock price may fall. The markets in which we participate are highly competitive and many companies, including large technology companies,retailers, broadband and security service providers, as well as other managed service providers, are actively targeting thehome automation market. Our failure to differentiate ourselves and compete successfully against these companies wouldmake it difficult for us to add and retain consumers, and our sales and profitability could be adversely affected. The market for home automation is fragmented, highly competitive and continually evolving. A number oftechnology companies, including industry leaders such as Amazon, Apple, Google, Honeywell, Lutron and Samsung, offerdevice control capabilities in some of their products, applications and services and are engaged in ongoing developmentefforts to address even broader segments of the home automation market. These large technology companies already havebroad consumer awareness and sell a variety of devices for the home, and consumers may choose their offerings instead ofours, even if we offer broader interoperability or superior products and services. Additionally, these and other companies mayfurther expand into our industry by developing additional solutions or by acquiring other providers. Similarly, manymanaged service providers, such as cable TV, telephone and security companies, are offering services that provide devicecontrol capability within the home for an additional monthly service fee. For example, Comcast’s Xfinity service offersresidential security, energy and automation services, and Vivint has made a significant effort to market its smart homeservices. These managed service providers have the advantage of leveraging their existing consumer base, network ofinstallation and support technicians and name recognition to gain traction in the home automation market. In addition,consumers may prefer the monthly service fee with little to no upfront cost offered by some of these managed serviceproviders over a larger upfront cost with little to no monthly service fees. We expect competition from these large technology companies, retailers and managed service providers to increasein the future. This increased competition could result in pricing pressure, reduced sales, lower margins or the failure of oursolutions to achieve or maintain broad market acceptance. To remain competitive and to maintain our position as a leadingprovider of professionally installed automation and control solutions for the connected home, we will need to investcontinuously in product development, marketing, dealer and distributor service and support, and product deliveryinfrastructure. We may not have sufficient resources to continue to make the investments in all of the areas needed tomaintain our competitive position. In addition, many of our competitors have longer operating histories, greater namerecognition, larger consumer bases and significantly greater financial, technical, sales, marketing and other resources than us,which may provide them with an advantage in developing, marketing or servicing new solutions. Increased competitioncould reduce our market13 Table of Contentsshare, revenue and operating margins, increase our operating costs, harm our competitive position or otherwise harm ourbusiness and results of operations. Consumers may choose to adopt point products that provide control of discrete home functionality rather than adopt ourunified home automation solution. If we are unable to increase market acceptance of the benefits of our unified solution,our revenue may not continue to grow, or it may decline. Many vendors have emerged, and may continue to emerge, to provide point products with advanced functionalityfor use in the home, such as a thermostat, lighting or alarm system that can be controlled by an application on a smartphone.We expect more and more consumer electronic and consumer appliance products to be network-aware and connected—eachvery likely to have its own smart device (phone or tablet) application. Consumers may be attracted to the relatively low costsof these point products and the ability to expand their home control solution over time with minimal upfront costs, despitethe disadvantages of this approach. While we have built our solution to be flexible and support many third-party pointproducts, the adoption of these products may reduce the revenue we receive for each installation. It is therefore important thatwe provide attractive top-quality products in many areas, such as networking, lighting, audio, video, thermostats andsecurity, and establish broad market awareness and acceptance of these solutions as well as the advantages of integratingthem in a unified solution. If a significant number of consumers in our target market choose to rely solely on thefunctionality included in point products rather than acquiring our unified automation solution, then our business, financialcondition and results of operations will be harmed, and we may not be able to achieve sustained growth or our business maydecline. Providers of luxury integrated installations with long operating histories, established markets, broad user bases andproven consumer acceptance, may be successful in expanding their offerings in the mainstream home automation market,or otherwise compete against our solutions, which may reduce our market share and harm our growth and future prospects. Many companies with which we directly compete have been operating in this industry for many years, and as aresult, have established significant name recognition in the home automation industry. For example, Crestron, a provider ofluxury integrated installations, has been in business for over 40 years and has become an established presence in the homeautomation industry. Given the strong growth potential of the market, we expect there to be many new entrants in the future.To the extent these providers are able to develop more affordable or attractive products or otherwise compete with oursolutions across any of our target demographics, our growth may be constrained and our business could suffer. Since we rely on third-party dealers and distributors to sell and install our solutions, we do not have a direct sales pipeline,which makes it difficult for us to accurately forecast future sales and correctly predict manufacturing requirements. We depend on our independent dealer and distributor network to sell and install our solution. As a result, we do notdirectly develop or control our sales pipeline, making it difficult for us to accurately predict future sales. In addition, becausethe production of certain of our products requires long lead times, we enter into agreements for the manufacture and purchaseof certain of our products well in advance of the time in which those products will be sold. These contracts are based on ourbest estimates of our near-term product needs. If we underestimate consumer demand, we may forego revenue opportunities,lose market share and damage our relationships. Conversely, if we overestimate consumer demand, we may purchase moreinventory than we are able to sell at any given time, or at all. If we fail to accurately estimate demand for our products, wecould have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our costsof revenues and reduce our liquidity. Our failure to accurately manage inventory relative to demand would adversely affectour results of operations. We have relatively limited visibility regarding the consumers that ultimately purchase our products, and we often rely oninformation from third-party dealers and distributors to help us manage our business. If we are unable to obtain timely oraccurate information, our ability to quickly react to market changes and effectively manage our business may be harmed. We sell our solutions through independent dealers and distributors. These dealers and distributors work withconsumers to design, install, update and maintain their home automation installations. While we are able to track orders fromdealers and distributors and have access to certain information about the configurations of the Control4 systems they installthat we receive through our controllers, we also rely on these dealers and distributors to provide us with information aboutconsumer behavior, product and system feedback, consumer demographics, buying patterns and information about ourcompetitors. We use this channel sell-through data, along with other metrics, to assess consumer demand for our solutions,develop new products, adjust pricing and make other strategic business decisions. Our channel sell-through data is subject tolimitations due to collection methods and the third-party nature of the data and thus may not be complete or accurate. In14 Table of Contentsaddition, from time to time we collect information directly from consumers through surveys that we conduct and othermethods, but the consumers who chose to participate self-select and vary by geographic region and from period to period,which may impact the usefulness of the results. If we do not receive consumer information on a timely or accurate basis, or ifwe do not properly interpret this information, our ability to quickly react to market changes and effectively manage ourbusiness may be harmed. Our quarterly results of operations have fluctuated and may continue to fluctuate. As a result, we may fail to meet orexceed the expectations of investors or securities analysts, which could cause our stock price to decline. Our quarterly revenue and results of operations have fluctuated and may continue to fluctuate as a result of a varietyof factors, many of which are outside of our control. In the past when our quarterly revenue or results of operations havefallen below the consensus expectations of securities analysts, the price of our common stock has declined. If our quarterlyrevenue or results of operations fall below the consensus expectations of investors or securities analysts in the future, theprice of our common stock could decline again, perhaps substantially. Fluctuations in our results of operations may be due toa number of factors, including but not limited to: ·Demand for and market acceptance of our solutions; ·Our ability to continue to develop and maintain relationships with productive independent dealers anddistributors and incentivize them to continue to market, sell, install and support our solutions; ·The ability of our contract manufacturers to continue to manufacture high-quality products, and to supplysufficient products to meet our demands; ·The timing and success of acquisitions, new product introductions or upgrades by us or by our competitors; ·The strength of regional, national and global economies; ·The strength of the U.S. dollar relative to other currencies and the impact this has on dealer and distributormargins and their ability to competitively sell our products to consumers; ·The impact of harsh seasonal weather, natural disasters or manmade problems such as terrorism; ·Changes in our business and pricing policies, or those of our competitors; ·Competition, including entry into the industry by new competitors and new offerings by existing competitors; ·The impact of seasonality on our business; ·A systemic impairment or failure of one or more of our products that erodes dealer and/or end user confidence; ·Political or regulatory changes in the markets in which we operate; ·The cost and availability of component parts used in our products; ·Aggressive business tactics by our competitors, including: selling at a discount, offering products on a bundledbasis at no charge, extensive marketing efforts, and providing financing incentives; ·The amount and timing of expenditures, including those related to expanding our operations, increasingresearch and development, introducing new solutions or costs related to disputes and litigation; and ·Temporary discounts or permanent changes in the price or payment terms for our solutions. Due to the foregoing factors and the other risks discussed herein, you should not rely on quarter-to-quartercomparisons of our results of operations as an indication of our future performance, nor should you consider any revenuegrowth or results of operations in any quarter to be indicative of our future performance.15 Table of Contents If we are unable to develop new solutions, sell our solutions into new markets, or further penetrate our existing markets,our revenue may not grow as expected or it may decline. Our ability to increase sales will depend in large part on our ability to enhance and improve our solutions, tointroduce new solutions in a timely manner, to sell into new markets, and to further penetrate our existing markets. Thesuccess of any enhancement or new product or solution depends on several factors, including the timely completion,introduction and market acceptance of enhanced or new solutions, the ability to attract, retain and effectively train productdevelopment, sales and marketing personnel (among others), the ability to develop relationships with independent dealersand distributors and the effectiveness of our marketing programs. Any new product or solution we develop or acquire maynot be introduced in a timely or cost-effective manner, and may not achieve the broad market acceptance necessary togenerate significant revenue. Any new markets into which we attempt to sell our solutions, including new vertical marketsand new countries or regions, may not be receptive. Our ability to further penetrate our existing markets depends on thequality of our solutions and our ability to design our solutions to meet consumer demand. Moreover, we are frequentlyrequired to enhance and update our solutions as a result of changing standards and technological developments, whichmakes it difficult to recover the cost of development and forces us to continually qualify new solutions with our consumers.If we are unable to successfully develop or acquire new solutions, enhance our existing solutions to meet consumerrequirements in a timely manner, sell solutions into new markets, or sell our solutions to additional consumers in our existingmarkets, our revenue may not grow as expected or it may decline. Our success depends, in part, on our ability to develop and expand our global network of independent dealers anddistributors. As of December 31, 2017, we have over 5,290 active direct dealers and 50 distributors authorized to sell, install andsupport our solutions. We rely on our independent dealers and distributors to provide consumers with a successful Control4home automation experience. In some cases, dealers may choose not to offer our solution and instead offer a product fromone of our competitors or, in other cases, the dealer may simply discontinue its operations. In order to continue our growthand expand our business, it is important that we continue to add new dealers and distributors and ensure that most of ourexisting relationships remain productive. We must also work to expand our network of dealers and distributors to ensure thatwe have sufficient geographic coverage and technical expertise to address new markets and technologies. While it is difficultto estimate the total number of available dealers in our markets, there are a finite number of dealers that are able to performthe types of technical installations required for home automation systems. In the event that we saturate the available dealerpool, or if market or other forces cause the available pool of dealers to decline, it may be increasingly difficult to grow ourbusiness. As consumers’ home automation options grow, it is important that we enhance our dealer footprint by broadeningthe expertise of our dealers, working with larger and more sophisticated dealers and distributors and expanding our line ofmainstream consumer products that our dealers and distributors offer. If we are unable to expand our network of independentdealers and distributors, or maintain the relationships with our existing dealers and distributors, our business could beharmed. We rely on our independent dealers and distributors to sell our solutions, and if our dealers and distributors fail toperform, our ability to sell and distribute our products and services will be limited, and our results of operations may beharmed. Substantially all of our revenue is generated through the sales of our solutions by our authorized dealers anddistributors. Our dealers and distributors are independent businesses that voluntarily sell our products as well as the productsof other companies to consumers. We provide our dealers and distributors with specific training programs to assist them inselling, installing and servicing our products, and we also provide our dealer-network with leads to potential customerswhich we generate through our internal marketing efforts, but we cannot assure that these steps will be effective. We haveobserved, and expect to continue to observe, high volatility in the monthly, quarterly and annual sales performance ofindividual dealers and distributors. Although we can make estimated forecasts of cumulative sales of large numbers of dealersand distributors, we cannot assure their accuracy collectively or individually. Accordingly, we may not be able to reduce orslow our spending quickly enough if our actual sales fall short of our expectations. As a result, we expect that our revenues,results of operations and cash flows may fluctuate significantly on a quarterly basis. We believe that period-to-periodcomparisons of our revenues, results of operations and cash flows may not be meaningful and should not be relied upon as anindication of future performance. Our independent dealers and distributors may be unsuccessful in marketing, selling, installing and supporting ourproducts and services. If we are unable to provide high-quality products in a timely manner at competitive prices and todevelop and maintain effective sales incentive programs for our dealers and distributors, we may not be able to incentivizethem to sell our products to consumers. Our dealers and distributors may also market, sell and support products and services16 Table of Contentsthat are competitive with ours, and may devote more resources to the marketing, sales, and support of such competitiveproducts. Our dealers and distributors may have incentives to promote our competitors’ products to the detriment of our own,or may cease selling our products altogether. Our agreements with our dealers and distributors may generally be terminatedfor any reason by either party with advance notice. We cannot assure that we will retain these dealers and distributors, or thatwe will be able to secure additional or replacement dealers and distributors. For example, in September 2017, we announcedthat we were transitioning from a direct-to-dealer to a single distributor sales model in India. This transition may createdisruption in the established channels and our sales and results of operations may be impacted in connection with this or anysimilar change in our sales process in the future. In addition, while we take certain steps to protect ourselves from liability for the actions of our dealers anddistributors, such as including contractual provisions limiting our liability with both consumers and dealer/distributors,consumers may still seek to recover amounts from us for any damages caused by independent dealers in connection withsystem installations, or the failure of a system to perform properly due to an incorrect installation by a dealer, and, in theevent of litigation with respect to these matters, we cannot guarantee that our contractual protections will be enforced.Furthermore, dealers and distributors may initiate claims against us related to any failure or perceived failure to operate ourbusiness in accordance with our contracts and the law. In addition, our independent dealers and distributors may use ourname and our brand in ways we do not authorize, and any such improper use may harm our reputation or expose us toliability for their actions. If we fail to effectively manage our existing sales channels then our results of operations may be harmed. We have entered into several strategic arrangements and intend to pursue additional strategic opportunities in the future.If the intended benefits from our strategic relationships are not realized, our results of operations may be harmed. We are in the process of growing our relationships with strategic partners in order to increase awareness of oursolutions and to attempt to reach markets that we cannot currently address cost-effectively. If these relationships do notdevelop in the manner we intend, our future growth could be impacted. Any loss of a major partner or distribution channel orother channel disruption could harm our results of operations and make us more dependent on alternate channels, damageour reputation, increase pricing and promotional pressures from other partners and distribution channels, increase ourmarketing costs, or harm buying and inventory patterns, payment terms or other contractual terms. If we do not maintain the compatibility of our solutions with third-party products and applications that our consumers use,demand for our solutions could decline. Our solutions are designed to interoperate with a wide range of other third-party products, including products in theareas of audio, video, lighting, temperature, and security, and we benefit from our relationships with partners that allow oursystem to provide integrated and extensible control of over 11,000 third‑party devices and services. If we do not support thecontinued integration of our solutions with third-party products and applications, including new and additional products,demand for our solutions could decline and we could lose sales. In addition, companies that provide certain point solutionshave eliminated or restricted, and may in the future, eliminate or restrict, our ability to integrate with, control and otherwisebe compatible with these products. As a result, we may not be successful in making our solutions compatible with these third-party products and applications or lose functionality in existing systems to the extent that they depend on the ability tointegrate with third-party products, which could reduce demand for our solutions. In addition, if prospective consumersrequire customized features or functions that we do not offer, then the market for our solutions may be harmed. If we are unable to adapt to technological change and implement technological and aesthetic enhancements to ourproducts, this could impair our ability to remain competitive. The market for home automation and control solutions is characterized by rapid technological change, frequentintroductions of new products and evolving industry standards. However, product development often requires significantlead-time and upfront investment and our ability to attract new consumers and increase revenue from existing consumers willdepend in significant part on our ability to accurately anticipate changes in industry standards and to continue toappropriately fund development efforts to enhance existing solutions or introduce new solutions in a timely basis to keeppace with technological developments. This is true of all our products but is particularly important with respect to our userinterface and other direct consumer interface products. Similarly, if any of our competitors implement new technologiesbefore we are able to implement them, those competitors may be able to provide more effective products than ours, possiblyat lower prices, which17 Table of Contentscould impact sales and decrease our market share. Any delay or failure in the introduction of new or enhanced solutionscould harm our business, results of operations and financial condition. We currently rely on contract manufacturers to manufacture our products and on component vendors to supply parts usedin our products. The majority of our components are supplied by a single source. Any disruption in our supply chain, or ourfailure to successfully manage our relationships with our contract manufacturers or component vendors could harm ourbusiness. Our reliance on contract manufacturers reduces our control over the assembly process, exposing us to risks,including reduced control over quality assurance, production costs and product supply. We rely on a limited number ofcontract manufacturers to manufacture most of our products and components, and in many cases one of these manufacturers isour only source for a particular product or product family. We also do business with a number of component vendors, and theparts they supply may not perform as expected. For the year ended December 31, 2017, three contract manufacturers, iLife,RCS and Sanmina, manufactured approximately 58% of our inventory purchases. Most of our contract manufacturers andcomponent vendors are located outside of the United States, and all of them may be subject to political, economic, social andlegal uncertainties that may harm our relationships with them. If we fail to manage our relationships with our contractmanufacturers, component vendors or shipping partners effectively, or if our contract manufacturers, component vendors orshipping partners experience delays, disruptions, capacity constraints or quality control problems in their operations, ourability to ship products may be impaired and our competitive position and reputation could be harmed. In addition, anyadverse change in our contract manufacturers’, component vendors’ or shipping partners’ financial or business conditioncould disrupt our ability to supply quality products to our dealers and distributors. If we are required to change contractmanufacturers, component vendors, or shipping partners we may lose revenue, incur increased costs or damage ourrelationships, or we might be unable to find a new contract manufacturer or component vendor on acceptable terms, or at all.In addition, qualifying a new contract manufacturer or component vendor could be an expensive and lengthy process. If weexperience increased demand that our contract manufacturers or component vendors are unable to fulfill, or if they are unableto provide us with adequate supplies of high-quality products for any reason, we could experience a delay in our orderfulfillment, and our business, results of operations and financial condition would be harmed. Changes in import/export regulatory regimes and duties could negatively impact our business. The current presidential administration in the United States has made comments suggesting that it is not supportiveof certain existing international trade agreements, and at this time, it remains unclear what this administration may or maynot do with respect to these international trade agreements. Additional or increased import taxes or duties in the UnitedStates could negatively impact our cost structures. If the United States were to withdraw from or materially modify certaininternational trade agreements, change tax provisions related to the global manufacturing and sales of our products, orotherwise alter regulations impacting our existing business, our financial condition and results of operations could beadversely affected. Growth of our business may depend on market awareness and a strong brand, and any failure to develop, broaden, protectand enhance market awareness of our products could hurt our ability to retain or attract consumers. Because of the competitive nature of the mainstream home automation market, we believe that building andmaintaining market awareness, brand recognition and goodwill may be material to our success. This will depend largely onour ability to continue to provide high-quality solutions, and we may not be able to do so effectively. We may choose toengage in a broader marketing campaigns to further promote our brand, but this effort may not be successful. Our efforts indeveloping our brand may be affected by the marketing efforts of our competitors, negative publicity and social mediacommentary, and our reliance on our independent dealers, distributors and strategic partners to install our products andpromote our brand effectively. If we are unable to cost-effectively maintain and increase positive awareness of our brand, ourbusiness, results of operations and financial condition could be harmed. We operate in the emerging and evolving home automation market, which may develop more slowly or differently than weexpect. If the mainstream home automation market does not grow as we expect, or if we cannot expand our solutions tomeet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated rate, and we mayincur additional operating losses. The market for home automation and control solutions is evolving, and it is uncertain whether our solutions willachieve and sustain high levels of demand and market acceptance. Some consumers may be reluctant or unwilling to use oursolutions for a number of reasons, including satisfaction with other solutions, concerns about cost, and lack of awareness ofour18 Table of Contentssolutions. Unified home automation solutions such as ours have traditionally been luxury purchases for the high end of theresidential market, and while our solutions target the high end of the market, we also have solutions that target middle- andentry-level home owners, including our EA-1 that is designed to control smaller, single room projects with an entertainmentcomponent and a new CA-1 controller for smaller projects that only include lighting, comfort, and/or security, which wereleased in February 2018. Our ability to expand the sales of our solutions to a broader consumer base depends on severalfactors, including market awareness of our solutions, the timely completion, introduction and market acceptance of oursolutions, the ability to attract, retain and effectively train sales and marketing personnel, the effectiveness of our marketingprograms, the ability to develop effective relationships with independent dealers and distributors, the cost and functionalityof our solutions and the success of our competitors. If we are unsuccessful in developing and marketing our home automationsolutions to mainstream consumers, or if these consumers do not perceive or value the benefits of our solutions, the marketfor our solutions might not continue to develop or might develop more slowly than we expect, either of which would harmour revenue and growth prospects. Our consumers may experience service failures or interruptions due to defects in the software, infrastructure, third-partycomponents or processes that comprise our solutions, or due to errors in product installation or servicing by ourindependent dealers, any of which could harm our business. Our solutions may contain undetected defects in the software, infrastructure, third-party components or processes. Ifthese defects lead to service failures, we could be subject to liability for such failures and we could experience harm to ourbranded reputation. Such defects could also result in a loss of, or delay in, market acceptance of our solutions, which couldharm our business, results of operations and financial condition. In addition to failures due to product defects, because our solutions are installed by independent dealers, if they donot install or maintain our solutions correctly or if the underlying network or infrastructure in a home or business is notsufficiently robust, our solutions may not function properly. If the improper installation or maintenance of our solutionsleads to service failures of a product or solution, we could experience harm to our branded reputation, claims by ourconsumers, dealers, distributors, strategic partners or developers and we may incur increased expense during the periodrequired to address the cause of the problem, which could harm our business, results of operations and financial condition. Any defect in, or disruption to, our solutions could cause consumers to remove their products, not to purchaseadditional products from us, prevent other potential consumers from purchasing our solutions, or harm our reputation. Thenature of the solutions we provide, including our interface with home security solutions, may expose us to greater risks ofliability for system failure or even installation errors by our independent dealers than may be inherent in other businesses.Substantially all of our dealer agreements contain provisions limiting our liability to dealers and our consumers in an attemptto reduce this risk. However, in the event of litigation with respect to these matters, we cannot be sure that these limitationswill be enforced, and defending a lawsuit, regardless of its merit, could be costly, divert management’s attention, affect ourability to obtain or maintain liability insurance on acceptable terms and could harm our business. In addition, there can be noassurance that we are adequately insured for these risks. Certain of our insurance policies and the laws of some jurisdictionsmay limit or prohibit insurance coverage for punitive or certain other types of damages or liability arising from grossnegligence. Although we currently maintain some warranty reserves, we cannot be sure that these warranty reserves will besufficient to cover future liabilities. Furthermore, we may be required to indemnify our dealers, distributors and other partnersagainst certain liabilities they may incur as a result of defects of our products. Our networking solutions business may be harmed if users perceive our solution as the cause of a slow or unreliablenetwork connection, or in the event of a high-profile network failure, even though certain technical problems experiencedby users may not be caused by our products. Our networking solutions have been deployed in many different locations and user environments and are capable ofproviding connectivity to many different types of Wi-Fi-enabled devices operating a variety of applications. The ability ofour products to operate effectively can be negatively impacted by many different elements unrelated to our products. Forexample, a user’s experience may suffer from an incorrect setting in a Wi-Fi device. Although certain technical problemsexperienced by users may not be caused by our products, users often may perceive the underlying cause to be a result of poorperformance of the wireless network. This perception, even if incorrect, could harm our business and reputation. Similarly, ahigh-profile network failure may be caused by improper operation of the network or failure of a network component that wedid not supply, but users and other service providers may perceive that our products were implicated, which, even ifincorrect, could harm our business, operating results and financial condition. 19 Table of ContentsFailure to maintain the security of our information and technology networks, including information relating to ourdealers, distributors, partners, consumers and employees, could adversely affect our business. Furthermore, withoutlimiting the preceding sentence, if security breaches in connection with the delivery of our products and services allowunauthorized third parties to obtain control of or otherwise access consumers’ networks or appliances, our reputation,business, results of operations and financial condition could be harmed. The legal, regulatory and contractual environment surrounding information security, privacy and fraud is constantlyevolving and companies that collect and retain information are under increasing attack by cyber- criminals around the world.We are dependent on information technology networks and systems, including the Internet, to process, transmit and storeelectronic information and, in the normal course of our business, we collect and retain certain information, includingfinancial information, from and pertaining to our dealers, distributors, partners, consumers and employees. The protection ofdealer, distributor, partner, consumer and employee data is important to us, and we devote significant resources to addressingsecurity vulnerabilities in our products and information technology systems, including encrypting some data repositoriesand engaging security experts to conduct penetration testing to help us uncover vulnerabilities in our systems. However, thepolicies and security measures that we put in place cannot guarantee security, and our information technology infrastructuremay be vulnerable to criminal cyber-attacks or data security incidents due to employee or dealer negligence, error,malfeasance, or other vulnerabilities. Cyber security attacks are increasingly sophisticated, change frequently, and often goundetected until after an attack has been launched. We may fail to identify these new and complex methods of attack, or failto invest sufficient resources in security measures. We have and will continue to experience cyber-attacks, and we cannot becertain that advances in cyber-capabilities or other developments will not permit compromise or breach the technologyprotecting the networks that access our products and services and repositories where we store this information. We have acquired a number of companies over the years and may continue to do so in the future. While we makesignificant efforts to address any information technology security issues with respect to our acquisitions, we may still inheritsuch risks when we integrate the acquired products and systems. In addition, consumers can use our tools to access their automation systems remotely, and certain of our employeesand independent dealers can monitor access and update certain of our products and services remotely. Security breaches bythird parties or by, or originating from, one or more of our dealers, distributors or employees, that allow unauthorized thirdparties to obtain control of our consumers’ appliances through our products or to obtain, collect, use or disclose any personaldata of consumers, could harm our reputation, business, results of operations and financial condition. Furthermore, althoughwe do not recommend or approve of port forwarding for remote access to our solutions, certain of our dealers have in the pastand may in the future enable port forwarding, which could create security vulnerabilities in their customers’ home networks. It is difficult to determine what harm may directly result from any specific interruption or security breach. Anyfailure or perceived failure to maintain performance, reliability, security and availability of systems or the actual or potentialtheft, loss, fraudulent use or misuse of our products or associated confidential information, including personally identifiabledata of a dealer, distributor, partner, consumer, and employee, could result in: ·harm to our reputation or brand, which could lead some consumers to stop using certain of our products orservices, reduce or delay future purchases of our products or services, use competing products or services, ormaterially and adversely affect the overall market perception of the security and reliability of our services andhome automation products generally; ·individual and/or class action lawsuits, which could result in financial judgments against us and that wouldcause us to incur legal fees and costs; ·legal or regulatory enforcement action, which could result in fines and/or penalties and which would cause us toincur legal fees and costs; and/or ·additional costs associated with responding to the interruption or security breach, such as investigative andremediation costs, the costs of providing individuals and/or data owners with notice of the breach, legal fees,the costs of any additional fraud detection activities, or the costs of prolonged system disruptions or shutdowns. Any of these actions could materially adversely impact our business and results of operations. 20 Table of ContentsBecause we store, process, and use data, some of which contains personal information, we are subject to complex andevolving federal, state, and foreign laws and regulations regarding privacy, data protection, and other matters. Many ofthese laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims,changes to our business practices, increased cost of operations, and declines in user growth, retention, or engagement, anyof which could seriously harm our business. We are subject to a variety of laws and regulations that involve matters central to our business, including userprivacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and othercommunications, competition, protection of minors, consumer protection, taxation, and online-payment services. Because westore, process, and use data, some of which contains personal information, we are subject to complex and evolving federal,state, and foreign laws and regulations regarding privacy, data protection, and other matters. These laws can be particularlyrestrictive in countries outside the United States. Both in the United States and abroad, these laws and regulations constantlyevolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulationsare often uncertain, particularly in the new and rapidly evolving industry in which we operate. Continually implementingup-to-date data security tools and procedures and maintaining privacy standards that comply with ever-changing privacyregulations in multiple jurisdictions (including but not limited to the General Data Protection Regulation (GDPR) in theEuropean Union, which will go into effect on May 25, 2018) is challenging. In addition, on July 12, 2016 the European Commission formally adopted the new EU – U.S. Privacy Shield, whichprovides a safe harbor for the transfer of personal information, by U.S. companies doing business in Europe from theEuropean Economic Area to the United States provided that such U.S. companies self-certify under this framework. Control4has submitted its self-certification application pursuant to the Privacy Shield, and as part of this self-certification, we havecommitted to abide by the Privacy Shield principles with respect to any personal information transferred. We publicly post our privacy policies and practices concerning our processing, use and disclosure of personalinformation. Our privacy policy and other statements we publish provide promises and assurances about privacy and securitythat could subject us to potential regulatory action or other liabilities if such statements are found to be deceptive ormisrepresentative of our practices or if we fail to take adequate measures to ensure that we adhere to applicable regulations,or if our third-party data processors fail to adequately protect personal information that they process on our behalf. We encounter seasonality in sales, which could harm the amount, timing and predictability of our revenue and cause ourstock price to fluctuate. We have little recurring revenue or backlog, and our revenue is generated from orders of our solutions from new andexisting consumers, each of which may cause our quarterly results to fluctuate. In addition, we may experience seasonality inthe sales of our solutions. Historically, our revenue is generally highest in the fourth quarter and lowest in the first quarter.Seasonal variations in our sales may lead to significant fluctuations in our cash flows and results of operations on a quarterlybasis and this may cause our stock price to fluctuate. We may not generate significant revenue as a result of our current research and development efforts. We have made and expect to continue to make significant investments in research and development and relatedproduct opportunities. For the year ended December 31, 2017, we spent $40.6 million on research and developmentexpenses. High levels of expenditures for research and development could harm our results of operations, especially if notoffset by corresponding future revenue increases. We believe that we must continue to dedicate a significant amount ofresources to our research and development efforts to maintain our competitive position. However, it is difficult to estimatewhen, if ever, we will generate significant revenue as a result of these investments. Our strategy includes pursuing acquisitions and our potential inability to successfully integrate newly-acquiredtechnologies, assets, businesses, or personnel may harm our financial results. We believe part of our growth will be driven by acquisitions of other companies or their technologies, assets andbusinesses. Recent acquisitions include Pakedge in January 2016, Triad in February 2017 and substantially all the assets ofihiji in December 2017. These acquisitions and any future acquisitions we complete will give rise to risks, including: ·Incurring higher than anticipated capital expenditures and operating expenses; 21 Table of Contents·Failing to assimilate the operations and personnel, or failing to retain the key personnel of the acquiredcompany or business; ·Failing to integrate the acquired technologies, or incurring significant expense to integrate acquiredtechnologies into our solutions; ·Disrupting our ongoing business; ·Dissipating or diverting our management resources; ·Failing to maintain uniform standards, controls and policies; ·Incurring significant accounting charges; ·Impairing relationships with employees, dealers, distributors, partners or consumers; ·Finding that the acquired technology, assets or business does not further our business strategy, that we overpaidfor the technology, assets or business, or that we may be required to write off acquired assets or investmentspartially or entirely; ·Failing to realize the expected synergies of the transaction; ·Being exposed to unforeseen liabilities and contingencies that were not identified during diligence conductedprior to acquiring the company, including but not limited to the risk that the products or services of theacquired company violate third-party intellectual property rights or regulatory standards or contain othervulnerabilities; and ·Being unable to generate sufficient revenue from acquisitions to offset the associated acquisition costs. Fully integrating acquired technology, asset, business, or personnel into our operations may take a significantamount of time and resources. We may not be successful in overcoming these risks or any other problems encountered withsuch acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to any suchacquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financialposition and capital needs, or could cause fluctuations in our quarterly and annual results of operations. Acquisitions could include significant goodwill and intangible assets. The amortization of such intangible assetswould reduce our profitability and there may be future impairment charges that would reduce our stated earnings. We mayincur significant costs in our efforts to engage in strategic transactions and these expenditures may not result in successfulacquisitions. Future acquisitions of technologies, assets or businesses, that are paid for partially or entirely through the issuance ofstock or stock rights, could dilute the ownership of our existing stockholders. We expect that the consideration we might pay for any future acquisitions of technologies, assets or businessescould include stock, rights to purchase stock, cash or some combination of the foregoing. If we issue stock or rights topurchase stock in connection with such future acquisitions, net income (loss) per share and then-existing holders of ourcommon stock may experience dilution. We may pursue business opportunities that diverge from our current business model, which may cause our business tosuffer. We may pursue business opportunities that diverge from our current business model, including expanding oursolutions into lines of business with which we have no experience, investing in new and unproven technologies, andexpanding our existing sales channels or adding new sales channels, including through acquisitions such as our recentacquisition of Triad and its speaker lines. We can offer no assurance that any such new business opportunities will prove tobe successful. Among other negative effects, our pursuit of such business opportunities could reduce operating margins andrequire more working capital, or materially and adversely affect our business, financial condition, results of operations andcash flows.22 Table of Contents Our gross margins can vary significantly depending on multiple factors, which can result in fluctuations in our results ofoperations. Our gross margins are likely to vary due to consumer demand, product mix, new product introductions, unitvolumes, commodity and supply chain costs, product delivery costs, geographic sales mix, excess and obsolete inventoryand the complexity and functionality of new product innovations. In particular, if we are not able to introduce new solutionsin a timely manner at the cost we expect, or if consumer demand for our solutions is less than we anticipate, or if there areproduct pricing, marketing and other initiatives by our competitors to which we need to react that lower our margins, thenour overall gross margin will be less than we project. The impact of these factors on gross margins can create unanticipatedfluctuations in our results of operations, which may cause volatility in our stock price. If we are unable to substantially utilize our net operating loss or tax credit carryforwards, our financial results will beharmed. As of December 31, 2017, our net operating loss (“NOL”) carryforward amounts for U.S. federal income and state taxpurposes were $66.7 million and $67.8 million, respectively. In addition to the NOL carryforwards, as of December 31, 2017,we had U.S. federal and state tax credit carryforwards of $6.6 million and $2.8 million, respectively. While we have generatedprofits at times in the past, there is no assurance that we will be able to generate sufficient taxable income to utilize our NOLsor tax credits before they expire. Our NOL carryforwards were fully reserved for as of December 31, 2017. If we are unable to manage our growth and diverse and complex operations, our reputation in the market and our abilityto generate revenue from new or existing consumers may be harmed. Because our operations are geographically diverse and complex, our personnel resources and infrastructure couldbecome strained and our reputation in the market and our ability to successfully implement our business plan may beharmed. The growth in the size, complexity and diverse nature of our business and the expansion of our product lines andconsumer base, including through acquisitions, have placed increased demands on our management and operations, andfurther growth, if any, may place additional strains on our resources in the future. Our ability to effectively compete and tomanage our plan to continue to expand our headcount and operations may depend on, among other things: ·Maintaining institutional knowledge by retaining and expanding the core competencies critical to ouroperations in our senior management and key personnel; ·Increasing the productivity of our existing employees and attracting new talent; ·Maintaining existing productive relationships and developing new productive relationships with independentcontract manufacturers, dealers and distributors; ·Improving our operational, financial and management controls; and ·Improving our information reporting systems and procedures. If we do not manage the size, complexity and diverse nature of our business effectively, we could experiencedelayed product releases and longer response times by our dealers in assisting our consumers in implementing our solutions,and could lack adequate resources to support our consumers on an ongoing basis, any of which could harm our reputation inthe market, our ability to successfully implement our business plan and our ability to generate revenue from new or existingconsumers. If we fail to retain our key employees and attract talented new personnel as needed, our business would be harmed and wemight not be able to implement our business plan successfully. Given the complex nature of the technology on which our business is based and the speed with which suchtechnology advances, our future success is dependent, in large part, upon our ability to attract and retain highly qualifiedexecutive, managerial, engineering, and sales and marketing personnel. Competition for talented personnel is intense, and wecannot be certain that we can retain our executive, managerial, engineering, and sales and marketing personnel, or that wecan attract, assimilate or retain such personnel in the future. Our inability to attract and retain such personnel could harm ourbusiness, results of operations and financial condition.23 Table of Contents Downturns in general economic and market conditions, including but not limited to downturns in housing markets andreductions in consumer spending, may reduce demand for our solutions, which could harm our revenue, results ofoperations, financial condition and cash flows. Our revenue, results of operations and cash flows depend on the overall demand for our solutions, which can besignificantly reduced in economic environments characterized by market and interest rate volatility, decreased consumerconfidence, high unemployment, declines in residential remodeling and housing starts, fluctuating exchange rates, anddiminished growth expectations in the U.S. economy and abroad. During periods of weak or unstable economic and marketconditions, providers of products and services that represent discretionary purchases, such as our home automation products,are disproportionately affected. In addition, during these periods, the number of independent dealers and distributors maydecline as the prospects for home building and home renovation projects diminish, which may have a corresponding impacton our growth prospects. Furthermore, during challenging economic times consumers may face issues in gaining timelyaccess to sufficient credit, which could impair their ability to make timely payments. There is also an increased risk duringthese periods that an increased percentage of our dealers will file for bankruptcy protection, which may harm our reputation,revenue, profitability and results of operations. We cannot predict the timing, strength or duration of any economicslowdown, instability or recovery, generally or within any particular geography or industry. Any downturns in the generaleconomic conditions of the geographies and industries in which we operate, or any other factors negatively impactinghousing markets or consumer spending, could materially and adversely impact our revenue, results of operations, financialcondition and cash flows. If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove tobe incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in adecline in our stock price. The preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base ourestimates on historical experience and on various other assumptions that we believe to be reasonable under thecircumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, and theamount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates usedin preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition,allowance for doubtful accounts, inventories, product warranties, income taxes and stock-based compensation expense. Ourresults of operations may be harmed if our assumptions change or if actual circumstances differ from those in ourassumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors,resulting in a decline in our stock price. Changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our results ofoperations. Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, orvarying interpretations of current accounting pronouncements or taxation practice could harm our results of operations or themanner in which we conduct our business. For example, on December 22, 2017, “H.R.1”, f known as the “Tax Cuts and JOBSAct”, (the “Tax Act”) was signed into law, which among other changes reduces the corporate income tax rate to 21%, createsa territorial tax system (with a one-time mandatory tax on previously deferred foreign earnings), and requires companies topay minimum taxes on foreign earnings and subjects certain payments from U.S. corporations to foreign related parties toadditional taxes. While this act will result in a lower domestic income tax rate once we fully utilize our net operating loss andother accumulated tax credits, we will be subject to the one-time mandatory tax on previously deferred foreign earnings. Wewill continue to monitor the impact of this and further changes to applicable tax laws to our overall business strategy. Mergers or other strategic transactions involving our competitors could weaken our competitive position, which couldharm our results of operations. Our industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidateor be acquired. In addition, some of our competitors may enter into new alliances with each other or may establish orstrengthen cooperative relationships with systems integrators, third-party consulting firms or other parties. For example,Google Inc. acquired Nest Labs, a manufacturer of thermostats and smoke detectors; Nest Labs acquired Dropcam, a home-monitoring24 Table of Contentscamera company; and Samsung Electronics Co., Ltd. acquired SmartThings and Harman International Industries.Transactions such as these, as well as any additional consolidations, acquisitions, alliances or cooperative relationships, ornew product introductions by companies in our industry, could lead to pricing pressure, reduce our market share or result in acompetitor with greater financial, technical, marketing, service and other resources than ours, all of which could harm ourbusiness, results of operations and financial condition. We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosurerequirements applicable to emerging growth companies could make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBSAct”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to otherpublic companies that are not “emerging growth companies,” including not being required to comply with the auditorattestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executivecompensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholder approval of any golden parachute paymentsnot previously approved. If we choose not to comply with the auditor attestation requirements of Section 404 of theSarbanes-Oxley Act, as we have in the past, our auditors will not be required to opine on the effectiveness of our internalcontrol over financial reporting. As a result, investors may be less comfortable with the effectiveness of our internal controlsand the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we chooseto provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, as wehave in the past, investors will have access to less information and analysis about our executive compensation, which maymake it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors find ourcommon stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investorsfind our common stock less attractive as a result, there may be a less active trading market for our common stock and ourstock price may be harmed. We expect that our “emerging growth company” status will expire on December 31, 2018, thelast day of the fiscal year ending after the fifth anniversary of our initial public offering. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of theextended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), forcomplying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption ofcertain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to“opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on therelevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBSAct provides that our decision to opt out of the extended transition period for complying with new or revised accountingstandards is irrevocable. Failure to achieve and maintain effective internal control over financial reporting could result in our failure to accuratelyreport our financial results. Any inability to report and file our financial results accurately and timely could harm ourbusiness and adversely impact investor confidence in our company and, as a result, the value of our common stock. Effective internal controls are necessary for us to produce reliable financial reports and are important to helpingprevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and results of operationscould be harmed, investors could lose confidence in our reported financial information, and the trading price of our stockcould drop significantly. We are required to perform system and process evaluation and testing of our internal control overfinancial reporting to allow management to report on the effectiveness of our internal control over financial reporting, asrequired by Section 404 of the Sarbanes-Oxley Act, or Section 404. This assessment includes disclosure of any materialweaknesses identified by our management in our internal control over financial reporting. However, our auditors will not berequired to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 untilwe are no longer an “emerging growth company” as defined in the JOBS Act, and we continue to take advantage of theexemptions available to us through the JOBS Act. We expect that our auditors will be required to formally opine on theeffectiveness of our internal controls no later than our Annual Report on Form 10-K for the fiscal year ended December 31,2018. Our compliance with Section 404 may require us to continue to incur substantial expense and expend significantmanagement efforts. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testingand any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or morematerial weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls areeffective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unableto express an25 Table of Contentsopinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could loseconfidence in the accuracy and completeness of our financial reports, which could harm our stock price. Our failure to raise additional capital or generate cash flows necessary to expand our operations, invest in newtechnologies and otherwise respond to business opportunities or unforeseen circumstances in the future could reduce ourability to compete successfully and harm our results of operations. While we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cashrequirements for at least the next 12 months, at some point we may need to raise additional funds, and we may not be able toobtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our securityholders may experience significant dilution of their ownership interests and the value of shares of our common stock coulddecline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additionalindebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or makeacquisitions. If we need additional capital and cannot raise it on acceptable terms, if at all, we may not be able to, amongother things: ·Develop and enhance our solutions; ·Continue to expand our research and development, sales and marketing organizations; ·Hire, train and retain employees; ·Respond to competitive pressures or unanticipated working capital requirements; or ·Pursue acquisition opportunities. Our inability to do any of the foregoing could reduce our ability to compete successfully and harm our results ofoperations. We may be subject to additional tax liabilities, which would harm our results of operations. We are subject to income, sales, use, value added, tariffs and other taxes in the United States and other countries inwhich we conduct business, which laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do notcollect sales, use, value added, tariffs or other taxes on our sales may assert that such taxes are applicable, which could resultin tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Significant judgment isrequired in determining our worldwide provision for income taxes and evaluating our uncertain tax positions. Thesedeterminations are highly complex and require detailed analysis of the available information and applicable statutes andregulatory materials. In the ordinary course of our business, there are many transactions and calculations where the ultimatetax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax auditsand any related litigation could be different from our historical tax practices, provisions and accruals. If we receive anadverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the taxregulations to which we are subject, our tax provision, results of operations or cash flows could be harmed. In addition,liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we maybe subject to additional tax liability (including penalties and interest) for any particular year for extended periods of timedepending on the specific statute of limitations in the relevant jurisdiction. Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and tointerruption by man-made problems such as terrorism. A significant natural disaster, such as an earthquake, fire or a flood, or a significant power outage could harm ourbusiness, results of operations and financial condition. Natural disasters could affect our manufacturing vendors’ or logisticsproviders’ ability to perform services such as manufacturing products or assisting with shipments on a timely basis. Our threelargest contract manufacturers, which manufactured 58% of our inventory purchases for the year ended December 31, 2017,have manufacturing facilities located in China and Korea. In the event our manufacturing vendors’ information technologysystems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could bedelayed or cancelled, resulting in missing financial targets, such as revenue and shipment targets, for a particular quarter.Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, such asmetropolitan areas in North America, consumers in those regions may delay or forego purchases of our solutions from dealersand distributors, which26 Table of Contentsmay harm our results of operations for a particular period. For example, the recent hurricanes in Texas and Florida and thefires in northern California impacted ongoing projects in areas where Control4 has significant sales. In addition, acts ofterrorism, including cyber terrorism or crime, could cause disruptions in our business or the business of our manufacturers,logistics providers, dealers, distributors, consumers or the economy as a whole. Given our typical concentration of sales at theend of each month and quarter, any disruption in the business of our manufacturers, logistics providers, dealers, distributorsand consumers that impacts sales at the end of our quarter could have a greater impact on our quarterly results. All of theaforementioned risks may be augmented if the disaster recovery plans for us and our suppliers prove to be inadequate. To theextent that any of the above results in delays or cancellations of orders, or delays in, or cancellations of the manufacture,deployment or shipment of our products, our business, financial condition and results of operations would be harmed. Global or regional economic, political and social conditions could harm our business and results of operations. External factors such as potential crime, terrorist attacks, acts of war, financial crises, trade friction or geopoliticaland social turmoil in those parts of the world that serve as markets for our solutions, such as Europe, Asia or elsewhere, couldharm our business and results of operations. These uncertainties may cause our consumers to reduce discretionary spendingon their home and make it difficult for us to accurately plan future business activities. More generally, these geopolitical,social and economic conditions could result in increased volatility in worldwide financial markets and economies that couldharm our sales. We are not insured for losses or interruptions caused by terrorist acts or acts of war. The occurrence of any ofthese events or circumstances could harm our business and results of operations. Failure to comply with laws and regulations could harm our business. Our business is subject to regulation by various federal, state, local and foreign governmental agencies, includingagencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety,environmental laws, consumer privacy and protection laws, anti-bribery laws, import/export controls, federal securities lawsand tax laws and regulations. As we continue to develop new products, acquire companies with new product lines andexpand our geographical footprint to market and sell products directly in new jurisdictions, we may become subject toadditional rules and regulations, and these regulatory requirements may be different from or more stringent than those in theUnited States and Europe. While we have obtained these certifications for many of our products currently sold in expandedjurisdictions, we continue to work towards full compliance for all of our products sold. Delays in meeting, or failure to meet,these certification standards may cause us to miss market opportunities and may hinder us from entering and selling ourproducts in those markets. Noncompliance with applicable regulations or requirements could subject us to investigations,sanctions, enjoinders of future shipments, mandatory product recalls, seizures, enforcement actions, disgorgement of profits,fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevailin any possible civil or criminal litigation, our business, results of operations and financial condition could be materiallyharmed. In addition, responding to any action will likely result in a significant diversion of management’s attention andresources and an increase in professional fees. Enforcement actions and sanctions could further harm our business, results ofoperations and financial condition. Governmental regulations affecting the import or export of our products could harm our revenues. The United States and various foreign governments have imposed controls, export license requirements andrestrictions on the import or export of some technologies, especially encryption technology, and may impose additional orbroader controls, export license requirements and restrictions on the import or export of some technologies in the future. Inaddition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such asrequiring the escrow and governmental recovery of private encryption keys. Although we do not believe that any of ourproducts currently require an export license, if our products or components of our products become subject to governmentalregulation of encryption technology or other governmental regulation of imports or exports, we may be required to obtainimport or export approval for such products, which could increase our costs and harm our international and domestic salesand our revenue. In addition, failure to comply with such regulations could result in penalties, costs and restrictions onexport privileges, which would harm our results of operations. Regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our businessreputation and may adversely impact our ability to conduct our business. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), we arerequired to adhere to certain reporting and other requirements regarding the use of certain minerals and derivative metals27 Table of Contents(referred to as “conflict minerals,” regardless of their actual country of origin) in our products. Some of these metals arecommonly used in electronic equipment and devices, including our products. These requirements require that we investigate,disclose and report whether or not any such metals in our products originated from the Democratic Republic of Congo oradjoining countries. We do not directly source any of our own raw conflict minerals, rather we have an extremely complexsupply chain, with numerous suppliers, many of whom may not be obligated to investigate their own supply chains, for thecomponents and parts used in each of our products. As a result, we may incur significant costs to comply with the diligenceand disclosure requirements, including costs related to determining the source of any of the relevant metals used in ourproducts and other potential changes to products or sources of supply as a consequence of such verification activities.Because these regulations are relatively new, we and the companies comprising our supply chain each have a limited historyof investigating, disclosing and reporting use of these minerals, and there is a limited history of regulatory guidanceregarding compliance with these requirements. In addition, because our supply chain is so complex, we may not be able tosufficiently verify the origin of all relevant metals used in our products through the due diligence procedures that weimplement, which may harm our business reputation. We may incur reputational damage if we determine that any of ourproducts contain minerals or derivative metals that are not conflict free or if we are unable to sufficiently verify the source forall conflict minerals used in our products through the procedures we may implement. Furthermore, key components and partsthat can be shown to be “conflict free” may not be available to us in sufficient quantity, or at all, or may only be available atsignificantly higher cost to us. If we are not able to meet customer requirements, customers may choose to disqualify us as asupplier. Any of these outcomes could adversely affect our business, financial condition or operating results. Health care reform could increase our cost of labor In March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was signed into U.S. law. The ACA iscomprehensive U.S. health care legislation that includes provisions that subject us to potential penalties unless we offercertain employees minimum essential health care coverage that is affordable and provides minimum value. Recent changes,especially the employer mandate and employer penalties that became effective January 1, 2015, may increase our labor costssignificantly in future years. In order to comply with the employer mandate provision of the ACA, we offer health carecoverage to all applicable employees eligible for coverage under the ACA. Designating employees as eligible is complex,and is subject to challenge by employees and the Internal Revenue Service. While we believe we have properly identifiedeligible employees, a later determination that we failed to offer the required health coverage to eligible employees couldresult in penalties that may harm our business or reputation. We cannot be certain that compliant insurance coverage willremain available to us on reasonable terms, and we could face additional risks arising from future changes to the ACA orother legislation or executive orders that repeal and replace in whole or in part the ACA. We incur increased costs and demands upon management as a result of complying with the laws and regulations affectingpublic companies, which could harm our results of operations and our ability to attract and retain qualified executives andboard members. As a public company, we have incurred and will continue to incur significant legal, accounting and other expensesthat we did not incur as a private company, including costs associated with public company reporting and corporategovernance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, as well as rules implemented by the Securities and Exchange Commission (“SEC”),The NASDAQ Stock Market LLC, and other applicable securities or exchange-related rules and regulations. In addition, ourmanagement team has also had to adapt to the requirements of being a public company. Complying with these rules andregulations substantially increases our legal and financial compliance costs and makes some activities more difficult, timeconsuming or costly. These compliance requirements and costs will increase once we are no longer an “emerging growthcompany,” as defined in the JOBS Act, which will occur December 31, 2018 at the latest. Government regulations of wireless networking in the United States or internationally may result in unanticipated costsand failure to comply with such laws and regulations could harm our business. Our wireless communication and networking products operate through the transmission of radio signals and radioemissions are subject to regulation in the United States and in other countries in which we do business. In the United States,various federal agencies, including the Federal Communications Commission (“FCC”), and various state agencies havepromulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of theEuropean Union have enacted similar standards concerning electrical safety and electromagnetic compatibility andemissions. As these regulations and standards evolve, and if new regulations or standards are implemented, we will berequired to modify our products or develop and support new versions of our products, and our compliance with theseregulations and standards may28 Table of Contentsbecome more burdensome. The failure of our products to comply, or delays in compliance, with the various existing andevolving industry regulations and standards could prevent or delay introduction of our products, which could harm ourbusiness. Our inability to alter our products to address these requirements and any regulatory changes may have a materialadverse effect on our business, operating results and financial condition. In addition, dealer and end user uncertaintyregarding future policies may also affect demand for wireless networking products, including our products. Risks Related to Our International Operations In recent years, a significant amount of our revenue has come from sales outside of the United States, and we are thereforesubject to a number of risks associated with international sales and operations. We have a limited history of marketing, selling, and supporting our products and services internationally. However,international revenue (excluding Canada) accounted for 22% of our total revenue for the year ended December 31, 2017, andwe expect that percentage may grow in the future. As a result, we must hire and train experienced personnel to staff andmanage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing, and retaininginternational dealers, distributors, and international staff, and specifically staff related to sales management and salespersonnel, we may experience difficulties in productivity in foreign markets. If we are not able to increase the sales of our solutions to consumers located outside of North America, our results ofoperations or revenue growth may be harmed. In addition, in connection with our expansion into foreign markets, we are areceiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening ofthe U.S. dollar, will negatively affect our net sales as expressed in U.S. dollars. There is also a risk that we will have to adjustlocal currency product pricing due to competitive pressures when there has been significant volatility in foreign currencyexchange rates. Conducting and launching operations on an international scale requires close coordination of activities acrossmultiple jurisdictions and time zones and consumes significant management resources. Our limited experience in operatingour business in certain countries outside of the United States increases the risk that our current and any future internationalexpansion efforts will not be successful. Conducting international operations subjects us to risks that, generally, we do notface in the United States, including: ·Fluctuations in currency exchange rates; ·Unexpected changes in foreign regulatory requirements; ·Longer accounts receivable payment cycles and difficulties in collecting accounts receivable; ·Difficulties in managing and staffing international operations, including differences in labor laws, which mayresult in higher personnel-related liabilities and expenses; ·Potentially adverse tax consequences, including the complexities of foreign value added tax systems andrestrictions on the repatriation of earnings; ·Localization of our solutions and other materials, including translation into foreign languages and associatedexpenses; ·Localization of applicable agreements under applicable foreign law and differing legal standards and risks; ·The burdens of complying with a wide variety of foreign laws and different legal standards, including laws andregulations related to import/export, privacy, the transfer of personal information across borders, and datasecurity and limitations on liability; ·Increased financial accounting and reporting burdens and complexities; ·Political, social and economic instability abroad, terrorist attacks and security concerns in general, includingcrime and cyber security; and 29 Table of Contents·Reduced or varied protection for intellectual property rights in some countries. The impact of any one of these could harm our international business and, consequently, our results of operationsgenerally. Additionally, operating in international markets also requires significant management attention and financialresources. We cannot be certain that the investment and additional resources required in establishing, acquiring orintegrating operations and personnel in other countries will produce desired levels of revenue or profitability. We conduct a significant amount of business in the European Union, including through our office located in England, andour operations may be affected by the results of the recent referendum vote by the United Kingdom to leave the EuropeanUnion. On June 23, 2016, the citizens of the United Kingdom approved a referendum to leave the European Union(“Brexit”), which led to significant political, economic and legal uncertainty. In addition, the Brexit vote triggered adevaluing of the pound sterling relative to the euro and the U.S. dollar, and in Europe we generally sell our products andincur expense in local currencies including the pound sterling and the euro, but incur exchange rate gains and losses for U.S.dollar denominated assets and liabilities including intercompany and third-party accounts receivables and payables. Thepound has subsequently recovered some of its value against the dollar, and we enter into forward contracts to help offset ourexposure to movements in foreign currency exchange rates relative to some of these U.S. dollar denominated balances;however, there is no guarantee that we will correctly anticipate the optimal amounts of such offsets in the future. On March 29, 2017, the United Kingdom provided its official notice to the European Council that it intends toleave the European Union, triggering the two-year transitionary period. The long-term nature of the United Kingdom’srelationship with the European Union after Brexit is completed is still unclear and there is considerable uncertainty when anyrelationship will be agreed and implemented. During this transitionary period, negotiations will take place to unravel all ofthe existing legal, political and financial frameworks and obligations, and put new structures in place. At this stage, it isuncertain what the final results of these negotiations will be and, given the lack of comparable precedent, it is unclear howBrexit will affect economic conditions in the United Kingdom, the European Union, or globally, and Control4 specifically.Because Control4 has sales throughout the European Union and offices in England and Germany, it is possible that Brexitmay require us to restructure some or all of our operations, and depending on what is negotiated, could impair our ability totransact business in other countries in the European Union. In addition, the fluctuation in currencies and market conditionsmay adversely affect our business, results of operations and financial condition. Due to the global nature of our business, we could be harmed by violations of the U.S. Foreign Corrupt Practices Act, theU.K. Bribery Act or similar anti-corruption laws in other jurisdictions in which we operate, or various international tradeand export laws. The global nature of our business creates various domestic and local regulatory challenges. The U.S. ForeignCorrupt Practices Act (the “FCPA”), the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), and similar anti-corruption laws inother jurisdictions generally prohibit companies and their intermediaries from making improper payments to governmentofficials for the purpose of obtaining or retaining business. In addition, U.S.-based companies are required to maintainrecords that accurately and fairly represent their transactions and have an adequate system of internal accounting controls.We operate in areas of the world that experience corruption by government officials to some degree and, in certaincircumstances, compliance with anti-corruption laws may conflict with local customs and practices. Although weperiodically train our employees and agents about these anti-corruption laws, we cannot assure that our training is effectivein reducing the risks attendant to such anti-corruption laws. Our global operations require us to import from and export toseveral countries, which geographically stretches our compliance obligations. In addition, changes in such laws could resultin increased regulatory requirements and compliance costs, which could harm our business, financial condition and results ofoperations. Our employees or other agents may engage in prohibited conduct and render us responsible under the FCPA, theU.K. Bribery Act or similar anti-corruption laws. If we are found to be in violation of the FCPA, the U.K. Bribery Act or otheranti-corruption laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of other parties),we could suffer criminal or civil penalties or other sanctions, which could harm our business. 30 Table of ContentsRisks Related to Our Intellectual Property If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed. We believe that proprietary technology is essential to establishing and maintaining our leadership position. Weseek to protect our intellectual property through trade secrets, confidentiality, non-compete, non-solicitation andnondisclosure agreements, and by registering numerous patents, trademarks, copyrights, and/or domain names in variousjustifications, as well as using other measures, some of which afford only limited protection. We also rely on patent,trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our proprietaryrights, unauthorized parties may attempt to copy aspects of our technology or to obtain and use information that we regard asproprietary. Our means of protecting our proprietary rights may not be adequate or our competitors may independentlydevelop similar or superior technology, or design around our intellectual property. In addition, the laws of some foreigncountries do not protect our proprietary rights to as great an extent as the laws of the United States. Intellectual propertyprotections may also be unavailable, limited or difficult to obtain and enforce in some countries, which could make it easierfor competitors to capture market share. Our failure or inability to adequately protect our intellectual property andproprietary rights could harm our business, financial condition and results of operations. To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actionsfor infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result insignificant costs and diversion of our resources and management’s attention, and we cannot assure that we will be successfulin such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greaterresources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able toprevent third parties from infringing upon or misappropriating our intellectual property. An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuminglitigation and lead to expensive licenses or significant liabilities in the event of an adverse judgment. The industries in which we compete are characterized by the existence of a large number of patents, copyrights,trademarks and trade secrets, and by frequent litigation based on allegations of infringement or other violations ofintellectual property rights. We have been subject to patent litigation in the past and we may be subject to similar litigationin the future. Given that our solution integrates with almost all network aware products, the risk that our solution may besubject to these allegations is exacerbated. As we seek to extend our solutions, we could be constrained by the intellectualproperty rights of others, including patent holding companies. We are defendants in legal proceedings related to intellectual property rights from time to time (a summary ofcurrent litigation and outstanding claims that if determined adversely to us, we believe would have a material adverse effecton our business, results of operations, financial condition or cash flows, if any, is set forth in Item 1 of Part II, LegalProceedings), and in the past, we have entered into settlement agreements relating to contractual claims and alleged patentinfringements, which have included future royalty payments on certain products, the payment of a lump sum amount foralleged past damages, and/or the payment of a fixed amount in exchange for a covenant not to sue. We might not prevail in any current or future intellectual property infringement litigation given the complextechnical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays or require us toenter into royalty or licensing agreements. In addition, we currently have a limited portfolio of issued patents compared toour larger competitors, and therefore may not be able to effectively utilize our intellectual property portfolio to assertdefenses or counterclaims, or negotiate cross-licenses in response to patent infringement claims or litigation brought againstus by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have norelevant products or revenues and against which our potential patents provide no deterrence, and many other potentiallitigants have the capability to dedicate substantially greater resources to enforce their intellectual property rights and todefend claims that may be brought against them. If our solutions exceed the scope of in-bound licenses or violate any third-party proprietary rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seekto obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop oursolutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successfuland, in any case, might substantially increase our costs and harm our business, financial condition and results of operations.If we were compelled to withdraw any of our solutions from the market, our business, financial condition and results ofoperations could be harmed. 31 Table of ContentsWe are generally obligated to indemnify our independent dealers, distributors and partners for certain expenses andliabilities resulting from intellectual property infringement claims regarding our products, which could force us to incursubstantial costs. We have agreed, and expect to continue to agree, to indemnify our independent dealers, distributors and otherpartners for certain intellectual property infringement claims regarding our products. As a result, in the case of infringementclaims against these dealers, distributors and partners, we could be required to indemnify them for losses resulting from suchclaims or to refund amounts they have paid to us. We expect that some of our dealers, distributors and partners may seekindemnification from us in connection with infringement claims brought against them. We evaluate each such request on acase-by-case basis and we may not succeed in refuting any such claim we believe to be unjustified. If a dealer, distributor orpartner elects to invest resources in enforcing a claim for indemnification against us, we could incur significant costsdisputing it. If we do not succeed in disputing it, we could face substantial liability. The use of open source software in our solutions may expose us to additional risks and harm our intellectual property. Some of our solutions use or incorporate software that is subject to one or more open source licenses. Open sourcesoftware is typically freely accessible, usable and modifiable. Certain open source software licenses require a user whointends to distribute the open source software as a component of the user’s software to disclose publicly part or all of thesource code to the user’s software. In addition, certain open source software licenses require the user of such software to makeany derivative works of the open source code available to others on potentially unfavorable terms or at no cost. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts,and accordingly there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions orrestrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from thirdparties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions or torelease our proprietary software code under the terms of an open source license, any of which could harm our business.Further, given the nature of open source software, it may be more likely that third parties might assert copyright and otherintellectual property infringement claims against us based on our use of these open source software programs. Litigationcould be costly for us to defend, have a negative effect on our operating results and financial condition, or require us todevote additional research and development resources to change our solutions. We monitor the use of all open source software in our products, solutions, processes and technology, and seek toensure that no open source software is used in such a way as to require us to disclose the source code to the related product orsolution when we do not wish to do so. Despite these precautions, if a third-party software provider has incorporated certaintypes of open source software into software we license from such third-party provider for our solutions without ourknowledge or if we have otherwise incorporated unfavorable open source software into our solutions, we could, under certaincircumstances, be required to disclose the related source code to our solutions. This could harm our intellectual propertyposition and our business, results of operations and financial condition. We rely on the availability of third-party licenses. If these licenses are available to us only on less favorable terms or not atall in the future, our business and results of operations may be harmed. We have incorporated third-party licensed technology into our products. It may be necessary in the future to renewlicenses relating to various aspects of these products or to seek additional licenses for existing or new products. Thenecessary licenses may not be available on acceptable terms, or at all. The inability to obtain certain licenses or other rights,or to obtain those licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, couldresult in our inability to include certain features in our products or delays in product releases until such time, if ever, asequivalent technology could be identified, licensed or developed and integrated into our products, which may have amaterial adverse effect on our business, results of operations and financial condition. Moreover, the inclusion in our productsof intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietaryrights in our products. Risks Related to Owning Our Common Stock Our share price may be volatile, which may result in securities class action litigation against us. The market price of our common stock has been and again could be subject to wide fluctuations in response to many32 Table of Contentsrisk factors listed in this section and other factors beyond our control, including but not limited to: ·Actual or anticipated fluctuations in our financial condition and results of operations; ·Overall conditions in our industry and market; ·Addition or loss of independent dealers, distributors or consumers; ·Changes in laws or regulations applicable to our solutions; ·Actual or anticipated changes in our growth rate relative to our competitors; ·Announcements by us, our competitors or strategic buyers of significant acquisitions, strategic partnerships,joint ventures or capital commitments; ·Additions or departures of key personnel; ·Competition from existing products or new products that may emerge; ·Issuance of new or updated research or reports by securities analysts, activist investors and those who short ourstock; ·Fluctuations in the valuation of companies perceived by investors to be comparable to us; ·Disputes or other developments related to proprietary rights, including patents, litigation matters and ourability to obtain intellectual property protection for our technologies; ·Actual or threatened litigation or adverse regulatory action against us; ·Trading of our common stock by us or our stockholders, or issuance of new shares; ·Share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and ·General economic, geopolitical and market conditions. Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected andcontinue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated ordisproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well asgeneral economic, geopolitical and market conditions such as recessions, interest rate changes or international currency andcapital markets fluctuation, may harm the market price of our common stock. In the past, companies that have experiencedvolatility in the market price of their stock have been subject to securities class action litigation. We may be the target of thistype of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’sattention from other business concerns, which could harm our business. If securities or industry analysts do not publish research or reports about our business, or publish negative reports aboutour business, our share price and trading volume could decline. The trading market for our common stock depends in part on the research and reports that securities or industryanalysts publish about our business. We do not have any control over these analysts, activist investors, or those who shortour stock. If one or more of the foregoing analysts who cover us, activist investors, or those who short our stock downgradeour shares, change their opinion of our shares, or publish negative or false reports for their own purposes, our share price willlikely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish research or reportson us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. 33 Table of ContentsThe concentration of ownership of our capital stock limits your ability to influence corporate matters. As of December 31, 2017, our directors, executive officers and holders of more than 5% of our common stock,together with their affiliates, beneficially own, in the aggregate, 26% of our outstanding common stock. As a result, thesestockholders, acting together, may have the ability to significantly influence the outcome of matters submitted to ourstockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially allof our assets. In addition, these stockholders, acting together, control or significantly influence most matters related to themanagement and affairs of our company. Accordingly, this concentration of ownership and managerial authority might harmthe market price of our common stock by: ·Delaying, deferring or preventing a change in corporate control; ·Impeding a merger, consolidation, takeover or other business combination involving us; or ·Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may bebeneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove ourcurrent management and limit the market price of our common stock. Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have theeffect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate ofincorporation and amended and restated include provisions that: ·Authorize our board of directors to issue, without further action by the stockholders, up to 25,000,000 shares ofundesignated preferred stock; ·Require that any action to be taken by our stockholders be effected at a duly called annual or special meetingand not by written consent; ·Specify that special meetings of our stockholders can be called only by our board of directors, the Chairman ofthe Board, the Chief Executive Officer or the President; ·Establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of ourstockholders, including proposed nominations of persons for election to our board of directors; ·Provide that directors may be removed only for cause; ·Provide that vacancies on our board of directors may be filled only by a majority of directors then in office,even though less than a quorum; ·Establish that our board of directors is divided into three classes—Class I, Class II and Class III—with each classserving staggered terms; and ·Require a super-majority of votes to amend certain of the above-mentioned provisions. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control. Theseprovisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management bymaking it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing themembers of our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DelawareGeneral Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock fromengaging in certain business combinations without approval of the holders of substantially all of our outstanding commonstock. 34 Table of ContentsAny provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying ordeterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of ourcommon stock, and could also affect the price that some investors are willing to pay for our common stock. ITEM 1B. Unresolved Staff Comments None. ITEM 2. Properties Our corporate headquarters are located in Salt Lake City, Utah, where we lease approximately 85,000 square feet ofcommercial space under a lease that expires on June 30, 2018. We are currently in the process of renegotiating this lease. Weuse this space for sales, research and development, dealer and distributor service and support, and administrative purposes.We also lease approximately 60,000 square feet of warehouse space in Salt Lake City, Utah under a lease that expires onMarch 31, 2019. In connection with our sales efforts in the United States and abroad, we lease office space typically on a short-termrenewable basis domestically in San Jose, California; Charlotte, North Carolina; Hayward, CA; Orange County, CA; andChicago, Illinois, and internationally in York, United Kingdom; Shanghai, China; Melbourne, Australia; Frankfurt,Germany; and New Belgrade, Serbia. Furthermore, in connection with the acquisition of Triad Speakers in February 2017, wehave added warehouse space in Portland, Oregon, and in connection with the acquisition of ihiji, Inc. in December 2017, wehave added office space in Austin, Texas, both under short-term, renewable leases. We believe that our facilities are suitable to meet our current needs. We intend to expand our existing facilities oradd new facilities as we add employees and enter new geographic markets, and we believe that suitable additional oralternative space will be available as needed to accommodate any such growth. However, we expect to incur additionalexpenses in connection with such new or expanded facilities. ITEM 3. Legal Proceedings From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Weare not presently a party to any legal proceeding that, if determined adversely to us, we believe would individually or in theaggregate have a material adverse effect on our business, results of operations, financial condition or cash flows. ITEM 4. Mine Safety Disclosures Not applicable.35 Table of Contents PART II. ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities Market Information Our common stock has been listed on the NASDAQ Global Select Market under the symbol “CTRL” since August 2,2013. Prior to that time, there was no public market for our common stock. Price Range of Common Stock The price range per share of common stock presented below represents the highest and lowest closing prices for ourcommon stock on the NASDAQ Global Select Market during each quarter since our initial public offering. On February 9,2018, the last reported sale price for our common stock on the NASDAQ Global Select Market was $24.12 per share. 2017 High Low Fourth Quarter $35.76 $26.87 Third Quarter $29.46 $19.27 Second Quarter $20.88 $14.82 First Quarter $16.00 $10.58 2016 High Low Fourth Quarter $12.28 $9.98 Third Quarter $12.28 $8.03 Second Quarter $8.50 $7.13 First Quarter $9.07 $5.67 Holders of Record As of February 9, 2018, there were 17 holders of record of our common stock. The actual number of stockholders isgreater than this number of holders of record, and includes stockholders who are beneficial owners, but whose shares are heldin street name by brokers and other nominees. This number of holders of record also does not include stockholders whoseshares may be held in trust by other entities. Stock Performance Graph and Cumulative Total Return Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the followinginformation relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be“soliciting material” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and it shall not bedeemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to theextent we specifically incorporate it by reference into such filing. The following graph shows a comparison from August 2, 2013 (the date our common stock commenced trading onthe NASDAQ Global Select Market) through December 31, 2017 of the total cumulative return of our common stock with thetotal cumulative return of the S&P 500 Index and S&P 500 Information Technology Sector Index. The comparisons in thisgraph below are based on historical data and are not intended to forecast or be indicative of future performance of ourcommon stock. The comparison assumes that $100.00 was invested in our common stock, the S&P 500 Index and S&P 500Information Technology Sector Index, and assumes reinvestment of dividends, if any. The graph assumes the initial value ofour common stock on August 2, 2013 was the closing sale price on that day of $20.05 per share and not the initial offeringprice to the public of $16.00 per share. The performance shown on the graph below is based on historical results and is notintended to suggest future performance. 36 Table of Contents Dividend Policy We have never declared or paid any cash dividends on our common stock and do not intend to pay any cashdividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of ourbusiness and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of ourBoard of Directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which maynever occur, as the only way to realize any future gains on their investments. Unregistered Sale of Equity Securities None. Issuer Purchases of Equity Securities In May 2015, our Board of Directors authorized the repurchase of up to $20 million in Control4 common stock fromtime to time on the open market. During the fiscal quarter ended December 31, 2017, we did not repurchase any outstandingcommon stock under the share repurchase program. All shares of common stock held in treasury were retired as of December31, 2017.In February 2018, the Company’s Board of Directors authorized the expansion of the repurchase program providingapproval for the Company to repurchase up to $20 million in Control4 common stock from time to time on the open marketAny shares repurchased will be in compliance with applicable legal requirements, at prices determined to be attractive and inthe best interests of both the company and its stockholders. Securities Authorized for Issuance under Equity Compensation Plans See Part III, Item 12 of this Form 10-K for disclosure relating to our equity compensation plans. Such informationwill be included in our proxy statement relating to our 2018 annual meeting of stockholders, which is incorporated herein byreference.37 Table of Contents ITEM 6. Selected Financial Data We have derived the selected consolidated statements of operations data for the years ended December 31, 2017,2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 from our auditedconsolidated financial statements and related notes included elsewhere in this Form 10-K. We have derived the selectedconsolidated statements of operations data for the years ended December 31, 2014 and 2013 and the selected consolidatedbalance sheet data as of December 31, 2015, 2014 and 2013 from our audited consolidated financial statements not includedin this Form 10-K. The following selected consolidated financial data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements andrelated notes included elsewhere in this Form 10-K. Our historical results are not necessarily indicative of the results to beexpected for any future period and the results for any interim period are not necessarily indicative of the results to beexpected in the full year. Years Ended December 31, 2017 2016 2015 2014 2013 (In thousands, except per share data) Consolidated Statements of Operations Data: Revenue $244,725 $208,802 $163,179 $148,800 $128,511 Cost of revenue 120,230 105,123 81,645 72,443 64,234 Cost of revenue—inventory purchase commitment — — — — (380) Gross margin 124,495 103,679 81,534 76,357 64,657 Operating expenses: Research and development 40,638 35,985 32,385 27,365 24,979 Sales and marketing 47,825 42,198 32,594 25,887 21,975 General and administrative 21,926 20,309 17,355 14,195 12,329 Litigation settlement — 475 21 47 440 Total operating expenses 110,389 98,967 82,355 67,494 59,723 Income (loss) from operations 14,106 4,712 (821) 8,863 4,934 Interest and other expense, net 331 (542) (563) (296) (1,183) Income (loss) before income taxes 14,437 4,170 (1,384) 8,567 3,751 Income tax expense (benefit) (1,542) (8,784) 268 411 248 Net income (loss) $15,979 $12,954 $(1,652) $8,156 $3,503 Net income (loss) per common share: Basic $0.64 $0.55 $(0.07) $0.34 $0.33 Diluted $0.60 $0.53 $(0.07) $0.32 $0.16 Non-GAAP Financial Measures In addition to our GAAP operating results, we use certain non-GAAP financial measures to understand and evaluateour operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-termoperational plans. These measures, which we refer to as our non-GAAP financial measures, are not prepared in accordancewith generally accepted accounting principles in the United States. Non-GAAP gross margin, non-GAAP income fromoperations, non-GAAP net income, and non-GAAP net income per share exclude non-cash expenses related to stock-basedcompensation, amortization of intangible assets, acquisition-related costs, as well as gains or losses on inventory purchasecommitments. We further exclude expenses related to litigation settlements and executive severance from non-GAAP incomefrom operations and non-GAAP net income as well as expenses related to stock warrants from non-GAAP net income. Management believes that it is useful to exclude non-cash stock-based compensation expense because the amountof such expense in any specific period may not directly correlate to the underlying performance of our business operations.We believe it is useful to exclude gains or losses on inventory purchase commitments because it is income or expense thatarose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not usedue to our decision to discontinue our energy product line for utility customers. We have not recognized that type of incomeor expense in periods other than 2013 and 2012, and we believe that past and future periods are more comparable if weexclude that income or expense. We exclude the amortization of acquired intangible assets from non-GAAP measures. These amounts areinconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Providing asupplemental38 Table of Contentsmeasure that excludes these charges allows management and investors to evaluate results “as-if” the acquired intangibleassets had been developed internally rather than acquired. Although we exclude amortization of acquired intangible assetsfrom non-GAAP measures, we believe that it is important for investors to understand that such intangible assets contribute torevenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until suchintangible assets have been fully amortized. Future acquisitions may result in the amortization of additional intangibleassets. We have recently completed acquisitions which resulted in operating expenses that would not have otherwise beenincurred. Management has provided supplementary non-GAAP financial measures, which exclude acquisition-relatedexpense items resulting from acquisitions, to allow more accurate comparisons of the financial results to historicaloperations, forward-looking guidance and the financial results of less acquisitive peer companies. Management considersthese types of costs and adjustments, to a great extent, to be unpredictable and dependent on a significant number of factorsthat are outside of our control. Furthermore, we do not consider these acquisition-related costs and adjustments to be relatedto the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating thelong-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, whichoften drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and/or volume of futureacquisitions. By excluding acquisition-related costs and adjustments from our non-GAAP measures, management is betterable to evaluate our ability to utilize its existing assets and estimate the long-term value that acquired assets will generate forus. We believe that providing a supplemental non-GAAP measure which excludes these items allows management andinvestors to consider the ongoing operations of the business both with, and without, such expenses. These acquisition-related costs are included in the following categories: (i) professional service fees, recorded inoperating expenses, which include third party costs related to the acquisition, and legal and other professional service feesassociated with diligence, entity formation and corporate structuring, disputes and regulatory matters related to acquiredentities, (ii) transition and integration costs, recorded in operating expenses, which include retention payments, transitionalemployee costs, earn-out payments treated as compensation expense, as well as the costs of integration-related servicesprovided by third parties, and (iii) acquisition-related adjustments which include adjustments to acquisition-related itemssuch as being required to record inventory at its fair value, resulting in a step-up in the inventory value, and having to reversepart of our valuation allowance in order to offset the deferred tax liability that was recorded based on differences between thebook and tax basis of assets acquired and liabilities assumed. The step-up in inventory is recorded through cost of goodssold when the inventory is sold, resulting in a negative impact to our gross margin. Although these expenses are not recurringwith respect to past acquisitions, we will generally incur these types of expenses in connection with any future acquisitions. Furthermore, we believe it is useful to exclude expenses related to litigation settlements, stock warrants, andexecutive severance because of the variable and unpredictable nature of these expenses which are not indicative of past orfuture operating performance. We believe that past and future periods are more comparable if we exclude those expenses. Our non-GAAP results also exclude the one-time financial impact of the Tax Act as well as adjustments to deferredtax assets resulting from a non-cash write-off on an intra-entity transfer of intangible assets. This is consistent with ourpractice of excluding large, one-time items in non-GAAP results. We believe these adjustments provide useful comparative information to investors. Non-GAAP results are presentedfor supplemental informational purposes only for understanding our operating results. The non-GAAP results should not beconsidered a substitute for financial information presented in accordance with generally accepted accounting principles, andmay be different from non-GAAP measures used by other companies. Our non-GAAP financial measures may not provideinformation that is directly comparable to that provided by other companies in our industry, as other companies in ourindustry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. We urgeour investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measuresincluded below, and not to rely on any single financial measure to evaluate our business. 39 Table of Contents Years Ended December 31, 2017 2016 2015 2014 2013 (in thousands, except percentages and per share data) Reconciliation of Gross Margin to Non-GAAP Gross Margin: Gross margin $124,495 $103,679 $81,534 $76,357 $64,657 Stock-based compensation expense in cost of revenue 251 171 174 105 63 Amortization of intangible assets in cost of revenue 3,164 3,052 1,392 491 319 Acquisition-related costs in cost of revenue 228 2,162 294 — — Cost of revenue—inventory purchase commitment — — — — (380) Non-GAAP gross margin $128,138 $109,064 $83,394 $76,953 $64,659 Revenue $244,725 $208,802 $163,179 $148,800 $128,511 Gross margin percentage 50.9% 49.7% 50.0% 51.3% 50.3%Non-GAAP gross margin percentage 52.4% 52.2% 51.1% 51.7% 50.3%Reconciliation of Income (Loss) From Operations to Non-GAAPIncome (Loss) From Operations: Income (loss) from operations $14,106 $4,712 $(821) $8,863 $4,934 Stock-based compensation expense 12,105 8,370 7,034 5,341 3,760 Amortization of intangible assets 5,212 4,598 1,474 491 319 Acquisition-related costs 535 3,451 1,393 — — Cost of revenue—inventory purchase commitment — — — — (380) Litigation settlement — 475 21 47 440 Executive severance — 157 — — 340 Non-GAAP income (loss) from operations $31,958 $21,763 $9,101 $14,742 $9,413 Revenue $244,725 $208,802 $163,179 $148,800 $128,511 Operating margin percentage 5.8% 2.3% (0.5)% 6.0% 3.8%Non-GAAP operating margin percentage 13.1% 10.4% 5.6% 9.9% 7.3%Reconciliation of Net Income (Loss) to Non-GAAP Net Income(Loss): Net income (loss) $15,979 $12,954 $(1,652) $8,156 $3,503 Stock-based compensation expense 12,105 8,370 7,034 5,341 3,760 Amortization of intangible assets 5,212 4,598 1,474 491 319 Acquisition-related costs (1,722) (5,911) 1,393 — — Cost of revenue—inventory purchase commitment — — — — (380) Litigation settlement — 475 21 47 440 Convertible preferred stock warrant — — — — 709 Executive severance — 157 — — 340 Impact of the Tax Act (223) — — — — Deferred income tax asset adjustment 767 — — — — Non-GAAP net income (loss) $32,118 $20,643 $8,270 $14,035 $8,691 Reconciliation of Net Income (Loss) per Share to Non-GAAP NetIncome (Loss) per Share: Basic net income (loss) per share $0.64 $0.55 $(0.07) $0.34 $0.33 Stock-based compensation expense 0.49 0.36 0.29 0.23 0.36 Amortization of intangible assets 0.21 0.20 0.06 0.02 0.03 Acquisition-related costs (0.07) (0.25) 0.06 — — Cost of revenue—inventory purchase commitment — — — — (0.04) Litigation settlement — 0.02 — — 0.04 Convertible preferred stock warrant — — — — 0.07 Executive severance — — — — 0.03 Impact of the Tax Act (0.01) — — — — Deferred income tax asset adjustment 0.03 — — — — Non-GAAP basic net income (loss) per share $1.29 $0.88 $0.34 $0.59 $0.82 Diluted net income (loss) per share $0.60 $0.53 $(0.07) $0.32 $0.16 Stock-based compensation expense 0.45 0.35 0.28 0.21 0.17 Amortization of intangible assets 0.19 0.19 0.06 0.02 0.01 Acquisition-related costs (0.06) (0.24) 0.06 — — Cost of revenue—inventory purchase commitment — — — — (0.02) Litigation settlement — 0.02 — — 0.02 Convertible preferred stock warrant — — — — 0.03 Executive severance — — — — 0.02 Impact of the Tax Act (0.01) — — — — Deferred income tax asset adjustment 0.03 — — — — Non-GAAP diluted net income (loss) per share $1.20 $0.85 $0.33 $0.55 $0.39 Weighted-average number of shares: Basic 24,803 23,402 24,121 23,685 10,609 Diluted 26,775 24,360 25,041 25,646 22,263 (1) Excludes the calculated effect of non-GAAP adjustments on income tax expense of $1.4 million for the year ended December 31, 2017. 40 (1)(1)(1)Table of ContentsConsolidated Balance Sheet Data The following table sets forth our selected consolidated balance sheet data as of the dates presented: December 31, 2017 2016 2015 2014 2013 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $29,761 $34,813 $29,530 $29,187 $84,546 Investments, net 56,254 27,128 51,477 68,032 — Property and equipment, net 7,337 6,463 6,584 5,089 3,943 Working capital, excluding deferred revenue 109,067 86,728 88,411 98,782 95,422 Total assets 214,455 165,058 141,863 142,030 122,686 Long-term debt, including current portion — — 913 1,828 2,966 Total stockholders’ equity 174,773 136,882 115,445 118,302 98,474 (1) Includes accrued investment balances not included in the investments line items on the consolidated balance sheet. 41 (1)Table of Contents ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the various sections in our Management’s Discussion and Analysis of Financial Condition andResults of Operations (MD&A) in conjunction with our consolidated financial statements and the notes thereto includedelsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflectour plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-lookingstatements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in thisAnnual Report on Form 10-K, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and the “RiskFactors” section. Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assistreaders in understanding our operations, financial condition and cash flows. MD&A is organized as follows: ·Overview. Discussion of our business and overall analysis of financial and other highlights affecting ourbusiness in order to provide context for the remainder of MD&A. ·Factors and Trends Affecting our Performance. A summary of certain market factors and trends that we believeare important to our business which we must successfully address in order to continue to grow our business. ·Key Operating and Financial Metrics. Key operating and financial metrics that we use to evaluate and manageour business. ·Results of Operations. An analysis of our financial results comparing 2017 to 2016 and comparing 2016 to2015. ·Quarterly Results of Operations and Other Data. An analysis of our quarterly results of operations for each ofthe quarters in the two-year period ended December 31, 2017. ·Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows, and discussionof our financial condition and potential sources of liquidity. ·Contractual Obligations and Off-Balance Sheet Arrangements. Overview of contractual obligations,contingent liabilities, commitments and off-balance sheet arrangements outstanding as of December 31, 2017,including expected payment schedule. ·Critical Accounting Estimates. Accounting estimates that we believe are most important to understanding theassumptions and judgments incorporated in our reported financial results and forecasts. Overview Control4 is a leading provider of smart home and business solutions that are designed to personalize and enhancehow consumers engage with an ever-changing connected world. Our entertainment, smart lighting, comfort and convenience,safety and security, and networking solutions unlock the potential of connected devices, making entertainment systemseasier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals more secure.Our premium smart home and small business solutions provide consumers with the ability to integrate audio, video, lighting,temperature, security, communications, network management and other functionalities into a unified automation solution,customized to match their lifestyles and business needs. Our advanced software, delivered through our controller products,cloud services and user-interface products, power this customized experience, enabling cohesive interoperability withthousands of connected Control4 and third-party devices. Consumers purchase our smart solutions from our worldwide network of certified independent dealers, regional andnational retailers and distributors. These dealers, retailers and distributors design and install customized solutions to fit thespecific needs of each consumer, whether it is a one-room home theater set-up or a whole-home automation system thatfeatures the integration of audio, video, lighting, temperature, security, network management and communications devices.Our products are installed in both new and existing residences, multi-dwelling units and small commercial facilities. We referto revenue from sales of our products through these dealers, retailers and distributors as our Core revenue (“Core revenue”). Inaddition, a portion of our revenue is attributable to sales in the hospitality industry, primarily related to products installed inhotels, which is excluded from our calculation of Core revenue as well as certain specialty display products and associatedinstallation sales in Australia. Our revenue from sales to hotels is generally project-based and has been significant in some42 Table of Contentsperiods and insignificant in other periods. In the future, we expect revenue from hospitality to continue to be project-basedand uneven from period to period. During the year ended December 31, 2017, over 4,220 active direct dealers wereauthorized to sell and install the full Control4 line of products in the United States, Canada, the United Kingdom, Australia,China, Germany and 50 other countries, and 33 distributors were authorized to cover an additional 45 countries where we donot have direct dealer relationships. These distributors sell our solutions through dealers and provide warehousing, training,technical support, and billing for dealers in each of those countries. We have an additional 1,070 active dealers and 17distributors that are currently authorized to sell only our Pakedge and Triad line of products. We derive the majority of our revenue from the sale of products that contain our proprietary software, whichfunctions as the operating system of the home. We also generate revenue from the sale of annual subscriptions to our 4Sightsubscription service, which allows consumers to personalize their automation system through simple homeowner directedprogramming, referred to as “When >> Then” automation; remotely access, backup, and control their smart home solutionsfrom their mobile devices; receive e-mail and “push notification” alerts regarding activities in their home; and enableAmazon Alexa voice services. We were founded in 2003 and began shipping our products and generating revenue in 2005. Our revenue growthrates for the last five complete calendar years are shown in the following table (dollars in millions): For the Years Ended December 31, 2017 2016 2015 2014 2013 Core revenue $239.3 $203.9 $160.7 $144.7 $126.4 Core revenue growth over prior year 17% 27% 11% 14% 20% Other revenue $5.4 $4.9 $2.5 $4.1 $2.1 Other revenue changes over prior year 10% 96% -39% 95% -46% Total revenue $244.7 $208.8 $163.2 $148.8 $128.5 Total revenue growth over prior year 17% 28% 10% 16% 17% Over the past five years, we have experienced double-digit annual growth in Core revenue. Our Core revenue growthduring that period has been the result of a combination of the net addition of new independent dealers and distributors to oursales channels, an increase in revenue from our existing network of independent dealers and distributors, and the addition ofnew products developed internally and acquired through business combinations. We believe our ability to grow our coresales channel has been enhanced through product innovation, expansion of our product offerings and helping ourindependent dealers and distributors grow their business.Recent DevelopmentsSome recent developments that we believe may enhance our offerings and help drive growth include, but are notlimited to, the following:·Introduced our new CA-1 controller, an entry level controller for projects that only need lighting, temperaturecontrol, and security integration, and do not require additional entertainment features found in our EA series ofcontrollers.·Launched an extensive line of Triad high-resolution multi-room audio products featuring a single-zonestreaming amplifier, a power amplifier, and two audio matrix switches, designed to deliver high-resolutionaudio in every corner of the home, from the source to the listener’s ears;·Released OS 2.10, featuring expanded music service integrations with iHeartRadio, Sirius XM, and Spotifysupported by our EA Controllers;·Released an updated version of 4Sight which includes a new homeowner customization functionality called“When >> Then” automation;·Launched the Pakedge WR-1 wireless router with BakPak Lite, a high-performance integrated network routerand wireless access point with built-in cloud-based network management. Designed for small homes andsimpler smart home installations, this wireless router provides reliable, affordable wired and wirelessnetworking;43 Table of Contents·Launched the Pakedge Certified Network Administrator (“PCNA”) program. PCNA is a training experience thatemploys a unique blend of comprehensive online coursework with hands-on practical learning using Pakedgenetworking gear to provide dealers and technicians the networking knowledge they need to design, install, andmanage wired and wireless IP networks;·Launched the new Triad Garden Array outdoor speakers, a family of all-weather, landscape speakers thatinclude a premium satellite speaker and subwoofer designed to be placed throughout flower beds or around theyard to blanket outdoor spaces with rich, beautiful audio;·Launched the new Pakedge PowerPak family of power control devices that provide centralized power controland management with surge protection for all equipment in a connected home. Dealers can use the BakPakenabled PowerPak power distribution units (“PDUs”) to monitor and manage their entire customer base in asingle interface; and,·Integrated the latest release of our BakPak management software on the Pakedge RK-1 Router enabling ourindependent dealer network to offer more homeowners the benefits of a monitored, intelligent home network.While our historical revenue growth has been primarily organic, we have completed several recent acquisitions thatwe believe enhance our product offerings and position us for continued growth in the future. Recent acquisitions oftechnology and distribution-related business are as follows: ·In December 2017, we acquired the intellectual property and key operating assets of ihiji, a leading provider ofremote management services for technical integrators servicing connected home customers. By combining twoindustry-leading network and device management solutions, BakPak from Control4 and invision from ihiji,into one unified service platform, Control4 will provide thousands of professional integrators with powerfuldevice monitoring and management capability to efficiently and proactively support their connected-homecustomers.·In February 2017, we acquired Triad, a leader in advanced audio technology with best-in-class, customizablespeaker solutions. Entertainment is integral to the connected home and the acquisition of Triad bringspremium-acoustics experience and innovation to Control4, enhancing our entertainment offering and enablingthe future development of new integrated-audio experiences;·In April 2016, we transitioned from a two-tier distribution model to direct-to-dealer in Australia, and as part ofthis process, acquired customer lists and inventory of the former distributor; and·In January 2016, we acquired Pakedge, a developer and manufacturer of networking products, powerdistribution and management solutions, as well as cloud network-managed services for both wireless and wirednetworking solutions in the connected home and business. The Pakedge acquisition contributed a deepnetworking expertise, innovative technologies, and a sophisticated suite of networking products and richsoftware capability to our business.Adoption by the Control4 dealer network of Triad products continues to steadily expand with 2,027 dealers, or 38%of our active dealers, ordering Triad during 2017. We continue to invest in and grow the Pakedge networking product category. A total of 3,215 dealers, or 61% ofour active dealers, have purchased Pakedge networking products during 2017. As mentioned above, adding to our industryleading networking product lineup, we recently announced our new WR-1 wireless router with an MSRP of $300, whichbroadens the selling opportunity for our dealers. We have successfully integrated each of our recent acquisitions and ourchannel is actively selling these new products, which enhance our core solution categories and help sustain our targetorganic growth rate. Historically, we have experienced seasonal variations in our revenue as a result of holiday-related factors that arecommon in our industry. Our revenue is generally highest in the fourth quarter due to consumers’ desires to complete theirhome installations prior to the holiday season. We generally see decreased sales in the first quarter due to seasonal purchasetendencies of consumers as well as the impact of winter weather on new construction and travel in certain geographies. Inaddition, our year-over-year revenue growth on a quarterly basis is not always linear for a variety of reasons including: thetiming of new product releases, the use of marketing programs to accelerate intra-quarter sales of certain products or productfamilies, the impact of foreign currency fluctuations, and the impact of general regional economic conditions on consumer44 Table of Contentsbuying decisions and harsh weather that delayed or canceled building projects. We generally expect these seasonal and othertrends to continue in the future, which may cause quarterly fluctuations in our results of operations and certain financialmetrics. Factors and Trends Affecting Our Performance A number of industry trends have facilitated our growth over the past several years, including the proliferation ofconnected devices and the constant growth of network-enabled homes and businesses. From smartphones to smart watches tosmart cars, technology is transforming nearly every aspect of our lives, streamlining daily routines and providing quick, easyaccess to the capabilities and content we want most. Not only are new technologies providing convenience on-the-go, butthey are becoming increasingly accessible. Voice services are a recent example of an emerging technology in our connectedworld, and our integration with Amazon Alexa helps keep us at the forefront of our industry in our adoption of voiceactivated solutions. We remain committed to embracing emerging technologies through our open platform and broadecosystem. Our open platform makes it easy for a broad community of original equipment manufacturer partners to participatein our smart home ecosystem, which includes over 11,000 drivers and more than 2,900 SDDP-enabled products. For example,LG recently announced that its new lines of OLED and Super UHD TVs would feature SDDP, and Samsung announced theincorporation of SDDP software into its new 4K television line-up and Blu-ray Player products. We believe that these andother companies are increasingly recognizing the value of including SDDP with their new releases to simplify integrationof their products into Control4 installations. Our broad ecosystem, which includes audio, video, lighting, temperature,network, security and communication device categories, gives consumers flexibility to integrate nearly any connectabledevice into their smart home. In addition, our partners are constantly contributing new device integrations. As such, ourdynamic ecosystem remains current with the latest product innovations and allows our smart home platform to growalongside emerging technologies to meet our consumers’ changing needs and preferences. We believe that our open platformand the resulting ecosystem is a key competitive advantage that will continue to facilitate our growth. Our products leverage both wired and wireless technologies and are designed to be installed in both newconstruction and existing homes. We expect that future increases in both new home construction and existing homerenovations will have a positive impact on our revenue. In new home construction, we continue to engage builders tointroduce entry- to mid-level Control4 systems as a standard feature in new home projects, and we believe that the release ofour new CA-1 controller at the lowest price point of any Control4 controller will help with adoption of control in these typesof projects. We further believe home automation is increasingly becoming a higher priority for home buyers, and this is oneof the reasons for our investment in national and regional builder programs. We believe that the growth of our business and our future success are dependent upon many factors, including therates at which consumers adopt our products and services, our commitment to growing the awareness of our brands, ourability to optimize and expand our dealer and distributor network, our ability to expand internationally, our ability to meetcompetitive challenges, and our ability to respond to worldwide economic events. While each of these areas presentssignificant opportunities for us, they also pose important challenges that we must successfully address to sustain or expandthe growth of our business and improve our results of operations. These challenges include:·Increasing Adoption Rates of Our Products and Services. We are focused on increasing adoption rates of ourproducts and services through enhancements to our software platform and product offerings. We intend toaccomplish these enhancements through both continued investments in research and development activitiesand acquisitions of complementary businesses and technologies.·Growing Our Leadership Position in the Industry. We are committed to growing awareness of the Control4,Pakedge, and Triad brands among our dealers, distributors and partners. We believe that our investments increating brand awareness in the industry have contributed to dealer recruitment, product adoption, and revenuegrowth. We are proud of the many awards we received from various industry groups and dealer consortiums,formally recognizing our commitment to excellence. Our recent awards include:oThree Techhome Mark of Excellence Awards at the Consumer Electronics Show in January 2018: 1)Best Audio Amplification Product of the Year for Control4’s new Triad One Streaming Amplifier, 2)Best Automation Device of the Year for Control4’s new OS 2.10 with “When >> Then” ThenPersonalization, and 3) Best Education or Support Program of the Year of Control4’s new PakedgeCertified Network Administrator Online Training Curriculum;45 Table of ContentsoTwo “Best of Show” Awards at the CEDIA Expo tradeshow in 2017 for Control4 “When >> Then”automation and the Pakedge WR-1 Wireless Router + BakPak Lite;oAn EXC!TE Award at the CEDIA Expo tradeshow in 2017 for our Triad Designer Series Speakers andour Pakedge PowerPak PDU; oA BEST Award from CE Pro, a leading trade magazine for technology professionals, at CEDIA 2017 forour Triad Designer Series Speakers.;oTop Whole-Home Automation brand for Control4 and top networking brand for Pakedge by the “2017CE Pro 100 Brand Analysis” report. This is the third year in a row that Control4 was recognized as thetop Whole-Home Automation brand and the fifth year in a row that Pakedge has been named the topbrand for home networking.o2017 Custom Integration Vendor of the Year by ProSource Buying Group for the third consecutiveyear.·Accelerating and Enhancing Consumer Lead Generation. We determined that there is an opportunity for us toplay a more active role in generating and following up on leads received from our marketing efforts. Therefore,we are continuing to invest in inside sales representatives to qualify inbound inquiries and direct them toqualified independent dealers. Our enhanced lead generation strategies have increased consultations, bids andproject installations. Through the continual optimization of our marketing efforts, coupled with our new insideresources to qualify inbound leads, we believe we can improve lead conversion rates and increase the amount ofrevenue per lead. ·Optimizing and Expanding Our North America Dealer Network. We intend to continue to optimize theperformance of and expand our network of dealers in North America to ensure that we have geographiccoverage and technical expertise to address our existing markets and new markets into which we plan toexpand. We continue to work with all appropriately qualified dealers to explore home control, networkingproducts, and speaker lines, and we continue to cross-train and cross-certify dealers in accordance with ourexisting standards of technical proficiency and business practices. ·Expanding our International Dealer and Distributor Network. We believe that our future growth will dependin part on our ability to expand our dealer and distributor network outside of North America, to adapt ourproducts and services to foreign markets, and to increase awareness of our brands internationally. We continueto add field sales and service personnel to assist in the optimization of our international channels. We havetransitioned to a direct-to-dealer model in specific international regions, namely in the United Kingdom, China,Germany and Australia, and we will continue to evaluate opportunities in other countries. Furthermore, werecently opened international training centers in Germany and Australia to help support the transition to adirect-to-dealer model. ·Managing Competition. The market for home automation is fragmented, highly competitive and continuallyevolving. In addition to competing with traditional players in the luxury segment of the home automationmarket, including Crestron, Elan, and Savant, a number of large technology companies such as Amazon, Apple,Google, and Samsung offer device control capabilities within some of their own products, applications andservices, and are engaged in ongoing efforts to address the broader home automation market. In addition,managed service companies such as ADT, Alarm.com, Comcast, and Vivint, have broadened their serviceofferings to include control of devices such as door locks, lights, and cameras. Our ability to compete in thegrowing home automation market over the next several years will be a key factor in our ability to continue togrow our business and meet or exceed our future expectations. 46 Table of ContentsKey Operating and Financial Metrics We use the following key operating and financial metrics to evaluate and manage our business. North America Direct Dealers Years Ended December 31, 2017 2016 2015 Authorized dealers at the beginning of the period 2,994 2,787 2,676 Additions 308 371 350 Terminations (128) (164) (239) Authorized dealers at the end of the period 3,174 2,994 2,787 Number of active dealers 3,057 2,913 2,748 Active dealers as a % of authorized dealers 96% 97% 99% International Direct Dealers Years Ended December 31, 2017 2016 2015 Authorized dealers at the beginning of the period 1,147 901 787 Additions 235 319 227 Terminations (67) (73) (113) Authorized dealers at the end of the period 1,315 1,147 901 Number of active dealers 1,169 1,050 816 Active dealers as a % of authorized dealers 89% 92% 91% Years Ended December 31, 2017 2016 2015 Number of controllers sold 104,320 104,225 73,207 Core revenue growth 17% 27% 11%International Core revenue as a percentage of total revenue 21% 20% 23%(1)These dealer figures only include dealers authorized to sell and install the full Control4 line of products and exclude the1,070 dealers that are currently authorized to sell only the Pakedge and Triad line of products.(2)An “active dealer” is an authorized dealer that has placed an order with us in the trailing 12-month period.(3)The figures for year ended December 31, 2017, include 100 dealers that were acquired as part of the direct-to-dealertransition in Australia. Number of North America and Direct International Dealers Because our dealers promote, sell, install and support our products, a broader dealer network allows us to reach morepotential consumers across more geographic regions. We expect our dealer network to continue to grow, both in NorthAmerica and internationally. While we have historically focused on dealers affiliated with CEDIA, we believe there is anopportunity to establish relationships with dealers outside of CEDIA, including non-traditional A/V dealers, electricalcontractors, and security system installers. Strengthening our worldwide dealer channel through business and installation tools, education programs, and newdealer recruitment remains an ongoing priority. Much of our focus in 2017 has been on the successful introduction of newproducts to our channel, including both the Triad and Pakedge brands. Our sales team will focus over the next few quarterson adding more new dealers, both traditional A/V dealers as well as dealers who historically have focused on IT, security,electrical, or HVAC offerings. Our goal is to continuously increase our dealers’ productivity and growth. Enabling ourdealers to increase productivity will ultimately drive our revenue growth. 47 (1)(2)(2)(1)(3)(2)(2)Table of ContentsIn conjunction with the broad availability of our newest generation products and software, we intend to morecomprehensively review each of our current dealers with regard to their ability to successfully market, sell and install ourcurrent solutions. Part of developing a productive, capable dealer network, requires us to regularly review individual dealerperformance and as necessary, terminate dealer licenses where volume, technical training and performance requirements arenot fulfilled. We view this as a healthy part of growing our dealer channel worldwide. As a result of our traditional efforts to expand our channel, the number of active international dealers increased 11%and 29% for the years ended December 31, 2017 and 2016, respectively, compared to an increase of 5% and 6% respectively,in the number of active North American direct dealers during the same periods. Generally, the growth percentageinternationally is higher because our presence in these markets is less mature and our base of dealers is much lower than theNorth American market. Much of this growth in our international dealer network is attributed to new dealer additions inChina, Germany and Australia. We plan to continue to monitor markets that are currently served by a single distributor and,when business conditions are favorable, we may decide to establish direct relationships with selected dealers in these regions,which we expect would further increase our number of direct international dealers.While we believe that we will continue to have significant international opportunities, it is difficult to anticipate theexact timing and amount of growth, particularly in new and emerging markets. Such challenges may cause our growth rate tobe slower than anticipated, offsetting our efforts to expand into these emerging geographies. Examples of challenges we mustaddress in order to continue our international expansion include divergent regional and local economic and political trendsin Latin America, particularly relating to new home construction and strengthening of the U.S. dollar versus certain localcurrencies, and the June 2016 vote in the UK to exit the European Union. In response to a weakening Canadian dollar,starting in February 2016, we announced to our dealer network in Canada that we now offer the ability to order and pay forproducts in Canadian dollars versus U.S. dollars. We believe this offering will help to strengthen our long-term results inCanada while eliminating the margin and quoting uncertainty associated with volatility in foreign exchange rates for ourdealers. We experienced a recovery in Canada which contributed to an increase in Canadian revenue of 29% and 13% in2017 and 2016, respectively. Number of Controllers Sold Our controllers contain our proprietary software and provide consumers with the essential technology to enablehome control, automation and personalization. The number of controllers we sell in a given period provides us with anindication of consumer adoption of our technology, though a variety of other factors may also impact controller salesvariability from period to period. Our sales of controllers also create significant opportunity to sell our other products andservices. Once a consumer has deployed our controller, we believe that the consumer is more likely to remain committed toour technology platform and purchase more of our products, applications and services in the future. In January 2016, we introduced a new line of entertainment and automation controllers, the EA Series. With threeseparate models, our EA Series is designed and priced for projects ranging from a single-room to an entire home or estate. Asa result of the launch, we saw a significant increase in controller sales. Although end customer adoption, sell-through, andoverall revenue growth for the new controllers continues to be strong, the increase in 2016 was due in part to initialpurchases by dealers for their showrooms. During the year ended December 31, 2017, we sold 104,320 controllers, compared to 104,225 and 73,207controllers sold in the same periods in 2016 and 2015, respectively. Controller sales remained flat for the year endedDecember 31, 2017 compared to 2016. This compares to our overall growth in revenue of 17% during the same period. Webelieve severe weather during the second half of 2017 in Florida, Texas and portions of the Central United States. delayedmany projects, which in turn temporarily impacted controller order rates in those regions. Additionally, we launched our EA-Series Controllers in February of 2016, and 2016 likely benefited from one-time, discounted dealer showroom demo salestypical of new product introductions, creating a difficult year-over-year comparison for unit sales in the year ended December31, 2017. Core Revenue Growth The majority of our revenue comes from sales of our products through our distribution channels comprised ofindependent dealers in the United States and Canada, and independent dealers and distributors located throughout the rest ofthe world. We refer to revenue attributable to sales through dealers located in the United States and Canada as “NorthAmerica Core revenue”, and revenue attributable to sales through dealers and distributors located throughout the rest of theworld as “International Core revenue.” Core revenue does not include revenue from sales to hotels or certain specialtydisplay products48 Table of Contentsand associated installation sales in Australia. International Revenue as a Percentage of Total Revenue We believe that the international market represents a large and underpenetrated opportunity for us. We haveestablished or acquired sales support offices in the United Kingdom, Australia, Germany, China, and India. We have formedrelationships with independent international dealers and distributors, and we have expanded foreign language support forour solutions. We track international revenue as a percentage of total revenue as a key measure of our success in expandingour business internationally. Results of Operations Revenue The following is a breakdown of our revenue between North America and International Core revenue and otherrevenue: Years Ended December 31, 2017 2016 2015 (in thousands) North America Core Revenue $187,283 $162,037 $123,431 International Core Revenue 52,034 41,890 37,275 Other Revenue 5,408 4,875 2,473 Total Revenue $244,725 $208,802 $163,179 North America Core Revenue as a % of Total Revenue 77% 78% 76% International Core Revenue as a % of Total Revenue 21% 20% 23% 2017 Compared to 2016. North America Core revenue increased $25.2 million, or 16%, in 2017 compared to 2016.International Core revenue increased $10.1 million, or 24%, in 2017. Revenue growth in both North America and International Core revenue was driven by a variety of factors includingcontributions from each of our product brands, channel expansion from acquired products (Pakedge and Triad) sold toexisting dealers and distributors, and growth in the majority of our global sales territories. Revenue from Triad was $12.6million for the period from the February 28, 2017 acquisition date to December 31, 2017. Our total revenue without Triadwas $232.1 million for the year ended December 31, 2017, representing organic year-over-year growth of 11%. Our international sales model includes both direct-to-dealer and distribution models. In targeted internationalregions and countries, we generally invest in some combination of local technical support, training personnel and facilities,warehousing and fulfillment, and sales support personnel. We have made these types of investments in the regions servicedby our offices in the United Kingdom, Germany, Australia, China, and India and these are markets where we see our greatestopportunity for international growth and expansion. The following table further breaks out our International Core revenue and illustrates the relative revenue growth weare experiencing in the regions serviced by our offices in the United Kingdom, Germany, Australia, China, and Indiacompared to other international regions. Years Ended December 31, 2017 2016 2015 (in thousands) Targeted International Regions 41,575 32,783 26,726 Other International Regions 10,459 9,107 10,549 Total International Core Revenue $52,034 $41,890 37,275 (1) Serviced by our offices in the United Kingdom, Germany, Australia, China, and India. 49 (1)Table of Contents International Core revenue in the regions serviced by our offices in the United Kingdom, Germany, Australia, Chinaand India grew 27% in 2017 compared to 2016, while International Core revenue in the other international regions increased15% during the same period. Improvements in general economic conditions in many of our other international markets hascontributed to improvements in our growth rates compared to 2016. We continue to make investments internationally to improve our dealers’ ability to sell and install our products andbelieve that these investments will enable us to grow our key international markets. Notwithstanding the foregoing, we sellbroadly throughout the world and we believe that regional, adverse international economic conditions may create challengesand slow growth in certain geographies. 2016 Compared to 2015. North America Core revenue increased $38.6 million, or 31%, in 2016 compared to 2015.International Core revenue increased $4.6 million, or 12%, in 2016. The acquisition of Pakedge on January 29, 2016 partially contributed to this growth. We also experienced anincrease in the number of dealers and distributors selling our products and services, resulting in an increase in the number ofsystem sales, as well as revenue growth from the release of several new products including our EA Series controllers. Other revenue increased $2.4 million, or 97%, in 2016 compared to 2015, primarily related to sales in thehospitality industry, which is project-based and has been, and will continue to be, uneven from period to period. Gross Margin As a percentage of revenue, our gross margin has been, and will continue to be, affected by a variety of factors. Ourgross margin is relatively consistent across our products. Our gross margin on third-party products that we sell through ouronline distribution platform is higher than our gross margin on our other product sales because we only recognize our netprofit on these sales as revenue. While software licensing and subscription revenue is not material for all periods presented,our gross margin is higher on software licensing and subscription revenue than it is on product sales. Our gross margin is alsohigher on our sales made directly through dealers than it is on our sales made through distributors. Gross margin may benegatively affected by price competition in our target markets and associated promotional or volume incentive rebatesoffered to our independent dealers and distributors. In addition, in conjunction with our acquisitions of Triad, Pakedge and Nexus, we were required to record acquiredinventory at fair value, as determined under ASC 805, Business Combinations, resulting in a step-up in the inventory value.Such step-up is recorded through cost of goods sold when the specific inventory is sold, resulting in a negative impact to ourgross margin. Also, cost of goods sold includes ongoing, periodic amortization of the acquired technology. Gross margin for the years ended December 31, 2017, 2016, and 2015 was as follows (in thousands, exceptpercentages): Years Ended December 31, 2017 2016 2015 Gross margin $124,495 $103,679 $81,534 Percentage of revenue 50.9% 49.7% 50.0% 2017 Compared to 2016. As a percentage of revenue, our gross margin was 50.9% in 2017 compared to 49.7% in2016. The increase in gross margin was due primarily to the amount of step-up in Pakedge inventory that was recorded in2016 compared to 2017. Other factors include manufacturing rebates received in 2017 as well as reductions in volumeincentive rebates and discounts. The negative effect on gross margin percentage resulting from the step-up in purchased inventory carrying valueimpacted our results of operations for 2017, as it relates to Pakedge and Triad, and our results for 2016 as it relates toPakedge. The introduction of new products generally has a negative impact on gross margins as we offer discounted pricing toour dealers for demo units placed in their showrooms. Our sales in Europe, Australia and Canada are generally priced in the pound sterling or the euro, the Australiandollar50 Table of Contentsand the Canadian dollar, respectively, while our cost of goods sold is denominated in the U.S. dollar. The changing value ofthe pound sterling, the euro, and the Australian and Canadian dollars relative to the U.S. dollar will continue to contribute tovariability in our gross margin for sales in Europe, Australia and Canada. The impact of distribution and other overhead expenses as a percentage of revenue on our gross margin percentagevaries depending on total revenue and overhead spending in a given period. We anticipate making incremental investments in our global fulfillment centers in 2018 to accommodate growthand improve delivery times to our dealers, which will moderate our gross margin improvements during 2018, but shouldenable us to continue to scale and improve gross margins in future years. 2016 Compared to 2015. As a percentage of revenue, our gross margin was relatively flat in 2016 compared to2015. The gross margin in 2016 was negatively impacted by the amortization of the technology acquired from Pakedge andNexus, the step-up in basis recorded as we sold the purchased inventory in conjunction with our acquisition of Pakedge aswell as the direct-to-dealer transition in Australia, and decreases in the selling price of our products in certain foreign marketsdue to the strengthening of the U.S. dollar relative to certain international currencies. These factors were offset by theexpiration of certain royalty payments, component and other product cost reductions as well as product mix and associatedpricing. Research and Development Expenses Research and development expenses consist primarily of compensation for our engineers and product managers,including non-cash stock compensation expense. Research and development expenses also include prototyping and field-testing expenses incurred in the development of our products. We also include fees paid to agencies to obtain regulatorycertifications. Finally, research and development expenses include ongoing, periodic amortization of acquired intangibleassets. Research and development expenses for the years ended December 31, 2017, 2016, and 2015 were as follows (inthousands, except percentages): Years Ended December 31, 2017 2016 2015 Research and development $40,638 $35,985 $32,385 Percentage of revenue 17% 17% 20% 2017 Compared to 2016. Research and development expenses increased by $4.7 million, or 13%, in 2017compared to 2016. The increase in absolute dollars primarily relates to personnel costs, including non-cash stockcompensation expense and increased headcount, which can be partially attributed to the employees added from the Triadacquisition. Our research and development expenses both as a percentage of revenue and in absolute dollars fluctuate dependingon our investments in the development of new solutions. For example, the timing of new hardware releases and the expenseassociated with prototyping, beta testing and compliance and regulatory fees can have an impact on total research anddevelopment expenses from period to period. For 2018, we expect research and development expenses to increase in absolute dollars, as we continue to invest innew product development to drive future revenue growth, but to remain flat or decrease slightly as a percentage of revenue. 2016 Compared to 2015. Research and development expenses increased by $3.6 million, or 11%, in 2016compared to 2015. The increase in 2016 included approximately $4.0 million in expenses associated with our newnetworking products, offset by lower overall spending for our ongoing product development activities. Sales and Marketing Expenses Sales and marketing expenses consist primarily of compensation and related travel expenses for our sales andmarketing personnel, including non-cash stock compensation expense. Sales and marketing expenses also include expensesassociated with trade shows, marketing events, advertising and other marketing-related programs. We also include theamortization of certain intangible assets such as those related to our dealer network as well as those related totrademarks/trade names.51 Table of Contents Sales and marketing expenses for the years ended December 31, 2017, 2016, and 2015 were as follows (inthousands, except percentages): Years Ended December 31, 2017 2016 2015 Sales and marketing $47,825 $42,198 $32,594 Percentage of revenue 20% 20% 20% 2017 Compared to 2016. Sales and marketing expenses increased by $5.6 million, or 13%, in 2017 compared to2016. The increase in absolute dollars primarily relates to personnel costs, including non-cash stock compensation expenseand increased headcount primarily associated with recent business acquisitions and increased year-over-year sales.We intend to continue to supplement our more traditional marketing programs with lead generation programs, includingsocial media and pay-per-click advertising. For 2018, we expect sales and marketing expenses to increase in absolute dollarsas we work to grow our global sales channels but to remain flat or decrease slightly as a percentage of revenue. 2016 Compared to 2015. Sales and marketing expenses increased by $9.6 million, or 29%, in 2016 compared to2015. The increase in absolute dollars for sales and marketing expenses in 2016 included $4.1 million in expenses associatedwith our new networking products as well as amortization of intangible assets related to the Pakedge acquisition. In addition,we increased our general marketing expenses to increase lead generation, transition to a direct-to-dealer model in Australiaand Germany, grow our dealer and distributor networks throughout the world and deliver tools to the sales channel to supportlocal marketing and sales lead generation. Furthermore, personnel costs increased primarily due to increased sales as well asnon-recurring acquisition related restructuring charges. General and Administrative Expenses General and administrative expenses consist primarily of compensation for our employees in our executiveadministration, finance, information systems, human resource and legal departments, including non-cash stock-basedcompensation expense. Also included in general and administrative expenses are outside legal fees, audit fees, facilitiesexpenses and insurance costs. Finally, during a period with an acquisition, we also include acquisition-related costs ingeneral and administrative expenses. General and administrative expenses for the years ended December 31, 2017, 2016, and 2015 were as follows (inthousands, except percentages): Years Ended December 31, 2017 2016 2015 General and administrative $21,926 $20,309 $17,355 Percentage of revenue 9% 10% 11% 2017 Compared to 2016. General and administrative expenses increased by $1.6 million, or 8%, in 2017 comparedto 2016. The increase in absolute dollars primarily relates to personnel costs, including non-cash stock compensationexpense, as well as facilities costs associated with our leased office, training, and warehousing space. We expect our general and administrative expenses to increase in absolute dollars and as a percentage of revenue in2018 as a result of growth in the business, including higher market rates on certain facilities lease renewals and additionalregulatory compliance due to the expiration of exemptions available to us through the JOBS Act. We also expect our generaland administrative expenses to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenueand the timing of those expenses. 2016 Compared to 2015. General and administrative expenses increased by $3.0 million, or 17%, in 2016compared to 2015. The increase in absolute dollars is primarily due to increased personnel costs and other administrativecosts associated with running our business, including $0.9 million in non-recurring transition costs associated with thePakedge integration in 2016. 52 Table of ContentsLitigation Settlement Expenses Litigation settlement expenses for the years ended December 31, 2017, 2016, and 2015 were as follows (inthousands, except percentages): Years Ended December 31, 2017 2016 2015 Litigation settlement $ - $475 $21 Percentage of revenue 0% 0% 0% 2017 Compared to 2016. During 2017, we did not incur any material expenses related to litigation settlement. 2016 Compared to 2015. During 2016, we expensed $0.5 million in connection with certain legal matters. Stock-based Compensation Expenses Stock-based compensation expenses increased to $12.1 million for the year ended December 31, 2017 compared to$8.4 million and $7.0 million for the years ended December 31, 2016 and 2015, respectively. This increase is the result of theachievement of certain performance metrics included in the terms of our compensation structure approved by our Board ofDirectors that better aligns senior management and executive compensation with the performance of the company. Other Income (Expense) Other income (expense) consists primarily of foreign currency transaction gains (losses) and net interest income(expense). Other income (expense) for the years ended December 31, 2017, 2016, and 2015 were as follows (in thousands,except percentages): Years Ended December 31, 2017 2016 2015 Other income (expense) $331 $(542) $(563) Percentage of revenue 0% 0% 0% We had other income of $0.3 million in 2017 compared to other expense of $0.5 million in 2016 while otherexpense remained relatively flat in 2016 compared to 2015. Other income (expense) varies primarily as a result of net foreigncurrency gains (losses) generated on our U.S. dollar obligations that are carried in local currency by our foreign subsidiaries.This is due to the U.S. dollar fluctuating in value against the pound sterling, euro, and Australian dollar during the periods,causing those U.S. dollar obligations, primarily intercompany payable to the U.S. entity, to decrease or increase in localcurrency resulting in increased other income (expense). Beginning in the second quarter of 2015, we began entering into forward contracts to help offset the exposure tomovements in foreign currency exchange rates in relation to certain U.S. dollar denominated balance sheet accounts of oursubsidiaries in the United Kingdom and Australia. We settle our foreign exchange contracts on the last day of every monthand enter into a new forward contract effective on the first day of the next month. Changes in the fair value (i.e. gains orlosses) of these derivative instruments are recorded as other income (expense), net. Income Tax Expense (Benefit) Income tax expense (benefit) for the years ended December 31, 2017, 2016, and 2015 were as follows (in thousands,except percentages): Years Ended December 31, 2017 2016 2015 Income tax expense (benefit) $(1,542) $(8,784) $268 Percentage of revenue -1% -4% 0% 53 Table of ContentsIncome tax benefit was approximately 11% and 211% of income before income taxes for the years endedDecember 31, 2017 and 2016, respectively, and income tax expense was approximately 19% of income before income taxesfor the year ended December 31, 2015. The effective tax rate differs from the U.S. federal statutory rate of 34% primarily dueto the domestic valuation allowance offsetting most of the statutory rate, partial reversal of the valuation allowance due tothe deferred tax liabilities that were recorded as part of the Triad and Pakedge acquisitions in 2017 and 2016, respectively,state income taxes, foreign income taxes, U.S. federal alternative minimum tax and excess tax deductions in 2017 resultingfrom share-based compensation and related accounting changes due to the adoption of ASU 2016-09 during the year. Cashpayments for taxes of $1.3 million in 2017 are primarily related to provisional tax payments paid in Australia and federalalternative minimum tax and state taxes paid in the United States. Significant judgment is required in determining our provision for income taxes and evaluating our uncertain taxpositions. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive andnegative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, futuretaxable income and prudent and feasible tax planning strategies. Due to historical net losses incurred and the uncertainty ofrealizing the deferred tax assets, for all the periods presented, we have a full valuation allowance against our domesticdeferred tax assets. To the extent that we generate positive domestic income and expect, with reasonable certainty, tocontinue to generate positive income, we may release our valuation allowance in a future period. This release would result inthe recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is made. On December 22, 2017, the United States enacted the Tax Act. The Tax Act makes broad and complex changes tothe U.S. tax code, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of thecorporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the taxlaw changes in the period of enactment, such as determining the transition tax and remeasuring our U.S. deferred tax assetsand liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax AccountingImplications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during ameasurement period not to extend beyond one year of the enactment date. Where we have been able to make reasonableestimates of the effects of the Tax Act for which our analysis is not yet complete, we have recorded provisional amounts inaccordance with SAB 118. Where we have not yet been able to make reasonable estimates of the impact of certain elementsof the Tax Act, we have not recorded any amounts related to those elements and we have continued accounting for them inaccordance with the tax laws in effect immediately prior to the enactment of the Tax Act. Although our accounting for the Tax Act is incomplete, we were able to make reasonable estimates of certain effectsof the Tax Act and record provisional amounts. The Tax Act reduces the U.S. federal corporate tax rate from 34% to 21% fortax years beginning after December 31, 2017. We have evaluated the decrease in the tax rate and have recorded a provisional,one-time tax expense of approximately $9.0 million. This expense was offset by an equal change in our valuation allowance,resulting in a net tax expense or benefit of $0. We have also recorded a one-time tax benefit and corresponding reduction toour valuation allowance of $0.4 million related to Alternative Minimum Tax credit carryforwards that are expected to berefundable; the Tax Act contributed to $0.2 million of this tax benefit. We are still completing our evaluation of the impactof these changes in accordance with SAB 118. Our financial statements for the year ended December 31, 2017, do not reflect the impact of certain aspects of theTax Act as we did not have the necessary information available, prepared, or analyzed in sufficient detail to determine anactual or provisional amount for the tax effects of the Tax Act. The tax on unrepatriated foreign earnings is a tax onpreviously untaxed accumulated and current earnings and profits of our foreign subsidiaries. We are not able to complete theaccounting for federal and state income tax items related to the one-time deemed repatriation transition tax on unrepatriatedforeign earnings and the associated unrecognized deferred tax liability for foreign earnings that will remain indefinitelyreinvested. As a result, no provisional amounts have been recorded and we continue to account for unrepatriated earnings offoreign subsidiaries under the laws existing prior to the enactment date of the Tax Act. We anticipate being able to offset theadditional tax expense associated with the one-time tax with available net operating loss carryovers and/or foreign taxcredits. Additionally, we are still evaluating the unrecognized deferred tax liability related to investment in foreignsubsidiaries and joint ventures that will remain indefinitely reinvested subsequent to the one-time transition tax. Weanticipate that this will not impact tax expense, as we intend to continue indefinitely reinvesting our unremitted foreignearnings in Australia and the U.K. The Tax Act also creates a new requirement on global intangible low-taxed income (“GILTI”) earned by foreignsubsidiaries. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreignsubsidiary’s assets to be included in our U.S. income tax return. Due to the complexity of the new GILTI tax rules, we arecontinuing to evaluate this provision of the Tax Act. Under U.S. GAAP, we are permitted to make an accounting policy54 Table of Contentselection to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expensewhen incurred or to factor such amounts into the measurement of our deferred taxes. We have not yet completed our analysisof the GILTI tax rules and are not yet able to reasonably estimate the effect of this provision of the Tax Act or make anaccounting policy election for the treatment of the GILTI tax. Therefore, we have not recorded any amounts related topotential GILTI tax in our financial statements and have not yet made a policy decision regarding whether to record deferredtaxes on GILTI. Quarterly Results of Operations and Other Data The following table presents our quarterly consolidated results of operations and other data for each of the quarterspresented, both in absolute dollars and as a percentage of revenue. This quarterly consolidated information has been preparedon the same basis as our audited consolidated financial statements and, in the opinion of management, the statement ofoperations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of theresults of operations for these periods. You should read this table in conjunction with our audited consolidated financialstatements and related notes located elsewhere in this Annual Report on Form 10-K. The results of operations for any quarterare not necessarily indicative of the results of operations for a full year or any future periods. Three Months Ended Dec 31, Sept 30, June 30, Mar 31, Dec 31, Sept 30, June 30, Mar 31, 2017 2017 2017 2017 2016 2016 2016 2016 (In thousands) Revenue $68,339 $64,742 $61,409 $50,235 $57,367 $55,185 $53,215 $43,035 Gross margin 34,681 33,222 31,416 25,176 29,547 27,619 26,027 20,486 Gross margin percentage 50.7% 51.3% 51.2% 50.1% 51.5% 50.0% 48.9% 47.6% Total operating expenses 27,648 28,148 27,585 27,008 24,479 25,449 25,212 23,827 Income (loss) from operations 7,033 5,074 3,831 (1,832) 5,068 2,170 815 (3,341) Net income (loss) $6,058 $5,185 $3,893 $843 $4,014 $1,777 $524 $6,639 Net income (loss) per common share: Basic $0.24 $0.21 $0.16 $0.04 $0.17 $0.08 $0.02 $0.28 Diluted $0.22 $0.19 $0.15 $0.03 $0.16 $0.07 $0.02 $0.28 Historically, we have experienced seasonal variations in our revenue as a result of holiday-related factors that arecommon in our industry. Our revenue is generally highest in the fourth quarter due to consumers’ desires to complete theirhome installations prior to the holiday season. We generally see decreased sales in the first quarter due to seasonal purchasetendencies of consumers as well as the impact of winter weather on new construction and travel in certain geographies. Our gross margin percentage will continue to be impacted by a variety of general and in some cases specific factorsincluding the following: ·Negotiated decreases in the price of components purchased from our contract manufacturers resulting in lowerproduct costs. ·Licensing and royalties paid for third-party technologies embedded in our products. ·The mix of customer type and products sold, including increased or decreased sales of third-party products soldthrough our online distribution platform where revenue is recognized on a net basis. ·Price competition resulting in promotional discounts or volume incentive rebates. ·Achieving leverage in our fixed manufacturing overhead expense as a percent of revenue. ·Amortization of acquired technology amortized over the expected life. ·In periods of an acquisition, non-recurring acquisition-related costs associated with the integration andtransition of the acquired company. We anticipate making incremental investments in our global fulfillment centers in 2018, to accommodate growthand improve delivery times to our dealers, which will moderate our gross margin improvements during 2018, but shouldenable us to continue to scale and improve gross margins in future years. Notwithstanding, we continue to work with ourcontract55 Table of Contentsmanufacturers and component vendors to reduce the cost of components we purchase, engineer product design and costimprovements, manage our supply chain and realize economies of scale as we grow our business. From time to time, however,we may experience fluctuations in our gross margin as a result of the factors discussed in the preceding paragraph. Our operating expenses fluctuate from quarter to quarter based on changes in the number of our employees andassociated expenses, the timing and magnitude of product development, the timing of marketing and sales expenditures, theacquisition of certain intangible assets amortized of the expected life, the timing of non-recurring acquisition-related costsand large or infrequent transactions such as litigation settlement expenses. Our quarterly operating expenses have generallyincreased in 2017 compared to 2016 to support the growth in our business. Sales and marketing expenses are typically higher in the first and third quarters of each year due to the timing of ourprimary trade shows. Liquidity and Capital Resources Primary Sources of Liquidity As of December 31, 2017, we had $86.0 million in unrestricted cash and cash equivalents and net marketablesecurities, an increase of $24.1 million from December 31, 2016. The overall increase in cash and cash equivalents and netmarketable securities was impacted by the following: ·We generated $27.5 million in cash flows from operations. ·We received $17.0 million in proceeds from the exercise of options for common stock. ·We acquired Triad for approximately $9.2 million in cash, less cash acquired of approximately $0.3 million anda Holdback of approximately $1.1 million, resulting in net cash paid of approximately $7.9 million. The $1.1million Holdback will be held for up to 18 months from the acquisition date to cover any of the sellers’ post-closing obligations, including without limitation any indemnification obligations that may arise. ·We made $5.5 million in payments for taxes related to the net share settlement of restricted stock units thatlapsed during the period. ·We purchased capital equipment for an aggregate of $4.0 million. ·In May 2015, our Board of Directors authorized the repurchase of up to $20 million in Control4 common stockfrom time to time on the open market. During 2017, we repurchased 119,007 shares for $1.8 million. As of December 31, 2016, we had $61.9 million in unrestricted cash and cash equivalents and net marketablesecurities, a decrease of $19.1 million from December 31, 2015. The overall decrease was impacted by the following: ·We recorded net income of $13.0 million in addition to non-cash expenses of $7.5 million. ·We acquired Pakedge for $33.0 million in cash, net of cash acquired of $0.8 million, resulting in net cash paidof $32.2 million. ·In May 2015, our Board of Directors authorized the repurchase of up to $20 million in Control4 common stockfrom time to time on the open market. During 2016, we repurchased 427,646 shares for $3.2 million. This wasoffset by proceeds of $3.4 million from the exercise of options to acquire common stock. ·Our inventory balance increased by $6.4 million as of December 31, 2016 compared to December 31, 2015,including a $3.2 million increase in networking product line inventory due to the acquisition of Pakedge. Inaddition, we invested an additional $2.0 million in inventory to support other growth initiatives including therollout of our new EA series controllers and the transition to direct-to-dealer fulfillment in Australia. ·We paid off approximately $0.9 million of term loans during 2016. 56 Table of ContentsAs of December 31, 2015, we had $81.0 million in unrestricted cash and cash equivalents and net marketablesecurities, a decrease of $12.7 million from December 31, 2014. The overall decrease was impacted by the purchase of Nexusfor $8.5 million in cash, net of cash acquired of $0.1 million, resulting in net cash paid of $8.4 million and the repurchase of1,154,480 shares for $9.0 million. We typically invest in highly-rated securities, and our investment policy generally limits the amount of creditexposure to any one issuer. Our investment policy requires investments generally to be investment grade, with the primaryobjective of minimizing the potential risk of principal loss. The maturities of our long-term investments range from one totwo years, with the average maturity of our investment portfolio less than one year. Cash equivalents and marketablesecurities are comprised of money market and other funds, highly liquid debt instruments of the U.S. government and itsagencies, debt instruments issued by municipalities in the U.S., corporate securities, and asset-backed securities. The following table shows selected financial information and statistics as of December 31, 2017, 2016 and 2015 (inthousands): December 31, 2017 2016 2015 Cash and cash equivalents $29,761 $34,813 $29,530 Investments, net 56,254 27,128 51,477 Accounts receivable, net 29,925 24,727 21,322 Inventories 37,171 26,231 19,855 Working capital 106,756 85,175 87,312 Includes accrued investment balances not included in the investments line items on the condensed consolidated balancesheet. We closely monitor accounts receivable and inventory because of their significant impact on cash and workingcapital. Our accounts receivable balance at December 31, 2017 increased by $5.2 million, or 21%, since December 31, 2016.This increase is in line with revenue growth, and we have not seen any deterioration in our long-term collection trends.Furthermore, inventory increased by $10.9 million from December 31, 2016 to December 31, 2017. The increase in inventorywas due primarily to the acquisition of Triad and normal inventory buildup associated with revenue growth and theintroduction of new products. Subsequent to year-end, we renewed and expanded our revolving credit facility increasing our borrowing limit to$40 million and at December 31, 2017, there were no outstanding borrowings. We believe that our existing cash and cash equivalents, as well as our borrowing capacity on our amended revolvingcredit facility from Silicon Valley Bank, will be sufficient to fund our operations for at least the next 12 months. From time totime, we may explore additional financing sources to develop or enhance our product solutions, to fund expansion of ourbusiness, to respond to competitive pressures, or to acquire or invest in complementary products, businesses or technologies.We cannot give assurance that any additional financing will be available to us on acceptable terms, if at all. If we raiseadditional funds through the issuance of equity or convertible debt or other equity-linked securities, our existingstockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences andprivileges senior to those of holders of our common stock. 57 (1)(1)Table of ContentsCash Flow Analysis A summary of our cash flows for the years ended December 31, 2017, 2016 and 2015 is set forth below (inthousands): Years Ended December 31, 2017 2016 2015 Cash and cash equivalents at the beginning of the period $34,813 $29,530 $29,187 Net cash provided by operating activities 27,490 17,955 4,414 Net cash provided by (used in) investing activities (42,271) (11,697) 4,389 Net cash provided by (used in) financing activities 9,604 (807) (8,575) Effect of exchange rate changes on cash and cash equivalents 125 (168) 115 Net change in cash and cash equivalents (5,052) 5,283 343 Cash and cash equivalents at the end of the period $29,761 $34,813 $29,530 Operating Activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assetsand liabilities. The increase in cash provided by operating activities of $9.5 million during the year ended December 31, 2017compared to the same period in 2016 is due to increased net income, adjusted for non-cash items including depreciation andamortization, stock-based compensation and tax benefits from business acquisitions, as well as the differences in workingcapital account changes such as accounts receivable, inventory, accounts payable, and accrued liabilities. The increase in cash provided by operating activities of $13.5 million during the year ended December 31, 2016compared to the same period in 2015 is due primarily to net income, as adjusted for certain non-cash operating expenses forthe period, and offset by changes in working capital which included an increase in inventory as described above. Investing Activities Cash used in investing activities primarily consist of purchases, maturities, and sales of marketable securities,business acquisitions, net of cash acquired, and purchases of property and equipment. Cash used in investing activities increased $30.6 million in 2017 compared to the same period in 2016. The year-over-year change is primarily due to the difference in available-for-sale investment activity, from the purchase of additionalinvestments that were funded by cash provided by operating activities, offset by the difference in cash used for businessacquisitions and capital purchases. Our capital expenditures during 2017 and 2016 were $4.0 million and $2.7 million, respectively. Cash used in investing activities increased to $11.7 million in 2016 compared to cash provided by investingactivities of $4.4 million in 2015. The year-over-year change was primarily due to the difference in cash used for businessacquisitions, offset by the difference in available-for-sale investment activity. The change in the investment activity was adirect result of the Pakedge acquisition as we primarily used the proceeds from the maturity of available-for-sale investmentstoward the purchase price, rather than reinvesting those funds. Financing Activities Financing cash flows consist primarily of tax payments related to the net share settlement of restricted stock units,the repurchase of Control4 stock in the open market and proceeds from the exercise of options to acquire common stock. During the years ended December 31, 2017 and 2016, we received proceeds of $17.0 million and $3.4 million,respectively, from the exercise of options to purchase common stock. 58 Table of ContentsDuring the year ended December 31, 2017, we made tax payments of $5.5 million related to the net share settlementof restricted stock units that lapsed during the period. During the year ended December 31, 2017, we repurchased 119,007 shares of our stock in the open market for $1.8million compared to 427,646 shares for $3.2 million in the same period in 2016. Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements as defined in SEC Regulation S-K- 303(a)(4)(ii). Contractual Obligations We enter into long-term contractual obligations in the normal course of business, primarily debt obligations andnon-cancellable operating leases. Our contractual cash obligations at December 31, 2017 are as follows: Less than Total 1 year 1 - 3 years 3 - 5 years (in thousands) Operating lease obligations 4,408 2,632 1,745 31 Purchase commitments 52,391 52,391 — — Total contractual obligations $56,799 $55,023 $1,745 $31 Critical Accounting Estimates and Policies Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidatedfinancial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates arebased on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Ouractual results could differ from these estimates. We believe that the assumptions and estimates associated with our revenue recognition, inventory valuationreserves, product warranty liability, income taxes and stock-based compensation have the greatest potential impact on ourconsolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Forfurther information on all of our significant accounting policies, please see Note 1 of the accompanying notes to ourconsolidated financial statements. We discuss, where appropriate, sensitivity to change based on other outcomes reasonablylikely to occur. We have chosen to “opt out” of the extended transition period provided in Section 7(a)(2)(B) of the Securities Actfor complying with new or revised accounting standards and, as a result, we will comply with new or revised accountingstandards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with newor revised accounting standards is irrevocable. Revenue Recognition We sell our products through a network of independent dealers and distributors and not directly to consumers. Thesedealers and distributors generally sell our products to the consumer as part of a bundled sale, which typically includes otherthird-party products and related services, project design and installation services and ongoing support. We record estimated reductions to revenue for dealer, retailer and distributor incentives, primarily comprised ofvolume rebates, at the time of the initial sale. The estimated reductions to revenue for rebates are based on the sales terms andour historical experience and trend analysis. The most common incentive relates to amounts paid or credited to dealers anddistributors for achieving defined volume levels or growth objectives. Our controllers include embedded software that is essential to the functionality of the controller. Accordingly, thehardware and embedded software components are sold together as one product. When a software license and controller aresold59 Table of Contentstogether, a multiple element arrangement exists and revenue is allocated to each deliverable based on relative selling prices.Typically, delivery of both the product and the software license occurs at the same time. We recognize revenue whenpersuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection isprobable. Product or licensed software is considered delivered once it has been shipped and title and risk of loss have beentransferred. For most of our product sales, these criteria are met at the time the product is shipped. We offer a subscription service that allows consumers to control and monitor their homes remotely and allows ourdealers to perform remote diagnostic services. Subscription revenue is deferred at the time of payment and recognized on astraight-line basis over the period the service is provided. We recognize revenue net of cost of revenue for third-party products sold through our online ordering system. Whilewe assume credit risk on sales to our dealers and distributors, we do not determine the product selling price, do not retainassociated inventory risks and are not the primary obligor to the dealer or distributor. Our agreements with dealers and distributors generally do not include rights of return or acceptance provisions.Even though contractual agreements do not provide return privileges, there are circumstances in which we will acceptreturns. In addition, agreements with certain retail distributors contain price protection and limited rights of return. Wemaintain a reserve for such returns based on our historical return experience. Shipping charges billed to dealers and distributors are included in product revenue and related shipping costs areincluded in cost of revenue. Inventory Valuation Inventories consist of hardware and related component parts and are stated at the lower of cost or net realizablevalue using the first-in, first-out method. We periodically assess the recoverability of our inventory and reduce the carryingvalue of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements.Carrying value adjustments are based on expected demand and market conditions. For example, we may incur inventorywrite-offs during the introduction of new products that replace existing ones. We make estimates regarding transitioninventory and if our estimates of demand for the “end-of-life” products differ substantially, we may be required to recordadditional inventory carrying value adjustments. Inventory write-downs for excess, defective and obsolete inventory are recorded as cost of revenue and totaled$4.1 million, $3.1 million and $2.3 million, and in 2017, 2016 and 2015, respectively. Limited Product Warranties We provide our customers a limited product warranty of two, three or ten years depending on product type andbrand. The limited product warranties require us, at our option, to repair or replace defective products during the warrantyperiod at no cost to the customer or refund the purchase price. We estimate the costs that may be incurred to replace, repair orissue a refund for defective products and record a reserve at the time revenue is recognized. Factors that affect our warrantyliability include the cost of the products sold, our historical experience, and management’s judgment regarding anticipatedrates of product warranty returns, net of refurbished products. We assess the adequacy of our recorded warranty liability eachperiod and make adjustments to the liability as necessary. Our warranty liability was $2.0 million and $1.9 million atDecember 31, 2017 and 2016, respectively. Income Taxes We recognize deferred tax assets and liabilities for the future tax consequences attributable to the differencesbetween the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences areexpected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to theamount expected to be realized. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider allavailable positive and negative evidence, including our past operating results, our forecast of future market growth,forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized indetermining future taxable income require significant judgment and are consistent with the plans and estimates we are usingto manage the underlying60 Table of Contentsbusinesses. Due to the net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented,we have a full valuation allowance against the deferred tax assets of our domestic and U.K. operations. We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide for taxcontingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred forevents such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law andthe specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in materialchanges to the amounts recorded for such tax contingencies. We recognize uncertain income tax positions taken on income tax returns at the largest amount that is more likelythan not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not berecognized if it has less than a 50% likelihood of being sustained. Our policy for recording interest and penalties associated with uncertain tax positions is to record such items as acomponent of our income tax provision. During the years ended December 31, 2017, 2016 and 2015, we did not record anymaterial interest income, interest expense or penalties related to uncertain tax positions or the settlement of audits for priorperiods. Business Combinations and Impairment of Long-lived and Intangible Assets, Including Goodwill When we acquire businesses, we allocate the fair value of the consideration transferred to tangible assets andliabilities and identifiable intangible assets acquired. Any residual consideration is recorded as goodwill. The allocation ofthe consideration transferred requires management to make significant estimates in determining the fair values of assetsacquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on the application ofvaluation models using historical experience and information obtained from the management of the acquired company andour understanding of the future projections. These estimates can include, but are not limited to, the cash flows that an asset isexpected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to bederived from acquiring an asset. These estimates are inherently uncertain, unpredictable, and subject to refinement. Inaddition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. Periodically we assess potential impairment of our long-lived assets, which include property, equipment, andacquired intangible assets. We perform an impairment review whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Factors we consider important which could trigger an impairment review include, butare not limited to, significant under-performance relative to historical or projected future operating results, significantchanges in the manner of our use of the acquired assets or our overall business strategy, and significant industry or economictrends. When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence ofone or more of the above indicators, we determine the recoverability by comparing the carrying amount of the asset to netfuture undiscounted cash flows that the asset is expected to generate. We recognize an impairment charge equal to theamount by which the carrying amount exceeds the fair market value of the asset. We amortize intangible assets on a straight-line basis over their estimated useful lives, or if appropriate, using a method that better represents the pattern of usage. We test goodwill for impairment on an annual basis as of October 1, and in the interim by reporting unit if eventsand circumstances indicate that goodwill may be impaired. We initially assess qualitative factors to determine whether theexistence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reportingunit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we compare the reporting unit’s carryingamount to its fair value. If the reporting unit’s carrying amount exceeds its fair value, we record an impairment charge basedon that difference. No impairment of long-lived and intangible assets or goodwill was recorded during the years endedDecember 31, 2017, 2016, and 2015, respectively. Stock-Based Compensation Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized asexpense, net of estimated forfeitures, over the requisite service period, which is the vesting period of the respective award. The fair value of each restricted stock unit award is based on the number of shares granted and the closing price ofour common stock as reported on the NASDAQ Global Select Market.61 Table of Contents Determining the fair value of stock options at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using anoption-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number ofother complex and subjective variables. These variables include the fair value of our common stock, our expected stock pricevolatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates andexpected dividends, which are estimated as follows: ·Fair Value of Our Common Stock. Prior to August 2, 2013, the date our common stock began trading on theNASDAQ Global Select Market, the fair value of common stock was determined by our board of directors,which intended all options granted to be exercisable at a price per share not less than the per share fair value ofour common stock underlying those options on the date of grant. The valuations of our common stock weredetermined in accordance with the guidelines outlined in the American Institute of Certified PublicAccountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.The assumptions we use in the valuation model were based on future expectations combined with managementjudgment. In the absence of a public trading market, our board of directors, with input from management,exercised significant judgment and considered numerous objective and subjective factors to determine the fairvalue of our common stock as of the date of each option grant. Since our IPO, we determine the fair value of ourcommon stock based on the closing price as quoted on the NASDAQ Global Select Market of our commonstock. ·Expected Volatility. As we do not have an adequate trading history for our common stock, the expected stockprice volatility for our common stock was estimated by taking the average of the historical volatilities of anindex fund and industry peers based on daily price observations over a period equivalent to the expected termof the stock option grants. We did not rely on implied volatilities of traded options in our industry peers’common stock because the volume of activity was relatively low. We intend to continue to consistently applythis process using the same or similar public companies until a sufficient amount of historical informationregarding the volatility of our own common stock share price becomes available. ·Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of thegrant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options. ·Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to paycash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero. ·Expected Term. As we do not have an adequate trading history for our common stock, the expected termrepresents the period that the stock-based awards are expected to be outstanding. For our option grants, we usedthe simplified method to determine the expected term as provided by the SEC. The simplified methodcalculates the expected term as the average of the time-to-vesting and the contractual life of the options. Weused the simplified method to determine our expected term because of our limited history of stock optionexercise activity. Under the provisions of ASU 2016-09, we have elected to recognize forfeitures as they occur to determine theamount of compensation cost to be recognized in each period. We will continue to use judgment in evaluating the expected volatility and expected terms utilized for our stock-based compensation calculations on a prospective basis. As we continue to accumulate additional data related to ourcommon stock, we may have refinements to the estimates of our expected volatility and expected terms, which couldmaterially impact our future stock-based compensation expense. If any of the assumptions used in the Black-Scholes modelchanges significantly, stock-based compensation for future awards may differ materially compared with the awards grantedpreviously. We did not grant any stock options during 2017. The following table presents the weighted-average assumptionsused to estimate the fair value of options granted in 2016 and 2015: 62 Table of Contents December 31, 2016 2015 Expected volatility 62% 51-55% Expected dividends 0% 0% Expected terms (in years) 6.1 5.3-6.1 Risk-free rate 1.1% 1.3-1.8% Recently Issued and Adopted Accounting Pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on ourconsolidated financial statements, see Note 1 “Description of Business and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in the notes to consolidated financial statements. Based on our continuing review ofthe recent accounting pronouncements, nothing has been identified to cause us to believe that our future trends, financialcondition, or results of operations will be impacted. ITEM 7A. Qualitative and Quantitative Disclosures about Market Risk We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that mayimpact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure isprimarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financialinstruments for trading purposes. Interest Rate Risk Changes in U.S. interest rates could affect the interest earned on our cash, cash equivalents and investments as wellas the fair value of our investments. Our investment policy and strategy are focused on preservation of capital and supportingour liquidity requirements. A portion of our cash is managed by external managers within the guidelines of our investmentpolicy. Our exposure to changes in interest rates relates primarily to our investment portfolio. We typically invest in highly-rated securities, and our investment policy generally limits the amount of credit exposure to any one issuer. The policyrequires investments generally to be investment grade, with the primary objective of minimizing the potential risk ofprincipal loss. We performed a sensitivity analysis on the value of our investment portfolio assuming a hypothetical change inrates of 100 basis points. Based on investment positions as of December 31, 2017, a hypothetical 100 basis point increase ininterest rates across all maturities would result in a $0.3 million incremental decline in the fair market value of the portfolio.Such losses would only be realized if we sold the investments prior to maturity. Foreign Currency Exchange Risk Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchangerates, particularly changes in the Canadian dollar, the euro, the pound sterling and the Australian dollar. The volatility ofexchange rates depends on many factors that we cannot forecast with reliable accuracy. We believe that our operatingactivities act as a natural hedge for a substantial portion of our foreign currency exposure because we typically collectrevenue and incur costs in the currency in the location in which we provide our solutions. Although we have experienced,and will continue to experience, fluctuations in our net income (loss) as a result of transaction gains (losses) related totransactions denominated in currencies other than the U.S. dollar, we believe that a 10% change in foreign exchange rateswould not have a material impact on our financial condition or results of operations. However, we have entered into forwardcontracts to help offset the exposure to movements in foreign currency exchange rates in relation to certain U.S. dollardenominated balance sheet accounts of our subsidiaries in the United Kingdom and Australia. The foreign currencyderivatives are not designated as accounting hedges. We recognize these derivative instruments as either assets or liabilitiesin the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e. gains or losses) ofthese derivative instruments in the accompanying Consolidated Statements of Operations as Other income (expense), net. 63 Table of Contents ITEM 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 65Consolidated Balance Sheets 66Consolidated Statements of Operations 67Consolidated Statements of Comprehensive Income (Loss) 68Consolidated Statements of Stockholders’ Equity 69Consolidated Statements of Cash Flows 70Notes to Consolidated Financial Statements 71 64 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders ofControl4 Corporation Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Control4 Corporation (and subsidiaries) (theCompany) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income(loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the relatednotes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in allmaterial respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidatedresults of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformitywith U.S. generally accepted accounting principles.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect tothe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. As part of our audits we are required to obtain an understanding of internal control overfinancial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controlover financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, ona test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluatingthe accounting principles used and significant estimates made by management, as well as evaluating the overall presentationof the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2003. Salt Lake City, Utah February 15, 2018 65 Table of ContentsCONTROL4 CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data) December 31, December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $29,761 $34,813 Restricted cash 273 247 Short-term investments 44,057 22,970 Accounts receivable, net 29,925 24,727 Inventories 37,171 26,231 Prepaid expenses and other current assets 4,369 3,662 Total current assets 145,556 112,650 Property and equipment, net 7,337 6,463 Long-term investments 12,038 4,008 Intangible assets, net 26,081 23,120 Goodwill 21,867 16,809 Other assets 1,576 2,008 Total assets $214,455 $165,058 Liabilities and stockholders’ equity Current liabilities: Accounts payable $25,654 $17,010 Accrued liabilities 10,835 8,912 Current portion of deferred revenue 2,311 1,553 Total current liabilities 38,800 27,475 Other long-term liabilities 882 701 Total liabilities 39,682 28,176 Commitments and contingencies (Note 10) — — Stockholders’ equity: Common stock, $0.0001 par value; 500,000,000 shares authorized; 25,832,895 and23,729,780 shares issued and outstanding at December 31, 2017 and December 31, 2016,respectively 3 2 Additional paid-in capital 242,281 220,370 Accumulated deficit (66,980) (82,626) Accumulated other comprehensive loss (531) (864) Total stockholders’ equity 174,773 136,882 Total liabilities and stockholders’ equity $214,455 $165,058 See accompanying notes to consolidated financial statements.66 Table of ContentsCONTROL4 CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Years Ended December 31, 2017 2016 2015 Revenue $244,725 $208,802 $163,179 Cost of revenue 120,230 105,123 81,645 Gross margin 124,495 103,679 81,534 Operating expenses: Research and development 40,638 35,985 32,385 Sales and marketing 47,825 42,198 32,594 General and administrative 21,926 20,309 17,355 Litigation settlement — 475 21 Total operating expenses 110,389 98,967 82,355 Income (loss) from operations 14,106 4,712 (821) Other income (expense), net: Interest, net 409 45 202 Other income (expense), net (78) (587) (765) Total other income (expense), net 331 (542) (563) Income (loss) before income taxes 14,437 4,170 (1,384) Income tax expense (benefit) (1,542) (8,784) 268 Net income (loss) $15,979 $12,954 $(1,652) Net income (loss) per common share: Basic $0.64 $0.55 $(0.07) Diluted $0.60 $0.53 $(0.07) Weighted-average number of shares: Basic 24,803 23,402 24,121 Diluted 26,775 24,360 24,121 See accompanying notes to consolidated financial statements.67 Table of ContentsCONTROL4 CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands) Years Ended December 31, 2017 2016 2015 Net income (loss) $15,979 $12,954 $(1,652) Other comprehensive income (loss): Foreign currency translation adjustment, net of tax 380 (171) (565) Net unrealized gains (losses) on available-for-sale investments, net of tax (47) 46 (14) Total other comprehensive income (loss) 333 (125) (579) Comprehensive income (loss) $16,312 $12,829 $(2,231) See accompanying notes to consolidated financial statements. 68 Table of ContentsCONTROL4 CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share data) Stockholders’ Equity Accumulated Common Stock Treasury Stock Additional Other Total Number of Number of Paid-In Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Capital Deficit (Loss) Income Equity Balance at December 31, 2014 24,305,381 $ 2 — $ — $212,388 $(93,928) $(160) $118,302 Net loss — — — — — (1,652) — (1,652) Other comprehensive loss — — — — — — (579) (579) Stock-based compensation — — — — 7,034 — — 7,034 Issuance of common stock upon exercise of stock options 285,387 — — — 1,360 — — 1,360 Repurchase of common stock for treasury (1,154,480) 1,154,480 (9,020) — — — (9,020) Balance at December 31, 2015 23,436,288 2 1,154,480 (9,020) 220,782 (95,580) (739) 115,445 Net income — — — — — 12,954 — 12,954 Other comprehensive loss — — — — — — (125) (125) Excess tax benefit from exercise of options for common stock — — — — 89 — — 89 Stock-based compensation — — — — 8,324 — — 8,324 Issuance of common stock upon exercise of stock options andvesting of restricted stock 721,138 — — — 3,437 — — 3,437 Repurchase of common stock for treasury (427,646) — 427,646 (3,242) — — — (3,242) Retirement of treasury stock — — (1,582,126) 12,262 (12,262) — — — Balance at December 31, 2016 23,729,780 2 — — 220,370 (82,626) (864) 136,882 Net income — — — — — 15,979 — 15,979 Other comprehensive loss — — — — — — 333 333 Cumulative effect of accounting change — — — — 333 (333) — — Stock-based compensation 65,171 — — — 11,975 — — 11,975 Issuance of common stock upon exercise of stock options andvesting of restricted stock 2,156,951 1 — — 11,424 — — 11,425 Repurchase of common stock for treasury (119,007) — 119,007 (1,821) — — — (1,821) Retirement of treasury stock — — (119,007) 1,821 (1,821) — — — Balance at December 31, 2017 25,832,895 $ 3 — $ — $242,281 $(66,980) $(531) $174,773 See accompanying notes to consolidated financial statements. 69 Table of ContentsCONTROL4 CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years Ended December 31, 2017 2016 2015 Operating activities Net income (loss) $15,979 $12,954 $(1,652) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation expense 3,686 3,318 2,926 Amortization of intangible assets 5,212 4,598 1,474 Loss on disposal of fixed assets 1 13 — Provision for doubtful accounts 815 345 345 Investment discount and premium amortization (109) 339 — Stock-based compensation 12,105 8,370 7,034 Tax benefit from business acquisition (2,257) (9,402) — Deferred tax asset adjustment 767 — — Changes in assets and liabilities: Accounts receivable, net (5,116) (3,765) (1,127) Inventories (9,324) (1,589) (3,488) Restricted cash (3) — — Prepaid expenses and other current assets (593) 1,184 (1,443) Other assets (178) (295) (264) Accounts payable 6,370 (32) 615 Accrued liabilities (441) 1,999 248 Deferred revenue 747 471 258 Other long-term liabilities (171) (553) (512) Net cash provided by operating activities 27,490 17,955 4,414 Investing activities Purchases of available-for-sale investments (76,796) (19,227) (50,619) Proceeds from sales of available-for-sale investments 3,955 900 2,018 Proceeds from maturities of available-for-sale investments 43,780 42,203 65,142 Purchases of property and equipment (3,952) (2,682) (3,772) Business acquisitions, net of cash acquired (9,258) (32,891) (8,380) Net cash provided by (used in) investing activities (42,271) (11,697) 4,389 Financing activities Proceeds from exercise of options for common stock 16,959 3,437 1,360 Payments for taxes related to net share settlement of equity awards (5,534) — — Repurchase of common stock (1,821) (3,242) (9,020) Repayment of notes payable — (913) (915) Proceeds from revolving credit facility — 5,000 — Repayment of revolving credit facility — (5,000) — Payment of debt issuance costs — (89) — Net cash provided by (used in) financing activities 9,604 (807) (8,575) Effect of exchange rate changes on cash and cash equivalents 125 (168) 115 Net change in cash and cash equivalents (5,052) 5,283 343 Cash and cash equivalents at beginning of period 34,813 29,530 29,187 Cash and cash equivalents at end of period $29,761 $34,813 $29,530 Supplemental disclosure of cash flow information Cash paid for interest $57 $204 $101 Cash paid for taxes $1,292 $1,115 $831 Supplemental schedule of non-cash investing and financing activities Landlord paid tenant improvements $ — $39 $ — Business acquisitions holdback liability $1,414 $ — $ — Purchases of property and equipment financed by accounts payable $351 $135 $ — Net unrealized gains (losses) on available-for-sale investments $(47) $46 $(14) See accompanying notes to consolidated financial statements. 70 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting PoliciesControl4 Corporation (‘‘Control4’’ or the ‘‘Company’’) is a leading provider of personalized, smart home andbusiness solutions that are designed to enhance the daily lives of its customers. The Company’s solutions unlock thepotential of connected devices throughout a home or business, making entertainment systems easier to use and moreaccessible, spaces more comfortable and energy efficient, and individuals more secure. The Company was incorporated in thestate of Delaware on March 27, 2003. Basis of PresentationThe consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries. Allintercompany balances and transactions have been eliminated in the consolidated financial statements.Segment ReportingOperating segments are identified as components of an enterprise about which separate discrete financialinformation is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in makingdecisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations andmanages its business as one operating segment.Concentrations of RiskThe Company’s accounts receivable is derived from revenue earned from its worldwide network of independentdealers and distributors. The Company’s sales to dealers and distributors located outside the United States are generallydenominated in U.S. dollars, except for sales to dealers and distributors located in the United Kingdom, Canada, Australia,and the European Union, which are generally denominated in pounds sterling, Canadian dollars, Australian dollars, and theeuro, respectively. There were no individual account balances greater than 10% of total accounts receivable as of December31, 2017 and 2016. No dealer or distributor accounted for more than 10% of total revenue for the years ended December 31, 2017, 2016and 2015.The Company relies on a limited number of suppliers for its contract manufacturing. A significant disruption in theoperations of certain of these manufacturers would impact the production of the Company’s products for a substantial periodof time, which could have a material adverse effect on the Company’s business, financial condition and results of operations. Geographic InformationThe Company’s revenue includes amounts earned through sales to dealers and distributors located outside of theUnited States. There was no single foreign country that accounted for more than 10% of total revenue for the three yearsended December 31, 2017, 2016 and 2015. The following table sets forth revenue from the United States., Canadian and allother international dealers and distributors combined (in thousands): Years Ended December 31, 2017 2016 2015 Revenue-United States $169,930 $148,803 $109,435 Revenue-Canada 20,812 16,084 14,285 Revenue-all other international sources 53,983 43,915 39,459 Total revenue $244,725 $208,802 $163,179 International revenue (excluding Canada) as a percent of total revenue 22% 21% 24% 71 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Use of Accounting EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates itsestimates, including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty,inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances andincome taxes. Actual results may differ from those estimates. Limited Product Warranties The Company provides its customers a limited product warranty of two, three, or ten years depending on producttype and brand. The limited product warranties require the Company, at its option, to repair or replace defective productsduring the warranty period at no cost to the customer or refund the purchase price. The Company estimates the costs that maybe incurred to replace, repair or issue a refund for defective products and records a reserve at the time revenue is recognized.Factors that affect the Company’s warranty liability include the cost of the products sold, the Company’s historicalexperience, and management’s judgment regarding anticipated rates of product warranty returns, net of refurbished products.The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability asnecessary. Warranty costs accrued include amounts accrued for products at the time of shipment, adjustments for changes inestimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on productsshipped in prior periods. It is not practicable for the Company to determine the amounts applicable to each of thesecomponents. The following table presents the changes in the product warranty liability (in thousands): Years Ended December 31, 2017 2016 2015 Balance at the beginning of the period $1,945 $1,415 $1,191 Warranty costs accrued 3,147 2,458 2,068 Warranty claims (3,060) (1,928) (1,844) Balance at the end of the period $2,032 $1,945 $1,415 Net Income (Loss) Per ShareBasic net income (loss) per share is computed using the weighted-average number of common shares outstandingduring the period. Diluted net income (loss) per share is computed using the weighted-average number of common sharesoutstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net incomeper share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and settlementof restricted stock units.The following table presents the reconciliation of the numerator and denominator used in the calculation of basicand diluted net income (loss) per share (in thousands): Years Ended December 31, 2017 2016 2015 Numerator: Net income (loss) $15,979 $12,954 $(1,652) Denominator: Weighted average common stock outstanding for basic net income per common share 24,803 23,402 24,121 Effect of dilutive securities—stock options and restricted stock units 1,972 958 — Weighted average common shares and dilutive securities outstanding 26,775 24,360 24,121 In a net loss position, diluted net loss per share is computed using only the weighted-average number of commonshares outstanding during the period, as any additional common shares would be anti-dilutive as they would decrease theloss72 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) per share. Potentially dilutive securities, including common equivalent shares, in which the assumed proceeds exceed theaverage market price of common stock for the applicable period, were not included in the calculation of diluted net incomeper share as their impact would be anti-dilutive. The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands): Years Ended December 31, 2017 2016 2015 Options to purchase common stock 660 2,328 4,756 Restricted stock units 5 17 162 Total 665 2,345 4,918 Revenue RecognitionThe Company sells its products through a network of independent dealers, regional and national retailers anddistributors. These dealers, retailers and distributors generally sell the Company’s products to the end consumer as part of abundled sale, which typically includes other third‑party products and related services, project design and installationservices and on‑going support.The Company records estimated reductions to revenue for dealer, retailer and distributor incentives at the time of theinitial sale. The estimated reductions to revenue are based on the sales terms and the Company’s historical experience andtrend analysis. The most common incentive relates to amounts paid or credited to dealers and distributors for achievingdefined volume levels or growth objectives.The Company’s products include embedded software that is essential to the functionality of the hardware.Accordingly, the hardware and embedded software are accounted for as a single deliverable. When a software license andcontroller are sold together, a multiple element arrangement exists and revenue is allocated to each deliverable based onrelative selling prices. Typically, delivery of both the product and the software license occurs at the same time. The Companyrecognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed ordeterminable, and collection is reasonably assured. Product or licensed software is considered delivered once it has beenshipped and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at thetime the product is shipped.The Company offers a subscription service that allows consumers to control and monitor their homes remotely andallows the Company’s dealers to perform remote diagnostic services. Subscription revenue is deferred at the time of paymentand recognized on a straight‑line basis over the period the service is provided.Total revenue for subscription services represents less than 10% of total revenue for all periods presented.The Company recognizes revenue net of cost of revenue for third‑party products sold through the Company’s onlineordering system. While the Company assumes credit risk on sales to its dealers and distributors for third‑party products, theCompany does not determine the product selling price, does not retain associated inventory risks and is not the primaryobligor to the end consumer.The Company’s agreements with dealers and distributors generally do not include rights of return or acceptanceprovisions. Even though contractual agreements do not provide return privileges, there are circumstances in which theCompany will accept returns. In addition, agreements with certain retail distributors contain price protection and limitedrights of return. The Company maintains a reserve for such returns based on the Company’s historical return experience.Shipping charges billed to dealers and distributors are included in revenue and related shipping costs are includedin cost of revenue.73 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Cost of RevenueCost of revenue includes the following: the cost of inventory sold during the period, inventory write‑down costs,payroll, purchasing costs, royalty obligations, shipping expenses to dealers and distributors and warehousing costs, whichinclude inbound freight costs from manufacturers, rent, payroll and benefit costs, acquisition-related costs, amortization ofintangible assets and depreciation.Cash and Cash EquivalentsThe Company considers all highly liquid short‑term investments with original maturities of three months or less atthe time of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds.Restricted Cash Restricted cash as of December 31, 2017 and 2016, is composed of a guarantee made by the Company’s subsidiaryin the United Kingdom to HM Revenue & Customs related to a customs duty deferment account.Allowance for Doubtful AccountsThe Company extends credit to the majority of its dealers and distributors, which consist primarily of small, localbusinesses. Issuance of credit is based on ongoing credit evaluations by the Company of dealers’ and distributors’ financialcondition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do notbear interest. The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables.The allowance is based upon the creditworthiness of the Company’s dealers and distributors, the dealers’ and distributors’historical payment experience, the age of the receivables and current market and economic conditions. Provisions forpotentially uncollectible accounts are recorded in sales and marketing expenses. The Company writes off accountsreceivable balances to the allowance for doubtful accounts when it becomes likely that they will not be collected.The following table presents the changes in the allowance for doubtful accounts (in thousands): Years Ended December 31, 2017 2016 2015 Balance at beginning of period $981 $824 $705 Provision 815 345 345 Deductions (649) (188) (226) Balance at end of period $1,147 $981 $824 InventoriesInventories consist primarily of hardware and related component parts and are stated at the lower of cost or netrealizable value using the first‑in, first‑out method. The Company periodically assesses the recoverability of its inventoryand reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecastedsales requirements. Inventory write‑downs for excess, defective and obsolete inventory are recorded as a cost of revenue andtotaled $4.1 million, $3.1 million, and $2.3 million, for the years ended December 31, 2017, 2016 and 2015, respectively.74 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Property and EquipmentProperty and equipment are recorded at historical cost, less accumulated depreciation. Depreciation is computedusing the straight‑line method over the following estimated useful lives: Computer equipment and software 3-4yearsManufacturing tooling and test equipment 2-4yearsLab and warehouse equipment 2-4yearsFurniture and fixtures 2-5yearsOther 2-4years Maintenance and repairs that do not extend the life of or improve the asset are expensed in the year incurred.Leasehold improvements are depreciated over the estimated useful life (usually 3‑8 years) or the life of the associated lease,whichever is less. Intangible AssetsIntangible assets primarily consist of acquired technology, customer relationships and trademarks/trade names. TheCompany amortizes, to cost of revenue and operating expenses, definite‑lived intangible assets on a straight‑line basis overthe life of the asset.Impairment of Long‑Lived Assets and GoodwillThe carrying value of long‑lived assets is reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized whenthe carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of theasset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset’scarrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.The Company tests goodwill for impairment annually as of October 1, or whenever events or changes incircumstances indicate that goodwill may be impaired. The Company initially assesses qualitative factors to determinewhether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value ofa reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Companydetermines it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then the Companycompares the reporting unit’s carrying amount to its fair value. If the reporting unit’s carrying amount exceeds its fair value,an impairment charge is recorded based on that difference.There was no impairment of long-lived assets or goodwill during the years ended December 31, 2017, 2016 and2015.Foreign Currency TranslationThe functional currency of the Company’s subsidiaries in the United Kingdom, Germany, Australia, China, andIndia are the pound sterling, the euro, the Australian dollar, the Chinese yuan, and the Indian rupee, respectively. Thesubsidiary’s assets and liabilities have been translated to U.S. dollars using the exchange rates in effect at the balance sheetdates. Statements of operations amounts have been translated using the monthly average exchange rate for each year.Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income(loss).Foreign currency transaction gains and losses resulting from exchange rate fluctuations on transactionsdenominated in a currency other than the local currency are primarily included in other income (expense). The Companyenters into forward contracts to help offset the exposure to movements in foreign currency exchange rates in relation tocertain U.S. dollar denominated balance sheet accounts of its subsidiaries in the United Kingdom and Australia. The foreigncurrency derivatives75 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) are not designated as accounting hedges. The Company recognized a foreign exchange loss, net of the foreign currencyderivatives, of $0.1 million, $0.6 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015,respectively.Stock‑Based CompensationThe Company recognizes compensation expense for all stock‑based awards issued to employees and directors basedon estimated grant date fair values. The Company selected the Black‑Scholes option‑pricing model to determine theestimated fair value at the date of grant for stock options.The Black‑Scholes option‑pricing model requires management assumptions regarding various factors that requireextensive use of accounting judgment and financial estimates. The Company estimates the expected term for options usingthe simplified method, which utilizes the weighted average expected life of each tranche of the stock option, determinedbased on the sum of each tranche’s vesting period plus one‑half of the period from the vesting date of each tranche to thestock option’s expiration, because the Company’s options are considered “plain vanilla.” The Company computed theexpected volatility using multiple peer companies for a period approximating the expected term. The risk‑free interest ratewas determined using the implied yield on U.S. Treasury issues with a remaining term within the expected life of the award.The fair value of each restricted stock unit award is based on the number of shares granted and the closing price ofthe Company’s common stock as reported on the NASDAQ Global Select Market. The Company elected to amortizecompensation expense using the straight‑line attribution method, under which stock‑based compensation expense isrecognized on a straight‑line basis over the period the employee performs the related services, generally the vesting period,net of estimated forfeitures. The Company has elected to recognize forfeitures as they occur.Income TaxesThe Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to thedifferences between the financial statement carrying value of existing assets and liabilities and their respective tax bases.Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporarydifferences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferredtax assets to the amount expected to be realized.The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Companyprovides for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has beenincurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits,relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstancescould result in material changes to the amounts recorded for such tax contingencies.The Company recognizes uncertain income tax positions taken on income tax returns at the largest amount that ismore likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will notbe recognized if it has less than a 50% likelihood of being sustained.The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record suchitems as a component of its income tax provision. During the years ended December 31, 2017, 2016 and 2015, the Companydid not record any material interest income, interest expense or penalties related to uncertain tax positions or the settlementof audits for prior periods.Presentation of Certain TaxesThe Company collects various taxes from dealers and distributors and remits these amounts to the applicable taxingauthorities. The Company’s accounting policy is to exclude these taxes from revenue and cost of revenue.76 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Research and DevelopmentResearch and development expenses consist primarily of personnel costs, including incentive compensation,depreciation associated with research and development equipment, contract labor and consulting services, facilities‑relatedcosts, and travel‑related costs. Research and development costs are expensed as incurred.Sales and MarketingSales and marketing expenses consist primarily of personnel costs and related travel expenses for sales andmarketing personnel, including non-cash stock compensation expense. Sales and marketing expenses also include expensesassociated with trade shows, marketing events, advertising, training and other marketing-related programs. Advertising andother promotional costs are expensed as incurred and were $1.3 million, $1.2 million, and $2.4 million, for the years endedDecember 31, 2017, 2016, and 2015, respectively.Recent Accounting PronouncementsIn January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying theTest for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill forimpairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwillimpairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annualgoodwill impairment tests performed on testing after January 1, 2017. The Company early adopted this standard for theOctober 1, 2017 goodwill impairment test. The adoption of this standard did not impact the consolidated financialstatements. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition ofa Business,” which narrows the definition of a business. This update is effective for annual periods beginning after December15, 2017, including interim periods within those years. Early adoption is permitted. The guidance will impact the Company’sacquisitions beginning January 1, 2018 and could cause fewer acquired sets of assets to be identified as a business. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” whichprovides amendments to current guidance to address the classifications and presentation of changes in restricted cash in thestatement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. Earlyadoption is permitted. Upon the adoption of this standard, the Company will combine restricted cash with unrestricted cashand cash and cash equivalents in the statement of cash flows. In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets OtherThan Inventory” requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset otherthan inventory when the transfer occurs, rather than when the asset has been sold to an outside party. The amendments in thisASU are applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings inthe period of adoption. The adoption of this standard on January 1, 2018 will not have a material impact on the Company’sconsolidated financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” whichintroduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces anapproach based on expected losses to estimate credit losses on certain types of financial instruments. For trade receivables,the Company will be required to use a forward-looking expected loss model rather than the incurred loss model forrecognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securitieswill also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of thesecurities. The guidance is effective for fiscal years beginning after December 31, 2019, including interim periods withinthose years. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018,including the interim periods within those fiscal years. Application of the amendments is through a cumulative-effectadjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this update on theconsolidated financial statements. In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting.” The amendments in this update simplify several aspects of the accounting for77 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory taxwithholding requirements, as well as classification in the statement of cash flows. The Company adopted the new guidanceon January 1, 2017. The primary impact of adoption was the recognition of excess tax benefits in the provision for incometaxes rather than paid-in capital. Adoption of the new standard resulted in the recognition of excess tax benefits in theprovision for income taxes rather than paid-in capital of $7.3 million for the year ended December 31, 2017. However, as theCompany has a full valuation allowance against its domestic net deferred tax asset, a corresponding adjustment was recordedto increase the valuation allowance by $7.3 million. As of December 31, 2016, the Company had $20.6 million and $17.6 million of gross federal and state net operatinglosses (“NOLs”), respectively, attributable to excess windfall benefits from share-based compensation. As a result of theadoption of this new standard, on January 1, 2017, the Company increased its net deferred tax asset for NOL carryforwards,with an offsetting cumulative effect of adoption adjustment to accumulated deficit, in the amount of $7.7 million. Acorresponding adjustment was recorded to increase the valuation allowance by $7.7 million with an offsetting adjustment toaccumulated deficit, resulting in no net impact to the financial statements. In addition, the Company has elected to apply thepresentation requirements for cash flows related to excess tax benefits retrospectively which resulted in increase in both netcash provided by operating activities and net cash used in financing activities of $0.1 million for the year ended December31, 2016. Further, under the provisions of ASU 2016-09, the Company has elected to recognize forfeitures as they occur todetermine the amount of compensation cost to be recognized in each period. This resulted in an increase of $0.3 million toaccumulated deficit with a corresponding increase to additional paid-in capital on January 1, 2017. The amendment relatedto the accounting for minimum statutory withholding requirements had no impact on retained earnings as of January 1, 2017. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes the guidance in ASC 840,“Leases.” The purpose of the new standard is to improve transparency and comparability related to the accounting andreporting of leasing arrangements. The guidance will require balance sheet recognition for assets and liabilities associatedwith rights and obligations created by leases with terms greater than twelve months. The guidance is effective for fiscal yearsbeginning after December 15, 2018, including interim periods within those years. Modified retrospective application isrequired. Early adoption is permitted. The Company expects the standard will have a material impact on the Company’sconsolidated balance sheets but will not have a material impact on the consolidated statements of operations. The mostsignificant impact will be the recognition of right of use assets and lease liabilities for operating leases. The Company is inthe process of calculating the right of use assets and lease liabilities and implementing internal controls to enable thepreparation of financial statements upon adoption of this standard. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” whichamends the guidance in ASC 605, “Revenue Recognition.” The core principle of the guidance is that an entity shouldrecognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (fullretrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the dateof initial application (modified retrospective method). The Company will adopt this standard on January 1, 2018 using thefull retrospective method restating each prior reporting period presented in future filings. The Company has substantiallycompleted its analysis of the impact of adoption and has concluded the adoption of ASC 606 will not have a significantimpact on the Company’s financial statements. 78 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) 2. Balance Sheet ComponentsInventories consisted of the following (in thousands): December 31, December 31, 2017 2016 Finished goods $33,050 $24,138 Component parts 4,025 1,880 Work-in-process 96 213 $37,171 $26,231 Property and equipment, net consisted of the following (in thousands): December 31, December 31, 2017 2016 Computer equipment and software $5,030 $3,855 Manufacturing tooling and test equipment 4,894 4,216 Lab and warehouse equipment 4,869 3,649 Leasehold improvements 3,960 3,438 Furniture and fixtures 3,698 3,254 Other 1,086 753 23,537 19,165 Less: accumulated depreciation (16,200) (12,702) $7,337 $6,463 Accrued liabilities consisted of the following (in thousands): December 31, December 31, 2017 2016 Sales returns and current portion of warranty accruals $2,872 $2,892 Compensation accruals 5,241 4,445 Other accrued liabilities 2,722 1,575 $10,835 $8,912 3. Fair Value MeasurementsAssets Measured and Recorded at Fair Value on a Recurring Basis The Company’s financial assets that are measured at fair value on a recurring basis consist of money market fundsand available-for-sale investments. The following three levels of inputs are used to measure the fair value of financialinstruments:Level 1: Quoted prices in active markets for identical assets or liabilities.Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities, quotedprices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can becorroborated by observable market data for substantially the full term of the assets or liabilities.Level 3: Unobservable inputs are used when little or no market data is available.79 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) The fair values for substantially all of the Company’s financial assets are based on quoted prices in active markets orobservable inputs. For Level 2 securities, the Company uses a third-party pricing service which provides documentation onan ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputssummarized by asset class, pricing application and corroborative information. The Company determines realized gains or losses on the sale of marketable securities on a specific identificationmethod. During the years ended December 31, 2017 and 2016, the Company did not record significant realized gains orlosses on the sales of available-for-sale investments. The following tables show the Company’s cash and available-for-saleinvestments’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categoryrecorded as cash and cash equivalents or short- or long-term investments as of December 31, 2017 and December 31, 2016 (inthousands): December 31, 2017 Cash and Adjusted Unrealized Unrealized Cash Short-term Long-term Cost Gains Losses Fair Value Equivalents Investments Investments Cash $24,367 $ — $ — $24,367 $24,367 $ — $ — Level 1: Money market funds 5,394 — — 5,394 5,394 — — U.S. government notes 9,060 — (13) 9,047 — 4,098 4,949 Subtotal 14,454 — (13) 14,441 5,394 4,098 4,949 Level 2: Corporate bonds 24,943 — (49) 24,894 — 17,805 7,089 Commercial paper 22,154 — — 22,154 — 22,154 — Subtotal 47,097 — (49) 47,048 — 39,959 7,089 Total $85,918 $ — $(62) $85,856 $29,761 $44,057 $12,038 December 31, 2016 Cash and Adjusted Unrealized Unrealized Cash Short-term Long-term Cost Gains Losses Fair Value Equivalents Investments Investments Cash $24,708 $ — $ — $24,708 $24,708 $ — $ — Level 1: Money market funds 10,105 — — 10,105 10,105 — — U.S. government notes 2,001 — (1) 2,000 — 2,000 — Subtotal 12,106 — (1) 12,105 10,105 2,000 — Level 2: Asset-backed securities 4,008 — — 4,008 — — 4,008 Corporate bonds 13,902 — (14) 13,888 — 13,888 — Commercial paper 7,082 — — 7,082 — 7,082 — Subtotal 24,992 — (14) 24,978 — 20,970 4,008 Total $61,806 $ — $(15) $61,791 $34,813 $22,970 $4,008 80 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) As of December 31, 2017, the Company considers the declines in market value of its investment portfolio to betemporary in nature and does not consider any of its investments other-than-temporarily impaired. The Company typicallyinvests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer.The policy requires investments generally to be investment grade, with the primary objective of minimizing the potentialrisk of principal loss. Fair values were determined for each individual security in the investment portfolio. The maturities ofthe Company’s long-term investments range from one to two years. When evaluating an investment for other-than-temporaryimpairment the Company reviews factors such as the length of time and extent to which fair value has been below its costbasis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’sintent to sell, as well as the fact it is not more likely than not that the Company will be required to sell the investment beforerecovery of the investment’s cost basis, which may be maturity. During the years ended December 31, 2017 and 2016, theCompany did not recognize any significant impairment charges. Fair Value of Other Financial Instruments The carrying amounts reported in the accompanying consolidated financial statements for cash and cashequivalents, restricted cash, accounts payable and accrued liabilities approximate their fair value because of the short termnature of the accounts. Derivative Financial Instruments The Company has foreign currency exposure related to the operations in the United Kingdom, Canada, Australia, aswell as other foreign locations. The Company enters into forward contracts to help offset the exposure to movements inforeign currency exchange rates in relation to certain U.S. dollar denominated balance sheet accounts of its subsidiaries inthe United Kingdom and Australia. The foreign currency derivatives are not designated as accounting hedges. The Companyrecognizes these derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fairvalue. The Company records changes in the fair value (i.e. gains or losses) of these derivative instruments in theaccompanying Condensed Consolidated Statements of Operations as Other income (expense), net. The settlements of thesetransactions are included in net income (loss) in the accompanying Consolidated Statements of Cash Flow. The Company settles its foreign exchange contracts on the last day of every month. As a result, there are no assets orliabilities recorded in the accompanying Consolidated Balance Sheets related to derivative instruments as of December 31,2017 and 2016. The following table shows the pre-tax gains (losses) of the Company’s derivative instruments not designated ashedging instruments (in thousands): Years Ended December 31, Income Statement Location 2017 2016 2015 Foreign exchange forward contracts Other income (expense), net $(1,662) $418 $200 4. Acquisitions ihiji Acquisition On December 22, 2017 the Company acquired the intellectual property and key operating assets of ihiji, a providerof remote management services for technical integrators servicing connected home customers. The Company anticipates thisacquisition will enable Control4 to combine two network and device management solutions, BakPak from Control4 andinvision from ihiji, into one unified service platform to better service the professional integrators of Control4 products. Totalconsideration transferred for this acquisition was immaterial. The majority of the consideration transferred was allocated toa developed technology intangible asset. 81 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) The Company determined this acquisition was not a significant acquisition under Rule 3-05 of Regulation S-X. Acquisition of Triad Holdings, Inc. On February 27, 2017, the Company entered into a definitive agreement to acquire Triad Holdings, Inc. (“TriadHoldings”) along with its wholly owned subsidiary Triad Speakers, Inc. (“Triad Speakers” and together with Triad Holdings“Triad”) through the purchase of all the outstanding shares of common stock of Triad for a purchase price of $9.6 million (the“Triad Purchase Agreement”), which included cash acquired of $0.3 million. In accordance with the purchase agreement,$1.4 million of the purchase price will be held for up to 18 months from the acquisition date (the “Holdback”), to cover anyof the sellers’ post-closing obligations, including without limitation any indemnification obligations that may arise. Due tocustomary net working capital adjustments, the purchase price of Triad was reduced to $9.2 million during the three monthsended June 30, 2017, resulting in a reduction to the Holdback and goodwill. The Company has classified the remaining $1.1million Holdback in other current liabilities. Total consideration transferred for the Triad acquisition was allocated to tangible and identifiable intangible assetsacquired and liabilities assumed based on their fair values at the acquisition date as set forth below. Management estimatedthe fair values of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance forbusiness combinations. The preliminary amount of consideration transferred is subject to potential adjustments due to tax-related matters that could have a material impact on the condensed consolidated financial statements. Due to newinformation obtained related to net working capital and based on facts that existed at the acquisition date, the Companyrecorded measurement period adjustments to cash, goodwill, accounts payable and other liabilities. The Company expectsthe allocation of the consideration transferred to be final within the measurement period (up to one year from the acquisitiondate). The following reflects the Company’s preliminary allocation of consideration transferred for the Triad acquisition(in thousands): Triad AcquisitionCash $269Accounts receivable 516Inventory 1,078Other assets acquired 430Intangible assets 6,271Goodwill 4,627Total assets acquired 13,191Accounts payable 878Deferred tax liability 2,257Warranty liability 237Other liabilities assumed 601Total net assets acquired $9,218 Identifiable Intangible Assets The Company acquired intangible assets that consisted of customer relationships, trademarks/trade names, anddeveloped technology, which had estimated fair values of $2.5 million, $2.4 million, and $1.4 million, respectively. Theintangible assets were measured at fair value reflecting the highest and best use of nonfinancial assets in combination withother assets and liabilities. The customer relationships and trademarks/trade names were valued using an income approachthat discounts expected future cash flows to present value. The estimated net cash flows were discounted using discount ratesbetween 15% and 16%, based on the estimated internal rate of return for the acquisition and represent the rates that marketparticipants might use to value the intangible assets based on the risk profile of the asset. The projected cash flows weredetermined using key assumptions such as: estimates of revenues and operating profits; capital expense investments; royaltyrates; and tax savings. The acquired technology was valued using a cost savings approach that calculates the asset’sreproduction cost by estimating all the costs associated with creating the technology. The Company will amortize theintangible82 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) assets on a straight-line basis over their estimated useful lives of 10 years for the customer relationships, 12 years for thetrademark/trade name, and 12 years for the developed technology. The amortization of these intangible assets is notdeductible for income tax purposes. Goodwill Goodwill of $4.6 million represents the excess of consideration transferred over the fair value of assets acquired andliabilities assumed and is attributable to Triad’s assembled workforce, synergies and the projected profits from new productsand dealers. This goodwill is not deductible for income tax purposes. The Company determined the Triad acquisition was not a significant acquisition under Rule 3-05 ofRegulation S‑X. Australia Expansion On April 1, 2016, the Company began working directly with home automation integrators in Australia to betterserve and support customers in that country. As part of the shift from its distribution model in Australia, Control4, through itswholly owned subsidiary, Control4 Australia Holdings Pty., Ltd, acquired customer lists and inventory from the Company’sAustralian distributor for $0.7 million. The Company determined this acquisition was not a significant acquisition under Rule 3-05 of Regulation S-X. Acquisition of Pakedge Device and Software Inc. On January 29, 2016, the Company entered into a definitive agreement to acquire Pakedge Device and Software Inc.(“Pakedge”) through the purchase of all of the outstanding shares of common stock of Pakedge for a price of $33.0 million,which included cash acquired of $0.8 million. In accordance with the purchase agreement, $5.0 million was deposited inescrow and held until August 2017 to cover the sellers’ post-closing obligations. 5. Goodwill and Intangible Assets Goodwill Changes in the carrying amount of goodwill consisted of the following (in thousands): Amount Balance at December 31, 2015 $2,760 Current period acquisitions 14,100 Foreign currency translation adjustment (51) Balance at December 31, 2016 $16,809 Current period acquisitions 4,805 Foreign currency translation adjustment 253 Balance at December 31, 2017 $21,867 Goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilitiesassumed and is attributable to assembled workforces as well as the benefits expected from combining the Company’s researchand engineering operations with the acquired company’s. For a discussion of the significant changes in goodwill, see Note 4.Most of the Company’s goodwill is not deductible for income tax purposes. Intangible assets The Company’s intangible assets and related accumulated amortization consisted of the following as ofDecember 31, 2017 and 2016 (in thousands):83 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) December 31, 2017 Gross Carrying Accumulated Amount Amortization Net Developed technology $19,626 $(8,914) $10,712 Customer relationships 12,009 (2,556) 9,453 Trademark/trade name 6,776 (869) 5,907 Non-competition agreements 295 (286) 9 Total intangible assets $38,706 $(12,625) $26,081 December 31, 2016 Gross Carrying Accumulated Amount Amortization Net Developed technology $16,618 $(5,738) $10,880 Customer relationships 9,196 (1,160) 8,036 Trademark/trade name 4,410 (337) 4,073 Non-competition agreements 295 (164) 131 Total intangible assets $30,519 $(7,399) $23,120 For a discussion of the significant changes in intangible assets, see Note 4. The weighted average amortizationperiod is 5.6 years for developed technology, 8.4 years for customer relationships, 12.0 years for trademark/trade names, 2.0years for non-competition agreements, and 7.3 years in total. The Company recorded amortization expense during the respective periods for these intangible assets as follows: (inthousands): Year Ended December 31, 2017 2016 Cost of revenue $3,164 $3,052 Research and development 193 188 Sales and marketing 1,855 1,358 Total amortization of intangible assets $5,212 $4,598 Amortization of finite lived intangible assets as of December 31, 2017 is as follows for the next five years (inthousands): Amount2017 $5,5932018 5,5002019 4,5972020 2,2542021 2,093Thereafter 6,044 $26,081 6. Long‑Term ObligationsLoan and Security AgreementOn January 29, 2016, Control4 entered into the Second Loan Modification Agreement (the “2016 LoanAmendment”) with Silicon Valley Bank, a California corporation (“SVB”), which amends that certain Amended and RestatedLoan and Security Agreement dated as of June 17, 2013, between Control4 and SVB (the “2013 Loan Agreement”). 84 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) In the 2016 Loan Amendment, Control4 established a revolving credit facility of $30.0 million under the terms ofthe 2013 Loan Agreement. All borrowings under the revolving credit facility are collateralized by the general assets of theCompany. Amounts borrowed under the revolving credit facility are due and payable in full on the maturity date, which isJanuary 28, 2018. Advances made pursuant to the revolving credit facility are, at Control4’s option, either: (i) Prime RateAdvances, which bear interest at the Prime Rate plus a Prime Rate Margin of either 0% or 0.25%, depending on Control4’sleverage ratio for the subject quarter, or (ii) LIBOR Rate Advances, which bear interest at the LIBOR Rate plus a LIBOR RateMargin of either 2.50% or 2.75%, depending on Control4’s leverage ratio for the subject quarter. Control4 is assessed anUnused 2016 Revolving Line Facility Fee of 0.25% in any quarter where the amount of advances under the revolving creditfacility is less than $15.0 million. As of December 31, 2017, Control4 had no outstanding borrowings under the revolvingcredit facility. The 2016 Loan Amendment contains various restrictive and financial covenants and the Company was incompliance with each of these covenants as of December 31, 2017.On February 6, 2018, Control4 entered into the Third Loan Modification Agreement (the “2018 Loan Amendment”)with SVB, which increases the revolving credit facility to $40.0 million and has a maturity date of January 29, 2020. For adetailed discussion of the 2018 Loan amendment, refer to Note 11. 7. Income TaxesOn December 22, 2017, the United States enacted tax reform legislation commonly referred to as the Tax Cuts andJobs Act (“the Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including a one-timemandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effectiveJanuary 1, 2018, among others. The Company is required to recognize the effect of the tax law changes in the period ofenactment, such as determining the transition tax and remeasuring U.S. deferred tax assets and liabilities. In December 2017,the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act(“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyondone year of the enactment date. Where the Company has been able to make reasonable estimates of the effects of the Tax Actfor which its analysis is not yet complete, the Company has recorded provisional amounts in accordance with SAB 118.Where the Company has not yet been able to make reasonable estimates of the impact of certain elements of the Tax Act, theCompany has not recorded any amounts related to those elements and has continued accounting for them in accordance withthe tax laws in effect immediately prior to the enactment of the Tax Act. Although the accounting for the Tax Act is incomplete, the Company was able to make reasonable estimates ofcertain effects of the Tax Act and record provisional amounts. The Tax Act reduces the U.S. federal corporate tax rate from34% to 21% for tax years beginning after December 31, 2017. The Company has evaluated the decrease in the tax rate andhas recorded a provisional, one-time tax expense of approximately $9.0 million. This expense was offset by an equal changein the valuation allowance, resulting in a net tax expense or benefit of $0. The Company has also recorded a one-time taxbenefit and corresponding reduction to the valuation allowance of $0.4 million related to Alternative Minimum Tax creditcarryforwards that are expected to be refundable; the Tax Act contributed to $0.2 million of this tax benefit. The Company isstill completing its evaluation of the impact of these changes in accordance with SAB 118. The financial statements for the year ended December 31, 2017, do not reflect the impact of certain aspects of theTax Act as the Company did not have the necessary information available, prepared, or analyzed in sufficient detail todetermine an actual or provisional amount for the tax effects of the Tax Act. The tax on unrepatriated foreign earnings is a taxon previously untaxed accumulated and current earnings and profits of the Company’s foreign subsidiaries. The Company isnot able to complete the accounting for federal and state income tax items related to the one-time deemed repatriationtransition tax on unrepatriated foreign earnings and the associated unrecognized deferred tax liability for foreign earningsthat will remain indefinitely reinvested. As a result, no provisional amounts have been recorded and the Company continuesto account for unrepatriated earnings of foreign subsidiaries under the laws existing prior to the enactment date of the TaxAct. The Company anticipates being able to offset the additional tax expense associated with the one-time tax withavailable net operating loss carryovers and/or foreign tax credits. Additionally, the Company is still evaluating theunrecognized deferred tax liability related to investment in foreign subsidiaries and joint ventures that will remainindefinitely reinvested subsequent to the one-85 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) time transition tax. The Company anticipates that this will not impact tax expense, as the Company intends to continueindefinitely reinvesting its unremitted foreign earnings in Australia and the U.K. The Tax Act also creates a new requirement on global intangible low-taxed income (“GILTI”) earned by foreignsubsidiaries. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreignsubsidiary’s assets to be included in the Company’s U.S. income tax return. Due to the complexity of the new GILTI tax rules,the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, theCompany is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxableincome related to GILTI as a current-period expense when incurred or to factor such amounts into the Company'smeasurement of its deferred taxes. The Company has not yet completed its analysis of the GILTI tax rules and is not yet ableto reasonably estimate the effect of this provision of the Tax Act or make an accounting policy election for the ASC 740treatment of the GILTI tax. Therefore, the Company has not recorded any amounts related to potential GILTI tax in itsfinancial statements and has not yet made a policy decision regarding whether to record deferred taxes on GILTI. The domestic and foreign components of net income (loss) before income tax expense consists of the following forthe periods shown below (in thousands): Years Ended December 31, 2017 2016 2015 Income (loss) before income taxes: Domestic $11,277 $6,179 $(933) Foreign 3,160 (2,009) (451) Total income (loss) before income taxes $14,437 $4,170 $(1,384) The provision for income taxes consisted of the following components (in thousands): Years Ended December 31, 2017 2016 2015 Current: Domestic Federal $(511) $400 $154 State 121 232 45 Foreign 490 522 366 Total current tax expense 100 1,154 565 Deferred: Domestic Federal 5,890 2,679 822 State (1,084) (299) 5 Foreign 927 (939) (296) Valuation allowance (7,375) (11,379) (828) Total deferred tax benefit (1,642) (9,938) (297) Total income tax expense (benefit) $(1,542) $(8,784) $268 86 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows: Years Ended December 31, 2017 2016 2015 Federal income tax rate 34.0% 35.0% 34.0% State taxes, net of federal benefit (1.4) (18.4) (2.1) Stock-based compensation (54.5) 21.8 (80.0) Research and development credits (2.4) (0.9) - Change in valuation allowance (56.7) (247.1) 59.5 Non-deductible acquisition costs 0.3 3.3 (21.2) Return to provision adjustments (2.0) (5.5) 10.6 Permanent items 4.0 2.8 (9.5) Capital loss write-off 5.2 - - Deferred tax rate changes - US income tax reform 64.8 - - Differences in foreign tax rates (1.8) (0.5) (11.9) Other, net (0.2) (1.1) 1.2 Effective income tax rate (10.7)% (210.6)% (19.4)% Deferred tax assets and (liabilities) are comprised of the following (in thousands): December 31, 2017 2016 Deferred tax assets: Reserves and accruals $2,136 $2,957 Inventories 1,906 1,826 Net operating loss carryforwards 17,354 15,357 Property, plant and equipment 1,073 1,492 Stock-based compensation 2,283 4,116 Research and development credit carryforwards 5,435 5,757 Other — 117 Total deferred tax assets 30,187 31,622 Valuation allowance (24,082) (23,843) Total deferred tax assets 6,105 7,779 Deferred tax liabilities: Undistributed earnings of foreign subsidiaries (190) (155) Intangible assets (5,493) (6,708) Other (1) — Total deferred tax liabilities (5,684) (6,863) Net deferred tax asset $421 $916 At December 31, 2017 and 2016, the Company had a full valuation allowance against the deferred tax assets of itsdomestic and U.K. operations as it believes it is more likely than not that these benefits will not be realized. Significantjudgment is required in determining the Company’s provision for income taxes, recording valuation allowances againstdeferred tax assets and evaluating the Company’s uncertain tax positions. In evaluating the ability to recover its deferred taxassets, in full or in part, the Company considers all available positive and negative evidence, including past operatingresults, forecast of future market growth, forecasted earnings, future taxable income and prudent and feasible tax planningstrategies. Due to historical net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periodspresented, the Company has a full valuation allowance against domestic and U.K. deferred tax assets. To the extent that theCompany generates positive income and expects, with reasonable certainty, to continue to generate positive domesticincome, the Company may release the valuation allowance in a future period. This release would result in the recognition ofcertain deferred tax assets, resulting in a decrease to income tax expense for the period such release is made. In addition, theeffective87 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) tax rate in subsequent periods would increase, and more closely approximate the new federal statutory rate of 21% for 2018and future years resulting from the passage of the Tax Act, after giving consideration to state income taxes, foreign incometaxes and the effect of excess tax deductions associated with share-based compensation. The net valuation allowancedecreased by approximately $(0.2) million and $11.4 million and during the years ended December 31, 2017 and 2016,respectively. Net operating loss and tax credit carryforwards as of December 31, 2017 are as follows (in thousands): Amount Expiration Years Net operating losses, federal $66,674 2026 - 2037 Net operating losses, state 67,762 2020 - 2037 Tax credit carryforwards, federal 6,641 2023 -2034 Tax credit carryforwards, state 2,813 2018 - 2028 Net operating losses, foreign 796 None The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits, excludinginterest and penalties (in thousands): Years Ended December 31, 2017 2016 2015 Balance at the beginning of the period $3,583 $3,583 $3,583 Current year additions — — — Balance at the end of the period $3,583 $3,583 $3,583 No additional unrecognized tax benefits were computed for the 2017 or 2016 tax years, pending completion of aU.S. federal research and development credit tax study. Domestic research and development credits are the only source ofunrecognized tax benefits. As there are no new domestic credits, there is no current year change in unrecognized taxbenefits. As of December 31, 2017, the amount of unrecognized tax benefits that would, if recognized, impact theCompany’s effective income tax rate is approximately $3.6 million.The Company files income tax returns in the United States, including various state and local jurisdictions. TheCompany’s subsidiaries file income tax returns in the United Kingdom, Australia, China, Germany, India and Serbia. TheCompany is subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company isno longer subject to income tax examinations for the following jurisdictions and years: federal, for years before 2014; stateand local, for years before 2013; or foreign; for years before 2012. However, federal net operating loss and creditcarryforwards from all years are subject to examination and adjustments for at least three years following the year in whichthe attributes are used. The Company is currently under examination by the Internal Revenue Service for the year endedDecember 31, 2015. At December 31, 2017, the Company had undistributed foreign earnings of $3.2 million, which the Companyintends to permanently reinvest in foreign subsidiaries in Australia and the United Kingdom. Unrecognized deferred taxliabilities of $0.8 million from temporary differences related to the investment in these foreign subsidiaries would have beentaxable if the Company repatriated the foreign earnings. The Company anticipates that future overseas earnings in thesejurisdictions will also be reinvested indefinitely. In accordance with the indefinite reversal criteria, the foreign currency gainsrecorded in other comprehensive income related to foreign currency translation in these jurisdictions have not been taxeffected.88 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) 8. Equity Compensation Stock OptionsIn 2003, the Board of Directors adopted the 2003 Equity Incentive Plan (the “2003 Plan”), which provided for thegranting of nonqualified and incentive stock options, stock appreciation rights, stock awards, restricted stock units andrestricted stock awards. Under the 2003 Plan, the Company was able to grant nonqualified and incentive stock options todirectors, employees and non-employees providing services to the Company. On June 11, 2013, the Company’s Board ofDirectors adopted the 2013 Stock Option and Incentive Plan (the “2013 Plan”), which was subsequently approved by theCompany’s stockholders. To the extent that any awards outstanding under the 2003 Plan are forfeited or lapse unexercisedafter August 1, 2013, the shares of common stock subject to such awards will become available for issuance under the 2013Plan. The 2013 Plan provides for annual increases in the number of reserved shares of 5% of the outstanding number of sharesof the Company’s Common Stock as of the preceding December 31. On January 1, 2018, the number of reserved shares wasincreased by 1,291,644 in accordance with the provisions of the 2013 Plan. A summary of stock option activity for the years ended December 31, 2017, 2016 and 2015 is presented below: Weighted Weighted Average Shares Subject Average Weighted Remaining to Options Grant Date Average Contractual Outstanding Fair Value Exercise Price Life (Years) Balance at December 31, 2014 4,851,221 $10.57 Granted 238,516 $5.31 10.52 Exercised (285,387) 4.87 Expired (47,866) 13.92 Forfeited (183,812) 14.76 Balance at December 31, 2015 4,572,672 10.72 Granted 50,000 4.63 8.16 Exercised (685,798) 5.01 Expired (76,907) 14.96 Forfeited (83,562) 14.81 Balance at December 31, 2016 3,776,405 11.55 Exercised (1,617,659) 10.48 Expired (60,275) 17.51 Forfeited (28,669) 16.70 Balance at December 31, 2017 2,069,802 12.13 Exercisable options at December 31, 2016 3,048,020 10.69 5.4 Vested and expected to vest at December 31, 2016 3,733,643 11.52 5.8 Exercisable options at December 31, 2017 1,786,261 11.93 5.0 Vested and expected to vest at December 31, 2017 2,069,802 12.13 5.3 89 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) The following table summarizes information about stock options outstanding and exercisable at December 31,2017: Options Outstanding Options Exercisable Weighted- Weighted- Weighted Average Average Average Number of Remaining Number of Remaining Exercise Underlying Contractual Underlying Contractual Range of Exercise Prices Price Shares Life (in years) Shares Life (in years) $4.78-7.28 6.01 703,312 3.5 693,299 3.4 $7.49-11.29 10.01 434,929 5.5 338,311 5.1 $11.72-17.66 14.70 483,862 6.9 335,285 6.9 $19.56-22.92 21.02 447,699 6.1 419,366 6.1 2,069,802 1,786,261 The total fair value of stock option awards vested during the years ended December 31, 2017, 2016, and 2015 was$3.9 million, $5.4 million and $8.0 million, respectively. The following table summarizes the aggregate intrinsic‑value ofoptions exercised, outstanding and exercisable (in thousands): For the Years Ended and as of December 31, 2017 2016 2015 Options Exercised $19,966 $3,312 $1,432 Options Exercisable 31,841 6,089 3,496 Options Vested and Expected to Vest 36,489 6,280 3,499 The Company did not grant any option awards during 2017. The fair value of each option award granted in 2016and 2015 was estimated on the date of grant using the Black‑Scholes option‑pricing model with the following assumptions: December 31, 2016 2015 Expected volatility 62% 51-55% Expected dividends 0% 0% Expected terms (in years) 6.1 5.3-6.1 Risk-free rate 1.1% 1.3-1.8% Restricted stock units A summary of restricted stock unit activity for the year ended December 31, 2017 is presented below:90 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Number of Weighted Average Shares Grant Date Fair Value Non-vested balance at December 31, 2014 — Awarded 433,000 $8.18 Forfeited (8,000) 8.18 Non-vested balance at December 31, 2015 425,000 8.18 Awarded 1,147,946 7.40 Vested (35,340) 7.85 Forfeited (141,219) 7.66 Non-vested balance at December 31, 2016 1,396,387 7.60 Awarded 783,060 11.28 Vested (823,620) 7.62 Forfeited (65,167) 8.82 Non-vested balance at December 31, 2017 1,290,660 9.75 The total fair value of awards vested during the years ended December 31, 2017 and 2016 was $16.0 million and$0.4 million, respectively. During the year ended December 31, 2017, 823,620 restricted stock units vested of which284,329 shares were withheld for tax purposes resulting in the issuance of 539,291 shares of common stock. The aggregate intrinsic value of unvested restricted stock at December 31, 2017 was $38.4 million. The aggregateintrinsic value represents the total pretax intrinsic value, based on the Company’s stock price of $29.76 as of December 31,2017, which would have been received by the restricted stock unit participants had all restricted stock units been vested as ofthat date. Stock-based compensation expense Total stock‑based compensation expense has been classified as follows in the accompanying ConsolidatedStatements of Operations (in thousands): Years Ended December 31, 2017 2016 2015 Cost of revenue $251 $171 $174 Research and development 4,242 3,256 2,885 Sales and marketing 3,662 2,273 1,783 General and administrative 3,950 2,670 2,192 Total stock-based compensation expense $12,105 $8,370 $7,034 At December 31, 2017, there was $2.5 million of total unrecognized compensation cost related to non‑vested stockoption awards that will be recognized over a weighted‑average period of 1.0 years. At December 31, 2017, there was $8.4million of total unrecognized compensation cost related to non-vested restricted stock units that will be recognized over aweighted-average period of 1.7 years. Company Matching Contribution to 401(k) Plan The Company offers a 401(k) Plan and in November 2016, the Board of Directors authorized a matchingcontribution by the Company starting in 2017. Matching contributions are as follows: the Company will match 100% of thefirst 1% of salary contributed by a participant, and 50% of the next 5% of salary contributed by a participant, for a maximummatching contribution of 3.5% of the salary of a participant up to the limit on contributions imposed by the IRS. Currently,the Company funds its match in contribution with shares of Control4’s common stock. During the year91 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) ended December 31, 2017, the Company contributed 65,171 shares of stock to employees under this plan and recorded $1.4million of expenses associated with this contribution. 9. Share RepurchasesIn May 2015, the Company’s Board of Directors authorized the repurchase of up to $20 million in Control4common stock from time to time on the open market. During the years ended December 31, 2017 and 2016, the Companyrepurchased 119,007 and 427,646 shares of common stock for $1.8 million and $3.2 million, respectively. In February 2018, the Company’s Board of Directors authorized the expansion of the repurchase program providingapproval for the Company to repurchase up to $20 million in Control4 common stock from time to time on the open marketuntil June 2019. 10. Commitments and ContingenciesOperating LeasesThe Company leases office and warehouse space under operating leases that expire between 2017 and 2021. Theterms of the leases include periods of free rent, options for the Company to extend the leases (three to five years) andincreasing rental rates over time. The Company recognizes rental expense under these operating leases on a straight-linebasis over the lease term and has accrued for rental expense recorded but not paid. Rental expense was approximately $2.9 million, $2.5 million and $1.9 million, for the years ended December 31,2017, 2016 and 2015, respectively.Future minimum rental payments required under non‑cancelable operating leases with initial or remaining terms inexcess of one year consist of the following as of December 31, 2017 (in thousands): 2017 $2,632 2018 1,128 2019 617 2020 31 2021 — $4,408 Purchase CommitmentsThe Company had non‑cancellable purchase commitments for the purchase of inventory, which extend throughNovember 2018 totaling approximately $52.4 million as of December 31, 2017.IndemnificationThe Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer ordirector is or was serving at the Company’s request in such capacity. The maximum amount of potential futureindemnification is unlimited; however, the Company has a directors’ and officers’ insurance policy that provides corporatereimbursement coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Companyhas no liabilities recorded for these agreements as of December 31, 2017, as there were no outstanding claims. 92 Table of ContentsControl4 CorporationNotes to Consolidated Financial Statements (Continued) Legal MattersFrom time to time, the Company may become involved in legal proceedings arising in the ordinary course ofbusiness. The Company is not presently a party to any legal proceedings, that if determined adversely to Control4, wouldindividually or in the aggregate have a material adverse effect on the business, results of operations, financial condition orcash flows. 11. Subsequent Events Amendment to the Silicon Valley Bank Loan Agreement On February 6, 2018, Control4 entered into the 2018 Loan Amendment with SVB, which amends the 2013 LoanAgreement. In the 2018 Loan Amendment, Control4 increases the revolving credit facility from $30.0 million to $40.0 millionunder the terms of the 2013 Loan Agreement (the “New Credit Facility”). All borrowings under the New Credit Facility arecollateralized by the general assets of the Company. Amounts borrowed under the New Credit Facility are due and payable infull on the maturity date, which is January 29, 2020. Advances made pursuant to the New Credit Facility depend onControl4’s leverage ratio and are either: (i) Prime Rate Advances, which bear interest at the Prime Rate plus a Prime RateMargin of either 0% or 0.25%, or (ii) LIBOR Rate Advances, which bear interest at the LIBOR Rate plus a LIBOR RateMargin of either 2.50% or 2.75%. Control4 paid a commitment fee of $100,000 in connection with the New Credit Facility, and will be assessed anunused revolving line facility fee of 0.25% in any quarter wherein the amount of advances under the New Credit Facilityis less than $15.0 million. As a condition of the 2018 Loan Amendment, Control4 must satisfy certain financial covenants. 93 Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluatedthe effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Form 10-K. Based onsuch evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosurecontrols and procedures were effective. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during our most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations of Internal Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that ourdisclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controlsystem are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherentlimitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of asimple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion oftwo or more people, or by management override of the control. The design of any system of controls also is based in partupon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions. Over time, controls may become inadequate because ofchanges in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherentlimitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting(as defined by Rule 13a-15(f) of the Exchange Act). In assessing the effectiveness of our internal control over financialreporting as of December 31, 2017, our management used the criteria set forth by the Committee of Sponsoring Organizationsof the Treadway Commission (2013 framework). Based on this assessment, management has concluded that our internal control over financial reporting was effectiveas of December 31, 2017, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accountingprinciples. This Annual Report on Form 10-K does not include an attestation report of our independent registered publicaccounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation byour independent registered public accounting firm as an emerging growth company is exempt from this requirement. ITEM 9B. Other Information None.94 Table of Contents PART III. We are incorporating by reference the information required by Part III of this Form 10-K from our proxy statementrelating to our 2018 annual meeting of stockholders (the “2018 Proxy Statement”), which will be filed with the SEC within120 days after the end of the fiscal year to which this report relates. ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this Item will be contained in the 2018 Proxy Statement and is incorporated herein byreference. ITEM 11. Executive Compensation The information required by this Item will be contained in the 2018 Proxy Statement and is incorporated herein byreference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item will be contained in the 2018 Proxy Statement and is incorporated herein byreference. ITEM 13. Certain Relationships and Related Transactions and Director Independence The information required by this Item will be contained in the 2018 Proxy Statement and is incorporated herein byreference. ITEM 14. Principal Accountant Fees and Service The information required by this Item will be contained in the 2018 Proxy Statement and is incorporated herein byreference.95 Table of Contents PART IV. ITEM 15. Exhibits, Consolidated Financial Statements and Financial Statement Schedules (a)Documents filed as part of this report: 1. Consolidated Financial Statements. We have filed the consolidated financial statements listed in theindex to Consolidated Financial Statements, Schedules and Exhibits in Part II, Item 8, of this Annual Report onForm 10-K. 2. Financial Statement Schedules and Other. All financial statement schedules have been omitted becausethey are not applicable, not material or the required information is shown in the consolidated financial statements orthe notes thereto. 3. Exhibits. The exhibits listed below are filed or incorporated by reference as part of this Annual Reporton Form 10-K. (b)Exhibits: ExhibitNumber Description of Exhibits Incorporated byReference fromForm Incorporated byReference fromExhibitNumber Date Filed3.1 Amended and Restated Certificate ofIncorporation of the Registrant. 10-Q 3.1 August 30, 20133.2 Amended and Restated Bylaws of the Registrant. S-1 3.4 July 1, 20134.1 Specimen Common Stock Certificate of theRegistrant. S-1/A 4.1 July 18, 201310.1+ Form of Director and Executive OfficerIndemnification Agreement. S-1 10.1 July 1, 201310.2+ 2003 Equity Incentive Plan and forms of awardagreements thereunder. S-1 10.2 July 1, 201310.3+ 2013 Stock Option and Incentive Plan and formsof award agreements thereunder. S-1 10.3 July 1, 201310.4+ Offer Letter to Martin Plaehn, dated August 20,2011. S-1 10.4 July 1, 201310.5+ Offer Letter to Jeff Dungan, dated August 1, 2006. S-1 10.7 July 1, 201310.7 Relationship Agreement, dated June 27, 2013,between the Registrant and Sanmina Corporation. S-1/A 10.9 July 18, 201310.8 Amended and Restated Loan and SecurityAgreement, dated June 17, 2013, between theRegistrant and Silicon Valley Bank. S-1 10.11 July 1, 201310.9 Lease dated March 31, 2012 by and between theRegistrant and Harbert MSB Lone Peak Campus,LLC (as successor-in-interest to Colliers Paragon,LLC), as amended on December 17, 2012,February 24, 2014, December 22, 2014, and June29, 2016. Filed herewith 10.9 10.10 Second Loan Modification Agreement, datedJanuary 29, 2016, by and between Silicon ValleyBank and Control4 Corporation 8-K 10.1 February 4, 201610.11 Third Loan Modification Agreement, datedFebruary 6, 2018, by and between Silicon ValleyBank and Control4 Corporation 8-K 10.1 February 8, 201823.1 Consent of Ernst & Young LLP, IndependentRegistered Public Accounting Firm. Filed herewith 31.1 Certification of the Chief Executive Officerpursuant to Section 302 of the Sarbanes-OxleyAct. Filed herewith 96 Table of Contents ExhibitNumber Description of Exhibits Incorporated byReference fromForm Incorporated byReference fromExhibitNumber Date Filed31.2 Certification of the Chief Financial Officerpursuant to Section 302 of the Sarbanes-OxleyAct. Filed herewith 32.1* Certification of the Chief Executive Officer andthe Chief Financial Officer pursuant toSection 906 of the Sarbanes-Oxley Act. Furnished herewith 101.INS XBRL Instance Document Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension CalculationLinkbase Document Filed herewith 101.DEF XBRL Taxonomy Extension Definition LinkbaseDocument Filed herewith 101.LAB XBRL Taxonomy Extension Label LinkbaseDocument Filed herewith 101.PRE XBRL Taxonomy Extension PresentationLinkbase Document Filed herewith *The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K andwill not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except tothe extent that the Registrant specifically incorporates it by reference.+Denotes management contract or compensatory plan or arrangement. ITEM 16. Form 10-K Summary None. 97 Table of Contents SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 15, 2018CONTROL4 CORPORATION By:/s/ MARK NOVAKOVICH Mark Novakovich Chief Financial Officer (Principal Financial and Accounting Officer) POWER OF ATTORNEY AND SIGNATURES We, the undersigned directors of Control4 Corporation, hereby severally constitute and appoint Martin Plaehn andMark Novakovich, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, tosign for us in our names in the capacities indicated below, all amendments to this report, and generally to do all things in ournames and on our behalf in such capacities to enable Control4 Corporation to comply with the provisions of the SecuritiesExchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities indicated on February 15, 2018. Signature Title /s/ MARTIN PLAEHN President, Chairman and Chief Executive Officer (PrincipalExecutive Officer)Martin Plaehn /s/ MARK NOVAKOVICH Chief Financial Officer (Principal Financial andAccounting Officer)Mark Novakovich /s/ ROB BORN DirectorRob Born /s/ JAMES CAUDILL DirectorJames Caudill /s/ DAVID C. HABIGER DirectorDavid C. Habiger /s/ JEREMY JAECH DirectorJeremy Jaech /s/MARK E. JENSEN DirectorMark E. Jensen /s/ PHIL MOLYNEUX DirectorPhil Molyneux /s/ MARIA THOMAS DirectorMaria Thomas 98Exhibit 10.9 COMMERCIAL LEASE This COMMERCIAL LEASE (the “Lease”), dated this 31day of March, 2012 (the “Effective Date”), is entered into by andbetween (a) Colliers Paragon, LLC, an Idaho limited liability company (“Landlord”), on behalf of and as Managing Representative forthe tenant in common owners of the “Building” (as defined below), as successor in interest to DBSI - Draper Lease CO, L.L.C., aUtah limited liability company, and Draper/CG, L.L.C, a Utah limited liability company, and (b) Contro14 Corporation, a Delawarecorporation, (“Tenant”). For and in consideration of the terms and conditions of this Lease, together with the mutual benefits to be derivedfrom this Lease, Landlord and Tenant agree as follows: 1. PREMISES. (a) Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the term and subject to the terms andconditions hereinafter set forth, to each and all of which Landlord and Tenant hereby mutually agree, those certain premises, shown onExhibit A (space plan) attached hereto, which include approximately 48,870 rentable square feet (“RSF”), 44,412 usable square feet(“USF’’) of office space, within the “Building” (as defined below) (the “Premises”). The location of the building in which the Premises issituated is commonly known as 11734 South Election Drive, Draper, UT 84020 (the “Building”). The Building consists of 51,135 RSF ofoffice space. (b) In addition, the Premises shall include the appurtenant right to use, in common with other tenants of the Building, thesite, parking and landscaped areas located near or adjacent to the Building shown on attached Exhibit A (collectively, the “CommonAreas”). Landlord shall provide Tenant five (5) non-reserved parking stalls per 1,000 USF of Premises in the parking areas within theCommon Areas and serving the Building. In addition, Tenant shall have the right, with Landlord’s prior written approval, said approvalnot to be unreasonably withheld, conditioned or delayed, to designate one (1) parking stall per 1,000 USF of Premises in the parking lotlocated on the north side of the Building, as parking for Tenant’s exclusive use; provided, however, except for Landlord’s placement ofsignage designating such exclusive parking stalls, Landlord shall not be required to enforce any such exclusive parking rights. (c) The RSF and USF of the Premises, and the RSF of the Building, have been measured in accordance with the standards setforth in ANSI Z65. l- l996, as promulgated by the Building Owners and Managers Association (“BOMA”). (d) Subject to Landlord’s continuing obligations as of the Effective Date and during the Lease Term, except as and to theextent Tenant shall advise Landlord, in writing, to the contrary within ten (10) days following the Effective Date, Tenant, by the later ofthe Effective Date or Tenant’s occupancy or possession of the Premises (the “Possession Date”), shall be deemed to accept the Premises asbeing in the condition in which Landlord is obligated to deliver the Premises. 2. TERM, OPTION, TENANT IMPROVEMENTS, EXPANSION. (a) Lease Term. The initial Lease term shall be approximately seventy-six (76) months and shall commence on the date thisLease has been fully executed (“Commencement Date”), and shall expire at 11:59:59 pm local time on June 30, 2018 (the “Initial LeaseTerm” and, collectively with any renewal or extension (or, if any, holdover) thereof in accordance with this Lease, the “Lease Term”). Tenant shall have two (2) consecutive renewal options for the Premises, and/or any expansion space added to the Premises or anysmaller portion thereof reconfigured in accordance with this Lease, of st  three (3) years each (in each case, a “Renewal Option”). Tenant may exercise a Renewal Option as to the entire Premises, or no less thanseventy-five percent (75%) of the Premises; provided that the portion of the Premises that Tenant shall surrender to Landlord upon suchreconfiguration is commercially marketable, in Landlord’s reasonable discretion. Tenant shall be required to give Landlord at leasttwelve (12) months prior written notice of its intent to exercise any Renewal Option, including the approximate size and location of anyspace to be surrendered to Landlord. Tenant may not exercise any Renewal Option if Tenant is then in default under the Lease (after giving effect to any applicablenotice requirements, grace and/ or cure periods). Any Renewal Option shall not be personal to Tenant and may be exercised by anyassignee of the Lease or successor in interest to Tenant permitted or otherwise authorized under the terms of the Lease. Upon Tenant’s exercise of any Renewal Option, the “Base Rent” (as defined below) for the Premises during the Renewal Optionterm shall be the “Fair Market Rate” (as defined in Exhibit B attached) and the “Base Year” (as defined below) for purposes of calculatingthe “Operating Expense Increment” (as defined below) shall be reset to the initial calendar year in which the Renewal Option termcommences. (b) Base Building Improvements. At Landlord’s sole cost and expense (subject to reimbursement as and to the extent part ofthe “Operating Expenses” as defined in Section 7, below), Landlord shall provide the Building’s roof, foundation, external walls, interiorstructural walls, and other structural elements (collectively, the “Shell”), and shall provide basic utility access to all Building systems,lines, equipment, facilities, and initial HVAC units and systems for or serving the Premises(collectively, the “Building Systems,” and collectively with the Shell, the “Base Building Improvements”). Landlord shall be responsiblefor correcting any latent defects in the design and construction of the Base Building Improvements (e.g., roof, foundation, external walls,interior structural walls, utility lines equipment and facilities, and other Building Systems), and any costs or expenses therefor shall not beconsidered or charged as “Operating Expenses” as defined in Section 7, below, but shall be the sole responsibility of Landlord. (c) Tenant Improvements. Subject to subsection 2(b), above, and except as otherwise specified in this Lease, the Premises aredelivered by Landlord and accepted by Tenant in their “as is,” condition, including without limitation the finished interior, any floors,walls and ceilings within the Premises. (d) Tenant Improvement Allowance. Landlord shall provide Tenant a Fifteen Dollar ($15.00) per RSF tenant improvementallowance or (subject to subsection l(c), above) $733,050.00, in the aggregate, applicable to Tenant’s construction, alteration, remodeling,or other modification of any and all improvements within the Premises or otherwise as may be reasonably necessary or appropriate forTenant’s use and occupancy of the Premises or Tenant’s use of the Building and the Common Areas (the “Tenant ImprovementAllowance”), which Tenant Improvement Allowance shall be expendable for, but not limited to, the following (collectively, as set forthbelow or otherwise reasonably necessary or appropriate for Tenant’s use and occupancy of Premises and the Common Areas ascontemplated under this Lease, the “Tenant Improvements”), which Tenant Improvements shall be undertaken, from time to time duringthe Lease Term; by or at the direction of Tenant: ·Costs of the design and construction of the Tenant Improvements·Any reasonable and customary amount paid to a project coordinator, construction consultant, or similar consultant·Permanently-attached furniture·Wiring and Cabling  ·Architectural fees·Permit fees·Signage·Security systems Tenant shall have access to up to SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($75,000) of the Tenant ImprovementAllowance for the first nine (9) months of the Lease Term. Landlord will be responsible to pay Tenant’s contractors for theTenant Improvements completed. Should Landlord oversee the construction of the Tenant Improvements at the written request of Tenant,and not otherwise, Landlord shall be entitled to a construction management fee equal to such percentage, not to exceed five percent (5%)of the cost of such overseen Tenant Improvements, as Tenant and Landlord then shall agree in writing and, in the event of any such requestand agreement, any such management fee, at Tenant’s option, shall be paid from the Tenant Improvement Allowance. Otherwise, as and tothe extent Landlord shall review any plans and specifications for any Tenant Improvements, Tenant agrees to reimburse Landlord for anyout-of-pocket costs or expenses reasonably incurred by Landlord, on a hourly basis, in connection with any such review thereof, againwhich costs and expenses may be paid from the Tenant Improvement Allowance as and to the extent authorized by Tenant. Any unused portion of the Tenant Improvement Allowance will be held in reserve with Landlord until January 1, 2014 at whichtime Tenant shall have the option, but not the obligation, to access such unused portion of the Tenant Improvement Allowance pursuant tothe terms set forth in Section 2(e), below. (e) Building 20 Expansions. Subject to the remaining provisions of this subsection 2(e), as soon as reasonably practicablefollowing delivery of the “Expansion Premises” (as defined below) to Tenant, Tenant shall expand into that part of the Building consistingof 740 RSF and designated as Suite 20-170 of the Building (the “Suite 20-170 Premises”) and, further, that part of the Building consistingof 1,525 RSF and designated as Suite 20-180 of the Building (the “Suite 20-180 Premises” and, collectively with the Suite 20-170Premises, the “Building 20 Expansion Premises”). The lease commencement date pertaining to the Suite 20-170 Premises, the Suite 20-180Premises and/or the Expansion Premises shall be ninety (90) days following Landlord’s delivery to Tenant of the Expansion Premises forpurposes of allowing Tenant to construct any desired Tenant Improvements; provided, however, that in no event shall the commencementof such lease term for all or any part of the Expansion Premises be required to occur prior to March 31, 2014, unless either or bothExpansion Premises are earlier vacated by their existing tenants and, in its sole discretion as confirmed in writing at that time, Tenantdesires to accept and lease either or both of the Expansion Premises earlier than March 31, 2014. Base Rent for any such ExpansionPremises shall be at the then-applicable RSF Base Rent set forth in Section 4 below. The lease term for such Expansion Premises shall becoterminous with the Lease Tenn. The Tenant Improvement Allowance applicable to the Expansion Premises shall be in addition to theTenant Improvement Allowance otherwise specified in this Lease for the Premises and, then, shall be equal to the product of FIFTEENAND NO/100 DOLLARS ($15.00) multiplied by the RSF of the Expansion Premises and further multiplied by a fraction, the numerator ofwhich shall be the number of months then remaining in the Initial Lease Term (as of the Lease commencement date for the ExpansionPremises) and the denominator of which shall be the number of months of the Initial Lease Term (i.e., 76). Subject to the foregoing,Landlord shall guaranty delivery of the Expansion Premises to Tenant no later than January 1, 2014; provided that, in the event Landlordshall not then deliver the Expansion Premises to Tenant, then, the date by which Tenant shall be obligated to utilize the TenantImprovement Allowance for the Premises and/or the Expansion Premises shall be extended for a period beyond December 31, 2015comparable to the period after January 1, 2014 that Landlord shall fail to deliver the Expansion Premises.  (i) Subject to Landlord’s timely delivery of the Expansion Premises as contemplated in this Lease, Tenant shallhave until December 31, 2015 to utilize the remaining balance of the Tenant Improvement Allowance (including that portion of theTenant Improvement Allowance applicable to the Expansion Space, but excluding the Tenant Improvement Allowance applicable to the“Suite 19-210 Premises” (as defined below )). (ii) In the event that, upon the completion of any Tenant Improvements desired by Tenant in respect of the Premises,should a balance remain in the Tenant Improvement Allowance, Tenant may elect, at any time after December 31, 2014and without waiving any right to use the remaining Tenant Improvement Allowance as otherwise set forth in this Lease, to cause anamount equal to not more than ten percent (10%) of the initial Tenant Improvement Allowance (inclusive of the prorated TenantImprovement Allowance applicable to the Expansion Premises) to be applied to and credited toward Base Rent. (iii) Notwithstanding the foregoing, except as and to the extent the Tenant Improvement Allowance shall relate toany Tenant Improvements made by or at the direction of Tenant during the nine (9) month period from and after the Commencement Dateand/or except in the event Landlord has offered, and Tenant has elected to accept, all or part of the Expansion Premises prior to January 31,2014 pursuant to subsection 2(e), above, Tenant shall not otherwise be entitled to use, and Landlord shall not be required to provide anyother use of, or access to, the Tenant Improvement Allowance prior to January 1, 2014, after which the Tenant Improvement Allowance, orany remaining balance thereof, shall be provided by Landlord and may be used by Tenant as otherwise specified in this Lease. (f) Building 19 Expansion Premises; Further Expansion Option. In the event that, except as otherwise agreed by Tenant andLandlord or specified in this Lease, including without limitation subsection 2(g), below, Tenant shall lease, use and occupy any premiseswithin Building 19, whether pursuant to this Lease or otherwise, any such lease, use and occupancy shall be subject to, and on, the sameterms and conditions of the Lease applicable to the Premises (as applicable, the “Building 19 Expansion Premises”). Further, Tenant shallbe granted one option to lease additional space (the “Suite 19-210 Option”) within that certain building owned by Landlord commonlyknown as Building 19 located at 11778 S Election Road in Draper, Utah (“Building 19”), which space shall consist of not less than 9,616RSF and not more than 13,288 RSF in the space designated in Building 19 as (i) Suite 19-210 (the “GTC Space”) and currently occupiedby GLOBALBASED TECHNOLOGIES, INC., a Delaware corporation (the “Current Tenant”) and (ii) the space adjoining the GTC Spacewhich is currently vacant (collectively, the “Suite 19-210 Premises”). In the event that the Current Tenant fails to renew its lease (the“Current Tenant Lease”) for the Suite 19-210 Premises (in this connection, Landlord covenants that Landlord will not consent to anyrenewal of the Current Tenant Lease of the Suite 19-210 Premises by any assignee or sublessee of the Current Tenant), Landlord shall sonotify Tenant no later than December 1 of year in which the Current Tenant shall fail to renew the Current Tenant Lease or, if earlier, within ten (10) business days after any such failure to renew by the Current Tenant. Upon Tenant’s receipt of such notice, Tenant mayelect to exercise the Suite 19-210 Option by so notifying Landlord in writing within ten (10) business days following receipt of any suchnotice. In the event Tenant so elects, Landlord shall deliver possession of the Suite 19-210 Premises to Tenant on January 1st of thecalendar year following Landlord’s notice; provided, however, in the event Tenant does not elect to timely exercise the Suite 19-210Option or in the event the Current Tenant elects to renew its existing lease through calendar year 2016, the Suite 19-210 Option shallterminate and be of no further force or effect. In the event the Suite 19-210 Option terminates, Tenant’s right to lease the Suite 19-210Premises shall convert to a right of first refusal as to such space, as set forth in subsection 2(g), below.  The Suite 19-210 Option set forth in this subsection 2(f) is not personal to Tenant and may, if Tenant so consents, be alsoexercised by any assignee or successor in interest of Tenant of the Lease permissible under the terms of the Lease. If Tenant exercises the Suite 19-210 Option set forth in this subsection 2(f), Base Rent shall be at the then-applicable RSF BaseRent set forth in Section 4, below; provided, however Tenant shall not be obligated to pay any such Base Rent for the Suite 19-210Premises until ninety (90) days after Landlord’s delivery of the Suite 19-210 Premises to Tenant for purposes of allowing Tenant toconstruct any desired Tenant Improvements. Tenant may elect to have the Suite 19-2-10 Premises re-measured, in accordance with BOMAstandards. Such measurements shall be made at Tenant’s cost by an architect selected by Tenant. Unless a difference of more than fivepercent (5%) exists between the RSF and USF measurements set forth above, and Tenant’s architect’s re-measurements, the measurementsset forth above shall be deemed determinative for purposes of this Lease. In the event such difference is greater than five percent (5%),Landlord and Tenant’s architects shall select, within five (5) business days after Tenant’s architect’s completion of such re-measurements, athird architect to measure the Suite I9-210 Premises and/or Building 19, as applicable, and such architect’s measurement(s) shall bedeterminative for purposes of this Lease. The lease term for such Suite 19-210 Premises shall be coterminous with the Lease Term. The Tenant Improvement Allowanceapplicable to the Suite 19-210 Premises shall be equal to the product of Fifteen Dollars ($15.00) multiplied by the RSF of the Suite 19-210Premises and further multiplied by a fraction, the numerator of which shall be the number of months then remaining in the Initial LeaseTerm (as of the Lease commencement date for the Suite 19-210 Premises) and the denominator of which shall be the number of months ofthe Initial Lease Term (i.e., 76). Further, the Base Year for purposes of calculating the Operating Expense Increment for the Suite 19-210Premises in Building 19 shall be the same as established herein for the Premises in the Building, with Tenant’s prorata share of anyOperating Expense Increment for Building 19 calculated in the same manner as Tenant’s prorata share of any Operating Expense Incrementfor the Building, subject to the same limitations and restrictions, applicable to Tenant’s obligation for any Operating Expense Incrementfor the Building. Nothing in this subsection 2(f) or elsewhere in this Lease shall eliminate or supersede the rights set forth in subsection2(g), below. (g) Right-of-First-Refusal. Subject to the terms and conditions of this subsection 2(g): (i) Beginning June 1, 2013 through May 31, 2016 Tenant shall have an ongoing right-of-first-refusal to leaseany available space in Building 19 (the “ROFR”). Upon Landlord’s receipt of a bona fide written offer from any third party to leaseany available space in Building 19 that Landlord is prepared to accept, or Landlord otherwise determines to utilize the space by or underthe direction of Landlord, Landlord shall provide a copy of said offer to Tenant (a “Building 19 Lease Offer”). Tenant shall then have ten(10) days to either accept the same premises identified in the Building 19 Lease Offer (the “Building 19 ROFR Premises”) or waive its rightin that instance. Should Tenant elect to lease such Building 19 ROFR Premises, the same terms and conditions as contained in this Leaseshall apply to the Building 19 ROFR Premises, including, but not limited to Base Rent, Operating Expenses, Lease Term expiration, andprorated Tenant Improvement Allowance. Base Rent shall be at the then applicable per RSF Base Rent set forth in Section 4 below. Thelease term for such Building 19 ROFR Premises shall be coterminous with the Lease Term. The Tenant Improvement Allowance applicableto the Building 19 ROFR Premises shall be equal to the product of Fifteen Dollars ($15.00) multiplied by the RSF of the Building 19ROFR Premises and further multiplied by a fraction, the numerator of which shall be the number of months then remaining in the InitialLease Term and the denominator of which shall be the number of months of the Initial Lease Term (i.e., 76). Tenant’s lease of theBuilding 19 ROFR Premises shall commence on such space the later of ninety (90) days following the execution of a lease amendment adding such space to the Premises or the Building 19 ROFR Premises being made available to Tenant for build-out pursuant to terms setforth in said amendment. Should Tenant decline to lease any premises that is the subject of a Building 19 Lease Offer, such action shallhave no effect on Tenant’s future right to exercise the ROFR in accordance with this subsection 2(g) in connection with any such premisesor any other portion of Building 19. Tenant’s exercise of the ROFR is subject to Tenant not then being in default of the Lease, after givingeffect to any applicable notice, grace and/or cure periods. (ii) Beginning June 1, 2016, Tenant shall still have a right-of-first-refusal on any available space in Building 19 andthe terms of such ROFR shall be as set forth in this subsection 2(g); provided, however, that if the applicable Building 19 ROFR Premisesis less than or equal to five thousand (5,000) RSF, no Tenant Improvement Allowance shall be available to Tenant pertaining to suchpremises. (iii) Beginning June I, 2016, in the event Tenant exercises its ROFR on any Building 19 ROFR Premises containingmore than five thousand (5,000) RSF, the lease terms applicable to such premises shall be as set forth in subsection 2(g)(i), above, and inaddition, Tenant shall be required to extend the Lease Term applicable to the entire Premises covered by the Lease by three (3)years beyond June 30, 2018, with Base Rent then at the Fair Market Rate and the Base Year for purposes of calculating the OperatingExpense Increment reset to 2018, with Tenant’s prorata share of any Operating Expense Increment for Building 19 calculated in the samemanner , subject to the same limitations and restrictions, applicable to Tenant’s obligation for any Operating Expense Increment for theBuilding. (h) Sale of Building. In the event that Landlord elects to list for sale the Building as a single asset or as a component to aportfolio, Tenant shall be afforded rights of first negotiation to purchase the Building or such portfolio, which rights must be exercisedwithin ten (10) business days of receipt of Landlord’s notice of Landlord’s intent to list the Building for sale, together with any particularsregarding the nature and scope of any such transaction. 3. INTENTIONALLY OMITTED. 4. RENT. (a) Base Rent. The annual full-service Base Rent rate for the Premises during the Initial Lease Term shall be as follows: Commencement Date - December 31, 2012$20.75 per RSFJanuary 1 - December 31, 2013$17.50 per RSFJanuary 1 - December 31, 2014$18.00 per RSFJanuary 1 - December 31, 2015$18.50 per RSFJanuary 1 - December 31, 2016$19.00 per RSFJanuary 1 - December 31, 2017$19.50 per RSFJanuary 1 - June 30, 2018$20.00 per RSF (i) Base Rent Payment. One twelfth (1/12) of the Base Rent calculated in accordance with the preceding table shallbe payable each month on or before the 1st day of each month during the Initial Lease Term. Any partial months shall be proratedaccordingly. All Base Rent and “Additional Rent” (as defined below and, collectively with Base Rent, the “Rents”) shall be paid asfollows, unless otherwise directed in writing: Draper Technology Park c/o Colliers Paragon, LLC, 755 W Front Street, Boise, Idaho 83702.  (ii) Base Rent Abatement. Provided Tenant is not in default as of the Commencement Date (taking intoconsideration any applicable notice, grace and/or cure periods), Landlord shall abate the six (6) months of full-service Base Rent fromJanuary, 2013 through June, 2013. (b) Additional Rent - Operating Expenses. Beginning January 1, 2014, Tenant shall pay as Additional Rent Tenant’s “Pro-Rata Share” (as defined in Section 7, below) of increases in the total “Operating Expenses” (as defined below) of the Building in eachcalendar year as compared to the total Operating Expenses of the Building in 2013 (the “Base Year”) pursuant to the terms set forth inSection 7, below. For the purpose of this section the Base Year Operating Expenses of the Building shall be grossed up to reflect 100%occupancy and based on a fully-assessed Building for taxation purposes. (c) Interest, Late Charges, Costs and Attorneys’ Fees. If Tenant fails to pay within five (5) business days of the date due anyRents which Tenant is obligated to pay under the Lease, the unpaid amount shall bear interest at twelve (12%) percent per annum from andafter the date any such Rents were due and payable until paid by or on behalf of Tenant. Tenant acknowledges that any late payments ofRents shall cause Landlord to lose the use of that money and incur costs and expenses not contemplated under the Lease, includingwithout limitation administrative, collection and accounting costs, the exact amount of which is difficult to ascertain. Therefore, inaddition to interest, if any such payment is not received by Landlord within five (5) business days from the date it is due, Tenant shall alsopay Landlord a late charge equal to five (5%) percent of the amount of each such late Rent payment. Further, as Additional Rent and in theevent that any such payment is not received by Landlord within five (5) business days from the date it is due, Tenant shall be liable toLandlord for costs and attorneys’ fees incurred by Landlord by reason of any such late payment or non-payment. Acceptance of anyinterest, late charge, costs or attorneys’ fees shall not constitute a waiver of any default by Tenant nor prevent Landlord from exercisingany other rights or remedies under the Lease or at law. 5. USE. (a) The Premises shall be used for general office purposes, any other lawful purpose incidental to Tenant’s business, and anyother purposes consistent with uses of other office tenants in similar office buildings in the reasonable vicinity of the Building, and noother, unless consented to in writing by Landlord. Subject to the foregoing and Tenant’s right to so use and occupy the Premises, theBuilding and the Common Areas under this Lease, Tenant shall not do or, to the extent caused by Tenant, permit to be done in or about thePremises, Building, or Common Areas, anything which is prohibited by or in any way in conflict with any and all laws, statutes,ordinances, rules and regulations now in force or which may hereafter be enacted or promulgated or which is prohibited by the standardform of fire insurance policy, or which will increase the existing rate of or affect any fire or other insurance upon the Premises, Building orany of its contents, or Common Areas or cause a cancellation of any insurance policy of Landlord covering the Premises or Building or anypart thereof or any of its contents, or the Common Areas (in the case of hazardous material, Tenant shall notify Landlord of any suchmaterials and shall ensure that any such hazardous material is properly controlled, safeguarded, and disposed of in accordance with“Applicable Laws,” as defined below). Again subject to the foregoing and Tenant’s right to so use and occupy the Premises, the Buildingand the Common Areas under this Lease, Tenant shall not do or, to the extent caused by Tenant, permit anything to be done in or about thePremises, Building, or the Common Areas which will in any way violate “Rules or Regulations” (as defined below) reasonablypromulgated by Landlord, with advance notice thereof to Tenant, obstruct or interfere with the rights of other tenants, or injure them, or useor allow the Premises, Building or the Common Areas to be used for any improper, immoral, or unlawful purpose, or cause, maintain or, asand to the extent caused by Tenant, permit any nuisance, in, on or about the Premises, Building, or the Common Areas or commit or, tothe extent caused by Tenant, suffer to be committed any waste in, on or about the Premises,  Building or the Common Areas. Tenant shall have access to the Building, the Common Areas and Premises on a 24 hour/7 day a weekbasis. (b) Tenant shall not use the name of the Building in which the Premises are located, in connection with any business carriedon in said Premises (except as Tenant’s address) without written consent of Landlord. 6. LANDLORD’S SERVICES. Landlord, at its sole cost and expense, is responsible to maintain the Building, the Shell, the Base Building Improvements, theBuilding Systems, the Premises, and the Common Areas. Except as otherwise specified in this Lease, all work pertaining to the Building,the Shell, the Base Building Improvements, the Building Systems, the Premises, and the Common Areas, including but not limited torepairs, maintenance, Premises and Building utilities, Common Areas utilities, Premises and Building janitorial services, Common Areasjanitorial services, sewer and garbage services, insurance, real property taxes, and property management services, pertaining to thePremises, Building, and Common Areas shall be performed by Landlord or its contractors, but, as and to the extent part of the “OperatingExpenses” (as defined in Section 7, below), shall be the financial responsibility of Tenant through prorated Operating Expenses as set forthin Section 7, below. In the event that Landlord fails to perform any of such work within 30 days of receipt of notice by Tenant of saidfailure on Landlord’s part, or, if longer than 30 days is required to perform any such work, in the event Landlord-fails to commence suchwork within such 30 day period and thereafter fails to diligently prosecute such work to completion, then Tenant shall have the right toperform such work or service and invoice Landlord for the cost and expense of performing such work or offset any Rents then due orpayable by Tenant by such invoiced amount if Landlord does not fully pay such Tenant invoices within 30 days; provided that, as and tothe extent there are no Rents against which any such costs and expenses can be offset, then, in the event Landlord does not so pay suchamounts to Tenant, Tenant shall be entitled to exercise any and all rights or remedies, at law or in equity, to recover any such amounts,together with interest at the rate of twelve percent (12%) from the date such amounts were invoiced until paid by Landlord, a late chargeequal to five percent (5%) of the amounts invoiced, and reasonable attorneys’ fees incurred by Tenant by reason of, or in connection with,any such nonpayment by Landlord, from Landlord notwithstanding any other terms or conditions of this Lease. If utilities or HVAC are interrupted for 10% or more of the Premises for more than five (5) consecutive calendar days for anyreason other than Force Majeure, or are the result of an act of Tenant, and renders the Premises unusable, Tenant shall have the right tocease payment of Rents pertaining to the affected portion of the Premises beginning on the day of interruption, prorated until suchservice is reinstated. If the interruption shall continue for sixty (60) days, Tenant shall have the right, in addition to any other remediesavailable to Tenant under this Lease, to terminate this Lease. The aforementioned is in addition to the terms and conditions of attachedExhibit C. Tenant shall notify Landlord of any such interruptions within 24 hours of the commencement of the interruption. If thenotification is later than 24 hours, the timing pertaining to the interruption will be measured from the time of notification versus the start ofthe interruption. Further, Landlord has the responsibility to maintain and repair the Building Systems, including but not limited to the heating, air-conditioning, ventilation, plumbing, electrical, mechanical and structural systems serving the Common Areas. If, as a result of Landlord’soperation, maintenance and/or repair of the above systems that are Landlord’s responsibility, Landlord or its employees or contractorsintroduce any “Contaminants” (as defined below), and Tenant or any of its employees, patients, invitees, agents, representatives, orcontractors experience symptoms that Tenant alleges may be related to the  condition of the Building or the Building Systems, Tenant may give notice of such condition to Landlord, in writing. Such notice shallcontain sufficient detailed information regarding the condition Tenant believes exists and, further, shall include detailed informationregarding the symptoms. Upon receipt of such notice, Landlord shall promptly review the information provided by Tenant relative to thepossible Building Systems condition. Unless Landlord disagrees that there is such a condition which needs to be corrected, Landlord shalltake or cause to be taken such action as may be necessary or appropriate to correct the condition within thirty (30) days after Landlord’sreceipt of such notice from Tenant; provided that, if the condition cannot be corrected within such thirty (30) day period, Landlord shallhave such other longer period, not to exceed 270 days, in which to correct any such condition, so long as Landlord shall commence anynecessary or appropriate cure within said thirty (30) day period and prosecute the same to completion with reasonable due diligence. IfLandlord does not disagree that there is a Building Systems condition which needs to be corrected, but does not correct or commencecorrecting the condition within the periods specified, Tenant shall have the right and option, upon ten (10) business days’ notice toLandlord, to take such reasonable action, at Landlord’s sole cost and expense, as may be necessary or appropriate to correct the conditionor conditions after obtaining bids and following other procedures, with advance written notice thereof, together with supportingdocumentation therefor, to Landlord, reasonably designed to minimize the cost of correcting the condition. Tenant shall provide toLandlord evidence documenting the expense of correcting such condition or conditions, and Landlord shall be obligated to pay thereasonable cost of such corrective actions within ten (10) business days after Landlord’s receipt of evidence documenting the expense ofcorrective actions. In the event Landlord fails to reimburse the reasonable cost of corrective actions within such ten (10) business dayperiod, Tenant shall thereafter have the right and option to offset any such amounts against Rents owing under this Lease until such timeas Tenant shall have recovered any and all such amounts or, as and to the extent there are no Rents due or payable under this Lease,Landlord shall immediately pay such amounts to Tenant, then, in the event Landlord does not so pay any such amounts, Tenant shall beentitled to exercise any and all rights or remedies, at law or in equity, to recover any such amounts, together with interest at the rate oftwelve percent (12%) from the date such amounts were invoiced until paid by Landlord, a late charge equal to five percent (5%) of theamounts invoiced, and reasonable attorneys’ fees incurred by Tenant by reason of, or in connection with, any such nonpayment byLandlord, from Landlord notwithstanding any other terms or conditions of this Lease. Nothing in this Paragraph shall obligate Tenant totake corrective action with respect to any violation that is within the responsibility of Landlord to correct. Notwithstanding any provisionhereof to the contrary, all costs incurred by Landlord under this subparagraph as or to the extent recoverable as Operating Expenses underthe terms and conditions of this Lease shall be included within the Operating Expenses, to be allocated and paid by Tenant and the othertenants of the Building, and shall be deemed to be, and included within, the “Operating Expense Increment” (as defined below), if any, tobe paid by Tenant as of the next rental payment due date and, thereafter, shall accrue late fees and interest as provided elsewhere in thisLease. 7. OPERATING EXPENSES - REPAIRS, MAINTENANCE, INSURANCE, TAXES AND PROPERTY MANAGEMENT. Subject to Tenant’s audit rights set forth in accordance with Exhibit D attached hereto, Tenant is responsible for its “ProrataShare” (as defined below) of annual increases, if any, in Operating Expenses over Base YearOperating Expenses (the “Operating Expense Increment”). The term “Operating Expenses” shall include, subject to subsection 7(c), below,all costs reasonably incurred by Landlord in accordance with generally accepted accounting principles consistently applied, and fairlyallocable to the applicable lease year which relate to the operation of the Building and the Common Areas and the maintenance,housekeeping and related services to be performed by Landlord as specified in this Lease and/or attached Exhibit G, which OperatingExpenses (with the attendant agreements of Landlord related thereto) include but are not limited to:  ·Real property taxes reasonably allocable to the Building (including the applicable land). Landlord shall use its bestefforts to maintain the lowest taxes possible on the property. Landlord will agree to timely appeal and/orprotest any substantial increase in real property taxes.·Equipping, supplying, replacing, maintaining, and repairing any elements of the Building.·Gas, water, electricity, and other utilities unless separately metered to other tenants or unless other tenants haveextraordinary use of any utilities.·Heating, cooling, and ventilation.·Landlord, as part of Operating Expenses, shall furnish HVAC Monday through Friday from 7:00 a.m. to 6:00 p.m. and onSaturdays from 8:00 a.m. to 12:00 p.m., except for the following national holidays: New Year’s Day, Memorial Day,Independence Day, Labor Day, Thanksgiving Day and the day after Thanksgiving Day, Christmas Eve and Christmas.Additional after-hours HVAC and extra use of utilities and services will be supplied to Tenant, and may be billed toTenant separately from Operating Expenses, at $75 per hour for the Premises.Should the Building or the Premises be metered and zoned in the future, then Tenant shall pay the actual cost of after-hours HVAC service. The HVAC system within the Building will perform within the standards outlined in Exhibit C.·Lighting. Tenant may use overhead ceiling lights at any time outside of normal Building operating hours withoutadditional cost. Should the Building or the Premises be metered and zoned in the future, then Tenant shall pay the actualcost of after-hours lighting.·Sweeping, cleaning, painting, surfacing, and striping the parking lot.·Signs (except as otherwise defined within the Lease).·Security.·Garbage removal.·Planting and landscaping.·Wages, salaries, benefits, and other costs relating to employees directly involved in on-site operations.·Liability and casualty insurance.·Fees and charges of attorneys, accountants, and other third-party experts and consultants performing services directlyattributable to Building operations.·A reasonable fee to Landlord or management company for managing the Building (not to exceed 4% of gross receipts)which shall not be increased over the percentage used during the Base Year.·Ground lease payments pertaining to a portion of the parking area owned by PacifiCorp, an Oregon corporation(“PacifiCorp”), made by Landlord in accordance with a currently existing ground lease for such premises (excluding anysubsequent amendments or modifications thereto) (the “PacifiCorp Ground Lease”).·All other costs and liabilities reasonably incurred by Landlord in connection with the operation of the Building. Proration shall be on a square footage basis with all other tenants in the Building and Tenant’s proration shall be calculated bymultiplying the Operating Expense Increment by an equation, the numerator being the RSF of the Premises and the denominatorbeing the total RSF of the Building. Tenant’s Prorata Share is 95.57% (the “Prorata Share”), and will be adjusted accordingly when theExpansion Premises is leased by Tenant in accordance with this Lease. The Operating Expense Increment shall be subject to the followingterms and conditions:  (a) Beginning January 1, 2014, and subject to Tenant’s audit rights set forth in Exhibit D attached hereto, Tenant’s ProrataShare of the budgeted increases in Operating Expenses over the Base Year shall be computed and paid by Tenant to Landlord in twelve(12) equal monthly estimated payments as determined in Landlord’s reasonable discretion. Such Additional Rent shall be paid by Tenanton or before the 1st day of each month with Base Rent. In accordance with Exhibit D attached hereto, Landlord shall deliver to Tenant astatement of the actual Operating Expenses for the immediately preceding calendar year. If the actual Operating Expenses for theimmediately preceding calendar year exceed the budgeted Operating Expenses for such year, the Operating Expense Increment for suchyear shall be recalculated and Tenant shall, within thirty (30) days of receipt of Landlord’s invoice, pay to Landlord the difference betweenTenant’s Prorata Share of the actual Operating Expense Increment and Tenant’s Prorata Share of the budgeted Operating ExpenseIncrement. If the actual Operating Expenses for the immediately preceding calendar year are less than the budgeted Operating Expenses forsuch year, the Operating Expense Increment for such year shall be recalculated and Tenant shall be entitled to receive a credit to Rentsnext due and payable under the Lease equal to the difference between Tenant’s Prorata Share of the budgeted Operating ExpenseIncrement and Tenant’s Prorata Share of the actual Operating Expense Increment; provided that, as and to the extent there are no Rentsagainst which any such credit can be offset, then, in the event Landlord does not immediately pay any such amount to Tenant, Tenant shallbe entitled to exercise any and all rights or remedies, at law or in equity, recover any such amounts, together with interest at the rate oftwelve percent (12%) from the date such amounts were invoiced until paid by Landlord, a late charge equal to five percent (5%) of theamounts invoiced, and reasonable attorneys’ fees incurred by Tenant by reason of, or in connection with, any such nonpayment byLandlord, from Landlord notwithstanding any other terms or conditions of this Lease; and provided that in no event shall Tenant beentitled to any credit or refund of Base Rent in the event the Operating Expenses are less than the Base Year Operating Expenses. Thefailure of Tenant to timely pay Tenant’s Prorata Share of any adjustment to budgeted Building Operating Expenses in accordance with thisLease shall constitute a default under the terms hereof in like manner as the failure of Tenant to pay the Additional Rent when due. (b) Tenant’s obligations under this Section 7 pertaining to Operating Expenses shall be subject to Tenant’s audit rights inaccordance with Exhibit D attached hereto. (c) Notwithstanding any term or condition of this Lease, Operating Expenses shall not include the following: ·Depreciation and amortization.·Expenses incurred by Landlord to prepare, renovate, repaint, redecorate, or perform any other work in any space leased toan existing tenant or prospective tenant of the Building.·Uninsured, non-deductible-related expenses incurred by Landlord for repairs or other work occasioned by fire,windstorm, or other insurable casualty or condemnation.·Expenses incµrred by Landlord to lease space to new tenants or to retain existing tenants, including leasing commissions,advertising, and promotional expenditures.·Expenses incurred by Landlord to resolve disputes, enforce, or negotiate lease terms with prospective or existingtenants, or in connection with any financing, sale, or syndication of all or a portion of the property pertaining to thisLease.·Interest, principal, points and fees, amortization, or other costs associated with any debt and rent payable under any leaseto which this Lease is subject and all costs and expenses associated with any such debt or lease and any ground leaserent, irrespective of whether this Lease is subject or subordinate thereto (other than permitted ground lease paymentsunder the PacifiCorp Ground Lease).  ·All costs incurred by Landlord for alterations, capital improvements, equipment replacement , repairs, replacements , and other items which under generally accepted accounting principles are properlyclassified as capital expenditures, except where such an expenditure (as amortized over the useful life of suchimprovements by Landlord for federal income tax purposes) is primarily and reasonably intended to reduce the cost ofoperation or maintenance of the Building or any portion thereof, but only to the extent that such reduction actuallyachieved in the pertinent Lease year exceeds straight-line amortization pertaining to that Lease year ofsuch costs over the improvement’s useful life.·Costs incurred in connection with making any additions to, or building additional stories on, the Building or its plazas,or adding buildings or other structures adjoining the Building (which increase the square footage of the Building).·Expenses incurred by Landlord in order to comply with all present and future laws (to the extent determinable at thattime), ordinances, requirements, orders, directives, rules , and regulations of federal, state, county, and “City” (as definedbelow) governments and of all other governmental authorities having or claiming jurisdiction over the Building,including without limitation the “ADA” (as defined below), the Federal Occupational Safety and Health Act of 1970 (asamended) , the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as amended), andany of said laws, rules, and regulations relating to environmental, health, or safety matters.·Cost to correct any penalty or fine incurred by Landlord due to Landlord’ s violation of any federal, state, or local law orregulation.·Any interest or penalties due for late payment by Landlord of any of the Operating Expenses.·Expenses for the replacement of any item covered under warranty.·Cost of repairs necessitated by Landlord’s or Landlord Agents’ (as defined below) negligence or willful misconduct, or ofcorrecting any latent defects or original design defects in the Building construction, materials, or equipment.·Expenses for any item or service which Tenant pays directly to a third party or separately reimburses Landlord andexpenses incurred by Landlord to the extent the same are reimbursable or reimbursed from any other tenants, occupantsof the property, or third parties.·Expenses for any item or service not provided to Tenant but exclusively to certain other tenants in the Building.·Management costs or fees to the extent they exceed competitive costs for third-party management of comparablebuildings in the general vicinity of the Building and in no event in excess of 4% of gross receipts received from theoperation of the Building.·Salaries of employees above the grade of building superintendent or building manager, and that portion of employeeexpenses for employees whose time is not spent directly and solely in the operation of the Building.·To the extent any costs includable in Operating Expenses are incurred with respect to both the Building and otherproperties (including, without limitation, salaries, travel, fringe benefits, and other compensationof Landlord’s personnel who provide such services to both the Building andother properties), there shall be excluded from Operating Expenses a fair andreasonable percentage thereof which is properly allocable to such other properties.·Landlord’s general corporate overhead and administrative expenses, except to the extent it is solely in connection withLandlord’s management of the Building.  ·The cost of providing any service customarily provided by a managing agent and the cost of which is customarilyincluded in management fees (e.g., bookkeeping and accounting costs).·Rental value insurance.·Increases in premiums for insurance carried by Landlord pursuant to the Lease, which increase is caused by use of theBuilding by Landlord or any other tenant of Landlord which is hazardous on account of fire or otherwise or premiumsfor any insurance carried by Landlord which is not customarily carried by other reasonably prudent landlords incomparable office buildings in Salt Lake County.·Replacement reserves.·Fees paid by Landlord or affiliates of Landlord to the extent that such fees exceed the customary amount charged for theservices provided.·Any additional operating expenses incurred by Landlord relative to any declaration of covenants or restrictions to whichthe Building may be subject.·Landlord’s cost of electricity and other services that are sold to tenants or for which Landlord is entitled to be reimbursedby tenants or other parties.·All costs incurred due to violation by Landlord or any tenant of the terms and conditions of any lease.·Costs and expenses due to termination or under-funding of any plan under ERISA or any other law or regulationgoverning employee pension plans or other benefits.·Cost of sculptures, paintings, and other objects of art, or the insuring, repair or maintenance thereof.·Cost of gifts arising from Landlord’s charitable or political contributions.·Entertainment costs.·Late fees assessed for failure to timely make any payment.·Costs associated with the removal of substances considered to be detrimental to the environment or the health ofoccupants of the Building.·Dues paid to trade associations and similar expenses if there is no resulting benefit to the Building.·Costs for earthquake insurance or other insurance maintained by Landlord as reasonably necessary or appropriate for theBuilding or the Common Areas.·Costs incurred in removing and storing of property of former tenants or occupants of the Building.·Other items not customarily included as operating expenses for similar buildings. (d) Landlord agrees to provide a ceiling/cap on increases in Controllable Operating Expenses or pass-throughs at not morethan a cumulative 4% increase per year. “Controllable Operating Expenses” are those direct operating expenses over which landlord hasdirect control such as management fees, and contract services. Controllableexpenses shall specifically exclude real estate taxes, insurance, utilities, and snow removal. 8. ALTERATIONS. (a) Tenant will not make or suffer to be made any alterations, additions or improvements in excess of $1,000, excluding theTenant Improvements (collectively, “Alterations”), to or upon the Premises, Building, or any part thereof, or attach any fixtures orequipment thereto, without first obtaining Landlord’s written approval, which approval shall not be unreasonably withheld, conditioned ordelayed. In this connection, promptly following the request of Tenant, Landlord shall review any plans and specifications for any suchAlterations and, as and to the extent so approved by Landlord, cooperate with  Tenant in the construction, installation and/or completion of such Alterations. Subject to the foregoing, any Alterations to or upon thePremises shall be made by Tenant at Tenant’s sole cost and expense and any contractor selected by Tenant to make the same shall besubject to Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed. All such Alterationspermanent in character, made in or upon the Premises either by Tenant or Landlord, may at the option of Landlord, become Landlord’sproperty and, at the end of the term or any extension hereof, shall remain on the Premises without compensation to Tenant unless Landlordrequests that Tenant remove any such Alterations at the time written approval therefor is granted. Notwithstanding the foregoing, Tenant’swork stations, other items of movable furnishings, trade fixtures, furniture, and personal property shall remain Tenant’s property. (b) Any Alterations shall, when completed, be of such a character as not to lessen the value of the Premises or suchimprovements as may be located thereon. Any Alterations shall be made promptly and in a good workmanlike manner, and in compliancewith all applicable permits, building and zoning laws, and with all other laws, ordinances, orders, rules, regulations and requirements of allfederal, state and municipal governments, departments, commissions, boards and offices. The costs of any such Alterations shall be paidby Tenant, so that the Premises are free of liens, for services performed, labor and material supplied or claimed to have been supplied.Before any Alterations shall be commenced, Tenant, at its option, shall pay any increase in premiums on insurance policies (provided forherein) or ensure adequate coverage is in place for all risks related to the construction of such Alterations and the increased value of thePremises. 9. SIGNAGE. Any signage placed on or within the any building(s) of which the Premises are a part must be approved in writing by Landlord, which approval not to be unreasonably withheld, conditioned or delayed, and conform with applicable statues, ordinances, regulations orcodes. Any signage must be removed, at Tenant’s sole cost, at the end of the Lease Term or upon Tenant’s failing to have possession of thePremises. The cost of installation, maintenance and removal of signage shall be paid by Tenant. Specific signage shall include: (a) Exterior Crown Signage; Other Signage. To the extent allowed by applicable ordinances of the City of Draper, Utah (the“City”), and reasonably comparable (in terms of size) to Tenant’s existing crown signage, and with advance written notice to Landlord,Tenant shall have the right and option, in its discretion, to place exterior crown signs on the four (4) corners or sides of Building 20; provided that the exact location and design of any such signage shall be subject to the approval of Landlord, which, so long as any suchsignage proposed by Tenant shall comply with applicable City ordinances and, further, be consistent, in terms of size and general designwith that signage generally described in attached Exhibit E, shall not be withheld, conditioned or delayed. Also subject toapplicable City ordinances, Tenant shall have the right, in its discretion, to place “eyebrow” signage above the main entrance to,and between the first and second floors of, Building 20; provided that the exact location and design of any such signage shall be subject tothe approval of Landlord, which, so long any such signage proposed by Tenant shall comply with applicable City ordinancesand, further, be consistent, in terms of size and general design with that signage generally described in attached Exhibit E, shall not bewithheld, conditioned or delayed. Tenant shall be responsible for the installation and removal of any such signage and, further, the cost ofrepairing any resulting damage to the Building upon the termination or assignment of the Lease. The Premises must remain above 40,000RSF in the Building in order to keep the signage rights, set forth in this subsection 9(a).  (b) Directory Board. Landlord shall provide lobby directory signage at no additional cost to Tenant. Landlord shall alsoprovide Tenant with the option to place divisional or group listings, together with such other listings as may be reasonably necessary orappropriate by reason of Tenant’s use and occupancy of the Premises, on the existing lobby directory board, which Landlord shall ensureshall be reasonably adequate for use by all tenants of the building(s) of which the Premises may be a part. In the event that Tenant desiresadditional directory space and/or signage than otherwise available within the existing lobby directory board, then, subject to confirmationthereof, in writing, by Landlord and Tenant, Landlord shall provide such additional signage and/or directory space; provided that Tenantshall bear the costs and expenses for the installation of such signage and/or space. (c) Premises Signage. Subject to Landlord’s reasonable approval, which shall not be unreasonably withheld, conditioned ordelayed, Tenant, at Tenant’s sole cost and expense (but Tenant may use a portion of the Tenant Improvement Allowance for the same),shall be entitled to install appropriate signage, including Tenant’s logo and/or name , on the walls of elevator lobbies of each floor of anybuilding(s) of which the Premises (where such floor is entirely occupied by Tenant) is located, outside Tenant’ s primary entrance (which,with respect to, and until, the Building is entirely occupied by Tenant, shall be on the second floor of the Building), and adjacent toentrance doors to the Premises, subject to a mutually-agreed-upon design and scale between Landlord and Tenant; provided that, in anycase, such signage need not be consistent or compatible with any such building’s design, signage, and graphics program. Tenant shall beresponsible for the removal of such sig ns and the cost of repairing any resulting damage to the affected building and Premises upon thetermination or assignment of the Lease. (d) Transferability of Signage Rights. Any of the above signage rights shall not be personal to Tenant and may be transferredto an assignee, successor in interest, or sub lessee of Tenant but only if said assignee or sublessee leases the entire Premises from Tenant orLandlord, as the case may be, subject to approval of Landlord as specified in this Lease and, further, compliance with applicable Cityordinances as to any replacement signage. 10. LIENS. Tenant shall keep the Premises and the Building free from any mechanics’ and/or materialmen’s liens or other liens arising out ofany work performed, materials furnished or obligations incurred by Tenant. Tenant shall notify Landlord in writing at least seventy-two(72) hours before any work or activity is to commence on the Premises which may give rise to such liens to allow Landlord to post andkeep posted on the Premises any notices which Landlord may deem to be proper for the protection of Landlord and the Premises from suchliens. 11. DESTRUCTION OR DAMAGE. (a) If the Premises are partially damaged by fire or other insured casualty: (i) Landlord shall repair the same at Landlord’s sole cost and expense (except as and to the extent any insurancedeductibles are allocable to Operating Expenses in an amount not to exceed TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000) (the “Operating Expenses Deductible Allocation”), subject to the provisions of thisSection and provided such repairs can, in Landlord’s reasonable opinion, be made within ninety (90) days after the fire orsuch casualty. During such repairs, the Lease shall remain in full force and effect; provided, however, that Rents shall be partially abatedfrom and after such ninety (90) day period until such repairs have been completed based upon the portion of the Premises renderedunusable by Tenant during the period of such repair.  (ii) If in Landlord’s reasonable opinion the partially damaged Premises can be repaired, but not within ninety (90)days after the fire or such casualty, Landlord may elect, upon written notice to Tenant within thirty (30) days of any such damage (the“Damage Notice Date”), to repair such damages, at Landlord’s sole cost and expense (other than any Operating Expenses DeductibleAllocation) within one hundred eighty (180) days after the Damage Notice Date and continue the Lease in full force and effect, butwith Rents partially abated from the date of the fire or such casualty until the completion of such repairs based upon the-portion of thePremises rendered unusable by Tenant during the period of such repair. In the event Landlord provides the notice herein specified, butany such repairs are not completed within such one hundred eighty (180) day period, or if Landlord fails to timely elect to repair suchdamages as herein specified, and, further, any such damage either renders the Premises, in the reasonable judgment of Tenant, unusable oraffect more than fifty percent (50%) of the Premises, then, at Tenant’s option, Tenant may terminate this Lease as of the date of the fireor such casualty by not less than thirty (30) days’ advance, written notice by Tenant to Landlord, in which event any Rents paid inadvance by Tenant shall be refunded to Tenant based upon such date of termination, and/or Tenant shall be entitled to a completeabatement of Rents and Operating Expenses from the date of the fire or such casualty until Landlord shall complete any such repairsand make the entire Premises available to Tenant as contemplated under this Lease. (iii) If Landlord timely elects to repair the partially damaged Premises in accordance with this subsection 11(a),Landlord shall repair such damages to the Premises itself, and to the Tenant Improvements, at Landlord’s sole cost and expense (other thanany Operating Expenses Deductible Allocation). Except in the event of damage resulting from Landlord’s gross negligence or willfulmisconduct (for which Landlord shall be solely responsible, cost or otherwise, notwithstanding any other term or condition of this Lease),Tenant shall be responsible for Tenant’s equipment, furniture and fixtures, and other alterations, additions and improvements made byTenant to the Premises and Building. (b) If in Landlord’s reasonable opinion, the Premises are totally or substantially destroyed by fire or other casualty andcannot be repaired or replaced within one hundred eighty (180) days, the Lease shall terminate as of the date of such fire or other casualtyupon not less than thirty (30) days’ advance, written notice by Landlord to Tenant, in which event any Rents paid in advance by Tenantshall be refunded to Tenant based upon such date of any such destruction or other casualty. 12. SUBROGATION. Except as otherwise specified in this Lease, Landlord and Tenant waive all rights to recover against each other or against anyother tenant or occupant of the Building, or against the officers, directors, shareholders, partners, joint venturers, employees, agents,customers, invitees, or business visitors of each other or of any other tenant or occupant of the Building, for any loss or damage arisingfrom any cause covered by any insurance required to be carried by each of them pursuant to this Lease. Landlord and Tenant will causetheir respective insurers to issue appropriate waiver of subrogation rights endorsements to all policies of insurance carried in connectionwith the Building or the Premises or the contents of either of them. Tenant will cause all other occupants of the Premises claiming by,under, or through Tenant to execute and deliver to Landlord a waiver of claims similar to the waiver in this Paragraph and to obtain suchwaiver of subrogation rights endorsements. 13. INDEMNIFICATION. Except to the extent waived under Section 12 of this Lease, Tenant agrees to indemnify, defend and hold harmless Landlord andits officers, directors, partners and employees from and against all loss, liabilities, judgments, demands, actions, expenses or claims,including reasonable attorneys’ fees and  court costs, for injury to or death of any person, for the release of any hazardous materials, or for damages to any property to the extentarising out of or connected with (i) the use, occupancy or enjoyment of the Premises, the Building, or the Common Areas by Tenant orTenant’s agents, employees, invitees, 1icensees, or contractors (collectively, the “Tenant’s Agents”), or any work or activity performed byTenant or by Tenant’s Agents in, or about the Premises, the Building, or the Common Areas, including any Tenant Improvements byTenant, (ii) any breach or default in the performance of any obligation of Tenant under this Lease, or (iii) any negligent or intentionaltortious act of Tenant or Tenant’s Agents (excluding Tenant’s licensees) on or about the Premises, the Building, or the Common Areas orany negligent or intentional tortious act of Tenant’s licensees on or about the Premises, the Building or the Common Areas, except as or tothe extent that any such damage or injury is caused by the breach or default in the performance of any obligation of Landlord under thisLease, the negligent or intentional tortious act of Landlord or Landlord’s employees, agents, invitees, licensees, or contractors(collectively, “Landlord’s Agents”). All property of Tenant kept or stored on the Premises or in the Building shall be so kept or stored atthe risk of Tenant only, and Tenant waives any claim against Landlord for any damage to the same, unless such damage shall be caused bythe breach or default in the performance of any obligation of Landlord under this Lease, the negligent or intentional tortious act ofLandlord or Landlord’s Agents. The indemnification contained herein shall survive the expiration or earlier termination of this Lease as toacts occurring prior to such expiration or termination. If any action or proceeding is brought against Landlord, its employees or agents byreason of any such claim, Tenant, upon notice from Landlord, will defend the claim at Tenant’s expense with counsel reasonablysatisfactory to Landlord. Except to the extent waived under Section 12 of this Lease or covered by insurance, Landlord agrees to indemnify, defend andhold harmless Tenant and its officers, directors, partners and employees from and against all liabilities, judgments, demands, actions,expenses or claims, including reasonable attorneys’ fees and court costs, for injury to or death of any person, for the release of anyhazardous materials or for damages to any property to the extent arising out of or connected with (i) the use, management or operation ofthe Building by Landlord or by Landlord’s Agents, or any work or activity performed by Landlord or by Landlord’s Agents in, on or aboutthe Building, (ii) any breach or default in the performance of any obligation of Landlord under this lease, or (iii) any negligent orintentional tortious act of Landlord or Landlord’s Agents on or about the Leased Premises or the Building, except as or to the extent suchinjury or damage is caused by the use of the Premises by Tenant or Tenant’s Agents, any work or activity performed by Tenant or Tenant’sAgents in, on or about the Premises, or any negligent or intentional tortious act of Tenant or Tenant’s Agents. The indemnificationcontained herein shall survive the expiration or earlier termination of this lease as to acts occurring prior to such expiration or termination. If any action or proceeding is brought against Tenant, its employees or agents by reason of any such claim, Landlord, upon notice fromTenant, will defend the claim at Landlord’s expense with counsel reasonably satisfactory to Tenant. Landlord represents and warrants to Tenant that, to the best of Landlord’s knowledge, the Common Areas, Building and Premisesare free of currently-known hazardous materials and are not in violation of any federal, state or local law, ordinance, or regulation relatingto the presence of hazardous materials. Landlord shall indemnify Tenant and hold Tenant harmless from all costs and liability associatedwith the removal of hazardous materials not introduced to the Common Areas, Building or Premises by Tenant, its invitees, contractors, oremployees, and Landlord shall promptly remove any hazardous materials found in the future within the Common Areas, Building orPremises, and not introduced to the Building or Premises by Tenant, its invitees, contractors or employees, at Landlord’s sole expense.Landlord shall provide a copy to Tenant of any Phase I and/or Phase II environmental reports, whether in draft or final form, pertaining tothe real property on which the Building and Common Areas is situated as and to the extent performed by or at the direction of Landlordfrom and after the Effective Date.  14. COMPLIANCE WITH LEGAL REQUIREMENTS. Except as otherwise specified in this Lease, including without limitation the following subparagraph, and except as and to theextent due to the neglect, fault or omission of Landlord, Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes,ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, the requirements of anyboard of fire underwriters or other similar body now or hereafter constituted, any direction or occupancy certificate issued pursuant to anylaw by any public officer or officers, as well as the provisions of all recorded documents affecting the Premises, the Building or anyCommon Areas (collectively, the “Applicable Laws”), insofar as any thereof relate to or affect Tenant’s use or occupancy of the Premises,the Building or the Common Areas, excluding requirements of structural changes not related to or affected by Alterations made by or at thedirection of Tenant. Landlord represents and warrants that, as of the Possession Date and through the Lease Term, the Building Systems serving theBuilding and/or the Premises are, and shall remain, in good and serviceable working condition; that the Shell is not defective and the roofof the Building is, and shall remain, in good condition and free of leaks. Further, Landlord represents and warrants that, at its sole cost andexpense, Landlord shall deliver the Premises, the parking areas, the Common Areas, and the Building in compliance with the Americanwith Disabilities Act, 42 U.S.C. § 12101 et seq. (as amended), and any governmental regulations relating thereto (collectively, the “ADA”),and that, as of the Possession Date (and except as and to the extent the obligation of Tenant under this Lease), the Premises, the CommonAreas, the parking areas and access to the Building are ADA compliant and otherwise in compliance with applicable zoning laws, rules andregulations. Except as otherwise specified in this Lease, including without limitation the preceding sentence and/or subparagraph, andexcept as and to the extent due to the neglect, fault or omission of Tenant, Landlord shall, at its sole cost and expense, deliver the Premisesto Tenant, and shall maintain the Building, the Building Systems, the Base Building Improvements, the Shell, the Common Areas, and thePremises as otherwise specified in this Lease, including taking or causing to be taken such actions as may be necessary to ensure that thesame are in compliance with all Applicable Laws, including without limitation any and all applicable zoning laws and, further, the ADA asit relates to the Building and the Common Areas, including any alterations, additions and/or improvements made thereto. 15. INSURANCE (a) Commercial General Liability. Tenant shall maintain a Commercial General Liability policy including all coveragescustomarily provided therein. Such policies shall specifically name Landlord as an additional insured, with a cancellation period of thirty(30) days prior written notice of a cancellation. A Certificate of Insurance shall be provided to Landlord. All polices of insurance shall beissued by responsible insurance companies licensed to do business in the State of Utah. The minimum limits of coverage acceptable are: (i) $2,000,000 Each Occurrence Combined Single Limit for Bodily Injury and Property Damage; and (ii) $5,000,000 Annual Aggregate. (b) Premises and Building Insurance. Landlord shall insure the Premises, the Building and the Common Areas, includingLandlord supplied Base Building Improvements and Tenant Improvements  as deemed necessary in Landlord’s reasonable discretion and/or customary with similarly placed commercial office buildings in Salt LakeCounty, Utah. All policies of insurance shall be issued by responsible insurance companies licensed to do business in the State of Utah. (c) Tenant’s Additional Insurance. Tenant may, at its sole option, cost and expense, cause all equipment, machinery, furnitureand fixtures, personal property, and Tenant Improvements supplied by Tenant from time to time used or intended to be used inconnection with the operation and maintenance of the Premises, to be insured by Tenant against loss or damage. Except for losses causedby Landlord’s or Landlord’s Agent’s gross negligence or willful misconduct, or except as otherwise specified in Paragraph 13, above,Landlord shall not be liable for any uninsured Tenant’s property. 16. ASSIGNMENT AND SUBLETTING. Upon written notice to Landlord, Tenant shall be permitted to assign and sublet all, or any po11ion of the Premises, with (exceptas otherwise provided below) Landlord’s prior written consent, which consent shall be granted or, subject to the remaining provisions ofthis Section, denied within 30 days of receipt of Tenant’s notice, which notice shall include all pertinent information as to theproposed assignee or sublessee reasonably required by Landlord, including but not limited to company name, operating history, financialstatements for the previous 3 years, executive biographies, use of the Premises, and any other information reasonably requested byLandlord. Landlord’s consent with respect to such assignment of subletting shall not be unreasonably withheld,conditioned, or delayed; provided, however, Landlord shall be entitled to withhold its consent in its good faith discretion with respect toany assignment or subletting that is not for a permitted use or would adversely affect other tenants in the Building or Building 19. Notwithstanding the foregoing, subject to Landlord’s review of financial information pertaining to a prospective assignee orsublessee, and subject to a similar use of the Premises, Tenant shall have the right to assign the Lease, or sublet all or a portion of thePremises, in the following circumstances without Landlord’s approval: ·Assign the Lease or sublet all or any part of the Premises to a parent, subsidiary, affiliate, or successor (by merger,consolidation, transfer of assets, assumption or otherwise) of Tenant.·Assign the Lease or sublet all or any part of the Premises to an entity which purchases substantially all of the assets of anoperating division, group, or department of Tenant, or which purchases the majority of Tenant’s business as conducted inthe Premises.·Transfer any interest in Tenant including, without limitation, a majority or controlling interest in Tenant.·Assign the Lease or sublet all or any part of the Premises to an entity or entities created by the division of Tenant into oneor more separate corporations, partnerships, or other entities. Subject to the above provisions, Tenant may assign or sublease the Premises without any minimum rent or “Rents”restriction. All excess “Rents” resulting from any such and/or subletting, if any, shall be split 50/50between Landlord and Tenant after deducting reasonable marketing, improvement, and transactional costs. 17. RULES. Tenant shall faithfully observe and comply with all Rules and Regulations attached as Exhibit F and, subject to the terms of thisParagraph, those hereafter reasonably promulgated by Landlord, with not less than thirty (30) days advance, written noticeto Tenant, during the Lease Term or any Renewal Option period herein. Landlord shall undertake commercially reasonable efforts toenforce all Rules and Regulations against all tenants of the Building and Building 19. The Rules and Regulations, and any additions ormodifications thereto, for the Building or Building 19 shall not be established, changed, revised, or enforced in any unreasonableway by Landlord, nor established, revised, enforced, or changed by Landlord in a way that unreasonably interferes with Tenant’s use oroccupancy of the Premises. 18. ENTRY BY LANDLORD. Landlord may enter the Premises (secure areas excepted) or Building at reasonable hours and upon 48 hours prior written notice toTenant to (a) inspect the same, (b) show the same to prospective purchasers, lenders or, not earlier than six (6) months prior to theexpiration of the Lease Term, prospective tenants, (c) determine whether Tenant is complying with all of Tenant’s obligations hereunder,(d) post notices of non-responsibility or (e) make repairs required of Landlord under the Lease, repairs to adjoining space or utility service,or make repairs, alterations or improvements to the Building; provided that any such entry or work shall not unreasonably interfere withTenant’s use or occupancy of the Premises. Subject to the foregoing, Tenant hereby waives any claim for damages for any inconvenienceto or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises occasioned by such entry or work.Landlord shall at all times have and retain a key to unlock all doors in, on or about the Premises (excluding Tenant’s vaults, safes andsimilar secure areas designated in writing by Tenant). In the event of an emergency, Landlord shall have the right to use any and all meanswhich Landlord may deem proper to enter the Premises, without notice, for the limited purpose of abating as quickly as possible saidemergency. Such emergency entrance shall not be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premisesor an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof. 19. EVENTS OF DEFAULT. The occurrence of any one or more of the following events (“Events of Default”) shall constitute a breach of the Lease by Tenant:(a) if Tenant fails to pay Rents when and as the same become due and payable and such failure continues for more than ten (10) days afterwritten notice thereof, or (b) if Tenant fails to pay any other sum when and as the same becomes due and payable and such failurecontinues for more than ten (10) days after written notice thereof; or (c) if Tenant fails to perform or observe any material term or conditionof the Lease, such failure continues for more than thirty (30) days after written notice from Landlord and if Tenant does not within suchperiod begin with due diligence and dispatch the curing of such default, or, having so began, thereafter fails or neglects to complete withdue diligence and dispatch the curing of such default; or (d) if Tenant shall make a general assignment for the benefit of creditors, or shalladmit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated as bankruptor insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similarrelief under any present or future statute, law or regulation, or shall file any answer admitting or shall fail timely to contest the materialallegations of a petition filed against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee,receiver or liquidator of Tenant or any material part of its properties; or (e) if within ninety (90) days after the commencement of anyproceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar reliefunder any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within ninety (90) days after theappointment without the consent or acquiescence of Tenant, of any trustee, receiver or liquidator of Tenant or of any material part of itsproperties, such  appointment shall not have been vacated; or (f) if the Lease or any estate of Tenant hereunder shall be levied upon under any attachment orexecution and such attachment or execution is not vacated within ten (10) business days of receipt thereof by Tenant. 20. TERMINATION UPON TENANT’S DEFAULT. If an Event of Default shall occur, Landlord at any time thereafter may give a written termination notice to Tenant , and on thedate specified in such notice (which shall not be less than three (3) days after service) Tenant’s right to possession shall terminate andthe Lease shall terminate, unless on or before such date all Rents, arrearages and other sums due by Tenant under theLease, including reasonable costs and attorneys’ fees incurred by or on behalf of Landlord, shall have been paid by Tenant and allother Events of Default by Tenant shall have been fully cured to the satisfaction of Landlord. Upon such termination, Landlord mayrecover from Tenant: (a) the worth at the time of award of the unpaid Rents which had been earned at the time of termination; plus (b) the worth at the time of award of the amount by which the unpaid Rents which would have been earned after terminationuntil the time of award exceeds the amount of such Rents loss that Tenant proves could have been reasonably avoided; plus (c) the worth at the time of award of the amount by which the unpaid Rents for the balance of the Lease Term after the time ofaward exceeds the amount of such Rents loss that Tenant proves could be reasonably avoided; and plus (d) any other amount reasonably necessary to compensate Landlord for all the detriment proximately caused by Tenant’sfailure to perform its obligations under the Lease or which in the ordinary course of events would be likely to result therefrom; and/or (e) At Landlord’s elections, such other amounts in addition or in lieu of the foregoing as may be permitted from time to timeherein or by applicable law. The “worth at the time of award” of the amounts referred to in clauses (a) and (b) above is computed by allowing interest at therate of 12% per annum. The “worth at the time of award” of the amount referred to in clause (c) above means the monthly sum of the Rentsunder the Lease. Failure of Landlord to declare any default immediately upon occurrence thereof, or delay in taking any action inconnection therewith, shall not waive such default, but Landlord shall have the right to declare any such default at any time thereafter. 21. CONTINUATION AFTER DEFAULT. Even though Tenant has defaulted under the Lease and abandoned the Premises, the Lease shall continue in effect as long asLandlord does not terminate Tenant’s right to possession, and Landlord may enforce all of its rights and remedies under the Lease, including the right to recover the Rents as they become due under the Lease. Acts of maintenance or preservation or efforts to relet thePremises or the appointment of a receiver upon initiative of Landlord to protect Landlord’s interest under the Lease shall not constitute atermination of Tenant’s right to possession. If any fixture, equipment, improvement, installation or appurtenance shall be requiredto be removed from the Premises and/or Building by Tenant, then Landlord (in addition to all other rights and remedies) may, at itselection by written notice to Tenant, deem that the same has been abandoned by Tenant to Landlord, or Landlord may remove and  store the same and restore the Premises to its original condition at the reasonable expense of Tenant, as Additional Rent to be paid withinten (l0) days after written notice to Tenant of such expense. 22. LANDLORD’S DEFAULT. If Landlord fails to perform or observe any of its obligations under this Lease, and, in the case of a nonmonetary default, suchfailure continues for thirty (30) days after written notice from Tenant, or if more than thirty (30) days is required to cure such failure,Landlord fails to commence such cure within such thirty (30) day period and thereafter fails todiligently complete such cure, Landlord shall be in breach of this Lease (a “Default”). If Landlord commits a Default, Tenant, at itsoption, without further notice or demand and in addition to any other rights or remedies to which Tenant may be entitled under or byreason of this Lease, may (i) pursue the remedy of specific performance or injunction; (ii) seek declaratory relief; (iii) pursue an action foractual and direct damages for loss; (iv) take reasonable measures to cure such default, in which event Landlord shall reimburse Tenant forany costs incurred by Tenant in connection with such cure (including reasonable attorney’s fees) within ten (10) days following writtendemand therefor by Tenant; or (v) terminate this Lease; provided that Tenant shall have the right to withhold from its payment or Rentsany such amounts that remain unreimbursed by Landlord beyond such ten ( l 0) day period until all such amounts have been fullyreimbursed. 23. RIGHT TO CURE DEFAULTS. All terms and provisions to be performed by Tenant under the Lease shall be at Tenant’s sole cost and expense and (except asotherwise provided in this Lease) without any abatement of Rents. If Tenant fails to pay any sum of money, other than Rents, requiredhereunder or fails to perform any other act required hereunder and such failure continues for thirty (30) days after notice by Landlord,Landlord may, but shall not be obligated, and without waiving or releasing Tenant from any obligations of Tenant, make any suchpayment or perform any such act on Tenant’s part to be made or performed as provided in the Lease. All sums paid by Landlord and allincidental costs incurred by Landlord or the value of work performed by Landlord shall be deemed Additional Rent hereunder and shall bepayable within ten (10) days of written notice of such sums paid. Except as otherwise specified in this Lease, all terms and provisions to be performed by Landlord under the Lease shall be atLandlord’s sole cost and expense. If Landlord fails to pay any sum of money required hereunder or fails to perform any other act requiredhereunder and such failure continues for thirty (30) days after notice by Tenant, Tenant may, but shall not be obligated, and withoutwaiving or releasing Landlord from any obligations of Landlord, make any such payment or perform any such act on Landlord’s part to bemade or performed as provided in the Lease. All sums paid by Tenant and all incidental costs incurred by Tenant or the value of workperformed by Tenant may be applied to and credited towards Rents due and payable hereunder, or if no such Rents are due or payable,shall be refunded to Tenant by Landlord within ten (10) days of written notice of such sums paid. 24. OTHER RELIEF. The remedies provided for in the Lease are in addition to any other remedies available to Landlord or Tenant at law or in equity bystatute or otherwise. 25. ATTORNEYS’ FEES. In the event either party places at issue the enforcement of the Lease, or any part thereof, or the collection of any Rents, orrecovery of the possession of the Premises, or files suit upon the same, then the prevailing party shall be awarded its reasonable attorneys’fees and costs from the other party. 26. EMINENT DOMAIN. If all or any part of the Premises shall be taken or conveyed as a result of the exercise of the power of eminent domain, the Leaseshall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, either Landlord or Tenant shall have theright to terminate the Lease as to the balance of the Premises by written notice to the other within thirty (30) days after such date; provided,however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Premises taken or conveyedshall be of such extent and nature as substantially to handicap, impede or impair Tenant’s use of the balance of the Premises. In the eventof any taking, Landlord shall be entitled to any and all compensation, damages, income, rent awards or any interest therein whatsoeverwhich may be paid or made in connection therewith, and Tenant shall have no claim against Landlord for the value of any unexpired termof the Lease or otherwise, provided that Tenant shall be entitled to any and all compensation, damages, income, rent or awards paid for oron account of Tenant’s moving expenses, trade fixtures, equipment and any leasehold improvements in the Premises, the cost of which wasborne by Tenant, to the extent of the then unamortized value of such improvements for the remaining Term of the Lease. In the event of ataking of the Premises which does not result in a termination of the Lease, the monthly rental herein shall be apportioned as of the date ofsuch taking so that thereafter the Rents to be paid by Tenant shall be in the ratio that the area of the Premises not so taken bears to the totalarea of the Premises prior to such taking. 27. SUBORDINATION, ATTORNMENT & NONDISTURBANCE; AND ESTOPPEL CERTIFICATE. (a) This Lease and Tenant’s rights under this Lease are subject and subordinate to any first mortgage, first deed of trust orother first lien encumbrance or indenture, together with any renewals, extensions, modifications, consolidations, andreplacements of them, which now or at any subsequent time affect the Premises or any interest ofLandlord in the Premises or Landlord’s interest in this Lease and the estate created by this Lease (except to the extent that(i) any such instrument expressly provides that this Lease is superior to it or (ii) the mortgagee undera mortgage or beneficiary or trustee under a deed of trust subordinates the mortgage or deed of trust to the Lease by filing a notice ofsubordination with the Salt Lake County, Utah Recorder at any time before a foreclosure sale is held pursuant to or in connection with themortgage or deed of trust, in which case Tenant agrees to attorn to the holder (herein the “Holder”) of the first mortgage, first deed of trustor first lien encumbrance). This provision will be self-operative and no further instrument of subordinationwill be required in order to effect it. Nevertheless, Tenant right to use and occupy the Premises, the Building and the Common Areas underthe terms and conditions of this Lease shall not be adversely affected thereby. Further, subject to the foregoing, Tenant will execute,acknowledge and deliver to Landlord, at any time and from time to time, upon demand by Landlord, such documents as may be requestedby Landlord or any mortgagee, or any holder of a deed of trust or other instrument described in this Paragraph, to confirm or effect any suchsubordination. If Tenant fails or refused to execute, acknowledge and deliver any such document within ten (10) business days followingany such written demand, then, subject to the terms and conditions of this Paragraph, Landlord or any such “Mortgagee” (as definedbelow) may record an instrument in the official real estate records of Salt Lake County, Utah confirming the same. Tenant shall beauthorized and hereby agrees to pay Rents and any and all other amounts due under this Lease to the Holder upon notice from the Holderthat Landlord’s license or other authority to collect the Rents has been revoked.  (b) If the interest of Landlord under this Lease shall be acquired by Mortgagee (the term “Mortgagee” as used in this Section27 shall include any purchaser at a foreclosure sale occurring as a result of the first mortgage, first deed of trust or other first lienencumbrance or indenture), Tenant will pay to it all Rents and other sums subsequently payable under this Lease. Tenant will, uponrequest of any one so succeeding to the interest of Landlord, automatically become Tenant of, and attorn to, such Mortgagee withoutchange in this Lease. Such Mortgagee will not be: (i) Bound by any payment of rent for more than one month in advance; or (ii) Bound by any amendment or modification of this Lease made without its written consent; or (iii) Liable for any claim against Landlord arising prior to the date on which such successor succeeded to Landlord’sinterest; or (iv) Subject to any claim or offset of Rents against Landlord; or (v) Obligated to return any security deposit not actually received by Mortgagee; (vi) Obligated to cure existing defaults, other than defaults of a continuing nature of which Mortgagee receivednotice, and in response to which Tenant afforded Mortgagee a reasonable cure period following such notice; or (vii) Obligated to Tenant under any provision of the Lease unless and until Tenant shall provide Mortgagee with noticeof Mortgagee’s default and a reasonable opportunity to cure the default before exercising any right to terminate the Lease. Any notice delivered to Tenant by Mortgagee shall be valid if delivered to the Premises demised by the Lease. Subject to subparagraph 27(c), below, and the foregoing terms and conditions of this Paragraph, upon request by Mortgagee andwithout cost to Landlord or Mortgagee, Tenant will execute, acknowledge, and deliver an instrument or instruments confirming theattornment, which instrument, in any event, shall provide that Mortgagee will not disturb Tenant in its use and occupancy of the Premisesin accordance with this Lease. If Tenant fails or refused to execute, acknowledge and deliver any such document within ten (10) businessdays following any written demand therefor, then, subject to the terms and conditions of this Paragraph, Landlord orany such Mortgagee may record an instrument in the official real estate records of Salt Lake County, Utah confirming the same. (c) Landlord shall deliver to Tenant the proposed forms of any Subordination, Non- Disturbance, and AttornmentAgreements (“ SNDAA” ) from any and all Mortgagees, ground lessors, mortgage holders, or lien holders (collectively, the “Lenders”) ofLandlord then in existence, and unless such SNDAA ‘s are reasonably acceptable to Tenant, Tenant shall have no obligation to execute ordeliver such SNDAA ‘s to Landlord or any Lenders notwithstanding any term or condition of this Paragraph or this Lease and, further, thedelivery or non-delivery of any such SNDAA ‘s shall not affect Tenant’s rights or obligations under this Lease. (d) At any time and from time to time within ten (10) business days after written request of Landlord or Tenant, then Tenantor Landlord, as the case may be, agrees to execute, acknowledge, and deliver to Landlord or Tenant, as the case may be, a statement inwriting certifying that this Lease is  unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and statingthe modifications); giving the dates to which the minimum Rents and other charges have been paid; and stating that Landlord or Tenant,as the case may be, has fully complied with all of its obligations (or, if Tenant or Landlord, as the case may be, claims Landlord or Tenant,as the case may be, has not so complied, stating the particulars for the non-compliance); and stating the commencement date andtermination date of the Lease. If Tenant or Landlord, as the case may be, fails or refused to execute, acknowledge and deliver any suchdocument within ten (10) business days following any written demand therefor, then, as of the date of any such request, this Lease shall bedeemed to be unmodified and in full force and effect (inclusive of any modifications noted in any such request); the minimum Rents andother charges shall be deemed to be paid and current; and each of Landlord or Tenant, as the case may be, shall be deemed to have fullycomplied with all of its obligations (except as and to the extent the particulars of any non-compliance may have been stated in anysuch request); and the commencement date and termination date of the Lease shall be deemed to be as stated in any such request. 28. NO MERGER. The voluntary or other surrender of the Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at theoption of Landlord terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to itof any or all such subleases or subtenancies. 29. SALE. In the event the original Landlord hereunder, or any successor owner of the Premises, Building, and Common Areas shall sell orconvey the Premises, Building, and Common Areas, and the purchaser assumes the obligations of Landlord under the Lease, all liabilitiesand obligation on the part of the original Landlord, or such successor owner, under the Lease accruing after such sale or conveyance shallterminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such newowner in accordance with the terms and conditions of this Lease. 30. NO LIGHT OR VIEW EASEMENT. Any diminution or shutting off of light or view by any structure erected on lands adjacent to the Building shall in no way affectthe Lease or impose any liability on Landlord. 31. HOLDING OVER. Tenant, at Tenant’s sole discretion, shall have the right to hold over for a period of up to three (3) months under the same BaseRent as then payable at the expiration of the Lease; provided Tenant provides Landlord twelve (12) months prior written notice of itsintent to hold over. Absent such notice or after such three (3) month initial hold over period, Tenant shall become a tenant from month-to-month upon the terms herein specified, but at a monthly Base Rent equivalent to 150% of the Base Rent at the end of the term or extensionperiod pursuant to Section 4, payable in advance on or before the first day of each month. All Additional Rent shall also apply. Each partyshall give the other notice at least one month prior to the date of termination of such monthly tenancy of its intention to terminate suchtenancy. 32. ABANDONMENT. If Tenant shall abandon or surrender the Premises, or be dispossessed by process of law or otherwise, any personal propertybelonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may bemortgaged to Landlord. 33. SECURITY DEPOSIT. The security deposit currently in Landlord’s possession, which shall remain in place throughout the Lease Term, is confirmed as$10,332.25 (“Security Deposit”). The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of allof the provisions of this Lease to be performed or observed by Tenant. In the event Tenant fails to perform or observe any of the provisionsof the Lease to be performed or observed by it, then, at the option of Landlord, Landlord may (but shall not be obligated to do so) applythe Security Deposit, or so much thereof as may be necessary to remedy such default or to repair damages to the Premises caused byTenant. In the event Landlord applies any portion of the Security Deposit to remedy any such defaultor to repair damages to the Premises caused by Tenant, Tenant shall pay to Landlord, within thirty (30) days after written demand for suchpayment by Landlord, all monies necessary to restore the Security Deposit up to the original amount. Landlord will not be required to keepthe security deposit separate from its general funds and Tenant will not be entitled to interest on the security deposit. The security depositwill not be a limitation on Landlord’s damages or other rights under this lease, or a payment of liquidated damages, oran advance payment of Rents. If Tenant pays the Rents and performs all of its other obligations under this Lease, Landlord will return theunused portion of the security deposit to Tenant within thirty (30) days after the expiration of the Lease Tenn. 34. WAIVER. All waivers by either party herein must be in writing and signed by such party. The waiver of any term or conditions herein shallnot be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition or provision herein contained, norshall any custom, practice or course of conduct between the parties be construed to waive or to lessen the right of either party to insist uponthe performance by the other party in strict accordance with said terms. The subsequent acceptance of Rents hereunder by Landlord shallnot be deemed to be a waiver of any breach by Tenant of any term or condition of the Lease, regardless ofLandlord’s knowledge of such breach at the time of acceptance of such Rents. 35. NOTICES. All notices and demands which may or are required to be given by either party to the other under the Lease shall be in writing andshall be deemed to have been fully given upon the earlier of (a) receipt, or (b) three (3) days after being deposited in the U.S. Mail or one(1) business day after being delivered to a reputable, nationally recognized overnight courier/delivery service, for receipted overnightdelivery, addressed as follows: To Tenant: Control4 CorporationAttn: Mark Novacovich11734 South Election DriveSuite 200Draper, UT 84020 With a copy to: Contro14 CorporationAttn: JD Ellis, Esq.  11734 South Election DriveSuite 200Draper, UT 84020 To Landlord: Colliers InternationalAttn: Director of Property Services755 W Front StreetSuite 300Boise, ID 83702 A party may designate another place for notice, in place of those listed above, upon notice to the other party in the manner setforth in this Section. 36. EXPIRATION OF LEASE TERM. After expiration of the Lease Term, Tenant will promptly quit and surrender the Premises broomclean, in good order and repair,ordinary wear and tear, and damage by fire, earthquakes, or other acts of nature or the elements, excepted. If Tenant is not then in default,Tenant may remove from the Premises any trade fixtures, equipment and movable furnitureplaced in the Premises by Tenant, whether or not such trade fixtures or equipment are fastened to the Building; Tenant will not remove anytrade fixtures or equipment without Landlord’s written consent if such fixtures or equipment are used in the operation of the Building orimprovements or the removal of such fixtures or equipment will result in impairing the structural strength of the Building or improvements.Whether or not Tenant is in default, Tenant will remove such alterations, additions, improvements, trade fixtures, equipment and furnitureas Landlord has requested in accordance with Section 8. Tenant will fully repair any damage occasioned by the removal of any tradefixtures, equipment, furniture, alterations, additions and improvements. All trade fixtures, equipment, furniture, inventory, effects,alterations, additions and improvements not so removed will be deemed conclusively to have been abandoned andmay be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to Tenant or any other person andwithout obligation to account for them; and Tenant will pay Landlord for all expenses incurred in connection with such property,including, but not limited to, the cost of repairing any damage to the Building or Premises caused by the removal of such property.Tenant’s obligation to observe and perform this covenant will survive the expiration or other termination of this Lease. Tenant shall not be obligated to restore the Premises in any way upon the expiration of the Term unless Tenant makes changes tothe Premises without Landlord’s approval of Tenant’s final space plans, which shall not be unreasonably withheld, conditioned, ordelayed. Notwithstanding the above, Tenant shall be responsible for removing any cabling, signage, telecommunication, and securitysystems requested by Landlord upon surrendering the Premises to Landlord. 37. COMPLETE AGREEMENT. There are no oral agreements between Landlord and Tenant affecting the Premises and, as of the Commencement Date, this Leasesupersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, betweenLandlord and Tenant with respect to the subject matter of the Lease. The Lease may not be altered, changed or amended, except by aninstrument in writing signed by both parties hereto.  38. AUTHORITY. The person(s) executing the Lease on behalf of the parties herein hereby covenants and warrants that (a) such party is a dulyauthorized and validly existing entity under the laws of the State in which it was formed, (b) such party has and is qualified to do businessin Utah, (c) such entity has full right and authority to enter into the Lease, and (d) each person executing the Lease on behalf of such entityis authorized to do so. 39. MISCELLANEOUS. (a) The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. If there be more thanone Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Except as otherwise provided in this Lease, anyfailure to occupy the Premises does not release Tenant from the obligation of paying Rents or any other terms or conditions set forthherein. (b) Time is of the essence on the Lease and each and all of its terms and conditions. (c) The terms and conditions, benefits and burdens of this Lease shall inure to the benefit of and be binding upon the heirs,executors, administrators, successors and assigns of the parties hereto. (d) Section and subsection captions utilized in this Lease are for reference purposes only and are not a part of the terms orconditions of the Lease. (e) The Lease shall be governed by and construed in accordance with the laws of the State of Utah, and is deemed to beexecuted within the State of Utah. (f) Notwithstanding any term or provision of this Lease to the contrary, each party shall be excused from performing anobligation or undertaking provided for in this Lease (other than the obligation of either party, after the commencement of the Lease Term,to pay any and all monetary obligations as the same become due under the applicable provisions of this Lease or any other financialinability) so long as such performance is prevented or delayed, retarded or hindered by act of God, fire, earthquake, flood, explosion,action of the elements, war, acts of terror, invasion, insurrection, riot, mob violence, sabotage, inability to procure or a general shortage oflabor, equipment, facilities, materials, or supplies in the open market, failure of transportation, strike, lockout, action of labor unions, ataking by eminent domain as herein defined, requisition, laws, orders of government, or civil or military or naval authorities, or any othercause whether similar or dissimilar to the foregoing, not within the reasonable control of the party prevented, retarded, or hindered thereby(as applicable, “Force Majeure”). (g) This Lease is the result of negotiations between Landlord and Tenant and their attorneys. Consequently, Landlord or itsattorney is the preparer of some provisions, while Tenant or its attorney is the preparer of other provisions. The parties agree that this Leaseis not to be construed against either party as the preparer. (h) Subject to Landlord’s prior approval which shall not be unreasonably withheld, conditioned or delayed (based on the size,the number, the method of installation, and/or the visibility of any single apparatus or collectively of all apparatuses), at any pointduring the Lease Term, Tenant shall have the right to install and use, at no monthly rental charge, roof-mounted antennae, satellite dishes,or other roof-top communication devices for, and in connection with, the use of the Premises under this Lease. Any apparatus shall beinstalled at Tenant’s cost and in a manner reasonably acceptable to Landlord and upon the expiration of the Lease Term shall be removedat Tenant’s cost and in a manner  reasonably acceptable to Landlord. Commencing as of the time of installation, Tenant shall conform with all Applicable Laws with regardto use, installation, and maintenance of the device requested by Tenant. All permits, application fees, and all costs associated with theaforementioned shall be the responsibility of Tenant. (i) Notwithstanding any term or provision of this Lease to the contrary, Tenant’s partners, employees or shareholders shallnot be required to securitize the Lease in any way. No partner, employee, director, manager, or shareholder of Tenant shall have anypersonal liability for breach of any covenant or obligation of Tenant under this Lease, and no recourse shall be had or be enforceableagainst the assets of any partner, director, manager, employee, or shareholder of Tenant for any payment of any sums, damages or otheramounts of any kind or nature due Landlord under or by reason of this Lease, or for enforcement of any relief based upon any claim madeby Landlord for the breach or default of any of Tenant’s agreements, representations, warranties, covenants, or obligations under this Lease. (j) Both parties to this Lease shall have a duty to mitigate damages in the event of a breach or default by the other party. Notwithstanding anything to the contrary set forth herein, in no event shall either party be liable to the other party hereunder for any lostprofits, punitive, special, indirect, or consequential damages of any kind, whether in contract, tort or otherwise, and whether or not suchparty had been advised of the possibility of such damages. (k) Upon payment by Tenant of the Rents herein provided, and upon the observance and performance of all the covenants,terms and conditions on Tenant’s part to be observed and performed (subject to any and all notice and cure rights of Tenant under thisLease or otherwise available at law or in equity), Tenant shall peaceably and quietly hold and enjoy the Premises forany Lease Term, including any extension thereof under the terms and conditions of this Lease, hereby demised without hindrance orinterruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject,nevertheless, to the terms and conditions of this Lease, and actions resulting from future eminent domain proceedings and casualty losses. (I) The above recitals and exhibits attached to this Lease are hereby incorporated in, and made a part of, this Lease by this reference. Further, for purposes of this Lease and as and to the extent applicable, the term “Premises” shall be deemed to, and include, the“Expansion Premises,” the “Building 19 Expansion Premises,” the “Suite 19-210 Premises,” and, except as otherwise agreed by Tenantand Landlord or specified in this Lease (including without limitation subsection 2(g), above), any other premises owned or controlled byLandlord (or any affiliate thereof) and leased, used and occupied by Tenant pursuant to this Lease, and, as and to the extent applicable, theterm “Building” shall be deemed to, and include, any and all buildings of which the “Premises” may be a part. Further, except as otherwisespecified in this Lease, any terms and conditions of this Lease applicable to the Premises, the Common Areas and the Building shall alsoapply to any such premises, including without limitation the Expansion Premises, the Building 19 Expansion Premises and the Suite 19-210 Premises, and, except as otherwise specified in Paragraph 9 of this Lease, any building of which any such premises are a part and anycommon areas serving any such building or premises. (m) For purposes of this Le base, “business days” shall mean any day other than a Saturday, Sunday, any recognized Utahholiday, or the following national holidays: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and theday after Thanksgiving Day, Christmas Eve and Christmas. (n) Landlord and Tenant understand, acknowledge and agree that Tenant currently occupies a portion of the Premisespursuant to certain lease and related agreements (as amended), between Tenant  and Landlord (or Landlord’s successors-in-interests) (as applicable, the “Existing Agreements”), which Existing Agreements, except as andto the extent accrued through the Commencement Date, will terminate as of the Commencement Date of this Lease and, with regard tomatters arising on and after the Commencement Date, except as otherwise provided in the Existing Agreements or this Lease, Landlord’sand Tenant’s respective rights and obligations relating to the Premises shall be governed by this Lease. 40. SEVERABILITY. If any term or provision of the Lease, or the application thereof to any person or circumstance, shall to any extent be invalid orunenforceable, the remainder of the Lease, or the application of such provision to persons or circumstances other than those as to which itis invalid or unenforceable, shall not be affected thereby, and each provision of the Lease shall be valid and shall be enforceable to theextent permitted by law. 41. BROKERS. Per a separate commission agreement, Landlord shall be solely responsible for and shall pay to Work/Place Solutions, LLC(“Tenant’s Broker”), as Tenant’s sole and exclusive representative, a commission equal to 4% of the Base Rent schedule contained abovein this proposal for the period of January, 2013 through June, 2018 pursuant to a separate commission agreement. In the event that anysuch commissions are not paid to Tenant’s Broker, within ten (10) days following written notice from Tenant or Tenant’s Broker of anysuch nonpayment, Tenant may, at Tenant’s election, pay Tenant’s Broker directly and offset any such payment against Rents otherwisedue or payable hereunder, notwithstanding any other term or condition of this Lease and, in any such event, any such offset under thisParagraph or as otherwise allowed under this Lease shall not be an Event of Default by Tenant under this Lease or otherwise; provided that,as and to the extent there are no Rents against which any such costs and expenses can be offset, then, in the event Landlord does not so payany such amounts, Tenant shall be entitled to exercise any and all rights or remedies, at law or in equity, recover any such amounts,together with interest at the rate of twelve percent (12%) from the date such amounts were invoiced until paid by Landlord, a late chargeequal to five percent (5%) of the amounts invoiced, and reasonable attorneys’ fees incurred by Tenant by reason of, or in connection with,any such nonpayment by Landlord, from Landlord notwithstanding any other terms or conditions of this Lease. 42. WAIVER OF JURY TRIAL. EACH PARTY TO THIS LEASE IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANYACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS LEASEOR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TODEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLESTATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT IT ISKNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY. [signature page follows]  IN WITNESS WHEREOF, the parties have executed the Lease dated the day and year first above written. Colliers Paragon, LLC on behalf of and as ManagingRepresentative for the tenant in common owners of the Building /s/ GEORGE ILIFF By (Print Name):GEORGE ILIFF Its:MANAGING MEMBER Dated:4/2/12 Control4 Corporation, a Delaware corporation /s/ MARK NOVAKOVICH By (Print Name):MARK NOVAKOVICH Its:VP FINANCE Dated:3/30/12 EXHIBIT A SPACE AND SITE PLAN, INCLUSIVE OF COMMON AREAS (attached)  DRAPER TECHNOLOGY CENTER BUILDING 20 FIRSTFLOOR SEPTEMBER 24, 2009 SAMUEL J. BRADYARCHITECTS University Club Building Suite 2216 136 E. SouthTemple Salt Lake City, Utah 84111 (801) 595-1757 FAX: (801) 595-1757 EXIT_CORRIDOR ELECTRICAL LOBBY CORRIDORWOMEN MEN JAMITOR SUITE 20-170 Building 20 SUITE 20-180 EXPANSION STAIRWELL RESERCH DEVELOPMENT GAMING TRAINING ROOMBREAK ROOM COMPUTER ROOM ELECTRICAL LOBBYBREAK ROOM COPY CENTER COMPUTER ROOMSAMUEL J. BRADY ARCHITECTS University Club Building Suite2216 136 E South Temple Salt Lake City, Utah 84111 (801) 595-1752 FAX (801) 595-1757 NORTH DRAPERTECHNOLOGY CENTER BUILDING 20 SECOND FLOORJANUARY 19, 2012 06VW20-2-M.dwg Bubbling brook lane Inauguration raod Loee Peak parkway Commonparking under lease from up&l see sheet 3 of 4 Draper park north subdivision Lot 1 blog19 see sheet 1 of 4 Lot 2 blog 20 see sheet 2 of 4 Lot 3 blog 21 see sheet 3 of 4 Lot 4 blog22 see sheet 3 of 4 Election drive 1.15 Freeway Date printed Dec 15 2005 Graphic scale Cover Draperpark north Alta survey 11800 south lone peak parkway Draper. Utah Key SheetEnsign (801) 253-  EXHIBIT C HVAC PERFORMANCE STANDARDS Landlord to provide HVAC Service to the Premises during Building Operating Hours at such temperatures and in such amounts as arereasonably suitable and standard for comfortable occupancy for a Class B building in the area (generally speaking between 68-74 degrees),specifically excluding any additional cooling needed for Tenant’s IT rooms.  EXHIBIT D OPERATING EXPENSE AUDIT RIGHTS Within one hundred twenty (120) days after the expiration of the Base Year (or applicable methodology) and each succeeding calendaryear (“Operating Year”), Landlord shall furnish Tenant a written statement (“Statement”) prepared by Landlord of the Operating Expensesof the Building, incurred for such preceding year. During the period of one hundred eighty (180) days after receipt of Landlord’ sStatement, Tenant’s independent certified public accountant may, for the purpose of verifying the Operating Expenses, inspect the records(which may or may not be proximate to the Building) of the material reflected in Landlord’s Statement at a reasonable time mutually-agreeable to Landlord and Tenant. The parties recognize the confidential nature of Landlord’s books and records and hence agree thatbefore Landlord shall afford Tenant and its independent certified public accountant reasonable access to Landlord’s books and records,Tenant and its independent certified public accountant shall enter into a confidentiality agreement in form and substance reasonablysatisfactory to Landlord, whereby Tenant and its independent accountant shall agree, as a condition precedent to their review of suchbooks and records, not to disclose any of the information disclosed in connection with such review to any third party. Failure of Tenant tochallenge any item in such Statement within one hundred eighty (180) days after receipt shall be construed as a waiver of Tenant’s right tochallenge such item for such year. Following such review, either party may refer the decision of the issues raised, if any, to a reputable,nationally-recognized independent firm of certified public accountants (or other organization whose core competency is deemed to bewithin this specialty area) selected by Tenant and reasonably approved by Landlord. The selected firm shall be deemed to be acting as anexpert and not as an arbitrator, and a determination signed by the selected expert shall be final and binding on both Landlord andTenant. Notwithstanding the foregoing, in the event such certified public accountant/specialists shall determine that Landlord’s Statementhas overcharged Tenant for Operating Expenses (and such determination is not successfully challenged by Landlord), then Landlord shallrefund or credit to Tenant the amount of the overcharge (except as otherwise specified in the Lease). If such overcharge is determined tohave exceeded five percent (5%), Landlord shall, in addition, reimburse Tenant for the reasonable out-of-pocket expenses incurred byTenant in connection with such audit. If such audit shall determine that (i) Landlord has not overstated actual Operating Expenses, or (ii)has overstated actual Operating Expenses by less than five percent (5%) then, in either such case, Tenant will pay the costs of retaining theexpert.  EXHIBIT E GENERAL DEPICTION OF EXTERIOR, CROWN SIGNAGE, AND OTHER BUILDING SIGNAGE (attached)  Construction Detail Drawing 12/15/09 Please note changes, if any, or signify your approvaland return to Hightech Signs DESCRIPTION Size: 28"x126" Quantity: 1 SignType: non-illuminated reverse pan channel letters Installation: individually mounted letters and logoColors: Black, Red (TBD) Side View Details Direct Mounted to wall Building Fascia AluminiumReturn (.125) Clear Lexan Backer (.188) Flush Mounts Aluminium Face (.125) 4”1201 S. Redwood Rd. #1•Salt Lake City, UT 84104 •Office: 801-972-6464 • Fax: 801-972-4615•www.HightechSigns.com This artwork issubmitted for your proposed project It is not to be used, reproduced, Copied, or exhibitedwithout written consent of Hightech signs. Hightech signs Garrett Wilson Account Manager ClientControl 4 Client Contact: JJ Robinson Address: 11734 Election Rd # 200 Draper,UT 84020 Phone (801) 523-3100 Installation Address: 11734 ElectionRd # 200 Customer Approval Signature Date Note Colors shown do not alwaysaccurately depict actual color. EXHIBIT F RULES AND REGULATIONS Subject to the terms and conditions of the Lease, Tenant shall comply with the following Rules and Regulations. Landlord shallnot be responsible to Tenant for the nonperformance of any of these Rules and Regulations by Tenant, any other tenant, or any visitor,licensee, agent, or other person or entity. 1. Signs, Notices and Decorations. No sign, placard, picture, decoration, name, advertisement or notice (collectively “Material”)visible from the exterior of any tenants premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of theBuilding without the prior written consent of Landlord. All approved signs or lettering will be printed, painted, affixed or inscribed at theexpense of the tenant desiring such by a person approved by Landlord. Material visible from outside the Building will not be permitted.Landlord may remove such Material without any liability, and may charge the expense incurred by such removal to the tenantin responsible for such Material. 2. Conduct and Exclusion or Expulsion. The sidewalks, halls, passages, exits, entrances, elevators, and stairways of the Building willnot be obstructed by any tenants or used by any of them for any purpose other than for ingress to and egress from their respective premises.The halls, passages, exits, entrances, elevators, and stairways are not for the general public, and Landlord may control and prevent access tothem by all persons whose presence, in the reasonable judgment of Landlord, would be prejudicial to the safety, character, reputation andinterests of the Building and its tenants. In determining whether access will be denied, Landlord may consider attire worn by a person andits appropriateness for an office building, whether shoes are being worn, use of profanity, either verbally or on clothing, actions of a person(including without limitation spitting, verbal abusiveness, and the like), and such other matters as Landlord may reasonably considerappropriate. In the event of an invasion, mob, riot, public excitement or other commotion, Landlord reserves the right to prevent access tothe Building during the continuance of the same by closing of the doors of the Building or any other reasonable method, for the safety ofthe tenants and protection of the Building and property in the Building. 3. Locks; Keys. No tenant will alter, change, replace or re-key any lock or install a new lock or a knocker on any door of thePremises. Landlord, its agent or employee will retain a master key to all door locks on the Premises. Landlord will furnish toeach tenant, free of charge, two (2) keys per entry door to its Premises, and two (2) Building access cards or two (2) keys to theBuilding. Landlord will have the right to collect a reasonable charge for additional keys and cards requested by any tenant. Each tenant,upon termination of its tenancy, will deliver to Landlord alike keys and access cards for its premises and Building which have beenfurnished to such tenant. Tenant shall keep the doors of its premises closed and securely locked when Tenant is not at its premises. 4. Use of Restrooms. The toilets, urinals, wash bowls and other plumbing fixtures will not be used for any purposes other than thosefor which they were constructed, and no sweepings, rubbish, rags or other foreign substances will be thrown in them. All damages resultingfrom any misuse of the fixtures will be borne by the tenant who, or whose servants, employees, agents, visitors or licensees, have caused thedamage. 5. Floor Loads, Defacing of Premises. Tenant shall not overload the floor of its premises or mark, drive nails, screw or drill into thepartitions, woodwork or plaster or in any way deface its premises or any part thereof, or do any act or bring or keep anything thereon whichmay make void or voidable any insurance on its premises or the Building or which may render an increased or extra premium payable forinsurance.  6. Cooking; Use of Premises for Improper Purposes. No tenant will permit its premises to be used for lodging or sleeping. No cookingwill be done or permitted by any tenant on its premises, except in areas of the premises which are specially constructed for cooking asspecifically provided in working drawings approved by Landlord, so long as such use is in accordance with all applicable federal, state,and City laws, codes, ordinances, rules and regulations. Microwave ovens and other Underwriters’ Laboratory (UL)-approved equipmentmay be used in tenant’s premises for heating food and brewing coffee, tea, and similar beverages for employees and visitors. Tenant’spremises shall not be used for the storage of merchandise or for any improper, reasonably objectionable, or immoral purpose. 7. Janitorial Service. No tenant will employ any person or persons other than the cleaning service of Landlord for the purpose ofcleaning the Premises, unless otherwise agreed by Landlord in writing. If any tenant’s actions result in any increasedexpense for any required cleaning, Landlord may assess such tenant for such expenses. Janitorial service will not be furnished on nights tooffices which are occupied after business hours on those nights unless, by prior written agreement of Landlord, service is extended to alater hour for specifically designated offices. 8. Furniture, Freight and Equipment. No furniture, freight or equipment of any kind may be brought into the Building without theconsent of Landlord and all moving of the same into or out of the Building shall be done at such time and in such manneras Landlord shall designate. All damages from moving of any kind without limitation to floor coverings, walls, doors, or elevators, shall bereplaced at the cost of Tenant with equal or better materials subject to the approval of Landlord, at Landlord’s exclusive discretion. Themoving tenant shall be responsible for the provision of Building security during all moving operations, and shall be liable for all lossesand damages sustained by any party as a result of the failure to supply adequate security. 9. Inflammable or Combustible Fluids or Materials, Noninterference of Others. No tenant will use or keep in its premises or theBuilding any kerosene, gasoline, inflammable, combustible or explosive fluid or material, or chemical substance other than limitedquantities of them reasonably necessary for the operation or maintenance of office equipment or limited quantities of cleaning fluids andsolvents required in the normal operation of its premises. Without Landlord’s prior written approval, no tenant will use any method ofheating or air conditioning other than that supplied by Landlord. 10. Foul or Noxious Odors. No tenant will use or keep, or permit to be used or kept, any foul or noxious gas or substance in thePremises, or permit or suffer its premises to be occupied or used in any manner offensive, or objectionable to Landlord or other occupantsof the Building by reason of noise, odors or vibrations, nor interfere in any way with other tenants or those having business in theBuilding. 11. Name of Building. Landlord may, with notice but without liability to any tenant, change the name of the Building. 12. Animals, Birds and Vehicles. Tenant will not bring any animals or birds, other than service animals, into its premises or Building,and will not permit bicycles or other vehicles, except in areas designated from time to time by Landlord for such purposes. 13. Parking. Landlord shall not be responsible for any damage caused to a vehicle parked in the parking areas, unless such damageshall be a direct cause of Landlord’s negligence. Any vehicles left in the parking areas overnight shall not be the responsibility ofLandlord. 14. Disturbance of Tenants. Canvassing, peddling, soliciting and distribution of handbills or any other written materials in theBuilding, Park or parking lot are prohibited, and each tenant will cooperate to prevent same.  15. Doors to Public Corridors. Each tenant shall keep the doors of its Premises closed and locked, and shall shut off all water faucets,water apparatus, and utilities before tenant or tenant’s employees leave its premises, so as to prevent waste or damage, and for any defaultor carelessness in this regard tenant shall be liable for all injuries sustained by other tenants or occupants of the Building or Landlord. Onmultiple​tenancy floors, all tenants will keep the doors to the Building corridors closed at all times except for ingress and egress. 16. Telecommunication and other Wires. Tenant may not introduce telecommunication wires or other wires into its premises withoutfirst obtaining Landlord’s approval of the method and location of such introduction. 17. Rules Changes, Waivers. Landlord reserves the right at any time to change or rescind anyone or more of these Rules andRegulations or to make any additional reasonable Rules and Regulations that, in Landlord’s reasonable judgment, may be necessary orhelpful for the management, safety or cleanliness of the Premises or Building; the preservation of good order; or the convenience ofoccupants and tenants of the Building generally. Landlord will notify Tenant of said change in accordance with the Lease. Tenant shall beconsidered to have read these Rules and Regulations and to have agreed to abide by them as a condition of Tenant’s occupancy of itsPremises.  EXHIBIT G HOUSEKEEPING, MAINTENANCE AND CLEANING SPECIFICATIONS AND RELATED MATTERS (attached)  SUMMARY OF LANDLORD’S OBLIGATIONS AND DUTIES: ·Daily cleaning (Monday-Friday) of all tenant office space, common area restrooms, halls and stairwells, elevator cab, storagearea halls, janitor closets and electrical room floors (swept and damp dry mop only), and vacant suites.·The restroom floors shall be stripped and waxed to high shine as needed to prevent spotting under urinals.·Strip and wax to high shine all VCT tile floors in tenant’s suites once per quarter.·Extraction carpet cleaning all common area hallways and stairwells, as needed.·Extraction carpet cleaning in all tenant suites once per year.·Day Porter to police around the exterior the building at least 3 times a day to pick up and remove trash.·Provide a Day Porter, who will not be responsible for general cleaning the night crew didn’t finish. Landlord or Landlord’s Property Manager (which, as of the Effective Date, shall be TRANSWESTERN, 1178l Election Drive,Draper, UT 84020, and which shall be designated, from time to time, in writing by Landlord to Tenant) shall meet with each tenantrepresentative monthly to determine their satisfaction level with the cleaning service. Landlord or such Property Manager will also meetwith the same tenant representative at such other intervals as may be reasonably necessary or appropriate to confirm each tenant’ssatisfaction with the cleaning service and the obligations of Landlord under this Exhibit G. AREAS TO BE CLEANED AND FREQUENCIES: The following areas are to be cleaned Sunday through Thursday. The cleaning hours are between 6:00 p.m. and 11 p.m. Thejanitor(s) must be flexible and be willing to clean any type of problem, even if the problem is out of the cleaning rotation. Nightly Service Elevator Lobbies ·Dust and vacuum nightly.·Spot clean the carpet as needed, every night if necessary.·Remove fingerprints from all glass surfaces.·Remove all fingerprints and smudges from around light switches, door moldings, sidelights, and pictures. Elevator Cars ·Remove fingerprints from walls and lobby elevator call buttons.·Detail clean nightly.·Vacuum carpet.·Remove all fingerprints from doors, walls, and elevator controls.·Spot clean carpet as needed. General Office Space ·Vacuum floors. ·Empty trash containers and replace the liners as needed.·Do NOT dust or clean the tenant’s desks without their permission.·Once a week, leave a card on the tenant’s desk asking them if they want you to clean their desk.·Do NOT clean any computer equipment.·Make sure all chairs and wastebaskets are returned to their proper position after cleaning.·Remove all fingerprints and smudges from around light switches, door moldings, sidelights, partitions, andpictures.·Sweep all hard surface floors.·Clean all glass furniture tops, including conference tables, break room tables and tops.·Spot clean carpets as needed.·Clean all office break room sinks and remove all coffee stains. Restrooms ·Sweep, clean, and mop floors with germicidal cleaning chemicals.·Clean all mirrors.·Clean sinks with a light cleanser to remove scum buildup.·Detail clean urinals and toilet bowls and related piping with a disinfectant cleaning chemical (not the acidcleaner used in the toilet bowls).·Clean both sides of the toilet seat with a non-staining, disinfectant cleaning chemical.·Wash walls on both sides of urinals.·Clean toilet partitions, tile walls, and doors. Common Areas/Public Space ·Vacuum all building entrance rugs and carpeted halls.·Spot clean carpet as needed.·Clean all sidelights by tenant accesses.·Remove fingerprints from light switches, walls, and wall outside comers.·Empty waste receptacles in halls and near building entrances.·Police outside the building and building entrance up to 15 feet from the building. Floor Care ·Nightly sweep and damp mop marble surface flooring with water only. Dry with soft clean cloth. Parking Lot and Public Sidewalks ·Empty all trash cans by building entrances.·Police Building and Common Areas for litter. Weekly Service General Office Space  ·Dust window seals, ledges, door louvers, wood paneling, moldings, and stairwell handrails.·Clean office furniture, dust, and vacuum as needed.·Dust baseboards.·Edge-vacuum all carpets. Restrooms ·Dust any lighting over the mirrors.·Pour used mop water down floor drains or as needed. Common Areas/Public Space ·Dust and/or vacuum all furniture.·Dust window seals and ledges.·Dust all fire extinguisher cabinet’s glass doors. Monthly Service General Office Space ·Dust window blinds.·Dry wipe leather, dry damp wipe vinyl furniture.·Clean fire extinguisher cabinets.·Vacuum all ventilation grills. Restrooms ·Vacuum all ventilation grills and light fixtures.·Wash all tile walls completely.·Report toilet seat bolts that need tightening. MISCELLANEOUS SERVICES (AS NECESSARY OR APPROPRIATE): General ·Landlord’s Property Manager shall report any damages ASAP.·Turn off all lights nightly.·Close and lock all designated doors.·Maintain all janitorial closets in a clean and orderly manner.·Janitors are to provide and maintain an MSDS [maintenance performance schedule and satisfaction] book inmain janitor closet. There will be a book for each building which will list the building address. Day Porter Services ·Clean all building glass doors and side windows.·Re-stock and clean restrooms as needed.·Keep common area halls clean.  ·Clean tenants’ office glass doors and sidelight windows.·Pick up trash around the buildings and empty cigarette urns.·Respond to tenant spills and janitorial emergencies.·Report to Property Management daily for tenant needs which may be requested by any particular tenant ornecessary by reason of any such tenant’s use or occupancy of the Building or the Common Areas. FIRST AMENDMENT This FIRST AMENDMENT, is hereby entered into this 17 day of December, 2012, between Colliers Paragon, LLC on behalf ofand as Managing Representative for the tenant in common owners of the Building as successor in interest to DBSI – Draper Lease CO,L.L.C. and Draper/CG, L.L.C “Landlord”) and Control4 Corporation (“Tenant”) WITNESSETH: WHEREAS, the parties entered into that certain lease dated March 31, 2012 (“Lease”); WHEREAS, Tenant desires to expand the Premises by adding Suite 19-120 (6,796 rentable square feet) as identified on Exhibit Ahereto; and WHEREAS, the parties desire to amend the Lease to reflect their agreement as to the terms and conditions governing theexpansion of the Premises: NOW THEREFORE, in consideration of the covenants set forth herein, the parties agree as follows: l. PREMISES. On the Effective Date the Premises area shall be amended to include Suite 19-120 in that certain buildinglocated at 11778 S. Election Drive, Draper Utah (“Building 19”), which consists of 6,796 rentable square feet (“Expanded Premises’’). TheExpanded Premises pro-rata share of Building 19 shall be 9.10% of Building 19, Expense Reimbursements shall be subject to a 2013 BaseYear pursuant to the terms of the Lease. Cumulatively the Premises and Expanded Premises shall consist of 58,366 rentable square feet andshall be known as the “Premises”. 2. POSSESSION. The date by which Tenant shall take possession of, and commence paying rent for. the ExpandedPremises shall be known as the “Occupancy Date” and the Occupancy Date shall occur on the later of Substantial Completion or January 1,2013; provided, however, that the Occupancy Date shall not occur later than February 1, 2013.“Substantial Completion” shall be defined as: The Expanded Premises shall be substantially completed and Substantial Completion shall have occurred upon the following: (i) the Tenant Improvements shall have been completed in substantial compliance with Tenant’s space plan, exceptfor punch list items and otherwise sufficient so that Tenant’s construction agent or Landlord’s architect canissue a certificate of substantial completion. (ii) Landlord and/or Tenant shall have obtained, if applicable, a certificate of occupancy or a temporary certificate ofoccupancy for the Expanded Premises, permitting use of the Expanded Premises in question for the permitteduse per the Lease; and (iii) All systems and services to be furnished by Landlord pursuant to the terms and conditions of the Lease shall bein effect. 1 th 3. EXPANDED PREMISES LEASE TERM. The Lease Term for the Expanded Premises shall commence upon theOccupancy Dale of the Expanded Premises and shall be coterminous with the Lease Term as set forth in Section 2(a) of the Lease. 4. RENTS. The Base Rent for the Expanded Premises shall commence on the Occupancy Date and be due and payable as setforth in the Rent Schedule attached hereto as Exhibit B. All amounts due and payable for the Expanded Premises are in addition to thosefor the original Premises as set forth in the Lease. Tenant shall be granted Rent Credits in the amounts set forth in Exhibit B for thefollowing months: July 2013, August 2013, September 2013, July 2014, August 2014, September 2014, October 2014, November 2014,December 2014, January 2015, February 2015, March 2015, April 2015, May 2015, June 2015, July 2015, August 2015. and September2015. 5. TENANT IMPROVEMENTS. The Expanded Premises is being delivered to the Tenant in its AS-IS WHERE-IScondition. 6. All other terms and conditions of the Lease, not specifically amended hereby, including but not limited to all datespreviously set forth in the Lease, remain in full force and effect. Section 9 “SIGNAGE” of the Lease shall be hereby amended to include the following: (e) Exterior Crown Signage: Other Signage, Building 19. In the event the occupied Premises within Building 19 is greaterthan or equal to 16,000 rentable square feet, and to the extent allowed by applicable ordinances of the City of Draper, Utah (the “City”),and reasonably comparable (in terms of size) to existing crown signage on Building 19, and with advance written notice to Landlord,Tenant shall have the right and option, in its discretion, to place exterior crown signs on the west side of Building 19; provided that theexact location and design of any such signage shall be subject lo the approval of Landlord, which, so long as any such signage proposedby Tenant shall comply with applicable City ordinances and, further, be comparable, in terms of size and general design with other,existing crown signage on Building 19, shall not be withheld, conditioned or delayed. Tenant shall be responsible for the installation andremoval of any such signage and, further, the cost of repairing any resulting damage to the Building upon the removal of the signage,termination or assignment of the Lease. The occupied Premises must remain at or above 16,000 RSF in Building 19 in order to keep thesignage rights, set forth in this subsection 9(e). If, at any time, the occupied Premises is less than 16,000 RSF in Building 19, at Landlord’ssole right and option, Tenant, at Tenant’s sole cost, shall remove such sign and, further, repair any resulting damage to the Building. (f) Monument Signage: Building 19. To the extent allowed by applicable ordinances of the City of Draper. Utah (the “City”),with advance written notice to Landlord, Tenant shall have the right and option, in its discretion, to place a monument sign at the westentrance outside of Building 19; provided that the exact location, size and design of any such signage shall be subject to the approval ofLandlord which shall not be unreasonably withheld, conditioned, or delayed. Tenant shall be responsible for the installation, maintenance,operating costs and removal of any such signage and, further, the cost of repairing any resulting damage to the common areas and Buildingupon the termination or assignment of the Lease. The occupied Premises must remain above 6,721 RSF in the Building in order tomaintain the signage rights set forth in this subsection 9(f). If, at any time, the occupied Premises is less than 6,721 RSF, at2  Landlord’s sole right and option. Tenant, at Tenant’s sole cost, shall remove such sign and, further, repair any resulting damage to thecommon areas and Building. (g) Directory Board: Building 19. Landlord shall provide lobby directory signage at no additional cost to Tenant. (h) Premises Signage: Building 19. Subject to Landlord’s reasonable approval, which shall not be unreasonably withheld,conditioned or delayed, Tenant, at Tenant’s sole cost and expense, shall be entitled to install appropriate signage, including Tenant’s logoand/or name, on the wall outside Tenant’s primary entrance, subject to a mutually-agreed-upon design and scale between Landlord andTenant: provided that, in any case, such signage need not be consistent or compatible with any such building’s design, signage, andgraphics program. Tenant shall be responsible for the removal of such signs and the cost of repairing any resulting damage to the Buildingand Premises upon the termination or assignment of the Lease. [END OF TEXT]3  IN WITNESS WHEREOF, the parties execute this First Amendment to be effective as of the date of the last party to sign. Landlord Tenant: Colliers Paragon, LLC on behalf of and as Control4 CorporationManaging Representative for the tenant in common owners of the Building. By:/s/ ILLEGIBLE Its:VP FINANCEBy:/s/ George Iliff George Iliff Date:12/18/12 Its: Managing Member: Date:12/19/12 4 EXHIBIT A FLOOR PLAN 6,796 RSF 6,120 USF SAMUEL J.BRADY ARCHITECTS University Club Building Suite 2216 138 E.South Temple Salt Lake City, Utah 84111 (801) 595-1752 FAX: (801)595-1757 DRAPER TECHNOLOGY CENTER BUILDING19 FIRST FLOOR NOVEMBER 30,2012 1901VWM1230.dwg Exhibit BRent Schedule RentFree RentActual MonthlyRent Due toLandlordOccupancy Date to 1/31/13,prorated$ 9,910.83 $ 9,910.8313-Feb$ 9,910.83 $ 9,910.8313-Mar$ 9,910.83 $ 9,910.8313-Apr$ 9,910.83 $ 9,910.8313-May$ 9,910.83 $ 9,910.8 313-Jun$ 9,910.83 $ 9,910.8313-Jul$ 9,910.83($ 9,910.83)$ 0.0013-Aug$ 9,910.83($ 9,910.83)$ 0.0013-Sep$ 9,910.83($ 9,910.83)$ 0.0013-0ct$ 9,910.83 $ 9,910.8313-Nov$ 9,910.83 $ 9,910.8313-Dec$ 9,910.83 $ 9,910.8314-Jan$ 10,194.00 $ 10,194.0014-Feb$ 10,194.00 $ 10,194.0014-Mar$ 10,194.00 $ 10,194.0014-Apr$ 10,194.00 $ 10,194.0014-May$ 10,194.00 $ 10,194.0014-Jun$ 10,194.00 $ 10,194.0014-Jul$ 10,194.00($ 6,999.88)$ 3,194.1214-Aug$ 10,194.00($ 6,999.88)$ 3,194.1214-Sep$ 10,194.00($ 6,999.88)$ 3,194.1214-0ct$ 10,194.00($ 6,999.88)$ 3,194.1214-Nov$ 10,194.00($ 6,999.88)$ 3,194.1214-Dec$ 10,194.00($ 6,999.88)$ 3,194.1215-Jan$ 10,477.17($ 7,283.05)$ 3,194.1215-Feb$ 10,477.17($ 7,283.05)$ 3,194.1215-Mar$ 10,477.17($ 7,283.05)$ 3,194.1215-Apr$ 10,477.17($ 7,283.05)$ 3,194.1215-May$ 10,477.17($ 7,283.05)$ 3,194.1215-Jun$ 10,477.17($ 7,283.05)$ 3,194.1215-Jul$ 10,477.17($ 7,283.05)$ 3,194.1215-Aug$ 10,477.17($ 7,283.05)$ 3,194.1215-Sep$ 10,477.17($ 1,676.32)$ 8,800.8515-0ct$ 10,477.17 $ 10,477.1715-Nov$ 10,477.17 $ 10,477.1715-Dec$ 10,477.17 $ 10,477.176 EXHIBIT B - Continued 16-Jan$ 10,760.33 $ 10,760.3316-Feb$ 10,760.33 $ 10,760.3316-Mar$ 10,760.33 $ 10,760.3316-Apr$ 10,760.33 $ 10,760.3316-May$ 10,760.33 $ 10,760.3316-Jun$ 10,760.33 $ 10,760.3316-Jul$ 10,760.33 $ 10,760.3316-Aug$ 10,760.33 $ 10,760.3316-Sep$ 10,760.33 $ 10,760.3316-0ct$ 10,760.33 $ 10,760.3316-Nov$ 10,760.33 $ 10,760.3316-Dec$ 10,760.33 $ 10,760.3317-Jan$ 11,043.50 $ 11,043.5017-Feb$ 11,043.50 $ 11,043.5017-Mar$ 11,043.50 $ 11,043.5017-Apr$ 11,043.50 $ 11,043.5017-May$ 11,043.50 $ 11,043.5017-Jun$ 11,043.50 $ 11,043.5017-Jul$ 11,043.50 $ 11,043.5017-Aug$ 11,043.50 $ 11,043.5017-Sep$ 11,043.50 $ 11,043.5017-0ct$ 11,043.50 $ 11,043.5017-Nov$ 11,043.50 $ 11,043.5017-Dec$ 11,043.50 $ 11,043.5018-Jan$ 11,326.67 $ 11,326.6718-Feb$ 11,326.67 $ 11,326.6718-Mar$ 11,326.67 $ 11,326.6718-Apr$ 11,326.67 $ 11,326.6718-May$ 11,326.67 $ 11,326.6718-Jun$ 11,326.67 $ 11,326.67 7 SECOND AMENDMENT TO LEASE This SECOND AMENDMENT is hereby entered into this 24 day of February, 2014 between Colliers Paragon, LLC on behalf of and asManaging Representative for the tenant in common owners of the Building as successor in interest to DBSI – Draper Lease CO, L.L.C. andDraper/CG, L.L.C. (“‘Landlord”) and Control4 Corporation, a Delaware corporation. (“Tenant”). WITNESSETH: WHEREAS, the parties entered into that certain lease dated March 31, 2012, and as amended by the First Amendment dated December 17,2012. (“Lease”): WHEREAS. Tenant leased 48.870 rentable square feet (“Premises”) in that building located at 11734 South Election Drive, Draper, UT84020 (“Building 20”) and expanded its Premises in the First Amendment to include 6.796 rentable square feet in Suite 19-120 in thatbuilding located at 11778 South Election Drive. Draper, UT 84020 (“Building 19”) and now desires to expand the Premises again byadding Suites 20-170 (740 rentable square feet), 20-180 (1.525 rentable square feet) in Building 20 as depicted in Exhibit A-l and 19-210(13.288 rentable square feet) in the Building 19 as depicted in Exhibit A-2, to encompass a total Premises of 71.219 rentable square feet;and WHEREAS, the parties desire to amend the Lease to reflect their agreement as to the terms and conditions governing the expansion of thePremises: NOW, THEREFORE, in consideration of the covenants set forth herein, the parties agree as follows: 1. PREMISES AND POSSESSION. Landlord delivered Suites 20-170 and 20-180 to Tenant, and Tenant accepted those suites on orbefore January 1. 2014. On April 1. 2.014 (“Building 20 Expansion Premises Commencement Date”), the Premises shall be amended toinclude Suite 20-170 and Suite 20-180 in Building 20 which consists of a total of 2,265 rentable square feet (“Building 20 ExpansionPremises”), for a total Premises of 57.931 rentable square feet. On or before the execution of this Second Amendment to Lease, Landlord shall delivery Suite 19-210 to Tenant, and Tenant shallaccept that suite. Ninety (90) days after delivery to Tenant by Landlord of Suite 19-210. but not later than June 1, 2014. the Premisesshall be further amended to include Suite 19-210 in Building 19 which consists of 13.288 rentable square feet (“Building 19Expansion Premises”). Cumulatively the Premises shall then consist of 71.219 rentable square feet. Tenant’s pro-rata share of Building 20 shall be 100%. Tenant’s pro-rata share of Building 19 shall be 27.16%, and ExpenseReimbursements for the Premises shall be subject to a 2013 Base Year pursuant to the terms of the Lease. th 2. EXPANDED PREMISES LEASE TERM. The Lease Term for the Expanded Premises shall commence upon the Occupancy Date ofthe Expanded Premises and shall be coterminous with the Lease Term as set forth in Section 2(a) of the Lease. 3. RENTS. The Base Rent for the Building 20 Expansion Premises shall commence on April 1, 2014 and be due and payable as set forthin the following rent schedule. BUILDING 20 EXPANSION PREMISESFrom To Monthly Base RentApril 1, 2014 December 31, 2014 $3,397.50 January 1, 2015 December 31, 2015 $3,491.88 January 1, 2016 December 31, 2016 $3,586.25 January 1, 2017 December 31, 2017 $3,680.63 January 1, 2018 June 30, 2018 $3,775.00 The Base Rent for the Building 19 Expansion Premises shall commence 90 days after Landlord delivers Suite 19-210 to Tenant, butno later than June 1. 2014, and be due and payable as set forth in the following rent schedule. BUILDING 19 EXPANSION PREMISESFrom To Monthly Base RentCommencement Date December 31, 2014 $19,932.00 January 1, 2015 December 31, 2015 $20,485.67 January 1, 2016 December 31, 2016 $21,039.33 January 1, 2017 December 31, 2017 $21,593.00 January 1, 2018 June 30, 2018 $22,146.67 All amounts due and payable for the Building 19 Expansion Premises and the Building 20 Expansion Premises are in addition tothose amounts due for the Premises as described in the Lease and First Amendment, and shall be due and payable in the same manneras all Base Rent and Additional Rent as detailed in Section 4 of the Lease. 4. TENANT IMPROVEMENTS – BUILDING 20 EXPANSION PREMISES. The Building 20 Expansion Premises is being deliveredto the Tenant in its AS-IS condition. As detailed in Section 2(e) of the Lease, “The Tenant Improvement Allowance applicable to the Expansion Premises shall be in addition to the Tenant ImprovementAllowance otherwise specified in this Lease for the Premises and, then, shall be equal to the product of FIFTEEN AND NO/100DOLLARS ($15.00) multiplied by the RSF of the Expansion Premises and further multiplied by a fraction, the numerator of whichshall be the number of months then remaining in the Initial Lease Term (as of the Lease commencement date of the ExpansionPremises) and the denominator of which shall be the number of months of the Initial Lease Term (i.e., 76).”  Landlord and Tenant acknowledge that the Commencement Date of the Lease is March 31, 2012 and therefore the Term of the Leaseis 75 months. Based upon the Building 20 Expansion Premises Commencement Date of April 1, 2014, fifty-one (51) months remain of the InitialLease Term; therefore, Landlord shall provide a Tenant Improvement Allowance of TEN AND 20/100 DOLLARS ($10.20) per RSF($15/RSF multiplied by 51/75), or a total Tenant Improvement Allowance of TWENTY-THREE THOUSAND ONE HUNDREDTHREE DOLLARS ($23,103.00). Landlord shall provide the Tenant Improvement Allowance for, but not limited to, the following (collectively, “TenantImprovements”). Costs of the design and construction of the Tenant ImprovementsAny reasonable and customary amount paid to a project coordinator, constructionconsultant, or similar consultantPermanently-attached furnitureWiring and CablingArchitectural feesPermit feesSignageSecurity systems Landlord will be responsible to pay Tenant’s contractors for the work completed. Should Landlord oversee the construction ofimprovements and should Tenant elect such Landlord oversight in writing, Landlord shall be entitled to a construction managementfee of five percent (5%) of the Building 20 Expansion Premises Tenant Improvement Allowance which will be paid from the TenantImprovement Allowance. Tenant shall have until December 31, 2015 to utilize the Building 20 Expansion Premises Tenant Improvement Allowance. In theevent that, upon the completion of any Tenant Improvements desired by Tenant in respect of the Building 20 Expansion Premises, abalance should remain in the Tenant Improvement Allowance applicable to this Expansion Premises, Tenant may elect, at any timeafter December 31, 2014 and without waiving any right to use the remaining Tenant Improvement Allowance as otherwise set forth inthe Lease, to cause an amount equal to not more than ten percent (10%) of the Tenant Improvement Allowance provided by Landlordunder this Second Amendment to be applied to and credited toward Base Rent. 5. TENANT IMPROVEMENTS – BUILDING 19 EXPANSION PREMISES. The Building 19 Expansion Premises is being deliveredto the Tenant in its AS-IS condition. As detailed in Section 2(f) of the Lease, “The Tenant Improvement Allowance applicable to Suite 19-210 shall be equal to the product of FIFTEEN AND NO/100 DOLLARS($15.00) multiplied by the RSF of the Suite st 19-210 Premises and further multiplied by a fraction, the numerator of which shall be the number of months then remaining in theInitial Lease Term (as of the Lease commencement date for the Suite 19-210 Premises) and the denominator of which shall be thenumber of months of the Initial Lease Term (i.e., 76).” Landlord and Tenant acknowledge that the Commencement Date of the Lease is March 31, 2012 and therefore the Term of the Leaseis 75 months. Based upon an anticipated Building 19 Expansion Premises Commencement Date of June 1, 2014, forty-nine (49) months remain ofthe Initial Lease Term; therefore, Landlord would provide a Tenant Improvement Allowance of NINE AND 80/100 DOLLARS ($9.80)per RSF ($15/RSF multiplied by 49/75). or a total Tenant Improvement Allowance of ONE HUNDRED THIRTY THOUSAND TWOHUNDRED TWENTY TWO AND 40/100 DOLLARS ($130,222.40). This calculation is for illustration purposes only, however. Theactual Tenant Improvement Allowance will be formally calculated based upon the equation noted above and the actual Building 19Expansion Premises Commencement Date. Landlord shall provide the Tenant Improvement Allowance for, but not limited to, the following (collectively, “TenantImprovements”). Costs of the design and construction of the Tenant ImprovementsAny reasonable and customary amount paid to a project coordinator, constructionconsultant, or similar consultantPermanently-attached furnitureWiring and CablingArchitectural feesPermit feesSignageSecurity systems Landlord will be responsible to pay Tenant’s contractors for the work completed. Should Landlord oversee the construction ofimprovements and should Tenant elect such Landlord oversight in writing, Landlord shall be entitled to a construction managementfee of five percent (5%) of the Buildng 19 Expansion Premises Tenant Improvement Allowance which will be paid from the TenantImprovement Allowance. Tenant shall have until December 31, 2015 to utilize the Building 19 Expansion Premises Tenant Improvement Allowance. In theevent that, upon the completion of any Tenant Improvements desired by Tenant in respect of the Building 19 Expansion Premises, abalance should remain in the Tenant Improvement Allowance applicable to this Expansion Premises, Tenant may elect, at any timeafter December 31, 2014 and without waiving any right to use the remaining Tenant Improvement Allowance as otherwise set forth inthe Lease, to cause an amount equal to not more than ten percent (10%) of the Tenant Improvement Allowance provided by Landlordunder this Second Amendment to be applied to and credited toward Base Rent. st 6. TENANT IMPROVEMENT ALLOWANCE RECONCILIATION. The following schedule specifies all tenant improvement allowanceamounts due Tenant per the terms of the Lease which are still in Landlord’s possession: Building 20 Tenant Improvement Allowance $733,050.00 Building 20 Expansion Premises Tenant Improvement Allowance $23,103.00 Building 19 Expansion Premises Tenant Improvement Allowance $130,222.40 “Total Tenant Improvement Allowance” $886,375.40 7. OTHER TERMS AND CONDITIONS. All other terms and conditions of the Lease not specifically amended hereby including but notlimited to all dates previously set forth in the Lease, remain in full force and effect. Section 6(h) of the First Amendment shall be hereby replaced with the following: (h) Premises Signage: Building 19. Subject to Landlord’s reasonable approval, which shall not be unreasonably withheld,conditioned or delayed, Tenant, at Tenant’s sole cost and expense, shall be entitled to install appropriate signage, including Tenant’s logoand/or name, on the wall outside Tenant’s primary entrance to Suite 19-120 and Suite 20-210, subject to a mutually-agreed-upon designand scale between Landlord and Tenant; provided that, in any case, such signage need not be consistent or compatible with any suchbuilding’s design, signage, and graphics program. Tenant shall be responsible for the removal of such signs and the cost of repairing anyresulting damage to the Building and Premises upon the termination or assignment of the Lease. IN WITNESS WHEREOF, the parties execute this Second Amendment to be effective as of the date of the last party to sign. Landlord: Tenant:Colliers Paragon, LLC on behalf of and as Control4 Corporation, a Delaware corporationManaging Representative for the tenant in common owners of the Building. By:/s/ George Iliff By:/s/ ILLEGIBLE George Iliff Its:Managing Member Its:VP FINANCE Date: Date:2/27/2017  EXHIBIT A-1 Building 20 EXPANDED PREMISESELECTRICAL LOBBY CORRIDOR EXIT CORRIDOR WOMENSTAIRWELL MEN SUITE 20-170 740RSF SUITE 20-1801,525 RSF EXHIBIT A-2 Building 19 EXPANDED PREMISES SUITE 19-210 13,288 RSF OPEN TO BELOW THIRD AMENDMENT TO LEASE This THIRD AMENDMENT is hereby entered into this 22 day of December, 2014 between Colliers Paragon, LLC on behalf of and asManaging Representative for the tenant in common owners of the Building as successor in interest to DBSI - Draper Lease CO, L.L.C. andDraper/CG, L.L.C. (‘“Landlord”) and Control4 Corporation, a Delaware corporation, (“Tenant”). WITNESSETH: WHEREAS, the parties entered into that certain lease dated March 31, 2012, and as amended by the First Amendment dated December 17,2012, and Second Amendment dated February 24, 2014 (“Lease”): WHEREAS, Tenant leased 48,870 rentable square feet (“Premises’”) in that building located at 11734 South Election Drive, Draper, UT84020 (“Building 20”) and expanded its Premises in the First Amendment to include 6,796 rentable square feet in Suite 19-120 in thatbuilding located at 11778 South Election Drive, Draper, UT 84020 (“Building 19”) and expanded its Premises in the Second Amendmentby adding Suites 20-170 (740 rentable square feet), 20-180 (1,525 rentable square feet) in Building 20 and 19-210 (13,288 rentable squarefeet) in the Building 19; and now desires to expand the Premises again by adding Suite 19-140 (4,188 rentable square feet) in Building 19as depicted in Exhibit A of this Third Amendment (for purposes of this Third Amendment only, the “Expansion Premises”) to encompass atotal Premises of 75,407 rentable square feet. WHEREAS, the parties desire to amend the Lease to reflect their agreement as to the terms and conditions governing the expansion of thePremises: NOW, THEREFORE, in consideration of the covenants set forth herein, the parties agree as follows: PREMISES AND POSSESSION. On or before the execution of this Third Amendment to Lease, Landlord shall deliver Suite 19-140to Tenant, and Tenant shall accept that suite. Cumulatively the Premises shall then consist of 75,407 rentable square feet. Tenant’s pro-rata share of Building 20 shall be 100%. Tenant’s pro-rata share of Building 19 shall be 32.74%, and ExpenseReimbursements for the Premises shall be subject to a 2013 Base Year pursuant to the terms of the Lease. 1. EXPANSION PREMISES LEASE TERM. The Lease Term for the Expansion Premises shall commence Ninety (90) days afterdelivery of Suite 19-140 to Tenant, but not later than April 1, 2015 and shall be coterminous with the Lease Term as set forth inSection 2(a) of the Lease. 2. RENTS. The Base Rent for Suite 19-140 Expansion Premises shall commence upon the earlier of Ninety (90) days after delivery ofSuite 19-140 to Tenant, or April I, 2015 and be  due and payable as set forth in the following rent schedule. If Base Rent for the Expansion Premises commences in March 2015, theBase Rent shall be pro-rated for the number of days remaining in the month, multiplied by the daily rate of Two Hundred Eight and27/100Dollars ($208.27) and shall be payable with the April 2015 Monthly Base Rental payment. Suite 19-140 EXPANSION PREMISESFrom To Monthly Base RentApril 1, 2015 December 31, 2015 $6,456.50 January 1, 2016 December 31, 2016 $6,631.00 January 1, 2017 December 31, 2017 $6,805.50 January 1, 2018 June 30, 2018 $6,980.00 All amounts due and payable for the Suite 19-140 Expansion Premises are in addition to those amounts due for the Premises asdescribed in the Lease and First and Second Amendments, and shall be due and payable in the same manner as all Base Rent andAdditional Rent as detailed in Section 4 of the Lease. 3. TENANT IMPROVEMENTS. The Suite 19-140 Expansion Premises is being delivered to the Tenant in its AS-IS condition. As detailed in Section 2(e) of the Lease, “The Tenant Improvement Allowance applicable to the Expansion Premises shall be in addition to the Tenant ImprovementAllowance otherwise specified in this Lease for the Premises and, then, shall be equal to the product of FIFTEEN AND NO/100DOLLARS ($15.00) multiplied by the RSF of the Expansion Premises and further multiplied by a fraction, the numerator of whichshall be the number of months then remaining in the Initial Lease Term (as of the Lease commencement date of the ExpansionPremises) and the denominator of which shall be the number of months of the Initial Lease Term (i.e., 76).” Landlord and Tenantacknowledge that the Commencement Date of the Lease is March 31, 2012 and therefore the Term of the Lease is 75 months. Based upon the expectation of Suite 19-140 Expansion Premises Commencement Date of April 1, 2015, thirty-nine (39) monthsremain of the Initial Lease Term; therefore, Landlord shall provide a Suite 19-140 Expansion Premises Tenant ImprovementAllowance of SEVEN AND 80/100 DOLLARS ($7.80) per RSF ($15/RSF multiplied by 39/75), or a total Tenant ImprovementAllowance of THIRTY-TWO THOUSAND SIX HUNDRED SIXTY SIX AND 40/100 DOLLARS ($32,666.40). Landlord shall provide the Tenant Improvement Allowance for, but not limited to, the following (collectively, “TenantImprovements”). Costs of the design and construction of the Tenant Improvements st Any reasonable and customary amount paid to a project coordinator, constructionconsultant, or similar consultantPermanently-attached furnitureWiring and CablingArchitectural feesPermit feesSignageSecurity systems Landlord will be responsible to pay Tenant’s contractors for the work completed. Should Landlord oversee the construction ofimprovements and should Tenant elect such oversight in writing, Landlord shall be entitled to a construction management fee of fivepercent (5%) which will be paid from the Tenant Improvement Allowance. Tenant shall have until December 31, 2015 to utilize the Suite 19-140 Expansion Premises Tenant Improvement Allowance. In theevent that, upon the completion of any Tenant Improvements desired by Tenant in respect of the Suite 19-140 Expansion Premises, abalance should remain in the Tenant Improvement Allowance applicable to this Expansion Premises, Tenant may elect, at any timeafter August 31, 2015 and without waiving any right to use the remaining Tenant Improvement Allowance as otherwise set forth in theLease, to cause an amount equal to not more than ten percent (10%) of the Tenant Improvement Allowance provided by Landlordunder this Third Amendment to be applied to and credited toward Base Rent. 4. OTHER TERMS AND CONDITIONS. All other terms and conditions of the Lease not specifically amended hereby including but notlimited to all dates previously set forth in the Lease, remain in full force and effect. IN WITNESS WHEREOF, the parties execute this Third Amendment to be effective as of the date of the last party to sign. Landlord: Tenant:Colliers Paragon, LLC on behalf of Control4 Corporation, a Delaware corporationand its Managing Representative for the tenant in common owners of the Building. By:/s/ George Iliff By:/s/ ILLEGIBLE George Iliff Its:Managing Member Its:VP FINANCE Date:12/29/14 Date:12/22/17 EXHIBIT A Building 19 EXPANSION PREMISES Suite 140DECEMBER 11, 2014 SAMUEL J. BRADY ARCHITECTS200 E. SOUTH TEMPLE SUITE 160 SALT LAKE CITY,UTAH 84111 (801) 595-1752 FAX: (801) 595-1757 DRAPER TECHNOLOGY PARK BUILDING 19 - ISTFLOOR 11778 S LONE PEAK PKWY. DRAPER, UTAH LONE PEAK CENTER CAMPUSBUILDING IVDRAPER, UTAH FOURTH AMENDMENT TO LEASE(CONTROL4 CORPORATION) THIS FOURTH AMENDMENT TO LEASE (this “Amendment”) is made as of June 29, 2016, by and between HARBERTMSB LONE PEAK CAMPUS, LLC, a Delaware limited liability company (“Landlord”), and CONTROL4 CORPORATION, a Delawarecorporation (“Tenant”). RECITALS A. Landlord (as successor-in-interest to Colliers Paragon, LLC on behalf of and as Managing Representative for the tenantin common owners of the Building as successor in interest to DBSI - Draper Lease CO, L.L.C. and Draper/CG, L.L.C.) and Tenant are partiesto that certain Commercial Lease (the “Original Lease”) dated March 31, 2012, as amended by that certain First Amendment (the “FirstAmendment”) dated December 17, 2012, that certain Second Amendment to Lease (the “Second Amendment”) dated February 24, 2014,and that certain Third Amendment to Lease dated December 22, 2014 (collectively, as amended, the “Lease”), with respect to certainpremises within that certain building located at 11734 South Election Drive, Draper, Utah 84020 (“Building 5”), and certain premiseswithin that certain building located at 11778 South Election Drive, Draper, Utah 84020 (“Building 4”). It is hereby acknowledged andagreed that (i) Building 5 is referred to in the Original Lease, the First Amendment and the Second Amendment, as “Building 20”, andaccordingly, all references to “Building 20” therein, shall be deemed references to Building 5, and (ii) Building 4 is referred to in theOriginal Lease, the First Amendment and the Second Amendment, as “Building 19”, and accordingly, all references to “Building 19”therein, shall be deemed references to Building 4. All capitalized terms used herein and not otherwise defined herein shall have themeanings set forth in the Lease. B. Pursuant to the Lease, Tenant leases from Landlord certain premises within Building 4 and Building 5 (collectively, the“Existing Premises”) containing a total of approximately 75,407 rentable square feet, consisting of the following: BUILDING 4 SuiteFloor(s)Rentable Square FeetSuite 120First (l) floor6,796 RSFSuite 140First (1) floor4,188 RSFSuite 210Second (2) floor13,288 RSFTOTAL RENTABLE SQUARE FEET WITHIN BUILDING 4: 24,272 RSF [FINAL EXECUTION COPY]-1-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 ststndBUILDING 5 Suite(s)Floor(s)Rentable Square FeetSuites 100 and 200First (1) and second (2) floors48,870 RSFSuite 170First (1) floor740 RSFSuite 180First (1) floor1,525 RSFTOTAL RENTABLE SQUARE FEET WITHIN BUILDING 5: 51,135 RSF C. Landlord and Tenant desire to amend the Lease to expand the Existing Premises to include approximately 10,005rentable square feet located on the second (2) floor of Building 4 and designated as Suite 200, as more particularly shown on Exhibit Aattached hereto (the “Expansion Premises”), and to modify other provisions of the Lease, all as more particularly set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein, Landlord and Tenant agree that the Lease ishereby amended as follows: 1. LEASE TERM. a. Confirmation of Lease Term. The Lease Term remains unchanged and is currently scheduled to expire on June30, 2018 (the “Expiration Date”); provided that, by this Amendment or otherwise, Tenant does not relinquish, and expressly reserves, itsright and option to extend the Lease Term for the Premises subject to and in accordance with the terms and conditions of Section 2(a) ofthe Original Lease. b. Expansion Premises Term. Pursuant to the terms of Section 2(g) (Right of First Refusal) of the Original Lease,the Lease Term with respect to the Expansion Premises (the “Expansion Premises Term”), shall commence on the date (the “ExpansionDate”) which is the later to occur of (i) the date which is ninety (90) days following the full execution and delivery of this Amendment, or(ii) the date (the “Delivery Date”) Landlord delivers to Tenant the Expansion Premises, and shall expire on the Expiration Date. Withrespect to the Expansion Premises, all references to the “Lease Term” in the Lease and this Amendment shall be deemed references to theExpansion Premises Term. c. Confirmation of Expansion Date. When the Expansion Date has been ascertained, the parties shall promptlycomplete and execute a Confirmation of Expansion Date in the form of Exhibit B attached hereto. 2. EXPANSION OF THE PREMISES. Effective as of the Expansion Date and continuing through to and including theExpiration Date. Landlord shall lease to Tenant and Tenant shall lease from Landlord the Expansion Premises on all of the terms andconditions of the Lease, as amended hereby. From and after the Expansion Date, all references to the “Premises” in the Lease and thisAmendment shall be deemed references to the Existing Premises and, the Expansion Premises, collectively, and shall measure a total of85,412 rentable square feet. [FINAL EXECUTION COPY]-2-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 stndststnd3. CONDITION AND USE OF THE PREMISES. a. Condition and Use of the Existing Premises. Tenant confirms that (i) it has accepted the Existing Premises andwill continue to occupy such space “AS-IS”, (ii) the Existing Premises are suited for the use intended by Tenant, and (iii) the ExistingPremises are in good and satisfactory condition. Landlord shall have no obligation whatsoever to construct leasehold improvements forTenant or to repair or refurbish the Existing Premises. Notwithstanding the foregoing, nothing herein shall limit or modify Landlord’sobligation to provide services or Landlord’s maintenance obligations specifically set forth in the Lease, as amended. b. Condition and Use of the Expansion Premises. Except for providing the Allowance pursuant to Section 8 belowand delivering the Expansion Premises in Delivery Condition as set forth in Section 3.c below, Landlord shall have no obligationwhatsoever to construct leasehold improvements for Tenant or to repair or refurbish the Expansion Premises. The taking of possessionof the Expansion Premises by Tenant shall be conclusive evidence that Tenant accepts the same “AS-IS” and that the Expansion Premisesis suited for the use intended by Tenant and was in good and satisfactory condition at the time such possession was taken. Notwithstandingthe foregoing, nothing herein shall limit or modify Landlord’s obligation to provide services or Landlord’s maintenanceobligations specifically set forth in the Lease, as amended. Tenant acknowledges that neither Landlord nor Landlord’s agents has madeany representation or warranty as to the condition of the Expansion Premises or Building 4 or the suitability for Tenant’s purposes, exceptas otherwise set forth in this Section 3 or the Lease. Tenant shall continue to use the Existing Premises pursuant to the terms and conditionsof the Lease, as amended, including, without limitation, Section 5 (Use) of the Original Lease. c. Delivery Condition of the Expansion Premises. Subject to Landlord’s continuing obligations under the Lease,Landlord shall cause the Expansion Premises to be delivered to Tenant clean and free of debris, in good operating order, condition andrepair, including existing plumbing, lighting, heating, ventilation, air-conditioning and other Building systems serving the ExpansionPremises, all structural elements, all roofs, exterior windows, interior window shades, ceiling tiles, and doors of the Expansion Premises(collectively, the “Delivery Condition”). Notwithstanding the foregoing, if it is determined that the Expansion Premises were not inDelivery Condition and in compliance with applicable laws, rules and regulations as of the Delivery Date, and such condition or non-compliance is not due to Tenant’s particular use of, or activities or work in, the Expansion Premises, Landlord shall (as remedy therefor)improve such condition or correct such non-compliance at Landlord’s cost within a commercially reasonable time after Landlord’s receiptof written notice thereof (provided that such notice must be received within sixty (60) days following the Delivery Date). 4. BASE RENT. a. Base Rent for the Existing Premises. In addition to all other amounts and charges due and payable by Tenantunder the Lease, as amended, Tenant shall pay Base Rent for the Existing Premises as set forth in the Lease, as amended, in accordancewith the terms of the Lease, as amended. b. Base Rent for the Expansion Premises. From and after the Expansion Date and continuing through to andincluding the Expiration Date, in addition to all other amounts and charges due and payable by Tenant under the Lease, as amended,Tenant shall pay Base Rent for the Expansion Premises as set forth in the rental chart below, in accordance with the terms of the Lease, asamended. [FINAL EXECUTION COPY]-3-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 DatesAnnual BaseRentMonthlyInstallment ofBase RentAnnual Rental Rate PerRentable Square Foot of theExpansion PremisesExpansion Date- 12/31/16$190,095.00$15,841.25$19.0001/01/17-12/31/17$195,097.50$16,258.13$19.5001/01/18-06/30/18$200,100.00$16,675.00$20.00 5. ADDITIONAL RENT - OPERATING EXPENSES. Tenant shall pay Tenant’s Prorata Share of Operating Expenses,pursuant to the terms of the Lease, as amended hereby. a. Tenant’s Prorata Share With Respect to Building 4. From and after the Expansion Date, Tenant’s Prorata Sharewith respect to Building 4 shall be 45.78% (34,277 rentable square feet of the Premises within Building 4 / 74,871 total rentable squarefeet within Building 4). b. Tenant’s Prorata Share for Building 5. Tenant’s Prorata Share with respect to Building 5 shall remain 100%. c. Base Year for the Expansion Premises. From and after the Expansion Date, Operating Expenses with respect tothe Expansion Premises will be calculated using calendar year 2016 as the Base Year (“Expansion Premises Base Year”) and,accordingly, with respect to the Expansion Premises, all references to the “Base Year” in the Lease shall be deemed to be references to theExpansion Premises Base Year. Pursuant to the terms of the Lease, as amended, from and after the Expansion Date and in addition to allother amount due and payable by Tenant under the lease, as amended, Tenant shall pay Tenant’s Prorata Share of Operating Expenses forthe Expansion Premises in excess of Operating Expenses for the Expansion Premises Base Year. It is hereby acknowledged that the BaseYear with respect to the Existing Premises remains unchanged and shall remain as set forth in the Lease. 6. SECURITY DEPOSIT. Landlord is currently holding a Security Deposit in the amount of $10,332.25 under the Lease.The Security Deposit shall be held pursuant to Section 33 (Security Deposit) of the Original Lease, through the date Tenant has satisfied allof its obligations under the Lease, as amended hereby. 7. LANDLORD’S NOTICE ADDRESSES. Effective immediately, all notices to Landlord under the Lease shall be sent tothe following addresses: HARBERT MSB LONE PEAK CAMPUS, LLCc/o Maier Siebel Baber80 East Sir Francis Drake BoulevardSuite 3FLarkspur, California 94939Attention: President and CEO With a copy to: [FINAL EXECUTION COPY]-4-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 HARBERT MSB LONE PEAK CAMPUS, LLCc/o Maier Siebel Baber80 East Sir Francis Drake BoulevardSuite 3FLarkspur, California 94939Attention: Senior Vice President - Asset Management 8. EXPANSION PREMISES IMPROVEMENTS. a. Allowance. Subject to and in accordance with the terms and conditions of Section 2(g) (Right of First Refusal)of the Original Lease, and with respect to the Expansion Premises, Tenant shall be entitled to a one-time allowance (the “Allowance”) inan amount equal to the product of $15.00 multiplied by the rentable square feet of the Expansion Premises (10,005 rentable square feet)and further multiplied by a fraction, the numerator of which shall be the number of months then remaining in the Initial Lease Term and thedenominator of which shall be the number of months of the Initial Lease Term (i.e., 76 months). Once the Expansion Date has beendetermined, Landlord shall calculate the amount of the Allowance, and such amount shall be set forth in, and confirmed as part of,the Confirmation of Expansion Date in the form of Exhibit B attached hereto. The Allowance shall be applied to costs incurred by Tenantin completing the Expansion Premises Improvements (as defined below), which Allowance shall be disbursed by Landlord in accordancewith Section 8.c below. In no event shall Tenant be entitled to any credit or benefit for any unused portion of the Allowance overthe amount expended for the Expansion Premises Improvements described herein. b. Expansion Premises Improvements. Subject to disbursement of the Allowance, and subject to and in accordancewith the terms and conditions of Section 8 (Alterations) of the Original Lease and this Section 8, Tenant shall be entitled to perform certainimprovements (collectively, the “Expansion Premises Improvements”) within the Expansion Premises, utilizing Landlord’scurrent standard grade, quality, make, style, design, color, materials and construction methods for Building 4. In accordance with Section8(a) of the Original Lease, Tenant’s proposed plans for the Expansion Premises Improvements will be subject to Landlord’s reasonablereview and approval, provided that if and to the extent the Expansion Premises Improvements proposed by Tenant are consistent with, orreasonably comparable to, any Tenant improvements within, or serving, the Existing Premises (including, withoutlimitation, any “Tenant Improvements” [as defined in the Original Lease]), then Landlord shall not withhold, delay or condition its reviewor approval of Tenant’s proposed plans for the Expansion Premises Improvements. c. Disbursement of the Allowance. Landlord shall make a one-time disbursement of the Allowance to Tenantwithin thirty (30) days following Landlord’s receipt of: (i) Tenant’s written request for disbursement of the Allowance; (ii) copies ofinvoices related to the Expansion Premises Improvements, together with evidence that such invoices have been paid; and (iii) to the extentapplicable and customary, copies of unconditional waivers and releases of lien in a form in compliance with the applicable statutes fromall contractors, subcontractors and material suppliers covering all work and materials which are the subject of such payment.Notwithstanding anything to the contrary herein, Tenant must make a one-time request for such disbursement pursuant to the terms andconditions of this Section 8 by no later than 5:00 p.m. on December 31, 2016 (the “Request Deadline”). Landlord shall have no obligationto disburse all or any portion of the Allowance which is requested following the Request Deadline, and shall have no obligation todisburse any amounts in excess of the Allowance. d. Landlord’s Expenses; Administrative Fee. Tenant shall pay to Landlord, as additional rent, any out-of-pocketcosts or expenses reasonably incurred by Landlord, on an hourly basis, [FINAL EXECUTION COPY]-5-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009  in connection with Landlord’s review of any plans and specifications for the Expansion Premises Improvements which are above Buildingstandard or are inconsistent with the initial plans approved by Landlord for the Expansion Premises Improvements. Tenant shall also payto Landlord a construction management fee equal to five percent (5%) of hard costs of the Expansion Premises Improvements. Any of suchcosts and expenses set forth above in this Section 8.d may be paid from the Allowance as and to the extent authorized by Tenant. Under nocircumstances shall Landlord be liable to Tenant for any damage, loss, cost or expense incurred by Tenant on account of Tenant’s plansand specifications, Tenant’s contractors or subcontractors, or Tenant’s design of any work, construction of any work or delay in completionof any work. 9. EXPANSION PREMISES SIGNAGE. Tenant, at Tenant’s sole cost and expense, shall be allowed to install Buildingstandard suite identification signage (as such standard is established from time to time by Landlord) bearing Tenant’s name at the entranceto the Expansion Premises. Tenant shall not erect or install or otherwise utilize signs, lights, symbols, canopies, awnings, windowcoverings or other advertising or decorative matter (collectively, “Signs”) on the windows, walls and exterior doors or otherwise visiblefrom the exterior of the Premises without first (a) submitting its plans to Landlord and obtaining Landlord’s written approval thereof, and(b) obtaining any required approval of any applicable governmental authority. All Signs approved by Landlord shall be consistent withLandlord’s current signage program at the real property on which Building 4 is located, professionally designed and constructed in a first-class workmanlike manner, and shall be installed by a signage contractor designated by Landlord. Landlord shall have the right topromulgate from time to time additional reasonable rules, regulations and policies relating to the style and type of said advertising anddecorative matter which may be used by any occupant, including Tenant, in Building 4, and may change or amend such rules andregulations from time to time as in its discretion it deems advisable. Tenant agrees to abide by such rules, regulations and policies. At theexpiration or earlier termination of the Lease, all such signs, lights, symbols, canopies, awnings or other advertising or decorative matterattached to or painted by Tenant upon the Premises, whether on the exterior or interior thereof, shall be removed by Tenant at its ownexpense, and Tenant shall repair any damage or injury to the Premises or Building 4, and correct any unsightly condition, caused by themaintenance and removal thereof. 10. ADDITIONAL LEASE MODIFICATION. It is hereby acknowledged that Tenant’s Suite 19-210 Option set forth inSection 2(f) of the Original Lease is no longer applicable, as Tenant currently leases and occupies such Suite 19-210 Option Premises.Accordingly, effective as of the date hereof, such Suite 19-210 Option is hereby deleted in its entirety. 11. BROKERS. Tenant represents and warrants to Landlord that other than Cresa of Salt Lake City (“Tenant’s Broker”), it hasnot engaged any broker, finder or other person who would be entitled to any commission or fees in respect of the negotiation, execution ordelivery of this Amendment and shall indemnify, defend and hold harmless Landlord against any loss, cost, liability or expense incurredby Landlord as a result of any claim asserted by any such broker, finder or other person (other than Tenant’s Broker) on the basis of anyarrangements or agreements made or alleged to have been made by or on behalf of Tenant. The provisions of this section shall not apply tobrokers with whom Landlord has an express written broker agreement. 12. CONTINUING EFFECTIVENESS. The Lease, except as amended hereby, remains unamended, and, as amended hereby,remains in full force and effect. Tenant confirms that no default exists under the Lease. 13. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall constitute an original, and allof which, together, shall constitute one document. [FINAL EXECUTION COPY]-6-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 14. EXECUTION BY BOTH PARTIES. Submission of this instrument for examination or signature by Tenant does notconstitute a reservation of or option to lease. Upon execution and delivery of this Amendment by Tenant, this Amendment shall bebinding upon Tenant as an irrevocable offer to Landlord. If Landlord does not execute and deliver this Amendment to Tenant withinfifteen (15) days from the date of execution and delivery by Tenant, Tenant may thereafter elect not to go forward with this Amendment bydelivering written notice to Landlord prior to the date Landlord executes and delivers this Amendment to Tenant (in which event Landlordshall thereafter have three (3) business days to execute and deliver this Amendment). Subject to the foregoing, this Amendment shall notbe effective as an amendment to lease or otherwise until it is fully executed and delivered by Landlord and Tenant. 15. AUTHORIZATION. The individuals signing on behalf of Tenant each hereby represents and warrants that he or she hasthe capacity set forth on the signature pages hereof and has full power and authority to bind Tenant to the terms hereof. Two (2) authorizedofficers must sign on behalf of the Tenant and this Amendment must be executed by the president or vice-president and the secretary orassistant secretary of Tenant, unless the bylaws or a resolution of the board of directors shall otherwise provide. In such case, the bylaws ora certified copy of the resolution of Tenant, as the case may be, must be furnished to Landlord. 16. NONDISCLOSURE OF LEASE TERMS. Tenant agrees that it, and its partners, officers, directors, employees, agents(including real estate brokers) and attorneys, shall not disclose the terms and conditions of the Lease, as amended, to any publicinformation source or to any other tenant or apparent prospective tenant of the Building or other portion of the real property on which theBuilding is located, or to any real estate broker or agent, either directly or indirectly, without the prior written consent of Landlord.Notwithstanding anything to the contrary, Tenant may disclose the terms and conditions of the Lease, as amended, pursuant to the order orlegal requirement of a court, the Securities and Exchange Commission, or other governmental body, or to its attorneys and accountantswithout any obligation or liability to the Landlord. (SIGNATURES ON NEXT PAGE) [FINAL EXECUTION COPY]-7-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. LANDLORD:HARBERT MSB LONE PEAK CAMPUS, LLC,a Delaware Limited Liability Company By:Maier Siebel Baber, Its Advisor By:/s/ Kenneth A. Baber Kenneth A. Baber President and CEO Date: July 18, 2016 TENANT:CONTROL4 CORPORATION, a Delaware corporation By:/s/ Martin Plaehn Printed Name: Martin Plaehn Its:Chairman and CEO By:/s/ Greg Bishop Printed Name:Greg Bishop Its:Chief Compliance Officer Date: 30 June, 2016 [FINAL EXECUTION COPY]S-1LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 thEXHIBIT A OUTLINE OF THE FLOOR PLAN OF THEEXPANSION PREMISES 10,005 RSF MARCH 24,2016 SAMUEL J. BRADY ARCHITECTS 200 E. SOUTHTEMPLE SUITE 160 SALT LAKE CITY, UTAH 84111 (801)595-1752 FAX: (801) 595-1757 LONE PEAK CENTER –BUILDING 4 2ND FLOOR 11778 S ELECTIONROAD DRAPER, UTAH MAIER SIEBEL BABER TENANTINITIALS HERE: [FINAL EXECUTION COPY]SMRH:473656241.7 062716 LONE PEAK CENTERCAMPUS Control4 Corporation 21LX-225009 EXHIBIT A EXHIBIT B CONFIRMATION OF EXPANSION DATE This Confirmation is made as of____________________, 20___, between HARBERT MSB LONE PEAK CAMPUS,LLC, a Delaware limited liability company (“Landlord”) and CONTROL4 CORPORATION, a Delaware corporation (“Tenant”). Landlord and Tenant have entered into that certain Commercial Lease dated March 31, 2012, as amended by that certain FirstAmendment dated December 17, 2012, that certain Second Amendment to Lease dated February 24, 2014, that certain Third Amendmentto Lease dated December 22, 2014, and that certain Fourth Amendment to Lease (the “Fourth Amendment”) dated as of June 29, 2016, inwhich Landlord leased to Tenant and Tenant leased from Landlord certain premises consisting of a total of approximately 85,412 rentablesquare feet within (i) that certain building located at 11734 South Election Drive, Draper, Utah 84020, and (ii) that certain building locatedat 11778 South Election Drive, Draper, Utah 84020. Pursuant to Section 1.c of the Fourth Amendment, Landlord and Tenant hereby confirm the Expansion Date is _____________. Pursuant to Section 8.a of the Fourth Amendment, the Allowance is $____________. [*TO BE PROVIDED/CALCULATED BYLANDLORD*] LANDLORD: TENANT: HARBERT MSB LONE PEAK CAMPUS, LLC,a Delaware limited liability company CONTROL4 CORPORATION,a Delaware corporation By:Maier Siebel Baber By:/s/ Kenneth A. Baber Its Advisor Printed Name:Kenneth A. Baber Its:Chairman and CEO By: Kenneth A. Baber President and CEO By:/s/ Greg Bishop Printed Name:Greg Bishop Its:Chief Compliance Officer Date: Date: 30 June, 2016 EXHIBIT B [FINAL EXECUTION COPY]-1-LONE PEAK CENTER CAMPUSSMRH: 473656241.7 Control4 Corporation062716 21LX-225009 Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S‑8 No. 333‑190326) pertaining to the 2003 Equity Incentive Plan and the2013 Stock Option and Incentive Plan of Control4 Corporation,(2)Registration Statements (Form S-8 Nos. 333-197836 and 333-215986) pertaining to the 2013 StockOption and Incentive Plan of Control4 Corporation, and(3)Registration Statement (Form S-8 No. 333-215987) pertaining to the 401(k) Plan of Control4 Corporation; of our report dated February 15, 2018, with respect to the consolidated financial statements of Control4 Corporationincluded in this Annual Report (Form 10-K) for the year ended December 31, 2017. /s/ Ernst & Young LLPSalt Lake City, UtahFebruary 15, 2018 Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002 I, Martin Plaehn, certify that: 1.I have reviewed this Annual Report on Form 10-K of Control4 Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report basedon such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: February 15, 2018By:/s/ MARTIN PLAEHN Martin Plaehn President, Chairman and Chief Executive Officer(Principal Executive Officer) Exhibit 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002 I, Mark Novakovich, certify that: 1.I have reviewed this Annual Report on Form 10-K of Control4 Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report basedon such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: February 15, 2018By:/s/ MARK NOVAKOVICH Mark Novakovich Chief Financial Officer (Principal Financial and Accounting Officer) Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Control4 Corporation for the year ended December 31,2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Martin Plaehn, as ChiefExecutive Officer of Control4 Corporation, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes- Oxley Act of 2002, that, to the best of his knowledge, the Report fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in theReport fairly presents, in all material respects, the financial condition and results of operations of Control4 Corporation. Date: February 15, 2018By:/s/ MARTIN PLAEHN Martin PlaehnPresident, Chairman and Chief Executive Officer (Principal Executive Officer) In connection with the Annual Report on Form 10-K of Control4 Corporation for the year ended December 31,2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mark Novakovich, asChief Financial Officer of Control4 Corporation, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge, the Report fully complieswith the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained inthe Report fairly presents, in all material respects, the financial condition and results of operations of Control4Corporation. Date: February 15, 2018By:/s/ MARK NOVAKOVICH Mark NovakovichChief Financial Officer (Principal Financial and Accounting Officer) 

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