Patriot National 10-K 2015 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36804

Patriot National, Inc.

(Exact name of registrant as specified in its charter)

Delaware	46-4151376
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

401 East Las Olas Boulevard, Suite 1650

Fort Lauderdale, Florida 33301

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (954) 670-2900

Securities registered pursuant to Section 12(b) of the Act:

(Title of Class)	(Name of each exchange on which registered)
Common Stock, $0.001 par value per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

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  x

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 1934 during 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 for the past 90 days.    Yes    x    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 to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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 any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non -accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $160,537,888.

The number of shares of the registrant’s common stock outstanding on March 14, 2016 was 27,176,441.

PATRIOT NATIONAL, INC.

FORM 10-K TABLE OF CONTENTS

YEAR ENDED DECEMBER 31, 2015

		Page No.
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	28
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	97
Item 9B.	Other Information	98
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	99
Item 11.	Executive Compensation	103
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	108
Item 13.	Certain Relationships and Related Transactions, and Director Independence	110
Item 14.	Principal Accountant Fees and Services	113
PART IV
Item 15.	Exhibits and Financial Statement Schedules	114
Signatures		120

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K includes statements that express our opinions, expectations, beliefs, plans, objectives, strategies, assumptions, future revenues or performance, financing needs, business trends or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “potential,” “intend,” “strive,” “plan,” “may,” “might,” “will,” “would,” or “should” or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this Annual Report on Form 10-K and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the risks and uncertainties set forth under “Part I—Item 1A. Risk Factors.”

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, those results or developments may not be indicative of results or developments in subsequent periods.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Annual Report on Form 10-K speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

Terms Used in this Annual Report on Form 10-K

Unless otherwise specified or the context requires otherwise, the following terms used in this Annual Report on Form 10-K have the meanings ascribed to them below:

● references to “Patriot,” “Patriot National,” the “Company,” “we,” “us,” or “our” in this report refer to Patriot National, Inc. and its consolidated subsidiaries unless the context requires otherwise.

● references to the “2014 Acquisitions” refer to both the GUI Acquisition and Patriot Care Management Acquisition together;

● references to “alternative market” refer to arrangements (1) in which workers’ compensation insurance policies are written by our clients and their policyholder or another party bears a substantial portion of the underwriting risk through a reinsurance arrangement between the client and a reinsurance entity or (2) through which our clients share underwriting risk with their policyholders through large deductible policies, retrospectively-rated policies and policyholder dividend arrangements;

● references to the “Back-to-Back agreement” refer to the agreement executed in connection with the PIPE between Mr. Mariano and the Company effective as of December 13, 2015, pursuant to which we would purchase a number of shares of our common stock owned by Mr. Mariano equal to 60% of the shares to be issued in connection with the exercise of the Old Warrants;

● references to “bundled” services refer to arrangements where we provide two or more services to a client;

● references to “combined ratio” refer to the combined ratio comprised of (1) the ratio calculated by dividing net incurred losses plus loss adjustment expenses by net earned premiums and (2) the ratio calculated by dividing net operating expenses by net written premiums. The combined ratio is a measure of the profitability of an insurance company, and a combined ratio below 100 percent is indicative of an underwriting profit;

● references to the “Global HR Acquisition” refer to our acquisition, effective August 21, 2015, of Global HR Research LLC as described in “Business—Our History and Organization” and “Selected Financial Data;”

● references to “Guarantee Insurance” refer to Guarantee Insurance Company, and references to “Guarantee Insurance Group” refer to Guarantee Insurance Group, Inc. (f/k/a Patriot National Insurance Group, Inc.), the parent company of Guarantee Insurance, entities that are both controlled by Steven M. Mariano, our founder, Chairman, President and Chief Executive Officer;

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● references to the “GUI Acquisition” refer to our acquisition, effective August 6, 2014, of contracts to provide marketing, underwriting and policyholder services and related assets and liabilities from a subsidiary of Guarantee Insurance Group, as described in “Business—Our History and Organization” and “Selected Financial Data;”

● references to “IE” refer to PN InsuranceExpert, previously known as “Workers’ Compensation Expert” or “WCE;”

● references to the “New Series A Warrants”, the “New Series B Warrants” or together, the “New Warrants” refer to the warrants issued to the PIPE Investors pursuant to the rescission and exchange agreements entered into on December 23, 2015 whereby the Old Warrants were exchanged for the New Warrants;

● references to the “Old Series A Warrants”, the “Old Series B Warrants” or together, the “Old Warrants” refer to the warrants issued to the PIPE Investors pursuant to the Securities Purchase Agreement effective December 13, 2015 by and among Mr. Mariano, the Company and the PIPE Investors;

● references to the “Patriot Care Management Acquisition” refer to our acquisition, effective August 6, 2014, of a business that provides nurse case management and bill review services (the “Patriot Care Management Business”), as described in “Business—Our History and Organization” and “Selected Financial Data;”

● references to “Patriot National,” “our company,” “we,” “us” or “our” refer to Patriot National, Inc. and its direct and indirect subsidiaries;

● references to the “PennantPark Entities” refer to PennantPark Investment Corporation, PennantPark Floating Rate Capital Ltd., PennantPark SBIC II LP and PennantPark Credit Opportunities Fund LP;

● references to the “PennantPark Loan Agreement” refer to the amended and restated first lien term loan agreement, dated as of August 6, 2014 between, among others, us and certain of our subsidiaries, as borrowers, certain of our other subsidiaries and certain affiliated entities, as guarantors, and the PennantPark Entities, as lenders;

● references to the “PIPE” refer to the private investments made by Tenor Capital Management (through Alto Opportunity Master Fund, SPC), Heights Capital Management (through CVI Investments, Inc.) and Hudson Bay Capital Management (through Hudson Bay Master Fund Ltd.) (together the “PIPE Investors”) in December 2015;

● references to “reference premiums written” refer to the aggregate premiums, grossed up for large deductible credits, written by or for our insurance carrier partners in respect of the policies we produce and service on their behalf;

● references to “reinsurance captives” or “reinsurance captive entities” refer to segregated portfolio cell captive entities that assume underwriting risk written initially by an insurance carrier client;

● references to the “Reorganization” refer to Patriot National’s incorporation in Delaware in November 2013 as a holding company and the consolidation of various entities operating our business that had been under the common control of Mr. Mariano, and the separation of our insurance services business from the insurance operations of Guarantee Insurance;

● references to “turnkey” refer to arrangements where we provide both front-end services such as brokerage, underwriting and policyholder service, and back-end services such as claims adjudication and administration services to an insurance carrier client;

● references to the “UBS Credit Agreement” refer to the credit agreement, dated as of August 6, 2014 between, among others, us and certain of our subsidiaries, the lenders party thereto and UBS Securities LLC, as lead arranger, bookmanager, documentation agent and syndication agent.

Market and Industry Data

Within this Annual Report on Form 10-K, we reference industry and market data derived from internal analyses based upon publicly available data or other proprietary research and analysis, surveys or studies conducted by third parties and industry and general publications, including those by the National Council on Compensation Insurance (“NCCI”) and SNL Financial. While we believe our internal analyses are reliable, they have not been verified by any independent sources. Any such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under “Risk Factors,” “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Item 1. Business

Our Company

We are an independent national provider of comprehensive technology-enabled insurance and employer solutions. Our products and services help insurance carriers, employers and other clients mitigate risk, comply with complex regulations, and save time and money. We offer end-to-end insurance-related and specialty services that allow our clients to improve efficiencies and reduce

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expenses through our value added processes.  The core of our value proposition includes the benefit of a “one-stop” solution with our broad array of services, scalable state-of-the-art technology, and support for complex business and regulatory processes.  

We principally offer two types of services: front-end services, such as brokerage, underwriting and policyholder services, and back-end services, such as claims adjudication and administration.  We provide our services either on an individual basis, as bundles of two or more services tailored to a client’s specific needs or on a turnkey basis where we provide a comprehensive set of front-end and back-end services to a client.  We also offer specialty services currently including technology outsourcing and other IT services, as well as employment pre-screening and background checks.  As a service company, we do not assume any underwriting or insurance risk.  Our revenue is primarily fee-based, most of which is contractually committed or highly recurring.

Our strategy is to grow organically as well as through acquisitions. Our organic growth is rooted in leveraging our proprietary business processes, strong distribution relationships and advanced technology infrastructure to attract new clients as well as expanding the services provided to existing customers.  Concurrently, by acquiring complementary competencies, technologies and other capabilities, we can enhance our value proposition for clients.  We have experienced significant organic growth in our client base and revenues as a result of strong industry trends and continued demand for outsourcing and technology-enabled insurance and specialty services.  Additionally, many of our services have become more integrated into wide-reaching employer functions, and in many cases have become mandatory, either by law or pursuant to commercial contracts or industry standard practices, such as background checks, fraud investigation and health care cost containment.  Key to our organic growth has been our ability to convert “unbundled” carriers (carriers who use just one of our services) into “bundled” carriers (carriers who use two or more of our services) and “bundled” carriers into “turnkey” carriers (carriers who use both front-end services and back-end services). Our acquisition strategy builds on our organic growth philosophy—we acquire high-performing businesses that have services we can also sell to our existing clients.  

Our longstanding expertise in the workers’ compensation sector of the insurance industry forms a strong foundation for our comprehensive portfolio of technology-enabled outsourcing solutions.  We leverage our expertise in the workers’ compensation sector to other sectors of the insurance industry and by offering other complementary services for our target market, which includes insurance carriers, local governments, reinsurance captives and other employers.

Our proprietary technology enables us to provide services rapidly and, we believe, at a lower cost than our competitors.  The basis of our technology is the PN InsuranceExpert (“IE”) system.  The IE system is a web based end-to-end software system that provides all of the functions required by insurance carriers, managing general agents and third-party administrators.  The IE system is designed to facilitate data communication with legacy systems, which allows us to quickly interface with our clients’ existing systems and provides improved data analytics.  Moreover, we have several workflow tools that allow us to automate our proactive claims administration system, which we call SWARM process, and our utilization review process using our DecisionUR product.  We also have tools to streamline the payment process, such as InsurePay, which allows carrier clients to collect premiums for workers’ compensation insurance at the time payroll is paid by the policyholder.

Our revenue was $209.8 million for the year ended December 31, 2015 and $117.3 million for the year ended December 31, 2014. Our net loss for the period ended December 31, 2015 was $5.4 million and net income of $10.04 million for the period ended December 31, 2014. See “Selected Financial Data” for additional information.

Patriot National, the Patriot National logo, PN InsuranceExpert, InsurePay, DecisionUR, SWARM, and other trademarks or service marks of Patriot National appearing in this report are the property of Patriot National. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We have generally omitted the ® and ^TM designations, as applicable, for the trademarks used in this report.

Patriot National, Inc. (f/k/a Old Guard Risk Services, Inc.) was incorporated in Delaware in November 2013. We completed our initial public offering in January 2015 and our common stock is listed on the New York Stock Exchange under the symbol “PN.”  For information regarding recent developments of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Events.”  

Our Services

The Company operates in one segment. Our services are provided as a comprehensive set of solutionstailored to the specific needs of each client. Currently, our primary categories of services include:

● “Front-end services” such as brokerage, underwriting and policyholder services as well as reinsurance captive management;

● “Back-end services” such as claims administration services, including a number of specialty services such as healthcare cost containment services, investigative services, loss control services, transportation and translation services, lien resolution and legal bill review;

● Technology services and solutions which may be incorporated into the delivery of back-end services or provided on a standalone basis including DecisionUR, InsuranceExpert and InsurePay (each offered through a software-as-a-service (“SaaS”) model); and

● Human capital management services including pre-employment screening, background checks, drug screening, and talent assessment.

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Front End Services: Brokerage and Policyholder Services

Agency and Underwriting Services

Our brokerage and policyholder services include general agency services and specialty underwriting and policyholder services provided to our insurance carrier clients. We produce and administer traditional and alternative market workers’ compensation insurance programs within risk classes and geographies specified by our insurance carrier clients and earn fees based on a percentage of the premiums for the policies we produce and service. We do not write any insurance policies or bear underwriting risk.

The activities we perform in this capacity for our carrier partners may include marketing, underwriting and appointment of other agents. We place the workers’ compensation insurance products of our carrier partners through a national network of over 1,000 independent retail agencies nationwide. We invest a substantial amount of time in developing relationships with our agencies, and we believe that these relationships allow us to place policies on behalf of our carrier partners. For additional information about our independent retail agency network, see “—Our Sales and Marketing—Underwriting Business Production.”

We provide a variety of underwriting services that we believe provide value to our insurance carrier clients. Our underwriting services consist of investigation and analysis of potential loss exposures related to each policyholder’s operations in order to produce insurance programs designed and priced appropriately for our carrier clients. We compare the policyholder’s operations to the operations that would be expected for similar businesses in order to determine available premium rates. We also review the quality of operations, including management’s attention to safety, hazard controls and loss mitigation support, as well as past loss information to validate our loss exposure and quality of operations analysis. Assuming such review of the policyholder’s operations satisfies our insurance carrier client’s specifications for risk acceptance, we offer our insurance carrier clients a price for our services commensurate with our loss exposure and quality of operations analysis.

We also conduct premium audits on policyholders annually upon the expiration or renewal of a policy. The purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications, and therefore have paid the correct premium as required under the terms of their policies. In addition to annual audits, we selectively perform interim audits on certain classes of business if significant or unusual claims are filed or if the monthly reports submitted by a policyholder reflect a payroll pattern or any aberrations that cause underwriting, safety or fraud concerns.

Reinsurance Captive Entity Management Services

Through our independent retail agency network, we also offer reinsurance captive entity design and management services. Owners of a reinsurance captive entity can participate in the underwriting results of a policy by sharing a portion of the risk with an insurance carrier. We earn fees for management and other services performed for reinsurance captive entities that we design and form.

These services include the formation and management of segregated portfolio cell captives. Owners of a reinsurance captive entity are required to post collateral in order to absorb a portion of the insurance losses along with the ceding insurance carrier. Formation of segregated portfolio cell captives involves the submission of an application for regulatory approval by the relevant domiciliary regulatory body, together with supporting financial information and a business plan, and the creation and execution of participation agreements, subscription agreements and reinsurance agreements pertaining to such captives. Management of segregated portfolio cell captives includes compliance monitoring, financial reporting and investment portfolio management services.

We believe our offering of reinsurance captive entity management services is attractive to potential policyholders and independent retail agencies who seek to participate in underwriting results. The owners of reinsurance captive entities that we provide services to are generally independent retail agencies, policyholders or investor groups (typically made up of individual agents). Although certain insurance carriers offer alternative market products, such as reinsurance captive entity services, to their large corporate customers, we offer alternative market workers’ compensation solutions, including the facilitation and management of reinsurance captive entities, to small and medium-sized employers as well. For policyholders, this can be an attractive option to reduce workers’ compensation costs over the long term, and for agencies, this allows them to participate in the underwriting results on business produced.

As of December 31, 2015, we were providing services to 61 reinsurance captive entities with $107.1 million of combined premiums in force. These reinsurance captive entities are generally domiciled in the Cayman Islands, the Bahamas, or the State of Delaware.

Back End Services: Claims Administration Services

Our claims administration services relate to the administration and resolution of workers’ compensation claims that are designed to reduce costs for our clients. We provide a comprehensive claims administration platform to our carrier partners that revolves around our proprietary SWARM process.

Our claims administration process begins even before we receive notice of a claim. Once a policy becomes effective and we are engaged to provide claims administration services, we send a claims kit to the insured outlining the policy provisions, mandated posting notices, information on how to report a claim, the importance of reporting all claims on a timely basis and answers to

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frequently asked questions. We make available a toll-free reporting line, as well as a website, for insureds or employees to report injuries, available 24 hours a day, seven days a week.

SWARM - Our Claims Administration Process

Our propriety SWARM process is the centerpiece of our claims administration services. The SWARM process is a high-touch, front-end loaded approach to claims processing that permits a multi-faceted, team-based rapid response to all new claims. The SWARM process is in particular supported and facilitated by our IE technology platform.  This process facilitates the review of all aspects of our clients’ claims, quickly and proactively, and can involve, as required, several or all of our major functional areas: ·Claims Adjustment: providing general oversight and management; ·Subrogation: identifying and pursuing recovery options against third parties; ·Nurse Case Management: assisting in resolving claims and returning injured claimants to work and generally working to contain the healthcare costs component of claims; and ·Special Investigative Unit (“SIU”): conducting due diligence and background checks and fraud investigations.

The SWARM process is designed to enable us to favorably influence the outcome of the claim early in its lifecycle, resulting in claims closure rates (as measured by the ratio of open claims to total reported claims for a given accident year) consistently better than the industry average, which ultimately reduces the cost of claims for our clients and their policyholders. When a claim is compensable, our claims management process is designed to result in an economical net claim cost while ensuring that the injured worker’s medical care is provided in an effective and cost-efficient manner, promoting the early return to work through consistent contact with medical providers and employers and providing appropriate and prompt payment of benefits, where applicable.

The core principles of the SWARM process are the following:

● Widespread Initial Contact.   Personnel in all of our major functional areas (including nurse case management where onsite attendance is permitted) receive alert of the claim instantaneously via our IE platform upon the report of a claim to us by our clients (see “—Our Technology Services—PN InsuranceExpert”). We believe this widespread initial notice differentiates us from our competitors, some of whom first channel claims through a single claims adjuster, which can become a “single point of failure” by not identifying an issue that our specialists can identify as an initial matter.

● Rapid Response—Early and Accurate Determination of Compensability.   The SWARM process is centered on achieving an early and accurate determination of claim compensability through background checks, surveillance investigations and medical canvassing (the collection of available medical history data relating to a claimant). We strive to determine the compensability of the claim within the first 48 hours after report of a claim.

● Efficient Resource Deployment and Open Communication Lines.   While the claims adjuster generally oversees and manages the entire SWARM process, a specific functional area of SWARM may be deployed as the lead resource to address pertinent issues based on the nature of the injury reported. For example, in the case of an injury with questionable compensability, SIU will lead an investigation into the actual cause of the injury. When necessary, our SIU personnel can be dispatched to the site of injury within four hours of the first report of claim. In the case of a major injury that is clearly compensable, nurse case management will focus on containing healthcare costs. In the case of an automobile accident caused by a third party, subrogation will lead an effort to seek recovery from the at-fault driver. This efficiency is driven in part by our open communication lines, allowing all our functional areas to prompt counterparts in other departments to collect and evaluate additional information. For example, the claims adjuster may request the SIU personnel to evaluate additional information on-site if a more detailed review of claimant information leads to the belief that the claim may be erroneous or falsely reported.

● Real-Time Analysis.   Through our state-of-the-art IE system and information systems infrastructure, each as further described below, we maintain thorough and accurate claims data, which allows timely and accurate reporting and analysis. For example, our technology platform enables the SIU personnel to conduct real-time medical canvassing and identity checks onsite and communicate findings to the claims adjuster.

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The effectiveness of the SWARM process relies on experienced and knowledgeable personnel to identify and implement our cost-saving resources on a timely basis, and we believe its success is due to the quality of our claims management team. In addition, our nurse case management professionals have extensive training and expertise in assisting injured workers to return to work quickly.

We strive for rapid closure of claims in order to reduce the cost of medical and indemnity expenses, and believe we have historically achieved results that have consistently outperformed the industry average.

Our Specialized Service Offerings

Through our claims administration services, we also provide a variety of specialty services individually to other clients such as employers, local governments and other insurance services providers. These services include:

● Healthcare Cost Containment Services.   We provide nurse case management and medical bill review designed to contain healthcare costs associated with workers’ compensation claims through early intervention and ongoing review of services and pricing. Healthcare costs are a significant and rising contributor to workers’ compensation expenses and have been increasing in recent years. We believe that self-insured employers and insurance carriers have been increasing their focus on nurse case management and other cost containment services to control their workers’ compensation costs.

Our nurse case managers, who are registered nurses or other licensed professionals accepted by workers’ compensation insurers, assist in resolving claims and returning injured claimants to work as efficiently as possible and focus on evaluating medical care needs to contain costs. They do not provide healthcare services. Nurse case managers actively participate in our SWARM process and generally contact the injured worker within two business days after claim filing to begin their evaluation of medical care needs and to assist in the case management process. They monitor each claim file pursuant to a process that includes peer review and utilization guidelines for treatment, and remain active in the process from claim inception until resolution to help ensure all treatment sought is medically necessary. Nurse case management fees are based upon a flat monthly fee charged until the case is resolved.

As part of our healthcare cost containment services we also provide medical bill review services through an automated review process, providing clients with a faster turnaround time, more efficient bill review and a higher total savings when compared with our key competitors. Bill review services include: coding review, fee schedule analysis, out-of-network bill review, pharmacy review, PPO management and repricing. Fees for our bill review services are generally based on a percentage of the cost savings we achieve. In addition, we utilize preferred provider networks to reduce healthcare costs where possible.

● Investigative Services.   We also provide onsite investigations into fraud and compensability and evaluation of subrogation opportunities, designed to limit claim exposures for our clients and comply with regulatory requirements. Our SIU plays a critical role in detecting potential claims fraud and is otherwise instrumental in accurately determining the compensability of a claim in a timely manner. Certain states require that all insurance carriers establish or retain an investigative unit to investigate and report fraudulent activities. Our SIU operates under guidelines that exceed the minimum requirements of such state regulations. Our SIU personnel are typically dispatched to the site of injury within four hours of the first report of claim when utilized as part of our SWARM process. We are generally paid a transaction based fee depending on the specific service provided. Certain of our investigative services are provided through outside service providers.

● Loss Control.   Loss control services are designed to preemptively mitigate potential claims and ultimately reduce long-term cost of insurance coverage for clients. These services include conducting onsite hazard assessments to determine causes of accidents and evaluate subrogation potential, analyzing losses to highlight trends and set service priorities, evaluating risk exposures at the workplace, providing practical recommendations to improve safety standards, establishing a loss control service plan, reviewing and evaluating current safety plans to prioritize and address workplace procedures deemed to be vulnerable to accidents, providing ongoing education via a web portal to insureds on “best-in-class” safety practices and conducting onsite safety training. Certain of our loss control services are provided through outside service providers.

● Transportation and Translation.   Transportation services include ambulatory, wheelchair, advanced life support and air ambulance services for claimants. Translation services include onsite and telephonic translation, as well as transcription. These services are provided through outside service providers and were added to our services in connection with the SWARM process. Transportation and translation services complement the investigative process and enhance communication with, and location tracking capabilities of, the claimant at any given time.

● Lien Resolution.   Due to California’s specific regulatory scheme, we offer workers’ compensation lien resolution solutions in the state of California, including lien negotiation, disputed bill analysis, claim consultation and analysis and bulk settlement services. While not a significant contributor to our revenues or income to date, we believe this offering adds to the breadth of our services and enhances our marketing opportunities.

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● Legal Bill Review.   This service, which is provided through outside service providers, provides cost saving opportunities for claims departments of insurance companies nationally in connection with claim defense costs, including through a structured audit process to verify the appropriate amount of legal payments and eliminate the potential for unnecessary or fraudulent charges.

Our Technology Services

PN InsuranceExpert (“IE”)

In August 2013, in conjunction with a technology vendor, we developed and implemented our IE system, a scalable technology platform for which we have developed proprietary customizations, that handles the entire billings and claims administration process, from the initial issuance of policies to settlement of claims. Our IE system is the cornerstone of our SWARM claims management process, and we believe it provides:

● reduced cost associated with policy initiation by fully automating issuance and underwriting of new policies;

● real-time analysis and communication capabilities across functional areas to enhance speed of claims response and resolution;

● enhanced data collection and quality, information analysis and identification of trends through ease-of-use and single data-entry principle; and

● comprehensive predictive modeling and analytics capabilities.

The IE system is a web-based end-to-end software platform that provides the following functions, among others: agency point of sale, application processing, policy underwriting, billing and claims administration, statistical and financial reporting, audit processing, electronic data interchange reporting (allowing participants to exchange documents and data electronically based on a shared technology standard), third party interfaces and content management.

The IE system was designed with a robust, modular architecture to provide flexibility to integrate new carriers and acquired businesses. For example, the IE system is compatible with the legacy systems of our insurance carrier clients. We also believe that it can be utilized in lines of business outside of the workers’ compensation insurance industry.

We believe the IE system can drive cost efficiencies by automating issuance and underwriting of new policies, increasing our staff productivity and lowering IT costs and reducing client acquisition costs. Our aim is to continue to modernize user interfaces, and to streamline the delivery of this information to our clients, giving more rapid feedback and putting real-time information in the hands of our clients. For example, through the IE system we are able to assist our clients in their compliance efforts by providing data gathering and generation for regulatory reporting. We also offer individual IE services under a software-as-a service model.

DecisionUR

     Our DecisionUR software is a SaaS based platform that automates and governs utilization review decisions, produces statutory compliant records and certification, and can automate approval of certain approved protocols to expedite the workers compensation claims process. Features of the software include: evidence based determinations for the majority of treatment requests; streamlined process for documenting, issuing, and tracking all requests and determinations; and compliance with regulatory requirements to avoid penalties.

InsurePay

     Through the secure, cloud-based SaaS platform, InsurePay enables businesses to pay their workers’ compensation premiums each pay period based on actual payroll and class codes rather than generated estimates.  This accurate and flexible approach reduces operational costs for insurance carriers and policyholders.  Through real-time processing, policyholders can reduce or eliminate large down payments and avoid year-end audit discrepancies, and insurance carriers are able to eliminate billing, collections and auditing costs.  

IT Infrastructure

Our information technology division provides support and access to our information systems infrastructure, including software applications, hardware, and communications. Our production data centers are located in Boca Raton, Florida, Jacksonville, Florida, and Santa Clara, California. Each data center functions as both production and disaster recovery for multiple services. Our offices are connected to the centers via a redundant mix of private networks and VPN connectivity. We have sought to design our data and telecommunication infrastructure for security and scalability. All external data connections via the Internet go through a redundant option of a local Internet Service Provider or through our data centers.  External connections are protected by a firewall and an Intrusion Detection System. To promote recoverability, backups are performed daily and stored locally on disk based, de-duplication appliances which are replicated to offsite locations on a continual basis.

Our Human Capital Management Services

In August 2015, through the Global HR Acquisition, we added pre-employment background screening, assessment and acquisition solutions to our employer service offerings.

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Our Clients

We provide agency, underwriting and/or policyholder services to our insurance carrier clients, including Guarantee Insurance Company, Zurich Insurance Group Ltd. (“Zurich”), American International Group, Inc. (“AIG”), and Scottsdale Insurance Company (“Scottsdale”). We also provide claims administration services to our insurance carrier clients and other clients including over 200 local government or municipal entities and other insurance services providers. Additionally, we provide reinsurance captive entity design and management services for a number of reinsurance clients. Our pre-employment screening and background check services are provided to a wide variety of employers across various industries.

The fees we receive are based, depending on the service provided, upon a percentage of reference premiums, flat monthly fees, hourly fees or the savings we achieve, among other metrics.

As of March 14, 2016, Mr. Mariano, our founder, Chairman, President and Chief Executive Officer, beneficially owns 53.8% of the outstanding shares of our common stock and substantially all of the outstanding equity of Guarantee Insurance Group. Therefore, our transactions with Guarantee Insurance Group and its subsidiaries, including Guarantee Insurance and GUI, are related party transactions. See “Certain Relationships and Related Transactions and Director Independence—Relationship and Transactions with Guarantee Insurance Group and Guarantee Insurance.”

A portion of the fees that we receive from Guarantee Insurance pursuant to the Services Agreements and the Program Administrator Agreement are for Guarantee Insurance’s account (which we recognize as “fee income from related party”) and a portion of the fees are for the account of reinsurance captive entities to which Guarantee Insurance has ceded a portion of its written risk (which we recognize as “fee income”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Components of Financial Statements—Revenue.” As a result, a substantial portion of fee income we recognize from non-related parties is nevertheless derived from our relationship with Guarantee Insurance. For the year ended December 31, 2015 and 2014, 69% and 71% respectively of total fee income and fee income from related party were attributable to contracts with Guarantee Insurance, and our fee income from related party was $86.9 million and 46.9 million.

Other than Guarantee Insurance, none of our current clients accounted individually for more than 10% of our total revenues for the year ended December 31, 2015.

Our Sales and Marketing

New Clients

Our management team leads our efforts to acquire new insurance carrier and other clients, by leveraging their insurance industry expertise and relationships. Among the targets of such efforts are, for example, insurance carriers that are present in the workers’ compensation space but wish to outsource certain administrative services, including to better manage cyclicality, and carriers who are unable or unwilling to fully enter the workers’ compensation services space themselves but feel the need, or are legally required, to offer workers’ compensation insurance products to their customers.

Underwriting Business Production

Our underwriting business production efforts on behalf of our insurance carrier clients are managed by four regional vice presidents covering five regions (Gulf Coast, Southeast, Midwest, West, and Northeast) who are responsible for independent retail agency relationships and new business generation in their regions. We produce and place policies on behalf of our carrier partners through the combination of in-house efforts and our national network of independent retail agencies, as described below. We also generate reinsurance captive entity design and management business through our independent retail agency network.

We select agencies based on several key factors, such as size and scope of the agencies’ operations, loss ratio of its existing business, targeted classes of business, reputation of the agencies and their business philosophy. We target agencies that we believe share our service philosophy and that we expect will be able to send us the quality of business we are seeking. We invest a substantial amount of time in developing relationships with our agencies. As of December 31, 2015 and 2014, respectively, we had direct contracts with approximately 3,000 and 1,066 independent, non-exclusive retail agencies across the Gulf Coast, Southeast, Midwest, West, and Northeast.

We assign marketing representatives and underwriters to collaborate with our agencies based on relationships with agencies and not necessarily based on geographic area. Our marketing efforts directed at agencies are implemented by our field underwriters, marketing staff and client services personnel. These personnel work with these agencies in making sales presentations to potential policyholders. Additionally, each year we hold annual planning meetings with our agencies to discuss the prior year’s results and to determine financial goals for the coming year.

Cross-Selling

Additionally, through our acquisitions, we leverage our expanding network of customers, products and services, and geographic presence in order to market products from one area of the company to existing clients in another area. To promote our cross-selling efforts, we have implemented a referral program with our national network of agents whereby they may receive referral fees for successfully placing referrals across our various service offerings. The material terms of these referral arrangements vary.

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Our Competition

The market for workers’ compensation insurance services is highly competitive. In competing to offer our services to insurance carriers, we compete based on pricing, quality and scope of available services, underwriting practices, reputation and reliability, ability to reduce claims expenses, customer service and general experience. In competing to place business on behalf of our carrier partners, competition is also based on the product offerings, premium pricing and financial strength and reputation of our carrier partners. Our competitors are national and regional insurance companies that provide services similar to ours through in-house capabilities or separate divisions, and other workers’ compensation insurance agencies and service providers, many of which are significantly larger and possess considerably greater financial, marketing and other resources than we do. As a result of this scale, they may be able to capitalize on lower expenses to offer more competitive pricing.

For our brokerage and policyholder services, we believe we compete with numerous national wholesale agents and brokers, as well as insurance companies that sell directly to customers. For our claims administration services, we compete with numerous businesses of varying sizes that offer claims management, cost containment, and/or other services that are similar to those that we offer. With respect to our outsourced services business in particular, we also compete with insurance companies that service their policies in-house rather than outsourcing to a provider like us. In all of the services we provide, we also compete with numerous smaller market participants that may operate in a particular geographic area or segment of the market.

Regulation

Workers’ Compensation Insurance Regulation

Workers’ compensation laws vary by state, but generally establish requirements related to the workers’ compensation insurance policies that we offer on behalf of our carrier partners and the claims services we provide related to those policies. Each state has a regulatory and adjudicatory system that quantifies the level of wage replacement to be paid, determines the level of medical benefits to be provided and the cost of permanent impairment and specifies the options in selecting medical providers available to the injured employee or the employer. To fulfill these mandated financial obligations, virtually all employers are required to purchase workers’ compensation insurance or, if permitted by state law or approved by the U.S. Department of Labor, to self-insure.

Some states have adopted legislation for managed care organizations (“MCO”) in an effort to allow employers to control their workers’ compensation costs. A managed care plan is organized to serve the medical needs of injured workers in an efficient and cost-effective manner by managing the delivery of medical services through appropriate healthcare professionals. We are registered wherever legislation mandates or where it is beneficial for us to obtain a license. We are also subject to state insurance fraud provisions, as well as federal fraud-and-abuse, anti-kickback and false claims statutes, including those related to Medicare and Medicaid, where applicable.

We provide our claims administration and adjudication and other services pursuant to and in compliance with these state rules and regulations. Changes in individual state regulation of workers’ compensation may create a greater or lesser demand for some or all of our services or require us to develop new or modified services in order to meet the needs of, and compete effectively in, the marketplace. We continually evaluate new legislation to ensure we are in compliance and can offer services to our clients.

Licensing

In each state in which we transact insurance services business, we are generally subject to regulation relating to licensing, sales and marketing practices, premium collection and safekeeping, and other market conduct practices. We are authorized to act as an insurance agent or producer under firm licenses or licenses held by the officers of such firms in all states that require licensing. In addition to the licensing necessary to act as insurance agent or producer, many of the other services we provide also require licensing. For example, licensing requirements may apply to third-party administration services, healthcare cost containment services, and reinsurance entity management services. In addition, our nurse case managers who assist in the case management process are required to be qualified as registered nurses or other licensed professionals accepted by workers’ compensation insurers. Further, the reinsurance entities we provide services to are regulated by the jurisdictions where they are domiciled, which typically requires us to be licensed and fulfill certain minimum capitalization requirements, among other requirements. We believe we have obtained all licenses necessary to permit us to conduct our business.

Our business depends on the validity of, and continued good standing under, the licenses and approvals pursuant to which we operate, as well as compliance with pertinent regulations. We devote significant effort toward maintaining our licenses and managing our operations and practices to help ensure compliance with a diverse and complex regulatory structure. Licensing laws and regulations vary from state to state. In all states, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally such authorities are vested with relatively broad discretion as to the granting, renewing and revoking of licenses and approvals. Licenses may be denied or revoked for various reasons, including the violation of regulations and conviction of crimes. Possible sanctions which may be imposed by regulatory authorities include the suspension of individual employees, limitations on engaging in a particular business for specified periods of time, revocation of licenses, censures,

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redress to clients and fines. In some instances, we follow practices based on interpretations of laws and regulations generally followed by the industry, but which may prove to be different from the interpretations of regulatory authorities.

Regulation of Our Carrier Partners

Our insurance carrier partners are subject to extensive regulation by the insurance regulators of the states in which they operate, as well as by the federal government for participation in government-sponsored programs such as Medicare and Medicaid. While we are not subject to these regulations, they could indirectly impact us if our carrier partners were forced to alter their businesses or the nature of their relationship with us as a result of regulation. The nature and extent of such regulation varies by jurisdiction but typically includes the following: standards of solvency, including risk-based capital requirements; mandates that may affect wage replacement and medical care benefits paid; restrictions on the way rates are developed and premiums are determined; limitations on the manner in which general agents may be appointed; required methods of accounting; establishment of reserves for unearned premiums, losses and other purposes; and limitations on their ability to transact business with affiliates; potential assessments for the satisfaction of claims under insurance policies issued by impaired, insolvent or failed insurance companies.

Under the regulations applicable to Guarantee Insurance, because of our affiliation through the common control of Mr. Mariano, all material transactions among us and Guarantee Insurance generally must be fair and reasonable and, if material or of a specified category, require prior notice and approval by the Florida Office of Insurance Regulation.

The premium rates that may be charged to insure employers for workers’ compensation claims are set by state regulations. For example, in Florida and New Jersey where a significant portion of the policies that we service are written, insurance regulators establish the premium rates charged by our carrier partners. Although we do not set the premium pricing of the policies that we offer on behalf of our carrier partners, these types of regulations can impact us because we are compensated in part based on a percentage of the premiums associated with policies we offer and service on behalf of our carrier partners. In addition, if regulated premium pricing causes our carrier partners to reduce their business levels or stop writing policies in certain states, it would reduce the services we provide for them.

Privacy Regulations

In 1999, Congress enacted the Gramm-Leach-Bliley Act (“GLBA”), which, among other things, protects consumers from the unauthorized dissemination of certain personal information. Subsequently, a majority of states have implemented additional regulations to address privacy issues. These laws and regulations apply to all financial institutions, including insurance and finance companies, and require us to maintain appropriate policies and procedures for managing and protecting certain personal information of our policyholders and to fully disclose our privacy practices to our policyholders. We may also be subject to future privacy laws and regulations, which could impose additional costs and impact our business, financial condition and results of operations.

In 2000, the National Association of Insurance Commissioners, or the NAIC, adopted the Privacy of Consumer Financial and Health Information Model Regulation, which assisted states in promulgating regulations to comply with GLBA. In 2002, to further facilitate the implementation of GLBA, the NAIC adopted the Standards for Safeguarding Customer Information Model Regulation. Several states have now adopted similar provisions regarding the safeguarding of policyholder information. We have established policies and procedures to comply with GLBA and other similar privacy laws and regulations.

Consumer Protection Laws and Regulations

Our pre-employment background screening and verification business is subject to compliance with the Fair Credit Reporting Act (FCRA) which is a federal law that governs the use and sharing of consumer information provided by a consumer reporting agency.

Federal and State Legislative and Regulatory Changes

From time to time, various legislative and regulatory changes have been proposed in the insurance industry. Among the proposals that have in the past been or are at present being considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers and proposals in various state legislatures (some of which proposals have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. We are unable to predict whether any of these laws and regulations will be adopted, the form in which any such laws and regulations would be adopted or the effect, if any, these developments would have on our business, financial condition and results of operations.

Because a significant portion of workers’ compensation claim costs are healthcare costs and we provide services related to the containment of those healthcare costs, any legislative or regulatory changes that affect the healthcare industry also affect us. Historically, governmental strategies to contain medical costs in the workers’ compensation field have been generally limited to legislation on a state-by-state basis. For example, many states have implemented fee schedules that list maximum reimbursement levels for healthcare procedures. In certain states that have not authorized the use of a fee schedule, we adjust bills to the usual and customary levels authorized by the payor. Opportunities for our services could increase if more states legislate additional cost

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containment strategies. Conversely, we would be materially and adversely affected if states elect to reduce the extent of medical cost containment strategies available to insurance carriers and other payors, or adopt other strategies for cost containment that would not support a demand for our services. As a result of the Patient Protection and Affordable Care Act (“PPACA”) and other regulatory and industry initiatives, the healthcare industry has been evolving rapidly in recent years and is expected to continue to do so. The impact of these changes on our business is uncertain, but it is possible that they could impact the demand for our healthcare cost containment services or change the manner and type of healthcare cost containment services that we can provide.

Our carrier partners can also be impacted by federal legislative changes. For example, the Terrorism Risk Insurance Act (“TRIA”), which provides a federal backstop insurance program for acts of terrorism, is scheduled to expire at the end of 2020. We are unable to predict whether the TRIA will be extended beyond 2020 or whether any such extension would include changes to the TRIA that would negatively impact our carrier partners. Because workers’ compensation carriers are not able to exclude acts of terrorism from the coverage they offer, if the TRIA is not extended beyond 2020, its expiration could have a significant impact on workers’ compensation insurance carriers. Although the impacts of expiration are uncertain, if private insurance carriers are unable to sufficiently increase premium rates or are otherwise unwilling to take on the additional risk, they could reduce their business levels generally or in certain markets or industries.

While the federal government has not historically regulated the insurance business, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act established a Federal Insurance Office (the “FIO”) within the U.S. Department of the Treasury. The FIO has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers. In December 2013, the FIO released a report recommending ways to modernize and improve the system of insurance regulation in the United States. While the report did not recommend full federal regulation of insurance, it did suggest an expanded federal role in some circumstances. In addition, the report suggested that Congress should consider direct federal involvement to fill regulatory gaps identified in the report, should those gaps persist, for example, by considering either establishing a federal coordinating body or a direct regulator of select aspects of the industry. It is not clear as to the extent, if any, the report will lead to regulatory changes or how any such changes would impact our carrier partners.

Healthcare Reform

There has been considerable discussion of healthcare reform at both the federal level and in numerous state legislatures in recent years. Due to uncertainties regarding the ultimate features of reform initiatives and the timing of their enactment, we cannot predict which, if any, reforms will be adopted, when they may be adopted, or what impact they may have on us. We are still evaluating the impact of the health reform legislation which was enacted by Congress in March 2010 on our future results and costs. The legislation could increase our future healthcare benefit costs.

In particular, by processing data on behalf of our clients, we are subject to specific compliance obligations under privacy and data security related laws, including the Health Insurance Portability and Accountability Act (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”) and related state laws. We are also subject to federal and state security breach notification laws, as well as state laws regulating the processing of protected personal information, including laws governing the collection, use and disclosure of social security numbers and related identifiers.

The regulations that implement HIPAA and the HITECH Act establish uniform standards governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans, and healthcare clearinghouses, all of which are referred to as “covered entities,” and their “business associates” (which is anyone who performs a service on behalf of a covered entity involving the use or disclosure of protected health information and is not a member of the covered entity’s workforce). Our insurance carrier clients’ health plans generally will be covered entities, and as their business associate they may ask us to contractually comply with certain aspects of these standards by entering into requisite business associate agreements.

The HIPAA healthcare fraud statute created a class of federal crimes known as the “federal healthcare offenses,” including healthcare fraud and false statements relating to healthcare matters. The HIPAA healthcare fraud statute prohibits, among other things, executing a scheme to defraud any healthcare benefit program while the HIPAA false statements statute prohibits, among other things, concealing a material fact or making a materially false statement in connection with the payment for healthcare benefits, items or services. Entities that are found to have aided or abetted in a violation of the HIPAA federal healthcare offenses are deemed by statute to have committed the offense and are punishable as a principal.

Our Employees

As of December 31, 2015 and 2014, we had approximately 1145 and 560 employees, respectively. We have entered into employment agreements with Mr. Mariano and each of our other executive officers. None of our employees is subject to any collective bargaining agreement. We believe that our employee relations are good.

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Seasonality and Cyclicality

Like other sectors of the insurance industry, the workers’ compensation sector experiences underwriting cyclicality, which generally underpins changes in premium rates. This cyclicality is caused by a number of factors. First, ultimate loss costs become more difficult to predict when claims remain open for longer periods and they are exposed to wage and medical cost inflation. Second, the amount of investment income insurance carriers earn, which is a significant contributor of their overall targets, may also influence such carrier’s underwriting practices. Given that workers’ compensation claims have a long duration, insurers can write at higher combined ratios because they are able to invest the assets over a long period and earn significant investment income. However, in periods of low interest rates, similar to the current investment environment, insurance carriers cannot generate sufficient investment income to offset underwriting losses, and as a result have demanded higher premium rates. This has led to a modest “hardening” of the workers’ compensation market.

Our History and Organization

Mr. Mariano, our founder, Chairman, President and Chief Executive Officer, initially started our workers’ compensation insurance business and acquired Guarantee Insurance in 2003.

Patriot National, Inc. (f/k/a Old Guard Risk Services, Inc.) was incorporated in Delaware in November 2013 to consolidate certain insurance services entities controlled by Mr. Mariano. This Reorganization separated our insurance services business from the insurance risk taking operations of Guarantee Insurance Group.

Effective August 6, 2014, we acquired certain contracts to provide marketing, underwriting and policyholder services to certain of our insurance carrier clients, as well as related assets and liabilities, from a subsidiary of Guarantee Insurance Group in the GUI Acquisition. We also acquired a contract to provide a limited subset of our brokerage and policyholder services to Guarantee Insurance, the balance of which had historically been provided without a contract as GUI is a subsidiary of Guarantee Insurance. We refer to the acquisition of these contracts and related assets and liabilities as the “GUI Acquisition.” Immediately following the GUI Acquisition, we entered into a new agreement to provide all of our brokerage and policyholder services to Guarantee Insurance.

We further expanded our business effective August 6, 2014, through our acquisition from MCMC of the Patriot Care Management Business. The Patriot Care Management Business had been previously controlled by Mr. Mariano and was sold to MCMC in 2011 for approximately $105 million in cash and preferred equity issued by MCMC.

The consolidated financial statements of Patriot National are comprised of (a) the financial statements of us and those of our subsidiaries which became our subsidiaries in the Reorganization, (b) the results of the Patriot Care Management Business which are reflected in our consolidated financial statements from August 6, 2014, the effective date of the Patriot Care Management Acquisition, and (c) the revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed in the GUI Acquisition from GUI, a wholly owned subsidiary of Guarantee Insurance Group and a related party by virtue of common control between us and Guarantee Insurance Group, which became effective August 6, 2014 and (d) the financial results of the companies we acquired in 2015 (see Note 3 to our consolidated financial Statements, “Business Combinations”).

Because we and the subsidiaries we acquired in the Reorganization are under common control, and the contracts acquired in the GUI Acquisition were acquired from an entity under common control, our consolidated financial statements are presented as if all of these companies and businesses, were owned by us for all of the periods presented, as further described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We own 100% of the subsidiaries that comprise our insurance services business, with the exception of Contego Services Group, LLC, in which Mr. Mariano maintains a 3% membership interest and DecisionUR, LLC in which a 1.2% membership interest was retained by Kevin Hamm.

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Where You Can Find More Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website at http://www.patnat.com/ as soon as reasonably practicable after they are filed with or furnished to the SEC. We will provide, without charge, to each person upon written or oral request of such person, a copy of this Annual Report on Form 10-K, including the financial statements and financial statement schedules included therein. You should direct requests for those documents to:

Patriot National, Inc.

401 East Las Olas Boulevard, Suite 1650

Fort Lauderdale, Florida 33301

Attn: Investor Relations

Tel.: (954) 670-2900

Email: info@patnat.com

We maintain an internet site at http://www.patnat.com/. From time to time, we may use our website as a distribution channel of material company information. Financial and other important information regarding us is routinely accessible through and posted on our website. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.

Item 1A. Risk Factors

In addition to the other information set forth in this Annual Report on Form 10-K, you should carefully consider the following factors which could materially adversely affect our business, financial condition, results of operations (including revenues and profitability) and/or stock price. Our business is also subject to general risks and uncertainties that may broadly affect companies, including us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition, results of operations and/or stock price.

Risks Related to Our Business

Because we have a limited operating history as a stand-alone, combined company and business, our historical financial condition and results of operations are not necessarily representative of the results we would have achieved as a stand-alone, combined, publicly-traded company and may not be a reliable indicator of our future results.

The activities comprising our business were historically conducted through various entities under common control with, or as part of the operations of, Guarantee Insurance and its other affiliates, and our business has only been consolidated under Patriot National and separated from the insurance risk taking operations of Guarantee Insurance Group since November 2013. In addition, we have only completed the GUI Acquisition and the Patriot Care Management Acquisition as of August 2014. As a result, our history as a stand-alone entity is limited. Our historical financial condition and results of operations included in this Annual Report on Form 10-K may not reflect what our business, financial condition, results of operations and cash flows would have been had we been a stand-alone, combined, publicly-traded company during the periods presented or what our business, financial condition, results of operations and cash flows will be in the future when we are such a company. As a result, you have limited information on which to evaluate our business. This is primarily because:

● Most of our operations were separated from Guarantee Insurance and consolidated under Patriot National, Inc. in the Reorganization in November 2013, and on August 6, 2014 we acquired through the GUI Acquisition contracts to provide marketing, underwriting and policyholder services and through the Patriot Care Management Acquisition a business that provides nurse case management and bill review services.

● Since our initial public offering in January 2015, our capital structure and sources of liquidity changed significantly from our historical capital structure and sources of liquidity prior to the initial public offering presented in our historical consolidated financial statements prior to 2015.

● We may incur increased costs and other significant changes may occur in our cost structure, management, financing, tax status and business operations as a result of our operating as a stand-alone, combined, publicly-traded company.

Our limited operating history as a stand-alone, combined company and business may make it difficult to evaluate our current business and predict our future performance. Any assessment of our profitability or prediction about our future success or viability is subject to significant uncertainty as we may not be able to successfully implement the changes necessary to operate as a stand-alone,

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combined, publicly-traded company, and we may need to incur more costs, including additional legal, accounting, compliance and other expenses not reflected in our historical results, than anticipated.

Our business may be materially adversely impacted by general economic and labor market conditions.

We derive our revenue from the provision of services to the workers’ compensation insurance industry. Given the concentration of our business activities in this industry, we may be particularly exposed to certain economic downturns or other events that impact the labor market. Because a significant portion of the fees that we receive are based on a percentage of the reference premiums written for policies we produce and service, premium levels directly impact our revenues. Premium level growth is dependent in part upon payroll growth, which, in turn, is affected by underlying economic and labor market conditions. A poor economic environment and labor market could result in decreases in demand for our workers’ compensation insurance services as employers hire fewer workers, reduce wages or limit wage increases or curtail operations due to challenging market conditions. General business and economic conditions that could affect us, our carrier partners and our other clients include fluctuations in debt and equity capital markets, the availability and cost of credit, and investor and consumer confidence. In addition to the adverse effects caused by a weak labor market on demand for workers’ compensation insurance and related services, our carrier partners may experience increased losses in weak economic conditions because, among other things, it is more difficult to return injured workers to work when employers are otherwise reducing payrolls. This could cause them to reduce their business levels, which would in turn reduce the level of services we provide for them. In addition, some of our clients may cease offering workers’ compensation products, or cease operations completely, in the event of a prolonged deterioration in the economy, or be acquired by other companies. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

The workers’ compensation insurance industry is cyclical in nature, which may affect our overall financial performance.

Historically, the workers’ compensation insurance market has witnessed cyclical periods of price competition and excess underwriting capacity (known as a “soft market”), followed by periods of high premium rates and shortages of underwriting capacity (known as a “hard market”). Because this cyclicality is due in large part to general economic factors and other events beyond our control, we cannot predict with certainty the timing or duration of changes in the market cycle.

As a provider of services to the workers’ compensation insurance market, our business is likely to be impacted by this cyclical market pattern, although it is difficult to predict, overall, the exact nature and extent of such impact. For example, in a soft market, our agency and other service fees that are based on a percentage of reference premiums written could decline, although demand for our cost containment and other services could increase as insurers seek to decrease expenses and additional insurers enter the market, which increases our potential client base. In a hard market, our service fees that are based on a percentage of reference premiums written could increase, although we could experience less demand for cost containment services. Moreover, in a hard market, insurance companies typically become more selective in the workers’ compensation risks they underwrite and insurance premiums increase. This often results in a reduction in industry-wide claims volumes, which could reduce demand for our claims administration, cost containment and other related services. If we are unable to accurately predict or react to any such market conditions, or if severe or unusual market conditions impact us in an unforeseen manner, our business, financial condition and results of operations could be adversely impacted.

In addition, there have been and may continue to be various trends in the insurance industry toward alternative insurance markets including, among other things, greater recourse to self-insurance, reinsurance captive entities, risk retention groups and non-insurance capital markets-based solutions to traditional insurance. While historically we have been able to participate in reinsurance captive entities solutions on behalf of our clients and obtain fee revenue for such services, there can be no assurance that we will continue to do so or that we will adequately adapt to new trends in this area, or that any potential increase in revenues from such activities would compensate for losses in our other primary businesses.

We may be more vulnerable to negative developments in the workers’ compensation insurance industry than companies that also provide outsourced services for other lines of insurance.

Our business involves providing outsourcing services within the workers’ compensation marketplace for insurance companies and other clients, and we currently do not have plans to focus our efforts on other lines of insurance. As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry could have a greater adverse effect on our business, financial condition and results of operations than on more diversified companies that also provide outsourced services for other lines of insurance.

If workers’ compensation claims decline, in frequency or severity, our results of operations and financial condition may be adversely affected.

The frequency of workers’ compensation claims has been declining over the past few decades, but the severity of claims, in terms of both indemnity payment costs and medical costs, has generally increased. If, as a result of market conditions, regulatory changes or other factors, claims frequency declines more than anticipated, or if claims severity declines, our business could be adversely impacted. In addition, a prolonged economic downturn could lead to fewer workers on a national level and could lead to fewer work-

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related injuries. Technological innovations and changes in the character of the U.S. labor market over time could also lead to fewer work-related injuries and thus fewer workers’ compensation claims.

In addition, the impact of changes in the healthcare industry, as a result of the PPACA or otherwise, is uncertain, but could include impacts on frequency (for example, by increasing healthcare insurance coverage or the prevalence of preventative treatment) and severity (by impacting the medical costs associated with claims) of workers’ compensation claims.

If declines in the frequency or the severity of workers’ compensation claims occur and persist in states where we conduct significant business, it could result in lower premium rates, which would reduce the fees that we generate as a percentage of reference premiums written, and lower claims management costs for insurers and employers, which could reduce demand for our claims administration, cost containment and other services. Any of the foregoing could have a material adverse impact on our business, financial condition and results of operations.

Our total fee income and fee income from related party are currently substantially dependent on our relationships with Guarantee Insurance and a small number of other insurance carrier clients.

A substantial portion of our total fee income and fee income from related party is generated by providing brokerage and policyholder and claims administration services to Guarantee Insurance. A portion of the fees that we receive from Guarantee Insurance pursuant to our agreements are for Guarantee Insurance’s account (which we recognize as “fee income from related party”) and a portion of the fees are for the account of reinsurance captive entities to which Guarantee Insurance has ceded a portion of its written risk (which we recognize as “fee income”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Components of Financial Statements—Revenue.” As a result, a substantial portion of fee income we recognize from non-related parties is nevertheless derived from our relationship with Guarantee Insurance. For the year ended December 31, 2015, we recognized an aggregate of $209.8 million in total fee income and fee income from related party pursuant to contracts with Guarantee Insurance, and our fee income from related party was $86.9 million. Our total fee income and fee income from related party pursuant to contracts with Guarantee Insurance and our fee income from related party constituted 69% and 41%, respectively, of our total fee income and fee income from related party for the year ended December 31, 2015.

Although we intend to expand our relationships with additional carrier partners and our service offerings to third-party clients, we expect we will continue to be significantly impacted by the overall business levels of Guarantee Insurance, Zurich, AIG and Scottsdale. While we have a limited ability to affect their business levels through the services we provide, their business levels are largely impacted by many factors outside of our control. For example, the general effects of economic and labor market conditions on business levels, a variety of market or regulatory factors can impact our carrier partners’ decisions regarding the markets they enter, the products they offer and the industries they target. In addition, their business levels will depend on their ability to attract and retain policyholders, which can be impacted by their competitiveness in terms of financial strength, ratings, reputation, pricing, product offerings (including alternative market offerings) and other factors that independent retail agencies and policyholders consider attractive. A reduction in the business levels of our carrier partners would result in a reduction of the services we provide to them and the amount of revenues we generate from such services, which, assuming we have not expanded our relationships with additional carrier partners or other clients, could represent a significant portion of our revenues. Further, if the premium rates assessed by our carrier partners decreased, we would experience a corresponding decrease in the revenues that we derive from these carrier partners because a significant portion of the fee revenue we receive from providing services to them is based on a percentage of reference premiums written for the policies that we produce and service. We do not have any ability to control such rates, and in certain states premium rates are established by regulation. Further, our insurance carrier clients may in the future seek to reduce the service fees paid to us.

Our carrier partners also have the ability to terminate their agreements with us under certain circumstances, as described in more detail under “Business—Clients”. In addition, some of our clients may cease offering workers’ compensation products, or cease operations completely. For example, in March 2012 we were forced to terminate our program administrator agreement with Ullico, one of our insurance carrier clients, and to commence a process to wind-down our program under this agreement. The basis for termination, pursuant to the agreement, was the sudden and substantial deterioration of Ullico’s financial position and results of operations

In the event our carrier partners terminate their agreements with us, our clients cease offering workers’ compensation products, our clients cease operations completely, or under certain other circumstances, we could experience a significant decrease in revenue. Under such circumstances, we would attempt to replace that relationship and transition the business to another carrier partner. However, there can be no assurance that we would be able to do so successfully or at all.

Further, we are subject to counterparty credit risk due to our dependence on a small number of insurance carrier clients. Although we monitor our exposure to counterparty credit risk, if any of these clients ceases doing business or fails to perform its obligations under our contracts with them, our business, financial position and results of operations would be materially adversely affected.

For more information about Guarantee Insurance, see “Certain Relationships and Related Transactions and Director Independence—Relationship and Transactions with Guarantee Insurance Group and Guarantee Insurance.”

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Our relationship with Guarantee Insurance may create conflicts of interest, and we cannot be certain that all our transactions with Guarantee Insurance will be conducted on the same terms as those available from unaffiliated third parties.

As of March 14, 2016, Mr. Mariano, our founder, Chairman, President and Chief Executive Officer, beneficially owned 53.8% of the outstanding shares of our common stock and substantially all of the outstanding equity of Guarantee Insurance Group, the parent company of Guarantee Insurance. As such, we cannot assure you all of our transactions with Guarantee Insurance will be on the same terms as those available with unaffiliated third parties or that the affiliation will not otherwise impact our actions in a manner that is adverse to us or our stockholders. Although most of our operations were separated from Guarantee Insurance and consolidated under Patriot National, Inc. in the Reorganization in November 2013, a substantial portion of our revenues is generated through our relationship with Guarantee Insurance. Our total fee income and fee income from related party pursuant to contracts with Guarantee Insurance and our fee income from related party constituted 69% and 41%, respectively, of our total fee income and fee income from related party for the year ended December 31, 2015. Furthermore, through the 2014 Acquisitions, we acquired contracts to provide marketing, underwriting and policyholder services and our Patriot Care Management Business from entities controlled by Mr. Mariano. Concurrently, we also entered into a new agreement with Guarantee Insurance to provide all such services that GUI had provided to Guarantee Insurance, its parent, prior to the GUI Acquisition.

Although Mr. Mariano is no longer a board member or officer of Guarantee Insurance Group or Guarantee Insurance, and we have implemented a related party transaction policy in connection with this offering, because of his ownership position in Guarantee Insurance Group, Mr. Mariano’s interests in our dealings with Guarantee Insurance may not align with our other stockholders. See “Certain Relationships and Related Party Transactions and Director Independence.”

We have acquired 17 insurance and other services firms in a short period of time and we have limited experience integrating the operations of companies or businesses that we have acquired and may incur substantial costs in connection therewith which could adversely affect our growth and results of operations.

We have acquired 17 insurance and other services firms in a short period of time. We believe that similar acquisition activity will be important to maintaining comparable growth in the future. Failure to successfully identify and complete acquisitions would likely result in slower growth. Even if we are able to identify appropriate acquisition targets, we may not be able to execute transactions on favorable terms or integrate targets in a manner that allows us to fully realize the anticipated benefits from these acquisitions. Our ability to finance and integrate acquisitions may also suffer if we expand the number or size of our acquisitions. Furthermore, in order to achieve the growth we seek, we may acquire numerous smaller market participants, which could require significant attention from management and increase risks, costs and uncertainties associated with integration.

The process of integrating the operations of an acquired company may create unforeseen operating difficulties and expenditures. The key areas where we may face risks and uncertainties include:

· the need to implement or remediate controls, procedures and policies appropriate for a public company at companies that, prior to the acquisition, lacked these controls, procedures and policies;

· disruption of ongoing business, diversion of resources and of management time and focus from operating our business to acquisitions and integration challenges;

· our ability to achieve anticipated benefits of acquisitions by successfully marketing the service offerings of acquired businesses to our existing partners and clients, or by successfully marketing our existing service offerings to clients and partners of acquired businesses;

· the negative impact of acquisitions on our results of operations as a result of large one-time charges, substantial debt or liabilities acquired or incurred, amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets, or adverse tax consequences, substantial depreciation or deferred compensation charges;

· the need to ensure that we comply with all regulatory requirements in connection with and following the completion of acquisitions;

· retaining employees and clients and otherwise preserving the value of the assets of the businesses we acquire; and

· the need to integrate each acquired business’s accounting, information technology, human resource and other administrative systems to permit effective management.

Post-acquisition risks include those relating to retention of personnel, retention of clients, entry into unfamiliar markets or lines of business, assumption of unexpected or unknown contingencies or liabilities, risks relating to ensuring compliance with licensing and regulatory requirements, tax and accounting issues, distractions to management and personnel from our existing business and integration difficulties relating to accounting, information technology, human resources, or organizational culture and fit, some or all of which could have an adverse effect on our results of operations and growth. Post-acquisition deterioration of targets could also result in lower or negative earnings contribution and/or goodwill impairment charges.

If we fail to grow our business organically we may be unable to execute our business plan or adequately address competitive challenges.

As part of our growth strategy, we intend to diversify our business by entering into relationships with additional insurance carrier and other clients. As a result, we are subject to certain growth-related risks, including the risk that we will be unable to retain

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personnel or acquire other resources necessary to service such growth adequately. While we have recently engaged in relationships with additional insurance carrier and other clients, we cannot be certain that these relationships will be successful in generating revenue or that we will be successful in establishing relationships with other potential insurance carrier and other clients that we identify in the future. In addition, the integration and management of new client relationships may divert management time and focus from operating our current businesses, and the development of the technology and other infrastructure necessary to service or facilitate new relationships could require substantial effort and expense.

If we cannot sustain our relationships with independent retail agencies, we may be unable to operate profitably.

We market and sell the insurance products of our carrier partners primarily through direct contracts with over 3,000 independent, non-exclusive retail agencies, some of which account for a large portion of our revenues. Other insurance companies and insurance service companies compete with us for the services and allegiance of these agencies. These agencies may choose to direct business to our competitors, or may direct less desirable business to us. Our business relationships with these agencies are generally governed by our standard form agreements with them that typically provide that the agreement may be terminated on 30 days’ notice by either party without cause. For the year ended December 31, 2015, no agency accounted for more than 5% of our total premiums written.

As a result, our continued profitability depends, in part, on the marketing efforts of our independent agencies and on our ability to offer workers’ compensation insurance products through our carrier partners that meet the requirements and preferences of our independent retail agencies and their clients. A significant decrease in business from, or the entire loss of, our largest agencies or several of our other large agencies would have a material adverse effect on our business, financial condition and results of operations.

Changes in the healthcare industry could adversely impact our performance.

Our Patriot Care Management Business acquired in 2014 provides healthcare cost containment services in connection with workers’ compensation claims, including bill review and telephonic nurse case management, and through our subsidiary CWI, we provide benefits administration for clients with self-funded health and welfare plans nationwide. As a result of the PPACA and other regulatory and industry initiatives, the healthcare industry has been evolving rapidly in recent years and is expected to continue to do so. Substantially all of the key provisions of the PPACA are now effective. While federal agencies have published interim and final regulations with respect to certain requirements, many issues remain uncertain. It is difficult to predict the impact of the PPACA on our business due to the law’s complexity, the political environment, the continuing development of implementing regulations and interpretive guidance, legal challenges and possible future legislative changes. We are unable to predict how these events will develop and what impact they will have on the PPACA, and in turn, on our business including, but not limited to, our relationships with current and future clients, as well as our products, services, processes and technology.

It is possible that such changes in the healthcare industry could result in reduced demand for, or effectiveness of, our healthcare cost containment services. For example, if the PPACA is successful in increasing healthcare coverage, improving wellness and/or slowing the growth rate of, or even reducing healthcare costs, it could decrease the frequency and severity of workers’ compensation claims. Alternatively, if an increase in the availability of healthcare insurance coverage resulted in demand for healthcare services outpacing available supply, it could make it more difficult for us to contain healthcare costs. In addition, healthcare providers have become more active in their efforts to minimize the use of certain cost containment techniques by insurers and are engaging in litigation to avoid application of certain cost containment practices. Recent litigation between healthcare providers and insurers has challenged certain insurers’ claims adjudication and reimbursement decisions. Although these lawsuits do not directly involve us or any services we provide, these cases may affect the use by insurers of certain cost containment services that we provide and may result in a decrease in revenue from our cost containment business. If we are unable to adapt to healthcare market changes with our existing services or by developing and providing new services, our business would be adversely affected.

Further, the PPACA provides various incentives that affect demand for our services. For example, under the PPACA’s employer shared responsibility, or “play or pay,” provisions, employers with 50 or more full-time equivalent employees must offer health insurance to certain of their employees and their dependent children, and if coverage meeting certain minimum requirements is not offered the employer may face non-deductible tax penalties. Although employers retain the choice between fully underwritten and self-insured health insurance plans to comply with these requirements, the PPACA creates significant mandate and cost differences between fully underwritten and self-insured plans by exempting self-insured plans from certain requirements that can result in increased costs for fully underwritten plans, such as single risk pool standards and medical loss ratio mandates. Accordingly, these provisions encourage demand for the administration services we offer for self-insured plans. Any changes to the PPACA and its implementing regulations and guidance, including as a result of legal and legislative challenges, that lower the requirements for employers to provide health insurance or that make self-insured plans less attractive could result in reduced demand for our healthcare administration services, and our business could be adversely affected as a result.

Our geographic concentration ties our performance to business, economic and regulatory conditions in certain states, and unfavorable conditions in these states could have a significant adverse impact on our business, financial condition and results of operations.

As of December 31, 2015, a majority of our reference premiums written is concentrated in Florida, California, New Jersey, Georgia, New York and Pennsylvania, with Florida and California being the largest contributors.

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Our workers’ compensation insurance service operations could be particularly adversely affected by an economic downturn in one or more of these states. In addition to the various other factors that could impact the economic and labor market conditions in these states, conditions could be affected by local or regional events, including natural disasters, such as hurricanes or earthquakes, or other catastrophic events that disrupt the local economy and cause businesses to cease operations or decrease payroll, thus reducing demand for workers’ compensation insurance.

We could also be adversely affected by any material change in law, regulation or any court decision affecting the workers’ compensation insurance industry generally in these states. For example, in Florida and New Jersey where a significant portion of the policies that we service are written, insurance regulators establish the premium rates charged by our carrier partners. If insurance regulators in these states decrease premium rates or prevent them from increasing, it would directly adversely impact our fees that are based on a percentage of reference premiums written. In addition, if regulators set rates below those that our carrier partners require to maintain profitability, our carrier partners may be less willing to write policies in those states or attempt to negotiate lower fees from us, which would adversely impact the revenues we generate through our relationships with our carrier partners.

Any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations.

We are subject to extensive regulation and supervision and our failure to comply with such regulation or adapt to new regulatory and legislative initiatives may adversely impact our business.

We are subject to extensive regulation by the insurance regulatory agencies of the states in which we are licensed and, to a lesser extent, federal regulation. For example, approximately half of the states in the United States have enacted laws that require licensing of businesses which provide medical review services such as ours. Some of these laws apply to medical review of care covered by workers’ compensation. These laws typically establish minimum standards for qualifications of personnel, confidentiality, internal quality control and dispute resolution procedures. We are also subject to state insurance fraud provisions, as well as federal fraud-and-abuse, anti-kickback and false claims statutes. Such laws, regulation and supervision could reduce our profitability or growth by increasing compliance costs or by restricting the products or services we may sell, the markets we may enter, the methods by which we may sell products and services, the prices we may charge for our services and the form of compensation we may accept from our carrier partners and other clients. Failure to comply with these laws and regulation may result in the suspension or revocation of licenses, censures, redress to clients and fines.

Licensing laws and regulations vary from state to state, but in general many of the services that we provide require licensing. For example, our policyholder services and claims administration activities generally require licensing at the state level. In all states, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally such authorities are vested with relatively broad and general discretion as to the granting, renewing and revoking of licenses and approvals. Licenses may be denied or revoked for various reasons, including the violation of regulations and conviction of crimes. Possible sanctions which may be imposed by regulatory authorities include the suspension of individual employees, limitations on engaging in a particular business for specified periods of time, revocation of licenses, censures, redress to clients and fines.

Further, state insurance regulators and the National Association of Insurance Commissioners (“NAIC”) continually re-examine existing laws and regulations, and such re-examination may result in the enactment of insurance-related laws and regulations, or the issuance of interpretations thereof, that adversely affect our business. In some instances, we follow practices based on interpretations of laws and regulations generally followed by the industry, which may prove to be different from the interpretations of regulatory authorities.

In addition, changes in legislation or regulations and actions by regulators, including changes in administration and enforcement policies, could from time to time require operational changes that could result in lost revenues or higher costs or hinder our ability to operate our business. For example, we offer reinsurance captive entity design and management services, and expect to be able to continue offering such services. The NAIC has established a subgroup to study the use of reinsurance captive entities and special purpose vehicles to transfer insurance risk in relation to existing state laws and regulations. Any action by federal, state or other regulators that adversely affects our ability to offer services in relation to reinsurance captive entities, either retroactively or prospectively, could have an adverse effect on our business, financial condition and results of operations.

Additionally, the method by which insurance brokers are compensated has received substantial scrutiny in the past decade because of the potential for conflicts of interest. Adverse regulatory developments regarding the forms of compensation we can receive (for example, contingent commissions), could adversely affect our business, financial condition and results of operations.

In addition to compliance challenges posed by the regulatory environment in which we operate, regulatory changes could also affect the fundamentals of our business if they reduced demand for our services. For example, any change to workers’ compensation laws or regulations that reduced demand for workers’ compensation insurance or resulted in fewer or less severe workers’ compensation claims could adversely impact our business and prospects.

Our carrier partners, as insurance companies, are also heavily regulated by the states in which they operate, as well as by the federal government for participation in government-sponsored programs such as Medicare and Medicaid. They are subject to regulations regarding, among other things, solvency, capital levels, loss reserves, investments, pricing, and affiliate transactions. Although we are not subject to regulation as an insurance company, pursuant to our agreements with our insurance carrier clients, we

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assume liability for compliance with all applicable laws, regulations and regulatory bulletins regarding the reporting of policy data for our clients. We are liable for payments or reimbursements in connection with any fines or penalties imposed on our clients arising out of services we perform for them under the agreements, and we would be required participate fully with our clients in any action plan or other corrective measures required by any regulatory agency or body, which could be costly and divert management’s attention. In addition, we could also be indirectly impacted by regulatory changes that affect our carrier partners if they cause them to terminate or alter their relationships with us.

Our carrier partners can also be impacted by federal legislation. For example, the Terrorism Risk Insurance Act (“TRIA”), which provides a federal backstop insurance program for acts of terrorism, is scheduled to expire at the end of 2020. Because workers’ compensation carriers are not able to exclude acts of terrorism from the coverage they offer, if the TRIA is not extended beyond 2020, its expiration could lead to reduced capacity of private insurers if they are unable to sufficiently increase premium rates or are otherwise unwilling to take on the additional risk. Should the TRIA expire and our carrier partners decrease their business levels in certain markets where we provide services for them, it could decrease the revenues we generate in those markets. We are unable to predict whether the TRIA will be extended beyond 2020 or whether any such extension would include changes to the TRIA that would negatively impact our carrier partners.

In addition, we are required to comply with federal and state laws governing the collection, use, transmission, security and privacy of personal and business information that we may obtain or have access to in connection with the provision of our services. For example, in providing our healthcare services we are required to comply with the Health Insurance Portability and Accountability Act (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which sets forth health information security breach notification requirements and increased penalties for violation of HIPAA, and our pre-employment screening services are subject to laws such as the Fair Credit Reporting Act and various state laws governing when an applicant’s criminal history may be considered in making hiring decisions. These laws continue to develop, the number of jurisdictions adopting such laws continues to increase, and these laws may be inconsistent from jurisdiction to jurisdiction. The future enactment of more restrictive privacy and data protection laws, rules or regulations could have a materially adverse impact on us through increased costs or restrictions on our businesses. In addition, despite the measures that we have in place to ensure compliance with these privacy and data protection laws, these laws may be interpreted and applied in a manner that is inconsistent with our practices, and our facilities and systems, and those of our insurance carrier clients and other clients, are vulnerable to security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors or other similar events. Enforcement actions for violation of the applicable privacy and data protection laws against us could be costly and could interrupt regular operations, which may adversely affect our business. While we have not received any notices of any such violation and believe we are in compliance with such laws, there can be no assurance that we will not receive such notices in the future.

We are unable to predict what additional government initiatives, if any, affecting our business may be promulgated in the future. Proposals for healthcare legislative reforms are regularly considered at the federal and state levels. To the extent that such proposals affect workers’ compensation, such proposals may adversely affect our business, financial condition and results of operations. Our business may be adversely affected by failure to comply with existing laws and regulations, failure to obtain necessary licenses and government approvals or failure to adapt to new or modified regulatory requirements. See “Business—Regulation.”

Our and intangible assets could become impaired, which could lead to material non-cash charges against earnings.

As of December 31, 2015, we had approximately $118.1 million of goodwill and approximately $75.7 million of net intangible assets (the latter, net of $11.5 million of accumulated amortization and generating a deferred tax liability of approximately $9.1 million) recorded, which represents, in the aggregate, 63% of our total assets. This goodwill and intangible assets are primarily associated with the Acquisitions. We assess potential impairment on our goodwill and intangible asset balances, including client lists, on an annual basis, or more frequently if there is any indication that the asset may be impaired. Any impairment of goodwill or intangible assets resulting from this periodic assessment would result in a non-cash charge against current earnings, which could lead to a material impact on our results of operations, statements of financial position, and earnings per share. Any decline in future revenues, cash flows or growth rates as a result of further adverse changes in the economic environment, the failure of any acquired business to perform in accordance with our expectations or an adverse change resulting from new governmental regulations or other factors could lead to an impairment of goodwill or intangible assets.

Our substantial indebtedness could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and our ability to pay our debts and could expose us to interest rate risk to the extent of our variable debt and divert our cash flow from operations to make debt payments.

We have a significant amount of indebtedness. As of December 31, 2015, our total indebtedness was approximately $126.8 million. The credit agreement governing our senior secured credit facility contains restrictive covenants that limit our ability and the ability of our subsidiaries to:

· pay dividends and make capital expenditures if we do not repay amounts drawn under our credit facility or if there is another default under our credit facility;

· incur additional indebtedness, including the issuance of guarantees;

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· merge or consolidate with, or transfer all or substantially all our assets to, another person; or

· enter into a new line of business.

In addition, all obligations under the senior secured credit facility are guaranteed by all of our existing and future subsidiaries other than foreign subsidiaries and secured by a first-priority perfected security interest in substantially all of our and our subsidiaries’ tangible and intangible assets, whether now owned or hereafter acquired, including a pledge of 100% of the stock of each guarantor.

Further, our substantial indebtedness may require us to dedicate a significant portion of our cash flow from operations toward debt service, reducing the availability of funds for other purposes, and make us vulnerable to interest rate increases because all of our indebtedness under our senior secured credit facility bears interest at a variable rate.

Our credit facility further requires us to maintain specified financial ratios and satisfy financial covenants. These financial ratios and covenants could include requirements that we maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio.

Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions or obtain additional financing. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to you if we determine to do so in the future, to finance our future operations or capital requirements, to make acquisitions or to pursue business opportunities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources— Indebtedness—Senior Secured Credit Facility.”

Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives. Our failure to make the required interest and principal payments on our indebtedness would result in an event of default under the agreement governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness.

Despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.

We may be able to incur significant additional indebtedness in the future. Although the credit agreement governing our senior secured credit facility contains restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the preceding two risk factors would increase.

We operate in a highly competitive industry, and others may have greater financial resources to compete effectively.

The market for workers’ compensation insurance services is highly competitive. Competition in our business is based on many factors. In competing to offer our services to insurance carriers, we compete based on pricing, quality and scope of available services, underwriting practices, reputation and reliability, ability to reduce claims expenses, customer service and general experience. In competing to place business on behalf of our carrier partners, competition is also based on the product offerings, premium pricing and financial strength, ratings and reputation of our carrier partners. In some cases, our competitors may offer lower priced products or services than we do. If our competitors offer more competitive prices, payment plans, services or commissions to independent retail agencies, we could lose our market share or have to reduce our prices in order to maintain our market share, which would adversely affect our profitability. If we are unable to reduce claims expenses for our carrier partners or otherwise demonstrate the value of our services to our partners and clients, we could lose our market share or be forced to offer lower priced services to maintain our market share. Our competitors are national and regional insurance companies that provide services similar to ours through in-house capabilities or separate divisions, and other workers’ compensation insurance agencies and service providers, many of which are significantly larger and possess considerably greater financial, marketing and other resources than we do. As a result of this scale, they may be able to capitalize on lower expenses to offer more competitive pricing.

In policyholder services, we believe we compete with numerous national wholesale agents and brokers, as well as insurance companies that sell directly to clients. In claims administration services, we compete with numerous businesses of varying sizes that offer claims management, cost containment, and/or other services that are similar to those that we offer. With respect to our insurance carrier clients in particular, we also compete with insurance companies that service their policies in-house rather than outsourcing to a

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provider like us. In all of the services we provide, we also compete with numerous smaller market participants that may operate in a particular geographic area or segment of the market, or offer only a particular service.

Many of our competitors are multi-line carriers that can provide workers’ compensation insurance and related services at a loss in order to obtain other lines of business at a profit. While we believe our outsourcing services could offer an attractive alternative to such multi-line carriers, it may be difficult for us and our carrier partners to compete with such carriers if they continue to service their policies in-house at a loss. If we are unable to compete effectively, our business, financial condition and results of operations could be materially adversely affected.

We compete on the basis of the quality of our outcome-driven service model, and our failure to continue to perform at high levels could adversely affect our business.

We believe our ability to deliver demonstrable value and help our clients generate cost savings through our proprietary SWARM process and other cost containment services is a key competitive advantage. As we grow, whether organically or through acquisitions, we may expand into different geographic regions or service policies in different industries and risk classes. We will also need to adapt to regulatory and technological changes over time. If we are unable to adapt our processes and services as necessary to maintain our historical performance levels in terms of claims processing and closure rates as a result of this growth and change, it could adversely affect our client relationships and ability to earn and retain business.

Our business is dependent on the efforts of our senior management and other key employees who leverage their industry expertise, knowledge of our markets and services and relationships with independent retail agencies that sell the insurance products of our carrier partners.

We believe our success will depend in substantial part upon our ability to attract and retain qualified executive officers and other skilled employees who are knowledgeable about our business and strategy. We rely substantially on the services of our executive management team and other key employees, including Mr. Mariano, our founder, Chairman, President and Chief Executive Officer. Although we are not aware of any planned departures or retirements of any member of our senior management team, if we were to lose the services of one or more such members, our business, financial condition and results of operations could be adversely affected.

Our success will also depend on our ability to attract and retain highly-qualified personnel to operate our claims management and cost containment services. We believe that our ability to deliver a high-quality and cost-effective claims management solution through our proprietary SWARM process is a key competitive advantage, and experienced and knowledgeable managers and personnel are an important component of this process. If we are unable to attract and retain such managers and personnel on satisfactory terms, especially as we grow our business, our performance and results of operations could be adversely affected.

We are reliant on our information processing systems and any failure or inadequate performance of these systems could have a material adverse effect on our business, financial condition and results of operations.

Our business relies on information systems to provide effective and efficient service to our carrier partners and other clients, process claims, and timely and accurately report results to carriers. In particular, our IE system plays a pivotal role in all aspects of the services we provide, which can range from the issuance of new policies on behalf of carrier partners, to the administration and adjudication of claims. However, an interruption of our access to, or failure in the performance of, our IE system or our other information technology, telecommunications or other systems could significantly impair our ability to perform essential services on a timely basis. If sustained or repeated, such an interruption or failure could result in a deterioration of our ability to process new and renewal business, provide customer service, manage and investigate claims in a timely and cost-effective manner or perform other necessary business functions. Any of the foregoing could result in a loss of confidence by our carrier partners or otherwise adversely affect our relationships with them. In addition, we expect that a considerable amount of our future growth will depend on our ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to clients and payors of healthcare services and expenses. If we experience such interruptions or failures, or if the IE system does not provide the benefits we anticipate or support our future growth, we could be required to invest significant funds in the upgrade, modification or repair of the system.

Interruption or loss of our information processing capabilities through loss of stored data, breakdown or malfunctioning of computer equipment and software systems, telecommunications failure, or damage caused by fire, tornadoes, lightning, electrical power outage, or other disruption could have a material adverse effect on our business, financial condition and results of operations. Although we have disaster recovery procedures in place and insurance to protect against such contingencies, we cannot be sure that insurance or these services will continue to be available, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services.

Cyber-attacks or other security breaches involving our computer systems or the systems of one or more of our clients, independent retail agencies or vendors could materially and adversely affect our business.

We manage a large amount of highly sensitive and confidential consumer information including personally identifiable information, protected health information and financial information, and are subject to regulatory requirements regarding data

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security. Our systems, including our IE system, like others in the insurance services industry, are vulnerable to cyber security risks, and we are subject to potential disruption caused by cyber-attacks on our systems. Such attacks may have various goals, from seeking confidential information to causing operational disruption. Although to date such activities have not resulted in material disruptions to our operations or, to our knowledge, breach of any security or confidential information, and we have taken, and continue to take, actions to protect the security and privacy of our information, no assurance can be provided that such disruptions or breach will not occur in the future. In addition, in the event that new data security laws are implemented, or our carrier partners or other clients determine to impose new requirements on us relating to data security, we may not be able to timely comply with such requirements, or such requirements may not be compatible with the current processes employed by our IE system. Any significant violations of data privacy and failure to timely implement required changes could result in the loss of business, litigation, regulatory investigations, penalties or negative publicity that could damage our reputation with existing or potential carrier partners and clients and adversely affect our business.

If we infringe on the proprietary rights of others, our business operations may be disrupted, and any related litigation could be time consuming and costly.

Third parties may claim that we have violated their intellectual property rights. Any such claim, with or without merit, could subject us to costly litigation and divert the attention of key personnel. To the extent that we violate a patent or other intellectual property right of a third party, we may be prevented from operating our business as planned, and we may be required to pay damages, to obtain a license, if available, to use the right or to use a non-infringing method, if possible, to accomplish our objectives. The cost of such activity could have a material adverse effect on our business.

We are, and may become, party to lawsuits or other claims that could adversely impact our business.

In the normal course of our business, we are named as a defendant in suits by insureds or claimants contesting decisions by us or our clients with respect to the settlement of claims. There can be no assurance that additional lawsuits will not be filed against us. There also can be no assurance that any such lawsuits will not have a disruptive impact upon the operation of our business, and that the defense of the lawsuits will not consume the time and attention of our senior management and financial resources or that the resolution of any such litigation will not have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Common Stock

Our founder, Chairman, President and Chief Executive Officer owns a significant percentage of our outstanding capital stock and will be able to influence stockholder and management decisions, which may conflict with your interests as a stockholder.

As of March 14, 2016, Mr. Mariano, our founder, Chairman, President and Chief Executive Officer beneficially owned 53.8% of the outstanding shares of our common stock. As a result of his ownership position, Mr. Mariano may have the ability to significantly influence matters requiring stockholder approval, including, without limitation, the election or removal of directors, mergers, acquisitions, changes of control of our company and sales of all or substantially all of our assets. In addition, because he is also our Chief Executive Officer, he has significant influence in our management and affairs. This control may delay, deter or prevent acts that may be favored by our other stockholders, as the interests of Mr. Mariano may not always coincide with the interests of our other stockholders. In particular Mr. Mariano owns substantially all of the outstanding equity of Guarantee Insurance Group, the parent company of Guarantee Insurance. As such, we cannot assure you all of our transactions with Guarantee Insurance will be on the same terms as those available with unaffiliated third parties or that the affiliation will not otherwise impact our actions in a manner that is adverse to us or our stockholders. Although Mr. Mariano is no longer a board member or officer of Guarantee Insurance Group or Guarantee Insurance, and we have implemented a related party transaction policy in connection with our IPO, we cannot provide assurance that he will not be influenced by his interest in Guarantee Insurance Group and seek to cause us to take courses of action that might involve risks to our other stockholders or adversely affect us or our other stockholders. In addition, this concentration of share ownership may adversely affect the trading price of our shares because investors may perceive disadvantages in owning shares in a company with a significant stockholder.

Furthermore, as of March 14, 2016, Mr. Mariano has pledged 1,330,380 shares of our common stock, representing approximately 5.0% of our total outstanding shares, to secure obligations under a credit agreement dated as of April 11, 2013, between Mr. Mariano and UBS Bank USA. Additionally, as of March 14, 2016, Mr. Mariano has pledged 10,525,100 shares of our common stock, representing approximately 38.7 % of our total outstanding shares, to secure obligations under a loan agreement dated as of March 11, 2015, between Mr. Mariano and Fifth Third Bank, and Mr. Mariano may make additional pledges of our common stock in the future. In the event of a default by Mr. Mariano under any agreement secured by shares of our common stock, Mr. Mariano’s creditors may foreclose upon any and all of the pledged shares and a change in ownership or control of us could ultimately result.

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Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.

The sale of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of March 14, 2016, we had a total of 27,176,441 shares of common stock outstanding. Of the outstanding shares, 18,664,494 shares are freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 under the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates may be sold only in compliance with the volume, manner of sale and other limitations contained in Rule 144. Registration of the sale of these shares of our common stock would permit their sale into the market immediately. The market price of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them.

As of March 14, 2016, 7,992,398 shares are “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144. Under Rule 144, restricted securities may be sold in the open market subject to satisfying certain requirements including holding period, the availability of current public information about our company and, in the case of affiliates, volume limitations and manner of sale.

We have reserved a total of 2,824,968 shares for issuance under our 2014 Omnibus Incentive Plan. As of March 14, 2016, we have granted 2,218,608 shares of our common stock in connection with outstanding vested and unvested equity awards under our 2014 Omnibus Incentive Plan and an aggregate of 606,360 of common stock were available for future issuance under such plan (which includes shares issueable upon settlement of time-vesting restricted stock units and performance vesting stock).  Any common stock that we issue, including under our 2014 Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by investors of our common stock. We have filed a registration statement on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our 2014 Omnibus Incentive Plan. Accordingly, shares registered under such registration statement are available for sale in the open market.

As restrictions on resale end or if certain stockholders holding registration rights exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

There is an increased potential for short sales of our common stock due to the sales of shares issued upon exercise of warrants, which could materially affect the market price of the stock.

Downward pressure on the market price of our common stock that likely will result from sales of our common stock issued in connection with an exercise of warrants could encourage short sales of our common stock by market participants. Generally, short selling means selling a security, contract or commodity not owned by the seller. The seller is committed to eventually purchase the financial instrument previously sold. Short sales are used to capitalize on an expected decline in the security’s price. As the selling stockholders exercise their warrants, we issue shares to the exercising selling stockholders, which such selling stockholders may then sell into the market. Such sales could have a tendency to depress the price of the stock, which could increase the potential for short sales.

Certain provisions of the New Series A Warrants and New Series B Warrants provide for preferential treatment to the holders of the warrants and could impede a sale of our company.

The New Series A Warrants and New Series B Warrants give each holder the option to require us to redeem these warrants upon a change in control transaction by paying cash based on a Black-Scholes valuation of the warrants. In addition, upon any going-private transaction, holders are entitled to receive a cash payment that is the greater of the Black-Scholes value of the warrants and the consideration they would have received had they exercised their warrants and received shares of common stock in full immediately prior to such transaction. The method of calculating the Black-Scholes value includes the requirement to calculate the Black-Scholes value using the greater of volatility of 50% and 30 day volatility for certain trading periods. The cash payment could be greater than the consideration that our other equity holders would receive in a change in control transaction. The provisions of the New Series A Warrants and New Series B Warrants could make a change in control transaction more expensive for a potential acquirer and could negatively impact our ability to pursue and consummate such a transaction.

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Because we have no plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. Any future determination to pay cash dividends or other distributions on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operation results, capital requirements, and contractual, regulatory and other restrictions, including restrictions contained in the senior secured credit facility or agreements governing any existing and future outstanding indebtedness we or our subsidiaries may incur, on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividends.”

As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.

Our business and operations may consume resources faster than we anticipate, or we may require additional funds to pursue acquisition or expansion opportunities. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution. Our board is authorized to issue preferred stock which could have rights and preferences senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock, diluting their interest or being subject to rights and preferences senior to their own.

If securities analysts do not publish research or reports about our business or if they downgrade or provide negative outlook on our stock or our sector, our stock price and trading volume could decline.

The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade or provide negative outlook on our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of our business or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, our stockholders may not have access to certain information that they may deem important.

The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period, and, as a result, our financial statements may not be comparable to those of companies that comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not emerging growth companies.

We could be an emerging growth company for up to five years following January 22, 2015, the date of our IPO, although circumstances could cause us to lose that status earlier, upon the earliest of (i) the last day of the fiscal year in which our annual gross revenues exceed $1.0 billion, (ii) the last day of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months and (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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We have incurred, and will continue to incur, increased costs, and are subject to additional regulations and requirements as a result of being a public company, which could lower our profits or make it more difficult to run our business.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We have also incurred and will continue to incur costs associated with the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and related rules implemented by the SEC. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These rules and regulations have increased, and will increase, our legal and financial compliance costs and make some activities more time-consuming and costly. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and material adverse effect on our business, financial condition, results of operations or prospects.

We intend to evaluate our internal controls over financial reporting in order to allow management to report on our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, and rules and regulations of the SEC thereunder, which we refer to as “Section 404.” Our internal control over financial reporting does not currently meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act. In particular, we have not yet established and adopted all of the formal policies, processes and practices related to financial reporting that will be necessary to comply with Section 404. Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization. The process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting. During the course of our testing, we may identify deficiencies, which we may not be able to remediate in time to meet the deadline imposed by Sarbanes-Oxley Act for compliance with the requirements of Section 404. So long as we are an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404.

Based on an analysis performed in connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2013, a material weakness was identified in connection with the incorrect classification of certain warrants outstanding as equity rather than debt. However, these warrants were reclassified as a liability in the financial statements as of and for the years ended December 31, 2013 and December 31, 2014, and we believe this weakness has been remediated, including through the hiring of additional staff and additional procedures as part of our financial statement close process.

If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions, stock exchange delisting or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. This could harm our reputation and cause us to lose existing clients or fail to gain new clients and otherwise negatively affect our financial condition, results of operations and cash flows.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions provide for, among other things:

· a classified board of directors with staggered three-year terms;

· the ability of our board of directors to issue, and determine the rights, powers and preferences of, one or more series of preferred stock;

· advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

· certain limitations on convening special stockholder meetings;

· the removal of directors only for cause and in certain circumstances only upon the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class; and

· that certain provisions may be amended in certain circumstances only by the affirmative vote of at least 80% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class.

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Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our Company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located in approximately 50,000 square feet of office space we lease in Fort Lauderdale, Florida. We also lease office space for our regional branch offices in California, Florida, Missouri, North Carolina, and Pennsylvania. We own our office space in Greenville, South Carolina. We consider our facilities to be adequate for our current operations.

Item 3. Legal Proceedings

We are not a party to any pending legal proceedings that we believe are material to our business. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of our business. In the normal course of the workers’ compensation insurance services business, we have been named as a defendant in suits related to decisions by us or our clients with respect to the settlement of claims or other matters arising out of the services we provide. In the opinion of management, adequate reserves have been provided for such matters. However, no assurances can be provided that the result of any such actions, claims or proceedings, now known or occurring in the future, individually or in the aggregate, will not result in a material adverse effect on our business, financial condition or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the NYSE under the symbol “PN.” Our common stock began trading on the NYSE on January 16, 2015. Prior to that time, there was no public market for our common stock.

The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on the NYSE:

Trading Period	High		Low
2015
First Quarter(1)	$	14.37	$	11.02
Second Quarter	$	18.50	$	12.60
Third Quarter	$	19.32	$	14.98
Fourth Quarter	$	16.28	$	6.21

(1) Represents the period from January 16, 2015, the date on which our common stock first began to trade on the NYSE after pricing our initial public offering, through March 31, 2015, the end of our first quarter.

As of March 14, 2016, there were approximately 21 holders of record of our common stock.  This number does not include beneficial owners who shares are held of record by banks, brokers and other financial institutions.

Dividends

While we have no current plans to pay dividends on our common stock, we will continue to evaluate the cash generated by our business and we may decide to pay a dividend in the future. Any future determinations relating to our dividend policies and the declaration, amount and payment of any future dividends on our common stock will be at the sole discretion of our board of directors and, if we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

Because we are a holding company with limited direct operations of our own, our ability to pay dividends in the future depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of the respective jurisdictions of organization of our operating subsidiaries, or restrictions contained in the senior secured credit facility or agreements governing any existing and future outstanding indebtedness we or our subsidiaries may incur, and restrictions contained in any other agreements of us or our subsidiaries. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Senior Secured Credit Facility”.

In addition, under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, our capital, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency has been repaired.

Recent Sales of Unregistered Securities

Within the past three years, the Company has granted or issued the following securities of the Company which were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

On November 27, 2013, in connection with the consolidation of certain insurance services entities controlled by Mr. Mariano under the Registrant, the Registrant issued 14,250,000 shares of common stock to Mr. Mariano, 37,500 shares of common stock to Mr. Del Pizzo and a warrant to purchase 743,730 shares of common stock to Advantage Capital Community Development Fund, L.L.C. (“Advantage Capital”) at an exercise price of $.001 per share. The shares of common stock were issued to Messrs. Mariano and Del Pizzo in exchange for shares in the consolidated entities held by these persons. The warrant was issued to Advantage Capital in exchange for the forgiveness of common units and detachable stock warrants of certain of the consolidated entities. On September 30,

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2014, Advantage Capital exercised all of its warrants in respect of, and the Registrant issued to Advantage Capital, 743,730 shares of the Registrant’s common stock for an aggregate exercise price of $496.

On November 27, 2013, in connection with and as part of the consideration for a $42.0 million loan agreement with the PennantPark Entities, the Registrant issued warrants to purchase an aggregate of 626,295 shares of common stock to the PennantPark Entities at an exercise price of $2.67 per share.

On August 6, 2014, in connection with an additional $30.8 million tranche of the PennantPark Loan Agreement and as part of the consideration therefor, we issued warrants to purchase an aggregate of 484,260 shares of common stock to the PennantPark Entities at an exercise price of $2.67 per share.

Also on August 6, 2014, in connection with the merger of SPV2 with and into Patriot Care, Inc., our subsidiary, we issued an aggregate of 3,043,485 of shares of common stock to the SPV2 shareholders, including Mr. Mariano, Mr. Del Pizzo and his spouse Arlene Del Pizzo, Mr. Shanfelter, Mr. Grandstaff and Mr. Pesch, as consideration for all of the outstanding common stock of SPV2.

On January 15, 2015, the PennantPark Entities exercised warrants in respect of, and we issued to the PennantPark Entities, 965,700 shares of common stock for an aggregate exercise price of $2.67 per share.

On August 21, 2015, in connection with and as part of the consideration for the purchase of all the membership interests in Global HR Research LLC (“Global HR”), we issued an aggregate of 444,096 shares of our common stock (of which 94,451 shares are held in escrow) to In Touch Holdings LLC and Brandon G. Phillips, the sellers of such membership interests.

On November 20, 2015, in connection with and as part of the remainder of consideration for the purchase of all the membership interests in Global HR, we issued an aggregate of 309,239 shares of our common stock to In Touch Holdings LLC, the seller of such membership interests.

On November 24, 2015, the PennantPark Entities exercised warrants in respect of, and we issued to the PennantPark Entities, 144,855 shares of common stock for an aggregate exercise price of $2.67 per share.

On December 13, 2015, we issued (i) an aggregate of 666,666 shares of common stock, (ii) the Old Series A Warrants to purchase up to an aggregate of 2,083,333 shares of common stock and (iii) the prepaid Old Series B Warrants for 1,000,000 shares of common stock to CVI Investments, Inc., Hudson Bay Master Fund Ltd and Alto Opportunity Master Fund, SPC (collectively, the “PIPE Investors”) for an aggregate purchase price of approximately $20 million. In addition, we entered into an agreement (the “Stock Back-to-Back Agreement”) with Steven M. Mariano, pursuant to which, upon the exercise of the Old Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 60% of the shares to be issued in connection with the exercise by the PIPE Investors of the Old Warrants.

On December 23, 2015, the Company and the PIPE Investors rescinded the sale and purchase of 666,666 shares of common stock and exchanged the Old Series A Warrants for the New Series A Warrants to purchase up to an aggregate of 3,250,000 shares of our common stock, and the Old Series B Warrants for the prepaid New Series B Warrants to purchase shares of our common stock, subject to adjustments pursuant to their terms. The New Series A Warrants are exercisable at an exercise price of the lesser of (i) $10.00 and (ii) 85% of the market price of the shares (as defined in the New Warrants), from July 1, 2016 to December 31, 2020. The New Series B Warrants are exercisable at an exercise price of $0.01 from December 16, 2015 to December 31, 2020. The exercise price of the New Warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

Concurrent with the issuance of the New Warrants, the company entered into an amended Stock Back-To-Back Agreement with Steven M. Mariano. Under the terms of the amended Stock Back-To-Back Agreement, Mr. Mariano will transfer Common Stock to the Company equal to 100% of the New Warrant Shares to be issued upon any exercise of the New Warrants by the PIPE Investors. Mr. Mariano also agrees to hold the Company harmless from and indemnify the Company for any expenses, obligations and liabilities that the Company incurs in connection with the issuance or performance of the New Warrants, including with respect to issuing additional shares of Common Stock.

Each of the transactions referenced above was exempt from registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.

Issuer Purchases of Equity Securities

We did not purchase any shares of our registered equity securities during the year ended December 31, 2015.

Performance Graph

The following graph compares the cumulative total stockholder return since the inception of our listing as “PN” on the New York Stock Exchange on January 16, 2015 with the S&P 500 Composite Index and the NYSE Composite Index through December 31, 2015. The graph assumes that the value of the investment in our common stock and each index was $100 at market close on January 16, 2015, with any dividends reinvested. The returns shown are historical and are not intended to suggest future performance.

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Item 6. Selected Financial Data

The following selected consolidated financial data for each of the four years in the period ended December 31, 2015 have been derived from our consolidated financial statements. Such data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto in Item 8 of this Annual Report on Form 10-K.

The consolidated and combined financial statements of Patriot National are comprised of (1) the financial statements of us and our subsidiaries, which became our subsidiaries in the Reorganization, (2) the results of the Patriot Care Management Business, which are reflected in our consolidated financial statements from August 6, 2014, the effective date of the Patriot Care Management Acquisition, (3) the revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed effective August 6, 2014 in the GUI Acquisition from GUI, a wholly owned subsidiary of Guarantee Insurance Group and a related party by virtue of common control between us and Guarantee Insurance Group and (4) the results of the other entities and businesses acquired by us from time to time.

Because we and the subsidiaries we acquired in the Reorganization are under common control, and the contracts acquired in the GUI Acquisition were acquired from an entity under common control, our consolidated and combined financial statements are presented as if all of these companies and businesses, were owned by us for all of the periods presented, as further described in the notes to our consolidated and combined financial statements incorporated by reference into this prospectus. The results of the other entities and businesses acquired by us, including Patriot Care Holdings, Inc. (f/k/a MCRS Holdings, Inc.), our subsidiary operating the Patriot Care Management Business, and the acquisitions we made after our initial public offering are reflected in our consolidated financial statements from the applicable time of acquisition. Because of the inclusion of such results from the applicable time of acquisition, our financial statements are not comparable from period to period.

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	For the Year Ended December 31,
	2015			2014		2013			2012
	(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
Revenues
Fee income	$	122,881		$	55,848	$	46,486		$	25,821
Fee income from related party		86,883			46,882		9,387			12,546
Total fee income and fee income from related party (1)		209,764			102,730		55,873			38,367
Net investment income		135			496		87			62
Net (losses) gains on investments		(179	)		14,038		(50	)		3
Total Revenues		209,720			117,264		55,910			38,432
Expenses
Salaries and related expenses		77,628			32,420		15,985			13,189
Commission expense		35,879			16,939		8,765			3,216
Management fees to related party for administrative    support services (2)		—			5,390		12,139			8,007
Outsourced services		12,234			5,608		3,303			4,452
Allocation of marketing, underwriting and policy issuance costs from    related party (3)		—			1,872		4,687			2,774
Other operating expenses		34,600			13,821		7,101			4,587
Acquisition costs		6,781			—		—			—
Interest expense		3,544			9,204		1,174			299
Depreciation and amortization		14,577			5,935		2,607			1,330
Amortization of loan discounts and loan costs		373			2,158		5,553			211
Non-cash stock based compensation expense		10,787			—		—			—
Costs related to extinguishment of debt(4)		13,681			—		—			—
Public offering costs		1,229			—		—			—
Increase in fair value of earn-out liability		827			—		—			—
Gain on financing transaction		(609	)		—		—			—
Gain on disposal of fixed assets		(7	)		—		—			—
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823		—			—
Loss on exchange of units and warrants		—			—		152			—
Total Expenses		210,114			95,170		61,466			38,065
Net (loss) income before income tax expense		(394	)		22,094		(5,556	)		367
Income tax expense		4,871			11,635		712			-
Net (Loss) Income Including Non-Controlling Interest in Subsidiary		(5,265	)		10,459		(6,268	)		367
Net income (loss) attributable to non-controlling interest in subsidiary		110			45		(82	)		23
Net (Loss) Income	$	(5,375	)	$	10,414	$	(6,186	)	$	344
Earnings (Loss) Per Common Share
Basic	$	(0.20	)	$	0.66	$	(0.43	)	$	0.02
Diluted		(0.20	)		0.66		(0.43	)		0.02
Weighted Average Common Shares Outstanding
Basic		26,425			15,754		14,288			14,288
Diluted		26,425			15,754		14,288			14,420

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	For the Year Ended December 31,
	2015		2014			2013			2012
	(In thousands)
Consolidated Balance Sheet Data
Assets
Total cash and investments	$	11,545	$	4,251		$	1,661		$	1,684
Restricted cash (5)		16,055		6,923			4,435			145
Goodwill		118,141		61,493			9,953			9,953
Intangible assets		75,681		32,988			—			—
Total Assets		308,154		142,102			35,979			28,430
Liabilities and Stockholders' equity (deficit)
Total debt	$	126,764	$	115,591		$	45,330		$	4,712
Stockholders' equity (deficit)		86,480		(28,261	)		(30,888	)		8,801

Other Financial and Operating Measures:

	For the Year Ended December 31,
	2015			2014			2013			2012
	(In thousands)
Reconciliation from Net Income (Loss) to Adjusted EBITDA:
Net (Loss) Income	$	(5,375	)	$	10,414		$	(6,186	)	$	344
Income tax expense		4,871			11,635			712			—
Interest expense		3,544			9,204			1,174			299
Depreciation and amortization		14,950			8,093			8,160			1,541
EBITDA		17,990			39,346			3,860			2,184
Net losses (gains) on investments		179			(14,038	)		50			(3	)
Costs related to extinguishment of debt(4)		13,681			—			—			—
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823			—			—
Non-cash stock based compensation expense		10,787			—			—			—
Acquisition costs		6,781			—			—			—
Severance expense		2,016			—			—			—
Public offering costs		1,229			—			—			—
Increase in fair value of earn-out liability		827			—			—			—
Gain on financing transaction		(609	)		—			—			—
Gain on disposal of fixed assets		(7	)		—			—			—
Provision for uncollectible fee income (6)		—			—			2,544			—
Loss on exchange of units and warrants		—			—			152			—
Adjusted EBITDA	$	51,464		$	27,131		$	6,606		$	2,181
Calculation of Adjusted EBITDA margins:
Total Fee Income	$	209,764		$	102,730		$	55,873		$	38,367
Adjusted EBITDA		51,464			27,131			6,606			2,181
Adjusted EBITDA margins		24.5	%		26.4	%		11.8	%		5.7	%

	For the Year Ended December 31,
	2015			2014			2013			2012
	(In thousands)
Reconciliation to Operating Cash Flow:
Adjusted EBITDA (calculated above)	$	51,464		$	27,131		$	6,606		$	2,181
Less: Income tax expense		(4,871	)		(11,635	)		(712	)		—
Less: Interest expense		(3,544	)		(9,204	)		(1,174	)		(299	)
Less: Purchase of fixed assets and other long-term assets		(5,932	)		(1,813	)		(36	)		(49	)
Operating cash flow	$	37,117		$	4,479		$	4,684		$	1,833

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	For the Year Ended December 31,
	2015			2014			2013			2012
	(In thousands)
Reconciliation from Net Cash Provided by Operating Activities to    Operating Cash Flow:
Net Cash Provided by Operating Activities	$	2,569		$	24,360		$	6,048		$	11,350
Changes in certain assets and liabilities:
Increase (decrease) in:
Fee income receivable		3,228			763			3,263			455
Fee income receivable from related party		15,048			6,667			1,383			536
Claims reimbursement outstanding		—			—			(1,101	)		(2,247	)
Other current assets		3,554			(209	)		(22	)		(14	)
Decrease (increase) in:
Net payable to related parties		(434	)		(924	)		3,258			(3,269	)
Deferred claims administration services income		(397	)		(676	)		2,493			(1,171	)
Net advanced claims reimbursements		4,968			(2,433	)		(4,003	)		21
Income taxes payable		7,861			(11,326	)		(408	)		—
Accounts payable and accrued expenses		(7,245	)		(12,023	)		(877	)		(152	)
Net income or (loss) attributable to business generated by GUI,    exclusive of depreciation expense		—			2,252			(5,105	)		(3,604	)
Net (income) loss attributable to non-controlling interest in subsidiary		(110	)		(45	)		82			(23	)
Deferred income taxes		—			388			(291	)		—
Early payment penalties on repayment of debt		4,339			—			—			—
Acquisition costs		6,781			—			—			—
Severance expense		2,016			—			—			—
Public offering costs		1,229			—			—			—
Gain on disposal of fixed assets		(7	)		—			—			—
Provision for uncollectible fee income, not related to Ullico		(351	)		(502	)		—			—
Purchase of fixed assets and other long-term assets		(5,932	)		(1,813	)		(36	)		(49	)
Operating cash flow	$	37,117		$	4,479		$	4,684		$	1,833

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	For the Year Ended December 31,
	2015			2014			2013			2012
	(In thousands, except per share amounts)
Reconciliation from Net (Loss) Income to Adjusted Earnings:
Net (Loss) Income	$	(5,375	)	$	10,414		$	(6,186	)	$	344
Net income (loss) attributable to non-controlling interest in subsidiary		110			45			(82	)		23
Income tax expense		4,871			11,635			712			—
Net (loss) income before income tax expense		(394	)		22,094			(5,556	)		367
Adjustments to net (loss) income before income tax expense:
Net losses (gains) on investments		179			(14,038	)		50			(3	)
Costs related to extinguishment of debt(4)		13,681			—			—			—
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823			—			—
Non-cash stock based compensation expense		10,787			—			—			—
Acquisition costs		6,781			—			—			—
Severance expense		2,016			—			—			—
Public offering costs		1,229			—			—			—
Increase in fair value of earn-out liability		827			—			—			—
Gain on financing transaction		(609	)		—			—			—
Gain on disposal of fixed assets		(7	)		—			—			—
Provision for uncollectible fee income (6)		—			—			2,544			—
Loss on exchange of units and warrants		—			—			152			—
Total		33,474			(12,215	)		2,746			(3	)
Adjusted net income (loss) before income tax expense		33,080			9,879			(2,810	)		364
Income tax expense (benefit) at statutory rate		12,901			3,853			(1,096	)		142
Adjusted Net Income (Loss) Including Non-Controlling Interest in Subsidiary		20,179			6,026			(1,714	)		222
Net income (loss) attributable to non-controlling interest in subsidiary		110			45			(82	)		23
Adjusted Earnings (Loss)	$	20,069		$	5,981		$	(1,632	)	$	199
Calculation of Adjusted Earnings Per Common Share
Basic	$	0.76		$	0.38		$	(0.11	)	$	0.01
Diluted		0.75			0.38			(0.11	)		0.01
Weighted Average Common Shares Outstanding
Basic		26,425			15,754			14,288			14,288
Diluted		26,652			15,754			14,288			14,420

(1) Represents service fees from Guarantee Insurance, a related party. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Components of Financial Statements—Revenue.”

(2) Represents historical fees paid by us to Guarantee Insurance Group for management oversight, legal, accounting, human resources and technology support services provided to us. Our administrative functions have been separated from Guarantee Insurance Group and from August 6, 2014, such payments are no longer made by us in respect of such services.

(3) Represents historical payments made by us to Guarantee Insurance Group as reimbursements for allocated portions of rent and certain administrative costs incurred by Guarantee Insurance Group on our behalf. Our administrative functions have been separated from Guarantee Insurance Group and from August 6, 2014, such reimbursements are no longer made by us in respect of such costs.

(4) Costs related to extinguishment of debt include $4.3 million of early payment penalties and $9.3 million associated with the write-off of related deferred financing fees and original issue discounts in connection with the repayment of all outstanding debt under our prior loan agreement with the PennantPark Entities, as lenders (the “PennantPark Loan Agreement”) and our prior credit agreement with UBS Securities LLC and the lenders party thereto (the “UBS Credit Agreement”) on January 22, 2015, with a portion of the proceeds from our initial public offering.

(5) Represents amounts received from our clients to be used exclusively for the payment of claims on behalf of those clients.

(6) Represents a provision for uncollectible fee income recorded in connection with the liquidation in May 2013 of Ullico Casualty Company, one of our insurance carrier clients from April 2009 until we terminated the contract effective March 26, 2012.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and our audited consolidated financial statements and accompanying notes included elsewhere in this filing. This discussion includes forward-looking statements that are subject to risks, uncertainties and other factors described under the captions “Risk Factors” and “Forward-Looking Statements.” These factors could cause our actual results to differ materially from those expressed in, or implied by, those forward-looking statements.

Recent Events

On December 13, 2015, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Steven M. Mariano, our President and Chief Executive Officer, and the PIPE Investors pursuant to which the PIPE Investors purchased (i) 2,500,000 shares of our common stock from Steven M. Mariano, for an aggregate purchase price of approximately $30 million, and (ii) 666,666 shares of our common stock, the Old Series A Warrants to purchase up to an aggregate of 2,083,333 shares of our common stock  and the prepaid Old Series B Warrants for 1,000,000 shares of our common stock for an aggregate purchase price of approximately $20 million. In addition, we entered into an agreement (the “Stock Back-to-Back Agreement”) with Mr. Mariano, pursuant to which, upon the exercise of the Old Warrants, we would purchase a number of shares of our common stock owned by Mr. Mariano equal to 60% of the shares to be issued in connection with the exercise by the PIPE Investors of the Old Warrants.

On December 23, 2015, we entered into several rescission and exchange agreements (collectively, the “Exchange Agreement”) with Steven M. Mariano and the PIPE Investors pursuant to which we and the PIPE Investors (i) rescinded the sale and purchase of 666,666 shares of our common stock and prepaid warrants for 1,000,000 shares of our common stock and (ii) exchanged the Old Series A Warrant for the New Series A Warrants to purchase up to an aggregate of 3,250,000 shares of our common stock, and the Old Series B Warrant for the prepaid New Series B Warrants to purchase a number of shares that the holder could purchase at a price equal to 90% of the lowest 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through and including the Adjustment Time (as defined in the New Series B Warrants, which we expect to end at 9:00 A.M. on the tenth trading day after the filing of this Annual Report on Form 10-K) less the number of shares such holder purchased, in each case subject to adjustments and limitations pursuant to their terms. Based on the lowest 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through March 17, 2016 of $4.51, we estimate that 4,895,985 shares of our common stock would be issuable upon exercise of the New Series B Warrants. In addition, we and Steven M. Mariano amended the Stock Back-to-Back Agreement, pursuant to which, upon the exercise of the New Warrants, we would purchase a number of shares of our common stock owned by Mr. Mariano equal to 100% of the shares to be issued in connection with the exercise by the PIPE Investors of the New Warrants, resulting in no dilution for our existing shareholders.

The New Series A Warrants are exercisable at an exercise price of the lesser of (i) $10.00 and (ii) 85% of the market price of the shares (as defined in the New Warrants), from July 1, 2016 to December 31, 2020. The New Series B Warrants are exercisable at an exercise price of $0.01 from December 16, 2015 to December 31, 2020. The exercise price of the New Warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

In addition,the Exchange Agreementamendedthe registrationrightsagreementto providethe PIPE Investorswith registrationrightsto registerthe sharesissuableupon exerciseof the NewWarrants,subjectto penaltiesand othercustomaryprovisions.We also enteredinto a third amendmentto our existingcreditagreementto permitthesetransactionsunder the covenantsincludedtherein.

OnDecember23, 2015, wealso enteredinto a Voting Agreementwith Steven M. Mariano,pursuantto which Mr. Marianoagreedto vote in favorof issuancesof sharesof commonstock in the event that,as a resultof an increasein the numberof sharesthatmay be purchasedupon exerciseof the NewWarrantsto the Adjusted Share Amount (as definedin the NewWarrants),such numberof shareswould exceed the Exchange Cap(as definedin the NewWarrants).

On January 28, 2016, we entered into that Asset Purchase Agreement by and between Patriot Underwriters, Inc. and Mid Atlantic Insurance Services, Inc. (“Mid Atlantic”) pursuant to which the Company acquired substantially all of the assets of Mid Atlantic for a maximum of $16,500,000. Pursuant to the Asset Purchase Agreement, the Company paid Mid Atlantic $8,000,000 in cash at closing. Mid Atlantic will also be entitled to annual earn-out payments of up to a cumulative maximum of $8,500,000 over approximately five years after closing. Subject to limited exceptions, $7,000,000 of the maximum earn-out is guaranteed.

On February 1, 2016, we entered into an Amendment No. 2 to the TriGen Stock Purchase Agreement splitting the payment of the Class B Purchase price into two installment payments.

On February 9, 2016, pursuant to the Securities Purchase Agreement, the Exchange Agreement and the registration rights agreement, as amended by the Exchange Agreement, a registration statement initially filed on January 15, 2016 was declared effective pursuant to which we registered 10,348,794 shares of our common stock under the Securities Act, which includes 7,848,794 shares of common stock issuable upon exercise of the New Warrants held by the PIPE Investors.

On March 1, 2016, we entered into an Amendment No. 3 to the TriGen Stock Purchase Agreement accelerating and reducing the final payment to the Class B Seller.

36

On March 3, 2016, our Board of Directors approved a $15 million share repurchase program for the Company's common stock whereby shares may be purchased from time to time, in open market transactions or in negotiated off-market transactions.  The program may continue for up to eighteen months. As of March 14, 2016, the Company has repurchased 992,182 shares of our common stock.

On March 3, 2016, we entered into a fourth amendment to our existingcreditagreement to permit Patriot to repurchase shares of its outstanding common stock pursuant to certain volume and timing limitations.

Matters Affecting Historical and Future Comparability

Industry Trends

According to the most recently published NCCI Report, the total net premium written by state funds and private carriers of workers’ compensation insurance in the United States was $44.2 billion in 2014, an increase from $33.8 billion in 2010, representing a compound annual growth rate of 6.9% over that period, and according to data compiled by SNL Financial, total direct premium written by workers’ compensation insurance carriers in the United States, which includes the amount of premium reinsured by insurance carriers, was $55.4 billion in 2014, an increase from $40.4 billion in 2010, representing a compound annual growth rate of 8.3% over that period. In the past several years, premium growth in the workers’ compensation industry has been predominantly driven by the recovery of employment levels to generally at or near pre-recession levels, as well as increasing premium rates.

Like other sectors of the insurance industry, the workers’ compensation sector experiences underwriting cyclicality, which generally underpins changes in premium rates. This cyclicality is determined by a number of factors, but there are two notable drivers. First, ultimate loss costs become more difficult to predict when claims remain open for longer periods, generally as a result of wage and medical cost inflation. For example, the NCCI Report indicates that medical costs per claim increased by approximately 6.4% on average per year from 1995 through 2014. Second, the amount of investment income insurance carriers can earn may also influence such carrier’s underwriting practices. Investment income can be sufficiently significant, particularly when claims remain open for longer periods, to compensate for underwriting losses, such as those the workers’ compensation industry has experienced in recent years, as reflected in a greater than 100% combined ratio for all but two years from 1990 to 2014. However, in periods of low interest rates, similar to the current investment environment, insurance carriers cannot generate sufficient investment income to offset underwriting losses, and as a result have demanded higher premium rates. This has led to a modest “hardening” of the workers’ compensation market.

Reorganization and Recent Acquisitions

Our historical financial results for all periods presented in this Annual Report on Form 10-K include the results of the various businesses previously under the common control of Mr. Mariano and to which we succeeded in connection with the Reorganization, as well as the revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed through the GUI Acquisition. However, revenues and expenses associated with the new agreement we entered into in August 2014 to provide all of our brokerage and policyholder services to Guarantee Insurance, as well as the financial results associated with the Patriot Care Management Business, are included in our historical financial results beginning August 6, 2014 only and are not reflected in our historical financial statements as of or for any earlier period.

Payments to Guarantee Insurance Group

We made payments in the past to Guarantee Insurance Group for rent and certain corporate administrative services costs incurred on our behalf, as well as for fees for management oversight, legal, accounting, human resources and technology support services provided to us. The reimbursements for such costs and payments for such services are reflected as “allocation of marketing, underwriting and policy issuance costs from related party” and “management fees to related party for administrative support services,” respectively, in our historical financial statements. Our administrative functions have been separated from Guarantee Insurance, the agreements pursuant to which such payments were made have been terminated, and such expenses are being incurred directly by us from August 6, 2014. Accordingly, beginning August 6, 2014, such expenses, rather than being reflected in the above items, will be recorded in the line items to which they relate, which are primarily “salaries and salary related expenses,” “outsourced services” and “other operating expenses.”

Public Company Costs

We consummated our Public Offering on January 22, 2015 and incurred additional costs associated with operating as a public company, including hiring additional personnel, improving financial reporting systems, additional directors’ and officers’ liability insurance, director fees and expanding our facilities. These costs related to legal, regulatory, compliance, finance, accounting, investor relations and other administrative functions.

37

Key Performance Measures

We use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These key performance measures include:

● Gross reference premium written: gross reference premium written refers to the aggregate premium, grossed up for large deductible credits, written by or for our insurance carrier partners in respect of the policies we produce and service on their behalf.

● Reference premium written: reference premium written refers to the earned aggregate premium, grossed up for large deductible credits, written by or for our insurance carrier partners in respect of the policies we produce and service on their behalf. For Guarantee Insurance who records written premium on the effective date of the policy based on the estimated total premium for the term of the policy, reference written premium is equal to written premium based on the estimated total premium for the term of the policy, earned as of the effective date of the policy, grossed up for large deductible credits. Subsequent adjustments to the estimated total premium for the term of the policy are reflected as adjustments to reference written premium when the adjustments become known. For our third party insurance carrier clients who record written premium as premium is collected, reference written premium is equal to collected premium, grossed up for large deductible credits. We evaluate our business (in respect of revenue both from brokerage and policyholder services and from claims administrative services) both in respect of the overall revenue generated by reference premium written, and the margin on such revenue. With respect to our brokerage and policyholder services, changes in reference premium written generally correspond to changes in total revenues.

The policies we write for our insurance and reinsurance carrier clients generally have a term of one year, and reference premium written is earned by our insurance and reinsurance carrier clients on a pro rata basis over the terms of the underlying policies. Likewise, the claims associated with these policies are generally incurred on a pro rata basis over the terms of the underlying policies. Generally, we perform our claims administration services on a claim from the date it is incurred through the date it is closed. We refer to claims that have been incurred, but not yet closed, for a particular period as “managed claims exposures.” With respect to our claims administration services, changes in managed claims exposures generally correspond to changes in total revenues.

● Adjusted EBITDA: we define Adjusted EBITDA as net income before interest expense, income tax expense (benefit),excluding depreciation and amortization, costs from debt payoff, stock compensation expenses, severance expenses, public offering costs, acquisition costs and changes in fair value of assets and warrant liabilities.

● Adjusted EBITDA margins: we define Adjusted EBITDA margins as Adjusted EBITDA divided by the sum of fee income and fee income from related party.

● Operating Cash Flow:we define Operating Cash Flow as Adjusted EBITDA less income tax expense, interest expense, and capital expenditures.

● Adjusted Earnings (Loss):we define Adjusted Earnings or Loss and Adjusted Earnings or Loss per share as net income (loss) adjusted for net realized (gains) or losses on investments, increase/(decrease) in fair value of warrant redemption liability and loss on exchange of units and warrants.

We present Adjusted EBITDA, Adjusted EBITDA Margins, Operating Cash Flow and Adjusted Earnings (Loss) in this report because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans.  In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA, Operating Cash Flow and Adjusted Earnings (Loss) can provide useful measures for period-to-period comparisons of our core business.  Accordingly, we believe that Adjusted EBITDA, Operating Cash Flow and Adjusted Earnings (Loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA, Adjusted EBITDA Margins, Operating Cash Flow and Adjusted Earnings (Loss) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results under GAAP.  Some of these limitations are as follows:

· Although depreciations and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

· Adjusted EDITDA does not reflect changes in, or cash requirements for, our working capital needs or tax payments that may represent a reduction in cash available to us; and

· Other companies, including companies in our industry, may calculate Adjusted EBITDA, Operating Cash Flow and Adjusted Earnings (Loss) or similarly titled measured differently, which reduce their usefulness as a comparative measure.

38

Reference Premium Written

	Year Ended December 31,
In thousands	2015		2014		2013
Gross Reference Premium Written	$	470,240	$	335,144	$	350,299
Reference Premium Written	$	462,056	$	359,924	$	357,376

Gross reference premium written for the year ended December 31, 2015 was $470.2 million compared to $335.1 million for the year ended December 31, 2014, an increase of $135.1 million.  The increase was attributable to a $19.6 million increase in Guarantee Insurance gross reference premium written, and the inception of new contracts with Scottsdale, AIG and certain other insurance carrier clients, which generated $128.5 million of gross reference premium written. The increase was partially offset by a $13.0 million decrease in gross reference premium written on behalf of Zurich as a result of Zurich reducing its volumes in California, where business covered by our initial program with Zurich was solely written. In September 2014, we entered into a second program with Zurich that further expands coverage in multiple other states.

Gross reference premium written for the year ended December 31, 2014 was $335.1 million compared to $350.1 million for the year ended December 31, 2013, a decrease of $15.0 million. The decrease was attributable to a $46.0 million decrease in gross reference premium written on behalf of Zurich as a result of Zurich reducing its volumes in California, where business covered by our initial program with Zurich was solely written. In September 2014, we entered into a second program with Zurich that further expands coverage in multiple other states. Additionally, we incurred a decrease of $4.1 million associated with the termination of our contract with Ullico. Ullico was one of our insurance carrier clients from April 2009 until we terminated their contract effective March 26, 2012 in connection with their liquidation. This was partially offset by a $13.0 million increase in Guarantee Insurance gross reference premium written, and the 2014 inception of new contracts with Scottsdale and certain other insurance carrier clients, which generated $22.2 million of gross reference premium written.

Reference premium written for the year ended December 31, 2015 was $462.0 million compared to $359.9 million for the year ended December 31, 2014, an increase of $102.1 million.  The increase was attributable to a $19.6 million increase in Guarantee Insurance gross reference premium written, and the inception of new contracts with Scottsdale, AIG and certain other insurance carrier clients, which generated $109.5 million of reference premium written. The increase was partially offset by a $26.9 million decrease in reference premium written on behalf of Zurich as a result of Zurich reducing its volumes in California, where business covered by our initial program with Zurich was solely written. In September 2014, we entered into a second program with Zurich that further expands coverage in multiple other states.

Reference premium written for the year ended December 31, 2014 was $359.9 million compared to $357.4 million for the year ended December 31, 2013, an increase of $2.5 million. The increase was attributable to a $13.0 million increase in Guarantee Insurance reference premium written and the 2014 inception of new contracts with Scottsdale and certain other insurance carrier clients, which generated $21.8 million of reference premium written. This was partially offset by a decrease in reference premium written on behalf of Zurich of approximately $28.1 million as a result of Zurich reducing its volumes in California, where business covered by our initial program with Zurich was solely written. In September 2014, we entered into a second program with Zurich that further expands coverage in multiple other states. The increase was also partially offset by a decrease of $4.1 million associated with the termination of our contract with Ullico.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure and is not in accordance with, or an alternative to, the GAAP information provided in this Annual Report on Form 10-K. For further information regarding our use of non-GAAP financial measures and a reconciliation of Adjusted EBITDA to Net income (loss), see “Selected Financial Data.”

	Year Ended December 31,
In thousands	2015			2014		2013
Net income (loss)	$	(5,375	)	$	10,414	$	(6,186	)
Adjusted EBITDA	$	51,464		$	27,131	$	6,606

Adjusted EBITDA for the year ended December 31, 2015 was $51.5 million compared to $27.1 million for the year ended December 31, 2014, an increase of $24.3 million.  The increase was principally attributable to a $107.0 million increase in total fee income and fee income from related party, partially offset by an $82.7 million increase in total expenses (excluding depreciation and amortization, costs from debt payoff, stock compensation expenses, severance expenses, public offering costs, acquisition costs and changes in fair value of assets and liabilities, which are added back to net income to arrive at Adjusted EBITDA), all of which are discussed more fully below.

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Adjusted EBITDA for the year ended December 31, 2014 was $27.1 million compared to $6.6 million for the year ended December 31, 2013, an increase of $20.5 million. The increase was principally attributable to a $46.9 million increase in total fee income and fee income from related party and a $0.4 million increase in net investment income, partially offset by a $26.8 million increase in total expenses (excluding depreciation and amortization and changes in fair value of warrant liabilities, which are added back to net income to arrive at Adjusted EBITDA), all of which are discussed more fully below.

Operating Cash Flow

Operating cash flow is a non-GAAP financial measure and is not in accordance with, or an alternative to, the GAAP information provided in this Annual Report on Form 10-K. For further information regarding our use of non-GAAP financial measures and a reconciliation of Operating cash flow to Net income (loss), see “Selected Financial Data.”

	Year Ended December 31,
In thousands	2015			2014		2013
Net income (loss)	$	(5,375	)	$	10,414	$	(6,186	)
Net cash provided by operating activities	$	2,569		$	24,360	$	6,048
Operating cash flow	$	37,117		$	4,479	$	4,684

Operating cash flow for the year ended December 31, 2015 was $37.1 million compared to $4.5 million for the year ended December 31, 2014, an increase of $32.6 million. The increase was principally attributable to a $107.0 million increase in total fee income and fee income from related party, partially offset by an $82.7 million increase in total expenses (excluding depreciation and amortization, costs from debt payoff, stock compensation expenses, severance expenses, public offering costs, acquisition costs and changes in fair value of assets and liabilities, which are added back to net income to arrive at Adjusted EBITDA), a decrease of $6.8 million income tax expense and a decrease of $5.7 million interest expense, which were partially offset by a $4.1 million increase in capital expenditures.

Operating cash flow for the year ended December 31, 2014 was $4.5 million compared to $4.7 million for the year ended December 31, 2013, a decrease of $0.2 million. The decrease was principally attributable to an increase of $10.9 million income tax expense, an increase of $8.0 million interest expense, and $1.8 million increased capital expenditures, mostly offset by a $20.5 million increase in Adjusted EBITDA.

Adjusted Earnings (Loss)

Adjusted Earnings (Loss) is a non-GAAP financial measure and is not in accordance with, or an alternative to, the GAAP information provided in this Annual Report on Form 10-K. For further information regarding our use of non-GAAP financial measures and a reconciliation of Operating cash flow to Net income (loss), see “Selected Financial Data.”

	Year Ended December 31,
In thousands	2015			2014		2013
Net income (loss)	$	(5,375	)	$	10,414	$	(6,186	)
Adjusted earnings	$	20,069		$	5,981	$	(1,632	)

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Adjusted earnings for the year ended December 31, 2015 was $20.1 million compared to $6.0 million for the year ended December 31, 2014, an increase of $14.1 million. The increase was principally attributable to a $107.0 million increase in total fee income and fee income from related party, partially offset by an $82.7 million increase in total expenses (excluding depreciation and amortization, costs from debt payoff, stock compensation expenses, severance expenses, public offering costs, acquisition costs and changes in fair value of assets and liabilities, which are added back to net income to arrive at Adjusted EBITDA), net of a $9.0 million increase in income tax expense at the statutory rate.

Adjusted earnings for the year ended December 31, 2014 was $6.0 million compared to a loss of $(1.6) million for the year ended December 31, 2013, an increase of $7.6 million. The increase was principally attributable to a $46.9 million increase in total fee income and fee income from related party and a $0.4 million increase in net investment income, partially offset by a $39.8 million increase in total expenses (excluding increase in fair value of warrant redemption liability, loss on exchange of units and warrants, and provision for uncollectible fee income as adjusted for income tax expense on reconciling items), all of which are discussed more fully below.

Principal Components of Financial Statements

Revenue

We derive substantially all of our revenue from providing brokerage and policyholder services and claims administration services.

With respect to our brokerage and policyholder services, we earn service fees for underwriting and administering workers’ compensation insurance plans for insurance companies. Service fees are generally based on a percentage of estimated ultimate reference premiums written, meaning they are based on the full amount of a policy premium as it is booked by an insurance carrier client at the time the policy is issued, reduced by an allowance for estimated commission income that may be returned by us to the client due to estimated net reductions in estimated total premium for the term of the policy, principally associated with mid-term policy cancellations. With respect to our insurance carrier clients who record written premium as premium is collected, we recognize fee income as the premium is written and collected, reduced by an allowance for estimated commission income that may be returned by us to such clients due to net returns of premiums previously written and collected. In each case, we record the revenue effects of subsequent premium adjustments when such adjustments become known. We also earn service fees on a flat annual fee basis for establishing and administering segregated portfolio cell reinsurance arrangements for captive reinsurers that assume a portion of the underwriting risk from our insurance carrier clients.

With respect to our claims administration services, we earn service fees for administering workers’ compensation claims for insurance and reinsurance companies. Service fees are generally based on a percentage of reference premiums earned, meaning they are based on a portion of the full premium as it is considered earned by an insurance carrier client on a pro rata basis over the term of the policy. We also earn service fees for other services provided to insurance and reinsurance companies and to our other clients such as employers and local governments, which are based on an hourly rate, a percentage of premiums, percentage of subrogation recovered, percentage of savings or a fixed monthly fee, depending on the service. For example, service fees for telephonic nurse case management services on workers’ compensation claims for insurance and reinsurance companies are based on an hourly rate. Service fees for medical bill review services on workers’ compensation claims for insurance and reinsurance companies, based on either a percentage of savings or a flat fee per bill. We also earn service fees for administering workers’ compensation claims for state guarantee associations responsible for handling the claims of insolvent insurance companies based on a fixed amount per open claims per month.

Total fee income and fee income from related party is comprised of “fee income” and “fee income from related party.” A significant portion of our revenue is generated from service fees earned from a related party, Guarantee Insurance. “Fee income” represents fees earned from parties other than Guarantee Insurance, a related party. “Fee income from related party” represents fees earned from Guarantee Insurance. For brokerage and policyholder services, the distinction between fee income and fee income from related party is based on whether the services are performed for Guarantee Insurance or third party insurance carrier clients, regardless of whether any portion of the risk is subsequently transferred to another insurance company or a captive reinsurer.

For claims administration services, the portion of total fee income and fee income from related party that we classify as fee income is based on the net portion of claims expense retained by parties other than Guarantee Insurance. For example, if Guarantee Insurance transfers a portion of the risk under a policy it has written to a captive reinsurer, which is a non-related party, only the fee income from claims administration services associated with the portion retained by Guarantee Insurance is classified as fee income from related party. Likewise, if Zurich, a non-related party, transfers a portion of the risk under a policy it has written to Guarantee Insurance, only the fee income from claims administration services associated with the portion retained by Zurich is classified as fee income, while the fee income from claims administration services associated with the portion transferred to Guarantee Insurance is classified as fee income from related party.

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In addition to service fee income, we also derive revenue from net investment income and net realized gains (losses) on investments from our investment portfolio, such as the net gain realized upon the redemption of the MCMC preferred equity in connection with the Patriot Care Management Acquisition.

Expenses

Expenses consist primarily of:

● salaries and salary related expenses, including benefits;

● commission expense to agencies that produce business in connection with our underwriting services;

● management fees for administrative support services incurred by Guarantee Insurance Group (a related party) for our benefit, including executive management, human resources, accounting, information technology and legal services. The management fees charged to us by Guarantee Insurance Group were based on the amount of reference premium written by us for our third-party insurance carrier clients compared to the amount of reference premium written by Guarantee Insurance Group for the periods presented. Effective August 6, 2014, these support services expenses are being incurred directly by us, and from that date forward we no longer pay management fees to Guarantee Insurance Group;

● outsourced services provided to us by third party-vendors, which include certain claims investigation and loss control expenses, principally incurred in connection with our workers’ compensation claims investigation, transportation and translation and legal and medical bill review services;

● allocation of marketing, underwriting and policy issuance costs from Guarantee Insurance Group (a related party), representing the amount of marketing, underwriting and policy issuance expenses incurred by Guarantee Insurance Group for our benefit. The allocation costs charged to us by Guarantee Insurance Group were generally based on the amount of reference premium written by us for our third-party insurance carrier clients compared to the amount of reference premium written by Guarantee Insurance Group for the periods presented. Effective August 6, 2014, such costs are being incurred directly by us, and from that date forward Guarantee Insurance Group is no longer allocating these costs to us;

● other operating expenses incurred in connection with our service offerings, consisting primarily of office rent, temporary labor costs, consulting fees and other expenses;

● interest expense incurred on our outstanding indebtedness based on applicable interest rates during the relevant periods;

● depreciation and amortization;

● amortization of loan discounts and loan costs associated with loan agreements and of the estimated value of equity interests issued pursuant to loan agreements; and

● increases or decreases in the fair value of liability warrants.

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Results of Operations

The following table sets forth certain consolidated statement of operations data derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

	For the Year Ended December 31,
In thousands	2015			2014		2013
Consolidated Statement of Operations Data
Revenues
Fee income	$	122,881		$	55,848	$	46,486
Fee income from related party		86,883			46,882		9,387
Total fee income and fee income from related party		209,764			102,730		55,873
Net investment income		135			496		87
Net (losses) gains on investments		(179	)		14,038		(50	)
Total Revenues		209,720			117,264		55,910
Expenses
Salaries and related expenses		77,628			32,420		15,985
Commission expense		35,879			16,939		8,765
Management fees to related party for administrative    support services		—			5,390		12,139
Outsourced services		12,234			5,608		3,303
Allocation of marketing, underwriting and policy    issuance costs from related party		—			1,872		4,687
Other operating expenses		34,600			13,821		7,101
Acquisition costs		6,781			—		—
Interest expense		3,544			9,204		1,174
Depreciation and amortization		14,577			5,935		2,607
Amortization of loan discounts and loan costs		373			2,158		5,553
Non-cash stock based compensation expense		10,787			—		—
Costs related to extinguishment of debt		13,681			—		—
Public offering costs		1,229			—		—
Increase in fair value of earn-out liability		827			—		—
Gain on financing transaction		(609	)		—		—
Gain on disposal of fixed assets		(7	)		—		—
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823		—
Loss on exchange of units and warrants		—			—		152
Total Expenses		210,114			95,170		61,466
Net Income (Loss) before income tax (benefit) expense		(394	)		22,094		(5,556	)
Income tax expense (benefit)		4,871			11,635		712
Net Income (Loss) Including Non-Controlling Interest in    Subsidiary		(5,265	)		10,459		(6,268	)
Net Income attributable to Non-controlling interest    in subsidiary		110			45		(82	)
Net (Loss) Income	$	(5,375	)	$	10,414	$	(6,186	)

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenues:

Total Fee Income and Fee Income from Related Party. Total fee income and fee income from related party for the year ended December 31, 2015 was $209.8 million compared to $102.7 million for the year ended December 31, 2014, an increase of $107.1       million or approximately 104%. The increase was primarily due to increased overall revenue in organic growth, acquisition revenue and fee income from related party.

For the year ended December 31, 2015, approximately 69% of our total fee income and fee income from related party was attributable to our contracts with Guarantee Insurance, a related party, and approximately 7% of our total fee income and fee income from related party was attributable to contracts with our second largest client.

Fee Income. Fee income, which represents fee income from non-related parties, for the year ended December 31, 2015 was $122.9 million versus $55.8 million for the year ended December 31, 2014, an increase of $67.1 million or 120%.

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This increase was attributable to non-related party fee income from businesses acquired during 2015 of $26.9 million, an increase in fee income earned by the Patriot Care Management Business from non-related parties of $24.7 million, which was acquired on August 6, 2014, and an increase in brokerage and policyholder services and claims administration services fee income earned from non-related parties of $15.4 million.

Our prices by customer for our brokerage and policyholder services and claims administration services were unchanged for the year ended December 31, 2015 relative to the year ended December 31, 2014 and, accordingly, the net increase in fee income was related to changes in the volume of business we managed.

Fee Income from Related Party. Fee income from related party for the year ended December 31, 2015 was $86.9 million compared to $46.9 million for the year ended December 31, 2014, an increase of $40.0 million or approximately 85%.

The increase was principally attributable to an increase of $41.3 million of brokerage and policyholders services fee income from Guarantee Insurance. On August 6, 2014 we entered into a new agreement with Guarantee Insurance to provide all of our brokerage and policyholder services to Guarantee Insurance, with no such contract existing previously during 2014. The increase was partially offset by a decrease of $3.1 million of claims administration services fee income earned from Guarantee Insurance for the year ended December 31, 2015.

Our prices by customer for our brokerage and policyholder services and claims administration services were unchanged for the year ended December 31, 2015 relative to the year ended December 31, 2014 and, accordingly, the net increase in fee income from related party was solely related to changes in the volume of business we managed.

Net Investment Income. Net investment income was $0.1 million for the year ended December 31, 2015 compared to $0.5 million for the year ended December 31, 2014, a decrease of $0.4 million. Net investment income for the year ended December 31, 2015 was principally attributable to investment income of cash on hand.  

Net Realized Gains (Losses) on Investments. Net realized gains (losses) on investments was a loss of $0.2 million for the year ended December 31, 2015, compared to a gain of $14.0 million for the year ended December 31, 2014. This decrease is a result of the net gain realized upon the redemption of the MCMC preferred equity in connection with the Patriot Care Management Acquisition that was recognized in 2014.

Expenses:

Salaries and Salary Related Expenses. Salaries and salary related expenses for the year ended December 31, 2015 were $77.6     million compared to $32.4 million for the year ended December 31, 2014, an increase of $45.2 million or approximately 140%.

The increase in salary for the year ended December 31, 2015 is the primarily the result of acquiring seventeen (17) companies during the year and increasing the corporate staff to complete and absorb those acquisitions. Additionally, August 6, 2014, we began to directly incur salary and salary related costs associated with our brokerage and policyholder services, as well as salary and salary related costs associated with administrative support services, including executive management, information technology, accounting, human resources and legal services. Previously, we received an allocation for such brokerage and policyholder services costs from Guarantee Insurance Group as described under “—Allocation of Marketing, Underwriting and Policy Issuance Costs from Related Party” below, and a portion of such administrative support services costs was incurred in the form of a management fee paid to Guarantee Insurance Group as described under “—Management Fees to Related Party for Administrative Support Services” below. Salary and salary related costs further increased in the period since August 6, 2014 as a result of the new agreement we entered into with Guarantee Insurance to provide all of our brokerage and policyholder services to Guarantee Insurance, as described elsewhere in this 10-K. In addition, effective August 6, 2014, we acquired the Patriot Care Management Business, which has notably increased our workforce. Accordingly, we expect further significant increases in salaries and salary related costs going forward.

Commission Expense. Commission expense for the year ended December 31, 2015 was $35.9 million compared to $16.9 million for the year ended December 31, 2014, an increase of $19.0 million or 112%. This increase is principally due to corresponding increase in fee income. Our commission rates for our brokerage and policyholder services were unchanged for the year ended December 31, 2015 relative to the year ended December 31, 2014 and, accordingly, the net increase in commission expense was related to changes in the volume of business we managed.

Management Fees to Related Party for Administrative Support Services. Management fees to related party for administrative support services for the year ended December 31, 2015 were $0 compared to $5.4 million for the year ended December 31, 2014, a decrease of $5.4 million or 100%.

As described above, in connection with the GUI Acquisition effective August 6, 2014, the management services agreement pursuant to which these fees were payable was terminated and all costs associated with our operations began to be incurred directly by us. Accordingly, beginning August 6, 2014, such expenses, rather than being reflected in this item, are recorded in the line items to which they relate, which are primarily “salaries and salary related expenses,” “outsourced services” and “other operating expenses.”

Outsourced Services. Outsourced services for the year ended December 31, 2015 were $12.2 million compared to $5.6 million for the year ended December 31, 2014, an increase of $6.6 million or 118%. The increase was principally attributable to outsourced services costs incurred by the Patriot Care Management Business Management Business. We acquired the Patriot Care Management

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Business on August 6, 2014 and, accordingly such costs were only incurred for the period of August 6, 2014 through December 31, 2014 during the previous year compared with a full year of expense for the year ending December 31, 2015.

Allocation of Marketing, Underwriting and Policy Issuance Costs from Related Party. Allocation of marketing, underwriting and policy issuance costs from Guarantee Insurance Group, a related party, for the year ended December 31, 2015 was $0.0 million compared to $1.9 million for the year ended December 31, 2014, a decrease of $1.9 million or 100%.

As described above, in connection with the GUI Acquisition effective August 6, 2014, the cost sharing agreement pursuant to which these costs were incurred was terminated and all brokerage and policyholder services costs associated with our operations began to be incurred directly by us. Accordingly, beginning August 6, 2014, such expenses, rather than being reflected in this item, are recorded in the line items to which they relate, which are primarily “salaries and salary related expenses,” “outsourced services” and “other operating expenses.”

Other Operating Expenses. Other operating expenses for the year ended December 31, 2015 were $34.6 million compared to $13.8 million for the year ended December 31, 2014, an increase of $20.8 million. This increase was principally due to the fact that effective August 6, 2014, we directly incurred other operating expenses which were previously allocated to us from Guarantee Insurance Group or incurred in the form of a management fee paid to Guarantee Insurance Group as described under “—Salaries and Salary Related Expenses” above.

Additionally, the increase is due to additional other operating expenses incurred and associated with the operations of the Patriot Care Management Business. We did not own the Patriot Care Management Business until August 6, 2014, accordingly, we did not record any such other operating expenses for it for that period. The increase was also partially attributable to an increase in consulting and temporary labor costs incurred in connection with an increase in workload in respect of claims administration services.

We expect that other operating expenses will further increase going forward as a result of the new arrangements in respect of costs associated with both brokerage and policyholder services and administrative support services, as described under “—Salaries and Salary Related Expenses” above.

Interest Expense. Interest expense for the year ended December 31, 2015 was $3.5 million compared to $9.2 million for the year ended December 31, 2014, a decrease of $5.7 million. Interest expense for the year ended December 31, 2015, is comprised of interest accruing under the UBS Credit Agreement entered into on August 6, 2014. We had a significant reduction of interest expense due to lower debt balances and interest rates associated with our current Senior Secured Credit Facility, as discussed in Note 7 to our consolidated financial statements, “Notes Payable and Lines of Credit.”

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2015 was $14.6 million compared to $5.9 million for the year ended December 31, 2014, an increase of $8.7 million. The increase was attributable mainly to an increase in amortization of intangible assets as a result of businesses acquired in the years ended December 31, 2014 and 2015.

Amortization of Loan Discounts and Loan Costs. Amortization of loan discounts and loan costs was $0.4 million for the year ended December 31, 2015 compared to $2.2 million for the year ended December 31, 2014, a decrease of $1.8 million.

Stock Compensation Expense. The Company recognized $10.8 million of stock compensation expense for the year ended December 31, 2015.  Stock compensation expense is related to restricted stock and stock option awards.  See Note 10 to our consolidated financial statements, “Stock-Based Compensation,” for further details related to these awards and the recognized expense.

Costs Related to Extinguishment of Debt. The Company recognized expenses for “make-whole” payments upon repayment of the PennantPark Debt and UBS Debt on January 22, 2015. These expenses were comprised of $3.8 million to the PennantPark Entities and $0.6 million to UBS.  Additionally, the Company recognized expenses for the write-off of existing deferred financing of $6.3 million and original issue discounts of $3.1 million associated with the PennantPark Debt and UBS Debt upon repayment on January 22, 2015.  Due to the non-recurring nature of these expenses, they are presented separately from interest expense and amortization expense, respectively, in our consolidated results for the twelve months ended December 31, 2015. Total cost from debt payoff was $13.7 million for the year ended December 31, 2015.

Public Offering Costs. The Company recognized $1.2 million in expenses for the year ended December 31, 2015 related to the costs associated with raising equity capital subsequent to the IPO.

Increase in fair value of earn-out liability. For the year ended December 31, 2015, the Company recognized an increase of $0.8 million to the fair value of earnout recorded for the acquisition of CWI Benefits, Inc.  The increase in fair value is treated as expense rather than an adjustment to purchase price in accordance with ASC 820.

The fair value of earnout obligations is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement, as discussed further in Note 11 to our consolidated financial statements, “Fair Value Measurement of Financial Assets and Liabilities.” In determining fair value, we estimated the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability.  We estimated future payments using the earnout formula and performance targets specified in each purchase agreement

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and these financial projections. We then discounted these payments to present value using a risk-adjusted rate that takes into consideration market-based rates of return that reflect the ability of the acquired entity to achieve the targets. Changes in financial projections, market participant assumptions for revenue growth and/or profitability, or the risk-adjusted discount rate, would result in a change in the fair value of recorded earnout obligations.

The “maximum potential earnout payables” of $15.2 million as of December 31, 2015 represents the maximum amount of additional consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition. The “recorded earnout payables” of $11.6 million as of December 31, 2015 are primarily based upon the estimated future operating results of the acquired entities over a one- to three-year period subsequent to the acquisition date.  The recorded earnout payables are measured at fair value as of the acquisition date and are included on that basis in the total recorded purchase price in the foregoing table. We will record subsequent changes in these estimated earnout obligations, including the accretion of discount, in our statement of operations when incurred.

Gain on financing transaction.  For the year ended December 31, 2015 the Company recognized a gain of $0.6 million with regard to recognition of financing transactions. See Note 15 to our consolidated financial statements, “Warrant Redemption Liability.”

Increase in Fair Value of Warrant Redemption Liability. The decrease in fair value of warrant redemption liability was $1.4 million for the year ended December 31, 2015 compared to an increase of $1.8 million for the year ended December 31, 2014, which represents the change in estimated fair value of the detachable common stock warrants issued to the lenders in connection with the Initial Tranche and Additional Tranche of the PennantPark Loan Agreement and the common stock issued to Advantage Capital pursuant to their September 30, 2014 exercise of common stock warrants as described elsewhere in this 10-K. We recorded this as a reclassification in APIC, and reflect the changes in the estimated fair value thereof, since the warrant holders and stockholders may at redeemed the warrants for stock at the exercisable value of the warrants.  At the time of the IPO, Pennant Park redeemed 965,700 of the warrants and the remaining 144,855 warrants were redeemed on November 24, 2015.

Income Tax Expense. Income tax expense was $4.9 million for the year ended December 31, 2015 compared to $11.6 million for the year ended December 31, 2014, a decrease in income tax expense of $6.7 million. Income tax expense for the year ended December 31, 2015 and 2014 was principally comprised of federal income tax expense at a statutory federal rate of 34% and 35%, respectively, and state income tax expense, plus the tax expense associated with the increase in valuation allowance as described in Note 16 to our consolidated financial statements, “Income Taxes.”

Prior to November 27, 2013, certain of our subsidiaries were S Corporations or limited liability companies, electing to be taxed as pass through entities and, accordingly, we did not recognize a federal or state income tax provision for these subsidiaries for the previous portion of the year ended December 31, 2013.

Net Income (Loss)

As a result of the factors described above, net income (loss) decreased by $15.8 million to a net loss of $5.4 million for the year ended December 31, 2015 as compared to net income of $10.4 million for the prior year.

Year Ended December 31, 2014 Compared to December 31, 2013

Revenues:

Total Fee Income and Fee Income from Related Party.

Total fee income and fee income from related party for the year ended December 31, 2014 was $102.7 million compared to $55.9 million for the year ended December 31, 2013, an increase of $46.9 million or approximately 84%. The increase was primarily due to an increase in fee income from related party.

For the year ended December 31, 2014, approximately 71% of our total fee income and fee income from related party was attributable to our contracts with Guarantee Insurance, a related party, and approximately 18% of our total fee income and fee income from related party was attributable to contracts with our second largest client.

For the year ended December 31, 2013, approximately 44% of our total fee income and fee income from related party was attributable to our contracts with Guarantee Insurance, and approximately 38% and 12% of our total fee income and fee income from related party were attributable to our contracts with our second and third largest clients, respectively.

Fee Income. Fee income, which represents fee income from non-related parties, for the year ended December 31, 2014 was $55.8 million versus $46.5 million for the year ended December 31, 2013, an increase of $9.3 million.

This increase was attributable to an increase in claims administration services fees as a result of $10.7 million of fee income earned by the Patriot Care Management Business from non-related parties from the date of acquisition of this service unit on August 6, 2014 to December 31, 2014, combined with a $1.2 million increase in fee income earned from the California Insurance Guaranty Association, which became a customer of ours in June 2014. The increase in claims administration services fees was largely offset by the decrease in brokerage and policyholder services fee income related to the decrease in reference premium written by us for Zurich, as described above under “—Key Performance Measures.”

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Our prices by customer for our brokerage and policyholder services and claims administration services were unchanged for the year ended December 31, 2014 relative to the years ended December 31, 2013 and, accordingly, the net increase in fee income was related to changes in the volume of business we managed.

Fee Income from Related Party. Fee income from related party for the year ended December 31, 2014 was $46.9 million compared to $9.4 million for the year ended December 31, 2013, an increase of $37.5 million.

The increase was principally attributable to $23.8 million of brokerage and policyholders services fee income from Guarantee Insurance earned from August 6, 2014 to December 31, 2014. On August 6, 2014 we entered into a new agreement with Guarantee Insurance to provide all of our brokerage and policyholder services to Guarantee Insurance, as described elsewhere in this 10-K, with no such contract existing previously during 2014 or 2013. The increase was also partly attributable to an increase in brokerage and policyholder services fee income related to the increase in reference premium written by us for Guarantee Insurance, as described above under “—Key Performance Measures,” and to $6.1 million of claims administration services fee income earned by the Patriot Care Management Business from Guarantee Insurance from the date of acquisition of this service unit on August 6, 2014 to December 31, 2014.

Our prices by customer for our brokerage and policyholder services and claims administration services were unchanged for the year ended December 31, 2014 relative to the year ended December 31, 2013 and, accordingly, the net increase in fee income from related party was solely related to changes in the volume of business we managed.

Net Investment Income. Net investment income was $0.1 million for the year ended December 31, 2015 compared to $0.5 million for the year ended December 31, 2014, a decrease of $0.4 million. Net investment income for the year ended December 31, 2015 was principally attributable to investment income of cash on hand.  Net investment income was $0.5 million for the year ended December 31, 2014 compared to $0.1 million for the year ended December 31, 2013, an increase of $0.4 million. Net investment income for the year ended December 31, 2014 was principally attributable to interest received in respect of a note receivable from Guarantee Insurance under the Surplus Note, which was retired in connection with the GUI Acquisition effective August 6, 2014.

Net Gains (Losses) on Investments. Net unrealized losses on investments were $0.2 million for the year ended December 31, 2015, compared to a realized gain of $14.0 million for the year ended December 31, 2014. The unrealized losses in the year ended December 31, 2015 relate to investments in equity and fixed income securities. The gain recorded in the year ended December 31, 2014 represents the net gain realized upon the redemption of the MCMC preferred equity in connection with the Patriot Care Management Acquisition.

Net realized gains (losses) on investments was $14.0 million for the year ended December 31, 2014, compared to a loss of $0.1 million for the year ended December 31, 2013. The gain recorded in the year ended December 31, 2014 represents the net gain realized upon the redemption of the MCMC preferred equity in connection with the Patriot Care Management Acquisition.

Expenses:

Salaries and Salary Related Expenses. Salaries and salary related expenses for the year ended December 31, 2014 were $32.4 million compared to $16.0 million for the year ended December 31, 2013, an increase of $16.4 million or approximately 103%.

This increase in 2014 was principally due to additional salary and salary related costs recorded from August 6, 2014, the date on which we began to directly incur salary and salary related costs associated with our brokerage and policyholder services, as well as salary and salary related costs associated with administrative support services, including executive management, information technology, accounting, human resources and legal services. Previously, we received an allocation for such brokerage and policyholder services costs from Guarantee Insurance Group as described under “—Allocation of Marketing, Underwriting and Policy Issuance Costs from Related Party” below, and a portion of such administrative support services costs was incurred in the form of a management fee paid to Guarantee Insurance Group as described under “—Management Fees to Related Party for Administrative Support Services” below. Salary and salary related costs further increased in the period since August 6, 2014 as a result of the new agreement we entered into with Guarantee Insurance to provide all of our brokerage and policyholder services to Guarantee Insurance, as described elsewhere in this 10-K. In addition, effective August 6, 2014, we acquired the Patriot Care Management Business, which has notably increased our workforce. Accordingly, we expect further significant increases in salaries and salary related costs going forward.

Additionally, the increase was in part due to an increase in the size of our claims administration services staff in connection with efforts by us to perform more claims investigation work in-house rather than through outsourced vendors.

Commission Expense.

Commission expense for the year ended December 31, 2014 was $16.9 million compared to $8.8 million for the year ended December 31, 2013, an increase of $8.2 million or 93%. This increase is principally due to our assumption of the obligation to pay commissions to retail agencies producing Guarantee Insurance policies from August 6, 2014 pursuant to the new agreement with Guarantee Insurance to provide all of our brokerage and policyholder services to Guarantee Insurance, as described elsewhere in this 10-K. We did not incur such commission expense for the year ended December 31, 2013. Additionally, we incurred additional

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commission expense for the year ended December 31, 2014 in connection with new contracts we entered into in 2014 with Scottsdale and certain other insurance clients, as described above.

This increase was partially offset by a decrease in commission expense associated with a reduction in premium produced for Zurich, as described above.

Management Fees to Related Party for Administrative Support Services. Management fees to related party for administrative support services for the year ended December 31, 2014 were $5.4 million compared to $12.1 million for the year ended December 31, 2013, a decrease of $6.7 million or 56%. This decrease was in part attributable to a decrease in the proportion of reference premium written by us for our third-party insurance carrier clients relative to reference premium written by Guarantee Insurance (which, as discussed above, generally served as the basis for calculating the management fees).

As described above, in connection with the GUI Acquisition effective August 6, 2014, the management services agreement pursuant to which these fees were payable was terminated and all costs associated with our operations began to be incurred directly by us. Accordingly, beginning August 6, 2014, such expenses, rather than being reflected in this item, are recorded in the line items to which they relate, which are primarily “salaries and salary related expenses,” “outsourced services” and “other operating expenses.”

Outsourced Services. Outsourced services for the year ended December 31, 2014 were $5.6 million compared to $3.3 million for the year ended December 31, 2013, an increase of $2.3 million or 70%. The increase was principally attributable to outsourced services costs incurred by the Patriot Care Management Business from August 6, 2014 (the date of our acquisition of the Patriot Care Management Business) to December 31, 2014. We did not own the Patriot Care Management Business for the year ended December 31, 2013 and, accordingly no such costs were incurred for that period.

Allocation of Marketing, Underwriting and Policy Issuance Costs from Related Party. Allocation of marketing, underwriting and policy issuance costs from Guarantee Insurance Group, a related party, for the year ended December 31, 2014 was $1.9 million compared to $4.7 million for the year ended December 31, 2013, a decrease of $2.8 million or 60%. This decrease was in part attributable to a decrease in the proportion of reference premium produced by us relative to reference premium produced by Guarantee Insurance (which, as discussed above, generally served as the basis for the allocation).

As described above, in connection with the GUI Acquisition effective August 6, 2014, the cost sharing agreement pursuant to which these costs were incurred was terminated and all brokerage and policyholder services costs associated with our operations began to be incurred directly by us. Accordingly, beginning August 6, 2014, such expenses, rather than being reflected in this item, are recorded in the line items to which they relate, which are primarily “salaries and salary related expenses,” “outsourced services” and “other operating expenses.”

Other Operating Expenses. Other operating expenses for the year ended December 31, 2014 were $13.3 million compared to $4.6 million for the year ended December 31, 2013, an increase of $8.8 million. This increase was principally due to the fact that from August 6, 2014, we directly incurred other operating expenses which were previously allocated to us from Guarantee Insurance Group or incurred in the form of a management fee paid to Guarantee Insurance Group as described under “—Salaries and Salary Related Expenses” above.

Additionally, the increase is due to additional other operating expenses incurred from August 6, 2014 and associated with the operations of the Patriot Care Management Business. We did not own the Patriot Care Management Business during the year ended December 31, 2013 and, accordingly, we did not record any such other operating expenses for it for that period. The increase was also partially attributable to an increase in consulting and temporary labor costs incurred in connection with an increase in workload in respect of claims administration services.

We expect that other operating expenses will further increase going forward as a result of the new arrangements in respect of costs associated with both brokerage and policyholder services and administrative support services, as described under “—Salaries and Salary Related Expenses” above.

Interest Expense. Interest expense for the year ended December 31, 2014 was $9.2 million compared to $1.2 million for the year ended December 31, 2013, an increase of $8.0 million. Interest expense for the year ended December 31, 2014, is comprised of interest accruing under (i) the Initial Tranche of the PennantPark Loan Agreement entered into on November 27, 2013 in connection with the Reorganization, (ii) the Additional Tranche of the PennantPark Loan Agreement, as amended, entered into on August 6, 2014 in connection with the GUI Acquisition and (iii) the UBS Credit Agreement entered into on August 6, 2014 in connection with the Patriot Care Management Acquisition, all described elsewhere in this 10-K. We expect a significant reduction of interest expense in the future, due to lower debt balances and interest rates associated with our current Senior Secured Credit Facility, as discussed in Note 7 to our consolidated financial statements, “Notes Payable and Lines of Credit.”

Interest expense for the year ended December 31, 2013, reflects $0.7 million of interest in connection with a loan agreement for $10.0 million entered into on October 9, 2012 with Advantage Capital. On November 27, 2013, this loan was repaid in full with a portion of the proceeds of the Initial Tranche of the PennantPark Loan Agreement. See “Certain Relationships and Related Party Transactions—Financing Transactions.”

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2014 was $5.9 million compared to $2.6 million for the year ended December 31, 2013, an increase of $3.3 million. The increase was attributable mainly to an increase

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in depreciation related to capitalized policy and claims administration system development costs which we incurred principally in the second half of 2013 and first half of 2014 in connection with our IE platform and, $1.8 million of intangible asset amortization relating to the Patriot Care Management Business for the period August 6, 2014 to December 31, 2014.

Amortization of Loan Discounts and Loan Costs. Amortization of loan discounts and loan costs was $2.2 million for the year ended December 31, 2014 compared to $5.6 million for the year ended December 31, 2013, a decrease of $3.4 million. The decrease was attributable to the fiscal 2013 amortization of the balance of the discount on the debt associated with the Advantage Capital loan agreement entered into on October 9, 2012, upon the repayment of the loan in full on November 27, 2013. This decrease was partially offset by an increase in amortization of loan costs related to the Initial Tranche of the PennantPark Loan Agreement entered into on November 27, 2013 and the Additional Tranche of the PennantPark Loan Agreement and the UBS Credit Agreement, each entered into on August 6, 2014 as described above.

Increase in Fair Value of Warrant Redemption Liability. The increase in fair value of warrant redemption liability was $1.8 million for the year ended December 31, 2014 compared to zero for the year ended December 31, 2013, which represents the change in estimated fair value of the detachable common stock warrants issued to the lenders in connection with the Initial Tranche and Additional Tranche of the PennantPark Loan Agreement and the common stock issued to Advantage Capital pursuant to their September 30, 2014 exercise of common stock warrants as described elsewhere in this 10-K. We recorded this liability, and reflect the changes in the estimated fair value thereof, since the warrant holders and stockholders may at specified times require us to redeem the stock or the warrants for cash, in an amount equal to, in the case of stock, the estimated fair value of the stock or, in the case of warrants, the estimated fair value of the warrants less the total exercise price of the redeemed warrants.

Provision for Uncollectible Fee Income. For the year ended December 31, 2014, we recorded a $0.5 million provision for uncollectible fee income. For the year ended December 31, 2013, we recorded a provision for uncollectible fee income related to our claims administration services, of $2.5 million in connection with the liquidation of Ullico in May 2013. Ullico was one of our insurance carrier clients from April 2009 until we terminated their contract effective March 26, 2012 in connection with their liquidation.

Income Tax Expense. Income tax expense was $11.6 million for the year ended December 31, 2014 compared to $0.7 million for the year ended December 31, 2013, an increase in income tax expense of $10.9 million. Income tax expense for the year ended December 31, 2014 and 2013 was principally comprised of federal income tax expense at a statutory federal rate of 35% and 34%, respectively, and state income tax expense, plus the tax expense associated with (i) the gain on redemption of MCMC preferred equity attributable to the difference between tax basis and book basis and (ii) non-deductible expenses incurred in connection with the acquisition of PCM, and the tax associated with the increase in fair value of warrant redemption liability for the year ended December 31, 2014. Prior to November 27, 2013, certain of our subsidiaries were S Corporations or limited liability companies, electing to be taxed as pass through entities and, accordingly, we did not recognize a federal or state income tax provision for these subsidiaries for the previous portion of the year ended December 31, 2013.

Although our financial statements include the revenues and expenses associated with the GUI contracts and certain other assets and liabilities assumed in the GUI Acquisition, Guarantee Insurance Group will include these revenues and expenses in its consolidated federal income tax return for the period from January 1, 2014 to August 6, 2014 (the effective date of the GUI Acquisition) and has included the revenues and expenses associated with the GUI contracts and certain other assets and liabilities assumed in its consolidated federal income tax return for the year ended December 31, 2013.

Accordingly, we recognized a $16 thousand increase in valuation allowance, which was equal to 100% of the deferred tax expense attributable to the GUI contracts for the year ended December 31, 2014 and a $2.7 million increase in valuation allowance equal to 100% of the deferred tax benefit attributable to the GUI contracts for the year ended December 31, 2013.

Net Income (Loss)

As a result of the factors described above, net income (loss) increased by $16.6 million to $10.4 million for the year ended December 31, 2014 as compared to $(6.2) million for the prior year.

Seasonality

Our revenue and operating results associated with our claims administration services are generally not subject to seasonality.

Our revenue and operating results associated with our brokerage and policyholder services are generally subject to seasonal variations as a result of the distribution of renewal dates of existing policies throughout the year, with slightly more renewals occurring in the first and third calendar quarters based on the current distribution of such dates.

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Impact of Inflation

Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had a material impact on our results of operations during the last two fiscal years, nor do we believe it is likely to have such a material impact in the foreseeable future.

Liquidity and Capital Resources

Sources and Uses of Funds

Our principal needs for liquidity have been, and for the foreseeable future will continue to be, working capital, capital expenditures and funding potential acquisitions, potential redemption of detachable common stock warrants, as well as servicing our senior secured credit facility. Our primary sources of liquidity include cash flows from operations and available cash and cash equivalents.

We believe that our cash flow from operations and available cash and cash equivalents will be sufficient to meet our liquidity needs for at least the next twelve (12) months. As of December 31, 2015, our unrestricted cash and cash equivalents were $8.4 million, and investments in equity and fixed income securities of $3.2 million. In addition, as of December 31, 2015, we had $16.1 million of restricted cash, which are funds we receive from our insurance carrier clients and that are earmarked exclusively for payments of claims on behalf of such clients. We cannot use such funds for other purposes.

To the extent we require additional liquidity, we anticipate that it will be funded through the incurrence of other indebtedness (which may include capital markets indebtedness, our senior secured credit facility or indebtedness under other credit facilities), equity financings or a combination thereof. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.

Cash Flows

The following table summarizes our cash flow activities for the years ended December 31, 2015, 2014 and 2013.

	Year Ended December 31,
In thousands	2015			2014			2013
Cash flow activities:
Net Cash Provided by Operating Activities	$	2,569		$	24,360		$	6,048
Net Cash Used in Investment Activities		(92,712	)		(59,523	)		(28,773	)
Net Cash Provided by (Used in) Financing Activities		94,264			37,753			22,702

Operating Activities

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net cash provided by operating activities for the year ended December 31, 2015 was $2.6 million compared to $24.4 million for the year ended December 31, 2014, a decrease of $21.8 million. The decrease was attributable to an increase of $24.3 million in Adjusted EBITDA discussed above, partially offset by a $ 5.7 million decrease in interest expense discussed above and by changes in certain assets and liabilities, principally fee income receivable from related party, income taxes payable and accounts payable, accrued expenses, and other liabilities.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Net cash provided by operating activities for the year ended December 31, 2014 was $24.4 million compared to $6.0 million for the year ended December 31, 2013, an increase of $18.4 million. This increase was attributable to a $20.5 million increase in Adjusted EBITDA discussed above, partially offset by an $8.0 million increase in interest expense discussed above and by changes in certain assets and liabilities, principally fee income receivable from related party, income taxes payable and accounts payable, accrued expenses and other liabilities.

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Investing Activities

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net cash used in investing activities for the year ended December 31, 2015 was $92.7 million compared to $59.5 million for the year ended December 31, 2014, an increase of $33.2 million. The increase was principally attributable to $79.1 million of cash, net of $4.1 million used for the seventeen (17) acquisitions, as described elsewhere in this 10-K.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Net cash used in investing activities for the year ended December 31, 2014 was $59.5 million compared to $28.8 million for the year ended December 31, 2013, an increase of $30.7 million. The increase was principally attributable to $54.9 million of cash used for the Patriot Care Management Acquisition, as described elsewhere in this 10-K.

Financing Activities

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net cash provided by financing activities for the year ended December 31, 2015 was $94.3 million compared to $37.8 million for the year ended December 31, 2014, an increase of $56.5 million. The increase was principally attributable to $107.3 million of net proceeds from borrowings under the BMO Credit Agreement in connection with the seventeen (17) acquisitions described elsewhere (see Note 3 to our consolidated financial statements, “Business Combinations”) in this 10-K, $98.3 million in equity proceeds from the initial public offering, net of $3.7 million in issuance costs, $119.6 million in repayment of notes payable, and repayment of $2.5 million in capital leases.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Net cash provided by financing activities for the year ended December 31, 2014 was $37.8 million compared to $22.7 million for the year ended December 31, 2013, an increase of $15.1 million. The increase was principally attributable to $51.2 million of net proceeds from borrowings under the UBS Credit Agreement in connection with the acquisition of PCM as described elsewhere (see Note 7 to our consolidated financial statements, “Notes Payable and Lines of Credit”) in this 10-K, and a $5.3 million decrease in distributions to members and dividends to common stockholders paid during the year ended December 31, 2013. This was partially offset by a $3.7 million increase in loan financing fees and costs incurred in connection with the initial public offering for the year ended December 31, 2014 versus the year ended December 31, 2013.

Capital Expenditures

For the year ended December 31, 2015, Patriot made capital expenditures of $5.9 million, for fixed assets and policy and claims administration system development costs, principally in connection with our IE platform.

For the year ended December 31, 2014, Patriot and GUI made capital expenditures of $1.5 million and $0.3 million, respectively, for fixed assets and policy and claims administration system development costs, principally in connection with our IE platform. For the years ended December 31, 2013, GUI made capital expenditures of $6.1 million for fixed assets and policy and claims administration system development costs, principally in connection with our IE platform.

Our balance sheet as of December 31, 2015 includes balances attributable to these capital expenditures, which we acquired from GUI effective August 6, 2014. Our balance sheet as of December 31, 2013 do not include balances attributable to these capital expenditures. However, amortization associated with these capital expenditures is included in our operating results for the year ended December 31, 2015, 2014 and 2013. Our IE policy and claims administration system was placed into production in August 2013. Although we expect to make additional capital expenditures related to the development of additional features and functionality related to our IE policy and claims administration system, we do not anticipate such further costs to be significant.

Indebtedness

Senior Secured Credit Facility

On January 22, 2015, we entered into the Credit Agreement which provides for a $40.0 million revolving credit facility and a $40.0 million term loan facility (the “senior secured credit facility”). The senior secured credit facility has a maturity of five years, and borrowings thereunder bear interest, at our option, at LIBOR plus a margin ranging from 250 basis points to 325 basis points or at base rate plus a margin ranging from 150 basis points to 225 basis points. Margins on all loans and fees will be increased by 2% per annum during the existence of an event of default. The revolving credit facility includes borrowing capacity available for letters of credit and borrowings on same-day notice, referred to as swing line loans. At any time prior to maturity, we have the right to increase the size of the revolving credit facility or the term loan facility by an aggregate amount of up to $20.0 million, but in a minimum amount of $5.0 million. On August 14, 2015, we entered into a second amendment to our $80.0 million senior secured credit facility which provides for an additional $50.0 million of term loans plus the ability to increase the term loan by an additional $50.0 million under certain conditions. The amendment also added a requirement that until we deliver a certificate certifying that (a) the our total

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leverage ratio is equal to or less than 2.25 to 1.00 and (b) our Adjusted EBITDA for the twelve-months then ended is at least $70.0 million, the outstanding revolving loans (plus any swing line loans and the aggregate stated amount of all letters of credit) shall not exceed $30.0 million. All other material terms and conditions in the senior secured credit facility were unchanged by the amendment. On December 23,2015 we entered into a third amendment, which permits Patriot to exercise the provisions of the Rescission and Exchange Agreement for the private placement of company stock and warrants, and related Back-to-Back Agreement with the selling shareholder, as described in Related Party transactions.

In addition to paying interest on outstanding principal under the senior secured credit facility, we are required to pay a commitment fee to the Administrative Agent for the ratable benefit of the lenders under the revolving credit facility in respect of the unutilized commitments thereunder, ranging from 35 basis points to 50 basis points, depending on specified leverage ratios. With respect to letters of credit, we are also required to pay a per annum participation fee equal to the applicable LIBOR margin on the face amount of each letter of credit as well as a fee equal to 0.125% on the face amount of each letter of credit issued (or the term of which is extended). This latter 0.125% fee is payable to the issuer of the letter of credit for its own account, along with any standard documentary and processing charges incurred in connection with any letter of credit.

The term loan facility amortizes quarterly beginning the first full quarter after the closing date at a rate of 5% per annum of the original principal amount during the first two years, 7.5% per annum of the original principal amount during the third and fourth years and 10% per annum of the original principal amount during the fifth year, with the remainder due at maturity. Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity. In the event of any sale or other disposition by us or our subsidiaries guaranteeing the senior secured credit facility of any assets with certain exceptions, we are required to prepay all proceeds received from such a sale towards the remaining scheduled payments of the term loan facility.

In addition, all obligations under the senior secured credit facility are guaranteed by all of our existing and future subsidiaries, other than foreign subsidiaries to the extent the assets of all foreign subsidiaries that are not guarantors do not exceed 5% of the total assets of us and our subsidiaries on a consolidated basis, and secured by a first-priority perfected security interest in substantially all our and our guaranteeing subsidiaries’ tangible and intangible assets, whether now owned or hereafter acquired, including a pledge of 100% of the stock of each guarantor.

The senior secured credit facility contains certain covenants that, among other things and subject to significant exceptions, limit our ability and the ability of our restricted subsidiaries to engage in certain business and financing activities and that require us to maintain certain financial covenants, including requirements to maintain (i) a maximum total leverage ratio of total outstanding debt to adjusted EBITDA for the most recently-ended four fiscal quarters of no more than 300% and (ii) a minimum fixed charge coverage ratio of adjusted EBITDA to the sum of cash interest expense (which amount shall be calculated on an annualized basis for the three, six and nine month periods ending March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015) plus income tax expense (or less any income tax benefits) plus capital expenditures plus dividends, share repurchases and other restricted payments plus regularly scheduled principal payments of debt for the same period of a least 150% for the most recently-ended four quarters. The senior secured credit facility allows us to pay dividends in an amount up to 50% of our net income if certain other financial conditions are met. The senior secured credit facility contains other restrictive covenants, including those regarding indebtedness (including capital leases) and guarantees; liens; operating leases; investments and acquisitions; loans and advances; mergers, consolidations and other fundamental changes; sales of assets; transactions with affiliates; no material changes in nature of business; dividends and distributions, stock repurchases, and other restricted payments; change in name, jurisdiction of organization or fiscal year; burdensome agreements;. and capital expenditures. The senior secured credit facility also has events of default that may result in acceleration of the borrowings thereunder, including (i) nonpayment of principal, interest, fees or other amounts (subject to customary grace periods for items other than principal); (ii) failure to perform or observe covenants set forth in the loan documentation (subject to customary grace periods for certain affirmative covenants); (iii) any representation or warranty proving to have been incorrect in any material respect when made; (iv) cross-default to other indebtedness and contingent obligations in an aggregate amount in excess of an amount to be agreed upon; (v) bankruptcy and insolvency defaults (with grace period for involuntary proceedings); (vi) inability to pay debts; (vii) monetary judgment defaults in excess of an agreed upon amount; (viii) ERISA defaults; (ix) change of control; (x) actual invalidity or unenforceability of any loan document, any security interest on any material portion of the collateral or asserted (by any loan party) invalidity or unenforceability of any security interest on any collateral; (xi) actual or asserted (by any loan party) invalidity or unenforceability of any guaranty; (xii) material unpaid, final judgments that have not been vacated, discharged, stayed or bonded pending appeal within a specified number of days after the entry thereof; and (xiii) any other event of default agreed to by us and the Administrative Agent.

UBS Credit Agreement

On August 6, 2014, in connection with the Patriot Care Management Acquisition, we and certain of our subsidiaries entered into the UBS Credit Agreement, which provided for a five-year term loan facility in an aggregate principal amount of $57.0 million that would mature on August 6, 2019. The loan was secured by the common stock of PCM and guaranteed by Guarantee Insurance Group and its wholly owned subsidiaries. Following our IPO, we prepaid all outstanding borrowings under the UBS Credit Agreement, including accrued interest and applicable prepayment premium.

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Our borrowings under the UBS Credit Agreement bore interest at a rate equal to the greatest of (x) the base rate in effect on such day, (y) the federal funds rate in effect on such day plus 0.50% and (z) the adjusted LIBOR rate on such day for a one-month interest period plus 1.00%, subject to a minimum rate, plus an applicable margin of 8.00%, which may be increased by additional amounts under certain specified circumstances. The weighted average interest rate under the UBS Credit Agreement for the year ended December 31, 2014 was 11.25%.

PennantPark Loan Agreement

On August 6, 2014, in connection with the GUI Acquisition, we and certain of our subsidiaries, as borrowers, and certain of our other subsidiaries and certain affiliated entities, as guarantors, entered into the PennantPark Loan Agreement with the PennantPark Entities, as lenders. Following our IPO, we prepaid all outstanding borrowings under the PennantPark Loan Agreement, including accrued interest and applicable prepayment premium.

Borrowings under the PennantPark Loan Agreement were comprised of (i) an Initial Tranche in an aggregate principal amount of approximately $37.8 million, and (ii) an Additional Tranche in an aggregate principal amount of approximately $30.8 million of new borrowings. Our borrowings under the PennantPark Loan Agreement were funded at a price equal to 97.5% of the par value thereof and bore interest equal to the sum of (i) the greater of 1.0% or LIBOR and (ii) 11.50%. The weighted average interest rate under the PennantPark Loan Agreement for the year ended December 31, 2014 was 12.5%.

All obligations under the PennantPark Loan Agreement were guaranteed by certain of our subsidiaries as well as several affiliated entities, including GUI, and were generally secured by the tangible and intangible property of the borrowers and the guarantors. In connection with both tranches of the PennantPark Loan Agreement, we issued warrants to the PennantPark Entities to purchase an aggregate of 1,110,555 shares of our common stock. As of December 31, 2015 all warrants associated with Pennant Park have been settled for shares of the company’s stock.

PIPE Transaction

See above in “Recent Events” for a discussion of PIPE Transaction.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments

The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2015:

	Payments Due by Period
In thousands	2016		2017		2018		2019		2020		Thereafter		Total
Long-term debt obligations	$	5,500	$	7,562	$	8,250	$	10,313	$	74,875	$	—	$	106,500
Short-term revolver debt    obligations		—		—		—		—		18,032		—		18,032
Interest on debt		4,272		4,049		3,778		3,459		70		—		15,628
Acquisition earnouts		10,556		1,827		—		—		—		—		12,383
Deferred purchase consideration		6,128		—		—		—		—		—		6,128
Operating lease obligations		5,461		5,032		4,089		3,678		2,751		1,744		22,755
Capital lease obligation		2,275		—		—		—		—		—		2,275
Total contractual obligations	$	34,192	$	18,470	$	16,117	$	17,450	$	95,728	$	1,744	$	183,701

Critical Accounting Policies and Estimates and Recently Issued Financial Accounting Standards

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions could

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change in the future as more information becomes known and such changes could impact the amounts reported and disclosed herein. Adjustments related to changes in estimates are reflected in our results of operations in the period in which those estimates changed.

Significant estimates inherent in the preparation of our consolidated financial statements include useful lives and impairments of long-lived tangible and intangible assets, accounting for income taxes and related uncertain tax positions, the valuation of warrant liabilities and accounting for business combinations.

Revenue Recognition

Brokerage and Policyholder Services. We generate fee income for underwriting and servicing workers’ compensation insurance policies for insurance companies, based on a percentage of premiums each writes for its customers. Brokerage and policyholder services are, in all material respects, provided prior to the issuance or renewal of the related policy. For insurance carrier clients who record written premium on the effective date of the policy based on the estimated total premium for the term of the policy, we recognize fee income on the effective date of the related insurance policy reduced by an allowance for estimated commission income that may be returned by us to such clients due to estimated net reduction in estimated total premium for the term of the policy, principally associated with mid-term policy cancellations. For insurance carrier clients who record written premium as premium is collected, we recognize fee income as the premium is collected, reduced by an allowance for estimated commission income that may be returned by us to such clients due to net returns of premiums previously written and collected. In each case, we record the revenue effects of subsequent premium adjustments when such adjustments become known.

Prior to August 6, 2014, our brokerage and policyholder services revenue was derived solely from (1) insurance carrier clients other than Guarantee Insurance (“Other Carriers”), all of which record written premium as premium is collected and (2) Guarantee Insurance under a producer agreement for workers’ compensation policies described below.

We have also historically recorded fee income for soliciting applications for workers’ compensation policies for Guarantee Insurance, a related party, pursuant to a producer agreement between GUI and Guarantee Insurance that we acquired as part of the GUI Acquisition, based on a percentage of premiums procured. The producer agreement provided that the percentage may be amended from time to time upon the mutual consent of the parties. For the years ended December 31, 2013 and 2012, the fees based on a percentage of premium were waived in their entirety and for the year ended December 31, 2012, fees of approximately $0.4 million were agreed. This agreement was terminated effective August 6, 2014.

Generally, as a historical matter, the policies we produced for our Other Carriers featured payment plans that spanned the term of the policy. Because we record the revenue from the brokerage and policyholder services as premium is collected, we estimated nominal commission income would be returned to clients due to net reductions in total premium for the term of the policy, typically associated with mid-term policy cancellations.  Accordingly, we did not maintain an allowance for estimated return commission income on business produced for our Other Carriers prior to August 6, 2014.

Additionally, upon termination of our producer agreement with Guarantee Insurance, we and Guarantee Insurance agreed that there would be no further adjustments to commission income associated with changes in total premium for the term of the policy. Accordingly, we did not maintain an allowance for estimated return commission income pursuant to our producer agreement with Guarantee Insurance.

Following the GUI Acquisition, we entered into a new agreement with Guarantee Insurance effective August 6, 2014 to provide marketing, underwriting and policyholder services. Guarantee Insurance records written premium on the effective date of the policy based on the estimated total premium for the term of the policy. Accordingly, for the period from August 6, 2014 to December 31, 2014, we recorded an allowance for estimated return commission income of approximately $1.5 million. We expect a significant increase in brokerage and policyholder services fee income from Guarantee Insurance going forward. We also generate fee income for establishing and administering segregated portfolio cell reinsurance arrangements for reinsurers that assume a portion of the underwriting risk from our insurance carrier clients, based on a flat annual fee which is recognize as revenue on a pro rata basis.

Claims Administrative Services. We generate fee income for administering workers’ compensation claims for insurance and reinsurance companies, generally based on a percentage of earned premiums, grossed up for large deductible credits. We recognize this revenue over the period of time we are obligated to administer the claims as the underlying claims administration services are provided. For certain insurance and reinsurance carrier clients, the fee, which is based on a percentage of earned premiums grossed up for large deductible credits, represents consideration for our obligation to administer claims for a period of 24 months from the date of the first report of injury. For claims open longer than 24 months from the date of the first report of injury for these clients, we generate fee income for continuing to administer the claims, if so elected by the client, based on a fixed monthly fee which is recognized when earned. For certain other insurance and reinsurance clients, we have an obligation to administer the claims through their duration. We also generate fee income from non-related parties for administering workers’ compensation claims for state associations responsible for handling the claims of insolvent insurance companies based on a fixed amount per open claims per month.

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We generate fee income for services for insurance and reinsurance companies and other clients, including (i) claims investigative services, generally based on an hourly rate, (ii) loss control management services, based on a percentage of premium, (iii) workers’ compensation claimant transportation and translation services, generally based on an hourly rate, (iv) workers’ compensation claims subrogation services, based on a percentage of subrogation recovered on the date of recovery, (v) workers’ compensation claims legal bill review, based on a percentage of savings on the date that savings are established and (vi) certain other services, based on a fixed monthly fee. We generate fee income for negotiating and settling liens placed by medical providers on workers’ compensation claims for insurance and reinsurance companies and other clients, based on a percentage of savings resulting from the settlement of the lien. We recognize revenue from claims investigations, loss control service administration, claimant transportation and translation, claims subrogation services, workers’ compensation claims lien negotiations and reinsurance management services in the period that the services are provided.

Fee income from related party represents fee income earned from Guarantee Insurance on brokerage and policyholder services and on claims administration services.

Fee income earned from Guarantee Insurance for brokerage and policyholder services historically represents fees for soliciting applications for workers’ compensation insurance for Guarantee Insurance pursuant to a prior producer agreement that we acquired as part of the GUI Acquisition, based on a percentage of premiums written or other amounts negotiated by the parties. This agreement was terminated effective August 6, 2014. Following the GUI Acquisition, we entered into a new agreement with Guarantee Insurance effective August 6, 2014 to provide all of our brokerage and policyholder services. Accordingly, we expect further significant increases in fee income from related party going forward.

Fee income earned from Guarantee Insurance for claims administration services is based on the net portion of claims expense retained by Guarantee Insurance pursuant to quota share reinsurance agreements between Guarantee Insurance, our third party insurance carrier clients and the segregated portfolio cell reinsurers that assume business written by Guarantee Insurance and such third party carriers. Certain fee income earned from segregated portfolio cell reinsurers is remitted to us by Guarantee Insurance on behalf of the segregated portfolio cell reinsurers.

The allocation of marketing, underwriting and policy issuance costs from related party in our consolidated statements of operations represents costs reimbursed to Guarantee Insurance Group for rent and certain corporate administrative services. Management fees paid to related party for administrative support services in our consolidated statements of operations represent amounts paid to Guarantee Insurance Group for management oversight, legal, accounting, human resources and technology support services.

Restricted Cash

Restricted cash is comprised of amounts received from our clients to be used exclusively for the payment of claims on behalf of such clients.

Fixed Assets and Other Long Term Assets (excluding Goodwill)

Fixed assets are stated at cost, less accumulated depreciation. Expenditures for furniture and fixtures, software and computer equipment are capitalized and depreciated on a straight-line basis over a seven, three, or five-year estimated useful life, respectively. Expenditures for leasehold improvements on office space and facilities leased by Guarantee Insurance Group but utilized by us are capitalized and amortized on a straight-line basis over the term of Guarantee Insurance Group’s lease.

Other long term assets, which are solely comprised of capitalized policy and claims administration system development costs are also stated at cost, net of accumulated depreciation. Expenditures for capitalized policy and claims administration system development costs are capitalized and amortized on a straight line basis over a five-year estimated useful life.

We periodically review all fixed assets and other long term assets that have finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Upon sale or retirement, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Goodwill

Goodwill represents the excess of consideration paid over the fair value of net assets acquired. Goodwill is not amortized, but is tested at least annually for impairment (or more frequently if certain indicators are present or management otherwise believes it is appropriate to do so). In the event that management determines that the value of goodwill has become impaired, we will record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We determined that there was no impairment as of December 31, 2015 and 2014.

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Commission Expense

Commission expense represents consideration paid by us to insurance agencies for producing business. Services provided by insurance agencies are, in all material respects, provided prior to the issuance or renewal of an insurance policy. With respect to business written for insurance carrier clients who record written premium on the effective date of the policy, we record commission expense on the effective date of the policy based on the estimated total premium for the term of the policy, reduced by an allowance for estimated commission expense that may be returned by the insurance agencies to us due to net reductions in estimated total premium for the term of the policy, principally associated with mid-term policy cancellations. With respect to business written for insurance carrier clients who record written premium as premium is collected, we recognize commission expense as the premium is collected, reduced by an allowance for estimated commission expense that may be returned by the insurance agencies to us due to net returns of premiums previously written and collected. The income effects of subsequent commission expense adjustments are recorded when the adjustments become known.

Income Taxes

We file consolidated federal income tax returns which include the results of our wholly and majority owned subsidiaries, which became our subsidiaries effective November 27, 2013 or as part of the Patriot Care Management Acquisition effective August 6, 2014 or as part of the 17 acquisitions which occurred during the year ended December 31, 2015. The tax liability of our company and its wholly and majority owned subsidiaries is apportioned among the members of the group in accordance with the portion of the consolidated taxable income attributable to each member of the group, as if computed on a separate return. To the extent that the losses of any member of the group are utilized to offset taxable income of another member of the group, we take the appropriate corporate action to “purchase” such losses. To the extent that a member of the group generates any tax credits, such tax credits are allocated to the member generating such tax credits.

Prior to November 27, 2013, two of our subsidiaries were S Corporations, electing to pass corporate income through to the sole shareholder for federal tax purposes. The then sole shareholder was responsible for reporting his share of the taxable income or loss from such subsidiaries to the Internal Revenue Service. Accordingly, our consolidated statements of operations for the years ended December 31, 2013 and 2012 do not include a provision for federal income taxes attributable to the operations of these subsidiaries for the period from January 1, 2013 to November 27, 2013 or for the year ended December 31, 2012. Effective November 27, 2013, concurrent with the Reorganization, these subsidiaries were converted to C Corporations and their taxable income became subject to U.S. corporate federal income taxes.

Another subsidiary of ours has identified its tax status as a limited liability company, electing to be taxed as a pass through entity. Prior to November 27, 2013, such subsidiary’s members were responsible for reporting their share of the entity’s taxable income or loss to the Internal Revenue Service. Accordingly, our consolidated statements of operations for the years ended December 31, 2013 and 2012 do not include a provision for federal income taxes attributable to this subsidiary’s operations for the period from January 1, 2013 to November 27, 2013 or for the year ended December 31, 2012. Effective November 27, 2013, following the Reorganization, we are responsible for reporting our share of that entity’s taxable income.

Another subsidiary of ours is domiciled in a non-U.S. jurisdiction and, accordingly, is not subject to U.S. federal income taxes. We have no current intention of distributing unremitted earnings of this subsidiary to its U.S. domiciled parent. Additionally, we believe that it is not practical to calculate the potential liability associated with such distribution due to the fact that dividends received from this subsidiary could bring additional foreign tax credits, which could ultimately reduce the U.S. tax cost of the dividend, and significant judgment is required to analyze any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings. Accordingly, pursuant to ASC 740, Tax Provisions, the income tax benefit in our consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012 do not include a provision for federal income taxes attributable to that entity’s operations.

The income tax benefit in our consolidated statements of operations, included elsewhere in this Annual Report on Form 10-K, includes a provision for income taxes attributable to the revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed in the GUI Acquisition, as if GUI were included in our consolidated federal income tax return.

In determining the quarterly provision for income taxes, management uses an estimated annual effective tax rate based on forecasted annual pre-tax income (loss), permanent tax differences, statutory tax rates and tax planning opportunities in the various jurisdictions in which we operate. The impact of significant discrete items is separately recognized in the periods in which they occur.

Fee Income Receivable and Fee Income Receivable from Related Party

Fee income receivable and fee income receivable from related party are based on contracted prices. We assess the collectability of these balances and adjust the receivable to the amount expected to be collected through an allowance for doubtful accounts. As of December 31, 2015, we maintained an allowance for doubtful accounts of approximately $0.3 million.

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Segment Considerations

We deliver our services to our customers through local offices in each region and financial information for our operations follows this service delivery model. All regions provide brokerage, underwriting and policyholder services as well as claims administration services. ASC 280, Segment Reporting, Section 280-10, establishes standards for the way that public business enterprises report information about operating segments in annual and interim consolidated financial statements. Our internal financial reporting is organized geographically, as discussed above, and managed on a geographic basis, with virtually all of our operating revenue generated within the United States. In accordance with ASC 280-10, multiple product offerings may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the segments have similar economic characteristics, and if the segments are similar in terms of (i) the nature of products and services, (ii) the nature of the production processes, (iii) the type or class of customer for their products and services and (iv) the methods used to distribute their products or provide their services. We believe each of our regional office operations meet these criteria, as each provides similar services and products to similar customers using similar methods of production and similar methods to distribute the services and products. Our products and services are generally offered as a complete and comprehensive outsourcing solution to its customers through a production process utilizing an integrated sales channel and technology platform that handles the entire brokerage, underwriting, policyholder services and claim administration services process. The operating results derived from the sale of brokerage and policyholder services and claims administration services are generally not reviewed separately by our chief operating decision makers for purposes of assessing the performance of each service or making decisions about resources to be allocated to each service. Accordingly, we consider our business to operate in one segment.

Business Combinations

We account for business combinations using the acquisition method of accounting. This method requires the use of fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values become available.

Stock Based Compensation

We recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions, over the requisite service period.

Earnings per Share

Basic earnings per share is based on weighted average shares outstanding and excludes dilutive effects of detachable common stock warrants. Diluted earnings per share assumes the exercise of all detachable common stock warrants using the treasury stock method.

Due to the net loss of $5.4 million reported for the year ended December 31, 2015, weighted average outstanding equity grants representing 215,865 shares of common stock and weighted average warrants representing 10,685 shares of common stock were not dilutive.  As a result, basic and diluted earnings per share both reflect a net loss of $0.20 per share for the year ended December31, 2015. Due to $1.8 million expense resulting from the increase in fair value of warrants for the year ended December 31, 2014, weighted average outstanding detachable common stock warrants representing 1,109,445 shares of common stock outstanding were not dilutive. Due to a net loss for the year ended December 31, 2013 weighted average outstanding detachable common stock warrants representing 646,949 shares of common stock outstanding were not dilutive.

JOBS Act

The JOBS Act contains provisions that, among other things, allows an emerging growth company to take advantage of specified reduced reporting requirements. In particular, the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of such extended transition period, and, as a result, we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not emerging growth companies.

Recently Issued Financial Accounting Standards

     In February, 2016 The FASB issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required

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to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet.

     The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all organizations. The company is currently reviewing the impact that implementing this ASU will have.In November 2015, the Financial Accounting Standards Board ("FASB") issued new accounting guidance related to income taxes, which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective for us beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. We plan to adopt the new guidance in 2016, which is not expected to have a material impact on our consolidated financial statements other than reclassifying current deferred tax assets and liabilities to noncurrent in the balance sheet. See Note 16 to our consolidated financial statements for a discussion on income tax balances.

In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”, an update to Accounting Standard Codification (“ASC”) Topic 805, Business Combinations.  This update requires that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjusting amounts are determined. The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued.  We will evaluate this guidance as potential adjustments arise.  

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires retrospective application. ASU 2015-03 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2015. We are currently evaluating the financial impact of this standard.

In August 2014, the FASB issued ASU 2014-15 regarding ASC Topic 205, Presentation of Financial Statements – Going Concern. The updated guidance related to determining whether substantial doubt exists about an entity's ability to continue as a going concern. The amendment provides guidance for determining whether conditions or events give rise to substantial doubt that an entity has the ability to continue as a going concern within one year following issuance of the financial statements and requires specific disclosures regarding the conditions or events leading to substantial doubt. The updated guidance is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2016. Earlier adoption is permitted, but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued a deferral of effective date for this standard.  For public companies this standard applies to annual reporting period beginning after December 15, 2017, including interim reporting periods within that reporting period, and early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations”, regarding ASC Topic 205, Presentation of Financial Statements, and ASC Topic 360, Property, Plant and Equipment. The updated guidance related to reporting discontinued operations and disclosures of disposals of components of an entity. Under the amendment, only those disposals of components of an entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. Additionally, the elimination of the component's operations, cash flows and significant continuing involvement conditions have been removed. Further, an equity method investment could be reported as discontinued operations. The updated guidance is effective prospectively for all disposals or classifications as held for sale that occur

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within annual periods beginning after December 15, 2014. The adoption of this guidance has not had a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2015, we were not subject to any material interest rate risk or credit risk, and we had no exposure to foreign currency risk.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Patriot National, Inc.

Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Patriot National, Inc. as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Patriot National, Inc. at December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Miami, Florida

March 18, 2016       Certified Public Accountants

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Consolidated Balance Sheets

(In thousands)

	December 31, 2015			December 31, 2014
Assets
Current Assets
Cash	$	8,372		$	4,251
Equity and fixed income security investments		3,173			—
Total cash and investments		11,545			4,251
Restricted cash		16,055			6,923
Fee income receivable		8,159			1,942
Fee income receivable from related party		27,036			11,988
Net receivable from related parties		499			1,773
Deferred costs for initial public offering		—			2,682
Other current assets		2,046			430
Total current assets		65,340			29,989
Fixed assets, net of depreciation		5,092			1,879
Deferred loan fees		2,352			5,911
Goodwill		118,141			61,493
Intangible assets		75,681			32,988
Forward purchase asset		28,120			—
Advance on facilitation agreement		2,000			—
Other long term assets		11,428			9,842
Total Assets	$	308,154		$	142,102
Liabilities and Equity (Deficit)
Liabilities
Deferred claims administration services income	$	10,639		$	8,515
Net advanced claims reimbursements		1,835			6,803
Income taxes payable		2,996			11,548
Current earn-out payable		10,556			—
Accounts payable, accrued expenses and other liabilities		32,809			15,027
Deferred purchase consideration		6,128			—
Revolver borrowings outstanding		18,032			—
Current portion of notes payable		5,500			15,782
Current portion of capital lease obligation		2,232			2,332
Total current liabilities		90,727			60,007
Earn-out payable		1,827			—
Notes payable		101,000			95,039
Capital lease obligation		—			2,438
Warrant redemption liability		28,120			12,879
Total Liabilities		221,674			170,363
Equity (Deficit)
Preferred stock, $.001 par value; 100,000 shares authorized, no shares issued    and outstanding as of December 31, 2015 and December 31, 2014		—			—
Common stock, $.001 par value; 1,000,000 shares authorized, 28,105    and 18,075 shares issued and outstanding as of December 31, 2015 and    December 31, 2014, respectively		21			14
Additional paid in capital		119,999			—
Accumulated deficit		(33,305	)		(27,930	)
Total Patriot National, Inc. Stockholders' Equity (Deficit)		86,715			(27,916	)
Less Non-controlling interest		(235	)		(345	)
Total Equity (Deficit)		86,480			(28,261	)
Total Liabilities and Equity (Deficit)	$	308,154		$	142,102

See accompanying notes to consolidated financial statements.

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Consolidated Statement of Operations

(In thousands, except per share amounts)

	For the Year Ended December 31,
	2015			2014		2013
Revenues
Fee income	$	122,881		$	55,848	$	46,486
Fee income from related party		86,883			46,882		9,387
Total fee income and fee income from related party		209,764			102,730		55,873
Net investment income		135			496		87
Net gains (losses) on investments		(179	)		14,038		(50	)
Total Revenues		209,720			117,264		55,910
Expenses
Salaries and related expenses		77,628			32,420		15,985
Commission expense		35,879			16,939		8,765
Management fees to related party for administrative support services		—			5,390		12,139
Outsourced services		12,234			5,608		3,303
Allocation of marketing, underwriting and policy issuance costs from    related party		—			1,872		4,687
Other operating expenses		34,600			13,821		7,101
Acquisition costs		6,781			—		—
Interest expense		3,544			9,204		1,174
Depreciation and amortization		14,577			5,935		2,607
Amortization of loan discounts and loan costs		373			2,158		5,553
Non-cash stock based compensation expense		10,787			—		—
Costs related to extinguishment of debt		13,681			—		—
Public offering costs		1,229			—		—
Increase in fair value of earn-out liability		827			—		—
Gain on financing transaction		(609	)		—		—
Gain on disposal of fixed assets		(7	)		—		—
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823		—
Loss on exchange of units and warrants		—			—		152
Total Expenses		210,114			95,170		61,466
Net (loss) income before income tax expense		(394	)		22,094		(5,556	)
Income Tax Expense		4,871			11,635		712
Net (Loss) Income Including Non-Controlling Interest in Subsidiary		(5,265	)		10,459		(6,268	)
Net income (loss) attributable to non-controlling interest in subsidiary		110			45		(82	)
Net (Loss) Income	$	(5,375	)	$	10,414	$	(6,186	)
Earnings (Loss) Per Common Share
Basic	$	(0.20	)	$	0.66	$	(0.43	)
Diluted		(0.20	)		0.66		(0.43	)
Weighted Average Common Shares Outstanding
Basic		26,425			15,754		14,288
Diluted		26,425			15,754		14,288
Pro Forma Income Tax Expense (Unaudited)						$	2,092
Pro Forma Earnings (Loss) Per Common Share
Basic						$	(0.53	)
Diluted							(0.53	)

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

(In thousands)

	For the Year Ended December 31,
	2015			2014			2013
Operating Activities
Net (Loss) Income	$	(5,265	)	$	10,459		$	(6,268	)
Adjustments to reconcile net (loss) income to net cash from operating activities:
Net (Income) attributable to business generated by GUI,    exclusive of depreciation expense		—			(2,252	)		5,105
Depreciation and amortization		14,577			5,935			2,607
Amortization of loan discounts and loan costs		373			2,158			5,553
(Decrease) Increase in fair value of warrant redemption liability		(1,410	)		1,823			—
Increase in fair value of earn-out liability		827			—			—
Non-cash stock based compensation expense		10,787			—			—
Write-off of deferred financing and original issue discounts		9,342			—			—
Gain on financing transaction		(609	)		—			—
Net non-cash losses (gains) on investments		179			(14,038	)		50
Deferred income taxes		—			(388	)		291
Loss on exchange of units and warrants		—			—			152
Provision for uncollectible fee income		351			502			2,544
Changes in certain assets and liabilities:
Decrease (increase) in:
Fee income receivable		(3,228	)		(763	)		(3,263	)
Fee income receivable from related party		(15,048	)		(6,667	)		(1,383	)
Claims reimbursement outstanding		—			—			1,101
Other current assets		(3,554	)		209			22
Increase (decrease) in:
Net payable to related parties		434			924			(3,258	)
Deferred claims administration services income		397			676			(2,493	)
Net advanced claims reimbursements		(4,968	)		2,433			4,003
Income taxes payable		(7,861	)		11,326			408
Accounts payable and accrued expenses		7,245			12,023			877
Net Cash Provided by Operating Activities		2,569			24,360			6,048
Investment Activities:
Net increase in restricted cash		(2,541	)		(2,488	)		(4,290	)
Net increase in note receivable from related party		—			(492	)		(24,397	)
Purchase of equity securities		(3,616	)		(3,914	)		(1,013	)
Proceeds from sale of equity securities		264			4,037			963
Purchase of fixed assets and other long-term assets		(5,932	)		(1,813	)		(36	)
Acquisitions, net of $2,316 and $912 cash acquired in 2015 and 2014,   respectively		(80,887	)		(54,853	)		—
Net Cash Used in Investment Activities		(92,712	)		(59,523	)		(28,773	)
Financing Activities:
Proceeds from initial public offering, net		98,275			—			—
Proceeds from senior secured term loans, net of $2,679 of fees		107,321			—			—
Repayment of senior secured term loans		(3,500	)		—			—
Proceeds from notes payable, net of detachable common stock warrants   and loan fees		—			51,168			38,472
Issuance of detachable common stock warrants		—			4,122			2,477
Payment of loan fees		—			(3,917	)		(2,938	)
Payment of costs for public offering		(3,742	)		(2,682	)		—
Revolver facility borrowings		59,100			—			—
Revolver facility repayments		(41,068	)		—			—
Repayment of note payable		(119,573	)		(10,196	)		(10,000	)
Repayment of capital lease obligation		(2,549	)		(742	)		—
Payment of unit holder distribution		—			—			(291	)
Payment of stockholder dividend		—			—			(5,018	)
Net Cash Provided by Financing Activities		94,264			37,753			22,702
Increase (decrease) in cash		4,121			2,590			(23	)
Cash, beginning of period		4,251			1,661			1,684
Cash, end of period	$	8,372		$	4,251		$	1,661

See accompanying notes to consolidated financial statements.

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	For the Year Ended December 31,
	2015			2014			2013
Supplemental Cash Flow Data
Net Loss Attributable to Business Generated by GUI, Exclusive of   Depreciation Expense
GUI total net loss	$	—		$	45		$	7,586
Depreciation expense		—			(2,297	)		(2,481	)
	$	—		$	(2,252	)	$	5,105
Non-Cash Capital Contribution Associated with Assets and Liabilities   of GUI
Fixed assets and other long term assets acquired from GUI	$	—		$	334		$	6,091
Elimination of balances payable to GUI		—			3,168			(3,258	)
Change in capital lease obligation assumed from GUI		—			1,304			(6,816	)
Note receivable transferred to GUI		—			(492	)		(28,329	)
Note payable associated with acquisition of assets and liabilities of GUI		—			(30,000	)		—
	$	—		$	(25,686	)	$	(32,312	)
Interest Paid	$	3,545		$	9,189		$	846
Income Taxes Paid	$	11,062		$	533		$	—
Non-Cash Stock Consideration Issued for the Acquisition of Global HR   Research LLC	$	10,898		$	—		$	—
Non-Cash Financing Activities
Deemed dividend attributable to acquisition of MPCS assets	$	(750	)	$	—		$	—
Deemed dividend attributable to acquisition of GUI's contracts and    certain other assets and assumption of certain liabilities		—			(49,150	)		—
Deemed dividend attributable to merger of SPV2 with and into    Patriot Care, Inc.		—			(6,750	)		—

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Stockholders' Equity (Deficit)

(In thousands)

	Patriot National, Inc. Stockholders' Equity
					Additional						Non-			Total
	Common Stock				Paid In			Accumulated			Controlling			Equity
	Shares		Amount		Capital			Deficit			Interest			(Deficit)
Balance, January 1, 2013		14,288		14		21,873			(12,814	)		(272	)		8,801
Forgiveness of common units		—		—		(878	)		—			(27	)		(905	)
Non-cash capital contribution associated with    assets and liabilities of GUI		—		—		(26,100	)		(6,212	)		—			(32,312	)
Distribution to members		—		—		—			(282	)		(9	)		(291	)
Dividend to common stockholders		—		—		—			(5,018	)		—			(5,018	)
Balance before net income		14,288		14		(5,105	)		(24,326	)		(308	)		(29,725	)
Net loss		—		—		—			(6,186	)		(82	)		(6,268	)
Net loss attributable to business generated by    GUI, exclusive of depreciation expense		—		—		5,105			—			—			5,105
Balance, December 31, 2013		14,288		14		—			(30,512	)		(390	)		(30,888	)
Issuance of common stock		3,043		—		19,500			—			—			19,500
Exercise of detachable common stock   warrants		744		—		—			—			—			—
Non-cash capital contribution associated with    assets and liabilities of GUI		—		—		(17,248	)		4,418			—			(12,830	)
Deemed dividend attributable to merger of   SPV2 with and into Patriot Care, Inc		—		—		—			(12,250	)		—			(12,250	)
Balance before net income		18,075		14		2,252			(38,344	)		(390	)		(36,468	)
Net income		—		—		—			10,414			45			10,459
Net income attributable to business generated   by GUI, exclusive of depreciation expense		—		—		(2,252	)		—			—			(2,252	)
Balance, December 31, 2014		18,075		14		—			(27,930	)		(345	)		(28,261	)
Issuance of common stock		7,350		7		97,824			—			—			97,831
Exercise of detachable common stock   warrants		1,084		—		—			—			—			—
Stock consideration issued for acquisitions		731		—		10,898			—			—			10,898
Issuance of restricted stock awards		865		—		—			—			—			—
Deemed dividend attributable to the purchase   of MPCS		—		—		(750	)		—			—			(750	)
Non-cash stock based compensation		—		—		10,787			—			—			10,787
Excess tax deduction for the issuance of   restricted stock awards		—		—		409			—			—			409
Contribution of forward purchase asset, net    of rescind and exchange agreement		—		—		(668	)		—			—			(668	)
Contribution of Pennant Park warrant    redemption liability		—		—		1,499			—			—			1,499
Balance before net (loss) income		28,105		21		119,999			(27,930	)		(345	)		91,745
Net (loss) income		—		—		—			(5,375	)		110			(5,265	)
Balance, December 31, 2015		28,105	$	21	$	119,999		$	(33,305	)	$	(235	)	$	86,480

See accompanying notes to consolidated financial statements.

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Patriot National, Inc.

Notes to Consolidated Financial Statements

December 31, 2015

1. Description of Business and Basis of Presentation

Description of Business

Patriot National, Inc. (“Patriot National” or the “Company”) is an independent national provider of comprehensive technology-enabled outsourcing solutions that help insurance carriers, employers and other clients mitigate risk, comply with complex regulations, and save time and money. We offer a full suite of end-to-end insurance related and specialty services that allow our clients to improve efficiencies and reduce expenses through our value-added processes. The core of our value proposition includes the benefit of a “one-stop” solution with our broad array of offered services, scalable state-of-the-art technology, and solutions to complex business and regulatory processes. Our goal is to be the preferred provider of mandatory employer services such as risk management services, health and welfare services, employee onboarding and compliance services.

The Company offers two types of services: front-end services, such as brokerage, underwriting and policyholder services, and back-end services, such as claims adjudication and administration. We provide our services either on an individual basis, as bundles of two or more services tailored to a client’s specific needs or on a turnkey basis where we provide a comprehensive set of front-end and back-end services to a client. We also offer specialty services currently including technology outsourcing and other IT services, as well as employment pre-screening and background checks. As a service company, we do not assume any underwriting or insurance risk.

Our revenue is primarily fee-based, most of which is contractually committed or highly recurring. Unlike our insurance and reinsurance carrier clients, we do not generate underwriting income or assume underwriting risk on workers’ compensation plans. Patriot National is headquartered in Ft. Lauderdale, Florida.

The consolidated financial statements of Patriot National are comprised of the results of:

(i) the parent company, Patriot National (formerly Old Guard Risk Services, Inc.), which was formed on November 15, 2013,

(ii) Patriot National’s wholly owned subsidiary, Patriot Services, Inc. (“PSI”), and its wholly and majority owned subsidiaries, Patriot Underwriters, Inc. (“PUI”), Patriot Risk Services, Inc. (“PRS”), Contego Services Group, LLC and Contego Investigative Services, Inc. (together, “Contego”), Forza Lien, Inc. (“Forza”) and Patriot Captive Management, Inc. (“Patriot Captive Management”), all of which became subsidiaries of Patriot National effective November 27, 2013,

(iii) PSI’s wholly owned subsidiary, Patriot Care, Inc.,

(iv) Patriot Care, Inc.’s wholly owned subsidiary, Patriot Care Holdings, Inc., and its wholly owned subsidiaries, Patriot Care Management, Inc., and Patriot  Care Services, Inc. (collectively “PCM”), all of which were acquired on August 6, 2014, and

(v) the revenues and expenses associated with contracts (the “GUI contracts”) with third party insurance companies and, with respect to one contract, Guarantee Insurance Company (“Guarantee Insurance”, a property and casualty insurance company wholly owned by Guarantee Insurance Group, Inc. (“GIG”, formerly Patriot National Insurance Group, Inc.) and a related party), which PUI acquired, together with certain other assets acquired and liabilities assumed, from Guarantee Underwriters, Inc. (“GUI”), a wholly owned subsidiary of GIG, effective August 6, 2014.  

For the years ended December 31, 2014 and 2013, because Patriot National, PSI, PRS, Contego, Forza and Patriot Captive Management are under common control, and the contracts and certain other assets acquired and liabilities assumed from GUI constitute the acquisition of a business under common control, the consolidated financial statements are presented as if all of these companies and the assets acquired and liabilities assumed from GUI were wholly or majority owned subsidiaries of the Company for all of the periods presented.  Specifically,

· Revenues and expenses attributable to Patriot National, PSI, PRS, Contego, Forza and Patriot Captive Management for the years ended December 31, 2014 and 2013 and revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed from GUI for the period from January 1, 2014 to August 6, 2014 and the year ended December 31, 2013,

· Assets and liabilities attributable to Patriot National, PSI, PRS, Contego, Forza and Patriot Captive Management are included in the accompanying consolidated balance sheets as of December 31, 2014,

· The fixed assets and other long term assets acquired from GUI, the capital lease obligation assumed from GUI are included in the accompanying consolidated balance sheets as of December 31, 2014, and all other assets and liabilities of GUI, which were not acquired by the Company on August 6, 2014, are not included in the accompanying consolidated balance sheets as of December 31, 2014,

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· The note receivable transferred to GUI and balances payable to GUI from the Company, both of which were included as part of the Company’s consideration for the contracts and certain other assets acquired and liabilities assumed, together with the note payable associated with the acquisition of the contracts and certain other assets, have been eliminated in consolidation in the accompanying consolidated balance sheets as of December 31, 2014, and

· Changes in the fixed assets and other long term assets acquired from GUI, the capital lease obligation assumed from GUI and the note receivable transferred to GUI and balances payable to GUI from the Company, as described above, for the period from January 1, 2014 to August 6, 2014 are presented as “adjustments attributable to changes in assets and liabilities of GUI” in the accompanying consolidated statements of stockholders’ equity (deficit) for the years ended December 31, 2014 and 2013.

PUI provides workers’ compensation brokerage, underwriting and policyholder services to third party insurance company customers.  Additionally, PUI historically solicited applications for workers’ compensation insurance for Guarantee Insurance pursuant to a producer agreement between the parties that the Company acquired from GUI effective August 6, 2014 and which was also terminated on such date.

PRS provides workers’ compensation claims administration services to (i) Guarantee Insurance, (ii) PUI’s third party insurance company customers and (iii) segregated portfolio cell reinsurers that assume business written by Guarantee Insurance and PUI’s third party insurance company customers.  

Contego provides claims investigations, loss control service administration, claimant transportation and translation, claims subrogation services and certain other services to Guarantee Insurance, PUI’s third party insurance company customers and the segregated portfolio cell reinsurers that assume business written by Guarantee Insurance and PUI’s third party insurance company customers.  Contego also provides these services, on a limited basis, to certain other companies and government agencies.

PCM provides healthcare cost containment services, including nurse case management, medical bill review and utilization review.

Forza provides claim lien negotiation services to PUI’s third party insurance and reinsurance company customers.

Patriot Captive Management provides reinsurance management services to the segregated portfolio cell reinsurers that assume business written by Guarantee Insurance and PUI’s third party insurance company customers, as well as certain other segregated portfolio cell reinsurers.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission. For Contego Services Group, LLC, the Company’s consolidated subsidiary that is 97% owned, and for DecisionUR, LLC (“DecisionUR”), the Company’s consolidated subsidiary that is 98.8% owned, the third party holdings of equity interests are referred to as non-controlling interest. The portion of the third party members’ equity (deficit) of Contego Services Group, LLC is presented as non-controlling interest in the accompanying consolidated balance sheets as of December 31, 2015 and 2014. The Company discloses the following three measures of net income (loss): (i) net income (loss), including non-controlling interest in subsidiary, (ii) net income (loss) attributable to non-controlling interest in subsidiary, and (iii) net income (loss).

Certain reclassifications have been made to the amounts reported in prior years’ consolidated financial statements in order to conform to the current year presentation.

In the preparation of our consolidated financial statements as of December 31, 2015, management evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition in our consolidated financial statements and/or disclosure in the notes thereto.

2. Summary of Significant Accounting Policies and Recently Issued Financial Accounting Standards

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions could change in the future as more information becomes known and such changes could impact the amounts reported and disclosed herein. Adjustments related to changes in estimates are reflected in our results of operations in the period in which those estimates changed.

Significant estimates inherent in the preparation of our consolidated financial statements include useful lives and impairments of long-lived tangible and intangible assets, accounting for income taxes and related uncertain tax positions, the valuation of warrant liabilities and accounting for business combinations.

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Revenue Recognition

Brokerage and Policyholder Services. We generate fee income for underwriting and servicing workers’ compensation insurance policies for insurance companies, based on a percentage of premiums each writes for its customers. Brokerage and policyholder services are, in all material respects, provided prior to the issuance or renewal of the related policy. For insurance carrier clients who record written premium on the effective date of the policy based on the estimated total premium for the term of the policy, we recognize fee income on the effective date of the related insurance policy reduced by an allowance for estimated commission income that may be returned by us to such clients due to estimated net reduction in estimated total premium for the term of the policy, principally associated with mid-term policy cancellations. For insurance carrier clients who record written premium as premium is collected, we recognize fee income as the premium is collected, reduced by an allowance for estimated commission income that may be returned by us to such clients due to net returns of premiums previously written and collected. In each case, we record the revenue effects of subsequent premium adjustments when such adjustments become known.

We have also historically recorded fee income for soliciting applications for workers’ compensation policies for Guarantee Insurance, a related party, pursuant to a producer agreement between GUI and Guarantee Insurance that we acquired as part of the GUI Acquisition, based on a percentage of premiums procured. The producer agreement provided that the percentage may be amended from time to time upon the mutual consent of the parties. For the year ended December 31, 2013, the fees based on a percentage of premium were waived in their entirety. This agreement was terminated effective August 6, 2014.

Generally, as a historical matter, the policies we produced for our insurance carrier clients other than Guarantee Insurance featured payment plans spread across the terms of the respective policies. Because we record brokerage and policyholder services revenue on this business as premium is collected, the commission income we estimate that may be returned by us to such clients due to estimated net reductions in total premium for the term of the policy, principally associated with mid-term policy cancellations, was nominal. Accordingly, we did not maintain an allowance for estimated return commission income on business produced by us for insurance carrier clients other than Guarantee Insurance prior to August 6, 2014.

Additionally, upon termination of our producer agreement with Guarantee Insurance, we and Guarantee Insurance agreed that there would be no further adjustments to commission income associated with changes in total premium for the term of the policy. Accordingly, we did not maintain an allowance for estimated return commission income pursuant to our producer agreement with Guarantee Insurance.

Following the GUI Acquisition, we entered into a new agreement with Guarantee Insurance effective August 6, 2014 to provide marketing, underwriting and policyholder services. Guarantee Insurance records written premium on the effective date of the policy based on the estimated total premium for the term of the policy. Accordingly, we recorded an allowance for estimated return commission income of approximately $3.3 million for the year ended December 31, 2015, and $1.5 million for the period from August 6, 2014 to December 31, 2014. We experienced a significant increase in brokerage and policyholder services fee income from Guarantee Insurance as a result of the new agreement. We also generate fee income for establishing and administering segregated portfolio cell reinsurance arrangements for reinsurers that assume a portion of the underwriting risk from our insurance carrier clients, based on a flat annual fee which is recognize as revenue on a pro rata basis.

Claims Administrative Services. We generate fee income for administering workers’ compensation claims for insurance and reinsurance companies, generally based on a percentage of earned premiums, grossed up for large deductible credits. We recognize this revenue over the period of time we are obligated to administer the claims as the underlying claims administration services are provided. For certain insurance and reinsurance carrier clients, the fee, which is based on a percentage of earned premiums grossed up for large deductible credits, represents consideration for our obligation to administer claims for a period of 24 months from the date of the first report of injury. For claims open longer than 24 months from the date of the first report of injury for these clients, we generate fee income for continuing to administer the claims, if so elected by the client, based on a fixed monthly fee which is recognized when earned. For certain other insurance and reinsurance clients, we have an obligation to administer the claims through their duration. We also generate fee income from non-related parties for administering workers’ compensation claims for state associations responsible for handling the claims of insolvent insurance companies based on a fixed amount per open claims per month.

We generate fee income for services for insurance and reinsurance companies and other clients, including (i) claims investigative services, generally based on an hourly rate, (ii) loss control management services, based on a percentage of premium, (iii) workers’ compensation claimant transportation and translation services, generally based on an hourly rate, (iv) workers’ compensation claims subrogation services, based on a percentage of subrogation recovered on the date of recovery, (v) workers’ compensation claims legal bill review, based on a percentage of savings on the date that savings are established and (vi) certain other services, based on a fixed monthly fee. We generate fee income for negotiating and settling liens placed by medical providers on workers’ compensation claims for insurance and reinsurance companies and other clients, based on a percentage of savings resulting from the settlement of the lien. We recognize revenue from claims investigations, loss control service administration, claimant transportation and translation, claims subrogation services, workers’ compensation claims lien negotiations and reinsurance management services in the period that the services are provided.

Fee income from related party represents fee income earned from Guarantee Insurance on brokerage and policyholder services and on claims administration services.

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Fee income earned from Guarantee Insurance for brokerage and policyholder services historically represents fees for soliciting applications for workers’ compensation insurance for Guarantee Insurance pursuant to a prior producer agreement that we acquired as part of the GUI Acquisition, based on a percentage of premiums written or other amounts negotiated by the parties. This agreement was terminated effective August 6, 2014. Following the GUI Acquisition, we entered into a new agreement with Guarantee Insurance effective August 6, 2014 to provide all of our brokerage and policyholder services. Accordingly, we experienced further significant increases in fee income from related party as a result of the agreement.

Fee income earned from Guarantee Insurance for claims administration services is based on the net portion of claims expense retained by Guarantee Insurance pursuant to quota share reinsurance agreements between Guarantee Insurance, our third party insurance carrier clients and the segregated portfolio cell reinsurers that assume business written by Guarantee Insurance and such third party carriers. Certain fee income earned from segregated portfolio cell reinsurers is remitted to us by Guarantee Insurance on behalf of the segregated portfolio cell reinsurers.

The allocation of marketing, underwriting and policy issuance costs from related party in our consolidated statements of operations represents costs reimbursed to Guarantee Insurance Group for rent and certain corporate administrative services. Management fees paid to related party for administrative support services in our consolidated statements of operations represent amounts paid to Guarantee Insurance Group for management oversight, legal, accounting, human resources and technology support services.

Restricted Cash

Restricted cash is comprised of amounts received from our clients to be used exclusively for the payment of claims on behalf of such clients.

Fixed Assets and Other Long Term Assets (excluding Goodwill)

Fixed assets are stated at cost, less accumulated depreciation. Expenditures for furniture and fixtures and computer equipment are capitalized and depreciated on a straight-line basis over a seven and five-year estimated useful life. Expenditures for leasehold improvements on office space and facilities are capitalized and amortized on a straight-line basis over the term of the lease.

Other long term assets, which are solely comprised of capitalized policy and claims administration system development costs are also stated at cost, net of accumulated depreciation. Expenditures for capitalized policy and claims administration system development costs are capitalized and amortized on a straight line basis over a five-year estimated useful life.

We periodically review all fixed assets and other long term assets that have finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Upon sale or retirement, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is reflected in earnings.

Goodwill

Goodwill represents the excess of consideration paid over the fair value of net assets acquired. Goodwill is not amortized, but is tested at least annually for impairment (or more frequently if certain indicators are present or management otherwise believes it is appropriate to do so). In the event that management determines that the value of goodwill has become impaired, we will record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We determined that there was no impairment as of December 31, 2015.

Commission Expense

Commission expense represents consideration paid by us to insurance agencies for producing business. Services provided by insurance agencies are, in all material respects, provided prior to the issuance or renewal of an insurance policy. With respect to business written for insurance carrier clients who record written premium on the effective date of the policy, we record commission expense on the effective date of the policy based on the estimated total premium for the term of the policy, reduced by an allowance for estimated commission expense that may be returned by the insurance agencies to us due to net reductions in estimated total premium for the term of the policy, principally associated with mid-term policy cancellations. With respect to business written for insurance carrier clients who record written premium as premium is collected, we recognize commission expense as the premium is collected, reduced by an allowance for estimated commission expense that may be returned by the insurance agencies to us due to net returns of premiums previously written and collected. The income effects of subsequent commission expense adjustments are recorded when the adjustments become known.

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Income Taxes

We file consolidated federal income tax returns which include the results of our wholly and majority owned subsidiaries, which became our subsidiaries effective November 27, 2013 or as part of the Patriot Care Management Acquisition effective August 6, 2014. The tax liability of our company and its wholly and majority owned subsidiaries is apportioned among the members of the group in accordance with the portion of the consolidated taxable income attributable to each member of the group, as if computed on a separate return. To the extent that the losses of any member of the group are utilized to offset taxable income of another member of the group, we take the appropriate corporate action to “purchase” such losses. To the extent that a member of the group generates any tax credits, such tax credits are allocated to the member generating such tax credits.

Prior to November 27, 2013, two of our subsidiaries were S Corporations, electing to pass corporate income through to the sole shareholder for federal tax purposes. The then sole shareholder was responsible for reporting his share of the taxable income or loss from such subsidiaries to the Internal Revenue Service. Accordingly, our consolidated statements of operations for the years ended December 31, 2013 and 2012 do not include a provision for federal income taxes attributable to the operations of these subsidiaries for the period from January 1, 2013 to November 27, 2013 or for the year ended December 31, 2012. Effective November 27, 2013, concurrent with the Reorganization, these subsidiaries were converted to C Corporations and their taxable income became subject to U.S. corporate federal income taxes.

Another subsidiary of ours has identified its tax status as a limited liability company, electing to be taxed as a pass through entity. Prior to November 27, 2013, such subsidiary’s members were responsible for reporting their share of the entity’s taxable income or loss to the Internal Revenue Service. Accordingly, our consolidated statements of operations for the years ended December 31, 2013 and 2012 do not include a provision for federal income taxes attributable to this subsidiary’s operations for the period from January 1, 2013 to November 27, 2013 or for the year ended December 31, 2012. Effective November 27, 2013, following the Reorganization, we are responsible for reporting our share of that entity’s taxable income.

Another subsidiary of ours is domiciled in a non-U.S. jurisdiction and, accordingly, is not subject to U.S. federal income taxes. We have no current intention of distributing unremitted earnings of this subsidiary to its U.S. domiciled parent. The cumulative net loss from this foreign subsidiary is approximately $0.3 million. Additionally, we believe that it is not practical to calculate the potential liability associated with such distribution due to the fact that dividends received from this subsidiary could bring additional foreign tax credits, which could ultimately reduce the U.S. tax cost of the dividend, and significant judgment is required to analyze any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings. Accordingly, pursuant to ASC 740 (Tax Provisions), deferred taxes have not been provided for these undistributed foreign earnings in our consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013.

The income tax benefit in our consolidated statements of operations, included elsewhere in this Annual Report on Form 10-K, includes a provision for income taxes attributable to the revenues and expenses associated with the contracts and certain other assets acquired and liabilities assumed in the GUI Acquisition, as if GUI were included in our consolidated federal income tax return.

In determining the quarterly provision for income taxes, management uses an estimated annual effective tax rate based on forecasted annual pre-tax income (loss), permanent tax differences, statutory tax rates and tax planning opportunities in the various jurisdictions in which we operate. The impact of significant discrete items is separately recognized in the periods in which they occur.

Fee Income Receivable and Fee Income Receivable from Related Party

Fee income receivable and fee income receivable from related party are based on contracted prices. We assess the collectability of these balances and adjust the receivable to the amount expected to be collected through an allowance for doubtful accounts. As of December 31, 2015 and 2014, we maintained an allowance for doubtful accounts of approximately $0.3 million and $0.1 million, respectively.

Segment Considerations

We deliver our services to our customers through local offices in each region and financial information for our operations follows this service delivery model. All regions provide brokerage, underwriting and policyholder services as well as claims administration services. ASC 280, Segment Reporting, Section 280-10, establishes standards for the way that public business enterprises report information about operating segments in annual and interim consolidated financial statements. Our internal financial reporting is organized geographically, as discussed above, and managed on a geographic basis, with virtually all of our operating revenue generated within the United States. In accordance with ASC 280-10, multiple product offerings may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the segments have similar economic characteristics, and if the segments are similar in terms of (i) the nature of products and services, (ii) the nature of the production processes, (iii) the type or class of customer for their products and services and (iv) the methods used to distribute their products or provide their services. We believe each of our regional office operations meet these criteria, as each provides similar

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services and products to similar customers using similar methods of production and similar methods to distribute the services and products. Our products and services are generally offered as a complete and comprehensive outsourcing solution to its customers through a production process utilizing an integrated sales channel and technology platform that handles the entire brokerage, underwriting, policyholder services and claim administration services process. The operating results derived from the sale of brokerage and policyholder services and claims administration services are generally not reviewed separately by the our chief operating decision makers for purposes of assessing the performance of each service or making decisions about resources to be allocated to each service. Accordingly, we consider our business to operate in one segment.

Business Combinations

We account for business combinations using the acquisition method of accounting. This method requires the use of fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values become available.

Public Offering Costs

We recognized $1.2 million of expense for public offering costs in the year ended December 31, 2015, reflecting expenses incurred for the proposed secondary offering, which management terminated prior to completion. Costs incurred for the initial public offering were applied to net proceeds in the computation of equity.

Acquisition Costs

Acquisition costs reflect the direct expenses attributable to mergers and acquisitions activities. These include professional services, travel costs, and expenses for incentives paid to executives and key employees associated with completed acquisitions under the Acquisition Incentive Plan.

Advance on Facilitation Agreement

The company paid an advance of $2.0 million concurrent with the execution of a Managing Producer Agreement, for the purpose of initiating additional programs with certain carrier clients. The advance is subject to a clawback provision related to performance under the agreement effective eighteen months from the execution date of October 29, 2015.

Stock Based Compensation

We recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions, over the requisite service period.

Earnings per Share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.  Dilutive potential common shares include detachable common stock warrants, stock-based awards of restricted shares and stock options, and contingent shares attributable to deferred purchase consideration.

JOBS Act

The JOBS Act contains provisions that, among other things, allows an emerging growth company to take advantage of specified reduced reporting requirements. In particular, the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of such extended transition period, and, as a result, we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not emerging growth companies.

Recently Issued Financial Accounting Standards

In February, 2016 The FASB issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing

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equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all organizations. The company is currently reviewing the impact that implementing this ASU will have.

In November 2015, the FASB issued new accounting guidance related to income taxes, which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective for us beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. We plan to adopt the new guidance in 2016, which is not expected to have a material impact on our consolidated financial statements other than reclassifying current deferred tax assets and liabilities to noncurrent in the balance sheet. See Note 16 to our consolidated financial statements for a discussion on income tax balances

In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”, an update to Accounting Standard Codification (“ASC”)Topic 805, Business Combinations.  This update requires that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjusting amounts are determined. The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued.  We will evaluate this guidance as potential adjustments arise.  

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires retrospective application. ASU 2015-03 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2015. We are currently evaluating the financial impact of this standard.

In August 2014, the FASB issued ASU 2014-15 regarding ASC Topic 205, Presentation of Financial Statements – Going Concern. The updated guidance related to determining whether substantial doubt exists about an entity's ability to continue as a going concern. The amendment provides guidance for determining whether conditions or events give rise to substantial doubt that an entity has the ability to continue as a going concern within one year following issuance of the financial statements and requires specific disclosures regarding the conditions or events leading to substantial doubt. The updated guidance is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2016. Earlier adoption is permitted, but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued a deferral of effective date for this standard.  For public companies this standard applies to annual reporting period beginning after December 15, 2017, including interim reporting periods within that reporting period, and early adoption is not permitted. We are currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations”, regarding ASC Topic 205, Presentation of Financial Statements, and ASC Topic 360, Property, Plant and Equipment. The updated guidance related to reporting discontinued operations and disclosures of disposals of components of an entity. Under the amendment, only those disposals of components of an entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results will be reported as discontinued operations in the financial statements. Additionally, the elimination of the component's operations, cash flows

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and significant continuing involvement conditions have been removed. Further, an equity method investment could be reported as discontinued operations. The updated guidance is effective prospectively for all disposals or classifications as held for sale that occur within annual periods beginning after December 15, 2014. The adoption of this guidance has not had a material impact on our consolidated financial statements.

3. Business Combinations

The Company completed seventeen acquisitions during 2015. We acquired substantially all of the net assets of the following companies in cash and stock transactions. These acquisitions have been accounted for using the acquisition method for recording business combinations, except for DecisionUR, as further discussed below.

Name and Effective Date of Acquisition (In thousands):	Cash Paid		Stock Issued		Accrued Liability		Deferred Purchase Consideration		Recorded Earnout Payable		Maximum Potential Earnout Payable		Total Recorded Purchase Price
Phoenix Risk Management, Inc (January 31, 2015)	$	1,099	$	—	$	—	$	—	$	2,435	$	3,000	$	3,534
DecisionUR, LLC (February 5, 2015)		2,240		—		23		—		—		—		2,240
Capital & Guaranty, LLC (February 9, 2015)		175		—		—		—		175		175		350
TriGen Holding Group, Inc (March 31, 2015)		3,340		—		3,364		4,456		1,433		1,500		9,228
Hospitality Supportive Systems, LLC (April 1, 2015)		9,650		—		—		—		—		—		9,650
Selective Risk Management, LLC (April 1, 2015)		3,846		—		—		—		—		—		3,846
Vikaran Solutions, LLC (April 17, 2015)		8,500		—		152		—		—		—		8,500
Corporate Claims Management, Inc (April 24, 2015)		7,900		—		4,434		—		825		1,000		8,725
Candid Investigation Services, LLC (May 8, 2015)		1,184		—		—		—		216		300		1,400
Brandywine Insurance Advisors, LLC   (May 22, 2015)		3,000		—		—		—		220		1,205		3,220
Infinity Insurance Solutions, LLC (June 1, 2015)		1,750		—		100		—		552		650		2,302
InsureLinx, Inc (June 12, 2015)		6,300		—		1,840		—		—		—		6,300
The Carman Corporation (June 15, 2015)		2,000		—		—		—		—		—		2,000
CWI Benefits, Inc (July 9, 2015)		2,480		—		2,061		—		3,400		4,675		5,880
Restaurant Coverage Associates, Inc (August 14, 2015)		750		—		—		—		1,725		1,825		2,475
Risk Control Associates, Inc (August 14, 2015)		250		—		650		—		575		675		825
Global HR Research LLC (August 21, 2015)		28,739		10,898		2,679		1,672		—		—		41,309
Total	$	83,203	$	10,898	$	15,303	$	6,128	$	11,556	$	15,005	$	111,784

The Company acquired DecisionUR from Six Points Investment Partners, LLC, a company under common control.  However, results of operations for DecisionUR are included from acquisition date, as its operations are immaterial with respect to the financial statements taken as a whole for all periods presented.

In connection with the acquisition of Vikaran we also agreed to purchase all of the outstanding stock of Mehta and Pazol Consulting Services Private Limited (“MPCS”), an Indian company which holds Vikaran’s software development center located in Pune, India, for a purchase price of approximately $1.5 million. We consummated the purchase of 51% of the MPCS stock, treated as a deemed dividend for the common control interest contributed by Mr. Mariano.

The “maximum potential earnout payables” disclosed in the foregoing table represent the maximum amount of additional consideration that could be paid pursuant to the terms of the purchase agreement for the applicable acquisition. The “recorded earnout payables” disclosed in the foregoing table are primarily based upon the estimated future operating results of the acquired entities over a one- to three-year period subsequent to the acquisition date.  The recorded earnout payables are measured at fair value as of the acquisition date and are included on that basis in the total recorded purchase price in the foregoing table. We will record subsequent changes in these estimated earnout obligations, including the accretion of discount, in our statement of operations when incurred.

The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement, as discussed further in Note 11, Fair Value of Financial Assets and Liabilities. In determining fair value, we estimated the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability.  We estimated future payments using the earnout formula and performance targets specified in each purchase agreement and these financial projections. We then discounted these payments to present value using a risk-adjusted rate that takes into consideration market-based rates of return that reflect the ability of the acquired entity to achieve the targets. Changes in financial projections, market participant assumptions for revenue growth and/or profitability, or the risk-adjusted discount rate, would result in a change in the fair value of recorded earnout obligations.

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The aggregate amount of maximum earnout obligations related to acquisitions made in 2015, as of December 31, 2015 was $15.0 million, of which $12.4 million was recorded in our consolidated balance sheet as of December 31, 2015, based on the aggregate estimated fair value of the expected future payments to be made. Of the $12.4 million fair value earnout payable on our balance sheet as of December 31, 2015, $11.6 million represents the recorded earnout payable at the time of acquisition, and a $0.8 million increase in the fair value of earnout expensed during the year ended December 31, 2015.  

   The initial purchase price for our acquisition, effective August 21, 2015, of Global HR Research, LLC consisted of (a) $24 million in cash, of which, $0.5 million is held in escrow, (b) 444,096 shares of our common stock (the “Stock Consideration”) of which 349,645 were issued and 94,451 were held in escrow, plus (c) certain deferred consideration payable, at our sole discretion, in either 618,478 shares of our common stock or $10,477,017 in cash (the “Deferred Consideration”). The Deferred Consideration was subsequently paid to In Touch Holdings LLC, one of the former principal stockholders of Global HR, on November 20, 2015 for $5.2 million in cash and 309,239 shares of our common stock, raising “Cash Paid” to $28.7 million and “Stock Issued” to $10.9 million. Additionally, 22,556 shares of the 94,451 shares of stock consideration that were held in escrow have been cancelled as settlement of a working capital reconciliation pursuant to the purchase agreement.  71,895 shares of the stock consideration remain held for issuance on the anniversary of the acquisition. If the revenues for Global HR for its fiscal year 2016 are less than $12.8 million, then In Touch Holdings LLC will forfeit and return 10% of its Stock Consideration and Deferred Stock Consideration to us.

The deferred purchase consideration disclosed in the foregoing table represents non-contingent purchase consideration payable to sellers.  These include $4.5 million payable to a seller of TriGen Holding Group, Inc. on the first anniversary of the effective date, deferred stock consideration of $1.2 million and cash escrow amounts of $0.5 million to sellers of Global HR Research LLC payable on the anniversary of the effective date, all recorded at fair value.

The following is a summary of the aggregate estimated fair values of the net assets acquired at the date of each of the acquisitions made in the nine months ended December 31, 2015:

In thousands	Total
Assets Acquired:
Cash	$	2,316
Restricted cash		6,591
Accounts receivable		4,840
Fixed assets		2,002
Other assets		2,272
Goodwill		56,648
Intangible assets:
Customer & carrier relationships		31,039
Service contracts		320
Non-compete agreements		4,739
Developed technology		13,268
Trade name portfolio		3,029
Total intangible assets		52,395
Total assets acquired		127,064
Liabilities assumed		15,280
Total net assets acquired	$	111,784

The net assets acquired are preliminary and subject to measurement period adjustments.

In accordance with FASB ASC 350, Intangibles—Goodwill and Other, intangible assets, which are comprised of the estimated fair value of the service contracts acquired, customer and carrier relationships, non-compete agreements, developed technology and trade names are being amortized over the respective estimated life, ranging from two to ten years, in a manner that, in management’s opinion, reflects the pattern in which the intangible asset’s future economic benefits are expected to be realized.  Intangible assets are tested for impairment at least annually (more frequently if certain indicators are present). In the event that management determines that the value of the intangible asset has become impaired, the company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

Provisional estimates of fair value and the allocation of the purchase price are established at the time of each acquisition and are subsequently reviewed within the first year of operations, the measurement period, following the acquisition date to determine the necessity for adjustments. The fair value of the tangible assets and liabilities for each applicable acquisition at the acquisition date approximated their carrying values. We estimate the fair value as the present value of the benefits anticipated from ownership of the subject customer list in excess of returns required on the investment in contributory assets necessary to realize those benefits. The rate used to discount the net benefits was based on a risk-adjusted rate that takes into consideration market-based rates of return and reflects the risk of the asset relative to the acquired business. These discount rates generally ranged from 17% to 30% for our 2015

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acquisitions. The fair value of non-compete agreements was established using estimated financial projections for the acquired company based on market participant assumptions and various non-compete scenarios.

Customer and carrier relationships, non-compete agreements and trade names related to our acquisitions are amortized using the straight-line method over their estimated useful lives (ten years for customer and carrier relationships, one to two years for non-compete agreements and five to seven years for trade names), while goodwill is not subject to amortization. We use the straight-line method to amortize these intangible assets. We review all of our intangible assets for impairment periodically (at least annually) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing intangible assets, if the fair value is less than the carrying amount of the respective (or underlying) asset, an indicator of impairment would exist, and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings. Based on the results of impairment reviews during the years ended December 31, 2015 and 2014, no impairments were required.

Our consolidated financial statements for the year ended December 31, 2015 include the operations of the acquired entities from their respective acquisition dates, totaling $36.0 million of revenues and $2.0 million of net loss.

The following is a summary of the unaudited pro forma historical results, as if these entities and the 2014 acquisitions described below had been acquired at January 1, 2014 (in thousands, except per share data):

	For the Year Ended December 31,
In thousands (except per share data)	2015			2014
Total revenues		235,248			197,449
Net (loss) income		(4,260	)		13,545
Basic net (loss) income per share	$	(0.16	)	$	0.86
Diluted net (loss) income per share		(0.16	)		0.86

This unaudited supplemental pro forma financial information includes the results of operations of acquired businesses presented as if they had been combined as of January 1, 2014. The unaudited supplemental pro forma financial information has been provided for illustrative purposes only. The unaudited supplemental pro forma financial information does not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented, or of the results that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following unaudited supplemental pro forma financial information because of future events and transactions, as well as other factors, many of which are beyond the Company’s control.

The Company completed several acquisitions during 2014. These acquisitions have been accounted for using the acquisition method for recording business combinations.

Acquisition of GUI’s Contracts and Certain Other Assets and Assumption of Certain Liabilities

Effective August 6, 2014, the Company acquired (i) all of GUI’s inforce contracts with third party insurance companies and, with respect to the aforementioned producer agreement, Guarantee Insurance and (ii) GUI’s capitalized policy and claims administration system development costs, computer equipment and leasehold improvements for approximately $55.1 million.

Additionally, effective August 6, 2014, the Company entered into an agreement to provide marketing, underwriting and policy issuance services to Guarantee Insurance. Revenues and expenses associated with this agreement are reflected in the accompanying consolidated statement of operation for the years ended December 31, 2015 and 2014.

The total purchase price was comprised of the following consideration (in thousands):

In thousands
Cash	$	30,000
Note receivable from related party, including accrued interest thereon, transferred to GUI		28,821
Certain receivable balances transferred to GUI, net of allowance for uncollectible    fee income receivable of  $2,544		—
Less settlement of amounts payable to GUI		(3,744	)
Total Purchase Price	$	55,077

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Because the Company and GUI are under common control, as discussed in Note 1, the Company recognized the net identifiable assets acquired at GUI’s carrying amounts pursuant to the FASB ASC 805, Business Combinations for all of the periods presented. The carrying amounts of the net identifiable assets acquired were as follows as of August 6, 2014 (in thousands):

In thousands
Capitalized policy and claims administration software development costs	$	13,645
Computer equipment, furniture and fixtures		2,947
Leasehold improvements		2,291
Total fixed assets		18,883
Less accumulated depreciation		(7,444	)
Gross identifiable assets acquired		11,439
Less capital lease obligation assumed, including accrued interest thereon		(5,512	)
Net Identifiable Assets Acquired	$	5,927

The consideration paid in excess of GUI’s carrying amounts for the net assets acquired as of August 6, 2014, which was charged to equity as a deemed dividend, was as follows (in thousands):

In thousands
Total consideration	$	55,077
Less net identifiable assets acquired		(5,927	)
Deemed dividend		49,150
Deferred tax asset		(19,114	)
Valuation allowance		6,258
Net Deemed Dividend	$	36,294

In connection with the GUI acquisition on August 6, 2014, the Company recognized a deferred tax asset of approximately $19.1 million associated with the purchased intangibles related to the GUI contracts and a valuation allowance of $6.3 million as of, which fully offsets the deferred tax asset in excess of total deferred tax liabilities. Pursuant to FASB ASC 805, Business Combinations, we reduced the deemed dividend by $12.9 million, commensurate with the reduction in valuation allowance, to recognize the updated information obtained about the fair value of assets acquired and liabilities assumed in acquisitions.

In connection with the acquisition, on August 6, 2014, the Company amended the loan agreement (the “PennantPark Loan Agreement”) originally entered into on November 27, 2013, with PennantPark Investment Corporation and certain of its affiliates (collectively, the “PennantPark Entities”), as described more fully in Note 7.

Merger of SPV2 with and into Patriot Care, Inc. and Acquisition of PCM

Merger of SPV2 with and into Patriot Care, Inc.

Effective August 6, 2014, SPV2, which owned the MCMC Units, was merged with and into Patriot Care, Inc., a subsidiary of the Company. Patriot Care, Inc. continued as the surviving corporation.

Because Patriot Care, Inc. and SPV2 were under common control, Patriot Care, Inc. recognized the net identifiable assets acquired at SPV2’s carrying amounts as of the acquisition date pursuant to the FASB ASC 805, Business Combinations. The net identifiable assets acquired, which had a carrying value of approximately $7.7 million, were solely comprised of SPV2’s investment in the MCMC Units issued by MCMC Holdings, LLC, the privately held parent company of MCMC, LLC from which the Company acquired MCRS Holdings, Inc. on August 6, 2014. SPV2 had no liabilities, revenues or expenses. Accordingly, SPV2’s transaction was deemed to be an asset acquisition.

Total consideration paid by Patriot Care, Inc. for 100% of the outstanding common shares of SPV2 was $20.0 million, comprised of (i) 3,043,485 shares of the Company’s common stock with a fair value of $19.5 million issued to the stockholders of SPV2 and (ii) approximately $471,000 in cash. The fair value of the common stock issued by the Company to SPV2 stockholders and the cash consideration was based on a preliminary estimated valuation of the 3,043,485 shares of the Company’s common stock, made by the board of directors of the Company in consultation with the Company’s management.

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The consideration paid in excess of SPV2’s carrying amounts for the net assets acquired as of August 6, 2014, which was charged to equity as a deemed dividend, was as follows (in thousands):

In thousands
Total consideration	$	19,971
Less net identifiable assets acquired		(7,721	)
Deemed dividend	$	12,250

Simultaneous with the merger of SPV2 with and into Patriot Care, Inc., the Company, through Patriot Care, Inc., acquired 100% of the outstanding common stock of MCRS Holdings, Inc., a managed care services company, for approximately $77.4 million. The purchase price was comprised of $52.5 million in cash upon closing, and $3.3 million of working capital adjustments payable to the sellers and the redemption of the MCMC Units to MCMC Holdings, LLC, the ultimate parent of MCRS Holdings, Inc. The Company attributed a fair value of $21.6 million to the MCMC Units. The fair value of the MCMC Units was determined by management based on the sum of (1) the fair value of MCMC Holdings, LLC pursuant to a stock purchase agreement entered into between MCMC Holdings, LLC and a third party acquirer on October 21, 2014, multiplied by the percentage of MCMC Holdings, LLC represented by the MCMC Units redeemed by the Company pursuant to the acquisition of PCM and (2) the total purchase price for MCRS Holdings, Inc. of approximately $77.4 million multiplied by the same percentage of MCMC Holdings, LLC represented by the MCMC Units redeemed by the Company pursuant to the acquisition of PCM. The sale of MCMC Holdings, LLC to the third party acquirer, which was consummated effective December 2, 2014, was a 100% consideration arms-length transaction with an unrelated third party for 100% of outstanding membership units of MCMC Holdings, LLC subsequent to the Company’s acquisition of MCRS Holdings, Inc. Accordingly, management deemed the above method of assessing the fair value of the MCMC Units as reasonable under the circumstances.

The excess of the $21.6 million fair value of the MCMC Units over the $7.7 million carrying value, or approximately $13.9 million, is included in net realized gains from investments in the accompanying combined statement of operations for the year ended December 31, 2014.

Upon the acquisition, MCRS Holdings, Inc. was renamed PCM.

Revenues and expenses prior to August 6, 2014 are not reflected in the Company’s financial results included herein.

The acquisition of PCM was accounted for by application of the acquisition method as required by FASB ASC 805, Business Combinations. Pursuant to FASB ASC 805, Business Combinations, assets acquired and liabilities assumed are generally recorded at their fair values as of the effective date of the acquisition. The fair values of identifiable tangible assets acquired and liabilities assumed were approximately equal to book values. The estimated fair value of the customer contracts acquired from MCRS Holdings, Inc. was recorded as an identifiable intangible asset, and the associated deferred tax liability was recorded as an identifiable liability.

The fair value of net identifiable tangible and intangible assets, as of the acquisition date, was as follows (in thousands):

In thousands
Cash	$	912
Fee income receivable		413
Fee income receivable from related party		3,142
Income tax recoverable		186
Deferred tax asset		967
Other assets		572
Total Current Assets		6,192
Fixed assets, net		99
Intangible assets		34,800
Total Assets		41,091
Accounts payable and accrued expenses		(1,309	)
Deferred tax liability		(13,920	)
Net Identifiable Assets Acquired	$	25,862

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Goodwill as of August 6, 2014, recognized as a result of the acquisition, was as follows (in thousands):

In thousands
Total consideration	$	77,402
Less net identifiable assets acquired		(25,862	)
Goodwill	$	51,540

4.    Equity and Fixed Income Securities

Equity and fixed income security investments are carried at fair value.  We classify these investments as a trading portfolio with changes to the fair value of investments marked-to-market value and reflected in the aggregate net income or loss for the period incurred.  The trading portfolio is utilized to generate investment income with available cash on hand.

As of December 31, 2015, our major classes of investments consisted of the following:

	As of December 31, 2015
In thousands	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
Equity and Fixed Income Security Investments
Common and preferred stocks	$	429	$	—	$	(45	)	$	384
Corporate notes and bonds		2,939		—		(150	)		2,789
Total	$	3,368	$	—	$	(195	)	$	3,173

There were no investments as of December 31, 2014.

5. Fixed Assets and Other Long Term Assets

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation and amortization. Expenditures for computer equipment, software, and furniture and fixtures are capitalized and depreciated on a straight-line basis over a five, three, and seven year estimated useful lives, respectively. Expenditures for building are capitalized and depreciated on a straight-line basis over a thirty-nine year estimated useful life. Expenditures for leasehold improvements on office space and facilities are capitalized and amortized on a straight-line basis over the term of the lease.

As of December 31, 2015 and 2014, major classes of fixed assets consist of the following (in thousands):

	As of December 31,
In thousands	2015			2014
Fixed Assets
Computer equipment, software and furniture and fixtures	$	8,124		$	5,722
Building		1,428			-
Leasehold improvements		3,733			2,545
Total fixed assets		13,285			8,267
Less accumulated depreciation and amortization		(8,193	)		(6,388	)
Fixed assets, net of accumulated depreciation and amortization	$	5,092		$	1,879

Other Long Term Assets

Other long term assets, which are solely comprised of capitalized policy and claims administration system development costs, are also stated at cost, net of accumulated depreciation. Expenditures for capitalized policy and claims administration system development costs are capitalized and depreciated on a straight line basis over a five-year estimated useful life.

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As of December 31, 2015 and 2014, other long term assets consisted of the following (in thousands):

	As of December 31,
In thousands	2015			2014
Other long term assets
Capitalized policy and claims administration system development costs	$	17,712		$	13,093
Less accumulated depreciation		(6,284	)		(3,251	)
Other long term assets, net of accumulated depreciation	$	11,428		$	9,842

We periodically review all fixed assets and other long term assets that have finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Upon sale or retirement, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is reflected in earnings.

6. Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of consideration paid over the fair value of net assets acquired. Goodwill is not amortized, but is tested at least annually for impairment (or more frequently if certain indicators are present or management otherwise believes it is appropriate to do so). In the event that management determines that the value of goodwill has become impaired, we will record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We determined that there was no impairment required as of December 31, 2015.

The Company acquired $56.6 million of goodwill during the year ended December 31, 2015 as a result of the seventeen acquisitions discussed in Note 3, Business Combinations. The company acquired $51.5 million of Goodwill in 2014 as a result of the acquisition of Patriot Care, Inc. There were no Goodwill impairments for the years ended December 31, 2015 or 2014. Changes in goodwill are summarized as follows:

	As of December 31,
In thousands	2015		2014
Goodwill
Balance at January 1, 2015 and 2014	$	61,493	$	9,953
Goodwill acquired during the year		56,648		51,540
Balance as of December 31, 2015 and 2014	$	118,141	$	61,493

Intangible Assets

Intangible assets that have finite lives are amortized over their useful lives. The company acquired $52.4 million of intangible assets during the year ended December 31, 2015 as a result of the seventeen acquisitions discussed in Note 3, Business Combinations. The intangible assets, their original fair values, and their net book values are detailed below as of the dates presented:

	December 31, 2015							December 31, 2014
In thousands	Gross Asset		Accumulated Amortization			Net Asset		Gross Asset		Accumulated Amortization			Net Asset
Intangible Assets
Service contracts	$	35,120	$	(6,204	)	$	28,916	$	34,800	$	(1,812	)	$	32,988
Customer and carrier relationships		31,039		(1,947	)		29,092		—		—			—
Non-compete agreements		4,739		(1,505	)		3,234		—		—			—
Developed technology		13,268		(1,647	)		11,621		—		—			—
Trade names		3,029		(211	)		2,818		—		—			—
Total	$	87,195	$	(11,514	)	$	75,681	$	34,800	$	(1,812	)	$	32,988

As of December 31, 2015 the table below is the estimated amortization expense for the Company’s intangible assets for each of the next five years and thereafter:

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In thousands	December 31, 2015
Amortization expense
2016	$	12,953
2017		11,438
2018		10,599
2019		10,599
2020		8,958
Thereafter		21,134
Total	$	75,681

7. Notes Payable and Lines of Credit

Notes payable, including accrued interest thereon, were comprised of the following (in thousands):

	As of December 31,
In thousands	2015			2014
BMO Senior Secured Term Loans	$	106,500		$	—
PennantPark Loan Agreement		—			63,285
UBS Credit Agreement		—			56,288
Gross Notes Payable and Current Portion of Notes Payable		106,500			119,573
Less original issue discount		—			(3,085	)
Less value attributable to stock warrants		—			(5,667	)
Notes Payable and Current Portion of Notes Payable		106,500			110,821
Less current portion of notes payable		(5,500	)		(15,782	)
Notes Payable	$	101,000		$	95,039

Senior Secured Credit Facility

On January 22, 2015, we entered into a Credit Agreement with BMO Harris Bank N.A., as administrative agent (the “Administrative Agent”), and the other lenders party thereto, which provides for a $40.0 million revolving credit facility and a $40.0 million term loan facility (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility has a maturity of five years, and borrowings thereunder bear interest, at our option, at LIBOR plus a margin ranging from 250 basis points to 325 basis points or at base rate plus a margin ranging from 150 basis points to 225 basis points. Margins on all loans and fees will be increased by 2% per annum during the existence of an event of default. The revolving credit facility includes borrowing capacity available for letters of credit and borrowings on same-day notice, referred to as swing line loans. At any time prior to maturity, we have the right to increase the size of the revolving credit facility or the term loan facility by an aggregate amount of up to $20.0 million, but in minimum increments of $5.0 million. As of June 30, 2015, we increased the term loan facility by $20.0 million through two $10.0 million incremental term loans.  Additionally, on August 14, 2015, we entered into a second amendment to our Senior Secured Credit Facility (the “Second Amendment”) which provides for an additional $50.0 million of term loans plus the ability to increase the term loan by and additional $50.0 million under certain conditions.  The Second Amendment also added a requirement that until we deliver a certificate certifying that (a) our total leverage ratio is equal to or less than 2.25 to 1.00 and (b) our Adjusted EBITDA for the twelve-months then ended is at least $70.0 million, the outstanding revolving loans (plus any swing line loans and the aggregate stated amount of all letters of credit) shall not exceed $30.0 million.  On December 23,2015 we entered into a third amendment, which permits Patriot to exercise the provisions of the Rescission and Exchange Agreement for the private placement of company stock and warrants, and related Back-to-Back Agreement with the selling shareholder, as described in Related Party transactions. On March 3, 2016, we entered into a fourth amendment, which permits Patriot to repurchase shares of its outstanding common stock pursuant to certain volume and timing limitations. All other material terms and conditions in the Senior Secured Credit Facility were unchanged by the amendments.

As of December 31, 2015, the outstanding balance under our Senior Secured Credit Facility was $124.5 million (comprised of $106.5 million outstanding under the term loan facility and $18.0 million outstanding under the revolving credit facility). Accordingly, we had $22.0 million available to borrow under the revolving credit facility.

In addition to paying interest on outstanding principal under the Senior Secured Credit Facility, we are required to pay a commitment fee to the Administrative Agent for the ratable benefit of the lenders under the revolving credit facility in respect of the unutilized commitments thereunder, ranging from 35 basis points to 50 basis points, depending on specified leverage ratios. With respect to letters of credit, we are also required to pay a per annum participation fee equal to the applicable LIBOR margin on the face amount of each letter of credit as well as a fee equal to 0.125% on the face amount of each letter of credit issued (or the term of which

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is extended). This latter 0.125% fee is payable to the issuer of the letter of credit for its own account, along with any standard documentary and processing charges incurred in connection with any letter of credit.

The term loan facility amortizes quarterly beginning the first full quarter after the closing date at a rate of 5% per annum of the original principal amount during the first two years, 7.5% per annum of the original principal amount during the third and fourth years and 10% per annum of the original principal amount during the fifth year, with the remainder due at maturity. Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity. In the event of any sale or other disposition by us or our subsidiaries guaranteeing the Senior Secured Credit Facility (as described below) of any assets with certain exceptions, we are required to prepay all proceeds received from such a sale towards the remaining scheduled payments of the term loan facility.

Additionally, all obligations under the Senior Secured Credit Facility (as described below) are guaranteed by all of our existing and future subsidiaries, other than foreign subsidiaries to the extent the assets of such foreign subsidiaries do not exceed 5% of our and our subsidiaries’ total assets on a consolidated basis, and secured by a first-priority perfected security interest in substantially all of our and our guaranteeing subsidiaries’ tangible and intangible assets, whether now owned or hereafter acquired, including a pledge of 100% of the stock of each guarantor.

The Senior Secured Credit Facility contains certain covenants that, among other things and subject to significant exceptions, limit our ability and the ability of our restricted subsidiaries to engage in certain business and financing activities and that require us to maintain certain financial covenants, including requirements to maintain (i) a maximum total leverage ratio of total outstanding debt to adjusted EBITDA for the most recently-ended four fiscal quarters of no more than 300% and (ii) a minimum fixed charge coverage ratio of adjusted EBITDA to the sum of cash interest expense (which amount shall be calculated on an annualized basis for the three-, six-, and nine-month periods ended March 31, 2015, June 30, 2015 and September 30, 2015) plus income tax expense (or less any income tax benefits) plus capital expenditures plus dividends, share repurchases and other restricted payments plus regularly scheduled principal payments of debt for the same period of a least 150% for the most recently ended four quarters. The Senior Secured Credit Facility allows us to pay dividends in an amount up to 50% of our net income if certain other financial conditions are met.

The Senior Secured Credit Facility contains other restrictive covenants, including those regarding: indebtedness (including capital leases) and guarantees; liens; operating leases; investments and acquisitions; loans and advances; mergers, consolidations and other fundamental changes; sales of assets; transactions with affiliates; no material changes in nature of business; dividends and distributions, stock repurchases, and other restricted payments; change in name, jurisdiction of organization or fiscal year; burdensome agreements; and capital expenditures.

The Senior Secured Credit Facility also has events of default that may result in acceleration of the borrowings thereunder, including: (i) nonpayment of principal, interest, fees or other amounts (subject to customary grace periods for items other than principal); (ii) failure to perform or observe covenants set forth in the loan documentation (subject to customary grace periods for certain affirmative covenants); (iii) any representation or warranty proving to have been incorrect in any material respect when made; (iv) cross-default to other indebtedness and contingent obligations in an aggregate amount in excess of an amount to be agreed upon; (v) bankruptcy and insolvency defaults (with grace period for involuntary proceedings); (vi) inability to pay debts; (vii) monetary judgment defaults in excess of an agreed upon amount; (viii) ERISA defaults; (ix) change of control; (x) actual invalidity or unenforceability of any loan document, any security interest on any material portion of the collateral or asserted (by any loan party) invalidity or unenforceability of any security interest on any collateral; (xi) actual or asserted (by any loan party) invalidity or unenforceability of any guaranty; (xii) material unpaid, final judgments that have not been vacated, discharged, stayed or bonded pending appeal within a specified number of days after the entry thereof; and (xiii) any other event of default agreed to by us and the Administrative Agent.

As of December 31, 2015, we were in compliance with the financial and other restrictive covenants under our outstanding material debt obligations, including our Senior Secured Credit Facility.

Repayment of UBS Credit Agreement

On August 6, 2014, in connection with the Patriot Care Management Acquisition, we and certain of our subsidiaries entered into a credit agreement with UBS Securities LLC (the “UBS Credit Agreement”), which provided for a five-year term loan facility in an aggregate principal amount of $57.0 million that would mature on August 6, 2019. The loan was secured by the common stock of Patriot Care Management and guaranteed by Guarantee Insurance Group and its wholly owned subsidiaries. Following our initial public offering (the “IPO”),  on January 22, 2015 we prepaid all outstanding borrowings under the UBS Credit Agreement, including accrued interest and applicable prepayment premium. This instrument was repaid in full upon closing on the Senior Secured Credit Facility.

Repayment of PennantPark Loan Agreement

On August 6, 2014, in connection with the GUI Acquisition, we and certain of our subsidiaries, as borrowers, and certain of our other subsidiaries and certain affiliated entities, as guarantors, entered into a loan agreement with the PennantPark Entities as lenders (the “PennantPark Loan Agreement”). Following our IPO, we prepaid all outstanding borrowings under the PennantPark Loan Agreement, including accrued interest and applicable prepayment premium. This instrument was repaid in full on January 22, 2015 upon closing on the Senior Secured Credit Facility.

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8. Capital Lease Obligations

Equipment subject to capital lease is comprised of computer equipment related to capitalized policy and claims administration software development. Monthly payments on the capital lease, which expires on December 3, 2016, were approximately $206,000 as of December 31, 2015. Payments may be adjusted in connection with a change in the interest rate swap rate quoted in the Bloomberg Swap Rate Report. The Company’s obligations for future payments on the capital lease as of December 31, 2015, based on the interest rate swap rate in effect on that date, are as follows:

In thousands	Principal		Interest		Total
Payments on Capital Lease
2016		2,232		43		2,275
Total	$	2,232	$	43	$	2,275

9. Earnings Per Share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include detachable common stock warrants, stock-based awards of restricted shares and stock options, and contingent shares attributable to deferred purchase consideration.

The components of basic and diluted EPS are as follows:

	For the Year Ended December 31,
In thousands (except earnings per share)	2015			2014		2013
Basic net earnings (loss) per share
Net income (loss) available to common shareholders	$	(5,375	)	$	10,414	$	(6,186	)
Weighted average number of common shares outstanding		26,425			15,754		14,288
Basic net earnings (loss) per share	$	(0.20	)	$	0.66	$	(0.43	)
Diluted net earnings (loss) per share
Net income (loss) available to common shareholders	$	(5,375	)	$	10,414	$	(6,186	)
Adjustments to net income (loss) applicable to dilutive shares		—			—		—
Net earnings (loss) attributable to diluted shares	$	(5,375	)	$	10,414	$	(6,186	)
Weighted average number of common shares outstanding		26,425			15,754		14,288
Dilutive effect of warrants, options, and restricted shares   using the treasury stock method		—			—		—
Weighted average number of common and common equivalent shares   outstanding		26,425			15,754		14,288
Diluted net earnings (loss) per share	$	(0.20	)	$	0.66	$	(0.43	)

Basic earnings per share is based on weighted average shares outstanding and excludes dilutive effects of detachable common stock warrants and stock options. Diluted earnings per share assumes the exercise of all detachable common stock warrants and stock options using the treasury stock method.  Due to the net loss of $5.4 million reported for the year ended December 31, 2015, weighted average outstanding equity grants representing 215,865 shares of common stock and weighted average warrants representing 10,685 shares of common stock were not dilutive.  As a result, basic and diluted earnings per share both reflect a net loss of $0.20 per share for the year ended, December 31, 2015. Due to $1.8 million expense resulting from the increase in fair value of warrants for the year ended December 31, 2014, weighted average outstanding detachable common stock warrants representing 1,109,445 shares of common stock outstanding were not dilutive. Due to a net loss for the year ended December 31, 2013 weighted average outstanding detachable common stock warrants representing 646,949 shares of common stock outstanding were not dilutive.

10. Stock-Based Compensation

Omnibus Incentive Plan

On January 15, 2015, the Board of Directors approved the Patriot National 2014 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), subject to and with effect upon approval of such plan by the stockholders of the Company.

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The Compensation Committee of our Board of Directors determines the participants under the Omnibus Incentive Plan. The Omnibus Incentive Plan provides for non-qualified and incentive stock options, restricted stock and restricted stock units, any or all of which may be made contingent upon the achievement of performance criteria. Subject to the Omnibus Incentive Plan limits, the compensation committee has the discretionary authority to determine the size of an award and on May 11, 2015 delegated the authority to Steven Mariano, our President, to award grants to Non-Section 16 officers without the consent of the Compensation Committee.

Shares of our common stock available for issuance under the Omnibus Incentive Plan include authorized and unissued shares of common stock or authorized and issued shares of common stock reacquired and held as treasury shares or otherwise, or a combination thereof. The number of available shares is reduced by the aggregate number of shares that become subject to outstanding awards granted under the Omnibus Incentive Plan. To the extent that shares subject to an outstanding award granted under either the Omnibus Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of such award in cash, then such shares will again be available for grant under the Omnibus Incentive Plan. Shares withheld to satisfy tax withholding requirements upon the vesting of awards other than stock options will also be available for grant under the Omnibus Incentive Plan. Shares that are used to pay the exercise price of an option, shares delivered to or withheld by us to pay withholding taxes related to stock options, and shares that are purchased on the open market with the proceeds of an option exercise, may not again be made available for issuance.

Stock Options

In the twelve months ended December 31, 2015, we issued stock options as incentive compensation for officers and certain key employees. The exercise price of each stock option is the closing market price of our common stock on the date of grant. The options will vest in three equal annual installments on the first, second and third anniversaries of grant and expire 10 years after the grant date. The fair values of these stock options were estimated using the Black-Scholes valuation model with the following weighted-average assumptions:

	Year Ended December 31,
In thousands	2015
Expected dividend yield		0	%
Risk-free interest rate (1)		0.49	%
Expected volatility (2)		33.02	%
Expected life in years (3)		3.0

(1) The risk-free interest rate for the periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant.

(2) The expected volatility is a measure of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data.

(3) The expected life is the period of time, on average, that participants are expected to hold their options before exercise based primarily on our historical data.

For the twelve months ended December 31, 2015, we awarded 1,377,848 options, of which 173,139 were forfeited, leaving 1,204,709 outstanding.  As of December 31, 2015, there were 39,706 options that were exercisable with an average exercisable price of $14.00 and unvested options of 1,165,003. At December 31, 2015 the intrinsic value of these options was $0.0.

Option activity for the twelve months ended December 31, 2015 was as follows:

In thousands, except weighted-average price and remaining contractual term	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding at December 31, 2014		—		$	—
Options granted		1,378		$	14.47
Options exercised		—		$	—
Options cancelled or forfeited		(173	)	$	14.90
Options outstanding at December 31, 2015		1,205		$	14.41		9.2	$	—
Options expected to vest at December 31, 2015		1,205		$	14.41		9.2	$	—
Options exercisable at December 31, 2015		40		$	14.00		9.2	$	—

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As of December 31, 2015, we recognized $1.7 million of stock compensation expense associated with these options, and there was $1.9 million of total unrecognized stock compensation cost related to unvested stock options that is expected to be recognized over a period of 3 years.

Restricted Stock Awards

For the twelve months ended December 31, 2015, we issued 907,919 restricted share awards as incentive compensation for officers, directors, and certain key employees. Subsequent to issuance, 43,052 restricted shares were forfeited and 310,652 were settled leaving 554,215 remaining restricted shares outstanding as of December 31, 2015.  The fair value of outstanding restricted shares at December 31, 2015 was $3.7 million.

Grants of restricted shares for the twelve months ended December 31, 2015 were as follows:

In thousands, except weighted-average fair value price	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested restricted shares outstanding at December 31, 2014		—		$	—
Restricted shares granted		908		$	14.41
Restricted shares vested		(311	)	$	14.00
Restricted shares forfeited		(43	)	$	14.59
Unvested restricted shares outstanding as of December 31, 2015		554		$	14.63

As of December 31, 2015, we recognized $7.9 million of stock compensation expense associated with these restricted shares, and there was $4.3 million of total unrecognized stock compensation cost related to unvested restricted stock to be recognized over a period of 2.3 years.

Restricted Stock Units

During the twelve months ended December 30, 2015, we issued 200,490 restricted stock units.  Of those issued, 31,560 were subsequently forfeited, resulting in 168,930 restricted stock units outstanding as of December 31, 2015. The fair value of these awards at December 31, 2015 was $1.1 million.  During the twelve months ended December 31, 2015, we recognized $1.1 million of stock compensation expense associated with these restricted stock units. Unrecognized stock compensation expense associated with RSUs is $1.3 million and will be recognized over the remaining contractual lives of these awards of 2.3 years.

In thousands, except weighted-average fair value price	Number of Shares			Weighted-Average Grant-Date Fair Value
Unvested restricted stock units outstanding at December 31, 2014		—		$	—
Restricted stock units granted		200		$	14.96
Restricted stock units vested		—		$	—
Restricted stock units forfeited		(31	)	$	14.70
Unvested restricted stock units outstanding as of December 31, 2015		169		$	15.03

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11. Fair Value Measurement of Financial Assets and Liabilities

With respect to the Company’s financial assets, which include equity and fixed income security investments and forward purchase assets, and financial liabilities, which include acquisition earnouts, deferred purchase consideration, and warrant redemption liability, the Company has adopted current accounting guidance which establishes the authoritative definition of fair value, establishes a framework for measuring fair value, creates a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. This guidance defines fair value as the price that would be paid to warrant redemption liability in an orderly transaction between market participants at the measurement date.  As required under current accounting guidance, the Company has identified and disclosed its financial assets in a fair value hierarchy, which consists of the following three levels:

		Definition
Level 1	Observable unadjusted quoted prices in active markets for identical securities.
Level 2	Observable inputs other than quoted prices in active markets for identical securities, including:
	(i)	quoted prices in active markets for similar securities.
	(ii)	quoted prices for identical or similar securities in markets that are not active.
	(iii)	inputs other than quoted prices that are observable for the security (e.g., interest rates, yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates).
	(iv)	inputs derived from or corroborated by observable market data by correlation or other means.
Level 3	Unobservable inputs, including the reporting entity’s own data, as long as there is no contrary data indicating market participants would use different assumptions.

The Company’s equity and fixed income security investments and forward purchase assets for which carrying values were equal to fair values, classified by level within the fair value hierarchy, were as follows as of December 31, 2015:

	Fair Value Measurement, Using
December 31, 2015 (in thousands)	Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Common and preferred stocks	$	384	$	—	$	—	$	384
Corporate notes and bonds		2,789		—		—		2,789
Forward purchase asset		—		—		28,120		28,120
Total	$	3,173	$	—	$	28,120	$	31,293

The forward purchase asset is maintained at equal value to the Series A and B Warrants, as created by the Back-to-Back Agreement with the selling stockholder. There were no equity and fixed income security investments or forward purchase assets as of December 31, 2014.

The following is a reconciliation of the fair value of the Company’s financial assets that were measured using significant unobservable (Level 3) inputs:

Year Ended December 31, 2015 (in thousands)	Forward Purchase Asset
Fair value, January 1, 2015	$	—
Record fair value of forward purchase asset		27,300
Record increase in fair value of forward purchase asset		820
Fair Value, December 31, 2015	$	28,120

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The Company’s earnout payable on acquisitions, deferred purchase consideration, and warrant redemption liability, for which carrying values were equal to fair values, classified by level within the fair value hierarchy, were as follows as of December 31, 2015 and 2014:

	Fair Value Measurement, Using
December 31, 2015 (in thousands)	Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Earnout payable on acquisitions	$	—	$	—	$	12,383	$	12,383
Deferred purchase consideration		—		—		6,128		6,128
Warrant redemption liability		—		—		28,120		28,120
Total	$	—	$	—	$	46,631	$	46,631
	Fair Value Measurement, Using
December 31, 2014 (in thousands)	Quoted Prices in Active Markets for Identical Securities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Earnout payable on acquisitions	$	—	$	—	$	—	$	—
Deferred purchase consideration		—		—		—		—
Warrant redemption liability		—		—		12,879		12,879
Total	$	—	$	—	$	12,879	$	12,879

The following is a reconciliation of the fair value of the Company’s financial liabilities that were measured using significant unobservable (Level 3) inputs:

Year Ended December 31, 2015 (in thousands)	Earnout Payable			Deferred Purchase Consideration			Warrant Redemption Liability			Total
Fair value, January 1, 2015	$	—		$	—		$	12,879		$	12,879
Record present value earnout payable    on acquisitions		18,808			—			—			18,808
Increase in fair value of earnout payable		827			—			—			827
Earnout payments made		(7,252	)		—			—			(7,252	)
Record deferred purchase consideration    on acquisitions		—			15,762			—			15,762
Payments made on deferred purchase    consideration		—			(9,634	)		—			(9,634	)
Exercise of PennantPark warrants		—			—			(9,995	)		(9,995	)
Decrease in fair value of PennantPark    warrant redemption liability		—			—			(1,385	)		(1,385	)
Contribute remaining Pennant Park liability    due to equity warrants		—			—			(1,499	)		(1,499	)
Record fair value of Series A and B    warrant liability		—			—			27,300			27,300
Record increase in fair value of    Series A and B warrant liability		—			—			820			820
Fair Value, December 31, 2015	$	12,383		$	6,128		$	28,120		$	46,631

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Year Ended December 31, 2014 (in thousands)	Earnout Payable		Deferred Purchase Consideration		Warrant Redemption Liability		Total
Fair value, January 1, 2014	$	—	$	—	$	6,934	$	6,934
Warrants subject to redemption liability issued		—		—		4,122		4,122
Increase in fair value of common stock  and warrant    redemption liability		—		—		1,823		1,823
Fair Value, December 31, 2014	$	—	$	—	$	12,879	$	12,879

12. Related Party Transactions

Relationship and Transactions with Guarantee Insurance Group and Guarantee Insurance

As of March 14, 2016 Steven M. Mariano, our founder, Chief Executive Officer and Chairman, beneficially owned 53.8% of the outstanding shares of our common stock and substantially all of the outstanding equity of Guarantee Insurance Group. As a result, our transactions with Guarantee Insurance Group and its subsidiaries, including Guarantee Insurance and GUI, are related party transactions. Mr. Mariano received dividends of $3.5 million from Guarantee Insurance Group in 2015.

Service Fees Received from Guarantee Insurance

We provide brokerage and policyholder services and claims administration services to Guarantee Insurance pursuant to the Services Agreements and the Program Administrator Agreement. See “Business—Clients—Guarantee Insurance Company.” We have been providing a full range of brokerage and policyholder services to Guarantee Insurance pursuant to the Program Administrator Agreement since August 6, 2014.

Pursuant to the Services Agreements, we provide our services in connection with claims arising out of insurance policies held or underwritten by Guarantee Insurance. The Services Agreements have various terms and expiration dates ranging from 2018 to 2022, unless otherwise extended or earlier terminated as provided therein. The fees we receive are based, depending on the service provided, upon a percentage of reference premium, flat monthly fees, hourly fees or the savings we achieve, among others.

Pursuant to Program Administrator Agreement, we act as Guarantee Insurance’s exclusive general agent for the purpose of underwriting, issuing and delivering insurance contracts in connection with Guarantee Insurance’s workers’ compensation insurance program. The agreement with Guarantee Insurance remains in effect until terminated by either party upon 180 days’ prior written notice to the other party for cause. Guarantee Insurance may also terminate the agreement, in whole or in part, immediately upon written notice to us in the event of our insolvency or bankruptcy, systematic risk-binding that is not in compliance with the applicable underwriting guidelines or procedures and the occurrence of certain other events. The fees we receive are based upon premiums written for each account bound with Guarantee Insurance.

A portion of the fees that we receive from Guarantee Insurance pursuant to the Services Agreements and the Program Administrator Agreement are for Guarantee Insurance’s account (which we recognize as “fee income from related party”) and a portion of the fees are for the account of reinsurance captive entities to which Guarantee Insurance has ceded a portion of its written risk (which we recognize as “fee income”). See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Principal Components of Financial Statements—Revenue.” As a result, a substantial portion of fee income we recognize from non-related parties is nevertheless derived from our relationship with Guarantee Insurance. For the year ended December 31, 2015, we recognized $144.1 million in total fee income and fee income from related party derived from our contracts and relationships with Guarantee Insurance, and our fee income from related party was $86.9 million. Our total fee income and fee income from related party pursuant to contracts with Guarantee Insurance and our fee income from related party constituted 69% and 41%, respectively, of our total fee income and fee income from related party for the year ended December 31, 2015.

Our prices by customer for our brokerage and policyholder services and claims administration services were unchanged for the years ended December 31, 2015 and 2014, and, accordingly, the net increase in fee income was solely related to changes in the volume of business we managed.

Because fee income from related party for claims administration services is based on the net portion of claims expense retained by Guarantee Insurance, as described in Note 13, Concentration, the Company’s revenues attributable to contracts with Guarantee Insurance do not necessarily represent fee income from related party.

Fee income from related party for the year ended December 31, 2015 was $86.9 million compared to $46.9 million for the year ended December 31, 2014.

Fee income receivable from related party was $27.0 million as of December 31, 2015, and $12.0 million at December 31, 2014.  

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During the year ended December 31, 2015, Patriot completed and amended agreements between its operating subsidiaries and Guarantee Insurance Company in the normal course of business.  These include an agreement and subsequent amendments to the agreement effective January 1, 2015 between Guarantee and Patriot Care Management regarding fees for medical bill review services, and agreements between Guarantee and Patriot Underwriters regarding fees for premium audit services and commission expenses for policy production.

Rent, Administrative and Management Fees Paid to Guarantee Insurance Group

For the year ended December 31, 2014, approximately $1.9 million was paid to Guarantee Insurance Group pursuant to an expense reimbursement agreement dated January 1, 2012, as amended and restated from time to time. We reimbursed Guarantee Insurance Group for rent and certain corporate administrative services costs incurred on our behalf for such costs and are reflected as “allocation of marketing, underwriting and policy issuance costs from related party” in our combined statements of operations.

In addition, pursuant to a management services agreement with Guarantee Insurance Group dated January 1, 2012, we paid management fees to Guarantee Insurance Group for management oversight, legal, accounting, human resources and technology support services provided to us. For the year ended December 31, 2014, approximately $5.4 million was paid to Guarantee Insurance Group for such services and are reflected as “management fees paid to related party for administrative support services” in our combined statements of operations.

Our administrative functions have been separated from Guarantee Insurance, the expense reimbursement and management services agreements have been terminated, and such expenses are being incurred directly by us from August 6, 2014, including through a sublease agreement with Guarantee Insurance Group, as described below.

Equipment Lease

Effective August 6, 2014, in connection with the GUI Acquisition, Guarantee Insurance Group assigned to us its rights, and we assumed its obligations under, the master equipment lease agreement, dated as of December 3, 2013, by and among Fifth Third Bank, as lessor, and Guarantee Insurance Group and Mr. Mariano, as co-lessees, which was incurred in respect of the IE system. As co-lessee, Mr. Mariano has agreed, among other things, to maintain no less than $5.0 million of liquidity as long as any obligations are outstanding under this agreement. As of December 31, 2015, the aggregate amount of lease financings pursuant to this agreement was $2.2 million.

Financing Transactions

UBS Credit Agreement

On August 6, 2014, in connection with the Patriot Care Management Acquisition, we and certain of our subsidiaries entered into the UBS Credit Agreement, which provided for a five-year term loan facility in an aggregate principal amount of $57.0 million that would mature on August 6, 2019. The loan was secured by the common stock of PCM and guaranteed by Guarantee Insurance Group and its wholly owned subsidiaries. Following our IPO, we prepaid all outstanding borrowings under the UBS Credit Agreement, including accrued interest and applicable prepayment premium. On January 22, 2015, in connection with our IPO, we repaid all outstanding borrowings under the Agreement.

PennantPark Loan Agreement

On August 6, 2014, in connection with the GUI Acquisition, we and certain of our subsidiaries, as borrowers, and certain of our other subsidiaries and certain affiliated entities, as guarantors, entered into the PennantPark Loan Agreement with the PennantPark Entities, as lenders. Following our IPO, we prepaid all outstanding borrowings under the PennantPark Loan Agreement, including accrued interest and applicable prepayment premium.  On January 22, 2015, in connection with our IPO, we repaid all outstanding borrowings under the Agreement.

GUI Acquisition

On August 6, 2014, we consummated the GUI Acquisition pursuant to which we acquired GUI’s contracts in force and certain other assets, for a total consideration of approximately $55.1 million. The consideration consisted of $30 million in cash, the assumption of certain of GUI’s liabilities, settlement of certain intercompany balances and the retirement of the receivable in the amount of approximately $28.8 million from Guarantee Insurance comprising principal and accrued but unpaid interest under the Surplus Note made to Guarantee Insurance on November 27, 2013 in connection with the Reorganization. See “Business —Our History and Organization” and “Selected Financial Data.”

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Patriot Care Management Acquisition

On August 6, 2014, we acquired the Patriot Care Management Business. The Patriot Care Management Business had been previously controlled by Mr. Mariano and was sold to MCMC, a third party, in 2011. A portion of the consideration received by Mr. Mariano and other stockholders in that sale consisted of MCMC preferred equity. As part of the Patriot Care Management Acquisition we issued 3,043,485 of our shares in exchange for MCMC preferred equity to the holders of such preferred equity, including Mr. Mariano, Mr. Del Pizzo and his spouse Arlene Del Pizzo, Mr. Shanfelter, Mr. Ermatinger, Mr. Grandstaff and Mr. Pesch, as consideration for such preferred equity. See “Business —Our History and Organization.”

Pursuant to a managed care services agreement, dated as of August 6, 2014, we outsource certain medical bill review and related services to MCMC. Mr. Mariano is party to the agreement with respect to certain exclusivity and non-compete provisions. The agreement remains in effect through December 31, 2019 unless earlier terminated by us or MCMC upon 30 days’ written notice for material breach. Subsequent to such initial term the agreement may be terminated by either party upon 90 days’ prior written notice to the other party.

DecisionUR Acquisition

On February 5, 2015, we purchased 98.8% of the membership interests in DecisionUR, LLC for a purchase price of $2.2 million in cash, from Six Points Investment Partners, LLC, a company wholly owned by Mr. Mariano. Accordingly, upon closing, Mr. Mariano received all of the proceeds from the sale of DecisionUR, LLC.

Vikaran Acquisition

On April 17, 2015, we acquired Vikaran Solutions, LLC (“Vikaran”) for a purchase price of $8.5 million in cash. Prior to the acquisition, Mr. Mariano held a non-controlling, 45% interest in Vikaran. Upon closing, Mr. Mariano received proceeds of $3.8 million from the sale of Vikaran to us. In connection with the acquisition of Vikaran we also agreed to purchase all of the outstanding stock of Mehta and Pazol Consulting Services Private Limited (“MPCS”), an Indian company which holds Vikaran’s software development center located in Pune, India, for a purchase price of approximately $1.5 million. We consummated the purchase of 51% of the MPCS stock, and Mr. Mariano received proceeds of $749,850 therefrom.  

Global HR Acquisition

On August 21, 2015, we acquired Global HR Research LLC (“Global HR”) for an aggregate purchase price of $42.0 million payable in cash and shares of our common stock. One of our independent directors, Austin J. Shanfelter, indirectly controlled Global HR through his ownership of owned 84% of the equity interests in ITH, which owned 75.5% of the equity interests of Global HR. Upon closing, Mr. Shanfelter, through In Touch, received aggregate proceeds of approximately $28.2 million from the sale of Global HR to us, comprised of shares of our common stock and cash. In addition, In Touch will forfeit and return a portion of the consideration to us if Global HR does not meet certain targets.

In addition, in connection with the closing of the Global HR Acquisition, we entered into a registration rights agreement with the sellers, including Mr. Shanfelter, pursuant to which we provided the sellers with certain customary “piggyback” registration rights in respect of their shares received as part of the acquisition consideration, subject to cutbacks and other customary provisions.

Stockholders Agreement

In connection with the warrants issued to the PennantPark Entities as part of our reorganization in 2013, we entered into the Stockholders Agreement, which was amended and restated on January 5, 2015 in connection with our IPO. Pursuant to the Stockholders Agreement, Mr. Del Pizzo has certain customary “piggyback” registration rights with respect to 184,490 shares of our common stock that he now holds. All expenses incurred in connection with a “piggyback” registration will be borne by us, excluding underwriters’ discounts and commissions, which will be borne by the selling party. In addition, we will indemnify the registration rights holders against certain liabilities which may arise under the Securities Act in connection with any offering made pursuant to such registration rights.  

In connection with our IPO, we also entered into a new registration rights agreement with Mr. Mariano. This agreement provides him with an unlimited number of “demand” registrations as well as customary “piggyback” registration rights. This new registration rights agreement also provides that we will pay certain expenses relating to such registrations, excluding underwriters’ discounts and commissions, and indemnify Mr. Mariano against certain liabilities which may arise under the Securities Act in connection with any offering made pursuant to such registration rights.

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Tax Advisory Services

Del Pizzo & Associates P.C., a tax advisory firm wholly owned by Mr. Del Pizzo, one of our directors, has received payments from us in the amount of approximately $185,100 in the year ended December 31, 2015 for tax advisory services it performed in fiscal year 2015 in respect of entities that are now our subsidiaries. Del Pizzo & Associates P.C. will continue providing similar services for fiscal year 2016.

Loan Arrangements and Receivable from Affiliates

As of December 31, 2015, we had a net receivable from related parties of $0.5 million due from entities controlled by Mr. Mariano, our founder, Chairman, President and Chief Executive Officer. As of December 31, 2014, we had a net receivable from related parties amount of approximately $1.0 million and $0.8 million due from Mr. Mariano and entities controlled by Mr. Mariano.

In addition, on December 23, 2015, we and Steven M. Mariano amended the Stock Back-to-Back Agreement, pursuant to which, upon the exercise of the New Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 100% of the shares to be issued in connection with the exercise by the PIPE investors of the New Warrants.See Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Recent Events.”

PIPE Transaction

On December 13, 2015 we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Steven M. Mariano, our President and Chief Executive Officer, and the PIPE investors pursuant to which the PIPE investors purchased (i) 2,500,000 shares of our common stock from Steven M. Mariano, for an aggregate purchase price of approximately $30 million, and (ii) 666,666 shares of our common stock, warrants to purchase up to an aggregate of 2,083,333 shares of our common stock (the “Old Series A Warrants”) and prepaid warrants for 1,000,000 shares of our common stock (the “Old Series B Warrants” and, together with the Old Series A Warrants, the “Old Warrants”), for an aggregate purchase price of approximately $20 million. In addition, we entered into an agreement (the “Stock Back-to-Back Agreement”) with Steven M. Mariano, pursuant to which, upon the exercise of the Old Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 60% of the shares to be issued in connection with the exercise by the PIPE investors of the Old Warrants.

On December 23, 2015 we entered into several rescission and exchange agreements (collectively, the “Exchange Agreement”) with Steven M. Mariano and the PIPE investors pursuant to which (i) we and the PIPE investors rescinded the sale and purchase of 666,666 shares of our common stock and prepaid warrants for 1,000,000 shares of our common stock and (ii) we exchanged the Old Series A Warrant for new warrants to purchase up to an aggregate of 3,250,000 shares of our common stock (the “New Series A Warrants”), and the Old Series B Warrant for new prepaid warrants to purchase a number of shares that the holder could purchase at a price equal to 90% of the lowest 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through and including the Adjustment Time (as defined in the New Series B Warrants, which we expect to end at 9:00 A.M. on the tenth trading day after the filing of this Annual Report on Form 10-K) less the number of shares such holder purchased, in each case subject to adjustments and limitations pursuant to their terms. Based on the 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through March 17, 2016 of $4.51, we estimate that 4,895,985 shares of our common stock would be issuable upon exercise of the New Series B Warrants.

In addition, we and Steven M. Mariano amended the Stock Back-to-Back Agreement, pursuant to which, upon the exercise of the New Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 100% of the shares to be issued in connection with the exercise by the PIPE investors of the New Warrants, resulting in no dilution for our existing shareholders.

The New Series A Warrants are exercisable at an exercise price of the lesser of (i) $10.00 and (ii) 85% of the market price of the shares (as defined in the New Warrants), from July 1, 2016 to December 31, 2020. The New Series B Warrants are exercisable at an exercise price of $0.01 from December 16, 2015 to December 31, 2020. The exercise price of the New Warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

In addition,the Exchange Agreementamendedthe registrationrightsagreementto providethe PIPE investorswith registrationrightsto registerthe sharesissuableupon exerciseof the NewWarrants,subjectto penaltiesand othercustomaryprovisions.We also enteredinto a third amendmentto our existingcreditagreementto permitthesetransactionsunder the covenantsincludedtherein.

OnDecember23, 2015, wealso enteredinto a Voting Agreementwith Steven M. Mariano,pursuantto which Steven M. Marianoagreedto vote in favorof issuancesof sharesof commonstock in the event that,as a resultof an increasein the numberof sharesthatmay be purchasedupon exerciseof the NewWarrantsto the Adjusted Share Amount (as definedin the NewWarrants),such numberof shareswould exceed the Exchange Cap(as definedin the NewWarrants).

Statement of Policy Regarding Transactions with Related Persons

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Our board of directors has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying transactions with related persons and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as the Corporate Governance Guidelines of our board of directors and our Code of Business Conduct and Ethics.

The Related Person Transaction Policy provides that all transactions with related persons covered by the policy must be reviewed and approved and ratified by the Audit Committee or disinterested members of the board of directors and that any employment relationship or transaction involving an executive officer and any related compensation must be approved or recommended for the approval of the board of directors by the Compensation Committee.

In reviewing transactions with related persons, the Audit Committee or disinterested members of the board of directors will consider all relevant facts and circumstances, including, without limitation:

● the nature of the related person’s interest in the transaction;

● the material terms of the transaction;

● the importance of the transaction both to the Company and to the related person;

● whether the transaction would likely impair the judgment of a director or executive officer to act in the best interest of the Company;

● whether the value and the terms of the transaction are substantially similar as compared to those of similar transactions previously entered into by the Company with non-related persons, if any; and

● any other matters that management or the Audit Committee or disinterested directors, as applicable, deem appropriate.

The Audit Committee or disinterested members of the board of directors, as applicable, will not approve or ratify any related person transaction unless it shall have determined in good faith that, upon consideration of all relevant information, the related person transaction is in, or is not inconsistent with, the best interests of the Company. The Audit Committee or the disinterested members of the board of directors, as applicable, may also conclude, upon review of all relevant information, that the transaction does not constitute a related person transaction and thus that no further review is required under this policy.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

● the Company was or is to be a participant;

● the amount involved exceeds $120,000; and

any related person (i.e., a director, director nominee, executive officer, greater than 5% beneficial owner and any immediate family member of such person) had or will have a direct or indirect material interest.   

13. Concentration

For the year ended December 31, 2015, approximately 69% of total fee income and fee income from related party was attributable to contracts with Guarantee Insurance, the Company’s largest customer and a related party, and approximately 7% was attributable to contracts with the Company’s second largest customer.  For the year ended December 31, 2014, approximately 71% of total fee income and fee income from related party was attributable to contracts with Guarantee Insurance, the Company’s largest customer and a related party, and approximately 18% was attributable to contracts with the Company’s second largest customer. For the year ended December 31, 2013, approximately 44% of total fee income and fee income from related revenues was attributable to contracts with Guarantee Insurance and approximately 38% and 12% were attributable to contracts with the Company’s second and third largest customers, respectively.

As of December 31, 2015, approximately 77% of fee income receivable and fee income receivable from related party was attributable to contracts with Guarantee Insurance, the Company’s largest customer and a related party, and approximately 3% of fee income receivable and fee income receivable from related party were attributable to contracts with the Company’s second largest customer. As of December 31, 2014, approximately 86% of fee income receivable and fee income receivable from related party was attributable to contracts with Guarantee Insurance, the Company’s largest customer and a related party, and approximately 8% and 2% of fee income receivable and fee income receivable from related party were attributable to contracts with the Company’s second and third largest customers, respectively. As of December 31, 2013, approximately 62% of fee income receivable and fee income receivable from related party was attributable to contracts with Guarantee Insurance, the Company’s largest customer and a related party, and approximately 23% and 11% of fee income receivable and fee income receivable from related party were attributable to contracts with the Company’s second and third largest customers, respectively. Management believes that the receivable balances

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from these largest customers do not represent significant credit risk based on cash flow forecasts, balance sheet analysis and past collection experience.

Because fee income from related party for claims administration services is based on the net portion of claims expense retained by Guarantee Insurance, the Company’s revenues attributable to contracts with Guarantee Insurance do not necessarily represent fee income from related party.

14. Commitments and Contingencies

Contractual Obligations and Commitments

The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2015:

	Payments Due by Period
In thousands	2016		2017		2018		2019		2020		Thereafter		Total
Long-term debt obligations	$	5,500	$	7,562	$	8,250	$	10,313	$	74,875	$	—	$	106,500
Short-term revolver debt    obligations		—		—		—		—		18,032		—		18,032
Interest on debt		4,272		4,049		3,778		3,459		70		—		15,628
Acquisition earnouts		10,556		1,827		—		—		—		—		12,383
Deferred purchase consideration		6,128		—		—		—		—		—		6,128
Operating lease obligations		5,461		5,032		4,089		3,678		2,751		1,744		22,755
Capital lease obligation		2,275		—		—		—		—		—		2,275
Total contractual obligations	$	34,192	$	18,470	$	16,117	$	17,450	$	95,728	$	1,744	$	183,701

In connection with the Senior Secured Credit Facility as described in Note 7, Notes Payable and Lines of Credit, the common stock of the Company and the common stock or units of each of the Company’s wholly and majority owned subsidiaries were pledged as collateral.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

The Company has employment agreements with certain executives and other employees, which provide for compensation and certain other benefits and for severance payments under certain circumstances. The employment agreements contain clauses that become effective upon a change of control of the Company. Upon the occurrence of any of the defined events in the employment agreements, the Company would be obligated to pay certain amounts to the relevant employees.

The Company maintains cash at various financial institutions, and, at times, balances may exceed federally insured limits. Management does not believe this results in any material effect on the Company’s financial position or results of operations.

In the normal course of business, the Company may be party to various legal actions that management believes will not result in any material effect on the Company’s financial position or results of operations.

15. Warrant Redemption Liability

The estimated fair value of the redeemable warrants is reflected as warrant redemption liability in the accompanying consolidated balance sheets as of December 31, 2015 and 2014, and the change in the liability is reflected as an increase (decrease) in fair value of warrant redemption liability in the accompanying consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013. In estimating the value of the redeemable warrants and common stock, giving consideration to all valuation approaches and methods in its analysis and ultimately relying on a variety of established appraisal methods and techniques, applying a Monte Carlo simulation of estimated value, the guideline public company method in combination with the discounted future returns method and, as appropriate, the option pricing model using Black Scholes. Various valuation indications are weighted using the Probability-Weighted Expected Return Method (PWERM) in accordance with the AICPA’s Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

As of December 31, 2015, the estimated fair value of Series A and Series B warrant redemption liabilities was $28.1 million. Our analysis of Series A and Series B warrant value was calculated using a Monte Carlo simulation of Patriot's daily common stock price in the adjustment period. The stock price was assumed to follow Geometric Brownian Motion with drift equal to the risk-free rate and

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volatility estimated from Patriot's historical volatility and volatilities of comparable companies. The fair value of the warrants were estimated as the average value from all 100,000 simulations using Black Scholes.

On December 13, 2015 we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Steven M. Mariano, our President and Chief Executive Officer, and the PIPE investors pursuant to which the PIPE investors purchased (i) 2,500,000 shares of our common stock from Steven M. Mariano, for an aggregate purchase price of approximately $30 million, and (ii) 666,666 shares of our common stock, warrants to purchase up to an aggregate of 2,083,333 shares of our common stock (the “Old Series A Warrants”) and prepaid warrants for 1,000,000 shares of our common stock (the “Old Series B Warrants” and, together with the Old Series A Warrants, the “Old Warrants”), for an aggregate purchase price of approximately $20 million. In addition, we entered into an agreement (the “Stock Back-to-Back Agreement”) with Steven M. Mariano, pursuant to which, upon the exercise of the Old Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 60% of the shares to be issued in connection with the exercise by the PIPE investors of the Old Warrants.

On December 23, 2015 we entered into several rescission and exchange agreements (collectively, the “Exchange Agreement”) with Steven M. Mariano and the PIPE investors pursuant to which (i) we and the PIPE investors rescinded the sale and purchase of 666,666 shares of our common stock and prepaid warrants for 1,000,000 shares of our common stock and (ii) we exchanged the Old Series A Warrant for new warrants to purchase up to an aggregate of 3,250,000 shares of our common stock (the “New Series A Warrants”), and the Old Series B Warrant for new prepaid warrants to purchase a number of shares that the holder could purchase at a price equal to 90% of the lowest 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through and including the Adjustment Time (as defined in the New Series B Warrants, which we expect to end at 9:00 A.M. on the tenth trading day after the filing of this Annual Report on Form 10-K) less the number of shares such holder purchased, in each case subject to adjustments and limitations pursuant to their terms. Based on the 10-day volume-weighted average stock price during the period commencing on February 1, 2016 through March 17, 2016 of $4.51, we estimate that 4,895,985 shares of our common stock would be issuable upon exercise of the New Series B Warrants.

In addition, we and Steven M. Mariano amended the Stock Back-to-Back Agreement, pursuant to which, upon the exercise of the New Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 100% of the shares to be issued in connection with the exercise by the PIPE investors of the New Warrants, resulting in no dilution for our existing shareholders.

The New Series A Warrants are exercisable at an exercise price of the lesser of (i) $10.00 and (ii) 85% of the market price of the shares (as defined in the New Warrants), from July 1, 2016 to December 31, 2020. The New Series B Warrants are exercisable at an exercise price of $0.01 from December 16, 2015 to December 31, 2020. The exercise price of the New Warrants is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.

In addition,the Exchange Agreementamendedthe registrationrightsagreementto providethe PIPE investorswith registrationrightsto registerthe sharesissuableupon exerciseof the NewWarrants,subjectto penaltiesand othercustomaryprovisions.We also enteredinto a third amendmentto our existingcreditagreementto permitthesetransactionsunder the covenantsincludedtherein.

OnDecember23, 2015, wealso enteredinto a Voting Agreementwith Steven M. Mariano,pursuantto which Steven M. Marianoagreedto vote in favorof issuancesof sharesof commonstock in the event that,as a resultof an increasein the numberof sharesthatmay be purchasedupon exerciseof the NewWarrantsto the Adjusted Share Amount (as definedin the NewWarrants),such numberof shareswould exceed the Exchange Cap(as definedin the NewWarrants).

There was no PennantPark warrant redemption liability as of December 31, 2015.  Concurrent with our IPO and repayment of the PennantPark Loan Agreement on January 22, 2015, the PennantPark Entities exercised 965,700 of their 1,110,555 detachable common stock warrants for common stock at an exercise price of $2.67 per share. The PennantPark Entities waived their put right on the remaining 144,855 detachable common stock warrants.  By eliminating the put right, the PennantPark Entities could not require the Company to redeem the remaining detachable common stock warrants for cash, thereby eliminating the warrant redemption liability previously required. The remaining 144,855 detachable common stock warrants were exercised on November 24, 2015 in a cashless exercise to purchase shares of the Company’s common stock at an exercise price of $2.67.

On November 27, 2013, the Company issued 626,295 detachable common stock warrants to new lenders to purchase shares of the Company’s common stock at an exercise price of $2.67 per share. The warrants expire on November 27, 2023. Prior to the exercise and removal of the put right, at the fifth anniversary date of the warrants and any time after the eighth anniversary date of the warrants, the warrant holders could have required the Company to redeem the warrants for cash, in an amount equal to the estimated fair value of the warrants, as determined by an independent appraisal, less the total exercise price of the redeemed warrants. The value of the warrants was recorded as a discount on the loan and a warrant liability on November 27, 2013. The discount on the loan was amortized as interest expense over the term of the loan. The Company attributed a value to these warrants of approximately $7.3 million as of December 31, 2014.

On August 6, 2014, in connection with the additional tranche described in Note 7, Notes Payable and Lines of Credit, the Company issued 484,260 detachable common stock warrants to the PennantPark Entities to purchase shares of the Company’s common stock at an exercise price of $2.67 per share. The warrants expire on November 27, 2023. Prior to the exercise and removal of the put right, at

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the fifth anniversary date of the warrants and any time after the eighth anniversary date of the warrants, the warrant holders could have required the Company to redeem the warrants for cash, in an amount equal to the estimated fair value of the warrants, as determined by an independent appraisal, less the total exercise price of the redeemed warrants. The value of the warrants was recorded as a discount on the loan and a warrant liability on August 6, 2014. The discount on the loan was amortized as interest expense over the term of the loan. The Company attributed a value to these warrants of approximately $5.6 million as of December 31, 2014.

Our analysis of PennantPark warrant value and put value is based on a combination of the market approach and the income approach to determine the value of PNI common stock at the Valuation Date, and the application of an option pricing model using Black Scholes to determine the value of one warrant at the Valuation Date. We relied in part upon the estimated IPO value developed by the underwriter, which was based on the underwriter’s comparative company analysis, a market approach; the discounted future returns method primarily relies on the Company’s financial estimates; the terminal values used in the discounted future returns method are derived using the underwriter’s estimate based upon its analysis of comparative public companies, and the guideline public company method.                       

16. Income Taxes

The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes” (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The components of the consolidated income tax provision are as follows:

	For the Year Ended December 31,
In thousands	2015			2014			2013
Current income tax expense (benefit)	$	4,816		$	12,270		$	(3,774	)
Deferred income tax expense before increase in valuation allowance		(5,881	)		(651	)		1,785
Net Income Tax Benefit before Increase in Valuation Allowance		(1,065	)		11,619			(1,989	)
Increase in valuation allowance		5,936			16			2,701
Net Income Tax Expense	$	4,871		$	11,635		$	712

As described in Note 1 to our consolidated financial statements, “Description of Business and Basis of Presentation,” Patriot National filed a consolidated federal income tax return for the period from inception (November 15, 2013) to December 31, 2014 which included the results of its wholly and majority owned subsidiaries, all of which became subsidiaries of the Company effective November 27, 2013.

A reconciliation of the provision for income taxes with the U.S. Federal statutory income tax rate is as follows (in thousands, except percentages):

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	2015							2014							2013
In thousands	Amount			Rate				Amount			Rate				Amount			Rate
(Loss) Income before income tax expense	$	(394	)					$	22,094						$	(5,556	)
Income tax expense (benefit) at statutory federal rate		(134	)		34.0		%		7,733			35.0		%		(1,889	)		34.0		%
State income tax (benefit), net of federal deduction		967			(245.4	)			1,153			5.2				(63	)		1.1
Tax effect of:
Loss on exchange of units and warrants		—			—				—			—				52			(0.9	)
Gain on redemption of MCMC Units attributable to difference between tax basis and book basis		—			—				1,883			8.5				—			—
Expenses incurred in connection with acquisitions		24			(6.1	)			247			1.1				—			—
Effect of rate change on deferred tax assets		(1,438	)		365.0				—			—				—			—
Amortization of loan discounts and loan costs		—			—				—			—				1,538			(27.7	)
PSI, PRS and Forza income passed through to the sole shareholder for federal tax purposes for the period January 1, 2013 to November 27, 2013 and the year ended December 31, 2012		—			—				—			—				(1,992	)		35.9
Contego Services Group, Inc. loss passed through to the members for federal tax purposes for the period January 1, 2013 to November 27, 2013 and the year ended December 31, 2012		—			—				—			—				51			(0.9	)
(Decrease) Increase in fair value of warrant redemption liability		(471	)		119.5				638			2.9				—			—
Gain on rescission and exchange agreement		(207	)		52.5				—			—				—			—
Deferred tax liability established effective November 27, 2013, attributable to goodwill arising from December 14, 2011 acquisition of PRS		—			—				—			—				291			(5.2	)
Patriot Captive Management (income) loss not subject to U.S. federal income taxes as a non-U.S.-domiciled company		(102	)		25.9				22			0.1				23			(0.4	)
Other items, net		296			(75.1	)			(57	)		(0.3	)			—			—
Actual Income Tax Expense (Benefit) before Increase in Valuation Allowance		(1,065	)		270.3				11,619			52.6				(1,989	)		35.8
Increase in valuation allowance		5,936			(1,506.6	)			16			0.1				2,701			(48.6	)
Actual Income Tax Expense	$	4,871			(1,236.3	)	%	$	11,635			52.7		%	$	712			(12.8	)	%

Patriot Captive Management’s business is conducted through two operational subsidiaries domiciled in non-U.S. jurisdictions. The Company has no current intention of distributing unremitted earnings of Patriot Captive Management to its U.S. domiciled parent, PSI. Additionally, it is not practical to calculate the potential liability associated with such distribution due to the fact that dividends received from Patriot Captive Management could bring additional foreign tax credits, which could ultimately reduce the U.S. tax cost of the dividend, and significant judgment is required to analyze any additional local withholding tax and other indirect tax consequences that may arise due to the distribution of these earnings. Accordingly, pursuant to FASB ASC 740, the income tax expense in the accompanying consolidated statements of operations for the years ended December 31, 2015, 2014, and 2013 do not include a provision for federal income taxes attributable to Patriot Captive Management’s operations.

At December 31, 2015 we assessed the tax rates used to compute our deferred tax assets and liabilities. We made adjustments to reflect the appropriate realizable benefit which resulted in a $1.4 million impact on our effective tax rate as detailed above.

We assess uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

At December 31, 2015 and 2014, the Company had no unrecognized tax benefits and no amounts recorded for uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions within the income tax expense line in the accompanying Consolidated Statement of Operations. The tax period from inception (November 15, 2013) to December 31, 2013 remains subject to examination by all of the Company’s tax jurisdictions.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands):

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In thousands	December 31, 2015			December 31, 2014
Deferred tax assets:
Purchased intangibles	$	17,672		$	19,114
Accrued liabilities and other deferred tax assets		3,648			351
Total deferred tax assets		21,320			19,465
Valuation allowance for deferred tax assets		(12,194	)		(6,258	)
Deferred tax assets		9,126			13,207
Deferred tax liabilities:
Nondeductible amortizable intangible assets		9,126			13,195
Depreciable fixed assets		—			12
Total deferred tax liabilities	$	9,126		$	13,207
Net deferred tax liabilities	$	—		$	—

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax in multiple states with heavy concentration in Florida, California, and Pennsylvania. The net deferred tax asset before valuation allowance as of December 31, 2015 and 2014 was $12.2 million and $6.3 million, respectively. A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence in concluding that a full valuation allowance was necessary against its net deferred tax assets at December 31, 2015 and 2014.

Supplemental Pro Forma Income Tax Information (Unaudited)

The unaudited supplemental pro forma income tax benefit has been presented in accordance with Section 3410.1 (under the headings 3400, Special Applications and 3410, Sub-Chapter S Corporations and Partnerships) of the SEC Division of Corporation Finance Financial Reporting Manual. The unaudited supplemental pro forma income tax benefit gives effect to the tax treatment of the Company’s Subchapter S corporation and limited liability company subsidiaries as if they were subject to federal and state income taxes for the year ended December 31, 2013.

The pro forma net income tax benefit is comprised of the following:

	For the Year Ended December 31,
In thousands	2013
Current income tax benefit	$	(2,174	)
Deferred income tax expense before increase in valuation allowance		1,565
Net Income Tax Benefit before Increase in Valuation Allowance		(609	)
Increase in valuation allowance		2,701
Net Income Tax Expense	$	2,092

The Company’s pro forma income tax rates, expressed as a percent of net income before income tax expense, vary from statutory federal income tax rates due to the following:

	2013
In thousands	Amount			Rate
(Loss) Income before income tax expense	$	(5,556	)
Income tax expense (benefit) at statutory federal rate		(1,889	)		34.0
State income tax (benefit), net of federal deduction		(20	)		0.4
Tax effect of:
Loss on exchange of units and warrants		52			(0.9	)
Amortization of loan discounts and loan costs		1,677			(30.2	)
Difference in tax basis of net identifiable liabilities assumed in acquisition pursuant to Internal Revenue Code §338(h)(10) election		(492	)		8.9
Patriot Captive Management (income) loss not subject to U.S. federal income taxes as a non-U.S.-domiciled company		23			(0.4	)
Other items, net		40			(0.7	)
Actual Income Tax Expense (Benefit) before Increase in Valuation Allowance		(609	)		11.0
Increase in valuation allowance		2,701			(48.6	)
Actual Income Tax Expense	$	2,092			(37.7	)

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17. Quarterly Operating Results (unaudited):

Quarterly operating results for 2015 and 2014 were as follows (in thousands, except per share data):

	For the Year Ended December 31,
In thousands	1st Quarter			2nd Quarter			3rd Quarter		4th Quarter
2015
Total fee income and fee income from related party	$	42,992		$	47,388		$	58,532	$	60,852
Total revenues	$	42,993		$	47,332		$	58,523	$	60,872
Total expenses		51,146			45,987			53,345		59,636
Net (loss) income before income tax expense	$	(8,153	)	$	1,345		$	5,178	$	1,236
Net (Loss) Income		(4,816	)		1,020			3,788		(5,367	)
Basic net (loss) income per share	$	(0.19	)	$	0.04		$	0.14	$	(0.19	)
Diluted net (loss) income per share	$	(0.19	)	$	0.04		$	0.14	$	(0.19	)
2014
Total fee income and fee income from related party	$	15,599		$	15,453		$	31,433	$	40,245
Total revenues	$	15,808		$	15,742		$	45,469	$	40,245
Total expenses		13,348			20,955			19,440		41,427
Net income (loss) before income tax expense	$	2,460		$	(5,213	)	$	26,029	$	(1,182	)
Net Income (Loss)		1,502			(5,597	)		16,902		(2,393	)
Basic net income (loss) per share	$	0.11		$	(0.39	)	$	1.03	$	(0.13	)
Diluted net income (loss) per share	$	0.10		$	(0.39	)	$	0.46	$	(0.13	)

(1) Year over year quarterly as well as quarter to quarter results may not be comparable due to timing of the inclusion of acquistions.

(2) The sum of quarterly EPS may not agree with the years’ EPS.

18. Valuation and Qualifying Accounts

Valuation and qualifying accounts deducted from the assets to which they apply:

In thousands	Balance at Beginning of Period		Provision for Doubtful Accounts		Deductions			Balance at End of Period
2015
Total - allowance for uncollectible fee    income receivable	$	136	$	351	$	(232	)	$	255
2014
Total - allowance for uncollectible fee    income receivable	$	2,544	$	502	$	(2,910	)	$	136

19. Subsequent Events

On January 28, 2016, we entered into that Asset Purchase Agreement by and between Patriot Underwriters, Inc. and Mid Atlantic Insurance Services, Inc. (“Mid Atlantic”) pursuant to which the Company acquired substantially all of the assets of Mid Atlantic for a maximum of $16,500,000. Pursuant to the Asset Purchase Agreement, the Company paid Mid Atlantic $8,000,000 in cash at closing. Mid Atlantic will also be entitled to annual earn-out payments of up to a cumulative maximum of $8,500,000 over approximately five years after closing. Subject to limited exceptions, $7,000,000 of the maximum earn-out is guaranteed.

On February 1, 2016, we entered into an Amendment No. 2 to the TriGen Stock Purchase Agreement splitting the payment of the Class B Purchase price into 2 installment payments.

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On February 9, 2016, pursuant to the Securities Purchase Agreement, the Exchange Agreement and the registration rights agreement, as amended by the Exchange Agreement, a registration statement initially filed on January 15, 2016 was declared effective pursuant to which we registered 10,348,794 shares of our common stock under the Securities Act, which includes 7,848,794 shares of common stock issuable upon exercise of the New Warrants held by the PIPE Investors.

On March 1, 2016, we entered into an Amendment No. 3 to the TriGen Stock Purchase Agreement accelerating and reducing the final payment to the Class B Seller.

On March 3, 2016, our Board of Directors approved a $15 million share repurchase program for the Company's common stock whereby shares may be purchased from time to time, in open market transactions or in negotiated off-market transactions.  The program may continue for up to eighteen months.

On March 3, 2016, we entered into a fourth amendment to our existingcreditagreement to permit Patriot to repurchase shares of its outstanding common stock pursuant to certain volume and timing limitations.      

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

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our senior management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control

There was no change in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The management of Patriot National, Inc. and its subsidiaries (“Patriot”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including Patriot’s principal executive officer and principal financial officer, Patriot conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In conducting Patriot’s evaluation of the effectiveness of its internal control over financial reporting, Patriot has excluded the Global HR Research acquisition completed during 2015, whose financial statements constitute 13.91% of total assets, 2.45% of revenues, and 0.80% of the net loss of the Consolidated Financial Statement amounts as of and for the year ended December 31, 2015. Refer to Note 3 to the Consolidated Financial Statements for further discussion of this acquisitions and its impact on Patriot’s Consolidated Financial Statements.

Based on Patriot’s evaluation under the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that internal control over financial reporting was effective as of December 31, 2015.

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This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm, as non-accelerated filers are exempt from attestation requirements of section 404(b) of the Sarbanes-Oxley Act.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the Chief Executive Officer and the Chief Financial Officer, respectively. The Certifications are supplied in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item 9A of this Annual Report on Form 10-K is the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Below is a list of our executive officers and directors.

Name	Age		Position
Steven M. Mariano		51	Chairman, President and Chief Executive Officer
John R. Del Pizzo		69	Director
Austin J. Shanfelter		58	Director
Quentin P. Smith		64	Director
Charles H. Walsh		84	Director
Michael J. Corey		76	Director
Timothy J. Ermatinger		67	Executive Vice President and President of Patriot Care Management, Inc.
Michael W. Grandstaff		56	Executive Vice President
Judith L. Haddad		56	Executive Vice President and Chief Information and Technology Officer
Paul V. Halter		56	Executive Vice President and National Director of Field Operations
Christopher A. Pesch		58	Executive Vice President, General Counsel, Chief Legal Officer and Secretary
Thomas Shields		56	Executive Vice President, Chief Financial Officer and Treasurer

Steven M. Mariano. Mr. Mariano, our founder, has served as our Chairman, President and Chief Executive Officer since the Reorganization in November 2013. He is responsible for the overall direction and management of our operations and financial and strategic planning. He is an entrepreneur and businessman with 20 years of experience in the insurance industry. Mr. Mariano founded Strategic Outsourcing Inc., a professional staffing company, which was sold to Union Planters Bank (which was acquired by Regions Financial Corporation) in 2000. In 2003, Mr. Mariano formed Patriot Risk Management, Inc. to acquire Guarantee Insurance. Shortly thereafter he formed Patriot Risk Services, Inc. to provide fee-based care management, captive consulting, bill review, network development and other claims related services to Guarantee Insurance and other clients. Mr. Mariano was the Chairman and Chief Executive Officer of Guarantee Insurance until January 6, 2015.

John R. Del Pizzo. Mr. Del Pizzo joined our board of directors in June 2014, having served on the board of directors of Guarantee Insurance from September 2003 to June 2014. He also served on the board of directors of Patriot Risk Management, Inc. as the Chairman of the Audit Committee from 2003 to 2011. Previously, he also served on the board of directors of Strategic Outsourcing Inc., a professional staffing company, and served as President of ATS of Pennsylvania, a subsidiary of Strategic Outsourcing Inc., from 1992 to 2000. Since 1995, Mr. Del Pizzo has served as the Founder and President of Del Pizzo and Associates, an accounting and business advisory firm. Mr. Del Pizzo is a certified public accountant and holds a Bachelor of Science degree in Marketing Management from St. Joseph’s University and a Master’s degree in Business Administration in Finance from Drexel University.

Austin J. Shanfelter. Mr. Shanfelter joined our board of directors in June 2014, having served on the board of directors of Guarantee Insurance Group since October 2010. From October 2009 to August 2015, Mr. Shanfelter was the Chairman and majority shareholder of Global HR Research LLC, which we acquired in August 2015. He has served on the board of directors of Orion Marine Group, Inc., a civil marine contractor, since May 2007, where he has served as Chairman of the compensation committee since May 2007 and as a member of the nominating and governance committee since May 2010. He has also served on the board of directors of Sabre Industries, Inc., a provider of utility and other infrastructure. In addition, Mr. Shanfelter is a member of the board of directors of the Power and Communications Contractors Association, an industry trade group. Mr. Shanfelter holds a Bachelor of Science degree in Health from Lock Haven University of Pennsylvania.

Quentin P. Smith. Mr. Smith joined our board of directors in January 2015. Since April 1996, Mr. Smith has served as the president of Cadre Business Advisors LLC, a professional management consulting firm. Previously, he was Partner-in-Charge of Arthur Andersen’s Desert Southwest business consulting practice providing business development and client engagement management services from April 1993 to April 1995. Mr. Smith serves as a director of STORE Capital, a publicly traded REIT, and is the chairman of the compensation and governance committees of the board of directors of Banner Health, a non-profit healthcare system based in Phoenix, Arizona. He received his Bachelor’s degree in Industrial Management and Computer Science from the Krannert School of Business at Purdue University and his Master’s degree in Business Administration from Pepperdine University.

Charles H. Walsh. Mr. Walsh joined our board of directors in January 2015. Since 1983, Mr. Walsh has served as the Managing Partner of Walsh Partners Real Estate Development, a real estate development company. In addition, he has served as a member of the board of directors of the Chicago White Sox since 1984 and as a member of the board of directors of the Chicago Bulls since 1985. Mr. Walsh holds a Bachelor of Science degree in Business Administration from Northwestern University.

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Michael J. Corey. Mr. Corey joined our board of directors in January 2016. Mr. Corey serves as a senior partner of The Corey Search Group, Inc., an advisory firm dedicated to executive search, strategic and succession planning for the insurance and financial services industries. Prior to joining The Corey Search Group, Mr. Corey has held senior positions with Caldwell Partners, MJC Ventures, Inc., Heidrick & Struggles and Highland Partners, Lamalie & Associates, and Ward Howell. From 1984-1995, Mr. Corey was the owner and CEO for the Chicago Search Group. Mr. Corey has served as a trustee and a trustee emeritus with the Actuarial Foundation and as a board member of the Irish Life Assurance Company. He currently serves as a trustee on the board of the American College. Mr. Corey holds a Bachelor of Science degree in Business Administration from Northern Illinois University.

Timothy J. Ermatinger. Mr. Ermatinger has been our Executive Vice President and President of Patriot Care Management, Inc. since August 2014. Previously, he served in a similar capacity as Executive Vice President of Managed Care Risk Services, Inc. (renamed Patriot Care Management, Inc.) from June 2011 to August 2014. Prior to that, he served as President of Patriot Risk Services, Inc., providing various fee-for-service care management solutions for Guarantee Insurance and other carrier clients from August 2006 to June 2011. He is a certified public accountant and earned his Bachelor’s degree in accounting from the University of Detroit.

Michael W. Grandstaff. Mr. Grandstaff has been our Executive Vice President in charge of Strategic Planning and Acquisitions since August 2014. Previously, Mr. Grandstaff had served as Senior Vice President, Executive Vice President and Chief Financial Officer of Guarantee Insurance Group from February 2008 to August 2014. Prior to joining Guarantee Insurance Group, Mr. Grandstaff served in a number of financial leadership roles with insurance and insurance services organizations, including as Chief Financial Officer of American Community Mutual Insurance Company, a mutual health insurance company, from June 2002 to November 2007. Mr. Grandstaff is a certified public accountant and holds a Bachelor of Arts degree and Master’s degree in Business Administration in Accounting from Michigan State University.

Judith L. Haddad. Ms. Haddad has been our Executive Vice President and Chief Information and Technology Officer since August 2014. Previously, Ms. Haddad had served in a similar capacity for Guarantee Insurance Group from August 2008 to August 2014. Prior to joining Guarantee Insurance Group, Ms. Haddad served in a number of executive and consulting roles in the information technology field, including as Vice President of Information Technology for NYMAGIC, Inc., a multi-line insurance carrier based in New York from August 2006 to August 2008. Ms. Haddad holds a Bachelor of Science degree from Clark University and a Master’s degree in Business Administration from Nova Southeastern University. In addition, Ms. Haddad completed an Executive Management program at INSEAD in Fontainebleau, France.

Paul V. Halter. Mr. Halter has been our Executive Vice President and National Director of Field Operations since October 2014. Previously, Mr. Halter had served in a similar capacity for Guarantee Insurance Group since April 2013. From November 2010 to April 2013, Mr. Halter had served as Executive Vice President and Regional Vice President of Guarantee Insurance Group. From September 2008 to April 2009 Mr. Halter was an Executive Vice President with The Resourcing Solutions Group, Inc., a payroll company offering workers’ compensation insurance. Mr. Halter holds a Bachelor of Science degree in Chemistry from the College of Charleston.

Christopher A. Pesch. Mr. Pesch has been our Executive Vice President, General Counsel, Chief Legal Officer and Secretary since September 2014. Previously, Mr. Pesch was a corporate, mergers and acquisitions and securities partner at BakerHostetler LLP from August 2013 to September 2014. He held similar roles at Polsinelli PC from June 2011 to August 2013, and at Locke Lord Bissell & Liddell LLP from 2009 to May 2011. Mr. Pesch holds a Bachelor of Arts degree in Mathematics from Lake Forest College and a Juris Doctor degree from Seattle University School of Law.

Thomas Shields. Mr. Shields has been our Executive Vice President, Chief Financial Officer and Treasurer since September 2014. Prior to joining us, Mr. Shields was the Chief Financial Officer of Lighting Science Corporation Group, a provider of light emitting diode lighting technology, from August 2012 to August 2014. From July 1999 to February 2012, Mr. Shields served as Chief Operating Officer, Executive Vice President and Chief Financial Officer, and Secretary of Anadigics, Inc., a designer and manufacturer of radio frequency semiconductor solutions. Mr. Shields holds a degree in Accounting and a Master’s degree in Business Administration in Finance from Fairleigh Dickinson University.

Director Qualifications

Our board of directors seeks to ensure that it is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the board of directors to satisfy its oversight responsibilities effectively. More specifically, in identifying candidates for membership on the board of directors, the nominating and corporate governance committee takes into account (1) individual qualifications, such as industry knowledge or business experience, strength of character and mature judgment, and (2) any other factors it considers appropriate, including alignment with our stockholders.

When determining whether our current directors have the experience, qualifications, attributes and skills, taken as a whole, to enable our board to satisfy its oversight responsibilities effectively in light of our business and structure, our board of directors

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focused primarily on our directors’ contributions to our and our subsidiaries’ success in recent years and on the information discussed in the biographies set forth under “Directors, Executive Officers and Corporate Governance.” With respect to Mr. Mariano, our board of directors considered in particular his extensive experience in the insurance industry and entrepreneurial background. With respect to Mr. Del Pizzo, our board of directors considered in particular his financial and accounting experience. With respect to Mr. Shanfelter, our board of directors considered in particular his experience and knowledge acquired serving on the boards of directors of other companies. With respect to Mr. Smith, our board of directors considered in particular his extensive experience in the management consulting industry and service on public boards. With respect to Mr. Walsh, our board of directors considered in particular his experience and knowledge as a business leader and his long service on the boards of directors of other organizations. With respect to Mr. Corey, our board of directors considered in particular his experience recruiting top management in the insurance industry.

Committee Charters and Corporate Governance Guidelines

Our commitment to good corporate governance is reflected in our Corporate Governance Guidelines, which describe our board of directors’ views on a wide range of governance topics. These Corporate Governance Guidelines are reviewed from time to time by our Nominating and Corporate Governance Committee and, to the extent deemed appropriate in light of emerging practices, revised accordingly, upon recommendation to and approval by our board of directors.

Our Corporate Governance Guidelines, Audit, Compensation and Nominating and Corporate Governance Committee charters, and other corporate governance information are available on our website at www.patnat.com under Investor Relations: Corporate Governance: Governance Documents.

Board Composition and Independence

Our business and affairs are managed under the direction of our board of directors. Our amended and restated certificate of incorporation provides that our board of directors shall consist of not less than three and not more than fifteen directors as the board of directors may from time to time determine. Our amended and restated bylaws provide for a staggered board of directors with three separate “classes” of directors, with the classes to be as nearly equal in number as possible and with the directors serving three-year terms. Our directors are divided into the following classes:

Class I	Class II	Class III
Steven M. Mariano	John R. Del Pizzo	Charles H. Walsh
Austin J. Shanfelter	Quentin P. Smith	Michael J. Corey

The terms of the Class I, Class II and Class III directors will expire at the annual meeting in 2016, 2017 and 2018, respectively, and in each case, when any successor has been duly elected and qualified.

Under our Corporate Governance Guidelines and NYSE rules, a director is not independent unless our Board of Directors affirmatively determines that he or she does not have a material relationship with us or any of our subsidiaries (either directly or as a partner, stockholder or officer of an organization that has a relationship with us or any of our subsidiaries).

Our Corporate Governance Guidelines define an “independent” director in accordance with Section 303A.02 of the NYSE’s Listed Company Manual. In addition, audit and compensation committee members are subject to the additional independence requirements of applicable SEC rules and NYSE listing standards. Our Corporate Governance Guidelines require our Board of Directors to review the independence of all directors at least annually.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the objective tests set forth in the NYSE independence definition, our Board of Directors will determine, considering all relevant facts and circumstances, whether such relationship is material.

Our Board of Directors has affirmatively determined that each of Messrs. Corey, Shanfelter, Smith and Walsh is independent under all applicable standards, including with respect to committee membership.

Board Committees

Our Board of Directors directs and oversees the management of our business and affairs and has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee.  Each committee operates under a charter that has been approved by the Board of Directors.  In addition, from time to time, special committees may be established under the direction of the Board of Directors when necessary to address specific issues.

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Audit Committee

Our Audit Committee consists of Messrs. Shanfelter, Smith and Walsh, with Mr. Shanfelter serving as chair. All members of the Audit Committee have been determined to be “independent,” consistent with our Audit Committee charter, Corporate Governance Guidelines, SEC rules and the NYSE listing standards applicable to boards of directors in general and audit committees in particular. Our Board of Directors has also determined that each of the members of the Audit Committee is “financially literate” within the meaning of the listing standards of the NYSE. In addition, our Board of Directors has determined that Mr. Shanfelter qualifies as an audit committee financial expert as defined by applicable SEC regulations.

The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at www.patnat.com under Investor Relations: Corporate Governance: Governance Documents: Audit Committee Charter, and include assisting the Board of Directors in overseeing the following:

· the quality and integrity of our financial statements, our financial reporting process and our systems of internal accounting and financial controls;

· our compliance with legal and regulatory requirements;

· the independent auditor’s qualification, performance and independence;

· the performance of our internal audit function; and

· the evaluation of risk assessment and risk management issues.

The Audit Committee shall also prepare the report of the committee required by the rules and regulations of the SEC to be included in our annual proxy statement.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee consists of Messrs. Corey, Shanfelter, Smith and Walsh, with Mr. Walsh serving as chair. Each of Messrs. Corey, Shanfelter, Smith and Walsh has been determined to be “independent” as defined by our Corporate Governance Guidelines and the NYSE listing standards.

The duties and responsibilities of the Nominating and Corporate Governance Committee are set forth in its charter, which may be found at www.patnat.com under Investor Relations: Corporate Governance: Governance Documents: Nominating and Corporate Governance Committee Charter, and include the following:

· identifying individuals qualified to become members of our board of directors, and selecting, or recommending that our board of directors select, the director nominees for each annual meeting of stockholders or to otherwise fill vacancies or newly created directorships on the board of directors;

· overseeing the evaluation of the performance of our board of directors and management;

· reviewing and recommending to our board of directors committee structure, membership and operations;

· recommend to the Board the members of the board to serve on the various committees of the Board; and

· developing and recommending to our Board of Directors a set of corporate governance guidelines applicable to us.

Compensation Committee

Our Compensation Committee consists of Messrs. Corey, Smith and Walsh, with Mr. Smith serving as chair. Each of Messrs. Corey, Smith and Walsh has been determined to be “independent” as defined by our Corporate Governance Guidelines and the NYSE listing standards applicable to boards of directors in general and compensation committees in particular.

The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be found at www.patnat.com under Investor Relations: Corporate Governance: Governance Documents: Compensation Committee Charter, and include the following:

· oversight of our executive compensation policies and practices;

· reviewing and approving matters related to the compensation of our Chief Executive Officer and our other executive officers; and

· overseeing administration and monitoring of our incentive and equity-based compensation plans.

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Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to all of our directors, officers and employees, including our Chairman and Chief Executive Officer and Chief Financial Officer and other senior executive officers. The Code of Business Conduct and Ethics sets forth our policies and expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business conduct and fair dealing. A current copy of the code is posted on our website, which is located at www.patnat.com. We will, if required, disclose within four business days amendments to or waivers from the code of business conduct and ethics that apply to our directors and executive officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website at www.patnat.com rather than by filing a Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires executive officers and directors, a company’s chief accounting officer and persons who beneficially own more than 10% of a company’s common stock (the “Reporting Persons”), to file initial reports of ownership and reports of changes in ownership with the SEC and the NYSE. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of copies of such reports and written representations from our executive officers and directors, we believe that our executive officers and directors complied with all Section 16(a) filing requirements during 2015, except that Steven Mariano had four late Form 4 filings, Austin Shanfelter had two late Form 4 filings, and each of Paul Halter and Quentin Smith had one late Form 4 filing.

Item 11. Executive Compensation

Summary Compensation Table

The following table summarizes compensation for the years ended December 31, 2015 and 2014 earned by our principal executive officer and our two other most highly-compensated executive officers as of December 31, 2015. These individuals are referred to as our named executive officers.

Name and Principal Position	Year	Salary ($)(1)		Bonus ($)(2)		Stock Awards ($)(3)		Stock Option Awards ($)(4)		Non-Equity Incentive Plan Compensation ($)		Non-Qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Steven M. Mariano	2015		1		700,000		—		—		—		—		—		700,001
President and Chief   Executive Officer	2014		—		—		—		—		—		—		—		—
Thomas Shields	2015		395,000		242,072		988,232		1,976,464		—		—		12,000		3,613,768
Executive Vice President,   Chief Financial Officer,   and Treasurer	2014		121,538		55,000		—		—		—		—		—		176,538
Christopher Pesch	2015		435,000		700,483		2,050,300		—		—		—		31,451		3,217,234
Executive Vice President,   General Counsel, Chief   Legal Officer and Secretary	2014		117,115		500		—		—		—		—		—		117,615

(1) The amounts reported represent the named executive officer’s base salary earned during the fiscal year covered.

(2) For Mr. Mariano, includes a special one-time bonus paid on December 30, 2015 under the Acquisition Incentive Plan. For Mr. Shields, includes payments under the Acquisition Incentive Plan of $92,072 and a discretionary bonus payment of $150,000. For Mr. Pesch, includes a special one-time bonus of $300,000 paid on July 1, 2015 pursuant to his employment agreement, payments under the Acquisition Incentive Plan (as discussed below) of $338,983 and a discretionary bonus payment of $61,500.

(3) Represents the grant date fair value of restricted stock granted to Mr. Pesch and time-vesting restricted stock granted to Mr. Shields computed in accordance with FASB ASC Topic 718, using the assumptions discussed in Note 10, Stock-Based Compensation. See “Description of Equity Awards” below.

(4) Represents the grant date fair value of time-vesting stock options computed in accordance with ASC Topic 718, using the assumptions described in footnote (3) above. See “Description of Equity Awards” below.

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Narrative Disclosure to Summary Compensation Table

Senior Management Agreements

Mr. Mariano, Mr. Shields and Mr. Pesch entered into an employment agreement with us on December 31, 2014, January 5, 2015 and September 8, 2014, respectively. The terms of Messrs. Mariano’s and Pesch’s employment agreements are substantially the same, but for differences in title, role and as otherwise described below.

The term of Mr. Mariano’s employment agreement continues through December 31, 2017, with automatic renewals for successive 12 month periods. Mr. Mariano receives an annual base salary of $1.00 subject to review by our Compensation Committee on an annual basis. Mr. Mariano is eligible to earn an annual bonus as determined by our Compensation Committee and is entitled to participate in, and receive awards under, any long-term incentive plan maintained by the Company, in each case, as determined by our compensation committee.

The initial term of Mr. Shields’ employment agreement began on September 8, 2014 and continues upon the earlier to occur of (i) Mr. Shields’ death, (ii) a termination by reason of disability, (iii) a termination with or without cause (as defined in his employment agreement) and (iv) a termination by Mr. Shields with or without good reason (as defined in his employment agreement). Mr. Shields’ employment agreement provides for an initial base salary of not less than $395,000, subject to increases as may be approved by the Compensation Committee. The employment agreement also provides that Mr. Shields is eligible to earn (i) a target annual incentive bonus of not less than 100% of his base salary, with the actual annual incentive bonus payable being based upon the level of achievement of Company and individual performance objectives, as determined by the Compensation Committee; (ii) a signing bonus of $50,000, which was payable during the first pay period of Mr. Shields’ full-time employment and (iii) with respect to our 2014 fiscal year, a bonus of not less than $130,000, with the actual amount to be based on achievement of applicable performance objectives. Additionally, the employment agreement provides the following perquisites: (i) an automobile allowance of $1,000 per month and (ii) eight (8) months’ rent for a corporate apartment to be used by Mr. Shields and his family. Mr. Shields also received a grant of 70,588 shares of restricted stock and (b) 141,176 stock options, each vesting one-third (1/3) annually over three (3) years subject to Mr. Shields’ continued employment. Mr. Shields is also eligible to receive additional stock and/or option grants at the discretion of the Board.

The term of Mr. Pesch’s employment agreement continues through December 31, 2017, with automatic renewals for successive 12 month periods. Mr. Pesch’s employment agreement provides for an initial base salary of not less than $435,000, subject to increases as determined by the Board or the compensation committee from time to time. The employment agreement also provides that Mr. Pesch is eligible to earn (i) an annual incentive bonus in an amount determined by the Board or the compensation committee in the first ninety (90) days of the fiscal year; (ii) a signing bonus of $200,000, which was paid within ten days of the effective date of the employment agreement and (iii) a special one-time bonus of $300,000 that was paid on July 1, 2015. Additionally, the employment agreement provides Mr. Pesch with the following perquisites: (i) reimbursement for the initiation fee and membership dues for one private country club (with a tax gross-up payment for the initiation fee) and (ii) an automobile allowance of $1,500 per month (with a tax gross-up payment). Mr. Pesch is also eligible to receive additional stock and/or option grants at the discretion of the Board, including options in an amount equal to one-half of one percent of the outstanding capital stock of our company within one year of the effective date of his employment agreement or upon our initial public offering. As discussed below in “Description of Equity Awards”, Mr. Pesch received a grant of restricted stock upon our initial public offering.

Each of Messrs. Mariano, Shields and Pesch are eligible to receive severance payments under the terms of their respective employment agreements following certain terminations of employment, subject to post-termination restrictive covenants. For a complete description of the terms of the post-termination payments and benefits under the amended employment agreements, see “—Potential Payments upon Termination or Change in Control.”

Outstanding Equity Awards at December 31, 2015

The following table provides information regarding outstanding equity awards made to our named executive officers as of December 31, 2015.

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Option Awards

Stock Awards

Name and Principal Position

Grant Date

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable(1)

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

Option Exercise Price ($)

Option Expiration Date(2)

Number of Shares or Units of Stock That Have Not Vested (#)(3)

Market Value of Shares or Units of Stock That Have Not Vested ($)(4)

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Thomas Shields

1/15/15

—

141,176

—

$

14.00

1/15/25

1/15/15

70,588

473,645

—

—

(1) Reflects outstanding unvested time-vesting stock options. One-third of the time-vesting stock options vest annually over a three-year period that begins on January 15, 2016. See “Description of Equity Awards” below for a description of the vesting terms of the stock options upon certain terminations of employment.

(2) The expiration date shown is the normal expiration date occurring on the tenth anniversary of the grant date. Options may terminate earlier in certain circumstances, such as in connection with an NEO’s termination of employment.

(3) Reflects outstanding unvested time-vesting restricted stock. One-third of the time-vesting restricted stock vest annually over a three-year period that begins on January 15, 2016. See “Description of Equity Awards” below for a description of the vesting terms of the restricted stock upon certain terminations of employment.

(4) Shares are valued based on the $6.71 closing price per share of our common stock on December 31, 2015, as reported by the New York Stock Exchange.

Description of Equity Awards

Neither Mr. Mariano nor Mr. Pesch had any outstanding equity awards at December 31, 2015.

On January 15, 2015, we granted Mr. Shields with an award consisting of (x) 141,176 time-vesting stock options and (y) 70,588 shares of time-vesting restricted stock. Subject to Mr. Shields’ continued employment with us, one-third of these stock options and restricted stock vest each year over a three-year period that begins on January 15, 2016. Generally, in the event Mr. Shields’ employment is terminated, all unvested stock options and restricted stock will be forfeited, except that if Mr. Shields’ employment is terminated (i) without cause during the 24 month period following a change in control of our company or (ii) due to Mr. Shields’ death or disability, the stock options and restricted stock will become fully vested. Following Mr. Shields’ termination of employment, vested stock options will remain exercisable until (i) in the case of a termination for Cause, the date of his termination, (ii) in the case of a termination due to death or disability, one year thereafter, and (iii) in the case of any other termination, 90 days thereafter, provided that, in each case, such exercise period does not extend beyond the original ten-year term of the stock option.

On January 15, 2015, Mr. Pesch received a grant of restricted stock under our 2014 Omnibus Incentive Plan (the “2014 Plan”). Mr. Pesch’s award consisted of 146,450 shares of restricted stock, which fully vested on July 14, 2015, 180 days following our initial public offering.

Non-Equity Incentive Plan Compensation

For the year ended December31, 2015, the Board evaluatedour performanceon a periodicbasisin consultationwith certainof our named executiveofficers.The Board did not establisha formalannual bonus plan for fiscalyear 2015.

Acquisition Incentive Plan under the 2014 Omnibus Incentive Plan

On February 11, 2015, our Compensation Committee adopted the Acquisition Incentive Plan, a cash-based sub-plan adopted under our 2014 Plan to motivate our executive officers and key employees to grow the business through one or more Acquisitions (as defined below) and to promote the retention of such individuals in the Company. Pursuant to the plan, the plan administrator has broad authority to designate participants in the plan, determine the terms and conditions of payment of awards under the plan and establish, amend, suspend, terminate or waive any terms or conditions in accordance with the plan. Our Chief Executive Officer is designated as

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the plan administrator, except that, with respect to the grant or payment of awards to any executive officer of the company (including our Chief Executive Officer), the Compensation Committee will be the plan administrator. In addition, the Compensation Committee may designate, from time to time, another committee or officer of the company to be the plan administrator.

Under the plan, on or prior to the closing date of any acquisition by the Company or any of its subsidiaries (whether by merger, equity sale, sale of assets or other business combination of the voting or economic interests of any person or business, or subsidiary, division or the assets thereof, but excluding an acquisition that results in a change in control of the company) (each, an “Acquisition”), the plan administrator will establish a bonus pool in accordance with the formula set forth in the plan (which ranges from 1% to 5% of the aggregate consideration paid, or payable, by or on behalf of the company in the Acquisition, whether in the form of cash, stock, debt securities, or otherwise, the “Deal Size”), select participants who will receive an award and determine their allocation of the bonus pool, in its sole discretion (and in consultation with the Executive Vice President of Mergers and Acquisitions). The plan administrator has the discretion to determine the Deal Size relating to any Acquisition (including, without limitation, whether contingent payouts based upon “earn-outs”, amounts placed into escrow or the principal amount of all indebtedness assumed by the company in connection with an Acquisition will be included in such determination). The awards granted to participants under this plan are payable in cash in a lump sum (unless otherwise determined by the plan administrator) on the first payroll date following the closing of an Acquisition (but in no event more than 60 days following such closing); provided that, in the event that the acquired entity, assets or business relating to an Acquisition does not meet or exceed certain target performance measures, objectives or metrics (set by the plan administrator in its discretion, in connection with the entry into or consummation of such Acquisition), then the plan administrator may (i) require repayment of up to 50% of the proceeds of any award paid to the participant in respect of such Acquisition (the “clawback amount”) or (ii) to the extent the participant is employed with us and eligible to participate in the Plan, reduce (including down to zero) such participant’s allocation of any future award in connection with any future Acquisition by the clawback amount.

The Compensation Committee may amend, alter, suspend, waive or terminate the plan at any time, except that no amendment, alteration, suspension, waiver, discontinuance or termination occurring after the closing date of any Acquisition can adversely affect the rights of a participant with respect to any unpaid bonus without such participant’s written consent. The plan will remain in effect until the date the Compensation Committee terminates the plan or the date the 2014 Plan is amended, restated or terminated. The obligations of the company for the payment of awards under the plan are unfunded and unsecured.

In 2015, Mr. Shields and Mr. Pesch received $92,072 and $338,983, respectively, under the Acquisition Incentive Plan.

OtherBonuses

On December 30, 2015, Mr. Mariano received a special one-time bonus of $700,000, which was granted by the Board, in recognition of his efforts and performance in connection with the acquisitions over the course of the year. On February 2, 2016, the Board approved a discretionary one-time bonus of $150,000 to Mr. Shields in recognition of his performance in 2015. In determining the bonus amount, the Board considered Mr. Shields’ effectiveness and contribution to the Company over the course of the year. On July 1, 2015, Mr. Pesch received a special one-time bonus of $300,000, in accordance with the terms of his employment agreement. Mr. Pesch also received a discretionary bonus of $61,500 in 2015 in recognition of his effectiveness and contribution to the Company over the course of the year. See “—Narrative Disclosure to Summary Compensation Table—Senior Management Agreements.”

Potential Payments upon Termination or Change in Control

Steven M. Mariano

Pursuant to the terms of Mr. Mariano’s employment agreement as amended, upon a termination of his employment by us without cause or by Mr. Mariano with good reason, subject to each of his execution and the effectiveness of a general release of claims, and subject to continued compliance with the restrictive covenants contained in his employment agreement, Mr. Mariano will be entitled to the following severance benefits: (i) a lump sum cash severance payment equal to 200% of the sum Mr. Mariano’s annual salary plus an amount equal to his average annual bonus over the three preceding fiscal years (except that if such termination of Mr. Mariano’s employment occurred within 24 months following a change in control or within six (6) months prior to a change in control, at the request of a participant in the potential acquisition, Mr. Mariano will instead receive an enhanced lump sum cash severance payment equal to 300% of the sum of his annual salary plus average annual bonus over the three preceding fiscal years) and (ii) if continuation of coverage under COBRA is elected by Mr. Mariano, reimbursement for the full cost of coverage under our group health plans for Mr. Mariano and his eligible dependents for a period of 18 months. In the event any payments to Mr. Mariano are subject to excise taxes under Section 4999 of the Internal Revenue Code, such payments will be either paid in full or reduced to a lesser amount which would not result in the imposition of such excise taxes, whichever results in a greater after-tax amount to Mr. Mariano.

Thomas Shields

Pursuant to the terms of Mr. Shields’ employment agreement, upon a termination of employment by us without cause or by Mr. Shields with good reason, subject to his execution and the effectiveness of a general release of claims, and subject to continued compliance with the restrictive covenants contained in his employment agreement, Mr. Shields will be entitled to a pro-rated portion

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of the annual bonus for the year of his termination based on actual achievement of performance objectives, a severance payment equal to 100% of the sum of his annual salary and target annual bonus at the time of termination payable in twelve (12) monthly installments (except that if such termination of Mr. Shields’ employment occurred within twelve (12) months following a change in control (as defined in the applicable employment agreement) or six (6) months prior to a change in control, Mr. Shields will instead receive enhanced severance equal to 200% of the sum of his annual salary and target annual bonus at the time of termination, payable in twenty-four (24) monthly installments) and Company-subsidized continuation of health coverage under COBRA during the period that severance is paid (or until Mr. Shields is eligible for health coverage under a subsequent employer’s plan, if earlier). In the event any payments to Mr. Shields are subject to excise taxes under Section 4999 of the Internal Revenue Code, such payments will be reduced to a lesser amount which would not result in the imposition of such excise taxes, if such reduction results in Mr. Shields retaining a greater after-tax amount than if he received the full unreduced amount and paid all taxes (including the excise taxes) due.

ChristopherPesch

Pursuant to the terms of Mr. Pesch’s employment agreement, upon a termination of employment by us without cause or by Mr. Pesch with good reason, subject to his execution and the effectiveness of a general release of claims, and subject to continued compliance with the restrictive covenants contained in his employment agreement, Mr. Pesch will be entitled to (i) a lump-sum severance payment equal to 100% of the sum of (x) Mr. Pesch’s annual salary at the time of termination (or, if greater, prior to the occurrence of good reason) and (y) the average bonus for the three (3) fiscal years preceding Mr. Pesch’s termination and (ii) continuation of Company-provided group health plan coverage, at the same level and cost applicable to Mr. Pesch immediately prior to his termination, until the second anniversary of the termination of his employment, except that if such termination of Mr. Pesch’s employment occurred within twelve (12) months following a change in control (as defined in his employment agreement) or six (6) months prior to a change in control, Mr. Pesch will instead receive enhanced severance equal to (i) a lump sum payment of 200% of the sum of (x) Mr. Pesch’s annual salary at the time of termination (or, if greater, prior to the occurrence of good reason) and (y) the average bonus for the three (3) fiscal years preceding Mr. Pesch’s termination and (ii) continuation of Company-provided group health plan coverage, at the same level and cost applicable to Mr. Pesch immediately prior to his termination, until the second anniversary of the termination of his employment. In the event any payments to Mr. Pesch are subject to excise taxes under Section 4999 of the Internal Revenue Code, such payments will be reduced to a lesser amount which would not result in the imposition of such excise taxes.

Restrictive Covenants

Upon any termination of employment for any reason, Messrs. Mariano, Shields’ and Pesch employment agreements each provide for restrictions on the disclosure of confidential information and trade secrets and disparaging the Company, and for a period of 12 months (or (i) in the case of Mr. Mariano, 24 months and (ii) in the case of Mr. Shields, the period that he receives severance payments, if longer) following the date of termination of employment covenants restricting them from engaging in competitive activities and soliciting our employees and clients.

Retirement Plan

Through a plan administered by Guarantee Insurance Group, our employees participate in a qualified contributory retirement plan established to qualify as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan covers all employees, including our named executive officers, who may contribute a portion of their eligible compensation to the plan subject to statutory limits imposed by the Internal Revenue Code. Subject to meeting the minimum contribution requirements under the plan, we provide for matching contributions of 50% of employee contributions up to the first 6% of employee contributions. We plan to adopt a similar retirement plan for our employees in connection with this offering.

Compensation Committee Interlocks and Insider Participation

During 2015, none of the members of our Compensation Committee has at any time been one of our executive officers or employees. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Director Compensation

The followingtableprovidessummaryinformationconcerningthe compensationof the currentmembersof our board of directorsfor the year ended December31, 2015. The compensationpaid to Steven M. Mariano,who is our Presidentand Chief ExecutiveOfficer,is presentedin the sectionentitled“ExecutiveCompensation” above.

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Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)		All Other Compensation ($)(2)		Total ($)
John R. Del Pizzo		60,000		60,000		25,000		145,000
Austin J. Shanfelter		60,000		60,000		25,000		145,000
Quentin P. Smith		60,000		60,000		25,000		145,000
Charles H. Walsh		60,000		60,000		25,000		145,000
Michael J. Corey		—		—		—		—

(1) The amounts reported reflect the aggregate grant date fair value of restricted stock awards granted during fiscal year 2015, calculated in accordance with ASC Topic 718, utilizing the closing price of our common stock on March 2, 2015, the date of grant.

(2) The amounts reported reflect a one-time cash bonus awarded to the non-management directors.

For the year ended December 31, 2015, each of our non-management directors was entitled to director compensation of (i) a cash retainer of $60,000, payable quarterly and (ii) an equity award of $60,000 under our 2014 Plan. On March 2, 2015, we granted 4,438 shares of restricted stock to each of our non-management directors. Such shares became fully vested on April 13, 2015. In addition, on February 2, 2016, the Board approved a one-time cash bonus of $25,000 and a one-time equity award of stock options with an aggregate exercise price of $25,000 to each of our non-management directors, in recognition of efforts taken by the Board in 2015 as the board of directors of a newly public company. The $25,000 cash bonus is reflected in the Director Compensation table set forth above. The award of stock options, which vested in full on the date of grant, will be reported with respect to each of the directors for the 2016 fiscal year. Each of our non-management directors were also reimbursed for reasonable travel and related expenses associated with attendance at board or committee meetings.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table and accompanying footnotes set forth information with regarding the beneficial ownership of our common stock as of March 14, 2016 by (i) each person who is known by us to own beneficially more than five percent of our outstanding shares of common stock, (ii) each of our named executive officers, (iii) each member of our board of directors and (iv) all of our directors and executive officers as a group. Percentage ownership in the following table is based on 27,176,441 shares outstanding as of March 14, 2016.

Name of Beneficial Owner	Total Beneficial Ownership			Ownership %
Directors and Executive Officers
Steven M. Mariano		14,626,122	(1)		53.8	%
Austin J. Shanfelter		604,238	(2)		2.2
Christopher A. Pesch		338,495	(3)		1.3
John R. Del Pizzo		184,483	(4)	*
Judith L. Haddad		77,500		*
Charles H. Walsh		70,894		*
Thomas Shields		70,588		*
Michael Grandstaff		69,976		*
Paul Von Hindenburg Halter, III		45,118	(5)	*
Timothy J. Ermatinger		40,882		*
Quentin P. Smith, Jr.		14,531		*
Michael J. Corey		11,456		*
All Directors and Executive Officers as a group		16,154,283			59.4	%
5% Beneficial Owners (excluding Directors and Executive Officers)
Edward E. Snow		1,579,166	(6)		5.8
All Directors, Executive Officers, and 5% Beneficial Owners		17,733,449			65.3	%

* Indicates less than one percent of common stock.

(1) Includes 626,428 shares held by the Steven M. Mariano Revocable Trust with Mr. Mariano as trustee, and 1,806,535 shares held by Guarantee Insurance Company which may be deemed to be beneficially owned by Mr. Mariano because Guarantee Insurance Company is controlled by Mr. Mariano. On February 26, 2015, Mr. Mariano has pledged 1,330,380 shares, representing approximately 5.0% of our total shares outstanding, to secure obligations under a credit agreement dated as of April 11, 2013, between Mr. Mariano and UBS Bank USA. In the event of a default under the agreement, UBS Bank USA may foreclose upon

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any and all of the pledged shares.  Additionally, as of March 14, 2016, Mr. Mariano has pledged 10,525,100 shares of our common stock, representing approximately 38.7% of our total shares outstanding, to secure obligations under a credit agreement dated as of March 11, 2015, between Mr. Mariano and Fifth Third Bank. In the event of a default under the agreement, Fifth Third Bank may foreclose upon any and all of the pledged shares.

Additionally, includes 126,984 unvested restricted stock units issued to employees as of March 14, 2016 for which Mr. Mariano has sole voting power.  Restricted stock units issued to employees vest in three annual installments. Until the vesting of any such units and the issuance of shares thereunder, Mr. Mariano will have a proxy to vote, or act by written consent with respect to, such shares until the earliest to occur of (i) the termination of employment of the individual who was granted such restricted stock units, (ii) sale of such shares to a third party, (iii) the date of our change in control and (iv) the date Mr. Mariano ceases to be our Chief Executive Officer.  Mr. Mariano’s address is c/o Patriot National, Inc., 401 East Las Olas Boulevard, Suite 1650, Fort Lauderdale, Florida, 33301.

(2) Includes 576,239 shares issued by us to In Touch Holdings LLC for which Mr. Shanfelter has voting and investment power in connection with the Global HR Acquisition.

(3)   Mr. Pesch has pledged the investment account holding his shares to BMO Harris Bank N.A. to secure a loan.

(4) Includes 65,574 shares held by Mr. Del Pizzo’s spouse and 7,044 shares held by Advanta Trust LLC for which Mr. Del Pizzo shares voting and investment power.

(5) Includes 1,000 shares held by Mr. Halter’s spouse.

(6) Based on the Schedule 13G filed with the SEC dated February 22, 2016,  Mr. Snow held sole voting power of 1,579,166 shares and sole dispositive power of 1,579,166 shares. Mr. Snow’s address is 940 West Sproul Road, Suite 103, Springfield, PA 19064.

Equity Compensation Plans

The following table provides information as of December 31, 2015, regarding the number of shares of our common stock that may be issued under our equity compensation plan.

	As of December 31, 2015
Securities Authorized for Issuance Under    Equity Compensation Plans	Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)(2)		Weighted-average exercise price of outstanding options, warrants and rights ($)		Number of securities remaining available for future issuance under equity compensation plans (#)
Equity compensation plan approved    by stockholders (1)		1,373,639	$	14.49		586,462

(1) Relates only to the Patriot National, Inc. 2014 Omnibus Incentive Plan detailed below.

(2) Includes 1,204,709 stock options and 168,930 unvested restricted stock units

In connection with our IPO, the Board of Directors and our stockholders adopted the 2014 Omnibus Incentive Plan under which 2,824,968 shares of common stock were reserved. The 2014 Omnibus Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based and performance compensation awards to eligible employees, officers, directors, consultants and advisors of the Company. If an award under the 2014 Omnibus Incentive Plan terminates, lapses or is settled without the payment of the full number of shares subject to the award, the undelivered shares may be granted again under the 2014 Omnibus Incentive Plan. As of December 31, 2015, there were no equity compensation plans not approved by stockholders of the Company.

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Item 13. Certain Relationships and Related Transactions and Director Independence

Transactions with Related Persons

Relationship and Transactions with Guarantee Insurance Group and Guarantee Insurance

As of March 14, 2016 Steven M. Mariano, our founder, Chief Executive Officer and Chairman, beneficially owned 53.8% of the outstanding shares of our common stock and substantially all of the outstanding equity of Guarantee Insurance Group. As a result, our transactions with Guarantee Insurance Group and its subsidiaries, including Guarantee Insurance and GUI, are related party transactions. Mr. Mariano received dividends of $3.5 million from Guarantee Insurance Group in 2015.

Service Fees Received from Guarantee Insurance

We provide brokerage and policyholder services and claims administration services to Guarantee Insurance pursuant to the Services Agreements and the Program Administrator Agreement. See “Business—Our Clients.” We have been providing a full range of brokerage and policyholder services to Guarantee Insurance pursuant to the Program Administrator Agreement since August 6, 2014.

Pursuant to the Services Agreements, we provide our services in connection with claims arising out of insurance policies held or underwritten by Guarantee Insurance. The Services Agreements have various terms and expiration dates ranging from 2018 to 2022, unless otherwise extended or earlier terminated as provided therein. The fees we receive are based, depending on the service provided, upon a percentage of reference premium, flat monthly fees, hourly fees or the savings we achieve, among others.

Pursuant to Program Administrator Agreement, we act as Guarantee Insurance’s exclusive general agent for the purpose of underwriting, issuing and delivering insurance contracts in connection with Guarantee Insurance’s workers’ compensation insurance program. The agreement with Guarantee Insurance remains in effect until terminated by either party upon 180 days’ prior written notice to the other party for cause. Guarantee Insurance may also terminate the agreement, in whole or in part, immediately upon written notice to us in the event of our insolvency or bankruptcy, systematic risk-binding that is not in compliance with the applicable underwriting guidelines or procedures and the occurrence of certain other events. The fees we receive are based upon premiums written for each account bound with Guarantee Insurance.

A portion of the fees that we receive from Guarantee Insurance pursuant to the Services Agreements and the Program Administrator Agreement are for Guarantee Insurance’s account (which we recognize as “fee income from related party”) and a portion of the fees are for the account of reinsurance captive entities to which Guarantee Insurance has ceded a portion of its written risk (which we recognize as “fee income”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Components of Financial Statements—Revenue.” As a result, a substantial portion of fee income we recognize from non-related parties is nevertheless derived from our relationship with Guarantee Insurance. For the year ended December 31, 2015, we recognized $144.1 million in total fee income and fee income from related party derived from our contracts and relationships with Guarantee Insurance, and our fee income from related party was $86.9 million. Our total fee income and fee income from related party pursuant to contracts with Guarantee Insurance and our fee income from related party constituted 69% and 41%, respectively, of our total fee income and fee income from related party for the year ended December 31, 2015.

Rent, Administrative and Management Fees Paid to Guarantee Insurance Group

For the year ended December 31, 2014, approximately $1.9 million was paid to Guarantee Insurance Group pursuant to an expense reimbursement agreement dated January 1, 2012, as amended and restated from time to time. We reimbursed Guarantee Insurance Group for rent and certain corporate administrative services costs incurred on our behalf for such costs and are reflected as “allocation of marketing, underwriting and policy issuance costs from related party” in our consolidated statements of operations.

In addition, pursuant to a management services agreement with Guarantee Insurance Group dated January 1, 2012, we paid management fees to Guarantee Insurance Group for management oversight, legal, accounting, human resources and technology support services provided to us. For the year ended December 31, 2014, approximately $5.4 million was paid to Guarantee Insurance Group for such services and are reflected as “management fees paid to related party for administrative support services” in our consolidated statements of operations.

Our administrative functions have been separated from Guarantee Insurance, the expense reimbursement and management services agreements have been terminated, and such expenses are being incurred directly by us from August 6, 2014, including through a sublease agreement with Guarantee Insurance Group, as described below.

Equipment Lease

Effective August 6, 2014, in connection with the GUI Acquisition, Guarantee Insurance Group assigned to us its rights, and we assumed its obligations under, the master equipment lease agreement, dated as of December 3, 2013, by and among Fifth Third Bank, as lessor, and Guarantee Insurance Group and Mr. Mariano, as co-lessees, which was incurred in respect of the IE system. As co-

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lessee, Mr. Mariano has agreed, among other things, to maintain no less than $5.0 million of liquidity as long as any obligations are outstanding under this agreement. As of December 31, 2015, the aggregate amount of lease financings pursuant to this agreement was $2.2 million.

Financing Transactions

UBS Credit Agreement

On August 6, 2014, in connection with the Patriot Care Management Acquisition, we and certain of our subsidiaries entered into the UBS Credit Agreement, which provided for a five-year term loan facility in an aggregate principal amount of $57.0 million that would mature on August 6, 2019. The loan was secured by the common stock of PCM and guaranteed by Guarantee Insurance Group and its wholly owned subsidiaries. Following our IPO, we prepaid all outstanding borrowings under the UBS Credit Agreement, including accrued interest and applicable prepayment premium.  On January 22, 2015, in connection with our IPO, we repaid all outstanding borrowings under the Agreement.

PennantPark Loan Agreement

On August 6, 2014, in connection with the GUI Acquisition, we and certain of our subsidiaries, as borrowers, and certain of our other subsidiaries and certain affiliated entities, as guarantors, entered into the PennantPark Loan Agreement with the PennantPark Entities, as lenders. Following our IPO, we prepaid all outstanding borrowings under the PennantPark Loan Agreement, including accrued interest and applicable prepayment premium.  On January 22, 2015, in connection with our IPO, we repaid all outstanding borrowings under the Agreement.

GUI Acquisition

On August 6, 2014, we consummated the GUI Acquisition pursuant to which we acquired GUI’s contracts in force and certain other assets, for a total consideration of approximately $55.1 million. The consideration consisted of $30 million in cash, the assumption of certain of GUI’s liabilities, settlement of certain intercompany balances and the retirement of the receivable in the amount of approximately $28.8 million from Guarantee Insurance comprising principal and accrued but unpaid interest under the Surplus Note made to Guarantee Insurance on November 27, 2013 in connection with the Reorganization. See “Business—Our History and Organization” and “Selected Financial Data.”

Patriot Care Management Acquisition

On August 6, 2014, we acquired the Patriot Care Management Business. The Patriot Care Management Business had been previously controlled by Mr. Mariano and was sold to MCMC, a third party, in 2011. A portion of the consideration received by Mr. Mariano and other stockholders in that sale consisted of MCMC preferred equity. As part of the Patriot Care Management Acquisition we issued 3,043,485 of our shares in exchange for MCMC preferred equity to the holders of such preferred equity, including Mr. Mariano, Mr. Del Pizzo and his spouse Arlene Del Pizzo, Mr. Shanfelter, Mr. Ermatinger, Mr. Grandstaff and Mr. Pesch, as consideration for such preferred equity. See “Business —Our History and Organization.”

Pursuant to a managed care services agreement, dated as of August 6, 2014, we outsource certain medical bill review and related services to MCMC. Mr. Mariano is party to the agreement with respect to certain exclusivity and non-compete provisions. The agreement remains in effect through December 31, 2019 unless earlier terminated by us or MCMC upon 30 days’ written notice for material breach. Subsequent to such initial term the agreement may be terminated by either party upon 90 days’ prior written notice to the other party.

DecisionUR Acquisition

On February 5, 2015, we purchased 98.8% of the membership interests in DecisionUR, LLC for a purchase price of $2.2 million in cash, from Six Points Investment Partners, LLC, a company wholly owned by Mr. Mariano. Accordingly, upon closing, Mr. Mariano received all of the proceeds from the sale of DecisionUR, LLC.

Vikaran Acquisition

On April 17, 2015, we acquired Vikaran Solutions, LLC (“Vikaran”) for a purchase price of $8.5 million in cash. Prior to the acquisition, Mr. Mariano held a non-controlling, 45% interest in Vikaran. Upon closing, Mr. Mariano received proceeds of $3.8 million from the sale of Vikaran to us. In connection with the acquisition of Vikaran we also agreed to purchase all of the outstanding stock of Mehta and Pazol Consulting Services Private Limited (“MPCS”), an Indian company which holds Vikaran’s software development center located in Pune, India, for a purchase price of approximately $1.5 million. We consummated the purchase of 51% of the MPCS stock, and Mr. Mariano received proceeds of $749,850 therefrom.

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Global HR Acquisition

On August 21, 2015, we acquired Global HR Research LLC (“Global HR”) for an aggregate purchase price of $42.0 million payable in cash and shares of our common stock. One of our independent directors, Austin J. Shanfelter, indirectly controlled Global HR through his ownership of the majority of the equity interests in In Touch Holdings LLC (“In Touch”) which owned 75.5% of the equity interests of Global HR. Upon closing, Mr. Shanfelter, through In Touch, received aggregate proceeds of approximately $28.2 million from the sale of Global HR to us, comprised of shares of our common stock and cash. In addition, In Touch will forfeit and return a portion of the consideration to us if Global HR does not meet certain targets.

In addition, in connection with the closing of the Global HR Acquisition, we entered into a registration rights agreement with the sellers, including Mr. Shanfelter, pursuant to which we provided the sellers with certain customary “piggyback” registration rights in respect of their shares received as part of the acquisition consideration, subject to cutbacks and other customary provisions.

Stockholders Agreement

In connection with the warrants issued to the PennantPark Entities as part of our reorganization in 2013, we entered into the Stockholders Agreement, which was amended and restated on January 5, 2015 in connection with our IPO. Pursuant to the Stockholders Agreement, Mr. Del Pizzo has certain customary “piggyback” registration rights with respect to 184,483 shares of our common stock that he now holds. All expenses incurred in connection with a “piggyback” registration will be borne by us, excluding underwriters’ discounts and commissions, which will be borne by the selling party. In addition, we will indemnify the registration rights holders against certain liabilities which may arise under the Securities Act in connection with any offering made pursuant to such registration rights.

In connection with our IPO, we also entered into a new registration rights agreement with Mr. Mariano. This agreement provides him with an unlimited number of “demand” registrations as well as customary “piggyback” registration rights. This new registration rights agreement also provides that we will pay certain expenses relating to such registrations, excluding underwriters’ discounts and commissions, and indemnify Mr. Mariano against certain liabilities which may arise under the Securities Act in connection with any offering made pursuant to such registration rights.

Tax Advisory Services

Del Pizzo & Associates P.C., a tax advisory firm wholly owned by Mr. Del Pizzo, one of our directors, has received payments from us in the amount of approximately $185,100 in the year ended December 31, 2015 for tax advisory services it performed in fiscal year 2015 in respect of entities that are now our subsidiaries. Del Pizzo & Associates P.C. will continue providing similar services for fiscal year 2016.

Loan Arrangements and Receivable from Affiliates

As of December 31, 2015, we had a net receivable from related parties of approximately $0.3 million and $0.2 million due from Mr. Mariano and entities controlled by Mr. Mariano, respectively.  

In addition, on December 23, 2015, we and Steven M. Mariano amended the Stock Back-to-Back Agreement, pursuant to which, upon the exercise of the New Warrants, we would purchase a number of shares of our common stock owned by Steven M. Mariano equal to 100% of the shares to be issued in connection with the exercise by the PIPE investors of the New Warrants.See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events.”

Statement of Policy Regarding Transactions with Related Persons

Our board of directors has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying transactions with related persons and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as the Corporate Governance Guidelines of our board of directors and our Code of Business Conduct and Ethics.

The Related Person Transaction Policy provides that all transactions with related persons covered by the policy must be reviewed and approved and ratified by the Audit Committee or disinterested members of the board of directors and that any employment relationship or transaction involving an executive officer and any related compensation must be approved or recommended for the approval of the board of directors by the Compensation Committee.

In reviewing transactions with related persons, the Audit Committee or disinterested members of the board of directors will consider all relevant facts and circumstances, including, without limitation:

● the nature of the related person’s interest in the transaction;

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● the material terms of the transaction;

● the importance of the transaction both to the Company and to the related person;

● whether the transaction would likely impair the judgment of a director or executive officer to act in the best interest of the Company;

● whether the value and the terms of the transaction are substantially similar as compared to those of similar transactions previously entered into by the Company with non-related persons, if any; and

● any other matters that management or the Audit Committee or disinterested directors, as applicable, deem appropriate.

The Audit Committee or disinterested members of the board of directors, as applicable, will not approve or ratify any related person transaction unless it shall have determined in good faith that, upon consideration of all relevant information, the related person transaction is in, or is not inconsistent with, the best interests of the Company. The Audit Committee or the disinterested members of the board of directors, as applicable, may also conclude, upon review of all relevant information, that the transaction does not constitute a related person transaction and thus that no further review is required under this policy.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

● the Company was or is to be a participant;

● the amount involved exceeds $120,000; and

● any related person (i.e., a director, director nominee, executive officer, greater than 5% beneficial owner and any immediate family member of such person) had or will have a direct or indirect material interest.

Director Independence

    See “Item 10. Directors, Executive Officers and Corporate Governance – Board Composition and Independence” above.

Item 14. Principal Accountant Fees and Services

The following table summarizes the aggregate fees for professional services provided by BDO USA, LLP (“BDO”) for the years ended December 31, 2015 and 2014:

	For the Year Ended December 31,
In thousands	2015		2014
Audit Fees (1)	$	698	$	1,050
Audit-Related Fees		52		—
Tax Fees		—		—
All Other Fees		—		—
Total Fees Billed	$	750	$	1,050

(1) Audit Fees include services performed in review of the Company’s books and records, disclosures, and estimates for the periods indicated, and services performed related to the Company’s Initial Public Offering and consents in connection with offerings.

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee pre-approves all audit and permitted non-audit services provided by its independent registered public accounting firm. The Audit Committee may delegate authority to one or more independent members to grant pre-approvals of audit and permitted non-audit services; provided that any such pre-approvals shall be presented to the full Committee at its next scheduled meeting.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report.

1. Consolidated Financial Statements: We include this portion of Item 15 under Item 8 of this Annual Report on Form 10-K.

a. Consolidated Balance Sheets as of December 31, 2015 and 2014.

b. Consolidated Statement of Operations for the years ended December 31, 2015, 2014 and 2013.

c. Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.

d. Consolidated Statement of Stockholder’s Equity (Deficit) for the years ended December 31, 2015, 2014 and 2013.

e. Notes to Consolidated Financial Statements.

f. Report of Independent Registered Public Accounting Firm on Financial Statements.

2. Financial Statement Schedules:

a. All schedules are omitted as the required information is either not present, not present in material amounts, or presented within the audited financial statements or related notes.

3. Exhibits:

Exhibit Number		Exhibit Description
2.1	Asset Purchase Agreement dated as of January 31, 2015 by and between Patriot National, Inc. and Phoenix Risk Management, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on February 5, 2015 (File no. 001-36804))
2.2	Stock Purchase Agreement dated as of March 31, 2015 by and between Patriot Services, Inc. and TriGen Holdings Group, Inc., and certain shareholders of TriGen Holdings Group, Inc. (“TriGen Stock Purchase Agreement”) (incorporated by reference to Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.3	Amendment No. 1 to TriGen Stock Purchase Agreement dated as of April 13, 2015, by and between Patriot Services, Inc. and TriGen Insurance Solutions, Inc. (as successor by merger to TriGen Holdings Group, Inc.) (incorporated by reference to Exhibit 2.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.4	Asset Purchase Agreement dated as of April 8, 2015 by and between TriGen Insurance Solutions, Inc. and Hospitality Supportive Systems, LLC (the “HSS Asset Purchase Agreement”) (incorporated by reference to Exhibit 2.4 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.5	Asset Purchase Agreement dated as of April 8, 2015 by and between TriGen Insurance Solutions, Inc. and Selective Risk Management LLC (the “SRM Asset Purchase Agreement”) (incorporated by reference to Exhibit 2.5 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.6	Agreement and Plan of Merger dated as of April 17, 2015, by and among Patriot National, Inc., Vikaran Technology Solutions, Inc., Vikaran Solutions, LLC and certain members of Vikaran Solutions, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 20, 2015 (File No. 001-36804))
2.7	Stock Purchase Agreement dated as of April 24, 2015, by and among Corporate Claims Management, Inc. (“CCMI”), the shareholders of CCMI, and Patriot Risk Services, Inc. (incorporated by reference to Exhibit 2.7 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.8	Amendment No. 1 to HSS Asset Purchase Agreement dated as of May 14, 2015, by and between TriGen Insurance Solutions, Inc. and Hospitality Supportive Systems, LLC (incorporated by reference to Exhibit 2.8 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.9	Amendment No. 1 to SRM Asset Purchase Agreement dated as of May 14, 2015, by and between TriGen Insurance Solutions, Inc. and Selective Risk Management LLC (incorporated by reference to Exhibit 2.9 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))

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Exhibit Number		Exhibit Description
2.10	Asset Purchase Agreement dated as of May 8, 2015, by and among Contego Services Group, LLC and Candid Investigation Services, L.L.C (incorporated by reference to Exhibit 2.10 to the Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2015 (File no. 001-36804))
2.11	Asset Purchase Agreement dated as of May 22, 2015, by and between TriGen Insurance Solutions, Inc. and Brandywine Insurance Advisors, LLC (incorporated by reference to Exhibit 2.11 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.12	Asset Purchase Agreement dated as of June 3, 2015, by and between Patriot Underwriters, Inc. and Infinity Insurance Solutions LLC (incorporated by reference to Exhibit 2.12 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.13	Assignment and Assumption Agreement dated as of June 15, 2015, by and between TriGen Insurance Solutions, Inc. and The Carman Corporation (incorporated by reference to Exhibit 2.13 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.14	Stock Purchase Agreement dated as of June 17, 2015, by and between Patriot Technology Solutions, Inc. and InsureLinx, Inc. (incorporated by reference to Exhibit 2.14 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.15	Stock Purchase Agreement dated as of July 9, 2015, by and between Patriot Risk Services, Inc. and CWIBenefits, Inc. (incorporated by reference to Exhibit 2.15 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.16	Membership Interest Purchase Agreement dated as of July 20, 2015, by and between Patriot National, Inc. and Global HR Research LLC, In Touch Holdings LLC, the members of Global HR Research LLC, and Brandon G. Phillips (incorporated by reference to Exhibit 2.16 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
2.17	Asset Purchase Agreement dated as of August 14, 2015, by and between TriGen Insurance Solutions, Inc. and Restaurant Coverage Associates, Inc. (incorporated by reference to Exhibit 2.5 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
2.18	Asset Purchase Agreement dated as of August 14, 2015, by and between Patriot Risk Services, Inc. and Risk Control Associates, Inc. (incorporated by reference to Exhibit 2.6 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
2.19	Amendment No. 1 to the Global HR Membership Interest Purchase Agreement, dated as of August 21, 2015, by and between Patriot National, Inc. and Global HR Research LLC, In Touch Holdings LLC, the members of Global HR Research LLC, and Brandon G. Phillips (incorporated by reference to Exhibit 2.4 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
2.20	Facilitation Agreement dated as of October 29, 2015, by and between TriGen Insurance Solutions, Inc. and The Carman Corporation (incorporated by reference to Exhibit 2.7 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
2.21	Asset Purchase Agreement dated as of January 28, 2016 by and between Patriot Underwriters, Inc. and Mid Atlantic Insurance Services, Inc.
2.22	Amendment No. 2 to TriGen Stock Purchase Agreement dated as of February 1, 2016 by and between Patriot Services, Inc. and TriGen Insurance Solutions, Inc.
2.23	Amendment No. 3 to TriGen Stock Purchase Agreement dated as of March 1, 2016 by and between Patriot Services, Inc. and TriGen Holdings Group, Inc., and certain shareholders of TriGen Holdings Group, Inc.
3.1	Amended and Restated Certificate of Incorporation of Patriot National, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 22, 2015 (File no. 001-36804))
3.2	Amended and Restated Bylaws of Patriot National, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on January 22, 2015 (File no. 001-36804))
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))

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Exhibit Number		Exhibit Description
4.2	Amended and Restated Stockholders Agreement, dated as of January 5, 2015, among Steven M. Mariano, John R. Del Pizzo, as Minority Stockholder, PennantPark Investment Corporation, PennantPark Floating Rate Capital Ltd., PennantPark SBIC II LP, PennantPark Credit Opportunities Fund LP and Patriot National, Inc. (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
4.3	Registration Rights Agreement, dated as of January 5, 2015, by and between Patriot National, Inc. and Steven M. Mariano (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
4.4	Amended and Restated Common Stock Purchase Agreement, dated as of January 5, 2015, between Advantage Capital Community Development Fund, L.L.C., as holder, and Patriot National, Inc. (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
4.5	Registration Rights Agreement, dated as of August 21, 2015, among Patriot National, Inc., In Touch Holdings LLC and Brandon G. Phillips (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-1 filed on October 5, 2015 (File no. 333-207267))
4.6	Form of New Warrants (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 23, 2015 (File no. 001-36804))
10.1**	Program Administrator Agreement, dated as of August 6, 2014, between Patriot Underwriters, Inc. and Guarantee Insurance Company (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.2**	Subrogation Services Agreement, dated as of April 25, 2011, between Contego Services Group, LLC and Guarantee Insurance Company, as amended (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.3**	Investigation and Loss Control Services Agreement, dated as of April 25, 2011, between Contego Services Group, LLC and Guarantee Insurance Company, as amended (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.4**	Managed Care Services Agreement, dated as of August 6, 2014, between Patriot Care Management, Inc. (f/k/a Managed Care Risk Services, Inc.) and Guarantee Insurance Company (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.5**	Claim Administration Services Agreement, dated as of January 1, 2012, between Patriot Risk Services, Inc. and Guarantee Insurance Company, as amended (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.6	Master Equipment Lease Agreement, dated as of December 3, 2013, by and among Patriot National, Inc., Steven M. Mariano and Fifth Third Bank (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.7*	Patriot National, Inc. 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 22, 2015 (File no. 001-36804))
10.8*	Form of Restricted Stock Grant Notice and Agreement (Employees) (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.9*	Form of Restricted Stock Grant Notice and Agreement (Non-Employee Directors) (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on November 21, 2014 (File no. 377-00818))
10.10*	Executive Employment Agreement, dated as of December 31, 2014, by and between Patriot National, Inc. and Steven M. Mariano (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))

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Exhibit Number		Exhibit Description
10.11*	Executive Employment Agreement, dated as of August 27, 2012, by and between Guarantee Insurance Group, Inc. (f/k/a Patriot National Insurance Group, Inc.) and Robert Peters, and Assignment and Assumption of Employment Agreement, dated as of December 10, 2014, by and among Guarantee Insurance Group, Inc., Patriot National, Inc. and Robert Peters (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1 filed on December 15, 2014 (File no. 333-200972))
10.12*	Executive Employment Agreement, dated as of February 19, 2010, by and between Guarantee Insurance Group, Inc. (f/k/a Patriot Risk Management, Inc.) and Judith L. Haddad, and Assignment and Assumption of Employment Agreement, dated as of December 10, 2014, by and among Guarantee Insurance Group, Inc., Patriot National, Inc. and Judith L. Haddad (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1 filed on December 15, 2014 (File no. 333-200972))
10.13*	Executive Employment Agreement, dated as of June 22, 2011, by and between Guarantee Insurance Group, Inc. (f/k/a Patriot National Insurance Group, Inc.) and Michael Grandstaff, and Assignment and Assumption of Employment Agreement, dated as of December 10, 2014, by and among Guarantee Insurance Group, Inc., Patriot National, Inc. and Michael Grandstaff (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on December 15, 2014 (File no. 333-200972))
10.14*	Executive Employment Agreement, dated as of September 8, 2014, by and between Patriot National, Inc. (f/k/a Old Guard Risk Services, Inc.) and Christopher A. Pesch (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on December 15, 2014 (File no. 333-200972))
10.15*	Executive Employment Agreement, dated as of January 5, 2015, by and between Patriot National, Inc. and Thomas Shields (incorporated by reference to Exhibit 10.15 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.16*	Form of Indemnification Agreement by and between Patriot National, Inc. and its directors and officers (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on December 15, 2014 (File no. 333-200972))
10.17*	Form of Option Grant Notice and Agreement (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.18*	Form of Restricted Stock Grant Notice and Agreement (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.19*	Executive Employment Agreement, dated as of December 31, 2014, by and between Patriot National Inc. and Michael McFadden (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.20*	Executive Employment Agreement, dated as of December 31, 2014, by and between Patriot National, Inc. and Paul V. H. Halter, III (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.21*	Executive Employment Agreement, dated as of December 31, 2014, by and between Patriot National, Inc. and Timothy J. Ermatinger (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on January 6, 2015 (File no. 333-200972))
10.22	Credit Agreement, dated as of January 22, 2015, by and among Patriot National, Inc., the Lenders party thereto and BMO Harris Bank N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 22, 2015 (File no. 001-36804))
10.23	First Amendment to the Credit Agreement, dated as of June 15, 2015, by and among Patriot National, Inc., the lenders party thereto and BMO Harris Bank N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2015 (File no. 001-36804))
10.24	Second Amendment to the Credit Agreement, dated as of August 14, 2015, by and among Patriot National, Inc., the lenders party thereto and BMO Harris Bank N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
10.25	Third Amendment to the Credit Agreement, dated as of December 23, 2015, by and among Patriot National, Inc., the lenders party thereto and BMO Harris Bank N.A., as administrative agent (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on January 15, 2016 (File no. 333-209010))

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Exhibit Number		Exhibit Description
10.26*	Patriot National, Inc. Acquisition Incentive Plan Under the Patriot National, Inc. 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 12, 2015 (File no. 001-36804))
10.27	Securities Purchase Agreement, dated as of December 13, 2015, among Patriot National, Inc., Steven M. Mariano and the buyers named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2015 (File no. 001-36804))
10.28	Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 15, 2015 (File no. 001-36804))
10.29	Stock Back-to-Back Agreement, dated as of December 13, 2015, between Patriot National, Inc. and Steven M. Mariano (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 14, 2015 (File no. 001-36804))
10.30	Rescission and Exchange Agreement, dated as of December 23, 2015, among Patriot National, Inc. and the investors named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 23, 2015 (File no. 001-36804))
10.31	Amended and Restated Stock Back-to-Back Agreement, dated as of December 23, 2015, between Patriot National, Inc. and Steven M. Mariano (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 23, 2015 (File no. 001-36804))
10.32	Form of Voting Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 23, 2015 (File no. 001-36804))
10.33	Fourth Amendment to the Credit Agreement, dated as of March 3, 2016, by and among Patriot National, Inc., the lenders party thereto and BMO Harris Bank N.A., as administrative agent.
21.1	List of Subsidiaries
23.1	Consent of BDO USA, LLP
24.1	Power of Attorney (included on the signature pages to this report)
31.1	Certificate of Steven M. Mariano, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certificate of Thomas Shields, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certificate of Steven M. Mariano, President and Chief Executive Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2	Certificate of Thomas Shields, Executive Vice President and Chief Financial Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* This document has been identified as a management contract or compensatory plan or arrangement.

** Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PATRIOT NATIONAL, INC.
Date: March 18, 2016	By:	/s/ Christopher A. Pesch
	Name:	Christopher A. Pesch
	Title:	Executive Vice President, General Counsel, Chief Legal Officer and Secretary

Power of Attorney

The undersigned directors and officers of the registrant hereby constitute and appoint Christopher A. Pesch, and each of them, any of whom may act without joinder of the other, the individual’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign this report and any or all amendments to this report, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the18th day of March, 2016.

Signature	Title
/s/ Steven M. Mariano	Chairman, President and Chief Executive Officer
Steven M. Mariano	(principal executive officer)
/s/ Thomas Shields	Executive Vice President, Chief Financial Officer and Treasurer
Thomas Shields	(principal financial officer and principal accounting officer)
/s/ John R. Del Pizzo	Director
John R. Del Pizzo
/s/ Austin J. Shanfelter	Director
Austin J. Shanfelter
/s/ Quentin P. Smith	Director
Quentin P. Smith
/s/ Charles H. Walsh	Director
Charles H. Walsh
/s/ Michael J. Corey	Director
Michael J. Corey

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