At September 30, 2015, the Company had net operating loss carryforwards (NOLs) totaling approximately $22,540,000 expiring through 2029, with a future tax benefit of approximately $7,889,000.  At September 30, 2015 and December 31, 2014, $3,815,000 and $4,743,000, respectively, were recorded as deferred tax assets on the Company’s condensed consolidated balance sheets. During the three month period ended September 30, 2015 as a result of income before taxes of $695,000, $288,000 was recorded as an income tax expense and the Company’s deferred tax assets were reduced by $262,000 to $3,815,000.  During the nine month period ended September 30, 2015 as a result of income (before taxes) for the period of $2,711,000, $994,000 was recorded as income tax expense and the deferred tax assets were reduced by $928,000 to $3,815,000.  To the extent that the Company has taxable income in the future, it will report income tax expense and such expense attributable to federal income taxes will reduce the deferred tax assets reflected on the accompanying condensed consolidated balance sheets.  Management will continue to evaluate the recoverability of the Company’s NOLs and adjust the deferred tax assets accordingly.  Utilization of NOLs can be subject to a substantial annual limitation due to ownership change limitations that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions.  There was no change in the allowance against the deferred tax assets since December 31, 2014.

The personal holding company (“PHC”) rules under the Internal Revenue Code impose a 20% tax on a PHC’s undistributed personal holding company income (“PHC Income”), in general, taxable income subject to certain adjustments.  For a corporation to be classified as a PHC, it must satisfy two tests: (i) that more than 50% in value of its outstanding shares must be owned directly or indirectly by 5 or fewer individuals at anytime during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the “Ownership Test”) and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the “Income Test”).  During the second half of 2015 through the date of this quarterly report (as well as prior years), the Company did not meet the Ownership Test.  Due to the significant number of shares held by the Company’s largest shareholders, the Company will continually assess its share ownership to determine whether it meets the Ownership Test.  If the Ownership Test were met and the income generated by the Company were determined to constitute “royalties” within the meaning of the Income Test, the Company would constitute a PHC and the Company would be subject to a 20% tax on the amount of any PHC Income (which cannot be offset by NOLs) that it does not distribute to its shareholders.