At June 30, 2016, the Company had net operating loss carryforwards (NOLs) of approximately $4,300,000 and temporary differences of approximately $1,100,000 totaling approximately $5,400,000 expiring through 2029, with a future tax benefit of approximately $1,874,000.  At June 30, 2016 and December 31, 2015, $1,874,000 and $4,958,000, respectively, were recorded as deferred tax assets on the Company's condensed consolidated balance sheets.  At each report date, management considers new evidence, both positive and negative, of its view of the future realization of deferred tax assets.  Based upon taxable income for the three months ended June 30, 2016, $4,852,000 was recorded as income tax expense and our deferred tax assets were reduced by $4,522,000 from the March 31, 2016 balance sheet to $1,874,000 at June 30, 2016.  At March 31, 2016 based upon additional taxable income anticipated to be realized in 2016 and in future years from legal proceedings and related license agreements, management determined that there was sufficient positive evidence to conclude that it was more likely than not that additional deferred taxes of approximately $2,280,000 were realizable.  Based on taxable income for the six months ended June 30, 2016, $5,745,000 was recorded as income tax expense, which was offset by a reduction in the Company's valuation allowance of $2,280,000 on its deferred tax assets resulting in a net deferred tax of $3,084,000 recorded on the Company's consolidated statements of operations and comprehensive income for the six months ended June 30, 2016.  Based upon litigation settlements in July 2016, the Company will utilize all of its remaining NOL carryforwards in the three month period ended September 30, 2016.  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 be recorded as income taxes payable 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. 

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").  In the second half of 2016 to date (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 continually assesses 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.