Income Taxes

The Company provides for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on 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 Company recorded a U.S. net benefit for income taxes of $0.8 million, expense of $6.6 million and benefit of $27.9 million in 2018, 2017 and 2016, respectively. As a results of the purchase of Lovoo, GmbH in October 2017, the Company recorded a provision for German income taxes of approximately $1.3 million and $0.2 million in 2018 and 2017, respectively.

The provision for income taxes for 2018, 2017 and 2016, consists of the following:



	2018			2017			2016
Federal:
Current	$	(81,803	)	$	20,870		$	150,233
Deferred	472,908			6,637,417			(26,783,983		)
Total federal	391,105			6,658,287			(26,633,750		)
State:
Current	47,499			(32,456		)	71,120
Deferred	(1,222,786		)	(74,368		)	(1,312,732		)
Total state	(1,175,287		)	(106,824		)	(1,241,612		)
Foreign:
Current	1,211,602			293,331			—
Deferred	40,036			(141,194		)	—
Total foreign	1,251,638			152,137			—
Provision (benefit) for income taxes	$	467,456		$	6,703,600		$	(27,875,362	)

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:



	December 31, 2018			December 31, 2017
Deferred tax assets:
Net operating loss carryforward	$	16,835,393		$	18,092,988
Property and equipment	—			326,229
Stock options and warrants	3,125,070			2,796,366
Federal and state tax credits	5,472,586			6,208,362
Accrued liabilities and other reserves	1,188,607			1,514,995
Other comprehensive income	206,417			309,436
Other	—			476,910
Total deferred tax assets	26,828,073			29,725,286
Valuation allowance	(2,299,805		)	(2,512,045		)
Net deferred tax assets	24,528,268			27,213,241
Deferred tax liabilities
Property and equipment	(67,991		)	—
Amortization of intangible assets	(8,707,035		)	(11,692,027		)
Other	(104,670		)	—
Total deferred tax liabilities	(8,879,696		)	(11,692,027		)
Net deferred tax assets	$	15,648,572		$	15,521,214

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets (primarily federal and state net operating losses (NOLs)). As of December 31, 2018, the Company has achieved three years of cumulative adjusted pretax income in the U.S. federal and state tax jurisdiction. The Company has determined that there is sufficient positive evidence to conclude that it is more likely than not that net deferred tax assets, before valuation allowance, of $26.8 million are realizable, except for certain Florida NOLs, Pennsylvania NOLs that, starting in 2017, are limited to 30% of taxable income, increasing to 35% of taxable income in 2018 and 40% of taxable income in years after 2018. Upon acquisition, the Company determined that a valuation allowance was required for certain if(we) California net operating losses and credits that were not more likely than not to be realized. The Company believes it is more likely than not that the foreign deferred tax assets are realizable due to reversing deferred tax liabilities.

A reconciliation of income tax expense computed at the statutory federal income tax rate of 21% to income taxes as reflected in the financial statements is as follows:



	2018			2017			2016
U.S. federal income tax at statutory rate	$	340,074		$	(20,260,844	)	$	6,437,639
State tax benefit, net of federal provision (benefit)	(53,732		)	(21,096		)	(1,266,504		)
Effect of rates different than statutory	465,945			(311,304		)	—
Goodwill impairment	—			19,750,101			—
Windfall tax benefit	263,499			(2,155,157		)	(2,957,837		)
Fair market value adjustment for warrants	—			—			302,609
Transaction costs	—			819,251			607,528
Sec. 162(m) Excess Officer's Compensation	100,247			283,351			476,339
Nondeductible expenses	61,962			825,169			56,018
Stock compensation forfeitures and other	—			562,155			1,195,454
Loss on foreign investments	—			—			(649,998		)
Rate change	102,717			7,670,606			(909,045		)
Dissolution of foreign entity	—			(1,124,781		)	—
Repatriation tax	(81,802		)	81,808			—
Change in valuation allowance	(212,239		)	731,250			(31,247,234		)
Foreign subsidiary loss with no tax benefit	—			—			7,485
GILTI	251,370			—			—
Additional State NOLs	(765,222		)	—			—
Other	(5,363		)	(146,909		)	72,184
Provision (benefit) for income taxes	$	467,456		$	6,703,600		$	(27,875,362	)

The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017, most provisions of which became effective in 2018. The Tax Act made substantial changes to U.S. taxation of corporations, including lowering the U.S. federal corporate income tax rate from 35% to 21% and instituting a territorial tax system, along with a one-time tax on accumulated foreign earnings. Upon enactment, the Company remeasured its deferred tax balances to reflect the new 21% U.S. federal tax rate, which resulted in a tax expense of $7.7 million in 2017. The Company also recorded a provisional liability for the one-time U.S. tax of $0.1 million, triggered by the Tax Act, on accumulated foreign earnings. This provisional liability was fully reversed during the current year. Another provision of the Tax Act subjects performance–based compensation paid to certain covered employees to the limitation on the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code. As a result of this provision the future payment of stock based compensation for which deferred tax assets exist as December 31, 2018 may be nondeductible in the future year in which it is paid. The Company’s accounting policy is to treat stock based compensation as deductible first and to apply the limitation to cash based compensation in the year of payment. Based on information available at this time it is assumed that these future payments will be deductible and that any limitation on the deductibility will be applied to other compensation paid in the year of payment.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company has closed its accounting for the impacts of the Tax Act. Accordingly, the Company determined that there was no liability in connection with the transition tax on the mandatory deemed repatriation of foreign earnings. The Company calculated the impact of the Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Act to be an expense of approximately $0.3 million in the current year. The GILTI provision imposes taxes on foreign earnings in excess of a deemed return on tangible assets. The Company has elected to treat the GILTI tax as a period cost; as such, no deferred taxes have been recorded with respect to GILTI.

The Company recorded an additional benefit for state operating losses in the current year as a result of additional apportionment in an existing state and legislative changes during the year in Pennsylvania which increased the limitation on the amount of carryforward that can be used each year.

The deferred tax assets at both December 31, 2018 and 2017 are principally the result of net operating loss carryforwards of $63.1 million and $68.6 million for Federal and $49.1 million and $50.1 million, for state purposes, respectively, which substantially begin to expire in 2027 and through 2037. The net operating loss carryforward at December 31, 2018 includes $16.9 million of Skout NOLs on which the Company performed an Internal Revenue Code Section 382 study which concluded that $1.3 million of a total of $18.2 million would be unusable due to annual limitation. Previously, the Company had completed an Internal Revenue Code Section 382 study to determine annual limitations on the usability of the Company’s net operating loss carryforwards due to historical changes in ownership. The amount of federal NOL carryforwards as of December 31, 2018 disclosed above do not include $63.3 million of The Meet Group, Inc. NOL carryforwards that are expected to expire unutilized pursuant to the Section 382 study.

In accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109, the Company has analyzed its tax position in all jurisdictions where it is required to file an income tax return and the Company has not recognized a benefit for uncertain tax positions. With respect to purchase accounting associated with the if(we) acquisition, a liability for uncertain tax positions was established in the amount of $2.0 million. If the unrecognized tax benefit is recognized it will impact the effective tax rate of the Company. All of the uncertain tax position has been recorded as a reduction to the related deferred tax asset for the credit carryforward in accordance with Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists for all periods. The total amount of unrecognized tax benefits is not expected to increase or decrease within 12 months of the reporting date.

The following is a tabular reconciliation of total amounts of unrecognized tax benefits:



	2018
Unrecognized tax liabilities— January 1	$	2,029,653
Gross increases	—
Unrecognized tax liabilities— December 31	$	2,029,653

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2018 and 2017, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016.

The Company files income tax returns in the U.S. and various state and foreign jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2014 through December 31, 2018. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.

The Company does not expect to repatriate any earnings in foreign subsidiaries, and therefore no accrual for withholding or other taxes has been made. The Company will continue to monitor any excess financial reporting over tax basis in our investments in foreign subsidiaries that may arise in future periods, and withholding taxes or other taxes would be recorded for any amounts not considered permanently reinvested, if applicable.