Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of our income tax benefit consisted of the following (in thousands):

	Year Ended December 31,
	2021		2020
Current:
State	$	(153)	$	(9)
Total current taxes	(153)		(9)
Deferred:
Federal	—		540
State	—		114
Total deferred taxes	—		654
Income tax (expense) benefit	$	(153)	$	645

The income tax expense for the year ended December 31, 2021 was primarily related to state minimum taxes. The income tax benefit for the year ended December 31, 2020 was a result of the deferred tax liability recorded at the time of the LifeDojo acquisition that was subsequently reversed at December 31, 2020.

As of December 31, 2021, the Company had net federal operating loss carry forwards and state operating loss carry forwards of approximately $311 million and $113 million, respectively. The net federal operating loss carry forwards begin to expire in 2023, and net state operating loss carry forwards have already begun to expire. The expiration of these state net operating losses does not affect our deferred tax asset since it has already been reduced resulting from our Section 382 study.

As of December 31, 2021, the Company completed an analysis of its ownership changes since formation in accordance with Section 382 of the Internal Revenue Code of 1986, as amended. As a result of the study, the Company expects federal and state NOLs of approximately $152 million and $64 million, respectively, to expire unutilized and the Company has reduced its gross deferred tax asset associated with the NOL carryforward, for the amount that has or is expected to expire unutilized, with an offsetting reduction to the valuation allowance.

Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance of $46.1 million and $38.6 million against all of its deferred tax assets as of December 31, 2021 and 2020, respectively. For the years ended December 31, 2021 and 2020, the total change in valuation allowance was $7.6 million and $(31.6) million, respectively. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income.

Net deferred tax assets and liabilities were as follows (in thousands):

	Year Ended December 31,
	2021		2020
Net operating losses	$	38,122	$	34,593
Stock-based compensation	3,046		1,888
Interest expense	5,009		3,253
Accrued liabilities and reserves	380		322
Fixed assets	(427)		(864)
Lease liability	479		655
Other temporary differences	195		200
Deferred commission	(150)		(612)
Prepaid expenses	(299)		(192)
Right-of-use assets	(207)		(681)
Valuation allowance	(46,148)		(38,562)
Net deferred tax asset	$	—	$	—

The Company has provided a valuation allowance in full on its net deferred tax assets in accordance with ASC 740 - "Income Taxes" ("ASC 740"). Because of the Company's continued losses, management assessed the realizability of its net deferred tax assets as being less than the more-likely-than-not criteria set forth by ASC 740. Furthermore, certain portions of the Company's net operating loss carryforwards were acquired, and therefore subject to further limitation set forth under the federal tax code, which could further limit the Company's ability to realize its deferred tax assets.

A reconciliation between the statutory federal income tax rate and the effective income tax rate for the years presented was as follows:

	Year Ended December 31,
	2021		2020
Tax at federal statutory rate	21.0	%	21.0	%
Stock-based compensation	0.6		1.9
Section 162(m)	(1.5)		(4.2)
Change in federal valuation allowance	(18.6)		121.0
Reduction in federal NOL carryforward DTA due to 382 study results	(0.8)		(135.6)
Other	(1.1)		(1.3)
Effective tax rate	(0.4)	%	2.8	%

The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be

sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. There were no interest and penalties for the years ended December 31, 2021 and 2020, respectively. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various states with sufficient nexus. For jurisdictions in which tax filings are prepared, the Company is no longer subject to income tax examinations by state tax authorities for tax years prior to 2017, and by the IRS for tax years prior to 2018. The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized or expired and such tax years are closed.There are currently no income tax audits in any jurisdictions for open tax years and, as of December 31, 2021, there have been no material changes to our tax positions.