The provision (benefit) for federal income taxes in 2020 and 2019 is as follows (in thousands):

	December 31,
	2020		2019
Current
Federal	$	—	$	—
State		—		—
		—		—
Deferred
Federal	$	—	$	—
State		—		—
Total deferred tax expense		—		—
Total income tax expense	$	—	$	—

Income tax expense (benefit) in 2020 and 2019 differed from the amount expected by applying the statutory federal tax rate to the income or loss before taxes as summarized below:

	December 31,
	2020			2019
Federal tax benefit at statutory rate		21	%		21	%
Change in valuation allowance		(12	)%		(23	)%
Section 382 limitation		—			—
Other non-deductible expenses		(1	)%		(1	)%
Stock based compensation		(8	)%		(7	)%
ASC 842 lease accounting		—			10	%
Total		0	%		0	%

Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryforwards and 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 the Company’s net deferred tax assets at December 31, 2020 and 2019 are as follows (in thousands):

	December 31,
	2020			2019
Net operating loss carry forwards	$	10,988		$	5,869
Research and development tax credits		90			90
Stock based compensation and other		2,860			5,099
Operating lease obligation		1,789			2,149
Total deferred tax assets		15,727			13,207
Less: Valuation allowance		(15,106	)		(11,326	)
Deferred tax liabilities		—			(55	)
Operating lease right-of-use assets		(621	)		(1,826	)
Net deferred tax assets	$	—		$	—

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets.

The valuation allowance increased by approximately $3.8 million in 2020 and increased $4.3 million in 2019.

At December 31, 2020, the Company has net operating loss carryforwards for federal income tax purposes of approximately $52.3 million, of which $47.5 million was generated post December 31, 2017 (after section 382 limitation) and will have no expiration date. The remaining $4.8 million of net operating loss carryforwards begin to expire in 2037. The Company also has federal research and development tax credits of approximately $90 thousand, which begin to expire in 2037.

As of December 31, 2020, the Company’s total gross deferred tax assets were $15.7 million. Due to the Company’s lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. The Company has performed an analysis to determine whether an “ownership change” occurred from inception up to the Aravive Biologics' acquisition date. Based on this analysis during 2018, management determined that both Versartis, Inc. and Aravive Biologics did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. During the years ended December 31, 2020 and 2019, no additional ownership changes were noted.

The Company follows the provisions of FASB Accounting Standards Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements. At December 31, 2020 and 2019, the Company’s reserve for unrecognized tax benefits is approximately $39 thousand. Due to the full valuation allowance at December 31, 2020, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate. The Company does not anticipate any significant change in its unrecognized tax benefits within 12 months of this reporting date. The Company includes penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.

Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statute is effectively open for all tax years. However, due to the above-mentioned ownership change and impairment of net operating loss and credit carryforwards, only net operating loss and credit carryforwards post-January 14, 2017 are carried forward to future years for federal and state tax purposes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Amount
Balance at January 1, 2019		72
Gross increase/ (decrease) related to prior year tax positions		(72	)
Gross increase related to current year positions		39
Reductions to unrecognized tax benefits related to lapsing statute of limitations		—
Balance at December 31, 2019	$	39
Gross increase/ (decrease) related to prior year tax positions		—
Gross increase related to current year positions		—
Reductions to unrecognized tax benefits related to lapsing statute of limitations		—
Balance at December 31, 2020	$	39