9. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follows (in thousands):


		At December 31,
		2011			2010
Deferred tax assets:
Net operating loss	$	7,099		$	4,411
Depreciable assets and other		19			-
Stock-based compensation		741			604
Total deferred taxassets		7,859			5,015
Total deferred taxliabilities		-			(2)
Net deferred taxassets	$	7,859		$	5,013

Net deferred taxassets	$	7,859		$	5,013
Less: valuation allowance		(7,859	)		(5,013	)
	$	-		$	-

Net operating loss, which can be carried forward for federal income tax purposes, was estimated to be approximately $20.9 million and $12.9 million at December 31, 2011 and 2010, respectively. The management has determined that it is unlikely that the NOL will be utilized before its expiration beginning in 2016. Accordingly, full valuation allowance is provided to comply with the provisions of FASB ASC Topic 740, Income Taxes ("ASC 740").

Income taxes for financial reporting purposes differed from the amounts computed by applying the statutory federal income tax rates because Bermuda has no income tax that would apply to FEEB, and because of our recording of the valuation allowance for the losses generated by us. The net increase in the valuation allowance for the year ended December 31, 2011 was $2.8 million. The net increase in the valuation allowance for the year ended December 31, 2010 was $1.3 million. The increase for each year was primarily attributable to the net operating losses generated.

ASC 740 prescribes a minimum recognition threshold and measurement methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes on continuing operations in our consolidated statements of operations. There were no unrecognized tax benefits as of the date of adoption. There are no unrecognized tax benefits that if recognized would affect the tax rate for the year ended December 31, 2011. There is no interest or penalties recognized as of the date of adoption or for the year ended December 31, 2011.

The Company files income tax returns in the U.S. Federal jurisdiction and State of Texas. The 2008 through 2011 tax years generally remain subject to examination by federal and state tax authorities.