NOTE 11 - INCOME TAXES

The Company is subject to United States ("USA") and People's Republic of China ("China") profit tax. ZAP's operations are in US and Jonway's operations are in PRC. The Company has incurred net accumulated operating losses for income tax purposes for both ZAP and Jonway.

Income (loss) before provision for income taxes consisted of:


		2011		2010
USA	$	(36,237	) $	(19,014	)
China		(9,239	)	-
	$	(45,566	) $	(19,014	)

Provision for income taxes consisted of:


	2011			2010
Current provision:
USA	$	4		$	4
China		-			-
Total current provision		4			4

Deferred provision (benefit):
USA		-			-
China		(149	)		-
Total Deferred provision (benefit)		(149	)		-
Total provision for income taxes	$	(145	)	$	4

The tax effect of temporary differences from USA and China that give rise to significant portions of the deferred tax assets at December 31, 2011 and 2010 is presented below:


		2011			2010
Net operating loss carryovers
- USA	$	56,768		$	44,415
- China		2,982			-
Total net operating loss carryovers		59,750			44,415
Timing differences
- USA		(15,029	)		(12,643	)
- China		523			-
Total gross deferred tax assets		45,244			31,772
Valuation allowance		(44,721	)		(31,772	)
Deferred tax assets, net of valuation allowance		523			-
Less: current portion		331			-
Non-current portion	$	192		$	-

For USA

The provision for income taxes for all periods presented in the consolidated statements of operations represents minimum California franchise taxes. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax losses as a result of the following:


		2011			2010
Computed expected tax expense	$	(12,353	)	$	(6,466	)
Losses and credits for which no benefits have been recognized		9,969			3,517
Stock grants and warrants not deductible for income tax purposes		1,340			2,092
Other amortization and impairments		1,038
other amortization and impairments		6			14
State tax expense, net of federal income tax benefit		4			4
	$	4		$	4

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2011 and 2010 is presented below:


		2011		2010

Net operating loss carryovers	$	56,768	$	44,415
Temporary differences, including stock
based compensation, amortization and bad debts		(5,489	)	( 3,983	)
Fixed assets, due to differences in depreciation		(288	)	( 288	)
Non qualified options and warrants		(6,728	)	( 6,186	)
Reserves on investments		(1,673	)	( 1,376	)
Intangible assets , due to impairment		(99	)	( 99	)
R&D credit		138		138
Other differences		(890	)	( 849	)

Total gross deferred tax assets	$	41,739	$	31,772
Valuation allowance		(41,739	)	(31,772	)
Net deferred tax assets		-		-

The net change in the valuation allowance for the year ended December 31, 2011 was an increase of $10.0 million. Because there is uncertainty regarding the Company's ability to realize its deferred tax assets, a 100% valuation allowance has been established.

As of December 31, 2011, the Company had federal tax net operating loss carry forwards of approximately $150 million, which will begin to expire in the years 2012 through 2027. The Company also has federal research and development carry forwards as of December 31, 2011 of approximately $138,000, which will begin to expire in the years 2012 through 2026.

The State net operating loss carry forwards were approximately $ 103 million as of December 31, 2011. The State net operating loss carry forwards will begin to expire in the years 2012 through 2018.

The Company's ability to utilize its net operating loss and research and development tax credit carry forwards may be limited in the future if it is determined that the Company experienced an ownership change, as defined in Section 382 of the Internal Revenue Code. Federal and State tax laws impose substantial restrictions on the utilization of net operating loss and credit carry forwards in the event of an "ownership change" for tax purposes as defined in the Internal Revenue Code section 382.

The company adopted the provisions of FIN 48. The Company did not have any unrecognizable tax benefits as a component of income tax expense. The Company did not have any unrecognized tax benefits at December 31, 2011 and 2010, and as a result, there was no effect on the Company's financial condition or results of operations as a result of implementing FIN 48.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expense recognized for the year ended December 31, 2011 and 2010.

For CHINA

Under the relevant regulations of the Corporate Income Tax Law in China, the corporate income tax rate applicable to Jonway is 25%.


		2011

Computed expected tax expense	$	(2,465	)
Loss for which no benefits have been recognized		2,159
Others (a)		157
Income tax benefit	$	(149	)

(a) Other represents expenses incurred by the Company that are not deductible for PRC income taxes for the year ended December 31, 2011.

Jonway accounts for income taxes using an asset and liability method for financial accounting and reporting purposes. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, operating loss and tax credit carry-forwards and are measured using the currently enacted tax rates and laws. Jonway has not provided for any enterprise income taxes since it has no taxable income in each year.

Jonway analyzes its deferred tax assets with regard to potential realization. Jonway has established a valuation allowance on its deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. Jonway has considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets at December 31, 2011 and 2010 is presented below (in thousand):


		December 31,
		2011
Deferred tax assets:
Property and equipment,
due to differences in depreciation	$	192
Inventories, due to impairment		57
Accrued liabilities		274
Net operating loss Carry forward		2,982
Total deferred tax assets, gross		3,505
Valuation allowance		(2,982	)
Deferred tax assets, net of valuation allowance		523
Less: current portion		331

Non-current portion	$	192