NOTE 9 - 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:

	2012			2011
USA	$	(12,106	)	$	(36,328	)
China		(18,775	)		(9,239	)
	$	(30,881	)	$	(45,567	)

Provision for income taxes consisted of:

	2012		2011
Current provision:
USA	$	-	$	4
China		-		-
Total current provision		-		4

Deferred provision (benefit):
USA		-		-
China		282		(149	)
Total Deferred provision (benefit)		282		(149	)
Total provision for income taxes	$	282	$	(145	)

The tax effect of temporary differences from USA and China that give rise to significant portions of the deferred tax assets at December 31, 2012 and 2011 is presented below:

	2012			2011
Net operating loss carryovers
- USA	$	59,588		$	56,768
- China		6,837			2,982
Total net operating loss carryovers		66,425			59,750
Timing differences
- USA		(16,396	)		(15,029	)
- China		1,492			523
Total gross deferred tax assets		51,521			45,244
Valuation allowance		(51,280	)		(44,721	)
Deferred tax assets, net of valuation allowance		241			523
Less: current portion		-			331
Non-current portion	$	241		$	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:


	2012			2011
Computed expected tax expense	$	(4,187	)	$	(12,353	)

Losses and credits for which no benefits have been recognized		2,820			9,969
Stock grants and warrants not deductible for income tax purposes		760			1,340
Other amortization and impairments		607			1,044
State tax expense, net of federal income tax benefit		-			4
	$	-		$	4

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2012 and 2011 is presented below:

	2012			2011

Net operating loss carryovers	$	59,588		$	56,768
Permanent differences, including stock
based compensation, amortization and bad debts		(6,248	)		(5,489	)
Fixed assets, due to differences in depreciation		(288	)		(288	)
Non qualified options and warrants		(6,728	)		(6,728	)
Reserves on investments		(1,877	)		(1,673	)
Intangible assets , due to impairment		(99	)		(99	)
R&D credit		138			138
Other differences		(1,294	)		(890	)

Total gross deferred tax assets	$	43,192		$	41,739
Valuation allowance		(43,192	)		(41,739	)
Net deferred tax assets	$	--		$	--

The net change in the valuation allowance for the year ended December 31, 2012 was an increase of $1.5 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, 2012, the Company had federal tax net operating loss carry forwards of approximately $175 million, which will begin to expire in the years 2013 through 2028. The Company also has federal research and development carry forwards as of December 31, 2012 of approximately $138,000, which will begin to expire in the years 2013 through 2028.

The State net operating loss carry forwards were approximately $103 million as of December 31, 2012. The State net operating loss carry forwards will begin to expire in the years 2013 through 2019.

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's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expense recognized for the years ended December 31, 2012 and 2011.

For CHINA

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

	2012			2011
Computed expected tax expense	$	(4,694	)	$	(2,465	)
Loss for which no benefits have been recognized		3,856			2,159
Change in valuation allowance for temporary differences		1,250
Others (a)		(130	)		157
Income tax expense (benefit)	$	282		$	(149	)

(a) Other represents expenses incurred by the Company that are not deductible for PRC income taxes.

The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets at December 31, 2012 and 2011 is presented below (in thousand):

	December 31, 2012			December 31, 2011
Deferred tax assets:
Property and equipment,
due to differences in depreciation	$	881		$	192
Inventories, due to impairment		369			57
Accrued liabilities		241			274
Net operating loss Carry forward		6,838			2,982
Total deferred tax assets, gross		8,329			3,505
Valuation allowance		(8,088	)		(2,982	)
Deferred tax assets, net of valuation allowance		241			523
Less: current portion		-			331

Non-current portion	$	241		$	192