Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the "Risk Factors" sections of our Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Certain Terms

Except as otherwise indicated by the context, all references in this annual report to (i) "Ritar," the "Company," "we," "us" or "our" are to China Ritar Power Corp., a Nevada corporation, and its direct and indirect subsidiaries;
(ii) "Ritar BVI" are to our subsidiary Ritar International Group Limited, a British Virgin Islands corporation, and/or its operating subsidiaries, as the case may be; (iii) "Shenzhen Ritar" are to our subsidiary Shenzhen Ritar Power Co., Ltd., a corporation incorporated in the People's Republic of China; (iv) "Shanghai Ritar" are to our subsidiary Shanghai Ritar Power Co., Ltd., a corporation incorporated in the People's Republic of China; (v) "Hengyang Ritar" are to our subsidiary Hengyang Ritar Power Co., Ltd., a corporation incorporated in the People's Republic of China; (vi) Huizhou Ritar are to our subsidiary Ritar Power (Huizhou) Co., Ltd., a corporation incorporated in the People's Republic of China; (vii) "Securities Act" are to the Securities Act of 1933, as amended; (viii) "Exchange Act" means the Securities Exchange Act of 1934, as amended; (ix) "RMB" are to Renminbi, the legal currency of China; (x) "U.S. dollar," "$" and "US$" are to the legal currency of the United States; (xi) "China" and "PRC" are to the People's Republic of China; (xii) "BVI" are to the British Virgin Islands; and (xiii) "SEC" are to the United States Securities and Exchange Commission.

Overview of Our Business

We are a holding company that only operates through our indirect Chinese subsidiaries. Through our Chinese subsidiaries, we design, develop, manufacture and sell environmentally friendly lead-acid batteries with a wide range of applications and capacities, especially in the LEV segment, in China. We market, sell and service our 6 series and 197 models of "Ritar" branded, cadmium-free, VRLA batteries in China and internationally.

Our revenue increased from $40.9 million in fiscal year 2006 to $73.3 million in fiscal year 2007 and $119.6 million in fiscal year 2008, representing a compounded annual growth rate of approximately 70.92%. These significant increases reflect our success in expanding our production lines and our increasing market penetration. We continually seek to broaden our market reach by introducing new production lines and improving our profit margin through increased vertical integration. We currently have 19 lead acid battery production lines that are operational. Three of them are located at Shanghai Ritar, eleven production lines are located at Shenzhen Ritar, five production lines are located at Hengyang Ritar. We have completed construction of the first phase of our new technical and manufacturing complex in Hengyang City, Hunan Province and Lead acid battery production at this facility began in April 2008. In addition, in July 2008, production of lead plates began at the Hengyang facility.

Our Current Organizational Structure

The following chart reflects our current organizational structure:

[[Image Removed]]

Recent Developments

The construction of the first phase of our new technical and manufacturing complex in Hengyang City, Hunan Province was completed on March 20, 2008 and the lead-acid battery production lines began to be operational in April, 2008. Our annual designed production capacity of all five production lines at Hengyang Ritar is approximately 1.25 million kilowatt-hours. In addition, in July of 2008, production of lead plates began at the Hengyang facility.

On August 3, 2009, the Company's common stock began trading on the NASDAQ Global Market under the trading symbol "CRTP".

Third Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the second fiscal quarter of 2009 and growth in our revenues and net income.

The following are some financial highlights for the third quarter of 2009:

Revenues: Our revenues were $33.9 million for the third quarter of 2009, a decrease of 6.6% from the same quarter of 2008.

Gross Margin: Gross margin was 18.7% for the third quarter of 2009, as compared to 20.5% for the same period in 2008.

Operating Profit: Operating profit was $4.2 million for the third quarter of 2009, an increase of 20% from $3.5 million of the same period last year.

Net Income: Net income was $3.26 million for the third quarter of 2009, an increase of 35% from 2.41 million of the same period in 2008.

Fully diluted earnings per share was $0.17 for the third quarter of 2009, an increase of 41.7% from the same period in 2008.

Cost of Revenue

Cost of revenue includes our direct costs to manufacture our products, including the cost of our raw materials, employee remuneration for staff engaged in production activity, and related expenses that are directly attributable to the production of products.

Gross Profit and Gross Margin

Gross profit is equal to the difference between our revenue and the cost of revenue. Gross margin is equal to gross profit divided by revenue. Between fiscal years 2006 and 2008, we were able to maintain gross margins between approximately 19% and 21%. Gross margins in such years for domestic and international sales were approximately 18% and 22%, respectively. Changes in our gross margins are primarily driven by small changes in cost of goods sold as percentage of revenues due to our large-scale production and decreased raw materials per unit product and decreased direct labor used per unit product.

To gain market penetration, we price our products at levels that we believe are competitive. Through our continuous efforts to improve manufacturing efficiencies and reduce our production costs, we believe that we offer products of comparable quality to our Chinese and international competitors at lower prices. General economic conditions, cost of raw materials as well as supply and demand of lead-acid batteries within our markets influence sales prices. Our high-end, value-added products generally tend to have higher profit margins.

Operating Expenses

Our operating expenses consist of salaries, sales commission, shipping and handling cost and other selling expense and general and administrative expenses. We expect most components of our operating expenses will increase as our business grows and as we incur increased costs related to being a public company.

Provision for Income Taxes

United States

The Company was incorporated in the United States of America and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has no taxable income for the third quarter of 2009.

British Virgin Islands

Ritar International was incorporated in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.

PRC

The subsidiary, Shenzhen Ritar is subject to PRC enterprises income tax at the applicable tax rates on the taxable income as reported in its Chinese statutory accounts in accordance with the relevant enterprises income tax laws applicable to foreign enterprises. Pursuant to the same enterprises income tax laws, being classified as a high technology company, Shenzhen Ritar is fully exempted from PRC enterprises income tax for two years starting from the first profit-making year, followed by a 50% tax exemption for the next three years ("Tax Holiday"). Consequently, Shenzhen Ritar was exempted from enterprise income tax for the fiscal years 2003 and 2004. For the following three fiscal years from 2005 to 2007, Shenzhen Ritar was subject to enterprise income tax at rate of 15%. Shenzhen Ritar was charged on preferential enterprise income tax rate at 18% and 20% in 2008 and 2009, respectively, which is determined by the tax authority.

Shanghai Ritar is charged at 2.31% of its total revenue in 2007 while the tax rate will be charged on the taxable income with tax rate 25% from 2008.

Hengyang Ritar commenced its business on April 27, 2008 and is subject to an income tax rate of 25%.

Huizhou Ritar did not commence business during the third quarter of 2009.

The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. There are no material timing differences and therefore no deferred tax asset or liability at September 30, 2009. There are no net operating loss carry forwards at September 30, 2009.

Results of Operations

The following table sets forth key components of our results of operations for
the periods indicated, both in dollars and as a percentage of our revenue.

                                                Three Months Ended                 Three Months Ended
                                                September 30, 2009                 September 30, 2008
                                                               As a                               As a
                                               In           percentage            In           percentage
                                            Thousands       of revenues        Thousands       of revenues
Revenues                                        33,910               100 %         36,322               100 %
Cost of Sales                                   27,555             81.26 %         28,868             79.48 %

Gross Profit                                     6,354             18.74 %          7,454             20.52 %

Operating Expenses:
Salaries                                           412              1.21 %          1,470              4.05 %
Sales Commission                                   211              0.62 %            419              1.15 %
Shipping and handling cost                         336              0.99 %            464              1.28 %
Other selling, general and
administrative expenses                          1,170              3.45 %          1,634              4.50 %
Total Operating Expenses                         2,128              6.28 %          3,987             10.98 %

Operating Profit                                 4,226             12.46 %          3,467              9.55 %

Other Income and (Expenses)
Interest Income                                      5              0.01 %             49              0.13 %
Other income                                        31              0.09 %              1              0.00
Interest expenses                                 (187 )           (0.55 )%          (403 )           (1.11 )%
Foreign currency translation gain (loss)           (22 )           (0.06 )%            74             (0.20 )%
Other expenses                                      (6 )           (0.02 )%            (3 )           (0.01 )%

Other income (expenses)                           (178 )           (0.52 )%          (282 )           (0.78 )%

Income before income taxes                       4,048             11.94 %          3,184              8.77 %
Income taxes                                      (787 )           (2.32 )%          (777 )           (2.14 )%

Net Income                                       3,261              9.62 %          2,407              6.63 %

Net loss attributable to noncontrolling
interest                                             2              0.01 %              3              0.01 %

Net income attributable to China Ritar
shareholders                                     3,263              9.62 %          2,410              6.64 %

Other comprehensive income (loss)
Foreign currency translation adjustments            23              0.07 %            352              0.97 %

Comprehensive income                             3,287              9.69 %          2,762              7.60 %

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Revenues. Revenues decreased approximately $2.41million, or 6.64% to approximately $33.91 million for the three months ended September30, 2009 from approximately $36.32 million for the same period in 2008. This decrease was due to a decrease in our average selling price of 12% which was driven by the decrease in prices of main raw materials and an increase in sales volume of 6.1%.

Cost of sales. Our cost of sales decreased approximately $1.31 million, or 4.54%, to approximately $27.56 million for the three months ended September 30, 2009, from approximately $28.87 million for the same period in 2008. This decrease was due to the decrease in prices of main raw materials. As a percentage of revenues, the cost of sales increased to 81.26% during the three months ended September 30, 2009 from 79.48% for the same period of 2008.

Gross profit. Our gross profit decreased approximately $1.10 million, or 14.75% to approximately $6.35 million for the three months ended September 30, 2009 from approximately $7.45 million for the same period in 2008. Gross profit as a percentage of revenues was 18.74% for the three months ended September 30, 2009, a decrease of 1.78% from 20.52% for the same period of 2008. Such decrease was mainly due to the decrease in our average selling price, and the increase of unit manufacturing cost as a result of low capacity utilization for the new factory in Hengyang.

Salaries. Salaries decreased approximately $1.06 million, or 71.99% to approximately $0.41 million for the three months ended September 30, 2009 from $1.47 million for the same period in 2008. As a percentage of revenues, salaries decreased to 1.21% for three months ended September 30, 2009 from 4.05% for the same period of 2008. The decrease of salaries was mainly attributable to the provision for the stock-based compensation of $0.96 million for the three months ended September 30, 2008 required by the release of shares of our common stock to our CEO from escrow. We had no such provision for the stock-based compensation made for the three months ended September 30, 2009. Except for the provision of such expenses, salaries as a percentage of revenues decreased 0.18% to 1.21% for the three months ended September 30, 2008 from 1.39% for the same period of 2008. The decrease was mainly attributable to the decreased headcounts for the factory in Shanghai.

Stock-based compensation. We had no such provision for the stock-based compensation made for the three months ended September 30, 2009, however, Stock-based compensation was approximately $0.96 million for the three months ended September 30, 2008. The stock-based compensation was attributable to the provision of a "make good provision" expense for the three months ended September 30, 2008. In connection with the private placement on February 16, 2007, our largest stockholder, Mr. Jiada Hu entered into an escrow agreement with the private placement investors pursuant to which he agreed to certain "make good" provisions. In the escrow agreement, we established minimum after tax net income thresholds of $5,678,000 for the fiscal year ended December 31, 2007 and $8,200,000 for the fiscal year ending December 31, 2008. Mr. Hu deposited a total of 3,601,309 shares, to be equitably adjusted for stock splits, stock dividends and similar adjustments, of the common stock of the Company into escrow with Securities Transfer Corporation under the escrow agreement. In the event that the minimum after tax net income thresholds for the fiscal year 2007 or the fiscal year 2008 are not achieved, then the investors will be entitled to receive additional shares of our common stock deposited in escrow based upon on a pre-defined formula agreed to between the investors and Mr. Hu. Pursuant to SFAS No. 123R, Accounting for Stock-Based Compensation, if the net income threshold is met, the shares will be released back to the make good pledger and treated as an expense equal to the grant date fair value of the shares. Approximately $0.96 million was recognized as an expense in accordance with FASB ASC Topic 718 "Compensation - Stock Compensation" for the three months ended September 30, 2008.

Sales commission. Sales commission decreased approximately $0.21 million, or 50% to approximately $0.21 million for the three months ended September 30, 2009 from approximately $0.42 million for the same period of 2008. As a percentage of revenues, sales commission decreased to 0.62% for the three months ended September 30, 2009 from 1.15% for the same period of 2008. The decrease was mainly attributable that we paid a comparatively low commission rate to our sales agents for existing clients during this period.

Shipping and handling cost. Shipping and handling cost decreased approximately $0.13 million, or 27.55%, to approximately $0.33 million for the three months ended September 30, 2009, from approximately $0.46 million for the same period of 2008. As a percentage of revenues, shipping and handling cost declined to 0.99% for the three months ended September 30, 2009, from 1.28% for the same period of 2008. The decrease was mainly attributable to a change in our shipping and handling policy during this period which resulted in our customers being partially responsible for the shipping and handling costs.

Other selling, general and administrative expenses. Other selling, general and administrative expenses has decreased by approximately $0.46 million, or 28.4% to approximately $1.17 million for the three months ended September 30, 2009 from approximately $1.63 million for the same period of 2008. As a percentage of revenues, other selling, general and administrative expenses decreased to 3.45% for the three months ended September 30, 2009 from 4.5% for the same period of 2008. The decrease was mainly attributable to our great efforts to cut cost and control expenses.

Income before income taxes. Income before income taxes increased approximately $0.86 million or 27.12% to approximately $4.05 million for the three months ended September 30, 2009 from approximately $3.18 million for the same period of 2008. Such increase was mainly attributable to stock-based compensation of $0.96 million related to the make good provisions for the three months ended September 30, 2008 as discussed above. Income before income taxes as a percentage of revenues increased to 11.94% for the three months ended September 30, 2009 from 8.77% for the same period of 2008. The percentage increase was mainly attributable to stock-based compensation for the three months ended September 30, 2008 as discussed above. Except for the provision of such expenses, Income before income taxes as a percentage of revenues increased to 11.94% for the three months ended September 30, 2009 from 11.42% for the same period of 2008.

Income taxes. Income taxes increased approximately $0.01 million to approximately $0.79 million for the three months ended September 30, 2009 from approximately $0.78 million for the same period of 2008. We paid more taxes in the third quarter of 2009 mostly because our income tax rate of Shenzhen Ritar increased to 20% since January 1, 2009 while during the same period of 2008 it was 18%.

Net income. Net income increased approximately $0.85million, or 35.41% to approximately $3.26million for the three months ended September 30, 2009 from approximately $2.41 million for the same period of 2008. The increase was mainly attributable to stock-based compensation of $0.96 million related to the make good provisions for the three months ended September 30, 2008 as discussed above. Except for such non-cash stock-based compensation, net income decrease approximately $0.11million, or 3.3% to approximately $3.26 million for the three months ended September 30, 2009 from approximately $3.37 million for the same period of 2008, as a result of the factors described above.

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our revenue:

                                                 Nine Months Ended                   Nine Months Ended
                                                September 30, 2009                  September 30, 2008
                                                               As a                                As a
                                               In           percentage             In           percentage
                                            Thousands       of revenues         Thousands       of revenues
Revenues                                        72,770               100 %          86,395               100 %
Cost of Sales                                   59,033             81.12 %          68,893             79.74 %

Gross Profit                                    13,737             18.88 %          17,502             20.26 %

Operating Expenses
Salaries                                         1,401              1.93 %           3,947              4.57 %
Sales Commission                                 1,137              1.56 %             876              1.01 %
Shipping and handling cost                         843              1.16 %           1,166              1.35 %
Other selling, general and
administrative expenses                          3,040              4.18 %           3,914              4.53 %
Total Operating Expenses                         6,422              8.83 %           9,903             11.46 %

Operating Profit                                 7,315             10.05 %           7,598              8.79 %

Other Income and (Expenses)
Interest Income                                     72              0.10 %             128              0.15 %
Other income                                        41              0.06 %               1              0.00
Interest expenses                                 (501 )           (0.69 ) %          (750 )           (0.87 ) %
Foreign currency translation gain (loss)           (18 )           (0.02 ) %          (458 )           (0.53 ) %
Other expenses                                     (11 )           (0.02 ) %            (9 )           (0.01 ) %

Other income (expenses)                           (417 )           (0.57 ) %        (1,087 )           (1.26 ) %

Income before income taxes                       6,898              9.48 %           6,512              7.54 %
Income taxes                                    (1,315 )           (1.81 ) %        (1,850 )           (2.14 ) %

Net Income                                       5,582              7.67 %           4,661              5.39 %

Net loss attributable to noncontrolling
interest                                            17              0.02 %              20              0.02 %

Net income attributable to China Ritar
shareholders                                     5,600              7.70 %           4,681              5.42 %

Other comprehensive income (loss)
Foreign currency translation adjustments           141              0.19 %           1,995              2.31 %

Comprehensive income                             5,741              7.89 %           6,676              7.73 %

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Revenues. Revenues decreased approximately $13.62 million, or 15.77% to approximately $72.77 million for the nine months ended September 30, 2009 from approximately $86.39 million for the same period in 2008. This decrease was mainly attributable to a decrease in our average selling price of 18% which was driven by the decrease in prices of main raw materials.

Cost of sales. Our cost of sales decreased approximately $9.86 million, or 14.31% to approximately $59.03 million for the nine months ended September 30, 2009 from approximately $68.89 million for the same period in 2008. This decrease was due to the decrease in prices of main raw materials. As a percentage of revenues, the cost of sales increased to 81.12% during the nine months ended September 30, 2009 from 79.74% for the same period of 2008.

Gross profit. Our gross profit decreased approximately $3.76 million, or 21.51 % to approximately $13.74 million for the nine months ended September 30, 2009 from approximately $17.50 million for the same period in 2008. Gross profit as a percentage of revenues was 18.88% for the nine months ended September 30, 2009, a decrease of 1.38% from 20.26% for the same period of 2008. Such decrease was mainly due to the decrease in our average selling price, and the increase of unit manufacturing cost as a result of low capacity utilization for the new factory in Hengyang.

Salaries. Salaries decreased approximately $2.54 million, or 64.43% to approximately $1.4 million for the nine months ended September 30, 2009 from $3.95 million for the same period in 2008. As a percentage of revenues, salaries decreased to 1.93% for nine months ended September 30, 2009 from 4.57% for the same period of 2008. The decrease of salaries was mainly attributable to the provision for the stock-based compensation of $2.89 million for the nine months ended September 30, 2008 required by the release of shares of our common stock to our CEO from escrow. We had no such provision for the stock-based compensation made for the nine months ended September 30, 2009. Except for the provision of such expenses, salaries as a percentage of revenues increased 0.71% to 1.93% for the nine months ended September 30, 2008 from 1.22% for the same period of 2008. The percentage increase was mainly . . .