UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 000-25901

CHINA RITAR POWER CORP.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	87-0422564
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Room 405, Tower C, Huahan Building,

16 Langshan Road, North High-Tech Industrial Park,

Nanshan District,

Shenzhen, China, 518057

(Address of principal executive offices, Zip Code)

(86) 755-83475380

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “larger accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the issuer’s common stock, as of November 3, 2010 was 21,858,925.

CHINA RITAR POWER CORPORATION

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Other Information	32
Item 5.	Exhibits	32

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30 2010		December 31 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,679,930	$	20,459,361
Restricted cash		5,380,969		5,900,649
Accounts receivable, net of allowances of $1,136,475 and $1,115,321		33,966,052		24,920,825
Receivable from sale of a subsidiary		-		417,387
Due from a former subsidiary		3,181,073		3,925,348
Inventory		26,256,207		19,484,224
Advance to suppliers		2,259,741		1,643,689
Other current assets		4,104,517		3,915,605
Total current assets		85,828,489		80,667,088

Non-current assets:
Property, plant and equipment, net		17,075,726		16,248,551
Construction in progress		95,945		136,443
Intangible assets, net		5,991		9,407
Land use right		470,576		468,265
Rental prepayment and deposits		981,298		82,439
Deposit for purchase of property, plant and equipment		1,227,295		833,760
Deferred income tax assets		121,781		115,064

Total assets	$	105,807,101	$	98,561,017
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,545,426	$	16,658,868
Income and other taxes payable		7,230,834		3,986,935
Accrued salaries		571,706		502,978
Bills payable		10,814,001		13,498,001
Other current liabilities		1,749,461		2,800,879
Derivative instruments		22,161		-
Current portion of long term loans		1,290,283		1,342,473
Short-term loans		1,326,760		1,464,515
Total current liabilities		41,550,632		40,254,649

Long-term loans		1,989,723		2,881,188

Total liabilities		43,540,355		43,135,837

Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		-		-
Common stock at $0.001 par value; authorized 100,000,000 shares, 21,858,925 and 21,450,238 shares issued and outstanding		21,859		21,450
Additional paid-in capital		31,721,124		31,461,723
Retained earnings		26,296,472		20,745,985
Accumulated other comprehensive income		4,227,291		3,196,022

Total stockholders’ equity		62,266,746		55,425,180

Total liabilities and stockholders’ equity	$	105,807,101	$	98,561,017

See accompanying notes to these condensed consolidated financial statements

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

	Nine months ended September 30,						Three months ended September 30,
	2010			2009			2010			2009
CONTINUING OPERATIONS
Net revenue	$	89,910,434		$	70,904,378		$	31,547,686		$	33,123,343
Cost of sales		74,484,047			57,295,863			26,383,879			26,871,015
Gross profit		15,426,387			13,608,515			5,163,807			6,252,328

Operating expenses:
Salaries		1,759,840			1,209,472			623,267			356,138
Sales commission		1,259,840			1,137,101			468,006			210,519
Shipping and handling cost		1,056,488			773,936			380,648			266,459
Other selling and administrative expenses		3,240,680			2,817,086			1,066,781			1,153,048
		7,316,848			5,937,595			2,538,702			1,986,164

Operating profit		8,109,539			7,670,920			2,625,105			4,266,164

Other income and (expenses):
Interest income		85,110			71,268			22,295			5,419
Other income		15,969			34,374			9,567			31,097
Interest expense		(442,354	)		(500,512	)		(155,780	)		(187,018	)
Foreign currency exchange loss		(565,985	)		(16,677	)		(323,965	)		(21,766	)
Other expenses		(3,507	)		(7,200	)		(456	)		(5,536	)

Other expenses, net		(910,767	)		(418,747	)		(448,339	)		(177,804	)

Income from continuing operations before income taxes		7,198,772			7,252,173			2,176,766			4,088,360

Income taxes		(1,648,285	)		(1,315,258	)		(487,377	)		(786,779	)

Income from continuing operations		5,550,487			5,936,915			1,689,389			3,301,581

DISCONTINUED OPERATIONS (Note 30)
Loss from discontinued operations, net of taxes		-			(354,642	)		-			(40,218	)
Net income		5,550,487			5,582,273			1,689,389			3,261,363
Add: Loss from discontinued operations attributable to noncontrolling interest		-			17,731			-			2,009

Net income attributable to China Ritar shareholders		5,550,487			5,600,004			1,689,389			3,263,372

Other comprehensive income attributable to noncontrolling interest		-			11			-			8
Foreign currency translation adjustment		1,031,269			141,239			738,630			23,301
Comprehensive income attributable to China Ritar shareholders		6,581,756			5,741,254			2,428,019			3,286,681
Comprehensive loss (income) attributable to non-controlling interest		-			(17,742	)		-			(2,020	)

Comprehensive income		6,581,756			5,723,512			2,428,019			3,284,661

Earnings per share attributable to China Ritar stockholders:

Basic:
- Income from continuing operations		0.25			0.31			0.08			0.17
- Income (loss) from discontinued operations		-			(0.02	)		-			-
- Net income		0.25			0.29			0.08			0.17

Diluted
-Income from continuing operations		0.25			0.30			0.08			0.17
-Income (loss) from discontinued operations		-			(0.01	)		-			-
- Net income		0.25			0.29			0.08			0.17

Weighted average number of shares outstanding:
- Basic		21,811,357			19,169,619			21,858,925			19,237,745
- Diluted		21,811,357			19,588,589			21,858,925			19,378,936

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

	Common stock				Additional					Accumulated other
	Shares		Amount		paid-in capital			Retained earnings		comprehensive income		Total Equity
Balances at December 31, 2009		21,450,238	$	21,450	$	31,461,723		$	20,745,985	$	3,196,022	$	55,425,180

Cashless exercise of warrants		315,230		316		(316	)		-		-		-

Exercise of warrants		93,457		93		259,717			-		-		259,810

Net income for the period		-		-		-			5,550,487		-		5,550,487

Foreign currency translation difference		-		-		-			-		1,031,269		1,031,269

Balance at September 30, 2010 (Unaudited)		21,858,925	$	21,859	$	31,721,124		$	26,296,472	$	4,227,291	$	62,266,746

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended September 30,
	2010			2009
Cash Flows from Continuing Operating Activities:
Net income	$	5,550,487		$	5,582,273
Loss from discontinued operations, net of taxes		-			354,642
Income from continuing operations		5,550,487			5,936,915
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax assets		(4,464	)		-
Depreciation of property, plant and equipment		1,201,416			867,690
Amortization of intangible assets and land use right		10,006			9,968
Loss (gain) on disposal of property, plant and equipment		673			(365	)
Loss (gain) on derivative instruments		21,141			(213,947	)
Changes in operating working capital items:
Accounts receivable		(8,438,937	)		(8,508,479	)
Inventory		(6,302,633	)		(1,625,320	)
Advance to suppliers		260,572			(1,603,712	)
Notes receivable		(40,739	)		(14,635	)
Other current assets		346,555			1,938
Loan advance to a landlord		(881,419	)		-
Accounts payable		1,546,482			4,625,462
Income and other taxes payable		3,118,896			1,205,703
Accrued salaries		58,265			(182,316	)
Bills payable		(2,894,192	)		865,232
Other current liabilities		(1,198,630	)		(919,012	)
Net cash (used in) provided by operating activities		(7,646,521	)		445,122

Cash Flows from Continuing Investing Activities:
Repayment from (advance to) a former subsidiary – Shanghai Ritar (see Note 14)		805,966			(1,201,767	)
Purchase of property, plant and equipment		(1,682,472	)		(1,380,311	)
Sales proceeds of disposal of property, plant and equipment		11,899			4,390
Payments for deposits for purchase of property, plant and equipment		(1,210,056	)		-
Net cash used in investing activities		(2,074,663	)		(2,577,688	)

Cash Flows from Continuing Financing Activities:
Proceeds from stock issued for warrants exercised		259,810			116,910
Proceeds from bank borrowings		7,165,648			9,091,188
Repayment of bank borrowings		(8,336,408	)		(6,402,592	)
Restricted cash		621,753			841,507
Net cash (used in) provided by financing activities		(289,197	)		3,647,013

Cash Flows from Discontinued Operations Activities:
Net cash used in discontinued operating activities		-			(1,238,820	)
Net cash provided by discontinued investing activities		-			1,187,633
Net cash provided by discontinued financing activities		-			-
Effect of exchange rate changes on cash		-			590
Change in cash from discontinued operations		-			50,597
Net cash used in discontinued operations		-			-

Effect of exchange rate changes		230,950			24,645

Net (decrease) increase in cash and cash equivalents		(9,779,431	)		1,539,092
Cash and cash equivalents, beginning of period		20,459,361			7,541,697
Cash and cash equivalents, end of period	$	10,679,930		$	9,080,789

Supplemental disclosure of cash flow information
Cash paid for interest	$	442,354		$	500,512
Cash paid for income taxes	$	361,283		$	735,365

Non-cash investing and financing activities
Issuance of common stock for cashless exercise of warrants	$	316		$	90

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	General Description of Business and Organization

China Ritar Power Corp. (the “Company” or “we” or “China Ritar”) is one of the leading manufacturers of lead-acid batteries in China. Through our Chinese subsidiaries, we design, develop, manufacture and sell environmentally friendly lead-acid batteries with a wide range of applications and capacities, including telecommunications, uninterrupted power source devices, light electric vehicles and alternative energy production (solar and wind power). We conduct all of our operations in China. We market, sell and service our “ Ritar” branded, cadmium-free, valve-regulated lead-acid, or VRLA, batteries in China and internationally.

We were originally organized under the laws of the State of Utah on May 21, 1985 under the name Concept Capital Corporation. On July 7, 2006, in order to change the domicile of Concept Capital Corporation from Utah to Nevada, Concept Capital Corporation merged with and into Concept Ventures Corporation, a Nevada corporation. From our inception in 1985 until February 16, 2007 when we completed a reverse acquisition transaction with Ritar International Group Limited (“Ritar BVI”) , a BVI company, whose subsidiary companies originally commenced business in May 2002, we were a blank check company and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

On February 16, 2007, we acquired Ritar BVI through a share exchange transaction pursuant to which the stockholders of Ritar BVI transferred all capital stock of Ritar BVI to us in exchange for a majority ownership of our Company. Our acquisition of Ritar BVI was accounted for as a recapitalization effected by a share exchange, wherein Ritar BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.

The Company’s common stock is quoted on the NASDAQ Global Market under the symbol “ CRTP” .

Details of the subsidiaries of the Company are as follows:

		Effective ownership,
Subsidiaries’ names	Place of incorporation	September 30, 2010	December 31, 2009	Principal activities

Ritar International Group Limited (“Ritar BVI”)	British Virgin Islands	100%	100%	Intermediate holding company

Shenzhen Ritar Power Co., Ltd. (“Shenzhen Ritar”)	People’s Republic of China (“PRC”)	100% (through Ritar BVI)	100% (through Ritar BVI)	Manufacture, commercialization and distribution of a wide variety of environmentally friendly lead-acid batteries for use in light electric vehicles or LEV and UPS segments throughout China and other countries

Hengyang Ritar Power Co., Ltd. (“Hengyang Ritar”)	PRC	100% (through Shenzhen Ritar)	100% (through Shenzhen Ritar)	Manufacture and distribution of plate and lead-acid batteries

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summaries of Significant Accounting Policies

Basis of Presentation and Consolidation

These interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. (a) The condensed consolidated balance sheet as of December 31, 2009, which was derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2009.

These condensed consolidated financial statements include the financial statements of China Ritar and its subsidiaries. All significant inter-company balances or transactions were eliminated on consolidation.

The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.

The Company sold all of its ownership interest in Shanghai Ritar Power Co., Ltd. in October 2009 and initiated the liquidation of Ritar Power (Huizhou) Co., Ltd. in 2009. As a result, these companies have been reported as discontinued operations and consolidated financial statement information for all periods presented has been reclassified to reflect this presentation.

Revenue recognition

Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to and accepted by its customers, the price is fixed or determinable as stated on the sales contract, and collectability is reasonably assured. Customers do not have a general right of return on products shipped. Products returns to the Company were insignificant during past years. There are no post-shipment obligations, price protection and bill and hold arrangements.

Reclassification

Certain prior period balances have been reclassified to conform to the current period’s financial statement presentation. These reclassifications had no impact on previously reported results of operations or cash flows.

Foreign currency

The Company uses the United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The PRC subsidiaries within the Company maintain their books and records in their functional currency, Chinese Renminbi (“RMB”), being the lawful currency in the PRC. Assets and liabilities of the PRC subsidiaries are translated from RMB into US Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statement of operations are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are based on the rates as published on the website of People’s Bank of China and are as follows:-

	September 30, 2010	December 31, 2009
Balance sheet items, except for equity accounts	US$1=RMB 6.7011	US$1=RMB6.8282
	Three months ended September 30,
	2010	2009
Items in the statements of income and cash flows	US$1=RMB 6.7622	US$1=RMB 6.8310
	Nine months ended September 30,
	2010	2009
Items in the statements of income and cash flows	US$1=RMB 6.8072	US$1=RMB6.8330

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the above rates. The value of RMB against U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of U.S. dollar reporting.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summaries of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. The adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s condensed consolidated financial statements.

In February 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to subsequent events. This guidance includes the definition of a Securities and Exchange Commission filer, removes the definition of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations or financial position, but did require changes to the Company’s disclosures in its financial statements.

In April 2010, the FASB issued ASU No. 2010-13—Compensation—Stock Compensation (Topic 718), which addresses the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. This update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company expects that the adoption of the amendments in this update will not have any significant impact on its financial position and results of operations.

In May 2010, the FASB issued ASU 2010-19, “Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates”. The amendments in this ASU are effective as of the announcement date of March 18, 2010. The adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. This ASU amended Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. For public entities, the disclosures as of end of a reporting period are effective for interim and annual reporting periods ending or after December 15, 2010. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Except for the expanded disclosure requirements, the adoption of this ASU is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.	Fair Value Measurements And Financial Instruments

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

		Level one — Quoted market prices in active markets for identical assets or liabilities;
		Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
		Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	Fair value measurement using inputs						Carrying amount at
Financial instruments	Level 1		Level 2		Level 3		September 30, 2010
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Liabilities:
Derivative instruments	$	—	$	22,161	$	—	$	22,161
Total	$	—	$	22,161	$	—	$	22,161

The carrying values of cash and cash equivalents, trade receivables and payables, and short-term bank loans and debts approximate their fair values due to the short maturities of these instruments.

4.	Earnings Per Share

The computation of earnings per share is based on the weighted average number of shares outstanding during the year presented in accordance with FASB ASC 260-10, “Earnings Per Share.”

The following is a reconciliation of the calculation of basic and diluted earnings per share:

	Nine months ended September 30,					Three months ended September 30,
	2010		2009			2010		2009
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net income from continuing operations attributable to China Ritar stockholders		5,550,487		5,936,915			1,689,389		3,301,581

Net loss from discontinued operations attributable to China Ritar stockholders		-		(336,911	)		-		(38,209	)

Net income		5,550,487		5,600,004			1,689,389		3,263,372

Weighted average shares outstanding-basic		21,811,357		19,169,619			21,858,925		19,237,745
Add: Effect of dilutive warrants		-		418,970			-		141,191
Weighted average shares outstanding-diluted		21,811,357		19,588,589			21,858,925		19,378,936

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.	Cash and Cash Equivalents

Cash and cash equivalents are summarized as follows:

	September 30		December 31
	2010		2009
	(Unaudited)

Cash at banks	$	10,621,419	$	20,422,998
Cash on hand		58,511		36,363
Total	$	10,679,930	$	20,459,361

Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash and cash equivalents. As of September 30, 2010 and December 31, 2009, substantially all of the Company’s cash and cash equivalents were placed with major banks located in the PRC, which management believes are of high credit quality.

6.	Restricted Cash

Restricted cash consists of the following:

	September 30		December 31
	2010		2009
	(Unaudited)
Bank deposit held as collateral for:
- Bills payable (Note 17)	$	5,291,431	$	5,724,907
- Bank guarantee for tender purposes		89,538		175,742
Total	$	5,380,969	$	5,900,649

At September 30, 2010 and December 31, 2009, restricted cash of $5,291,431 and $5,724,907, respectively represented the bank deposits pledged for banking facilities. Generally, the deposits will be released when the relevant bills payable are repaid upon maturity.

At September 30, 2010 and December 31, 2009, bank deposits of $89,538 and $175,742, respectively were held as collateral for bank guarantees against the Company’s tenders for the supply of lead-acid batteries to China Mobile Limited, an unrelated customer.

7.	Accounts Receivable, net

	September 30			December 31
	2010			2009
	(Unaudited)

Trade accounts receivable	$	35,102,527		$	26,036,146
Less: allowances for doubtful accounts		(1,136,475	)		(1,115,321	)
Net	$	33,966,052		$	24,920,825

Concentrations in accounts receivable - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of accounts receivable. At September 30, 2010, two customers on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $4,017,509 representing 12% of total accounts receivable in aggregate. At December 31, 2009, two customers on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $2,799,836 representing 11% of total accounts receivable in aggregate.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Inventory

Inventory by major categories are summarized as follows:

	September 30		December 31
	2010		2009
	(Unaudited)
Raw materials	$	4,113,626	$	2,846,892
Work in progress		21,085,886		13,919,696
Finished goods		1,056,695		2,717,636
Total	$	26,256,207	$	19,484,224

9.	Other Current Assets

Other current assets consist of the following:

	September 30		December 31
	2010		2009
	(Unaudited)
Notes receivable	$	161,764	$	118,140
Advance to staff and deposit, net of allowances of $99,560 and $97,707		606,706		647,351
Refundable deposits, net of allowance of $nil		742,729		732,257
Value added tax recoverable		2,593,318		2,417,857
Total	$	4,104,517	$	3,915,605

Refundable deposits were placed with a supplier in relation to a product upgrade project.

10.	Property, Plant and Equipment

Property, plant and equipment consist of the following:

	September 30			December 31
	2010			2009
	(Unaudited)
At cost:
Building	$	8,654,518		$	8,456,956
Leasehold improvement		397,732			390,329
Plant and machinery		10,546,596			8,830,851
Furniture, fixtures and equipment		585,331			517,532
Motor vehicles		1,123,684			1,034,070
Total		21,307,861			19,229,738
Less: accumulated depreciation and amortization		(4,232,135	)		(2,981,187	)
Net book value	$	17,075,726		$	16,248,551

As of September 30, 2010 and December 31, 2009, certain property, plant and machinery with an aggregate net book value of $8,908,938 and $8,933,605, respectively, were pledged as securities against the bank loan facilities, as described in more details in Notes 19 and 20.

During the nine months ended September 30, 2010, depreciation expenses amounted to $1,201,416, among which $948,070, $115,362 and $137,984 were recorded as cost of sales, selling expense and administrative expense respectively.

During the nine months ended September 30, 2009, depreciation expenses amounted to $867,690, among which $649,158, $118,897 and $99,635 were recorded as cost of sales, selling expense and administrative expense of continuing operations, and $142,841 was included in discontinued operations, respectively.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.	Intangible Assets

Intangible assets consist of the following:

	September 30			December 31
	2010			2009
	(Unaudited)
At cost:
Computer software	$	28,416		$	27,887
Less: Accumulated amortization		(22,425	)		(18,480	)
Net book value	$	5,991		$	9,407

During the nine months ended September 30, 2010 and 2009, amortization expenses amounted to $3,538 and $3,525, respectively which were included in administrative expenses.

12.	Land Use Right

	September 30			December 31
	2010			2009
	(Unaudited)

Right to use land	$	492,754		$	483,582
Accumulated amortization		(22,178	)		(15,317	)
	$	470,576		$	468,265

Land use right represented the cost incurred by the Company’s subsidiary, Hengyang Ritar, to obtain the right from the relevant PRC land authority to use the lands where its production facilities and warehouses of the subsidiaries are situated for a period of 50 years.

As of September 30, 2010 and December 31, 2009, all of land use right with the net book value of $470,576 and $468,265, respectively, were pledged as securities against the bank loan facilities, as described in more details in Notes 19 and 20.

During the nine months ended September 30, 2010, amortization expense amounted to $6,468, which was included in administrative expense. During the nine months ended September 30, 2009, amortization expense amounted to $6,443, which was included in administrative expense.

The estimated amortization expense for land use right for each of the next five years is approximately $9,855.

13.	Rental Prepayment and Deposits

	September 30		December 31
	2010		2009
	(Unaudited)

Prepaid rental (Note)	$	895,375	$	-
Rental deposits		85,923		82,439
	$	981,298	$	82,439

Note: The amount is advanced to an unrelated third party who is constructing a new production facility. This facility is expected to be completed in March 2011. The Company has contracted to rent this facility and to offset future rental against the loan advanced to the landlord.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14.	Related Party Transactions

Guarantees provided by related parties

Certain of the Company’s short-term and long-term loans (see Notes 19 and 20) and bills payable (see Note 17) are secured by personal guarantees provided by Mr. Jiada Hu (CEO and principal stockholder of the Company) and Ms. Hengying Peng (director of certain subsidiaries of the Company and the spouse of Mr. Jiada Hu).

Sale of Shanghai Ritar

On October 15, 2009, Shenzhen Ritar entered into an agreement with a family member of Ms. Hengying Peng (director of certain subsidiaries of the Company and the spouse of Mr. Jiada Hu, CEO and principal stockholder of the Company) to sell 95%, representing all of Shenzhen Ritar’s ownership interest in Shanghai Ritar, for RMB 2,850,000 (or $417,216), which was fully settled on April 21, 2010.

Receivables from a former subsidiary

Receivables from a former subsidiary as of September 30, 2010 represented the amount due from Shanghai Ritar, the former 95% subsidiary sold by the Company in October 2009, further details of which are set out in Note 30.

The following table sets out the roll-forward of the amount due from Shanghai Ritar:

Amount due from Shanghai Ritar at January 1, 2010	$	3,925,348
Repayment from Shanghai Ritar		(804,110	)
Effect of exchange rate changes		59,835
Amount due from Shanghai Ritar, at September 30, 2010	$	3,181,073

The amount due from Shanghai Ritar is non-interest bearing without a fixed repayment term and is secured by the personal guarantee of Mr. Jiada Hu (CEO and principal stockholder of the Company) as well as Shanghai Ritar’s plant and machinery, trade and other receivables and inventories.

15.	Income and Other Taxes Payables

Income and other taxes payables consist of the following:

	September 30		December 31
	2010		2009
	(Unaudited)
Income tax payable	$	5,137,281	$	3,927,626
Individual income withholding tax payable		35,580		13,131
Value added tax payable		1,939,321		46,178
Land use tax payable		118,652		-
Total	$	7,230,834	$	3,986,935

16.	Other Current Liabilities

Other current liabilities consist of the following:

	September 30		December 31
	2010		2009
	(Unaudited)
Other payable and accrued expenses	$	549,156	$	909,176
Advance from customers		1,200,305		1,891,703
Total	$	1,749,461	$	2,800,879

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17.	Bills Payable and Credit Facilities

In the normal course of business, the Company is requested by certain of its suppliers to settle trade liabilities incurred in the ordinary course of business by issuance of bills that is guaranteed by a bank acceptable to the supplier. The bills are interest-free with maturity dates of three months to one year from date of issuance. In order to provide such guarantees for the bills, Shenzhen Ritar and Hengyang Ritar have obtained relevant credit facilities from Shenzhen Development Bank, China Merchants Bank, DBS bank and Bank of China (the “Banks”). Pursuant to the Banks’ facilities letters and loan agreements, as of September 30, 2010, the Company had available facilities for such bank acceptances up to approximately $29,099,700 of which $15,420,767 was utilized as of September 30, 2010.

18.	Derivative Instruments

The Company does not use derivative financial instruments for speculative or trading purpose, nor does it hold or issue leveraged derivative financial instruments. However, the Company’s operations are exposed to market risk primarily due to changes in currency rates. In order to manage such risks so as to reduce volatility on earnings and cash flows, the Company enters into several foreign currency forward contracts with a commercial bank to hedge for future trade receipts in U.S. dollars against RMB. The total outstanding foreign currency forward contracts amounted to $7,000,000 as of September 30, 2010. The Company’s foreign currency forward contracts are classified as Level 2 in the fair value hierarchy under ASC topic 820 since the quote prices of these foreign currency forward contracts can be obtained directly from commercial banks. The following table summarizes the Company’s fair value of outstanding derivatives:

	Condensed Consolidated	September 30		December 31
	Balance Sheet Presentation	2010		2009
		(Unaudited)
Derivatives not designated as hedging instruments

Fair value of foreign currency forward exchange contract	Current liabilities	$	22,161	$	-

The impact on earnings from derivatives activity, including changes in the fair value of derivatives is as follows for the nine months ended September 30, 2010:

		Nine months ended September 30,						Three months ended September 30,
	Presentation of gain or loss	September 30			September 30			September 30		September 30
	recognized on derivatives	2010			2009			2010		2009
		(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)
Derivatives not designated as hedging instruments

Fair value of foreign currency forward exchange contract	Foreign currency exchange gain (loss) (Note 24)	$	(21,141	)	$	(235,622	)	$	20,646	$	-

At September 30, 2010 summary information about the forward contracts are as follows:

		Forward Contracts
Notional Amount		$7 million
Rates		RMB 6.7276 to 6.7883
Effective date		March 26, 2010 to May 26, 2010
Maturity Dates		October 29, 2010 to May 31, 2011
Fair Value		$22,161

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19.	Short-Term Loans

Short-term loans consist of the following:

Bank

Loan period

Interest

rate

Securities

September 30

2010

December 31

2009

(Unaudited)

DBS Bank

2009-10-22 to 2010-2-8

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

864,064

DBS Bank

2009-11-12 to 2010-3-3

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

251,897

DBS Bank

2009-12-31 to 2010-4-21

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

348,554

DBS Bank

2010-6-21 to 2010-10-7

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

16,826

DBS Bank

2010-7-16 to 2010-11-5

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

608,855

DBS Bank

2010-7-20 to 2010-11-5

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

122,368

DBS Bank

2010-8-26 to 2010-12-15

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

87,747

DBS Bank

2010-8-26 to 2010-12-16

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

282,043

DBS Bank

2010-8-31 to 2010-12-16

6% p.a.

Property, plant and equipment, land use right and directors’ personal guarantees

208,921

1,326,760

1,464,515

20.	Long-Term Loans

Long-term loans consist of the following:

	September 30		December 31
	2010		2009
	(Unaudited)
Loan from DBS Bank, bearing interest at 7.01% (2009: 6.91%) p.a., repayable by monthly installments from 2009-04-18 to 2013-09-18, secured by certain property, plant and equipment and land use right of the Company as disclosed in Note 10 and Note 12, respectively.	$	2,984,584	$	3,661,288
Loan from DBS Bank, bearing interest at 5% p.a., repayable by monthly installments from 2009-07-12 to 2011-06-12, secured by machinery and equipment of Hengyang Ritar as disclosed in Note 10 and joint guarantees given by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Hengying Peng and Mr. Jianjun Zeng		295,422		562,373
Total loans		3,280,006		4,223,661
Less: Current maturities		1,290,283		1,342,473
Long-term loans, less current maturities	$	1,989,723	$	2,881,188

Future maturities of long-term loans are as follows:
Payable within the period ending September 30 or December 31,
2010	$	-	$	1,342,473
2011		1,290,283		1,172,588
2012		994,862		976,343
2013		994,861		732,257
Total	$	3,280,006	$	4,223,661

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

21.	Income Taxes

The Company is subject to income tax on an entity basis on income arising from the tax jurisdiction in which they operate.

On March 16, 2007, the PRC government promulgated a new tax law, China’s Unified Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1, 2008. Under the New EIT Law, foreign-owned enterprises as well as domestic companies are subject to a uniform tax rate of 25%. The New EIT Law provides for a grandfathering and five-year transition period from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential EIT treatment. Accordingly, Shenzhen Ritar was subject to an EIT rate of 22% and 20% for the period ended September 30, 2010 and for the year ended December 31, 2009, respectively, under the New EIT Law.

Hengyang Ritar is subject to PRC EIT at 25% for the period ended September 30, 2010 and for the year ended December 31, 2009.

The new Tax Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China for distribution of earnings generated after January 1, 2008. Under the New Tax Law, the distribution of earnings generated prior to January 1, 2008 is exempted from the withholding tax. In addition, as the PRC subsidiaries in the PRC will not be distributing its earnings for the year ended December 31, 2009 and year ending December 31, 2010 to the Company, no deferred tax liability has been recognized for the undistributed earnings of these PRC subsidiaries through September 30, 2010. Total undistributed earnings of these PRC subsidiaries at September 30, 2010 was $32,824,503.

No provision for other overseas taxes is made as neither Ritar BVI has any taxable income in the U.S. or British Virgin Islands.

The provision for income taxes consists of the following:

	Nine months ended September 30,				Three months ended September 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current tax
- PRC	$	1,652,749	$	1,315,258	$	496,316	$	786,779
- Deferred tax provision		(4,464)		-		(8,939)		-
Total	$	1,648,285	$	1,315,258	$	487,377	$	786,779

Significant components of deferred income tax assets are as follows:

	September 30		December 31
	2010		2009
	(Unaudited)
Deferred income tax assets – non-current:
Depreciation	$	121,781	$	115,064
Less: Valuation allowance		-		-
	$	121,781	$	115,064

A reconciliation of the provision for income taxes to the Company’s effective income tax rate is as follows:

	Nine months ended September 30,						Three months ended September 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Pre-tax income from continuing operations	$	7,198,772		$	7,252,172		$	2,176,766		$	4,088,360

United States federal corporate income tax rate		35%			35%			35%			35%
Income tax expense computed at U.S. federal corporate income tax rate		2,519,570			2,538,260			761,868			1,430,926
Reconciling items:
Impact of tax holiday of Shenzhen Ritar		(206,625	)		(337,842	)		(58,149	)		(242,928	)
Rate differential for PRC earnings		(719,025	)		(726,726	)		(217,857	)		(410,345	)
Other		54,365			(158,434	)		1,515			9,126
Income taxes	$	1,648,285			1,315,258		$	487,377		$	786,779

The effect of the tax holiday of Shenzhen Ritar amounted to $206,625 for the nine months ended September 30, 2010, equivalent to earnings per share (basic and diluted) of $0.010.

The effect of the tax holiday of Shenzhen Ritar amounted to $337,842 for the nine months ended September 30, 2009, equivalent to earnings per share (basic and diluted) of $0.018 and $0.017, respectively.

As of September 30, 2010 and December 31, 2009, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the nine month periods ended September 30, 2010 and 2009, and no provision for interest and penalties is deemed necessary as of September 30, 2010 and December 31, 2009.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

22.	Common Stock and Warrant Transactions

Common stock

In January and February 2010, the Company issued 408,687 shares of common stock for the cashless exercise of 710,903 warrants and 93,457 warrant shares exercised at $2.78 per share for cash.

Common Stock Purchase Warrants

A summary of the warrants activity as of September 30, 2010, and changes during the nine-month period then ended is presented below:

Warrant	Number of underlying shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at January 1, 2010		1,009,340		$	2.78		0.17	$	2,038,867
Granted		-
Exercised		(804,360	)	$	2.78
Expired		(204,980	)	$	2.78

Outstanding at September 30, 2010		-

Exercisable at September 30, 2010		-

23.	Other income

Other income consists of the following:

	Nine months ended September 30,					Three months ended September 30,
	2010			2009		2010		2009
	(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)

Gain on disposal of property, plant and equipment	$	(673	)	$	365	$	-	$	-
Reimbursement/overpayment from customers		16,642			32,564		9,567		31,097
Others		-			1,445		-		-
Total	$	15,969		$	34,374	$	9,567	$	31,097

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

24.	Foreign Currency Exchange (Loss) Gain

Foreign currency transaction (loss) gain comprises of two components – (i) FASB ASC 830 translation gains or losses of the accounts receivable in foreign currency and (ii) the unrealized loss of the derivative instruments as follows:

	Nine months ended September 30,							Three months ended September 30,
	2010			2009				2010			2009
	(Unaudited)			(Unaudited)				(Unaudited)			(Unaudited)
Foreign currency reinstatement / realization gain / (loss)	$	(544,844	)		$	218,945		$	(344,611	)		$	(21,766	)
Derivative unrealized gain (Note 18)		(21,141	)			(235,622	)		20,646				-
Total	$	(565,985	)		$	(16,677	)	$	(323,965	)		$	(21,766	)

25.	Commitments and Contingencies

Operating Leases Commitments

In the normal course of business, the Company leases office space under operating lease agreements. The Company rents office space, primarily for regional sales administration offices, in commercial office complexes that are conducive to administrative operations. The operating lease agreements generally contain renewal options that may be exercised at the Company's discretion after the completion of the base rental terms. In addition, many of the rental agreements provide f or regular increases to the base rental rate at specified intervals, which usually occur on an annual basis. The Company was obligated under operating leases requiring minimum rentals as of September 30, 2010 as follows:

	(Unaudited)
Payable within:
-Remainder of 2010	$	140,124
-2011		535,052
-2012		119,768
Total minimum lease payments	$	794,944

During the nine months ended September 30, 2010, rent expenses amounted to $554,886, among which $323,200, $120,889 and $110,797 were recorded as cost of sales, administrative expense and selling expense, respectively.

During the nine months ended September 30, 2009, rent expenses from continuing operations amounted to $556,261, among which $403,289, $128,951 and $24,021 were recorded as cost of sales, administrative expense and selling expense, respectively. Rent expenses from discontinued operations amounted to $105,769 were recorded as cost of sales.

Capital Commitments

As of September 30, 2010, the Company had a total capital commitment of $1,879,878 for the acquisitions of property, plant and equipment, which was not provided for in the financial statements and is expected to be disbursed by the next fiscal year.

PRC employee costs

According to the prevailing laws and regulations of the PRC, the Company’s subsidiaries in the PRC are required to cover its employees with medical, retirement and unemployment insurance programs. Management believes that due to the transient nature of the employees of Hengyang Ritar, Hengyang Ritar does not need to provide all its employees with such social insurances, and has not paid the social insurances for all employees.

In the event that any current or former employee of Hengyang Ritar files a complaint with the PRC government, Hengyang Ritar may be subject to making up the social insurances as well as administrative fines. As the Company believes that these fines would not be material, no provision has been made in this regard.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

26.	Employee Benefits

The Company contributes to a state pension scheme organized by municipal and provincial governments in respect of its employees in PRC. The compensation expense related to this plan, which is calculated at a rate of 8% of the average monthly salary, was $283,201 and $208,063 for the nine months ended September 30, 2010 and 2009 respectively.

27.	Risk of Concentrations

The Company has no significant concentrations risk with respect to sales, as there was no single customer accounting for 10% or more of the Company’s gross sales for the nine months ended September 30, 2010 and 2009.

The Company has the following concentrations of business with suppliers constituting more than 10% of the Company’s purchasing volume:

	Nine months ended September 30,				Three months ended September 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Supplier A		31%		28%		32%		38%
Supplier B		18%		16%		22%		20%
Supplier C		7%		11%		11%		13%

28.	Segment Information

The Company has only one business segment, which is manufacturing and trading of rechargeable batteries for use in light electric vehicles or LEV and UPS segments.

The Company's sales by geographic destination are analyzed as follows:

	Nine months ended September 30,				Three months ended September 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
PRC	$	27,130,615	$	22,454,896	$	9,967,734	$	13,538,226
Outside PRC:
- Hong Kong		4,323,002		1,335,523		1,564,845		814,660
- Germany		4,485,121		3,479,573		1,752,275		1,478,024
- America		13,252,799		8,745,933		5,706,183		3,200,803
- India		2,535,707		4,219,728		865,905		1,188,761
- Italy		3,763,406		2,353,286		1,385,207		990,230
- Australia		4,432,160		3,161,240		1,385,564		1,515,456
- Brazil		2,408,695		2,856,317		1,063,744		1,257,920
- other countries, less than 5% of total sales individually		27,578,929		22,297,882		7,856,229		9,139,263
		62,779,819		48,449,482		21,579,952		19,585,117

Total net sales	$	89,910,434	$	70,904,378	$	31,547,686	$	33,123,343

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

29.	Distribution of Income

In accordance with the PRC Companies Law, the Company’s PRC subsidiaries were required to transfer 10% of their profits after tax, as determined in accordance with accounting standards and regulations of the PRC, to the statutory surplus reserve until such reserve reached 50% of registered capital of the Company’s PRC subsidiaries. The statutory surplus reserve is non-distributable.

The accumulated balance of the statutory surplus reserve maintained by the PRC subsidiaries as of September 30, 2010 was $3,647,167.

30.	Discontinued Operations

In 2009, the Company initiated the liquidation of Huizhou Ritar, which had never commenced any substantive operations.

As a result, Shanghai Ritar and Huizhou Ritar have been reported as discontinued operations and consolidated financial statement information for all periods presented has been reclassified to reflect this presentation.

The following results of operations of Shanghai Ritar and Huizhou Ritar are presented as loss from discontinued operations in the consolidated statements of income:

	Nine months ended September 30,					Three months ended September 30,
	2010		2009			2010		2009
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net revenue	$	-	$	1,865,842		$	-	$	786,211
Cost of sales		-		1,737,346			-		684,350

Gross profit		-		128,496			-		101,861
Operating expenses:
Salaries		-		191,560			-		55,460
Other selling, general and administrative expenses		-		292,994			-		86,220
		-		484,554			-		141,680

Operating loss		-		(356,058	)		-		(39,819	)

Other income (expenses), net		-		1,416			-		(399	)

Loss before income taxes		-		(354,642	)		-		(40,218	)

Income taxes		-		-			-		-

Net loss		-		(354,642	)		-		(40,218	)
Loss attributable to noncontrolling interest		-		17,731			-		2,009

Net loss attributable to China Ritar stockholders	$	-	$	(336,911	)	$	-	$	38,209

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2009 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 quarterly 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) “Hengyang Ritar” are to our subsidiary Hengyang Ritar Power Co., Ltd., a corporation incorporated in the People’s Republic of China; (v) “Securities Act” are to the Securities Act of 1933, as amended; (vi) “Exchange Act” means the Securities Exchange Act of 1934, as amended; (vii) “RMB” are to Renminbi, the legal currency of China; (viii) “U.S. dollar,” “$” and “US$” are to the legal currency of the United States; (ix) “China” and “PRC” are to the People’s Republic of China; (x) “BVI” are to the British Virgin Islands; and (xi) “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 $112.3 million in fiscal year 2008 and decreased to $98.6 million in fiscal year 2009, representing an overall compounded annual growth rate of approximately 34.1%. 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. Through our manufacturing facilities located in Shenzhen and Hengyang, we currently have 19 lead acid battery production lines that are operational. Eight of them are located at Hengyang Ritar, eleven production lines are located at Shenzhen Ritar. Our current annual designed production capacity of lead acid battery is approximately 2.51 million kilowatt-hours. 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 of 2008, production of lead plates began at the Hengyang facility. We sold all of our ownership interest in Shanghai Ritar on October 15, 2009 and no longer maintain any manufacturing facility in Shanghai.

Our Current Organizational Structure

The following chart reflects our current organizational structure:

Third Quarter Financial Performance Highlights

The following are some financial highlights for the third quarter of 2010:

Revenues: Our revenues were $31.55 million for the third quarter of 2010, a decrease of 4.76 % from the same quarter of 2009.

Gross Margin: Gross margin was 16.37% for the third quarter of 2010, as compared to 18.88% for the same period in 2009.

Operating Profit: Operating profit was $2.63 million for the third quarter of 2010, a decrease of 38.47% from $4.27 million of the same period last year.

Net Income: Net income was $1.69 million for the third quarter of 2010, a decrease of 48.2% from $3.26 million of the same period in 2009.

Fully diluted earnings per share was $0.08 for the third quarter of 2010, a decrease of 52.94% from the same period in 2009.

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

Between fiscal years 2008 and 2009, 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 changes in cost of goods sold as a percentage of revenues due to changes in raw materials cost per unit product and 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 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 2010.

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

Shenzhen Ritar is subject to PRC enterprises income tax (“EIT”) 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 was allowed preferential tax treatment – full exemption from PRC enterprises income tax for two fiscal years 2003 and 2004, which were its first profit-making years, and 50% reduction in its EIT rates for the ensuing three years, 2005 through 2007.

On March 16, 2007, the PRC government promulgated a new tax law, China’s Unified Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1, 2008. Under the New EIT Law, foreign-owned enterprises as well as domestic companies are subject to a uniform tax rate of 25%. The New EIT Law provides for a grandfathering and five-year transition period from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential EIT treatment. Accordingly, Shenzhen Ritar was subject to an EIT rate of 22%, 20% and 18% for the years ended December 31, 2010, 2009 and 2008, respectively, under the New EIT Law.

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

We use 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.

Results of Operations

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

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 September 30, 2010						Three Months Ended September 30, 2009
	Amount			As a Percentage of Revenues			Amount			As a Percentages of Revenues
Net revenue	$	31,547,686			100	%	$	33,123,343			100	%
Cost of sales		26,383,879			83.6	%		26,871,015			81.1	%
Gross profit		5,163,807			16.4	%		6,252,328			18.9	%

Operating expenses:
Salaries		623,267			1.98	%		356,138			1.1	%
Sales commission		468,006			1.48	%		210,519			0.64	%
Shipping and handling cost		380,648			1.21	%		266,459			0.8	%
Other selling and administrative expenses		1,066,781			3.38	%		1,153,048			3.5	%
Total operating expenses		2,538,702			8.0	%		1,986,164			6.0	%

Operating profit		2,625,105			8.3	%		4,266,164			12.9	%

Other income and (expenses):
Interest income		22,295			0.07	%		5,419			0.02	%
Other income		9,567			0.03	%		31,097			0.09	%
Interest expenses		(155,780	)		0.49	%		(187,018	)		0.56	%
Foreign currency exchange loss		(323,965	)		1.03	%		(21,766	)		0.07	%
Other expenses		(456	)		0.001	%		(5,536	)		0.02	%

Other expenses, net		(448,339	)		1.42	%		(177,804	)		0.5	%

Income from continuing operations before income taxes		2,176,766			6.9	%		4,088,360			12.3	%

Income taxes		(487,377	)		1.54	%		(786,779	)		2.4	%

Income from continuing operations		1,689,389			5.4	%		3,301,581			10.0	%

Loss from discontinued operation, net of taxes		-			0	%		(40,218	)		0.1	%

Net income		1,689,389			5.4	%		3,261,363			9.8	%
Loss from discontinued operations attributable to noncontrolling interest		-			0	%		2,009			0	%

Net income attributable to China Ritar shareholders		1,689,389			5.4	%		3,263,372			9.9	%

Other comprehensive income attributable to noncontrolling interest		-			0	%		8			0.00002	%
Foreign currency translation adjustment		738,630			2.3	%		23,301			0.07	%
Comprehensive income attributable to China Ritar shareholders		2,428,019			7.7	%		3,286,681			9.9	%
Comprehensive loss (income) attributable to non-controlling interest		-			0	%		(2,020	)		0.006	%
Comprehensive income	$	2,428,019			7.7	%	$	3,284,661			9.9	%

Revenues. Revenues decreased approximately $1.6 million, or 4.76% to approximately $31.55 million for the three months ended September 30, 2010 from approximately $33.12 million for the same period in 2009. Several large customers requested delivery of goods after the National holiday in October 2010. Accordingly sales to these customers decreased during the quarter ended September 30, 2010.

Cost of Sales. Our cost of sales decreased approximately $0.49 million, or 1.81%, to approximately $26.38 million for the three months ended September 30, 2010, from approximately $26.87 million for the same period in 2009. This decrease was due to the decrease of our sales volume. As a percentage of revenues, the cost of sales increased to 83.63% during the three months ended September 30, 2010 from 81.12% for the same period of 2009.

Gross Profit. Our gross profit decreased approximately $1.09 million, or 17.41% to approximately $5.16 million for the three months ended September 30, 2010 from approximately $6.25 million for the same period in 2009. This decrease was due to the decrease in our sales volume. Gross profit as a percentage of revenues was 16.37% for the three months ended September 30, 2010, a decrease of 2.51% from 18.88% for the same period of 2009. Such decrease was mainly due to the increase in the price of main raw materials, and the increase of unit manufacturing cost as a result of the relatively low capacity utilization of our new factory in Hengyang.

Salaries. Salaries increased approximately $0.27 million, or 75% to approximately $0.62 million for the three months ended September 30, 2010 from $0.36 million for the same period in 2009. As a percentage of revenues, salaries increased to 1.98% for the three months ended September 30, 2010 from 1.08% for the same period of 2009 .The increase was mainly attributable to the increased number of employees as a result of a larger sales team and the expansion of our new factory. We also increased salaries and fringe benefits of our staff so that we could motivate the core team to contribute more to our company.

Sales Commission. Sales commission increased $0.26 million, or 122.31% to $0.47 million for the three months ended September 30, 2010 from $0.21 million for the same period of 2009. As a percentage of revenues, sales commission increased to 1.48% for the three months ended September 30, 2010 from 0.64% for the same period of 2009. The increase was mainly because lesser sales were made to large customers during this quarter. Generally we paid a comparatively low commission rate to our sales agents for large clients.

Shipping and Handling Cost. Shipping and handling cost increased $0.11 million, or 42.85% to $0.38 million for the three months ended September 30, 2010 from $0.27 million for the same period of 2009. As a percentage of revenues, shipping and handling cost increased to 1.21% for the three months ended September 30, 2010 from 0.8% for the same period of 2009. Such increase was mainly attributable to the rising shipping costs due to inflation.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses have decreased by $0.09 million, or 7.48% to $1.07 million for the three months ended September 30, 2010 from $1.15 million for the same period of 2009. The decrease was mainly attributable to our efforts to control expenses. As a percentage of revenues, other selling, general and administrative expenses decreased to 3.38% for the three months ended September 30, 2010 from 3.48% for the same period of 2009.

Income From Continuing Operations Before Income Taxes. Income before income taxes decreased $1.91 million or 46.8% to $2.18 million for the three months ended September 30, 2010 from $4.09 million for the same period of 2009. Income before income taxes as a percentage of revenues decreased to 6.9% for the three months ended September 30, 2010 from 12.34% for the same period of 2009. Such decrease was mainly attributable to the decreased gross margin and increased operating expenses as discussed above.

Income Taxes. Income taxes decreased $0.3 million to $0.49 million for the three months ended September 30, 2010 from $0.79 million for the same period of 2009. We paid less tax in the third quarter of 2010 mostly because of the decreased income before income taxes during this period compared to the same period of 2009.

Net Income. Net income decreased $1.57 million, or 48.2% to $1.69 million for the three months ended September 30, 2010 from $3.26 million for the same period of 2009. Net income as a percentage of revenues decreased to 5.36% for the three months ended September 30, 2010 from 9.85% for the same period of 2009. The decrease was mainly attributable to the decreased gross profit and increased operating expenses as discussed above.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

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 September 30, 2010						Nine Months Ended September 30, 2009
	Amount			As a Percentage of revenues			Amount			As a Percentage of revenues
Net revenue	$	89,910,434			100	%	$	70,904,378			100	%
Cost of sales		74,484,047			82.8	%		57,295,863			80.8	%
Gross profit		15,426,387			17.2	%		13,608,515			19.2	%

Operating expenses:
Salaries		1,759,840			2.0	%		1,209,472			1.7	%
Sales commission		1,259,840			1.4	%		1,137,101			1.6	%
Shipping and handling cost		1,056,488			1.2	%		773,936			1.1	%
Other selling and administrative expenses		3,240,680			3.6	%		2,817,086			4.0	%
Total operating expenses		7,316,848			8.1	%		5,937,595			8.4	%

Operating profit		8,109,539			9.0	%		7,670,920			10.8	%

Other income and (expenses):
Interest income		85,110			0.09	%		71,268			0.1	%
Other income		15,969			0.02	%		34,374			0.05	%
Interest expenses		(442,354	)		0.49	%		(500,512	)		0.7	%
Foreign currency exchange loss		(565,985	)		0.63	%		(16,677	)		0.02	%
Other expenses		(3,507	)		0.004	%		(7,200	)		0.01	%

Other expenses, net		(910,767	)		1.0	%		(418,747	)		0.6	%

Income from continuing operations before income taxes		7,198,772			8.0	%		7,252,173			10.2	%

Income taxes		(1,648,285	)		1.8	%		(1,315,258	)		1.9	%

Income from continuing operations		5,550,487			6.2	%		5,936,915			8.4	%

Loss from discontinued operation, net of taxes		-						(354,642	)		0.5	%

Net income		5,550,487			6.2	%		5,582,273			7.9	%
Loss from discontinued operations attributable to noncontrolling interest		-						17,731			0.03	%

Net income attributable to China Ritar shareholders		5,550,487			6.2	%		5,600,004			7.9	%

Other comprehensive income attributable to noncontrolling interest

China Ritar Power Corp. 10-Q