Unassociated Document

10-Q 1 v166356_10q.htm Unassociated Document

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, 2009

¨ 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		(I.R.S. Empl. Ident. No.)
incorporation or organization)

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 6, 2009 is 19,266,821.

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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Securities Holders	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,788,967		$	8,300,472
Accounts receivable, net of allowances of $1,312,835 and $1,311,759		28,093,385			20,015,989
Inventory		15,919,169			14,578,230
Advance to suppliers		2,945,857			1,340,107
Other current assets		3,246,184			3,564,793
Restricted cash		3,549,277			4,387,679

Total current assets		63,542,839			52,187,270

Non-current assets:
Property, plant and equipment, net		14,302,416			10,905,369
Construction in progress		84,394			3,089,854
Intangible assets, net		10,581			17,088
Land use right		470,631			476,687
Rental and utility deposits		82,430			82,801

Total assets	$	78,493,291		$	66,759,069

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,930,797		$	13,483,218
Income and other taxes payable		3,517,617			2,941,267
Accrued salaries		255,891			447,022
Bills payable		5,191,198			4,321,915
Derivative instruments		-			236,898
Other current liabilities		1,541,836			2,808,483
Current portion of long term loans		1,479,964			877,886
Short-term loans		6,128,276			3,596,955

Total current liabilities		35,045,579			28,713,644

Long-term loans		3,219,724			3,657,859

Total liabilities		38,265,303			32,371,503

Commitments and contingencies (Note 22)

Stockholders’ equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $.001 par value, 100,000,000 shares authorized, 19,266,821 and 19,134,992 shares issued and outstanding		19,267			19,135
Additional paid-in capital		19,339,505			19,222,727
Retained earnings		17,653,209			12,053,205
Accumulated other comprehensive income		3,233,749			3,092,499
Total China Ritar shareholders’ equity		40,245,730			34,387,566

Non-controlling interest		(17,742	)		-

Total equity		40,227,988			34,387,566

Total liabilities and stockholders’ equity	$	78,493,291		$	66,759,069

See accompanying notes to condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Nine months ended September 30,						Three months ended September 30,
	2009			2008			2009			2008

Revenue	$	72,770,220		$	86,394,684		$	33,909,554		$	36,321,897

Cost of sales		59,033,209			68,893,115			27,555,365			28,868,390

Gross profit		13,737,011			17,501,569			6,354,189			7,453,507

Operating expenses:
Salaries		1,401,032			3,946,743			411,598			1,469,858
Sales commission		1,137,101			875,854			210,519			419,499
Shipping and handling cost		843,499			1,166,326			336,022			463,794
Other selling and administrative expenses		3,040,517			3,914,333			1,169,705			1,633,578
		6,422,149			9,903,256			2,127,844			3,986,729

Operating profit		7,314,862			7,598,313			4,226,345			3,466,778

Other income and (expenses):
Interest income		71,984			128,398			5,419			49,260
Other income		40,649			963			31,097			744
Interest expenses		(500,512	)		(749,610	)		(187,018	)		(403,439	)
Foreign currency exchange gain (loss)		(18,008	)		(457,690	)		(22,165	)		74,433
Other expenses		(11,444	)		(8,739	)		(5,536	)		(3,425	)

Other expenses, net		(417,331	)		(1,086,678	)		(178,203	)		(282,427	)

Income before income taxes		6,897,531			6,511,635			4,048,142			3,184,351

Income taxes		(1,315,258	)		(1,850,361	)		(786,779	)		(777,491	)

Net income		5,582,273			4,661,274			3,261,363			2,406,860

Net loss attributable to non-controlling interest		17,731			20,017			2,009			3,205

Net income attributable to China Ritar shareholders		5,600,004			4,681,291			3,263,372			2,410,065

Other comprehensive income
Foreign currency translation adjustment		141,239			1,995,085			23,271			352,424
Other comprehensive loss attributable to non-controlling interest		11			-			8			-
		141,250			1,995,085			23,279			352,424
Comprehensive income attributable to China Ritar shareholders	$	5,741,254		$	6,676,376		$	3,286,651		$	2,762,489

Earnings per share:
- Basic	$	0.29		$	0.24		$	0.17		$	0.13
- Diluted	$	0.29		$	0.24		$	0.17		$	0.12

Weighted average number of shares outstanding:
- Basic		19,169,619			19,125,115			19,237,745			19,134,992
- Diluted		19,588,589			19,479,221			19,378,936			19,519,730

See accompanying notes to condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

	China Ritar shareholders
										Accumulated
					Additional					other		Non-
	Common stock				paid-in			Retained		comprehensive		controlling
	Shares		Amount		capital			earnings		income		interest			Total

Balance, December 31, 2008 (Audited)		19,134,992	$	19,135	$	19,222,727		$	12,053,205	$	3,092,499	$	-		$	34,387,566

Foreign currency Translation difference		-		-		-			-		141,250		(11	)		141,239
Net income for the period		-		-		-			5,600,004		-		(17,731	)		5,582,273
Total comprehensive income																5,723,512
Issuance of common stock with cashless exercise of warrants		89,775		90		(90	)		-		-		-			-
Issuance of common stock by exercise of warrants at $2.78		42,054		42		116,868			-		-		-			116,910

Balance, September 30, 2009		19,266,821	$	19,267	$	19,339,505		$	17,653,209	$	3,233,749	$	(17,742	)	$	40,227,988

See accompanying notes to condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30,
	2009			2008
Operating activities
Net income attributable to China Ritar shareholders	$	5,600,004		$	4,681,291
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment		1,010,531			653,925
Amortization of intangible assets and land use right		9,968			2,264
Allowance of bad debts		-			546,908
Gain on disposal on property, plant and equipment		(365	)		-
Allowance for inventory valuation and slow moving items		-			117,198
Stock based compensation-make good provision		-			2,890,050
Non-controlling interests		(17,731	)		(20,017	)

Changes in operating working capital items:
Accounts receivable		(8,056,264	)		(12,103,486	)
Inventory		(1,328,206	)		(10,061,890	)
Advance to suppliers		(1,603,712	)		1,546,540
Other current assets		321,343			(836,721	)
Rental and utility deposits		439			-
Accounts payable		3,434,527			9,542,377
Income and other taxes payable		573,601			1,132,426
Accrued salaries		(191,385	)		97,431
Bills payable		865,232			(2,656,342	)
Other current liabilities		(1,197,733	)		131,190
Net cash used in operating activities		(579,751	)		(4,336,856	)

Investing activities
Loan to related parties		-			216,761
Purchase of property, plant and equipment		(1,394,445	)		(6,615,432	)
Sales proceeds of disposal of property, plant and equipment		4,390			-
Net cash used in investing activities		(1,390,055	)		(6,398,671	)

Financing activities
Proceeds from exercises of warrants		116,910			26,105
Proceeds from other loan borrowings		-			85,812
Proceeds from bank borrowings		9,091,188			23,609,767
Repayment of bank borrowings		(6,402,592	)		(17,102,702	)
Restricted cash		841,507			2,724,036
Net cash provided by financing activities		3,647,013			9,343,018

Effect of exchange rate changes in cash		(188,712	)		340,912

Net increase (decrease) in cash and cash equivalents		1,488,495			(1,051,597	)

Cash and cash equivalents, beginning of period		8,300,472			4,775,562

Cash and cash equivalents, end of period	$	9,788,967		$	3,723,965

Supplemental disclosure of cash flow information
Interest paid	$	71,984		$	283,715
Income taxes paid	$	735,365		$	629,901

Non-cash financing activities
Issuance of common stock for cashless exercise of warrants	$	90		$	125

See accompanying notes to condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Organization and Basis of Preparation of Financial Statements

The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2008 and footnotes thereto included in the Company’s annual report in Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.

China Ritar Power Corp.

China Ritar Power Corp. (“China Ritar” or “the Company”) was 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 was merged with and into Concept Ventures Corporation, a Nevada corporation. From its inception in 1985 until February 16, 2007 when the Company completed a reverse acquisition transaction with Ritar International Group Limited (“Ritar International”), a British Virgin Islands corporation, whose subsidiary companies originally commenced business in May 2002, the Company was a blank check company and did not engage in active business operations other than its search for, and evaluation of, potential business opportunities for acquisition or participation. The Company amended its articles of incorporation on March 26, 2007 and changed its name to China Ritar Power Corp.

On February 16, 2007, the Company completed a reverse acquisition transaction with Ritar International, whereby the Company issued to the shareholders of Ritar International 11,694,663 shares of the Company’s stock in exchange for 1,000 shares of common stock of Ritar International, which is all of the issued and outstanding capital stock of Ritar International. Accordingly, all references to shares of Ritar International’s common stock have been restated to reflect the equivalent numbers of China Ritar shares. Ritar International thereby became the Company’s wholly owned subsidiary and the former shareholders of Ritar International became the Company’s controlling stockholders.

This share exchange transaction resulted in those shareholders obtaining a majority voting interest in the Company. Generally accepted accounting principles require that the company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes, resulting in a reverse acquisition with Ritar International as the accounting acquiror and China Ritar as the acquired party. Accordingly, the share exchange transaction has been accounted for as a recapitalization of the Company. The equity section of the accompanying financial statements have been restated to reflect the recapitalization of the Company due to the reverse acquisition as of the first day of the first period presented. The assets and liabilities acquired that, for accounting purposes, were deemed to have been acquired by Ritar International were not significant.

Ritar International Group Limited

On July 22, 2006, Ritar International was incorporated with limited liability in the British Virgin Islands and was inactive until November 21, 2006 when it acquired all the issued and outstanding stock of Shenzhen Ritar Power Co., Limited (“Shenzhen Ritar”). Shenzhen Ritar is an operating company incorporated in Shenzhen, the People’s Republic of China (the “PRC”) in May 2002.

On July 22, 2006, Ritar International, entered into an agreement with all shareholders of Shenzhen Ritar to acquire all of the issued and outstanding stock of Shenzhen Ritar and its wholly-owned subsidiary, Shanghai Ritar Power Co., Limited ( “Shanghai Ritar”). On November 21, 2006, Ritar International paid $5,052,546 (RMB40,000,000) to the shareholders of Shenzhen Ritar to acquire all shares of Shenzhen Ritar common stock held by all stockholders. The source of the funds paid by Ritar International to all shareholders of Shenzhen Ritar came from the capital contribution made by Ritar International’s shareholders. Since the ownership of Ritar International and Shenzhen Ritar are the same, the merger was accounted for as a reorganization of entities under common control, whereby Ritar International was the receiving entity and recognized the assets and liabilities of Shenzhen Ritar transferred at their carrying amounts. The reorganization was treated similar to the pooling of interest method with carry over basis.

Ritar International currently has three operating subsidiaries: Shenzhen Ritar, Shanghai Ritar and Hengyang Ritar. Shenzhen Ritar, wholly owned by Ritar International, was incorporated in the PRC in May 2002. Shanghai Ritar was incorporated in China in August 2003. Shanghai Ritar is now 95% owned by Shenzhen Ritar and 5% owned by Mr. Jiada Hu. Hengyang Ritar, wholly owned by Shenzhen Ritar, was incorporated in China in April 2007.

In November 2006, China Ritar formed a subsidiary in Guangdong Province in China called Ritar Power (Huizhou) Co., Ltd. (“Huizhou Ritar”). Huizhou Ritar is not yet operating.

Shenzhen Ritar Power Co., Limited

Shenzhen Ritar was incorporated in the PRC in May 2002 in accordance with the laws of the PRC. Shenzhen Ritar became a wholly owned foreign enterprise in July 2006. Shenzhen Ritar currently engages in the 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 the PRC and other countries in Asia and Europe.

In May 2002, Mr. Jianjun Zeng and Mr. Ju Liu invested $181,017 (equivalent to RMB1,500,000) to form Shenzhen Ritar. On July 10, 2002, Shenzhen Ritar increased its capital to $362,035 (equivalent to RMB3,000,000). On August 25, 2004, Mr. Jianjun Zeng and Mr. Ju Liu sold their shares to Mr. Jiada Hu and other individuals.

According to share transfer agreements signed on April 11, 2005 and April 29, 2005 respectively, Mr. Zhenjie Gong and Mr. Wanxiu He sold the shares to Mr. Jiada Hu. After the transfer, Mr. Jiada Hu became the major shareholder, owning 81% of the shareholdings, of Shenzhen Ritar.

On May 25, 2006, Mr. Jiada Hu personally sold his shares to other individuals and Mr. Jiada Hu still remains as the major shareholder and owns 78% of the shareholdings.

On July 22, 2006, all shareholders of Shenzhen Ritar sold all of the issued and outstanding stock to Ritar International in a reorganization of entities’ under common control as described earlier.

As a result, Shenzhen Ritar and its subsidiary Shanghai Ritar together became the subsidiaries of Ritar International.

Shanghai Ritar Power Co., Limited

Shanghai Ritar was formed on August 8, 2003. Shenzhen Ritar initially invested $271,526 (equivalent to RMB2,250,000) in Shanghai Ritar and owned 75% interest in Shanghai Ritar.

On July 5, 2006, Shenzhen Ritar acquired further 20% interest in Shanghai Ritar for a consideration of $74,958 (equivalent to RMB600,000). On the same date, Shenzhen Ritar was registered as a shareholder with 95% interest in Shanghai Ritar.

Ritar Power (Huizhou) Co., Limited

Ritar International formed a new company Huizhou Ritar in Huizhou City in November 2006. The planned investment amount is $30 million, and registered capital is $12 million. However, up to September 30, 2009, Huizhou Ritar has not commenced its operations.

Hengyang Ritar Power Co., Limited

On April 20, 2007, Shenzhen Ritar formed a new wholly-owned Chinese subsidiary, Hengyang Ritar Power Co. (“Hengyang Ritar”), in Hengyang City, Hunan Province of the PRC. Hengyang Ritar’s principal activity is manufacturing and sale of plate and lead-acid battery and it commenced its business on April 27, 2008.

2.	Summary of Significant Accounting Policies

The principal activities of the Company and its subsidiaries (“the Company”) consist of research and development, manufacturing and selling of rechargeable batteries. All activities of the Company are principally conducted by subsidiaries operating in the PRC.

Principles of consolidation - The consolidated financial statements, prepared in accordance with generally accepted accounting principles in the United States of America, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.

Cash and cash equivalents - Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time certificates of deposit with a maturity of three months or less when purchased.

Restricted cash - Deposits in banks pledged as securities for bank loan and bills payable (Note 8) that are restricted in use are classified as restricted cash under current assets.

Inventory - Inventory is stated at the lower of cost or market, determined by the weighted average method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process.

Trade accounts receivable - Trade accounts receivable are stated at cost, net of allowance for doubtful accounts. Based on the above assessment, during the reporting periods, the management establishes the general provision policy to make allowance equivalent to 100% of gross amount of trade receivables due over 1 year which have not yet been settled as of the date when financial statements are prepared. Additional specific provision is made against trade receivables aged less than 1 year to the extent they are considered to be doubtful.

Property, plant and equipment - Property, plant and equipment are stated at cost including the cost of improvements. Maintenance and repairs are charged to expense as incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the assets as follows:

Building	30 years
Leasehold improvement	5 years
Plant and machinery	5-10 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years

Intangible asset - Intangible assets are stated at cost. Amortization are provided on the straight-line method based on the estimated useful lives of the assets as follow:

Computer software

5 years

The Company accounts for its intangible assets pursuant to FASB Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other.” Under ASC 350, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology.

Valuation of long-lived assets - The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Derivative instruments - The Company entered into forward foreign currency contracts with banks to manage a portion of foreign currency risk related to U.S. Dollar denominated asset balances against the functional currency, Renminbi (the lawful currency of China), of its PRC subsidiary. The forward foreign currency contracts did not qualify for hedge accounting and were carried at fair value as assets or liabilities, with unrealized gains and losses recognized based on changes in fair value in the caption “Foreign Currency Exchange Gain (Loss)” in the Company’s consolidated statement of income and comprehensive income. In the third quarter of fiscal 2009, all of the Company’s forward foreign currency contracts had expired. The fair value of these forward foreign exchange contracts had been determined using standard calculations/models that use as their basis readily observable market parameters including spot and forward rates and a net present value stream of cash flows model.

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 collectibility 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.

Research and development expenses - Research and development costs are charged to expense when incurred and are included in operating expenses. During the nine months ended September 30, 2009 and 2008, research and development costs expensed to operating expenses were approximately $155,612 and $357,283 respectively and $104,816 and $122,748 for the three months ended September 30, 2009 and 2008 respectively.

Advertising costs- The Company expenses advertising costs as incurred. Advertising expenses charged to operations were $66,461 and nil for the nine months ended September 30, 2009 and 2008 respectively and $39,738 and nil for the three months ended September 30, 2009 and 2008 respectively.

Warranty costs - The Company accounts for its liability for product warranties in accordance with FASB ASC Topic 460 “Guarantees.” Under ASC 460, the aggregate changes in the liability for accruals related to product warranties issued during the reporting period must be charged to expense as incurred.

The Company maintains a policy of providing after sales support for certain products by way of a warranty program. The Company accrues an estimate of its exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability at least annually and adjusts the amounts as necessary. The Company recognized warranty expenses amounting to nil and $310,072 for the nine months ended September 30, 2009 and 2008, respectively, and nil and $159,495 for the three months ended September 30, 2009 and 2008 respectively, which are included in its selling expenses.

Comprehensive income - Accumulated other comprehensive income represents foreign currency translation adjustments.

Income taxes - Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Any tax paid by subsidiaries during the year is recorded. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred income tax liabilities or assets are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and the financial reporting amounts at each period end.

A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.

Foreign currency translation - The consolidated financial statements of the Company are presented in United States Dollars (“US$”). Transactions in foreign currencies during the periods are translated into US$ at the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into US$ at the exchange rates prevailing at that date. All transaction differences are recorded in the income statement.

The Company’s subsidiaries in the PRC have their local currency, Renminbi (“RMB”), as their functional currency. On consolidation, the financial statements of the Company’s subsidiaries in PRC are translated from RMB into US$ in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” Accordingly, all assets and liabilities are translated at the exchange rates prevailing at the balance sheet dates and all income and expenditure items are translated at the average rates for each of the periods.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars (“US$”) has been made at the following exchange rates for the respective periods:

September 30, 2009
Balance sheet	RMB6.8290 to US$1.00
Statement of income and comprehensive income	RMB6.8330 to US$1.00

December 31, 2008
Balance sheet	RMB6.8346 to US$1.00
Statement of income and comprehensive income	RMB6.9253 to US$1.00

September 30, 2008
Balance sheet	RMB6.7899 to US$1.00
Statement of income and comprehensive income	RMB6.8305 to US$1.00

Fair value of financial instruments - The Company adopted FASB ASC 820-10 “Fair Value Measurements and Disclosures.” ASC 820-10 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2: Inputs are unadjusted quoted price for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The fair value of the forward foreign exchange contracts was measured using level 2 inputs and reported under current liabilities on the balance sheet as of December 31, 2008. Additional disclosures of the forward foreign exchange contracts that are measured at fair value on a recurring basis are included above in this footnote.

There were no assets or liabilities measured at fair value on a non-recurring basis for the nine months ended September 30, 2009.

Post-retirement and post-employment benefits - The Company’s subsidiaries contribute to a state pension scheme in respect of its PRC employees. Other than the above, neither the Company nor its subsidiaries provide any other post-retirement or post-employment benefits.

Basic income/loss per common share - The computation of income/loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with FASB ASC 260-10, “Earnings Per Share.” The warrants outstanding as of September 30, 2009 were 1,056,068 in the calculation of diluted earnings per share for the three months and nine months ended September 30, 2009.

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,
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Net income	$	5,600,004	$	4,681,291	$	3,263,372	$	2,410,065

Weighted average shares outstanding-basis		19,169,619		19,125,115		19,237,745		19,134,992
Warrants		418,970		354,106		141,191		384,738
Weighted average shares outstanding-diluted	$	19,588,589	$	19,479,221	$	19,378,936	$	19,519,730

Use of estimates - The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements include some amounts that are based on management’s best estimates and judgments. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, other receivables, inventories, deferred income taxes, and the estimation on useful lives of property, plant and equipment. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.

Significant estimates relating to specific financial statement accounts and transactions are identified - The financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to allowance for uncollectible accounts receivable, inventory work in process valuation and obsolescence, depreciation, useful lives, taxes, and contingencies. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.

Cost of goods sold - Cost of goods sold consists primarily of the costs of the raw materials, direct labor, depreciation of plant and machinery, and overhead associated with the manufacturing process of the environmentally friendly lead-acid batteries.

Shipping and Handling Cost - Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the nine months ended September 30, 2009 and 2008 shipping and handling costs expensed to other selling, general and administrative expenses were $843,499 and $1,166,326 respectively and $336,022 and $463,794 for the three months ended September 30, 2009 and 2008 respectively.

3.	Recent Accounting Pronouncement

Recent accounting pronouncements adopted

In June 2009, the FASB established the FASB Accounting Standards CodificationTM (ASC) as the single source of authoritative U.S generally accepted accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The ASC superseded all previously existing non-SEC accounting and reporting standards, and any prior sources of U.S. GAAP not included in the ASC or grandfathered are not authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). The ASC did no change current U.S. GAAP but changes the approach by referencing authoritative literature by topic (each a “Topic”) rather than by type of standard. The ASC has been effective for the Company effective July 1, 2009. Adoption of the ASC did not have a material impact on the Company’s Condensed Consolidated Financial Statements, but references in the Company’s Notes to Consolidated Financial Statements to former FASB positions, statements, interpretations, opinions, bulletins or other pronouncements are now presented as references to the corresponding Topic in the ASC.

Effective January 1, 2009, the first day of fiscal 2009, the Company adopted FASB ASC 350-30 and ASC 275-10-50 (formerly FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 ("SFAS 142"), “Goodwill and Other Intangible Assets.” The Company will apply ASC 350-30 and ASC 275-10-50 prospectively to intangible assets acquired subsequent to the adoption date. The adoption of these revised provisions had no impact on the Company’s Condensed Consolidated Financial Statements.

Effective January 1, 2009, the Company adopted FASB ASC 815-10-65 (formerly SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”), which amends and expands previously existing guidance on derivative instruments to require tabular disclosure of the fair value of derivative instruments and their gains and losses., This ASC also requires disclosure regarding the credit-risk related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. The adoption of this ASC did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

During 2008, the Company adopted FASB ASC 820-10 (formerly FSP FAS 157-2, "Effective Date of FASB Statement 157"), which deferred the provisions of previously issued fair value guidance for nonfinancial assets and liabilities to the first fiscal period beginning after November 15, 2008. Deferred nonfinancial assets and liabilities include items such as goodwill and other nonamortizable intangibles. Effective January 1, 2009, the Company adopted the fair value guidance for nonfinancial assets and liabilities. The adoption of FASB ASC 820-10 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51"), which amends previously issued guidance to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity. Among other requirements, this Statement requires that the consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated income statement. The adoption of the provisions in this ASC did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective January 1, 2009, the Company adopted FASB ASC 805-10, (formerly SFAS 141R, "Business Combinations"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in an acquiree and the goodwill acquired. In addition, the provisions in this ASC require that any additional reversal of deferred tax asset valuation allowance established in connection with our fresh start reporting on January 7, 1998 be recorded as a component of income tax expense rather than as a reduction to the goodwill established in connection with the fresh start reporting. The Company will apply ASC 805-10 to any business combinations subsequent to adoption.

Effective January 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS 141R-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies"), which amends ASC 805-10 to require that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of such an asset acquired or liability assumed cannot be determined, the acquirer should apply the provisions of ASC Topic 450, Contingences, to determine whether the contingency should be recognized at the acquisition date or after such date. FSP The adoption of ASC 805-20 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FASB Staff Position (“FSP”) No. FAS 107-1 and Accounting Principles Board 28-1, "Interim Disclosures about Fair Value of Financial Instruments"), which amends previous guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The adoption of FASB ASC 825-10-65 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments"). Under ASC 320-10-65, an other-than-temporary impairment must be recognized if the Company has the intent to sell the debt security or the Company is more likely than not will be required to sell the debt security before its anticipated recovery. In addition, ASC 320-10-65 requires impairments related to credit loss, which is the difference between the present value of the cash flows expected to be collected and the amortized cost basis for each security, to be recognized in earnings while impairments related to all other factors to be recognized in other comprehensive income. The adoption of ASC 320-10-65 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"), which provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset or liability has significantly decreased when compared with normal market activity for the asset or liability as well as guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Effective July 1, 2009, the Company adopted FASB ASC 855-10 (formerly SFAS 165, “Subsequent Events”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. Adoption of ASC 855-10 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

New accounting pronouncements to be adopted

In December 2008, the FASB issued ASC 715, Compensation – Retirement Benefits (formerly FASB FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”), which expands the disclosure requirements about plan assets for defined benefit pension plans and postretirement plans. The Company is required to adopt these disclosure requirements in the fourth quarter of 2009. It is expected the adoption of these disclosure requirements will have no material effect on the Company’s Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140,” (not yet reflected in FASB ASC). SFAS No. 166 limits the circumstances in which a financial asset should be derecognized when the transferor has not transferred the entire financial asset by taking into consideration the transferor’s continuing involvement. The standard requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” along with the exception from applying FIN 46(R), “Consolidation of Variable Interest Entities.” The standard is effective for the first annual reporting period that begins after November 15, 2009 (i.e. the Company’s fiscal year beginning January 1, 2010), for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. It is expected the adoption of this Statement will have no material effect on the Company’s Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (not yet reflected in FASB ASC). The standard amends FIN No. 46(R) to require a company to analyze whether its interest in a variable interest entity (“VIE”) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary are also required by the standard. SFAS No. 167 amends the criteria to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN No. 46(R). This Statement will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 (i.e. the Company’s fiscal year beginning January 1, 2010), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative disclosures will be required for periods after the effective date. As such, the Company will adopt this Statement for interim and annual periods ending after January 1, 2010. It is expected the adoption of this Statement will have no material effect on the Company’s Consolidated Financial Statements.

In August, 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05 to provide guidance on measuring the fair value of liabilities under FASB ASC 820 (formerly SFAS 157, "Fair Value Measurements"). The Company is required to adopt ASU 2009-05 in the fourth quarter of 2009. It is expected the adoption of this Update will have no material effect on the Company’s Consolidated Financial Statements.

In October 2009, the FASB concurrently issued the Accounting Standards Updates:

· ASU No. 2009-14 - Software (Topic 985): Certain Revenue Arrangements That Include Software Elements (formerly EITF Issue No. 09-3) . This standard removes tangible products from the scope of software revenue recognition guidance and also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product, such as embedded software, are within the scope of the software revenue guidance.

· ASU No. 2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (formerly EITF Issue No. 08-1). This standard modifies the revenue recognition guidance for arrangements that involve the delivery of multiple elements, such as product, software, services or support, to a customer at different times as part of a single revenue generating transaction. This standard provides principles and application guidance to determine whether multiple deliverables exist, how the individual deliverables should be separated and how to allocate the revenue in the arrangement among those separate deliverables. The standard also expands the disclosure requirements for multiple deliverable revenue arrangements.

These Accounting Standards Updates should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Alternatively, an entity can elect to adopt these standards on a retrospective basis, but both these standards must be adopted in the same period using the same transition method. The Company expects to apply this standard on a prospective basis for revenue arrangements entered into or materially modified beginning January 1, 2011. The Company is currently evaluating the potential impact these standards may have on its financial position and results of operations.

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.

4.	Cash and Cash Equivalents

Cash and cash equivalents are summarized as follows:

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)

Bank deposits	$	9,621,096	$	8,263,889
Cash on hand		167,871		36,583
Total	$	9,788,967	$	8,300,472

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of September 30, 2009 and December 31, 2008, substantially all of the Company’s cash and cash equivalents were held by major banks located in the PRC, which management believes are of high credit quality.

5.	Accounts Receivable

Accounts receivable by major categories are summarized as follows:

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)

Accounts receivable	$	29,406,220		$	21,327,748
Less: allowances for doubtful accounts		(1,312,835	)		(1,311,759	)
Total	$	28,093,385		$	20,015,989

Concentrations in accounts receivable - At September 30, 2009, three customers on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $8,297,280 representing 30% of total accounts receivable in aggregate. At December 31, 2008, three customers on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $4,863,740 representing 24% of total accounts receivable in aggregate.

Inventory

Inventory by major categories are summarized as follows:

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)

Raw materials	$	2,712,194		$	2,111,996
Work in progress		11,091,685			9,468,922
Finished goods		2,892,940			3,774,325
		16,696,819			15,355,243
Less: allowance for valuation and slowing moving item		(777,650	)		(777,013	)
Total	$	15,919,169		$	14,578,230

7.	Other Current Assets

Other current assets consist of the following:

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)

Notes receivable	$	411,940	$	155,714
Advance to staff and deposit, net of allowances for bad debts of $145,620 and $145,501		1,077,003		374,725
Value added tax recoverable		1,757,241		3,034,354
Total	$	3,246,184	$	3,564,793

8.	Restricted Cash and Bills Payable

Restricted cash consists of the following:

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)

Bank deposit held as collaterals for bank loans and bills payable	$	3,549,277	$	4,387,679

At September 30, 2009 and December 31, 2008, restricted cash of $3,549,277 and $4,387,679 respectively represented the deposits pledged for banking facilities. Generally, the deposit will be released when the relevant bank loans are repaid upon maturity (see Note 14).

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 either three months or six months from date of issuance. In order to provide such guarantees for the bills, the Company’s primary subsidiary, Shenzhen Ritar Power Co., Ltd. (“Shenzhen Ritar”), has entered into bank acceptance agreements with China CITIC Bank, Shenzhen Branch, Citibank, Shenzhen Branch, DBS bank, Shenzhen Branch and Bank of China, Hengyang Branch (the “Bank”). Pursuant to the Bank’s acceptance agreements, the Bank provided its undertakings to guarantee payment of certain of the Company’s bills with an aggregate amount of approximately $4 million. The Company is required to place a bank deposit with 25-30%, subject to bank decision, to the bills amount undertaken by the bank. Under this kind of agreement, Shenzhen Ritar is obligated to pay 0.05% of the bills amount as handling charges.

9.	Property, Plant and Equipment

Property, plant and equipment consist of the following:

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
At cost:
Building	$	7,410,005		$	5,311,491
Leasehold improvement		1,311,448			367,032
Plant and machinery		7,117,930			6,184,050
Furniture, fixtures and equipment		557,688			438,818
Motor vehicles		1,125,733			1,034,238

Total		17,522,804			13,335,629
Less: accumulated depreciation and amortization		(3,220,388	)		(2,430,260	)
Net book value	$	14,302,416		$	10,905,369

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors.

As of September 30, 2009 and December 31, 2008, certain property, plant and machinery with the net book value of $8,932,659 and $3,866,654, respectively, were pledged as securities in connection with the outstanding loan facilities, as described in more details in Note 15.

During the nine months ended September 30, 2009, depreciation expenses amounted to $1,010,531, among which $791,999, $99,635 and $118,897 were recorded as cost of sales, selling expense and administrative expense respectively.

During the nine months ended September 30, 2008, depreciation expenses amounted to $653,925, among which $499,205, $97,577 and $57,143 were recorded as cost of sales, selling expense and administrative expense respectively.

During the three months ended September 30, 2009, depreciation expenses amounted to $346,838, among which $268,094, $34,815 and $43,929 were recorded as cost of sales, selling expense and administrative expense respectively.

During the three months ended September 30, 2008, depreciation expenses amounted to $249,295, among which $188,295, $30,933 and $30,067 were recorded as cost of sales, selling expense and administrative expense respectively.

10.	Intangible Assets

Intangible assets consist of the following:

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
At cost:
Computer software	$	23,514		$	27,861
Accumulated amortization		(12,933	)		(10,773	)
Net book value	$	10,581		$	17,088

Amortization expenses recorded as administrative expense were $3,525 and nil for the nine months ended September 30, 2009 and 2008 respectively and $1,175 and nil for the three months ended September 30, 2009 and 2008 respectively.

11.	Land Use Right

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)

Right to use land	$	483,525		$	483,129
Accumulated amortization		(12,894	)		(6,442	)
	$	470,631		$	476,687

The subsidiary, Hengyang Ritar, obtained the right from the relevant PRC land authority for periods of 50 years to use the lands on which the production facilities and warehouses of the subsidiaries are situated.

As of September 30, 2009 and December 31, 2008, all of land use right with the net book value of $470,631 and $476,687, respectively, were pledged as securities in connection with the outstanding loan facilities, as described in more details in Note 15.

During the nine months ended September 30, 2009 and 2008, amortization expenses amounted to $6,443 and $3,996 were recorded as administrative expense.

During the three months ended September 30, 2009 and 2008, amortization expenses amounted to $2,416 and $2,417 were recorded as administrative expense

The estimated amortization expense for land use right for each of the next five years is about $8,590.

12.	Income and Other Taxes Payable

Income and other taxes payable consist of the following:

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)

Income tax payable (see Note 17)	$	3,458,432	$	2,875,840
Individual income withholding tax payable		12,337		13,235
Other taxes payable		46,848		52,192
Total	$	3,517,617	$	2,941,267

13.	Other Current Liabilities

Other current liabilities consist of the following:

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)

Other payables and accrued expenses	$	380,791	$	996,742
Accrued product warranty		178,760		178,613
Advance from customers		982,285		1,633,128
Total	$	1,541,836	$	2,808,483

14.	Short-Term Loans

Short-term loans as of September 30, 2009 and December 31, 2008 consist of the following:

		Interest				September 30,		December 31,
Bank	Loan period	rate			Secured by	2009		2008
						(Unaudited)		(Audited)

Citibank	2008-10-24 to 2009-1-16		9	%	Bank deposit	$	-	$	146,314
Citibank	2008-10-24 to 2009-1-21		9	%	Bank deposit		-		540,470
Citibank	2008-10-24 to 2009-1-16		9	%	Bank deposit		-		132,576
Citibank	2008-10-26 to 2009-1-23		9	%	Bank deposit		-		389,059
Citibank	2008-10-26 to 2009-1-23		9	%	Bank deposit		-		1,074,085
DBS bank	2008-10-21 to 2009-2-6		8	%	Bank deposit		-		85,239
DBS bank	2008-12-10 to 2009-2-13		7	%	Bank deposit		-		481,630
Citibank	2008-12-15 to 2009-3-13		7	%	Bank deposit		-		585,257
DBS bank	2008-12-30 to 2009-4-10		7	%	Bank deposit		-		162,325
Citibank	2009-8-28 to 2009-11-21		6	%	Bank deposit and corporate and personal guarantee *		578,415		-
Citibank	2009-9-30 to 2009-1-22		5	%	Bank deposit and corporate and personal guarantee *		951,823		-
Citibank	2009-9-30 to 2009-1-22		5	%	Bank deposit and corporate and personal guarantee *		937,180		-
China Merchants Bank	2009-9-25 to 2009-12-25		5	%	Personal guarantee **		2,928,686		-
DBS bank	2009-6-22 to 2009-10-9		5	%	Property, plant and equipment, land use right and personal guarantee ***		131,791		-
DBS bank	2009-7-23 to 2009-11-9		5	%	Property, plant and equipment, land use right and personal guarantee ***		251,867		-
DBS bank	2009-9-16 to 2009-12-25		5	%	Property, plant and equipment, land use right and corporate and personal guarantee ***		348,514		-

						$	6,128,276	$	3,596,955

*	Secured by bank deposit and was jointly guaranteed by Shanghai Ritar, Hengyang Ritar, Mr. Jiada Hu and Ms. Henying Peng

**	Jointly guaranteed by Jiada Hu and Ms. Henying Peng

***	Secured by properties and land use right of Hengyang Riatr, properties of Mr. Jiada Hu and Ms. Henying Peng, and jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng.

15.	Long-Term Loans

As of September 30, 2009 and December 31, 2008, the Company had the following long-term loans:

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)

Bank borrowing from DBS bank, with interest at 9.072% flat p.a. with monthly principal payment of $81,318 from 2009-04-18 to 2013-09-18, secured by properties and land use right of Henyang Ritar, as disclosed in Note 9 and Note 11, respectively. In addition, it’s secured by properties of Mr. Jiada Hu and Ms Henying Peng, and jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng.	$	3,904,916		$	4,389,431

Bank borrowing from DBS bank, with interest at 5% flat p.a. with monthly principal payment of $30,494 from 2009-07-12 to 2011-06-12, secured by machinery and equipment of Henyang Ritar as disclosed in Note 9 and jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng.		648,338			-

Other borrowing from Department of Science and Technology of Bao An, interest-free, matured on 2009-12-20 and secured by Shenzhen Small and Medium Enterprises Credit Guarantee Center.		146,434			146,314
Total loans		4,699,688			4,535,745
Less: current portion		(1,479,964	)		(877,886	)
Long-term loans, less current portion	$	3,219,724		$	3,657,859

Future maturities of long-term loans are as follows as of September 30, 2009:
12-month period ending:
2010	$	1,479,964
2011		1,267,266
2012		976,229
2013		976,229
2014		-
Total	$	4,699,688

16.	Non-controlling Interest

Non-controlling interest represents the minority stockholders’ proportionate share of 5% of the equity of Shanghai Ritar. As of September 30, 2009 and December 31, 2008, the Company owned 95% of Shanghai Ritar’s capital stock, representing 95% of voting control.

The Company’s 95% controlling interest requires that Shanghai Ritar’s operations be included in the Company’s Consolidated Financial Statements.

17.	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 years presented. The applicable income tax rates for the Company for the nine months ended September 30, 2009 and 2008 are 34%.

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

Shanghai Ritar and Hengyang Ritar are subject to an income tax rate of 25% on its income arising from within China.

Huizhou Ritar did not commence business yet.

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 and December 31, 2008. There are no net operating loss carry forwards at September 30, 2009 and December 31, 2008.

The provision for income taxes consists of the following:

	Nine months ended September 30,				Three months ended September 30,
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current tax
- PRC	$	1,315,258	$	1,850,361	$	786,779	$	777,491
- Deferred tax provision		-		-		-		-

Total	$	1,315,258	$	1,850,361	$	786,779	$	777,491

18.	Common Stock Purchase Warrants

In connection with a private placement of shares in 2007, the Company issued to certain investors and the placement agent warrants to purchase shares of the Company’s common stock. The following table shows the details and the movement of number of warrants for the nine months ended September 30, 2009:

Warrant	No. of Warrants			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at January 1, 2009		1,384,337		$	2.65		1.17	$	2,630,240
Granted		-
Exercised		(328,269	)	$	0.36

Outstanding at September 30, 2009		1,056,068		$	2.78		0.42	$	3,221,007

Exercisable at September 30, 2009		1,056,068		$	2.78		0.42	$	3,221,007

On July 7, 2009, an investor exercised 286,215 cashless warrants for the issuance of 89,775 common shares.

On August 5, 2009, an investor exercised 28,038 warrants at $2.78 and $77,946 proceeds from issuance of common shares recorded under statement of cashflows.

On September 15, 2009, an investor exercised 14,016 warrants at $2.78 and $38,964 proceeds from issuance of common shares recorded under statement of cashflows.

The total number of warrants outstanding as of September 30, 2009 was 1,056,068.

19.	Stock-Based Compensation – Make Good Escrow Agreement

In connection with the private placement on February 16, 2007, the largest stockholder of the Company, Mr. Jiada Hu entered into a Make Good Escrow Agreement (“Make Good Agreement”) with the private placement investors. Pursuant to the escrow agreement, Mr. Hu agreed to certain “make good” provisions. In the escrow agreement, Mr. Hu established minimum net income after tax thresholds of $5,678,000 for the fiscal year ended December 31, 2007 and $8,200,000 for the fiscal year ended December 31, 2008. Mr Hu. deposited a total of 3,601,309 shares into Escrow Agent under the escrow agreement. If the 2007 net income thresholds is not archived, then the Escrow Agent must deliver the first tranche of 1,800,655 of shares to the investors on a pro rata basis and if the 2008 net income threshold is not achieved, the Escrow Agent must deliver the second tranche of 1,800,654 shares to the investors on a pro rata basis.

Per FASB ASC Topic 718, “Compensation – Stock Compensation,” if the performance criteria is not met these shares will be released to the investors and treated as an expense for the amount of the grant-date value of the shares as of the date that the Make Good Agreement was signed. If the net income threshold is met, the shares will be released back to Mr Hu and treated as an expense equal to the amount of the market value of the shares for the amount of the grant-date value of the shares as of the date that the Make Good Agreement was signed. Based upon the grant-date fair value of the Escrow Shares of $2.14, $2,890,050 compensation expense was recorded for the nine months ended September 30, 2008. No compensation expense in this regard was recognized for the nine months ended September 30, 2009.

20.	Foreign Currency Exchange Gain / (Loss)

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

	Nine months ended September 30,						Three months ended September 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Foreign currency reinstatement / realization gain / (loss)	$	217,614		$	(457,690	)	$	(22,165	)	$	74,433
Derivative gain / (loss)		(235,622	)		-			-			-

Total	$	(18,008	)	$	(457,690	)	$	(22,165	)	$	74,433

21.	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 $208,063 and $223,492 for the nine months ended September 30, 2009 and 2008 respectively and $36,868 and $102,755 for the three months ended September 30, 2009 and 2008 respectively.

22.	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 for 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, 2009 as follows:

	(Unaudited)
Payable within:
- Remainder of 2009	$	72,273
- 2010		129,433
- Thereafter		-
Total minimum lease payments	$	201,706

During the nine months ended September 30, 2009, rental expenses amounted to $662,030, among which $509,058, $24,021 and $128,951 were recorded in cost of sales, administrative expense and selling expense, respectively.

During the nine months ended September 30, 2008, rental expenses amounted to $670,688, among which $528,665, $110,786 and $31,237 were recorded in cost of sales, administrative expense and selling expense, respectively.

During the three months ended September 30, 2009, rental expenses amounted to $238,294, among which $172,049, $9,141 and $57,104 were recorded in cost of sales, administrative expense and selling expense, respectively.

During the three months ended September 30, 2008, rental expenses amounted to $249,048, among which $198,903, $33,992 and $14,938 were recorded in cost of sales, administrative expense and selling expense, respectively.

23.	Related Party Transactions

At September 30, 2009, the Company’s short-term bank loans of $6,128,276 and long-term bank loans of $4,553,254 were jointly guaranteed by Mr. Jiada Hu and Ms. Henying Peng. In addition, they also provided personal properties to secure short-term bank loans of $732,172 and long-term bank loans of $3,904,916 (see Note 14 and 15 above for detail). Mr. Jiada Hu is the the Company’s chief executive officer and Mr. Henying Peng is the wife of Mr. Jiada Hu.

Mr. Jianjun Zeng, the Company's chief operation officer and brother-in-law of Mr. Jiada Hu, provided personal guarantee for the Company's short-term bank loans of $732,172 and long-term bank loans of $4,553,254 at September 30, 2009.

24.	Concentrations, Risks, and Uncertainties

The Company had no significant concentrations of risk with respect to sales as there was no single customer constituting greater than 10% of the Company’s gross sales for the nine months ended September 30, 2009 and 2008.

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

	Nine months ended September 30,						Three months ended September 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Supplier A		28	%		27	%		38	%		19	%
Supplier B		16	%		14	%		20	%		19	%
Supplier C		11	%		-			13	%		-
Supplier D		-			13	%		-			22	%

25.	Operating Risk

Interest rate risk

The interest rates and terms of repayment of bank and other borrowings are disclosed in Note 14 and Note 15. Other financial assets and liabilities do not have material interest rate risk.

Credit risk

The Company is exposed to credit risk from its cash in bank and fixed deposits and bills and accounts receivable. The credit risk on cash in bank and fixed deposits is limited because the counterparties are recognized financial institutions. Bills and accounts receivable are subjected to credit evaluations. An allowance has been made for estimated irrecoverable amounts, which has been determined by reference to past default experience and the current economic environment.

Foreign currency risk

Most of the transactions of the Company were settled in RMB and U.S. dollars. In the opinion of the directors, the Company would not have significant foreign currency risk exposure.

Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in other income (expense), net on the consolidated statements of operations.

Company’s operations are substantially in foreign countries

Substantially all of the Company’s products are manufactured in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

26.	Geographical 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,
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

PRC	$	24,320,738	$	20,769,589	$	14,324,436	$	6,091,658
Outside PRC:
- Hong Kong		1,335,523		6,261,833		814,660		5,043,010
- Germany		3,479,573		7,823,442		1,478,024		2,532,876
- America		8,745,933		5,282,438		3,200,803		2,858,073
- India		4,219,728		8,387,466		1,188,761		3,662,123
- Italy		2,353,286		2,311,650		990,230		544,429
- Australia		3,161,240		3,642,480		1,515,456		894,219
- Brazil		2,856,317		4,794,164		1,257,920		2,157,352
- other countries, less than 5% of total sales individually		22,297,882		27,121,622		9,139,263		12,538,157
		48,449,482		65,625,095		19,585,117		30,230,239

Total net sales	$	72,770,220	$	86,394,684	$	33,909,553	$	36,321,897

27.	Subsequent Events

The Company has evaluated events subsequent to the balance sheet date through November 16, 2009, which represents the issue date of this Form 10-Q. At October 22, 2009, investor has exercised warrant for acquisition of 23,364 new common stock at $2.78 per share. In addition, on October 2, 2009, the Company entered into a subscription agreement with several institutional investors in connection with the registered direct offering of up to 2,150,000 shares of common stock at a purchase price of $6.00 per share, for gross proceeds of approximately $12.9 million. Roth Capital Partners, LLC acted as the sole placement agent for the transaction.

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, 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:

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

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 September 30, 2009						Three Months Ended September 30, 2008
	In Thousands			As a percentage of revenues			In Thousands			As a percentage 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 September 30, 2009						Nine Months Ended September 30, 2008
	In Thousands			As a percentage of revenues			In Thousands			As a percentage 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 attributable to a significant increase of the staff of sales team.

Stock-based compensation. We had no such provision for the stock-based compensation made for the nine months ended September 30, 2009, however, stock-based compensation was approximately $2.89 million for the nine months ended September 30, 2008. The stock-based compensation was attributable to the provision of a “make good provision” expense for the nine 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 FASB ASC Topic 718 “Compensation – Stock 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 $2.89 million was recognized as an expense in accordance with FASB ASC Topic 718 “Compensation – Stock Compensation” for the nine months ended September 30, 2008.

Sales commission. Sales commission increased approximately $0.26 million, or 29.8% to approximately $1.14 million for the nine months ended September 30, 2009 from approximately $0.88 million for the same period of 2008. As a percentage of revenues, sales commission increased to 1.56% for the nine months ended September 30, 2009 from 1.01% for the same period of 2008. Such increase was because we exerted greater efforts in developing new customers, which resulted in the tremendous increase in orders from new customers and sales commission increased correspondingly.

Shipping and handling cost. Shipping and handling cost decreased approximately $0.32 million, or 27.7%, to approximately $0.84 million for the nine months ended September 30, 2009, from approximately $1.17 million for the same period of 2008. As a percentage of revenues, shipping and handling cost decreased to 1.16% for the nine months ended September 30, 2009 from 1.35% 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 decreased approximately $0.87 million, or 22.33% to approximately $3.04 million for the nine months ended September 30, 2009 from approximately $3.91 million for the same period of 2008. The dollar decrease was mainly attributable to our great efforts to cut and control expenses. As a percentage of revenues, other selling, general and administrative expenses decrease to 4.18% for the nine months ended September 30, 2009 from 4.53% for the same period of 2008.

Income before income taxes. Income before income taxes increased approximately $0.39 million or 5.93% to approximately $6.9 million for the nine months ended September 30, 2009 from approximately $6.51 million for the same period of 2008. Income before income taxes as a percentage of revenues increased to 9.48% for the nine months ended September 30, 2009 from 7.54% for the same period of 2008. The increase was mainly attributable to stock-based compensation of $2.89 million related to the make good provisions for the nine months ended September 30, 2008 as discussed above. Except for the provision of such expenses, Income before income taxes as a percentage of revenues decreased 1.4% to 9.48% for the nine months ended September 30, 2008 from 10.88% for the same period of 2008. Such decrease was mainly attributable to the decreased gross profit as discussed above.

Income taxes. Income taxes decreased approximately $0.54 million to approximately $1.32 million for the nine months ended September 30, 2009 from approximately $1.85 million for the same period of 2008. We paid fewer taxes mostly because of the decreased income before income taxes (Except for non-cash stock-based compensation of $2.89 million) during the nine months ended September 30, 2009 compared to the same period of 2008.

Net income. Net income increased approximately $0.92million, or 19.76% to approximately $5.58 million for the nine months ended September 30, 2009 from approximately $4.66 million for the same period of 2008. The increase was mainly attributable to stock-based compensation of $2.89 million related to the make good provisions for the nine months ended September 30, 2008. Except for such non-cash stock-based compensation, net income decrease approximately $1.97million, or 26.08% to approximately $5.58 million for the nine months ended September 30, 2009 from approximately $7.55 million for the same period of 2008, as a result of the factors described above.

Liquidity and Capital Resources

General

As of September 30, 2009, we had cash and cash equivalents of approximately $9.8 million. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

	Nine Months Ended September 30
	2009			2008
	(Dollars in thousands)

Net cash provided by/(used in) operating activities		(580	)		(4,337	)
Net cash provided by/(used in) investing activities		(1,390	)		(6,399	)
Net cash provided by/(used in) financing activities		3,647	)		9,343
Net cash inflow/(outflow)		1,488			(1,052	)

Operating Activities

Net cash used in operating activities was approximately $0.58 million for the nine months ended September 30, which is a decrease of approximately $3.76 million from net cash used in operating activities of approximately $4.34 million in the same period of 2008. The improvement of $3.76 million in operating activities was mainly attributable to better control of inventory. As a result of better control of inventory, net cash used in inventory decreased to approximately $1.33 million for the nine months ended September 30, 2009 from approximately $10.06 million for he same period of 2008.

Investing Activities

Our main uses of cash for investing activities are payments for the acquisition of property, plant and equipment and land use right.

Net cash used in investing activities for the nine months ended September 30, 2009 was approximately $1.39 million, which is a decrease of approximately $5.01 million from net cash used in investing activities of approximately $6.40 million for the same period of 2008. The decrease of cash used in investing activities was mainly due to the decrease of payments to acquire property, plant and the equipment in Hengyang Ritar.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2009 was approximately $3.65 million, which is a decrease of approximately $5.69 million from net cash provided by financing activities of $9.34 million in the same period of 2008. The decrease of cash used in financing activities was mainly attributable to the decrease of net inflow of bank borrowings in the nine months ended September 30, 2009 compared to the same period in 2008.

Loan Facilities

As of September 30, 2009, the amounts and maturity dates for our bank loans were as follows.

Banks	Amounts		Beginning	Ending	Duration
Citibank (China) Co.	$	0.58	08/28/2009	11/21/2009	3 months
Citibank (China) Co.	$	0.95	09/30/2009	01/22/2009	4 months
Citibank (China) Co.	$	0.94	09/30/2009	01/22/2009	4 months
China Merchants Bank	$	2.93	09/25/2009	12/25/2009	3 months
DBS Bank (Hong Kong) Limited Shenzhen Branch	$	0.35	09/16/2009	12/25/2009	3 months
DBS Bank (Hong Kong) Limited Shenzhen Branch	$	0.13	06/22/2009	10/09/2009	3 months
DBS Bank (Hong Kong) Limited Shenzhen Branch	$	0.25	07/23/2009	11/9/2009	3 months
DBS Bank (Hong Kong) Limited Shenzhen Branch	$	3.9	09/30/2008	09/30/2013	5years
DBS Bank (Hong Kong) Limited Shenzhen Branch	$	0.65	06/12/2009	06/12/2011	2years
Science and Technology Bureau of Bao An District	$	0.15	12/20/2007	12/20/2009	2years
Total	$	10.83

All amounts, other than percentages, in millions of U.S. dollars

* Calculated on the basis that $1 = RMB6.8290

On February 16, 2007, through a private placement, we raised about $12.25 million in gross proceeds, which resulted in approximately $10.71 million in net proceeds after the deduction of offering expenses in the amount of approximately $1.54 million. We used the net proceeds to build new production lines and purchase new equipment for the expansion of our production capacity. This financing resulted in an increase of our net cash flow and a decrease of our asset/liability ratio and financial risks.

On August 1, 2007, Shenzhen Ritar entered into a short-term credit facility agreement with Citibank (China) Co., Ltd., Shenzhen Branch, pursuant to which the bank has agreed to make available to Shenzhen Ritar a $5 million or an equivalent amount in RMB revolving credit facility. There are three months to twelve months financing terms for different types of credit facility covered under this agreement. If the credit facility is granted in RMB, Shenzhen Ritar agrees to pay a penalty interest at a minimum rate permitted by the People’s Bank of China for any overdue balance (including both the principal and accrued interests). If the credit facility is granted in US dollar, the bank has the right to determine the penalty interest rate. There are no financial covenants or ratios under this credit facility agreement. As of the date of this report, Shenzhen Ritar has an outstanding loan with a principal amount of $2.47 million borrowed from Citibank (China) Co., Ltd., Shenzhen Branch. These loans had a 5%-6% annual interest rates.

In connection with the short-term credit facility agreement, Shenzhen Ritar entered into a bill discount service agreement, dated August 1, 2007, with Citibank (China) Co., Ltd., Shenzhen Branch. Pursuant to this agreement, Shenzhen Ritar may from time to time request an advance or advances of any amount equal to the difference between the face value of commercial bills and the discount interest charged by the bank. Under the agreement, the current annual discount rate is 5.7285%. Advances must be made by the bank within one business day after Shenzhen Ritar’s submission of required documents. There are no financial covenants or ratios under this bill discount service agreement.

During the third quarter of 2008, our subsidiary, Hengyang Ritar entered into a long-term loan agreement with DBS Bank (Hong Kong) Limited Shenzhen Branch, or DBS, pursuant to which Hengyang Ritar borrowed an aggregate of approximately $4.39 million from DBS with an interest rate of 9.07% flat per annum. Hengyang Ritar agreed to make a monthly principal payment of $81,318 by 54 installment starting April 2009. The loan is secured by the properties of Mr. Jiada Hu and Ms Henying Peng, properties and land use right of Henyang Ritar and was jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng. Hengyang Ritar also entered into a short-term loan agreement with DBS borrowing approximately $0.73 million with an interest rate of 5% per year. The loan was secured by personal properties of Mr. Jiada Hu and Ms. Henying Peng, properties and land use right of Hengyang Ritar and jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng.

During the second quarter of 2009, our subsidiary, Hengyang Ritar entered into a long-term loan agreement with DBS Bank (Hong Kong) Limited Shenzhen Branch, or DBS, pursuant to which Hengyang Ritar borrowed an aggregate of approximately $0.73 million from DBS with an interest rate of 5% flat per annum. Hengyang Ritar agreed to make a monthly principal payment of $30,494 by 24 installment starting July 2009. The loan is secured by the machinery and equipment of Henyang Ritar and was jointly guaranteed by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Henying Peng and Mr. Jianjun Zeng.

During the third quarter of 2009, our subsidiary, Shenzhen Ritar entered into a short-term loan agreement with China Merchants Bank Shenzhen Branch, or CMB, pursuant to which Shenzhen Ritar borrowed an aggregate of approximately $2.93 million from CMB with an interest rate of 5% per year. The loan was jointly guaranteed by Mr. Jiada Hu and Ms. Henying Peng..

We believe that our currently available working capital, after receiving the aggregate proceeds of our capital raising activities and the credit facilities referred to above, should be adequate to sustain our operations at our current levels through at least the next twelve months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional equity or debt financing in the private or public markets.

Obligations Under Material Contracts

Below is a table setting forth our material contractual obligations as of September 30, 2009:

Payments in thousands of U.S. dollars

	Total		Less than one year		1-3 years		3-5 years		More than 5 years
Contractual loans obligations	$	10,828	$	7,608	$	3,220		-		-
Operating lease obligations		202		72		130		-		-
Capital Lease Obligations		-		-		-		-		-
Purchase Obligations		-		-		-		-		-
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP		-		-		-		-		-
Total	$	11,030	$	7,680	$	3,350		-		-

Other than the contractual obligations and commercial commitments set forth above, we did not have any other long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of September 30, 2009.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Inventory. Inventory is stated at the lower of cost or market, determined by the weighted average method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process.

Trade accounts receivable. Trade accounts receivable are stated at cost, net of allowance for doubtful accounts. Based on the above assessment, during the reporting years, the management establishes the general provisioning policy to make allowance equivalent to 100% of gross amount of trade receivables due over 1 year. Additional specific provision is made against trade receivables aged less than 1 year to the extent they are considered to be doubtful.

Property, plant and equipment. Property, plant and equipment are stated at cost including the cost of improvements. Maintenance and repairs are charged to expense as incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Depreciation and amortization are provided on the straight-line method based on the estimated useful lives of the assets as follows:

Buildings	30 years
Leasehold improvement	5 years
Plant and machinery	5 years – 10 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years

Valuation of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Derivative instruments. The Company entered into forward foreign currency contracts with banks to manage a portion of foreign currency risk related to U.S. Dollar denominated asset balances against the functional currency, Renminbi (the lawful currency of China), of its PRC subsidiary. The forward foreign currency contracts did not qualify for hedge accounting and were carried at fair value as assets or liabilities, with unrealized gains and losses recognized based on changes in fair value in the caption “Foreign Currency Exchange Gain (Loss)” in the Company’s consolidated statement of income and comprehensive income. In the third quarter of fiscal 2009, all of the Company’s forward foreign currency contracts had expired. The fair value of these forward foreign exchange contracts had been determined using standard calculations/models that use as their basis readily observable market parameters including spot and forward rates and a net present value stream of cash flows model.

Fair value of financial instruments. The Company adopted FASB ASC 820-10 “Fair Value Measurements and Disclosure.” ASC 820-10 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

There were no assets or liabilities measured at fair value on a non-recurring basis for the nine months ended September 30, 2009.

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 collectibility 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.

Research and development expenses. Research and development costs are charged to expense when incurred and are included in operating expenses. During the nine months ended September 30, 2009 and 2008, research and development costs expensed to operating expenses were approximately $155,612 and $357,283 respectively and $104,816 and $122,748 for the three months ended September 30, 2009 and 2008 respectively.

Post-retirement and post-employment benefits. The Company’s subsidiaries contribute to a state pension scheme in respect of its PRC employees. Other than the above, neither the Company nor its subsidiaries provide any other post-retirement or post-employment benefits.

Basic income/loss per common share. The computation of income/loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with FASB ASC 260-10 “Earnings Per Share.” The warrants outstanding as of September 30, 2009 and June 30, 2009 were not included in the diluted earnings per share for the nine months ended September 30, 2009 and the six months ended June 30, 2009, respectively, because these warrants have exercise prices greater than the average market price and hence are anti-dilutive.

Use of estimates. The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements include some amounts that are based on management’s best estimates and judgments. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, other receivables, inventories, deferred income taxes, and the estimation on useful lives of property, plant and equipment. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant.

Recent Changes in Accounting Standards

New accounting pronouncements to be adopted

In August, 2009, the FASB issued Accounting Standard Update (“ASU”) No. 2009-05 (“ASU 2009-05”) to provide guidance on measuring the fair value of liabilities under FASB ASC 820 (formerly SFAS 157, "Fair Value Measurements"). The Company is required to adopt ASU 2009-05 in the fourth quarter of 2009. It is expected the adoption of this Update will have no material effect on the Company’s Consolidated Financial Statements.

In October 2009, the FASB concurrently issued the following ASC Updates:

ASU No. 2009-14 - Software (Topic 985): Certain Revenue Arrangements That Include Software Elements (formerly EITF Issue No. 09-3) . This standard removes tangible products from the scope of software revenue recognition guidance and also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product, such as embedded software, are within the scope of the software revenue guidance.

ASU No. 2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (formerly EITF Issue No. 08-1). This standard modifies the revenue recognition guidance for arrangements that involve the delivery of multiple elements, such as product, software, services or support, to a customer at different times as part of a single revenue generating transaction. This standard provides principles and application guidance to determine whether multiple deliverables exist, how the individual deliverables should be separated and how to allocate the revenue in the arrangement among those separate deliverables. The standard also expands the disclosure requirements for multiple deliverable revenue arrangements.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Jiada Hu, our Chief Executive Officer and Mr. Zhenghua Cai, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009. Based on that evaluation, Mr. Hu and Mr. Cai concluded that as of September 30, 2009, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.

Changes in Internal Control Over Financial Reporting.

During the fiscal quarter ended September 30, 2009, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we expect will have a material adverse affect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three-month period ended September 30, 2009, we made no unregistered sales of our equity securities.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBITS.

31.1*

Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED: November 16, 2009

	CHINA RITAR POWER CORP.

	By: /s/ Jiada Hu
	Jiada Hu
	Chief Executive Officer
	(Principal Executive Officer)

	By: /s/ Zhenghua Cai
	Zhenghua Cai
	Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT INDEX

Exhibit
Number		Description

31.1*		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.