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, 2007 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 Our Business

We are one of the leading manufacturers of lead-acid batteries in China. Through our Chinese subsidiaries, we design, develop, manufacture and sell environmentally friendly lead-acid batteries with a wide range of applications and capacities, including telecommunications, uninterrupted powers source devices, light electric vehicles and alternative energy production (solar and wind power). We conduct all of our operations in China. Our access to China's supply of low-cost skilled labor, raw materials, machinery and facilities enables us to price our products competitively in an increasingly price-sensitive market. We market, sell and service our 6 series and 197 models of "Ritar" branded, cadmium-free, valve-regulated lead-acid, or VRLA, batteries in China and internationally.

Our client base mainly includes international uninterruptible power source, or UPS, manufacturers, including OKIN Gesellschaft fur Antriebstechnik mbH, Phoenixtec Electronics (Shenzhen) Co. Ltd and SSB Battery Service GmbH, and telecommunications operators such as China Telecom Corporation Limited, China Mobile Communication Corporation, China Network Communications Group Corporation, Siemens AG, and Lucent Technologies. A majority of our products are sold outside of China, with overseas sales accounting for 78.20% of our total revenue for the first quarter of 2008. Our major export markets are Germany, India, Italy, the United States and Brazil.

We recently completed construction of the first phase of our new technical and manufacturing complex at Hengyang Ritar. The lead acid battery production at this facility began at the end of April 2008. Our total current annual designed production capacity of lead acid battery is approximately 2.51 million kilowatt-hours. Through our manufacturing facilities located in Shenzhen, Shanghai and Hengyang, we currently have 17 lead acid battery production lines that are operational. Eleven of them are located at Shenzhen, three of them are located at Shanghai and the remaining three are located at Hengyang.

Our Current Organizational Structure

The following chart reflects our current organizational structure:

[[Image Removed: China Ritar Power Corp]]

Recent Developments

The construction of the first phase of our new technical and manufacturing complex in Hengyang City, Hunan Province has been completed on March 20, 2008 and three of five lead acid battery production lines began to be operational on April 27, 2008. The other two lead acid battery production lines are expected to commence operating in June of this year. Our annual designed production capacity of all five production lines at Hengyang Ritar is approximately 1.25 million kilowatt-hours. Currently, we have 220 employees at Hengyang Ritar and expect to increase the number of our employees at this facility to 600 within the next three months. In addition, in June of this year, we expect that our lead plate production line with an annual designed production capacity of 15,000 tons per year will start operating.

First Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the first fiscal quarter of 2008 and growth in our revenues and net income.

The following are some financial highlights for the first quarter of 2008:

· Revenues: Our revenues were $19.3 million for the first quarter of 2008, an increase of 118.1% from the same quarter of last year.

· Gross Margin: Gross margin was 21.0% for the first quarter of 2008, as compared to 18.4% for the same period in 2007.

· Operating Profit: Operating profit was $1.3 million for the first quarter of 2008, an increase of 104.8% from $0.6 million of the same period last year.

· Net Income: Net income was $0.5 million for the first quarter of 2008, an increase of 28.3% from the same period of last year.

· Fully diluted earnings per share was $0.03 for the first quarter of 2008.

Revenue

Our revenue is generated from sales of our lead-acid batteries.

Cost of Revenue

Cost of revenue includes our direct costs to manufacture our products, such as 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 2005 and 2007, we were able to maintain gross margins between approximately 18% to 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 and other selling expense and general and administrative expenses. We expect most components of our operating expenses will increase as our business grows and as we incur increased costs related to being a public company.

Provision for Income Taxes

United States

The Company was incorporated in the United States and is subject to United States tax law. No provisions for income taxes have been made as the Company has no taxable income for the first quarter of 2008.

BVI

Ritar BVI was incorporated in the BVI and is not subject to income taxes under the current laws of the BVI.

PRC

Foreign Invested Enterprises, or FIEs, established in the PRC are generally subject to a foreign enterprise income tax, or FEIT, of 33.0%. In practice, however, most FIEs enjoy preferential FEIT treatments and holidays that result in an effective tax rate that is much lower than the statutory rate of 33.0%.

Our subsidiary, Shenzhen Ritar, is subject to Chinese enterprises income tax, or EIT, at a rate of 15% of the assessable profits. As approved by the local tax authority in the PRC, Shenzhen Ritar was entitled to a two-year exemption from EIT followed by 50% tax exemption for the next three years, commencing from the first cumulative profit-making year in the fiscal financial year of 2003. Accordingly, Shenzhen Ritar was subject to a tax rate of 7.5% for 2005, 2006 and 2007.

On March 16, 2007, the National People's Congress of China passed the new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law, or Implementing Rules, which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the FEIT, and its associated preferential tax treatments, beginning January 1, 2008.

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%. From 2008, Shenzhen Ritar will be charged on preferential enterprise income tax rate at 18% 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.

Huizhou Ritar and Hengyang Ritar did not commence business during the first quarter of 2008.

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 March 31, 2008. There are no net operating loss carry forwards at March 31, 2008.

Results of Operations

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

                                         Three Months Ended             Three Months Ended
                                           March 31, 2008                 March 31, 2007
                                                       As a                           As a
                                         In         percentage          In         percentage
                                      Thousands     of revenues      Thousands     of revenues
Revenues                                  19,255             100 %        8,828             100 %
Cost of Sales                            (15,221 )        (79.05 )%      (7,206 )        (81.63 )%

Gross Profit                               4,034           20.95 %        1,622           18.37 %

Operating Expenses
Salaries                                  (1,211 )         (6.29 )%        (269 )         (3.05 )%
Sales Commission                            (179 )         (0.93 )%        (126 )         (1.43 )%
Shipping and handling cost                  (289 )         (1.50 )%        (177 )         (2.01 )%
Other selling, general and
administrative expenses                   (1,027 )         (5.33 )%        (401 )         (4.54 )%
                                          (2,706 )       (14..05 )%        (973 )        (11.03 )%

Operating Profit                           1,328            6.90 %          649            7.35 %

Other Income and (Expenses)
Interest Income                               46            0.24 %            5            0.06 %
Other income                                   -               -              -               -
Finance charges                             (142 )         (0.74 )%         (84 )         (0.96 )%
Foreign currency translation loss           (306 )         (1.59 )%        (102 )         (1.15 )%
Other expenses                                (1 )         (0.00 )%          (1 )         (0.00 )%

Other income (expenses)                     (403 )         (2.10 )%         182            2.06 %

Income before income taxes and
minority interests                           925            4.80 %          467            5.29 %


Income taxes                                   (405 )   (2.10 )%   (51 )   (0.57 )%

Income before minority interests                520      2.70 %    416      4.71 %

Minority interests share in (profit) loss        14      0.07 %      0      0.00 %

Net income                                      534      2.77 %    416      4.71 %

Other comprehensive income (loss)
Foreign currency translation adjustments      1,011      5.25 %     54      0.61 %

Comprehensive income                          1,546      8.03 %    470      5.32 %

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Revenues. Revenues increased approximately $10.43 million, or 118.11%, to approximately $19.26 million for the three months ended March 31, 2008 from approximately $8.83 million for the same period in 2007. This increase was mainly attributable to the significant increase in sales of UPS and Telecom batteries in overseas markets by adopting active market strategies during the first quarter in 2008. In addition, because of our expanded production capacity and increased cash flows, we were able to fulfill more orders from our existing customers whose demands were not fully met in the previous years due to our limited production capacity. Furthermore, we raised our sale prices in order to offset the increased raw material price.

Cost of Sales. Our cost of sales increased approximately $8.02 million, or 111.23%, to approximately $15.22 million for the three months ended March 31, 2008, from approximately $7.21 million for the same period in 2007. This increase was due to a substantial increase of our sales volume. As a percentage of revenues, the cost of sales decreased to 79.05% during the three months ended March 31, 2008, from 81.63% for the same period of 2007. Such decrease of percentage of revenues resulted primarily from a reduction in unit cost of manufacturing as a result of increased large-scale production and adoption of more efficient technologies to decrease raw material consumption and cost of direct labor used per unit.

Gross Profit. Our gross profit increased approximately $2.41 million, or 148.71%, to approximately $4.03 million for the three months ended March 31, 2008, from approximately $1.62 for the same period in 2007. Gross profit as a percentage of revenues was 20.95% for the three months ended March 31, 2008, an increase of 2.58% from 18.37% for the same period of 2007. Such percentage increase was mainly due to the decreased cost of goods sold as percentage of revenues as discussed above.

Salaries. Salaries increased approximately $0.94 million, or 349.72% to approximately $1.21million for the three months ended March 31, 2008 from $0.27 million for the same period in 2007. As a percentage of revenues, salaries increased to 6.29% for three months ended March 31, 2008 from 3.05% for the same period of 2007. We made the provision for the stock-based compensation of $0.96 million for the make good provision and we had no such compensation in the same period of 2007. This is the main reason to have an significant increase in salaries. Our salaries for the first quarter of 2008 would have been stable compared with those of the same period of 2007, if the expense of the make good provisions had not been recorded.

Stock-based compensation. Stock-based compensation was approximately $0.96 million for the three months ended March 31, 2008. We had no stock-based compensation in the same period of 2007. The increase of stock-based compensation was attributable to the provision of the make good provision expense for the three months ended March 31, 2008. In connection with the private placement on February 16, 2007, our largest shareholder, 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 China Ritar Power Corp. 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. We achieved our net income threshold for 2007 and as a result, approximately $3.85 million was recognized as an expense in accordance with SFAS No. 123R. For the fiscal year of 2008, we will probably achieve the net income thresholds and thus we recorded three months provision of make good provision amounting to $0.96 million as compensation expenses in salaries for the three months ended March 31, 2008.

Sales Commissions. Sales commissions increased approximately $0.05 million, or 42.06%, to approximately $0.18 million for the three months ended March 31, 2008, from approximately $0.13 million for the same period of 2007. As a percentage of revenues, sales commissions decreased to 0.93% for the three months ended March 31, 2008, from 1.43% for the same period of 2007. During the three months ended March 31, 2008, we did not develop a material number of new customers, but we realized increasing our sales to our existing customers through our expanded production. We have established excellent longstanding customer relationships and have a good reputation in the battery industry. Therefore, we were able to offer to our existing clients sales commissions at a comparatively very lower rate. As a result, our sales commissions during the three months ended March 2008 did not increase proportionally as our sales increased.

Shipping and handling costs. Shipping and handling costs increased approximately $0.11 million, or 63.28%, to approximately $0.29 million for the three months ended March 31, 2008, from approximately $0.18 million for the same period of 2007. The dollar increase of shipping and handling was mainly attributable to the significantly expanded scale of our operations and continuing increased sales for the three months ended March 31, 2008. As a percentage of revenues, shipping and handling cost decreased to 1.50% for the three months ended March 31, 2008 from 2.01% for the same period of 2007. The percentage decrease of shipping and handling costs was mainly attributable to the economies of scale as the substantial increase of sales has brought down the unit cost of shipping and handling.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses increased approximately $0.63 million, or 156.11%, to approximately $1.03 million for the three months ended March 31, 2008, from approximately $0.40 million for the same period of 2007. As a percentage of revenues, other selling, general and administrative expenses increased to 5.33% for the three months ended March 31, 2008 from 4.54% for the same period of 2007. The percentage increase of other selling, general and administrative expenses was mainly attributable to the increase of our listing expenses, research and development expenses, and the startup expenses of Hengyang Ritar. Furthermore, our significantly expanded scale of operations also resulted in the increase of other selling, general and administrative expenses.

Income Before Income Taxes and Minority Interest. Income before income taxes and minority interest increased approximately $0.46 million or 98.14%, to approximately $0.93 million for the three months ended March 31, 2008, from approximately $0.47 million for the same period of 2007. Income before income taxes and minority interest as a percentage of revenues decreased to 4.80% for the three months ended March 31, 2008 from 5.29% for the same period of 2007. The percentage decrease was mainly attributable to the provision of $0.96 million of the make good provisions for the three months ended 2008. Except for the provision of such expenses, income before income taxes and minority interest as a percentage of revenues increased to 9.81% for the three months ended March 31, 2008 from 5.29% for the same period of 2007. The percentage increase was mainly attributable to the decreased costs of sales and operating expenses as a percentage of revenues as discussed above.

Income Taxes. Income taxes increased approximately $0.35 million to approximately $0.41 million for the three months ended March 31, 2008, from approximately $0.05 million for the same period of 2007. We paid more taxes in the first quarter of 2008 mostly because of the increased income before income taxes and minority interests during the three months ended March 31, 2008 compared to the same period of 2007. In addition, our income tax rate of Shenzhen Ritar increased to 18% since January 1, 2008 from 7.5% in 2007.

Net Income. Net income increased approximately $0.11 million, or 28.30%, to approximately $0.53 million for the three months ended March 31, 2008, from approximately $0.42 million for the same period of 2007. The increase of net income was mainly attributable to the factors as discussed above.

Liquidity and Capital Resources

General

As of March 31, 2008, we had cash and cash equivalents of approximately $4.6
million. The following table provides detailed information about our net cash
flow for all financial statements periods presented in this report.

                                                       Three Months Ended
                                                        2008           2007
                                                     (Dollars in thousands)

Net cash used in operating activities                      (2,164 )    (2,040 )
Net cash provided (used in) investing activities           (1,248 )       707
Net cash provided by financing activities                   3,045       9,886
Net cash inflow/(outflow)                                    (176 )     8,588

Operating Activities

Net cash used in operating activities was approximately $2.16 million for the three months ended March 31, 2008, while during the same period of 2007 we used approximately $2.04 million net cash in operating activities. The change of cash used in operating activities was mainly attributable to our increased accounts receivable and inventories with increases by $2.3 million and $2.4 million, respectively, and a decrease of $1.7 million of bills payable during the first quarter of 2008 compared to the year-end of 2007. These increases of cash outflows were partly offset by the decrease of advance to suppliers of $2.15 million.

The company issued bills payable to settle the purchase of raw materials. When the Company intends or is requested to settle its suppliers by issuance of bills, it is required to place deposits with banks equal to 100% of the bills amount at the time of issuance. These deposits will be used to settle the bills at maturity. The Company is requested by certain of its suppliers to settle by issuance of bills for which the banks add their undertakings to guarantee their settlement at maturity. These bills are interest-free with maturity of three to six months from date of issuance.

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 three months ended March 31, 2008 was approximately $1.25 million, which is an increase of approximately $1.96 million from net cash provided by investing activities of approximately $0.7 million for the same period of 2007. The increase of cash used in investing activities was mainly due to the increase of payments to acquire property, plant and the equipment in Shenzhen and Hengyang Ritar where we constructed several . . .