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 quarterly report to (i) "Ritar," the "Company," "we," "us" or "our" are to China Ritar Power Corp., a Nevada corporation, and its direct and indirect subsidiaries;
(ii) "Ritar BVI" are to our subsidiary Ritar International Group Limited, a British Virgin Islands corporation; (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" are to 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 primarily 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 66.0% of our total revenue for the second quarter of 2008. Our major export markets are Germany, India, Italy, Australia, the United States and Brazil.

We recently completed the 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 Logo]]

Recent Developments

On July 30, 2008,Hengyang Ritar began production of lead plates. Two new lead-acid battery production lines also commenced production at Hengyang Ritar on July 30, 2008. The two new lead-acid battery production lines bring the total number of such lines at Hengyang Ritar to five, which will approximately double the Company's lead-acid battery production capacity relative to 2007 levels. It is expected that over the next three years expansion at Hengyang Ritar will increase our overall battery production capacity to a level four times that of 2007.

On August 4, 2008, our board of directors, or the Board, elected Messrs. Jianjun Zeng, Charles Mo, Yaofu Tang, and Xiongjie Wang as directors of the Company. The Board has determined that each of Messrs. Mo, Wang and Tang is an "independent director," or the Independent Director, as defined by Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc. The Board of the Company also established an Audit Committee, a Compensation Committee, and a Governance and Nominating Committee and appointed each of the Independent Directors to each committee. Mr. Mo was appointed as the Chair of the Audit Committee, Mr. Tang was appointed as the Chair of the Compensation Committee and Mr. Wang was appointed as the Chair of the Governance and Nominating Committee.

On the same day, the Company entered into separate Independent Director's Contracts and Indemnification Agreements with each of the Independent Directors pursuant to which the Company agreed to pay Mr. Mo an annual fee of $12,000, Mr. Tang an annual fee of $10,000 and Mr. Wang an annual fee of $10,000. For additional information regarding the appointment of our new directors, please see our current report on Form 8-K filed on August 5, 2008 and the exhibits attached thereto.

Second Quarter Financial Performance Highlights

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

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

· Revenues: Our revenues were $30.8 million for the second quarter of 2008, an increase of 148.1% from the same quarter of last year.

· Gross Margin: Gross margin was 19.5% for the second quarter of 2008, as compared to 21.6% for the same period in 2007.

· Operating Profit: Operating profit was $2.8 million for the second quarter of 2008, an increase of 131.3% from $1.2 million of the same period last year.

· Net Income: Net income was $1.7 million for the second quarter of 2008, an increase of 75.0% from the same period of last year.

· Fully diluted earnings per share was $0.09 for the second quarter of 2008.

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 activities, 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 second 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. 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 EIT at a rate of 15%. From 2008, Shenzhen Ritar will be charged on preferential EIT rate at 18% which is determined by the Chinese tax authority.

Shanghai Ritar is charged at 2.31% of its total revenue in 2007 while its tax rate is 25% in 2008.

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

Huizhou Ritar did not have business operations during the second quarter of 2008.

Results of Operations

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

The following table summarizes the results of our operations during the
three-month periods ended June 30, 2008 and June 30, 2007, and provides
information regarding the dollar and percentage increase or (decrease) from the
three-month period ended June 30, 2007 to the three-month period ended June 30,
2008.

                                         Three Months Ended June           Three Months Ended June
                                                30, 2008                           30, 2007
                                                           As a                              As a
                                           In           percentage           In           percentage
                                       Thousands        of revenues       Thousands       of revenues
Revenues                                     30,818              100 %         12,424              100 %
Cost of Sales                               (24,804 )         (80.48 )%        (9,745 )         (78.44 )%

Gross Profit                                  6,014            19.52 %          2,679            21.56 %

Operating Expenses
Salaries                                     (1,266 )          (4.11 )%          (343 )          (2.76 )%
Sales Commission                               (277 )          (0.90 )%          (108 )          (0.87 )%
Shipping and handling cost                     (413 )          (1.34 )%          (242 )          (1.95 )%
Other selling, general and
administrative expenses                      (1,254 )          (4.07 )%          (775 )          (6.24 )%
                                             (3,211 )         (10.42 )%        (1,467 )         (11.81 )%

Operating Profit                              2,803             9.10 %          1,212             9.75 %

Other Income and (Expenses)
Interest Income                                  33             0.11 %             11             0.09 %
Other income                                      -                -                -                -

Finance charges                            (204 )      (0.66 )%        (25 )      (0.20 )%
Foreign currency translation loss          (226 )      (0.73 )%        (46 )      (0.37 )%
Other expenses                               (5 )      (0.01 )%          -            -

Other income (expenses)                    (401 )      (1.30 )%        (60 )      (0.48 )%

Income before income taxes and
minority interests                        2,403         7.80 %       1,152         9.27 %

Income taxes                               (668 )      (2.17 )%       (163 )      (1.31 )%

Income before minority interests          1,735         5.63 %         989         7.96 %

Minority interests share in
(profit) loss                                 3         0.01 %           4         0.03 %

Net income                                1,737         5.64 %         993         7.99 %

Other comprehensive income (loss)
Foreign currency translation
adjustments                                 631         2.05 %         366         2.95 %

Comprehensive income                      2,368         7.68 %       1,359        10.94 %

Revenues. Revenues increased approximately $18.39 million, or 148.05%, to approximately $30.82 million for the three months ended June 30, 2008, from approximately $12.42 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 during the period. We believe such sales increased as a direct result of active market strategies we adopted during this period. We have made significant efforts in exploring overseas sales and we successfully developed more overseas customers because of our quality and reputation in the industry. In addition, we expanded our production capacity as of July 30, 2008, so we believe that we will be able to fulfill more orders from both existing customers and new developed customers.

Cost of Sales. Our cost of sales increased approximately $15.06 million, or 154.53%, to approximately $24.80 million for the three months ended June 30, 2008, from approximately $9.75 million for the same period in 2007. This increase was due to a substantial increase of our sales volume from our new overseas customers. As a percentage of revenues, the cost of sales increased to 80.48% during the three months ended June 30, 2008 from 78.44% for the same period of 2007. Such increase of percentage was mainly attributable to the higher price of our raw materials compared to the same period of 2007. We increased our sales unit price approximately 10% to offset the increase in prices of raw materials, however, the percentage increase in our sales prices is lower than the percentage increase in the prices of raw materials.

Gross Profit. Our gross profit increased approximately $3.34 million, or 124.47% to approximately $6.01 million for the three months ended June 30, 2008 from approximately $2.68 million for the same period in 2007. Gross profit as a percentage of revenues was 19.52% for the three months ended June 30, 2008, a decline of 2.04% from 21.56% for the same period of 2007. The increase in gross profit was attributable to the increase in sales volume and an increase in average selling prices, which partially offset the effect of average price increases in raw materials. However, our gross profit as a percentage of revenues declined as a result of the increase in raw materials costs, all of which were not passed to our customers through higher product prices.

Salaries. Salaries increased approximately $0.92 million, or 269.53%, to approximately $1.27 million for the three months ended June 30, 2008 from $0.34 million for the same period in 2007. As a percentage of revenues, salaries increased to 4.11% for three months ended June 30, 2008 from 2.76% for the same period of 2007. The increase was mainly due to the provision for stock-based compensation of $0.96 million for this period that was required by the release of shares of our common stock to our CEO from escrow. For further information about our stock-based compensation charges, see "Stock-based compensation" below. We did not incur such charges in the same period of 2007. Other than such non-cash compensation charges, salaries as a percentage of revenues decreased to 0.98% for the three months ended June 30, 2008 from 2.75% for the same period of 2007. The percentage decrease was mainly attributable to a significant reduction of the staff of domestic sales team.

Stock-based compensation. Stock-based compensation was approximately $0.96 million for the three months ended June 30, 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 a "make good provision" expense for the three months ended June 30, 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 the Company into escrow with Securities Transfer Corporation under the escrow agreement. We achieved our net income threshold for 2007. In the event that the minimum after tax net income thresholds for 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, and the shares arereleased back to the make good pledger, such release will be treated as an expense equal to the grant date fair value of the shares. Approximately $3.85 million was recognized as an expense in accordance with SFAS No. 123R for 2007. We will probably achieve the required net income thresholds for the full fiscal year 2008, therefore we have recorded a compensation expense of $0.96 million related to the make good provision for the three months ended June 30, 2008.

Sales Commission. Sales commission increased approximately $0.17 million, or 155.94%, to approximately $0.28 million for the three months ended June 30, 2008, from approximately $0.11 million for the same period of 2007. As a percentage of revenues, sales commission increased to 0.90% for the three months ended June 30, 2008 from 0.87% for the same period of 2007. During the three months ended June 30, 2008, we adopted active marketing strategies to promote our products and made significant effort to develop new customers, particularly overseas customers. Our efforts resulted in the significant increase in sales volume to new customers and sales commissions increased accordingly.

Shipping and handling cost. Shipping and handling cost increased approximately $0.17 million, or 71.04%, to approximately 0.41 million for the three months ended June 30, 2008, from approximately 0.24 million for the same period of 2007. The dollar increase of shipping and handling was mainly attributable to the significantly expanded sales for the three months ended June 30, 2008. As a percentage of revenues, shipping and handling cost declined to 1.34% for the three months ended June 30, 2008, from 1.95% 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 $0.48 million, or 61.87%, to approximately $1.25 million for the three months ended June 30, 2008, from approximately $0.77 million for the same period of 2007. The dollar increase was mainly attributable to our expanded production and sales volume during this period. As a percentage of revenues, other selling, general and administrative expenses declined to 4.07% for the three months ended June 30, 2008 from 6.24% for the same period of 2007. The reduction was primarily the result of economies of scale due to the substantial increase of sales.

Income Before Income Taxes and Minority Interest. Income before income taxes and minority interest increased approximately $1.25 million or 108.54%, to approximately $2.40 million for the three months ended June 30, 2008, from approximately $1.15 million for the same period of 2007. Income before income taxes and minority interest as a percentage of revenues decreased to 7.80% for the three months ended June 30, 2008 from 9.27% for the same period of 2007. The percentage decrease was mainly attributable to stock-based compensation of $0.96 million related to the make good provisions for the three months ended June 30, 2008. Except for such non-cash charges, income before income taxes and minority interest as a percentage of revenues increased to 10.92% for the three months ended June 30, 2008 from 9.27% for the same period of 2007. The percentage increase was mainly attributable to the decreased operating expenses as a percentage of revenues as discussed above separately.

Income Taxes. Income taxes increased approximately $0.51 million to approximately $0.67 million for the three months ended June 30, 2008, from approximately $0.16 million for the same period of 2007. We paid more taxes in the second quarter of 2008 mostly because of the increased income before income taxes and minority interests during this period compared to the same period of 2007. Furthermore, our income tax rate of Shenzhen Ritar increased to 18% since January 1, 2008 while during the same period of 2007 it was 7.5%.

Net Income. Net income increased approximately $0.74 million, or 74.97% to approximately $1.74 million for the three months ended June 30, 2008 from approximately $0.99 million for the same period of 2007. The increase of net income was mainly attributable to the factors as discussed above.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

The following table summarizes the results of our operations during the six-month periods ended June 30, 2008 and June 30, 2007, and provides information regarding the dollar and percentage increase or (decrease) from the six-month period ended June 30, 2007 to the six-month period ended June 30, 2008.

                                        Six Months Ended June 30,           Six Months Ended June
                                                  2008                             30, 2007
                                                           As a                              As a
                                           In           percentage           In           percentage
                                       Thousands        of revenues       Thousands       of revenues
Revenues                                     50,073              100 %         21,253              100 %
Cost of Sales                               (40,025 )         (79.93 )%       (16,951 )         (79.76 )%

Gross Profit                                 10,048            20.07 %          4,301            20.24 %

Operating Expenses
Salaries                                     (2,477 )          (4.95 )%          (612 )          (2.88 )%
Sales Commission                               (456 )          (0.91 )%          (235 )          (1.10 )%
Shipping and handling cost                     (703 )          (1.40 )%          (419 )          (1.97 )%
Other selling, general and
. . .